No commitments to implementing the Arab Free Trade Agreement

Al-Hayat - 23/01/08

No Commitments to Implementing the Arab Free Trade Agreement

Fadi Abboud

We candidly question the fate of the Arab Free Trade Agreement ten years after its actual implementation. The Lebanese government had shortened the grace period to five years before the full implementation of the Agreement. The grace period later expired while productive sectors were left to their unknown fate without any preparation to face Arab competition.

The Lebanese government also refrained from taking any measures permitted by the Agreement and deliberately avoided demanding established rights to protect the productive sectors. Nor did it call for the elimination of production cost subsidies in Arab countries, whether through the Arab League, the Social Economic Council, or any other Arab entity. All this leads us to question whether a free Arab market exists in the first place. As a matter of fact, economic blocs and common markets aim at managing common economic affairs through mutual procedures to achieve economic progress and integration, consecrate the free transfer of goods and free movement of people and foster inter-Arab investments.

Where are we from this economic unity amid cost differences as the energy cost in Lebanon is fifteen times that in other Arab partners? Productive sectors are seriously suffering as a result of the enormous difference in production costs, which makes them unable to compete with Arab products that enjoy an advantage as a result of direct or indirect subsidies, not to mention non-tariff barriers imposed by some Arab states on imported goods contrarily to the provisions of the said Agreement.

Other Arab states continue to subsidize energy; for example, the price of one thousand liters of fuel oil hovers around $100 but exceeds $750 in Lebanon; the price of electricity ranges between three and seven cents per Kw/hr, but averages about 15 cents in Lebanon when taking into consideration the rates and markups, not to mention that the repeated power outage prevents most Lebanese energy-intensive industries from taking advantage of this fare. It is worth mentioning that the WTO meetings in Cancun, Mexico City, and Doha in Qatar considered fuel subsidies as a form of direct subsidization of domestic industries. In its recommendation, the WTO saw no difference between the state providing energy as one of the natural resources and the countries subsidizing their industries by offering oil and other petroleum products at prices lower than the global prices.

Interestingly too, raw materials are sold at discounted prices to local industries, while the right to export these materials is restricted to the same producing firm; as a result, raw materials from producing countries can only be purchased from the local producer, who is in turn prohibited from exporting them unless they were processed. This is clear evidence of the policy of reducing prices for local industries. It also represents an obvious violation of the Arab Free Trade Agreement. In addition, there are countries that have not honored the commitments to eliminate certificates of origin, specifications and other major red-tape barriers, transport barriers, and parallel fees, all which create market confusion and make the flow of goods difficult except in one direction, namely toward Lebanon.

Trade cannot be fully liberated by simply eliminating custom duties while ignoring all the various non-tariff barriers. The latter include quantity, monetary and administrative restrictions imposed on imports. Certain Arab countries including Lebanon are said to impose non-tariff restraints to limit imports from other Arab countries. This violates the Agreement and constitutes a major hurdle to its implementation. Most importantly, direct and indirect subsidies must end and foreign labor force must be imported into some Gulf countries without any restrictions, especially that this imported labor does not enjoy any social or health security, let alone proper housing, and is banned from forming trade unions.

Other countries are imposing stringent local specifications and standards on imported goods and complicate inspection and conformity certification processes although the Arab Free Trade Agreement has required the principle of reciprocity in treating imports until a deal over standardized Arab specifications has been ironed out. While suffering damage, Lebanon still insists on observing every word of the Agreement and dares neither to demand reciprocity nor to put an end to the inequalities, thus ignoring the loud voices that request saving its productive sectors from surrounding dangers.

For example, to assess the implications of the agreement we signed with Egypt in March 1999, we can look at the commercial statistics that highlight the trade flows between Lebanon and Egypt. We can also compare the Lebanese exports and Egyptian imports between 1997 and 2005. i.e. two years prior to implementing the Agreement in 1999.

The Lebanese exports to Egypt grew by 6.7% annually, while Egyptian imports to Lebanon increased by 22.7% annually. At the same time, while Lebanese exports increased from $16 million to $55 million, Egyptian imports jumped from $59 to $303 million.

In 2006, Egyptian imports to Lebanon reached $379 million compared with $48 million in Lebanese exports to Egypt. In 2007 and up to the end of August, the Egyptian imports totaled $368 million against $74 million in Lebanese exports. The comparison shows a massive trade surplus for Egypt and a steep increase in the value of its exports after 1999. Despite all these facts, the Egyptian protective measures on ceramic tiles were suspended knowing that Lebanon has the right to impose similar measures as a result of Egypt’s subsidization of production costs and the increasing imports to Lebanon, especially from Egypt.

In the case of Saudi Arabia, some imports from Saudi Arabia were completely exempted from tariffs by virtue of the Lebanese-Saudi agreement of 1972. However, Lebanon began to implement the Arab Trade Facilitation Agreement as of January 1st, 1999 by gradually cutting tariffs on other items.

Lebanese exports to Saudi Arabia increased from $99 to $140 million at an annual rate of 4.4%, whereas Saudi imports jumped from $126 to $329 million at an annual rate of 12.7%.

In 2006, Lebanon’s total imports from Saudi Arabia stood at $296 million compared with $146 million worth of Lebanese exports to Saudi Arabia. In 2007 and up to the end of August, imports from Saudi Arabia totaled $200 million against $123 million in Lebanese exports to the Kingdom.

These statistics assert that Lebanon’s gain out of the Arab Free Trade Agreement was dumping its markets with subsidized Arab goods at a time when Arab governments were intent on protecting their productive sectors by countervailing the Agreement while the Lebanese government insisted for its part on playing the good son, overlooking the interests of its productive sectors that are left to their own devises in the face of the deluge of Arab goods. The Lebanese government even refuses to seek justice within the Common Free Arab Market. It is unacceptable that the prices of oil used in production are high in only three countries, namely Lebanon, Jordan and Palestine. If we refuse to apply the concept of reciprocity with Arab countries with respect to non-tariff barriers, at least we should create equal conditions for fair and reasonable competition. The Association of Lebanese Industrialists has demanded the formation of a common Arab fund to subsidize oil prices in Lebanon, Palestine and Jordan but the demand was met with domestic obstacles, including the Ministry of the Economy’s refusal to propose a discussion of the issue at the Arab Economic and Social Council!

Needless to mention, none of these issues will be considered in the upcoming meeting of the Council in Cairo on February 5, 2008 because the Lebanese government does not wish to raise these questions. Yet, it seems that our Arab brothers believe in this fair demand as evidenced by the common declaration issued by the Ministerial Conference MENA-OECD in Cairo on January 27th and 28th. The Conference endorsed the proposition made by Jacques Sarraf, the former president of the Association of Lebanese Industrialists and as part of its resolutions, it encouraged Arab governments to subsidize energy in non-oil Arab countries, namely Lebanon, Jordan, Tunisia and Palestine to ensure sustainable growth therein. The proposal was approved by all the participating Arab countries. Unfortunately, the Lebanese government should have taken the initiative to propose this issue in the seventh conference of the Arab Economic and Social Council and in the Paris I, II and II conferences that were aimed at supporting Lebanon. It makes no sense for the Arab countries to be more kingly than the king by demanding for Lebanon what the Lebanese government itself has yet refrained from demanding.

The differences in production costs among the member states of the Arab Free Market are not restricted to energy. They also include the subsidized prices of industrial land, subsidized funding, subsidized exports, the sale of locally produced and subsidized raw materials sold to local factories which also employ subsidized labor. Most Arab countries now depend on foreign labor force, whereas in Lebanon, hiring any foreign worker requires permission for residence and a work permit that may cost up to four million Lebanese pounds for grade one workers. This is all at a time of massive brain drain toward the Gulf countries. Given all this, how can we call the Arab Free Trade Agreement free when employing an Egyptian worker involves paying fees for the work permit, residency and other formalities that cost millions of Lebanese pounds? Would this not be a form of tariffs on persons that violates free market principles?

It is time to start calm and rational rethinking of the effects of the Arab Free Trade Agreement and the unfairness inflicted upon Lebanon as a result of unfair implementation. We should direct the question to our Arab brethren urging them to open the doors for a serious discussion: Is there an Arab Free Trade Zone for real?

* Mr. Abboud is President of the Association of Lebanese Industrialists

source: Dar Al Hayat