Joining the fold

Al-Ahram Weekly (Cairo) | 20-26 December 2007

Joining the fold

In the first of two articles on Arab economies and globalisation, Riad Al-Khouri looks at how economic dividends have been sold for promises of deep US-Israeli integration

Since global change accelerated, a decade or so ago, mentioning globalisation has tended to upset many people in the Arab world. Was 2007 the year that the region moved closer — and more comfortably — to the rest of the globe? Politically, this was evident in the Annapolis conference where, under watchful American eyes, for the first time high-level Saudis and Syrians sat down in public with Israeli officials, a powerful symbol of the region’s engagement with the West and its stepchild, Israel. Economically, vast Arab investments were welcome in Western countries, sometimes as controlling interests in global companies.

Of course, not all deals worked out (witness the Qataris backing away from taking over the major British retail chain Sainsbury’s), but the 2005-6 failed attempt by Dubai World Ports to invest in the United States was forgotten as Arab money poured into shaky Western stock markets. Moves in the opposite direction were also evident, as global investors headed in greater numbers to Arab countries. At the same time, Arab trade with the rest of the world boomed. Of course a lot of that was due to the higher value of exported hydrocarbons, along with more Arab imports affordable to those profiting from the oil and gas boom. However, some of that rising trade had nothing directly to do with energy exports, being instead is the result of increased openness and diversification.

Political globalisation represented by Annapolis has not of course resolved the Palestine conundrum, but the process that started in Maryland last month is addressing the Arab Mashreq’s number one problem in a global context. In the Maghreb, on the other hand, the major issue is closer relations with Europe, and it is important that France chose to roll out its Mediterranean Union initiative in the western part of the Arab world. Just as Annapolis is not a magic wand to the eastern Arab countries, launching the idea of a Mediterranean Union does not at all mean that the Maghreb’s problems are on the way to being solved. However, this indication of an increased European role in the region is critical: just as in the Mashreq, a greater EU role in the peace process could help. For better or worse, more Western involvement in the Arab world is part of — and will also lead to — increased globalisation.

That of course brings up the significant point of defining "globalisation". There is still no universally agreed answer, but one way to tackle the issue is to construct an index measuring its different aspects. One such is the Globalisation Index (GI) developed by Foreign Policy magazine (published by the Carnegie Endowment for International Peace) in collaboration with consultants A T Kearney. This index measures economic, personal, technological and political integration in 72 countries accounting for 97 per cent of world gross domestic product (GDP) and 88 per cent of the earth’s population. The index looks at 12 variables in four baskets: economic integration, personal contact, technological connectivity, and political engagement.

In terms of the GI, diverse parts of the Arab region fare differently, but interestingly Jordan gets high grades, as confirmed by the kingdom’s ranking a phenomenal ninth globally (and first among Arab states) in the latest GI, published last month. In the political dimension, Jordan topped countries covered by the index, and did well in the personal sphere and in economic integration.

A look at Jordan’s foreign trade accords confirms the latter element: it is the only Arab country that simultaneously has a Free Trade Agreement (FTA) with America, a partnership accord with the EU, a Qualifying Industrial Zone (QIZ) arrangement with Israel and the US, and membership of the Agadir agreement to facilitate trade among Arab states and the EU. These arrangements put Jordan inside the Western/globalised economic and political spheres, but the kingdom also boasts a widening range of links with other countries, as well as membership in international bodies such as the World Trade Organisation.

By contrast, other Arab states, in the Maghreb for example, were far behind Jordan in the GI: Morocco was 40th worldwide, Tunisia 46th and Algeria 70th. Will France’s new Mediterranean Union project help the western part of the Arab world globalise? Given the very modest success of the Euro- Mediterranean Barcelona Process, the answer may be no. The trick for France will be to learn from the partial failure of Barcelona and devise a robust policy that will capture people’s imaginations as well as make a difference in daily lives. The aim will be to draw the Arab Mediterranean states, especially those of the Maghreb, closer to Europe — in other words to help them globalise. This will happen through more relaxed but cleverer policies regarding southern Mediterranean immigration into Europe and the export of Arab agricultural products to European Union countries. Otherwise, the Maghreb states will not be able to globalise properly and enter into what economists call "deep integration" with the EU.

At the centre of the Arab world in both geography and culture, Egypt, in 55th place on the GI, ranked somewhat better than Algeria, but was still seen as a weak globaliser. Could that now be changing? These latest GI figures refer to 2005, and it is likely that the Egyptian rank in the next published index will be higher. In particular, consideration of the performance of Egyptian trade should be a plus, as one of the GI’s components is combined imports and exports as a percentage of GDP.

The International Monetary Fund’s Direction of Trade Statistics Yearbook shows that the value of Egypt’s imports jumped 20 per cent in 2006, while exports zoomed up by a whopping 32 per cent, giving a combined rise in trade during that year of 24 per cent, far outweighing the increase in GDP. Leaving aside for the moment the question of whether all this is good for the average Egyptian, there is no doubt that these figures are a clear indication of Egypt’s continuing integration into the global economy.

In Egypt, as elsewhere in the region, much of this integration and economic engagement in general has come in the framework of Arab- Western trade agreements. While long active in the region as both allies and competitors, the grouping of major Western European economies (now part of the European Union) and the United States in the last three decades have sought stronger positions in the Middle East and North Africa (MENA) through FTAs and related commercial diplomacy.

By the early 1990s, the European bloc had signed a series of Association Agreements (AAs) with a number of MENA countries — a step towards free trade. However, such agreements, concluded with Israel, other Mediterranean states and Jordan, led to more European exports and aid to the region without a significant rise in Europe’s imports from Arab countries. (Previously, the US had concluded its first ever FTA, with Israel, solidifying their already strong relations).

Following the Israeli-Palestinian accord in 1993, and the Israel-Jordan peace treaty the year after, Western free trade initiatives increased, accelerating after the launch of the Euro-Mediterranean (Euro-Med) Barcelona Process in the middle of the last decade. However, researchers and policy players in Europe and in MENA were critical of these agreements as having led — somewhat like the old AAs — to bigger trade gaps in favour of the EU, compounded by sometimes ineffective European aid to the region.

In 1998, the US launched its first trilateral (US-Jordan-Israel) "diagonal cumulation" QIZ accord. Built on the US-Israel FTA, the QIZ openly sought to "reward" Jordan for participation in the Middle East peace process, and to bring the country closer to the Jewish state. Jordanian exports to the US have soared under the QIZ, though the impression created by strong trade statistics is weakened when closely considering and quantifying gains to Jordan from the accord.

Strategic considerations of course always influenced US trade policy — in the 1990s and before — and relations between global business and diplomacy were on the agenda of the George W Bush administration from the start. Confirming trends evident in the Clinton presidency, the US since 2000 espoused even closer links between its strategic interests and trade liberalisation.

This tendency intensified greatly as the events of 11 September 2001 highlighted the impact of issues relating to the MENA region on US strategy. Along with military intervention, aid programmes, and various forms of support for democratisation, American foreign policy in the region accentuated the strategic implications of trade liberalisation with the Arab world, while EU trade diplomacy was not far behind in that respect. The past six years have increasingly confirmed that trend. The second article to follow will further examine this intertwining of trade and strategic interests in the context of the region’s globalisation, also looking at where Arab-Western business could be heading in 2008.

* The writer is a visiting scholar at the Carnegie Middle East Centre, Beirut, and senior fellow at the William Davidson Institute of the University of Michigan.

source: Al-Ahram