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2. PAFTA and the GCC: Progress to Date 
Members of PAFTA can be divided fairly naturally into three types of economies. One 
consists of relatively natural-resource-poor, labor-rich countries (less than one third of 
exports comprise natural resources). Another includes labor-scarce oil-rich countries 
(more than two thirds of exports consist of natural resources—mostly fuels). Finally, 
there is an intermediate group of labor-abundant countries where exports of fuels and 
ores constitute between one and two-thirds of total exports (World Bank, 2008a). One 
can also split the region into 3 geographic sub-regions: the Maghreb, the Mashreq and the 
Arabian Peninsula – the Gulf Cooperation Council (GCC) countries plus Yemen. 
On 19 February 1997, the Arab Economic Union, which had been created in 1957 by the 
League of Arab States, decided to establish a Pan-Arab Free Trade Area over a ten year 
transition period starting on January 1, 1998. That decision was an effort to revive the 
1981 Agreement for Facilitation and Promotion of Trade by establishing an Executive 
Programme. With the exception of Algeria, Djibouti, Comoros, and Mauritania, all the 
members of the Arab League agreed to dismantle their tariffs on manufactured goods by 
2005 and to progressively free trade of agricultural products by 2008. 
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The principal entity 
responsible for implementing the program is the Economic and Social Council of the 
League of Arab States, headquartered in Cairo.
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In addition to tariffs, the Executive Programme calls for a schedule to be 
negotiated to suppress non-tariff barriers (Article 3). A committee on non-tariff barriers 
FTA between Egypt, Jordan, Morocco and Tunisia and the Maghreb Arab Union between Algeria, Libya, 
Morocco, Mauritania and Tunisia. This paper does not deal with the hub-and-spoke North-South FTAs that 
a number of MENA countries have concluded with the EU and the US. Tunisia and Morocco have 
benefitted significantly from their agreements with the EU, and illustrate the potential gains that can accrue 
from implementation of deep FTAs with major economic powers. However, the focus of this paper is on 
the prospects for and potential benefits of the integration of the markets of Arab countries. 

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has been set up to determine the scope of such negotiations but these have yet to be 
launched. The Agreement creating the PAFTA also mentions trade in services, and 
discussions have been held on liberalizing regional services markets. However, as in the 
case of NTBs, negotiations on trade in services have yet to be launched. 
The agreement provides for the possibility of exceptions to the general reduction 
of tariffs. Member states were allowed to schedule a list of industrial products that may 
be exempted from tariff reductions during the first years of the program. This provision 
was aimed at providing space for local industries to restructure and adapt to competition 
from imports. Members may suspend tariff reductions on some agricultural products 
during harvest seasons, for a maximum period of seven months per year. Member 
countries are authorized to submit up to ten agricultural items for suspension. The 
maximum total exemption for all these items is forty-five months. All exemptions should 
have disappeared by the end of the transition period
Finally, Article 3 of the PAFTA agreement specifies that the principles agreed 
upon constitute “the minimum level of trade cooperation among the party-states”. Each 
party is therefore entitled to conclude either bilateral or multilateral agreements with any 
other Arab state or states. The Agadir Agreement is an example of such possibility. It was 
formally signed on 25 February 2003 by Egypt, Morocco, Tunisia and Jordan. The scope 
of the agreement includes customs procedures and rules on certificates of origin, 
government purchases, intellectual property protection, product standards and 
specifications and dumping, as well as mechanisms to resolve conflicts. 
The Unified Economic Agreement between members of the Gulf Cooperation 
Council (UEA-GCC), signed in 1981 and adapted in December 2001, aims at the 
establishment of an economic and monetary union, that is, a common market for goods, 
services, investment and workers. The agreement includes chapters on trade facilitation 
and the movement of capital and persons. The GCC treaty deals with both investment and 
services activities as part of the Common Market chapter of the 2001 Economic 
Agreement, which requires that all GCC natural and legal persons be accorded the same 
treatment as nationals in any GCC country, without differentiation or discrimination. A 
common external tariff (CET) was agreed in 2003. In principle there are no exceptions to 
internal free trade, i.e., all products are covered.
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There is a two tier CET, a zero rate on 

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imports of 53 tariff lines at the HS 6-digit level (mostly essential goods) and a 5 percent 
tariff on other goods. It has been agreed in principle that tariff revenues are redistributed 
on the basis of final consumption within the GCC. 
The GCC is not yet a full customs union, let alone a common market. Members 
continue to maintain some diverging external tariffs for specific products – e.g., cars. 
Bahrain, Qatar and Saudi Arabia maintain higher tariffs of up to 20 percent for certain 
sensitive products. There continue to be customs and border controls affecting intra-GCC 
flows of goods. In part this is because of the national divergences away from the common 
external tariff of 5 percent, and in part it reflects the fact that despite GCC efforts to adopt 
harmonized norms for goods, national conformity assessment procedures continue to 
apply. GCC members apply a 40 percent value added rule to determine origin of goods, 
and additionally impose a 51 percent GCC ownership criterion (i.e., firms producing 
goods must be majority GCC owned).
The GCC has a relatively flexible institutional structure – it is an inter-
governmental arrangement, there are no supranational bodies. There are two levels of 
political oversight – the Supreme Council comprising the Heads of State (which provide 
policy direction and appoint the Secretary General of the Secretariat) and a Ministerial 
Council that meets quarterly. The latter spans a number of committees (e.g., on Financial 
and Economic Cooperation, Education, Health, Labor and Social Affairs) that prepare 
studies and submit recommendations to the Supreme Council. The GCC Secretariat is 
responsible for the supporting meetings of these intergovernmental bodies with reports, 
including monitoring the implementation of decisions. A number of specialized agencies 
have been created for technical policy areas, including a GCC Standardization 
Organization, a commercial arbitration body, and a registry for patents. GCC members 
are in the process of unifying the standards and conformity assessment/certification 
systems. Some 2,700 standards have been agreed by the GCC Standardization 
Organization, but enforcement is on a country-by-country basis, i.e. there is not yet 
system of mutual recognition and free circulation of goods. GCC bodies are headed by 
representatives of the member states, and often have their own permanent technical 
staff.
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For a more in-depth discussion of the GCC see Alabdulrazzaq and Srinivasan (2007).

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