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.
T
The principal entity
responsible for implementing the program is the Economic and Social Council of the
League of Arab States, headquartered in Cairo.
T
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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