Arab Initiative on Trade, Human Development and Economic Governance: Regional Profiles

The primary goals for developing countries should be poverty reduction, human development, as emphasized in the Millennium Development Goals, and balanced, stable and sustainable economic growth¹. There is no evidence that the degree of openness to trade and global integration are prerequisites for growth, rather, they are outcomes of growth. However, trade can be a powerful policy option to achieve the aforementioned goals, which have not yet been fully utilized and properly administered by Arab countries.

Several Arab countries have already taken serious steps towards trade liberalization; others are considering moving in the same direction. Eleven Arab countries are WTO members, while eight Arab countries are in the process of negotiating WTO membership. Meanwhile, most Arab countries have been eager to sign bilateral Free Trade Agreement (FTA), particularly with the EU, as part of an ongoing effort to promote exports. Nonetheless, the region's share in world trade remains insignificant; in 2004 its shares of world exports and imports remain around the same average during the early nineties of 4.18 and 2.76 per cent, respectively.

Arab countries, akin to most developing countries, find themselves in the midst of a highly dynamic world of global trade and FTAs proliferation, motivated by the alleged benefits of being the first movers and pressured by the fear of being left out. Accordingly, all Arab countries, with no exceptions, have joined or in the negotiation process to join bilateral and multilateral trade agreements with major trading partners, particularly the EU. Granted, trade with developed countries, particularly the EU, absorbs over 80 per cent of total Arab trade, most of which are primary products and fuels, yet, developing countries and intra- regional trade, despite there modest share in total trade, absorb over 70 per cent of the relatively higher value-added manufactured exports.

Arab intra-regional trade remains insignificant despite the establishment of the GAFTA in 1997 and two sub-regional FTAs that brought about the establishment of the GCC and the UMA in 1981 and 1989, respectively. Table 1 shows that intra-regional trade in the Arab region as well as among GCC and UMA members is trifling compared to other regional groups in the world. Such sluggish performance can be attributed to the following factors: first, lack of complementarities among Arab economies; second, non-compliance by many Arab countries of their obligations under trade agreements, due to the absence of credible dispute settlement mechanisms, resulting in the persistence of numerous tariff and non-tariff trade barriers; third, high transaction costs, particularly transport costs, due to bureaucratic as well as infrastructure bottlenecks and capacity limitations; fourth, ambiguous, often contradictory, regulations and legislations such as the lack of clear definitions of rules of origin.
See (pdf file): Table 1: Intra-regional trade for selective regional groups