Regional trade makes up a relatively
small fraction of total
Arab trade, both in absolute
terms and in comparison to other regions
in the world. The low level of trade within
the Arab world can be attributed to policy-
induced barriers to trade as well as the
lack of product complementarity within
the region.
In 1998, total exports from the Arab
world reached $134 billion, while the
region’s non-oil exports failed to exceed
$60 billion, equal to the exports of
Finland, a country with a population of
5.5 million, compared to a total Arab
population of 275 million.
Around 54% of total Arab exports went
to the industrial countries, 29.1% to Asia,
and only 8.2% to Arab countries.
Similarly, of the total Arab imports of
$169 billion in 1998, 68% were from
industrial countries, 16% were from Asia,
while the share of Arab imports stood at a
low 7%. The limited size of intra-Arab
trade is particularly pronounced when
compared to other regional groupings.
For example, regional trade in the
Andean Pact countries (Colombia,
Ecuador, Peru, and Venezuela) as a share
of total trade stood at 11.4% in 1998,
25.5% in the Southern Core countries
(Argentina, Brazil, Chile, Paraguay, and
Uruguay), 22.2% for the East Asian
economies, and a high 51% and 57% for
NAFTA (Mexico, Canada and the USA) and
the EU (European Union) respectively.
Not only is the volume of intra-Arab
trade low, it has also recorded little
growth over the past two decades. The
share of intra-Arab trade in total trade
rose marginally from 5.2% in 1970 to
8.2% in 1998, while trade between the
Andean Pact countries increased from
1.7% of total trade in 1970 to exceed
11% in 1998. Similarly, regional trade in the
Southern Core countries rose from 11.4%
of total trade in 1970 to 25.5% in 1998, and
trade between NAFTA members rose
from 36% to 51% of total trade over the
same period. It is worth noting that over
half of Arab regional exports (56.6%) in
1998 were to GCC countries, which is
explained by their large markets (mainly
Saudi Arabia), and their relatively open
trade policies and higher per capita
income. Around 21.8% of regional
exports were to select Mashreq countries
(Egypt, Jordan, Lebanon, Syria and
Sudan), and 16.7% to Maghreb countries.
Weak regional Arab trade can be partly
explained by the prevalence of generally
restrictive trade regimes in the Arab
world, with the exception of the GCC
countries which pursue relatively open
trade policies. The average tariff for the
Arab region exceeds that of all other
regions, except Africa. The average tariff
for Arab countries is estimated at around
17%, compared to 20% for African
countries, 13% for Western Hemisphere
countries, 12% for Asia Pacific, and 9%
for Europe. Bilateral trade in the region is
also often constrained by political factors.
For instance in 1989, prior to the Gulf War
and UN sanctions, Saudi exports to Iraq
exceeded $150 million, but are now
insignificant.
Non-tariff barriers, such as licensing,
bans, state trading monopolies and restrictive
foreign exchange allocation, are also
extensive in a number of Arab economies.
However, as an increasing number of
Arab countries join the WTO (World
Trade Organization) and the transition
period normally granted to developing
countries comes to an end, non-tariff barriers
will be abolished and tariffs on
imports will be capped at a specific level
to be reduced gradually in the years
ahead. Already Kuwait, UAE, Qatar,
Bahrain, Egypt, Morocco, Tunisia, Jordan
and Algeria are WTO members. Saudi
Arabia and Oman may become members
in late 2000 or early 2001. Lebanon and
Sudan have applied to join the WTO.
While policy-related barriers to trade
could be addressed, other more fundamental
and not as easily reversible barriers
to intra-Arab trade exist, namely the lack
of product complementarity. Many Arab
countries enjoy similar natural resource
endowments (for example, oil, phosphate,
and agricultural products) and therefore the
countries’ comparative advantages lie
mainly in the same products, providing little
incentive to trade with each other. In
addition, the lack of a diversified export
base restricts the opportunities for trade
based on product differentiation.
Low intra-Arab trade strengthens the
case for further trade liberalization in the
Arab world. Greater regional integration, in
a way that is compatible with multilateral
liberalization, could contribute to growth
not only by increasing trade and allowing
regional producers to benefit from
economies of scale, but also by encouraging
foreign direct investment and the
deepening of capital markets. In 1998, 14
Arab countries established the Pan-Arab
Free Trade Agreement (PAFTA), under
which tariffs are reduced for participating
members by 10% annually, thus establishing
free trade from 2007. This is a step in the
right direction. But the world will be very
different by 2007, and this requires a more
aggressive move towards a free trade area
so that it becomes a reality sooner than the
target date.
