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Mysterious case of Arab Common Market

Lack of democracy, political will as well as lack of vision were main reasons why ACM agreement became just ink on paper, says former assistant to IMF’s executive director


Photo Presidency Handout
Photo Presidency Handout

The Arab League Summit kicked off Saturday in Sharm El-Sheikh with very little focus on the economic part of the equation. Plans or decisions concerned with the Arab Common Market or the Arab Customs Union were not discussed. The main focus of the opening session, however, was the political unrest witnessed in the region. “

There is no time to waste, it is unnatural for Arab countries not to reach an agreement on free trade and to be unable to lift restrictions amongst various Arab markets,” expressed Minister of Trade and Industry Mounir Fakhry Abdel Nour. He was speaking at the preparatory meeting of the Economic and Social Council that was held two days before the 26th Arab League Summit. Abdel Nour was referring to the steps needed for the formation of an Arab Customs Union, which is meant to lead to the creation of an Arab Common Market (ACM) in the foreseeable future.
Hints on the Arab Customs Union and Arab Common Market

The idea for an ACM originated in the 1960’s through the Council of Arab Economic Unity, an organisation established by the Arab League’s economic council in the 1950’s. Many trials have failed to turn this dream into reality, and through time hopes for its establishment started to fade away.

“The Arab Customs Union is less ambitious than the ACM, as the latter focuses only on trade between countries, the ACM however encompasses much more than this, years and-years ago Arabs were aiming to create the ACM then they minimised their goals by targeting the creation of a Customs Union, but they even failed to achieve this,” said Karima Korayem, Professor of Economics at Al-Azhar University’s Faculty of Commerce.

However, during the 16th conference of Arab Businessmen and Investors held in November 2014, Arab League Secretary General Nabil ElAraby declared that the Arab Customs Union will be launched in 2015. He added that the ACM will be active in six years, emphasising that the organisation has taken steps that would lead to those forthcoming goals. Furthermore, the recent Economic Summit in Sharm El-Sheikh raised arguments that the event is a start for establishing the ACM and the Customs Union.

“Arab member countries realised in 2005 that it is crucial to start from scratch. As a result, bilateral trade agreements between some countries started occurring, which was the starting point for economic integration. Also in the same year, some countries decided to revive the Arab free trade zone agreement and the plan was that within 10 years, they would form the Arab Customs Union,” said Fakhry Elfiky, Professor at Cairo University and former assistant to the executive
director of the International Monetary Fund (IMF). All those statements turned into ash with the kick-off of the preparatory meeting of the Arab League. As it turns out, the requirements for the formation of the Arab Customs Union were not completed, and no word of the time of launch was mentioned, neither for the union nor for the ACM.

Daily News Egypt tried to get in contact with officials from the Arab League to follow up on this matter; however, none were available for comment.
Latest guidelines announced for Customs Union’s formation

During the preparatory meeting for the Arab League, Middle Eastern countries were called upon for forming national teams composed of relevant ministries and institutions to follow up on the Arab Customs Union’s requirements at the national level.

The General Secretariat of the Arab League was also called upon to provide technical support programmes to the national teams in order to build their capabilities through cooperating with regional and international organisations. The General Secretariat will also be responsible for supporting the national Arab teams through helping them in preparing financial studies, analysing tariffs, evaluating the impact of the Customs Union and its economic effects. Arab Member countries were further requested to regulate their tariff structures in order to form a unified customs tariff. Arab financial institutions were also assigned to continue raising the share of food security and agricultural development in their portfolios, whereby the Arab organisation for agricultural development (AOAD) will raise follow up reports on that matter. Furthermore, in order to attract investments in the agricultural sector and for guaranteeing investors’ rights, Arab countries were requested to apply and activate laws and legislations that serve this goal.
But what are the hurdles?

“The lack of democracy and political will, as well as the lack of a vision, were the main reasons why the ACM agreement became just ink on paper,” said Elfiky. The Arab Customs Union was meant to go the same path as the European Union, thus allow ease of trade between Arab League members by removing trade quotas and restrictions as well as constraints on movement of goods, individuals, capital and more. “Further, the formation of an Arab Central Bank as well as the unification of currency were all goals of the ACM,” Elfiky added.

Now, the question is why the ACM did not materialise while the European Common Market, which started two years after, has succeeded and even led to the creation of a unified community with a common currency? “The answer lies in two factors: First, economically, Arab countries have very similar economic structures (relying mostly on raw materials) and find little interest in trading with each other, and they therefore integrate with industrialised countries, the West and, recently Asia. Secondly, they got the economic and the political miserably
mixed up. There was no strait forward language based on interest,” pointed out Samir Radwan, former finance minister and a current adviser for the Supreme Planning Council of Oman.

There is no proper evaluation of the potential of Arab countries and each other in light of the existing global conditions, leading to countries overestimating their capabilities and underestimating the abilities of others. Meanwhile, if a correct assessment of each country’s resources was made, it will be found that each state needs the other, Korayem pointed out. In addition, each country looks for its own interest and doesn’t give others the same notion or benefit. “Those two points I believe are the main reasons why we are not even able to create a proper Customs Union,” Korayem further noted. “Arab-intra trade is still weak as it doesn’t exceed 20%, and this goes back to structural reasons as Arab countries’ exports are mainly petroleum causing no cooperation, whereby 60% of Arab imports are produced by the rest of Arab countries,” said Gamal Bayoumi, Secretary General of the Arab Investors Union. In addition, establishing a unified customs tariff still remains an issue, Elfiky indicated.

It is hard for Arab countries belonging to the World Trade Organization (WTO) to suddenly change their tariff rates for the sake of joining the Customs Union. There is a bound rate that they should be abided, and in order to reach a unified rate some countries will need to decrease their tariffs while others will need to increase them, thus it all goes back to the countries’ doing their own studies and arrangements, highlighted another expert.
What Arabs need to focus on?

We currently have one-third of an Arab Common Market, thus we need more seriousness from the commanding power to tackle four main issues for enhancing Arab economic cooperation, firstly by freeing the movement of goods and services, secondly by allowing free movement of individuals, especially diplomats, businessmen and investors who should be exempted from visas. Thirdly, allowing capital to move freely between Arab member countries and finally implementing the Arab Customs Union through applying custom exemptions on all products that are traded within the Arab market, Bayoumi indicated.

“The situation is now ripe for a cold and calculated approach based on the principle of common interest. I know that food security is becoming more and more a top priority for the Gulf States, and they have a huge surplus to invest. Can we think in terms of a region of prosperity based on this? All we need is to keep clean of the dirty area of politics,” Radwan further noted.

Korayem also indicated that the formation of an Arab Customs Union and then moving to a bigger scale by forming an ACM has been and remains very crucial for Arab countries development. “Each country needs to make its own arrangements and studies then see how they can affect and be affected by their country partners,” she said. “More focus should also be directed towards enhancing agricultural technology in order to increase productivity in the Arab region,” Korayem noted.
ACM and Food security

Forming an ACM was and still remains a crucial step for the development of Arab countries. Uniting Arab powers will definitely have several fruitful outcomes; food security however remains one of the most important factors, for which the ACM is urgently needed, according to Korayem.

Due to their inability to satisfy the needs of the populations when it comes to food security, Arab countries are of the biggest grain importers, with Egypt being the largest importer of wheat in the world. “Depending mainly on importation is a great risk as not because they’re able to import today, they will be able to do so tomorrow,” Korayem noted. Exporters might not have the sufficient supply that would allow them to export to other countries, due to climate changes for instance and like what happened with Russia when the country had to limit its exportation of wheat, Korayem further highlighted. Furthermore, prices of food commodities are expected to increase.

Gulf states depend mainly on exporting petroleum, thus they have the financial capacity to import whatever they need, however this will not last forever as it’s a scarce resource that may not be still there forty years from now, so the Gulf could be importing petroleum in the future instead of exporting it. There is also the biofuel which is a cheaper alternative than other sources of fuel and the demand for it is expected to rise in the near future. In addition, prices of petroleum aren’t foreseen to be increasing in the coming period.

For those reasons and more, Arab countries need to put their hands together and exploit opportunities that are available in the region, for instance Sudan has big space of agricultural land and water, so if some petroleum investments were to be injected there, and people were sent to work over there, this will be a step forward for assuring food security for the region at better prices. “It’s about taking real steps and actions but if we go back to the documents we will find that decisions that are concerned with food security and agricultural development are there on paper, however nothing gets done, and the question remains will this change and will something be accomplished? We could only hope,” Korayem said. There were no tangible outcomes during the 55 years.

As a result, various Arab media outlets framed the ACM as being the “long awaited dream”. Other Egyptian citizens crystallised it as the “improbable”. However, will there be a surprising turn of events soon? Or is everything going to remain statically the same? The situation continues to support a decades-old saying: “Arabs agreed to disagree.”

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https://dailyfeed.dailynewsegypt.com/2015/03/29/mysterious-case-of-arab-common-market/
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