Barriers to Intra-Regional Trade in the MENA Region
By Isabel Morford-Cheibub
Institutional Weakness of the Greater Arab Free Trade Area (GAFTA)
Founded in 1997 by the Arab League, GAFTA allows too many tariffs (especially on agricultural goods), demands a high value added threshold, and fails to facilitate coordination of health and safety standards between member states.
Competing Free Trade Agreements
In addition to GAFTA, MENA states participate in 4 established multilateral FTAs and many bilateral ones. The EU-Mediterranean FTA and the EU-GCC FTA pose the greatest threats, as they successfully divert significant levels of trade away from the MENA region towards Europe.
Economic Inequality Between States
In 2008, GCC countries contributed 70% of total intra-GAFTA trade. They also consistently top the lists for fuel, food, and chemical exports. Their membership in the GCC enables them to act as a dominant bloc in intra-regional trade dynamics.
Structural Economic Issues
There is insignificant focus on high-skilled labor industries, which comprised only 7% of all MENA exports in 2016. The service industry, especially telecommunications and information technology, is also highly underutilized in exports. In 2014, services comprised less than 20% of total MENA exports.
Looking Forward
Reforming GAFTA to include stronger enforcement of lowering tariffs is a necessary first step to increasing intra-regional trade. MENA countries could also benefit from harmonizing agricultural and pharmaceutical standards to remove unnecessary intermediary inspections. Finally, the Arab League could invest in development initiatives, like the creation of trans-national transportation companies to drive down the high costs of moving goods across borders.
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