Opening remarks Pierre Jacquet – Global Development Network ECSWA Expert Group Meeting on Preferential Trade Agreements and Regional Integration in the Arab World TUNIS, Dec 5-6, 2012

2  Several and long efforts at trade liberalization and trade policy reforms in Arab countries (in the 2000s, FTA with EU and with US, regional trade agreements, WTO membership…)  A hard-to-read trade landscape and a “spaghetti bowl” that entails transaction costs and economic distortions  Role of non-trade motives (peace and regional stability)  Role of oil in guiding trade policies and the nature of trade agreements A long history of trade liberalization policies

3 Source: World Bank (2010 ) wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/11/10/ _ /Rendered /PDF/575200WP0REPLA1Study0pub web.pdfhttp://www- wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/11/10/ _ /Rendered /PDF/575200WP0REPLA1Study0pub web.pdf

4  Prevalence of Non-tariff barriers, of high logistics costs, of complex rules of origin  Political conflicts and differences  Lack of trade complementarity  Differences in regulations, various restrictions on currency convertibility, on migrations  Intra-regional trade a small fraction of trade, much lower than other regions: for exemple, intra-MENA trade is a small fraction (5.9% in exports, 5.1% in imports) of the MENA countries’ total trade.  Integration takes place rather with the North, which also makes sense! Ambivalent results

5 Source: World Bank (2010 ) wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/11/10/ _ /Rendered /PDF/575200WP0REPLA1Study0pub web.pdfhttp://www- wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/11/10/ _ /Rendered /PDF/575200WP0REPLA1Study0pub web.pdf

6  Trade liberalization and regional integration are not new prescriptions in the Arab World. But, in the current context, after the Arab Spring Revolutions, should we go back to former prescriptions (old wine in new bottles?)  “Revolutionary” environment: populations have high aspirations, don’t really focus on trade! Huge challenges: fast growing populations, faster growth in youth, high youth unemployment, high also for university graduates.  Need of a mobilizing, collective national vision. Trade integration can be part of it, but cannot be the essence of it. Focus on how trade policy reform can address challenges of jobs and inequalities.  Does the Arab Spring create a new political context favoring regional integration? Not sure: focus is first national (reinvent domestic politics in a democratizing context) A new context

7  New, necessary vision cannot be based on theory nor on econometrics. Need to articulate a political message, need for « high politics »  Cannot separate between the technical, economist’s approach to trade and the more global political approach. Big question is how to engineer a virtuous process through which openness and competition progress over time. How to make sure that a necessarily long term process of regional integration creates enough short term benefits to sustain the movement. Inclusiveness and social policies will have to be key components…  Role of competition policy and institutional building: they do not happen spontaneously with trade liberalization: need for active policy making together with trade liberalization. Politics and economics

8  Tension between a neoclassical approach about the virtues of markets versus more modern approaches that revive a Schumpeterian vision and focus on the dynamics of innovation and the need for broader policy reform  Focus on dynamic gains from trade. A lot has to do with policy and regulatory measures ensuring a good functioning of markets, including competition policy.  Time dimension: long term benefits versus short term adjustment costs  Regional integration versus opening to “extra-regional” markets  Trade is not an objective per se, but a means toward an objective that remains shared prosperity and peace  Policy and context matter, there is no deterministic relation between trade liberalization and growth. Benefits from trade

9  Sala-i-Martin: Economic integration improves standards of living, increases economic growth and contributes to the reduction of poverty. Main channels dynamic (specialization and increasing returns, agglomeration effects, technological progress, availability of capital, improved institutional and political process) Perhaps the most important is the transmission and coordination of policies and institutions that lead to greater economic efficiency, larger productivity and higher growth rates.  Schiff and Winters: Regional integration contributes to growth by supporting institutional reform. Stronger growth effect when it happens between a developed and a developing country given the latter’s incentive to improve institutions to remain competitive.  Younes: intra-regional trade has had a lesser impact on growth in output per capita than extra-regional trade by almost 17% over : global market implies larger economies of scale and greater competition, and exposes countries to a larger markets with more possibilities for transfer of skills and technology. Trade and growth: what do we know?

10  How about a focused political agreement, based on a given sector, such as water, or energy, or a specific domain, including financing, technical assistance, a drive at regulatory convergence.  But, such a political, regional agreement should start from the Arab World itself. The North can help with financial resources, technical assistance, specification and monitoring of convergence objectives;;;  Start “small” and focused: that may create a powerful dynamics that would build a gradual path to deeper integration and better economic efficiency. How can the “North” help?

11  Trade liberalization and regional trade policies have long been prescriptions coming from industrial countries and international donors, likely to be heeded only if part of national and regional visions of Arab countries themselves.  Local academic involvement is a crucial component of “ownership”. The arguments in favor of trade policy reform must be carried forward in domestic debates and as part of a global political economy approach.  GDN can help mobilize local academic communities and will be happy to help in any way, through its awards, research competitions, policy workshops, etc. Ownership and policy design

12  From the GDNet ( data base: – Freund, C. and Perez, A. (2012), “Assessing MENA’s trade agreements”, – Hoekman, B. and Sekkat, K. (2009), “Deeper integration of goos, services, capital and labor markets: a policy research agenda for the MENA region”, – Behar, A. and Freund, C. (2011), “The trade performance of the Middle East and North Africa”, – Alaya, M. (2012), “The determinants of MENA export diversification: An empirical analysis”,  Broude, T. (2009), “Regional Economic integraiton in the Middle East and North Africa: A Primer”, Hebrew University International Law Research Paper  Carrere, C., Goudon, J. and Olarreaga, M. (2012), “Natural resources: A key challenge in regional integration of the Middle East and North Africa Region”, GREAT Insights, I:9, November.  Sala-i-Martin, X. (2007), “Economics integration, Growth and Poverty”,  Richter, Sándor (2012), “ Regional Trade Integration in the Middle East and North Africa: Lessons from Central Europe”  Schiff, M. and A. Winters (2003), “Regional Integration and Development”,  Younes, H. (2010), “The contribution of trade to growth in the Arab countries”, A few references