Greater Arab Free Trade Agreement - Research Paper Example

?Greater Arab Free Trade Agreement Introduction The Greater Arab Free Trade agreement was signed and brought into existence in the year of 1997. Thisis the agreement signed between various Arab countries including Egypt, Libya, Bahrain, Oman, Qatar, Syria and many others, making it up to fourteen countries. The Greater Arab Free Trade agreement came into existence after a follow-up of another agreement that was signed in 1981, which was termed as the Agreement to Facilitate and Develop Trade among Arab Countries. This treaty was signed by the Economic and Social Council of the Arab League, in which seventeen member states were participants. The Economic and Social Council runs and manages the Greater Arab Free Trade agreement and has involved Algeria as another member state in 2009. This treaty is based on the large number of resources available in these countries, and the income that the countries can generate based on volumes due to large populations within the member countries. The member countries generate significant income based on the multiple objectives of the organization which are described further in this paper (Abedini and Peridy 1-2). Objectives of the Treaty The various objectives of this particular treaty include maintenance of local products in the industries so as to promote the internal economies of the countries, reduction of customs and other export fees in order to generate more income, maintaining and improving communication between countries in order to help promote and generate economic activity, and promoting private sector organizations within industries to help improve economic conditions of each country. Each objective has been analyzed in detail as well. The countries that are part of the trade agreement generate about 95% of the trade internally, while this trade also translates to about 90% across the world. The several objectives that this trade agreement aims to meet include: 1. Improvement and Reduction of Fees in Customs The Arab countries have reduced their tariffs and custom fees by 10% on a yearly basis (40% reduction has already been performed in the customs fees) in order to help promote trade within the countries and to build on the economic systems through internal trade. 2. Promotion of Local Products within the Arab Nations Within the Arab countries, local products are being promoted as part of the agreement, which has far reaching economic benefits, not only in terms of improved trade and economic welfare but also standardization of products within the countries as well. 3. Promotion and Enhancement of Local Sectors in the Countries The agreement entails that each country has to promote its private organizations and local sectors by pushing local products in all the countries. For this purpose, a database has been created by the league which is utilized to promote benefits within the local sectors. 4. Improvement of Communication within and Between the Countries Communication between countries is another aim of the agreement, where improving and easing communication between the Arab countries can help promote better bilateral and multilateral trade for the greater economic progress of these countries. (Abedini and Peridy 4-6) Economic Motivation behind the GAFTA Agreement A larger number of research articles have been written in favor of and describing the nature of the Greater Arab Free Trade agreement without entailing or outlining the economic motivation and the economic benefits that are being derived from this agreement. Researchers like Tahir (331-6), Hadhri (35-8) and Bayar (22-7) explain how the Greater Arab Free Trade agreement is based on objectives of economic welfare of each Arab nation; however, the descriptive nature of these researches does not explain why this treaty has been created in the first place. Some research is also available to explain in a limited manner, the ideology behind economic benefits to some particular countries like Morocco. These cases have been presented by researchers such has Neaime (22-8) and Catt (22-30) where benefits, such as financial integration and improvement in foreign investment, have been studied for the countries like Tunisia, as well as Morocco. However, the primary motivation behind why these countries have combined to form the Greater Arab Free Trade agreement is not only to derive better foreign direct investment but also to improve economic welfare internally, since liberalization of trade entails improvement in local industries and products, improvement in competition leading to better quality in products and services, and complementing each economy by production of goods that each country is actually best at (Harrigan 321-23). Economic Consequences of the Treaty There are a number of treaties and agreements that have been formed in favor of bilateral and multilateral trade between various countries and between various Arab countries as well. The ideology behind all these agreements has been similar that economic benefits can be derived within the economy. The economic consequences of the Greater Arab Free Trade agreement reach far and wide because it covers not only all the Arab countries but also is being pushed by political organizations and institutions, namely, the Arab League and other such organizations like the Gulf Cooperation Council. The economic benefits are also achieved in terms of reduction in custom duties and tariffs, along with quota systems and monitoring in terms of quantity and on administrative basis. The various other elements within the economic scenario include regularization of agriculture and trade with liberalization in terms of origin states of the agricultural products (Abedini and Peridy 11-7; Peridy (a) 329-32; Peridy (b) 399-401). In addition the above, the economic consequences of Greater Arab Free Trade agreement also extend toward consultation benefits that are derived through service oriented industries in terms of management and sharing of intellectual property and research, as well as technological advances. This consequence has far reaching effects in terms of long term economic welfare in terms of costs reduction and profitability enhancement as well. It is also a fact that several bilateral agreements between the Arab nations also exist and these are classified in the prelims of the Greater Arab Free Trade agreement as well. This has led to an improved trade performance between the Arab countries as the trade agreements complement the benefits that are a derivative of the GAFTA agreement. With the reduction of trade barriers between the countries, economic benefits also include economies of scale and economies of scope, leading to better competitive advantages between the nations, thus improving and boosting the performance of small and large local industries. As mentioned, economic benefits are a part also due to competitive advantages that are part and parcel of competition levels being raised within the economy amongst domestic organizations and between economies amongst each country’s industries. As a result, dynamism between the industries has also been enhanced leading to better product and service quality being promoted to the end customer (Abedini and Peridy 17-20). During the time periods of 1997 to 2005, it has been noted that the actual growth figures of trade based on the Greater Arab Free Trade agreement have actually risen far more than the trade taking place in the rest of the world. As a consequence, the Arab nations have seen a significant change in the economic welfare resulting in better GDP growth figures due to international trade between the Arab nations. It has been noted that trade between the nations was primarily 15% while the rest of the world had trades that ranged between 7% and 8% showing the significance and economic benefits that Arab nations have derived from Greater Arab Free Trade agreement, thus enhancing the usability of the trade agreement amongst the nations. It has also been noted that industries have enhanced their capabilities in order to compete amongst each other as well, signifying the changing nature of the Arab economies (Abedini and Peridy 17-20; Zarrouk 285-98). Works Cited Abedini , Javad and Nicolas Peridy. The Greater Arab Free Trade Area (GAFTA): An Estimation of the Trade Effects. 2007. Web. 12 July 2012 . Web. Bayar, A. "An Evaluation of the Benefits and Challenges of the South-South Integration Among the Mediterranean Partner Countreis ." FEMISE Report. 2005. 22-27. Print. Catt. "Obstacles to South-South Integration, to Trade and to Foreign Direct Investment: the MENA Countries Case." FEMISE Report. 2005. 22-36. Print. Hadhri, A. "La Grande Zone Arabe de Libre-Echange et les Perspectives d’Integration Sud-Sud en Mediterranee." FEMISE. 2001. 35-45. Print. Harrigan, J. “Scale Economies and the Volume of Trade.” The Review of Economics and Statistics.74, 1994: 321-328. Print. Neaime, S. "South South Trade, Monetary and Financial Integration and the Euro Mediterranean Partnership: An empirical Investigation." FEMISE Report. 2005. 22-39. Print. Peridy, N. “Towards a Pan-Arab Free Trade Area: Assessing Trade Potential Effects of the Agadir Agreement.” The Developing Economies 43.3, 2005: 329-345. Print. Peridy, N. “Trade Effects of Scale Economies: Evidence from Four EU Countries.” Economics Letters. 83.3, 2004: 399- . Print. Tahir, J. "Free Economic Zones in Arab Countries in the Context of Arab Free Trade Areas and World Trade Organization Arrangements: Trends and Future Prospects." New Economic Developments and Their Impact on Arab Economies. 1999. 331-393. Print. Zarrouk, J. “The Greater Arab Free Trade Area: Limits and Possibilities.” Studies in International Economics. 2000. 285-305. Print. Read More