Arab Free Trade Area (AFTA)

Historical Background

Although Arab countries share, to some extent, a common or interrelated history, as far as economic and social development is concerned, the Arab countries do not constitute a homogeneous group.

While the Gulf countries have a high Gross Domestic Product per capita (UAE, 17.935 US $ per capita), East African Arab countries have low ones (Yemen’s GDP per capita amounts 893$). This disparity is also reflected in the Human Development Indicator (HDI). Four Arab countries (out of the 162 countries ranked in the report), Bahrain, Kuwait, the UAE and Qatar are within the high human development class (position 40s). Four others, Yemen, Djibouti, Soudan and Mauritania, are within the low HD class, (positions 130s). The rest of the countries are positioned in the medium HD class.

First attempts to foster economic integration amongst Arab countries date from the early 1950s. The Treaty on Transit Trade (1953) was the first agreement meant to facilitate commercial exchanges through the creation of preferential tariffs for some agricultural and industrial products. A further attempt to foster cooperation was signed in 1964 by Jordan, Syria, Egypt, Iraq and Libya (1975) who agreed on an Arab Common Market.

The agreement for the facilitation and promotion of intra-Arab trade, signed in 1981, included the establishment of a Free Trade Area through a gradual liberalisation of trade in order to achieve a Customs Union.

Due to economic and political constraints, all these initiatives had a very limited effect.

The Arab Free Trade Area

In February 1997, the Arab Economic Union (a body established in 1957 in the framework of the Arab League) decided to create an « Arab Free Trade Area » (AFTA) by the year 2008.

For this purpose, 18 of the 22 members of the Arab League (*) signed a treaty aiming at the elimination of all trade barriers between them by gradually lowering by 10% each year the customs duties on their trade and in gradually removing trade barriers in a process which started in February 1998.

At the Arab Summit held in Amman in March 2001 (Arab summits, the heads of states stresses the need to move forward towards the long-term objective of creating a strong Arab economic bloc. In September 2001, the Arab League’s Economic and Social Council which monitors the progress made, met in Riyadh and noted some advancement and decided to move the deadline for the end of the transition period forward to early 2005.

The Greater Arab Free Trade Zone should boost the economies of the member countries in several ways:

  • Form a bigger and more homogenous market and thus attract more foreign direct investments (regional, European and international)
  • Increase trade between the member countries: despite the fact that some of these countries produce the same goods and are in competition for the export markets, they are complementary in many sectors (eg. Tunisia, Morocco and Egypt could export textiles and agricultural goods to the Gulf countries, Algeria and Libya)
  • Reduce the flow of smuggled goods which are not taxed and often hurt local productions as well as the balance of payments (not to mention that producers are never held accountable in the case of faulty or unsafe products)
  • Strengthen the member countries’ negotiating power when dealing with powerful economic blocs such as the EU or in international arenas such as WTO meetings (so far, 6 Arab countries are members of WTO: Morocco, Tunisia, Egypt, Jordan, Oman and Kuwait)
  • Increase economic interdependence between Arab countries and thus hopefully, increasing the region’s stability and security.

It should be noted that these efforts to strengthen regional Arab integration are much more pragmatic than other initiatives in the past: based on economics, they rely on the principle of progressive inclusion of countries in the area and thus represent a departure from the unanimity principle that has so far hampered the drive for economic co-operation.

Another feature of the programme, in contrast to previous ones, is the recognition of the role of the private sector. The Union of Arab Chambers of Commerce is to monitor the implementation of the GAFTA. This body has been asked to make a half-yearly report on the difficulties encountered by traders with the customs administration and regulatory agencies of individual member countries.

Some limitations of GAFTA are the fact that agricultural products are outside the tariff reduction scheme during the harvest season and its reduced scope as far as standards and technical regulations are concerned.

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(*) All the 22 member states of the Arab League, except Algeria, Djibouti, the Comores Islands and Mauritania.

The application of the programme leading to the GAFTA started on 1 January 1998, with the participation of 14 of the 22 member countries of the Arab League, which represent 90% of Arab foreign trade and 95% of inter-Arab trade. Those countries which did not start to apply for the programme are the seven least developed Arab countries (Djibouti, Somalia, Comoros Island, Sudan, Mauritania, Palestine, Yemen), which need assistance to join the GAFTA, and Algeria which is undergoing an economic reform.

Inter-Arab Trade/ Total External trade

Country

1990

1995

2000
.

Total Inter-Arab Trade

Total External Trade

Ratio IAT-TET

Total Inter-Arab Trade

Total External Trade

Ratio IAT-TET

Total Inter-Arab Trade

Total External Trade

Ratio IAT-TET
Jordan
1.056
3.504
30,13%
1.496
5.467
27.37 %
1.081
6.496
16,65 %
UAE
2.236
33.389
6,7%
3.291
52.389
6,28 %
6.682
82.879
8,6 %
Bahrain
2.203
7.547
29,19%
2.169
7.830
27,7 %
1.967
10.312
19,08 %
Tunisia
775
9.684
8 %
991
13.676
7,25 %
1.151
14.229
8,09 %
Algeria
469
20.689
2,27 %
560
21.042
2,66 %
553
29.223
1,89 %
Saudi Arabia
5.772
68.498
8,43 %
6.473
78.128
8,29 %
9.249
109.055
8,48 %
Sudan
535
1.819
29,41%
537
1.789
30,02 %
535
3.359
15,93 %
Syria
937
6.602
14,19%
1.298
8.595
15,10 %
1.357
9.072
14,96 %
Somalia
111
545
20,37%
185
447
41,38 %
146
576
25,39 %
Iraq
1.578
16.839
9,37 %
714
1.089
65,56 %
1.050
16.843
6,23 %
Oman
3.581
8.235
43,49%
2.142
10.313
20,77 %
3.359
16.694
20,12 %
Qatar
386
4.988
7,75 %
572
5.609
10,19 %
1.269
14.779
8,59 %
Kuwait
535
12.231
4,37 %
1.263
20.616
6,12 %
1.440
27.193
5,30 %
Lebanon
643
2.972
21,62%
733
7.376
9,94 %
1.058
6.944
15,24 %
Libya
792
19.541
4,06 %
1.135
13.697
8,29 %
1.040
16.095
6,46 %
Egypt
481
11.801
4,07 %
924
15.180
6,09 %
1.919
18.469
10,39 %
Morocco
1.405
12.142
11,57%
1.145
13.245
8,64 %
1.008
20.375
4,95 %
Mauritania
27
857
3,15 %
37
1.214
3,05 %
35
1.095
3,22 %
Yemen
552
3.946
14 %
738
3.521
20,97 %
1.045
6.418
16,28 %
TOTAL
24.073
245.829
9,79 %
26.404
281.225
9,39 %
34.107
410.106
8,32 %

* Figures in US Million $


Source: Arab Monetary Fund