The Paradox of globalisation

After much uncertainty, the fourth ministerial session of the WTO took place in doha. The case for the arab world joining the global trading system now seems more compelling

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By  Massoud Derhally Published  January 30, 2002

|~||~||~|November was a very important month for the State of Qatar. Amidst heightened security, it became the first Arab country to host a World Trade Organisation (WTO) ministerial meeting. The organisation’s fourth ever conference was important for a number of reasons. Aside from attempting to restore confidence to the global economy, it was significant because it addressed significant issues facing the multilateral trading system.

The negotiations brought together 2,641 delegates from 144 countries with a common goal of trade liberalisation and the dismantling of trade barriers. That said though, developing countries, including those in the Arab world, still do not see eye to eye with industrialised countries on various issues related to agriculture, services, industrial goods, labor standards, anti-dumping, trade related aspects of intellectual property rights (TRIPS), electronic commerce and investment and competition policies.

Of the 22 Arab states that comprise the Arab League, only 11 are members of the WTO: Jordan, United Arab Emirates, Bahrain, Tunisia, Djibouti, Oman, Qatar, Kuwait, Egypt, Morocco and Mauritania. Many of the existing members, with the exception of Jordan and Oman which recently joined, were members when GATT, the predecessor to the WTO, was around. There are currently 5 countries that are negotiating membership: Saudi Arabia, Yemen, Algeria, Sudan and Lebanon. The accession process has been a protracted one, as many countries view joining the WTO with mixed feelings.

“Prior to 1994 and the formation of the WTO, becoming a member was easier and quicker, and this also explains why some member countries still have high tariff rates and protection of their products and services,” says Dr. Tayseer Abdel Jaber, former Under Secretary General of the United Nations and Secretary General of ESCWA.

Many of the developing countries believe that they concede too much when they join the WTO. Essentially, they believe that when economies are liberalised they become vulnerable to competitive markets in the West that have a comparative advantage through a combination of tariffs and barriers. “We call for additional efforts aimed at reducing tariff peaks and tariff escalation, which continue to constitute serious obstacles for exports and affect the diversification of the supply side of many developing countries,” said Fahim bin Sultan Al Qasimi, UAE Minister of Economy and Commerce, in his conference statement.
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“The accession process is introducing further inequities,” said Maqbool Ali Sultan, Oman’s minister of commerce and industry, at Doha. “That was our experience when we were made to undertake commitments far in excess of those undertaken by countries at a comparable or higher level of industrialisation and economic development,” added Sultan. Referring to previous negotiations on agriculture, industrial tariffs and services that the Sultanate negotiated in its accession process, Sultan said, “Oman should neither be asked nor expected to make any further market access commitments. We have paid our price and should not be asked to pay a price again.”

There are also political considerations that are sometimes hidden which delay or speed the accession process. “The US used human rights to pressure China and delayed its accession. Whereas, it took Jordan two years only of negotiations to join,” adds Abdel Jaber. “Saudi Arabia started its negotiations only a year ago and it is not expected to take a long time before becoming a full member. It could be within a year, but part of the speed depends on the changes in laws and policies that it is required to introduce,” explains Abdel Jaber.

“We have already completed negotiations with 11 countries, and still have to conduct negotiations with 18 more, then submit the final report on the Kingdom’s commercial policies,” Fawaz Alami, Saudi Arabia’s commerce ministry undersecretary for technical affairs, told the English language Saudi Gazette.

Eventual membership in the WTO will help Saudi conglomerates like SABIC and ARAMCO sell their products in North American and European markets and help the kingdom diversify its revenue base. But the kingdom is facing stringent demands by its trading partners in the negotiation process, more than Jordan or Oman, according to Dr. Said Al Shaikh, chief economist at KSA’s National Commercial Bank. “Besides the pressure on Saudi Arabia to develop and modernise its legal system, other obstacles include the demand for the opening up of the financial sector, including insurance, telecommunication and aviation, among other sectors,” Al Shaikh told Arabian Business.
Arab countries in general are opposed to a new round of negotiations. They want to improve their standing in the WTO by focusing on strategies that will increase the benefits of membership and minimise additional obligations. These efforts come on the back of what some countries say is the failure or reluctance of developed countries to fulfil their obligations in providing technical and financial assistance that came out of the Uruguay Round.

Agriculture, pharmaceuticals, telecomms and services remain core concerns for the Arab world. Subsidisies are a major issue, as developing countries that are net agricultural importers fear losses from higher prices as a result of a reduction in export subsidies on agricultural produce. Reductions in supply from subsidised agriculture will in turn result in shrinking markets, and thus result in higher food import prices for agricultural net importers. Net importers may suffer significant losses as a result of the higher prices they will pay for agricultural products. In such instances, where markets grow smaller, the supply of food from developed countries may fall disproportionately while agricultural net importer’s needs increase.
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Morocco considers that agricultural negotiations “must lead to the correction of the shortcomings still affecting world trade in agricultural products, especially by supporting all proposals aimed at substantially reducing progressive tariff levels affecting market access, reducing and eventually eliminating domestic support measures within a reasonable timetable,” according to Mustapha Mansouri, Morocco’s minister of industry, commerce, energy and mines.

As for labour standards, an issue that has spurned much debate, developing countries including Arab states, believe this would be another obstacle to their exports and that labour issues should only be tackled within the International Labour Organisation (ILO). “We must reject the use of labour standards for protectionist purposes,” said Dr. Youssef Boutros Ghali, Egypt’s minister of economy and foreign trade. The majority of Arab state members as well as non-members echoed Egypt’s stand on labour standards. Their positions coincide with other developing countries, and this goes beyond merely labour standards, encompassing other broader as well as specific issues that raise legitimate concerns on how the integration process of these countries takes place within a global economy.

It all really seems like an awakening to a new world for many Middle Eastern countries. There are conscious efforts by many governments to play an active part in today’s multilateral trading system. WTO conferences and negotiation rounds are seen as an integral part of a country’s international economic relations. Although the benefits of joining do come at a price, they far outweigh the negatives, especially when one considers the implications of a unified Arab common market and the part such a trading regime can play in the equation of economic development.

“Arab states will benefit from the WTO because they will gain new markets for their exports and will be able to attract invaluable foreign investment and the new technologies that go with it,” said Mike Moore, WTO director general. “The merchandise exports of our 16 Arab WTO members and observers amounted to approximately $220 billion in 2000, reflecting a significant rise from 1999, while imports totaled $146 billion.”
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While countries took considerable time before adjusting their standing in what is known as the global economy, the benefits of economic liberalisation and integration into such a system have become apparent. “Arab countries can benefit from membership by expanding their trade in goods and services to all WTO members, which comprise 95% of world trade. Membership can help in avoiding economic isolation,” says Abdel Jaber. “For Egypt, it can benefit from the opening of European and other markets to its agricultural and textile exports. It will help Saudi Arabia diversify its economy and not rely on oil revenues.”

“As they become WTO members, producers in the Arab countries are going to enjoy lesser restrictions and lower tariffs in other markets, thereby expanding their exports to industrial economies,” Al Shaikh told Arabian Business. Ultimately, this will encourage local producers to invest in export industries, which may lead to the end of subsidies and protectionism. Opening the domestic market to more competition will also boost efficiency and result in a more diversified production structure.

The most conservative of countries, KSA has undertaken reform measures, amending its foreign investment law, and forming a general investment authority to encourage the inflow of capital. Bahrain today allows majority foreign ownership of businesses, clearing away previous red tape that required partnership with a local entity. There are also ongoing legislative reforms in various GCC countries that are paving the way for property ownership to foreigners.

All of these are positive measures. Even more interesting is that “Net equity investment in the Arab region is forecast to rise by 6.3% this year to $10.1 billion and foreign direct investment to Arab countries is expected to increase by almost 5.5% to 9.5 billion,” according to Henry Azzam, CEO of Jordaninvest. However, the inflow of capital and size of the market are not enough. Reforming foreign investment laws, while certainly a positive step towards transparency, remains only that: a step.

“Arab, particularly Gulf countries, can be classified as single-resource based economies with some varying degrees, but their dilemma is exacerbated by being rather slow to adapt to a rapidly changing global environment. While failing to change under internal forces, by joining the WTO, changes in Arab countries will likely come due to external forces,” explained Al Shaikh. “Accession to WTO would accelerate the liberalisation of Arab economies and reconfirm their commitments to free trade. In turn, Arab countries have to deal with the social consequences as they shift from being public to market-led economies.”

It would be imprudent to claim that there is a clear-cut way of advocating economic development throughout the world. By the same token, it would be absurd to argue that all developing countries need to do is to liberalise their trade. More needs to be done on various fronts. Markets need to develop; manufacturers and industries can play a much bigger role in helping the region become a producer rather than remain a consumer. They need to be nurtured to become innovative, because in this day and age we need to be looking at economies of scale.

The Arab world has the ability to elevate itself to a regional trading bloc. It has done it before and perhaps a step in the right direction would be to finally implement an Arab common market. “The Arab’s dilemma is that they want to be part of the global market, yet they are not ready to modernize the largely parochial and national ineffective legal, social, and political institutions,” says Al Shaikh. Nothing better sums this up than the inaugural remarks of WTO director general Moore, when he said, “The WTO was born at Marrakesh, in another Arab country, but for too long the majority of Arab countries have not been active players in the WTO system; this has been our loss and yours.” By Massoud A. Derhally
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