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8. European Economic Integration and the Arab Countries

Editor(s):
Saíd El-Naggar
Published Date:
May 1993
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EC-1992, the European Economic Space, and Extending Integration Toward Eastern Europe: Checking the Meanings

Over the last few years, a comprehensive insight into the effects of the single market program (hereafter entitled EC-1992) has become more difficult because of the parallel steps of extending integration toward the member countries of the European Free Trade Area (EFTA) as well as toward Central and East European countries (through so-called Europe agreements). Both deepening integration through EC-1992 and extending integration involve a number of measures that since the publication of the Emerson Report (1988) have been principally discussed under the dimension of European Community (EC) internal adjustment and challenges rather than under the external dimension.

Such a bias can easily be explained by the fact that the majority of policy measures were aimed at freeing internal trade in goods and services, liberalizing movements of factors, and removing all sorts of border controls. The absolute level of external protection either remained unaffected or was subject to multilateral trade negotiations under the Uruguay Round. Direct overlaps between the internal measures and the external dimension could be detected in a few product groups where remnants of national trade policy sovereignty had to be scrapped and replaced by a common trade policy. In these items, the customs union had to be completed more than twenty years after its formal establishment in 1968 when the common external tariff was introduced and internal customs duties were abandoned. Automobiles, bananas, some electronics, and some so-called hypersensitive textile items under the Multifiber Arrangements (MFA) were among these “laggers.”

Apart from that, EC-1992 basically means the liberalization of services and the free movement of factors. This focus justifies research that concentrates on relations between countries of the Organization for Economic Cooperation and Development (OECD), as EC companies primarily compete with other OECD-based companies under conditions of intraindustry specialization, oligopolistic competition, and increasing returns to scale. Developing countries operate their trade with the Community more under interindustry specialization, constant returns to scale, and perfect competition. The effects on this part of world trade were analyzed mainly with respect to trade diversion in favor of the EC periphery as well as to short-run income-induced effects on import demand. Since developing countries in general are neither large exporters of business services nor exporters of capital, research on the effects of EC-1992 mainly concentrated on merchandise trade. Here, studies were numerous for specific regions like sub-Saharan Africa (Davenport and Page, 1991; Tovias, 1990; Stevens and Faber, 1990); Asia (Verbiest and Tang, 1991); Latin America (Langhammer, 1992a, 1992b); Southeast Asia (Wagner, 1991); and even with respect to individual countries like India (ICRIER, 1990) and the Republic of Korea (Young and Kang, 1991).

The second facet of European integration—the European Economic Space (EES) (or Area)—is a free trade area in merchandise trade and services combined with free factor movements, but without common policies in trade and agriculture. Its likely effects were scrutinized mainly for the competitive position of EFTA companies under imperfect competition (Venables and Smith, 1988; Norman, 1989). Until 1992, the external dimension of the EES does not seem to have played a role in empirical research, presumably because it was thought to be similar to EC-1992. Nor did its impact on developing countries attract much interest, mostly for the same reasons.

Finally, there are the three Europe agreements negotiated in December 1991 with the former Czech and Slovak Federal Republic, Poland, and Hungary. These are association agreements with a special status of a pre-stage to full membership later. Their trade parts, which came into force in March 1992 as interim agreements before ratification, are basically free trade arrangements in manufactures to be achieved over ten years. Preconcessions are given first by the EC. They are to be followed by concessions by the Central and East European countries.

Unlike the EES, the Europe agreements have an important external dimension, in particular for developing countries. The former socialist countries increasingly concentrate their exports on items that are also supplied by developing countries, and they enjoy more generous access to the EC markets than other contracting parties to the MFA, for instance. In addition to quotas lifted on textiles and clothing (in particular for outward processing), the former socialist countries were the first nonmember countries that were granted access to EC markets for products like beef, pork, lamb, dairy products, potatoes, grains, and oilseeds, which are usually subject to the restrictions of the Common Agricultural Policy (CAP). Although such concessions are still small in quantitative terms (Tangermann, 1992), they nevertheless can bother competing suppliers from developing countries (in particular from Latin America) that for years were denied similar concessions. The resource endowments of Central and East European countries on the one hand and of developing countries on the other are likely to become similar during the process of economic transformation. Given the economic and cultural proximity of Eastern and Western Europe, the Europe agreements could well have a trade-diverting potential detrimental to developing countries in agricultural products as well as in textiles and clothing. Other sectors could follow.

To identify the likely effects of European integration for a developing region like the Arab countries, it is therefore appropriate to concentrate on EC-1992 and to some extent on the Europe agreements rather than on the EES.

However, before such effects are discussed in a later section, the sectoral and regional structure of EC-Arab trade relations is highlighted in the following section to assess the degree of vulnerability of Arab oil and non-oil exports to trade diversion as well as the income elasticity of EC demand for Arab goods. Thereafter, Arab exports to the EC are related to the bilateral trade and cooperation agreements that the EC negotiated with Maghreb and Mashreq countries and that are summarized together with other agreements under the umbrella term of “global Mediterranean policy.”

In later sections the future of these institutionalized relations is questioned in the light of recent dramatic changes in the hierarchy of privileges that the EC kept unchanged for a long time. A final section summarizes the results.

Regional and Sectoral Structure of EC-Arab Trade Relations: Vulnerable to EC Integration Measures?

Arab countries do not form an economically homogeneous bloc. Instead, there are vast differences in market size, level of per capita income, and resource endowment. Above all, oil producing and non-oil producing countries should be differentiated. Furthermore, for historical and institutional reasons, a distinction between Maghreb and Mashreq countries is appropriate. Hence, in Table 1, EC trade with the Arab countries is not only sectorally but also regionally disaggregated, with Maghreb countries, Mashreq countries, and the Middle East countries (called countries of the Organization of the Petroleum Exporting Countries—OPEC) forming three subgroups of EC trading partners. In addition, trade shares are presented for two subperiods of the pre-1992 period, that is, the “announcement” period (1985–88) and the “implementation” period (1988–91). Finally, to account for historically determined differences in the intensity of bilateral trade relations, the EC is broken down into the four leading economies, west Germany, France, Italy, and the United Kingdom.

The major findings from the statistical breakdown in Table 1 can be summarized as follows. First, the role of Arab countries in extra-EC non-oil imports is fairly modest. In 1985, Arab countries accounted for 2.1 percent of EC imports followed by a slight upswing in 1988 and 1991 (2.6 percent). Hence, in the implementation period, which was also a period of rapid EC economic growth (partly induced by EC-1992 anticipatory cross-border mergers and acquisitions), Arab countries failed to capture a larger share of EC imports. Such stagnation coincides with the observation that trade shares were overproportionately higher and grew faster in the less buoyant submarkets of France and Italy while they were much lower and also stagnant in the largest and most absorptive west German market.1

Table 1.Share of Arab Countries in EC Merchandise Trade
MaghrebMashreq
Agricultural

goods
Textiles,

clothing
ChemicalsMineral

oil
Total

non-oil
Grand

total
Agricultural

goods
Textiles,

clothing
ChemicalsMineral

oil
Total

non-oil
Grand

total
Share in Extra-EC Imports
EC19851.74.11.89.81.03.40.20.70.23.80.31.3
19882.15.31.68.61.32.20.20.80.22.70.30.6
19912.96.41.39.21.62.70.30.90.13.60.30.8
Germany (west)19850.83.40.79.60.62.20.10.60.14.60.21.0
19880.83.90.310.00.71.40.10.50.11.50.20.3
19911.14.10.17.40.71.30.20.60.04.60.20.6
France19856.213.62.814.23.27.10.10.80.62.90.31.2
19886.520.02.913.23.45.00.21.00.12.40.40.7
19918.123.42.412.64.25.80.21.00.24.00.31.0
Italy19852.52.14.712.41.36.10.11.30.37.90.73.8
19884.42.03.76.63.44.00.31.30.78.40.62.1
19916.63.83.29.24.05.10.41.50.26.80.71.9
United Kingdom19850.40.20.63.20.30.80.40.30.11.00.20.4
19880.70.20.84.00.20.50.50.50.01.10.20.2
19910.90.60.73.30.20.60.60.60.21.30.20.3
Share in Extra-EC Exports
EC19855.63.52.62.33.13.05.82.02.81.22.62.6
19883.94.72.42.32.32.34.51.11.81.01.71.7
19913.76.62.23.12.62.63.01.11.71.71.61.6
Germany (west)19853.73.11.21.31.61.63.21.01.90.61.81.8
19882.14.70.91.51.11.13.30.51.20.61.11.1
19911.25.60.70.31.11.12.60.71.10.51.01.0
France19858.69.27.47.88.68.66.42.83.01.63.23.1
19884.813.16.01.96.05.95.21.71.81.02.52.5
19917.819.05.92.87.17.02.62.02.01.42.52.5
Italy19857.62.14.24.13.43.46.73.15.03.34.24.2
19888.91.53.76.62.72.84.91.53.71.92.52.4
19915.92.63.911.33.43.63.11.73.74.32.82.9
United Kingdom19852.90.50.40.20.80.72.12.22.90.42.01.8
19880.90.40.50.30.50.51.51.32.00.21.41.4
19910.81.10.40.40.60.61.80.91.60.11.21.1
OPECArab Countries
Agricultural

goods
Textiles,

clothing
ChemicalsMineral

oil
Total

non-oil
Grand

total
Agricultural

goods
Textiles,

clothing
ChemicalsMineral

oil
Total

non-oil
Grand

total
Share in Extra-EC Imports
EC19850.30.71.732.40.79.32.25.53.746.02.114.0
19881.01.12.536.01.05.33.37.24.447.32.68.1
19910.91.51.935.40.85.84.18.33.348.22.69.2
Germany (west)19850.31.20.225.60.54.81.15.21.039.81.48.0
19881.11.80.431.30.52.92.06.20.842.81.44.6
19911.41.90.425.00.52.72.76.60.537.01.44.6
France19850.20.30.731.90.411.46.514.64.149.04.019.6
19880.60.61.628.91.05.67.321.74.644.64.811.3
19910.71.32.033.91.37.79.125.74.550.55.814.5
Italy19850.90.82.942.91.719.43.54.17.963.23.729.3
19882.31.24.150.41.310.47.04.58.565.35.316.4
19911.41.72.653.71.011.88.47.06.069.75.618.8
United Kingdom19850.30.50.915.90.93.61.11.01.620.21.44.8
19880.40.41.119.51.62.71.61.11.924.62.03.4
19910.51.00.418.21.22.92.02.21.322.81.63.8
Share in Extra-EC Exports
EC198513.96.47.24.79.18.825.211.912.68.214.814.4
198811.93.75.63.26.26.120.39.49.86.410.210.1
19919.73.05.45.96.76.716.510.89.410.711.011.0
Germany (west)198512.03.04.21.76.76.718.97.17.33.610.110.0
198810.11.03.31.04.24.215.56.15.33.06.56.5
199111.41.13.40.85.05.015.17.45.21.67.17.1
France19858.96.85.42.57.37.123.918.815.811.919.118.8
19888.94.24.32.15.15.118.919.012.15.013.613.5
19917.04.25.02.16.76.617.525.212.96.316.416.2
Italy198511.25.79.520.613.714.025.410.818.728.021.421.6
19889.23.76.813.58.08.223.06.714.122.013.213.4
19916.72.37.226.88.18.615.76.614.842.514.315.1
United Kingdom198518.813.114.11.712.010.723.815.717.32.414.813.2
198815.66.913.01.010.510.017.98.615.51.512.411.9
199111.65.99.60.910.710.314.27.911.71.412.411.9
Sources: EUROSTAT, EEC External Trade (Combined Nomenclature) 1988–90, No. Supplement 2/1991 (CD-ROM). EUROSTAT, Monthly EEC External Trade (Combined Nomenclature) No. 7/1992 (CD-ROM). EUROSTAT, External Trade (Nimexe) 1976–1987, No. Supplement 1/1991 (CD-ROM).Note—Maghreb: Morocco, Algeria, and Tunisia. Mashreq: Egypt, Lebanon, Syrian Arab Republic, and Jordan. OPEC: Libyan Arab Jamahiriya, Sudan, Somalia, Iraq, Islamic Republic of Iran, Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates, Oman, and Republic of Yemen. Arab countries: Maghreb plus Mashreq plus OPEC.
Sources: EUROSTAT, EEC External Trade (Combined Nomenclature) 1988–90, No. Supplement 2/1991 (CD-ROM). EUROSTAT, Monthly EEC External Trade (Combined Nomenclature) No. 7/1992 (CD-ROM). EUROSTAT, External Trade (Nimexe) 1976–1987, No. Supplement 1/1991 (CD-ROM).Note—Maghreb: Morocco, Algeria, and Tunisia. Mashreq: Egypt, Lebanon, Syrian Arab Republic, and Jordan. OPEC: Libyan Arab Jamahiriya, Sudan, Somalia, Iraq, Islamic Republic of Iran, Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates, Oman, and Republic of Yemen. Arab countries: Maghreb plus Mashreq plus OPEC.

Second, gains in trade shares in specific sectors like textiles and clothing and agricultural goods could not compensate for the weak position of Arab countries in human-capital-intensive manufactures, which have been the most rapidly growing import sectors in the EC and in which the highest import-demand effects of the additional growth induced by EC-1992 are expected. What is relevant in the EC-1992 context is that the Arab countries enjoyed overproportionately high trade shares and gains in shares on the French market for textiles and clothing (14.6 percent to 25.7 percent over the entire period compared with a much smaller increase at a lower level of 5.2 percent to 6.6 percent on the west German market). Because of the strictly monitored national quotas for some items in France, this market has been one of the most protected. A Community-wide quota after 1992 is likely to result in stronger import competition, lower import prices, and perhaps losses in trade shares for established suppliers on the French market. Some Arab suppliers might belong to this group.

Third, splitting the Arab countries into OPEC and non-OPEC countries reveals strong divergences in growth patterns. While the three Maghreb countries succeeded in raising their share in extra-EC non-oil imports from 1.0 percent to 1.6 percent, and the Mashreq countries stagnated at 0.3 percent, the Middle East countries lost during the buoyant subperiod (1988–91).

Fourth, the Arab countries maintained an almost 50 percent share in EC oil imports. Again, this share was far from uniform in all EC submarkets. In addition to the United Kingdom relying on domestic resources in the North Sea, west Germany also diversified sourcing toward non-Arab countries.

Fifth, given the declining terms of trade for oil producers over the last few years, it does not come as a surprise that the absorptive capacity of the Arab countries in general and the OPEC countries in particular declined sizably. Between 1985 and 1991, the share of Arab countries in extra-EC exports declined from 14.4 percent to 11.0 percent. No subregion escaped this trend. Declines in trade shares were most visible in the OPEC countries.

Overall, EC-Arab trade relations since the second half of the eighties can be characterized as stagnating, or at least as not very dynamic, even if the few rising trade shares are taken into consideration. Reasons can be found on both demand and supply sides. On the demand side, the second enlargement of the EC by countries whose export supply overlaps with the Arab countries is likely to have resulted in some trade diversion and deteriorating market access in the medium run. On the supply side, rising macroeconomic imbalances, coupled with declining private investment ratios in relatively outward-oriented economies like Tunisia (Pfeffermann and Madarassy, 1992, Table 1), may have impeded the flow of resources into nontraditional export sectors.

Institutional Underpinnings of EC-Arab Economic Relations: Cooperation Agreements with Maghreb and Mashreq Countries

In 1976 and 1977, the EC concluded cooperation agreements with the Maghreb and Mashreq countries, respectively. These agreements offered free access to EC markets for manufactured goods and some special provisions for selected agricultural goods on a nonreciprocal basis, plus financial aid and improved social security for Maghreb and Mashreq workers in the Community (Pomfret, 1986, p. 23; for the genesis of the agreements, see also Tovias, 1977). Undoubtedly, the trade parts of the agreements meant real privileges in sectors that otherwise were strongly protected by the Community against more competitive third parties, for instance, the MFA products. They were also helpful in attracting foreign direct investment (FDI) if supply factors were favorable. But they also made the recipients most vulnerable to any changes in the pyramid of privileges in which the Maghreb and Mashreq countries were highly ranked. Instability of access was high, as the EC could introduce “safeguards” against “sensitive” imports. Some countries like Tunisia, Egypt, and Morocco were particularly affected as they had a large share of so-called semisensitive and sensitive manufactures (in particular textiles) in their export supply (Langhammer, 1988, pp. 198–99). Yet the major challenge to the agreements did not come from the safeguards but from the insurmountable gap between the privileges of full EC membership and the preferences provided by the cooperation agreements. With the second enlargement of the Community by Greece, Portugal, and Spain, the trade parts of the agreements lost much of their value for the Arab countries because of the large overlap in agricultural supply between the northern and the southern Mediterranean countries. The preference status declined substantially for countries like Morocco, Tunisia, and Egypt in agricultural products (citrus fruits, wine, and oilseeds) in which the three applicant countries could enjoy the full basket of EC price support and border protection. By offering full membership to some members of the region, the Community drove a wedge into the so-called global Mediterranean policy, which was supposed to include also Turkey, Malta, and Cyprus (association agreements), Yugoslavia (nonpreferential agreement), and Israel (free trade agreement).

With a phasing out of the MFA, the erosion of Maghreb and Mashreq preferences would be continued, and the value of the agreements would basically be equal to the amount of the financial aid that is made available through them. The latest conditions on aid given through the budget, in loans from the European Investment Bank, and in budgetary credits to support economic reforms were agreed upon in 1991, but they also included non-Arab countries from the Mediterranean. In total, a package of 4.4 billion European currency units (ECUs) was negotiated for EC financing of agricultural and infrastructure projects in Maghreb and Mashreq countries for 1992–96 (for the institutional details of EC-Arab relations, see Hudson and Ludlow, 1991, pp. 338–53). New links were built up between the EC and the Arab Maghreb Union (comprising the Libyan Arab Jamahiriya and Mauritania in addition to the three traditional members), the Gulf Cooperation Council (GCC), and under the Euro-Arab dialogue. It is well known from other experiences in Latin America and Southeast Asia that the Community favors dialogues with regional groupings and offers some minor benefits to honor efforts to “regionalize” common issues, for instance, by offering cumulative treatment in rules of origin under the Generalized System of Preferences (GSP). Yet it does not seem too far from reality to conclude that neither of the interregional initiatives in negotiating with the Arab world made much headway except for opening channels to discuss issues of mutual interest. It is reported that the Euro-Arab dialogue came to a standstill when the Middle East crisis affected relations in the Arab League but that it would emerge unscathed once the crisis was over (Hudson and Ludlow, 1991, p. 344).

Likely Effects of EC-1992 on Arab Countries

Trade Effects

Short-run trade effects along the static customs union theory are the standard tools of empirical analysis on EC-1992. They can be decomposed into price effects (trade diversion) and income effects (sometimes also called external trade creation), the latter derived from additional demand for third countries’ products owing to higher growth in the EC. The Emerson Report (1988) estimated that such growth impulse ranged between 4.5 percent and 7.0 percent. How large the income effects are for third countries depends on price elasticities of import demand (preferably substitution elasticities between imports of different origins) for trade diversion and on income elasticities of import demand for external trade creation. Such elasticities differ systematically by sectors and by industries. They are mostly less than zero for food and agricultural commodities and higher for manufactures. For trade diversion, assumptions have to be made concerning the impact of EC internal cost reductions on price reductions leading to a shift from non-EC sources to EC sources. Overall, in the Emerson Report (1988, pp. 180–82), this shift was assumed to be cumulatively 10 percent of extra-EC imports. Furthermore, there is a net barter terms of trade effect, which results from lowered world market prices for manufactures owing to more competition after EC-1992 cost reductions and a rise in commodity prices following additional demand. Developing countries as net importers of manufactures are therefore expected to achieve a terms of trade gain.

Davenport and Page (1991, pp. 11, 19, and 85–89) and Page (1992, pp. 46–53) have calculated such effects for two Maghreb countries (Tunisia and Morocco), for all three Maghreb countries as a group, for all Mediterranean countries (including Turkey, which is not included here), as well as for all OPEC countries (including Venezuela, Nigeria, Gabon, and Indonesia). Table 2 summarizes their findings. The estimates expose small trade gains for the Mediterranean countries including the Maghreb countries of below 1 percent of their 1987 exports to the EC. Gains are small because the positive income effects (external trade creation) for the countries exporting commodities to the EC are partly offset by assumed losses in manufactured exports caused by trade being diverted from nonmember countries to member countries. Hence, the more the third country exports goods for which EC substitutes are available, the net effects become less or even negative. These substitutes are basically manufactures. For exporters of manufactures, trade diversion is therefore expected to exceed the income effect. Under this assumption, OPEC countries are much better off (trade gains of 3.7 percent) because they export commodities rather than manufactures. Gains are expected to be even larger for the Middle East countries because the export mix is even more biased toward commodities than for the rest of the OPEC countries including Indonesia. Taking all developing countries (including the newly industrializing economies that are exporters of manufactures) as a yardstick (net trade effect of 1.5 percent of their exports) reveals the OPEC countries as relative gainers and the Maghreb countries as relative losers.

Terms of trade gains are dependent on the relative volume of imports from the EC versus exports to the EC. Countries with a trade deficit with the EC are expected to gain because they benefit overproportionately from lower import prices owing to fiercer competition on world markets for capital goods.

Special effects are appropriate for items with national quotas like footwear, textiles, and some energy products. With respect to textiles under the MFA, it is argued that since the Mediterranean countries are outside the MFA quotas, they have been protected through the MFA against competition from the large Asian suppliers (Erzan, Goto, and Holmes, 1989). Discarding national quotas in the EC-1992 context would intensify competition enough for the Mediterranean countries to stand to lose. Yet such effects are marginal compared with the phasing out of the entire MFA. In all such microeconomic analysis, assumptions on changes in the competitive environment in the hitherto protected French market after 1992 are the crucial unknown variables. Before 1992, Maghreb producers enjoyed special and differential treatment in this market for a number of products. Although some losses in economic rents for the Maghreb suppliers after 1992 (owing to the dismantling of national quotas) are not denied, their magnitude is unknown.2

Table 2.Trade Effects of EC-1992 for Arab Countries(1987 base values, in million ECUs)
MoroccoTunisiaMaghreb

Group
Mediterranean

Countries
OPEC

Countries
All Developing

Countries
External Trade Creation (Income Effect)
Commodities24262447331,5562,804
Manufactures99963701,4345154,434
Trade Diversion
Manufactures1061085341,9188475,655
Total trade effects (in
percent of exports
to EC)0.80.90.90.83.81.5
Terms of trade effects904743121,196
Total effect1707241,5352,778
Sectoral Effects
Footwear71161,367
Source: Davenport and Page (1991, pp. 11, 19, and 85–89) and Page (1992, pp. 46–53).
Source: Davenport and Page (1991, pp. 11, 19, and 85–89) and Page (1992, pp. 46–53).

Beyond such details, there is reason to underline the static character of the empirical estimates. Page (1992, p. 33) admits that just those countries that are labeled short-run losers from trade diversion are most likely to be able to take advantage of the medium-term options offered by EC-1992 because of their flexibility and availability of skill. These are the fast-growing exporters of manufactures and not the exporters of commodities.

How income inelastic is Arab export supply compared with other developing countries’ suppliers has been observed in the second subperiod (1988–91), when many EC-1992 measures were implemented and when the EC enjoyed anticipatory response from domestic and international investors (Table 3). Unlike all developing countries for which the ex post income elasticity of EC import demand (ratio between EC import growth rate and EC GDP growth rate) rose from 0.65 to 0.92 (for non-oil products), Arab countries incurred a drop of the same ratio from 1.64 to 0.93. Except for the Mashreq countries, which benefited from a small increase in the elasticities, all subregions suffered a decline. It would be misleading to attribute such a disappointing performance solely to supply factors. However, it is certainly true that the positive effects of external trade creation did not emerge for Arab countries during a period in which some of the income effects of EC-1992 had already partly materialized.

Overall, therefore, it is unlikely that the Arab countries that are still concentrating on exporting natural resources or resource-intensive goods will easily join the group of gainers in the medium run.

Investment Effects

For many third countries, the diversion of foreign direct investment has become more of a threat than trade diversion because access to foreign risk capital has been accepted as an indispensable contribution to technological diffusion and skill formation. On the other hand, one of the early effects of EC-1992 was the growing attractiveness of the Community to OECD countries’ investment, in order to circumvent local content requirements and to benefit from the harmonization of technical standards.

Table 3.Ex Post Income Elasticities of Demand in the EC for Arab Exports1
EC Imports from1988/851991/88
Maghreb Countries
Agricultural goods0.331.87
Textiles1.922.54
Chemical products-0.140.07
Oil-3.342.10
Non-oil products1.791.59
Total trade-1.721.84
Mashreq Countries
Agricultural goods1.111.86
Textiles1.062.39
Chemical products0.75-1.69
Oil-3.923.23
Non-oil products0.260.46
Total trade-2.842.15
OPEC Countries
Agricultural goods5.04-0.05
Textiles2.653.12
Chemical products2.11-0.05
Oil-2.601.70
Non-oil products1.970.08
Total trade-2.201.46
Arab Countries
Agricultural goods1.281.35
Textiles1.912.61
Chemical products1.01-0.08
Oil-2.841.87
Non-oil products1.640.93
Total trade-2.131.62
For Comparison: Extra EC Sources
Agricultural goods-0.450.37
Textiles0.711.66
Chemical products0.291.12
Oil-2.931.78
Non-oil products0.650.92
Total trade-0.121.03
Source: OECD, Main Economic Indicators, Table 1.

Ratio between the average annual growth rates of EC imports and EC nominal GDP.

Source: OECD, Main Economic Indicators, Table 1.

Ratio between the average annual growth rates of EC imports and EC nominal GDP.

For both the United States and Japan, the EC became a more important host as measured by an increasing EC share in home countries’ investment.3 Given missing information on the regional structure of Arab countries’ foreign direct investment, the diversion issue can only be addressed by resorting to EC countries’ data on flows to and from Arab countries. Tables 46 report such information for three major EC member states—France, west Germany, and the United Kingdom.

Overall, FDI outflows from, and inflows to, the region support the view that the Arab countries neither suffered from a clear drain of foreign risk capital toward the EC nor succeeded in attracting investment from EC member states that might have become unprofitable in the new economic environment. The French data (Table 4), which could be disaggregated by two subregions and for which shares beyond 1 percent can be observed, include non-Arab OPEC countries like Nigeria, Venezuela, and Indonesia. Therefore, they are not meaningful as far as Arab OPEC countries are concerned. The “outlier” result of a “once-and-for-all” flow of FDI to OPEC countries in 1989 seems to refer to French investment in the Nigerian oil sector and has nothing to do with the single market.

On balance, neither the French flow data nor the German stock data (Table 5) suggest that Arab investment in the EC increased during the period under observation.

Both in absolute terms as well as in terms of shares, Arab FDI in the two countries seems to have even declined slightly. U.K. data on this direction of FDI are not available, but residual figures on total inward investment in the United Kingdom suggest that Arab investment was small (Table 6). This is not surprising, since Arab capital exporters traditionally prefer portfolio investment over direct investment.4 Furthermore, France and west Germany operate the so-called insider system of close relations between banks and private companies holding each other’s equity shares. Under such a system, hostile takeovers are virtually impossible. The British “outsider” system, which allows for such operations from nonaffiliated sources, may have been more open to Arab participation or even to majority ownership in the British capital stock but data on Arab investment in the United Kingdom are not available. Yet there is much evidence from residual figures on inward investment in the U.K. figures that such investment must have been small.

Table 4.Flows of Net Direct Investment Between France and Arab Countries
Maghreb CountriesOPEC Countries
To FranceFrom FranceTo FranceFrom France
Million francsPercent1Million francsPercent2Million francsPercent1Million francsPercent2
19851510.83281.71,1195.61,0555 3
19862100.6810.46581.88574.5
19871820.36.30.27481.45592.0
1988-36-0.11050.25900.84020.9
19891470.1590.14,4243.88381.4
19901960.1680.15160.4-2240.5
Sources: Banque de France, La Balance des Paiements de la France, Rapport Annuel, 1985–90.

In percent of total net inflows of France.

In percent of total net outflows of France.

Sources: Banque de France, La Balance des Paiements de la France, Rapport Annuel, 1985–90.

In percent of total net inflows of France.

In percent of total net outflows of France.

Table 5.Share of Arab Countries in Stock of German FDI Abroad and FDI in Germany
German Investment in Arab CountriesArab Investment in Germany
Million deutsche markPercentMillion deutsche markPercent
19857820.9
19861,3000.88020.8
19879240.66920.7
19881,2430.76130.6
19891,1730.65440.4
19901,1020.56200.4
Source: Deutsche Bundesbank, Die Kapitalverflechtung der Unternehmen mit dem Ausland nach Ländern und Winschaftszweigen 1984 bis 1990. Beilage zu Statistische Beihefte zu den Monatsberichten der Deutschen Bundesbank, Reihe 3, Zahlungsbilanzstatistik, April 1992, No. 4.
Source: Deutsche Bundesbank, Die Kapitalverflechtung der Unternehmen mit dem Ausland nach Ländern und Winschaftszweigen 1984 bis 1990. Beilage zu Statistische Beihefte zu den Monatsberichten der Deutschen Bundesbank, Reihe 3, Zahlungsbilanzstatistik, April 1992, No. 4.
Table 6.Share of Arab Countries in U.K. Net Investment Abroad and Foreign Net Investment in the United Kingdom1
U.K. Investment in Arab CountriesArab Investment in United Kingdom
Million poundsPercentMillion poundsPercent
1985-72-0.8
1986830.7
1987-199-1.0
1988-16
1989-50-0.2
Source: United Kingdom, Central Statistical Office, Business Monitor, MA4, 1989 Overseas Transactions, London, 1991.

Minus sign indicates net disinvestment abroad.

Source: United Kingdom, Central Statistical Office, Business Monitor, MA4, 1989 Overseas Transactions, London, 1991.

Minus sign indicates net disinvestment abroad.

Regarding the other direction of flows, Arab countries failed to benefit from a spread or “trickling-down” effect of investment originating in neighboring Europe. French net investment in the Maghreb states stagnated in absolute terms and declined relative to other hosts. So did German investment in all Arab countries. U.K. capital exporters even disinvested in the region.

Overall, Arab countries’ relatively poor performance in attracting EC private risk capital fits into the general observation that developing countries have increasingly been bypassed by OECD investors except for a very few newly industrializing economies. FDI flows today concentrate on the intra-OECD area. This seems to be a general trend that began before the single market program was announced. It is therefore very likely that the determinants of this intra-OECD concentration are deeply rooted in macroeconomic stability and in the low transaction costs that benefit OECD hosts compared with developing countries.

Implications of Dynamic Effects of EC-1992 on Arab Countries

Process Innovations. The implementation of a single market is expected to produce a number of dynamic effects in the sense that both the volume and the composition of the capital stock change. The best-known effect is the realization of economies of scale through mass production. Full exploitation of economies of scale is likely to occur in physical capital-intensive industries. Haaland and Norman (1992), applying the Smith-Venables type of computable general equilibrium models, assess two effects of the single market: one refers to lower real trade costs between European markets (simplified border formalities and savings in costs owing to harmonized product standards), and the other relates to the integration of formerly segmented markets by the law of one price (that is, abolishing intra-EC price discrimination in imperfectly competitive product markets). Such effects will emerge primarily in skill-intensive industries where market segmentation was strong in the pre-1992 period but also in physical capital-intensive industries that benefit from the realization of economies of scale.

Among physical capital-intensive industries, the gains to EC producers in terms of lower trade costs and higher market integration are estimated to be highest in the chemical industry (Haaland and Norman, 1992, Table 13). Here they report production changes of 0.5 percent of the base value owing to lower trade costs and 1.4 percent of market integration. This industry includes petrochemicals, which is an important resource-based industry in oil producing Arab countries. Hence, EC-1992 could lead to cost advantages for EC suppliers competing with Arab producers. The latter could be forced to incur a terms of trade loss by reducing export prices to offset the competitive advantages of EC producers. Otherwise they would lose in market shares.

Another process innovation linked to economies of scale could result from accelerating resource-saving technological progress, including savings in energy consumption per unit of output. It would further delink resource consumption from growth in production and might inhibit further growth of exports of energy and nonenergy resources from Arab countries. Incentives for resource-saving technological progress could also arise from stricter environmental regulations, including obligatory recycling of waste for which common policies will set higher minimum standards. Although beyond the common minimum standards national authorities would still be free to set even higher national standards (home country rule), stricter minimum standards could discipline all EC producers into reducing the consumption of resource inputs.

Finally, Arab producers concentrating on exports of resources or resource-based processed goods to the EC may incur losses in terms of trade or even losses in market shares in the long run if they do not change their supply mix.

Product Innovations. EC-1992 will not only lead to cost reductions in traditional industries but will also shift the product mix from labor-intensive and physical capital-intensive industries to skill-intensive industries and services. In short, those industries within the Community that were strongly segmented in the past either through high “natural” transaction costs (such as the costs of bridging economic distance) or through policy-induced barriers (border controls, different national standards, or protection of domestic producers) are expected to gain overproportionately from the single market. In total, the EC will pass through a catch-up process in making services tradable to achieve a level in the supply of services that integrated markets like the United States have already achieved.

What is relevant for third-country exporters is the import content of newly emerging industries compared with traditional industries, and in particular the commodity content in imports of intermediates. Input-output analyses suggest that this content is lower in services than in manufactures and lower in skill-intensive industries than in physical capital-intensive industries. As a result, in the medium run structural change in EC supply patterns could also hamper the prospects of commodity exporters like those in many Arab countries.

Locational Innovations. Apart from the short-run effects of capital drain mentioned above, the completion of the single market and its enlargement with EFTA countries is likely to have additional medium-term effects on the profitability of EC hosts relative to non-EC hosts. For instance, it is expected that labor-intensive industries located in high-income EFTA countries will move to the periphery of EC member countries (Norman, 1989) where unit labor costs are lower. However, such locational shifts will be only transitional. This can be expected because the absorptive capacity of the low-income countries is limited. If this capacity is exceeded, complementary factors of production will become bottleneck factors. Their prices will rise especially if the factors are immobile, which has already happened. Owing to a massive inflow of risk capital from the EC center to the periphery (in particular Spain and Portugal), prices of nontradables (in particular wages but also rents) have risen faster than those of tradables. This price rise was equivalent to a real appreciation of the periphery countries’ currencies (especially in 1989/90) and to a deterioration in international competitiveness. If such tendencies cannot be corrected in time because currency realignment through markets in the European Monetary System (rather than through bureaucracies) is needed, investors could reconsider their previous decisions to locate in the EC periphery and instead move to non-EC hosts.

The November 1992 currency realignments in the EC leading to depreciations of the Spanish and Portuguese currencies bear witness to such tendencies. But even if currency realignment runs smoothly, a built-in upward movement in prices of labor owing to the single market cannot be denied. There is strong political pressure toward “social harmonization,” that is, to harmonize wage legislation throughout the EC and to equilibrate wage levels in the periphery up to the levels prevailing in the high-income member countries. Avoiding competition in wages (often misleadingly labeled wage dumping) is one of the main objectives of social harmonization in the EC. Nonmember countries have reason to expect imports of risk capital from the EC as a result of EC hosts losing in competitiveness. Stricter environmental regulations and other restrictions (for instance, in biotechnologies) may foster such EC capital outflows.

Whether Arab countries can benefit from “outmigration” of EC capital depends primarily on their endowment of immobile resources, including the macroeconomic environment and the institutional setting. Here, Arab countries seem to face a competitive disadvantage relative to other third countries. Their resource endowment is biased toward investment based on primary commodities (petrochemicals, energy) but in such sectors it is unlikely that important shifts from EC hosts to non-EC hosts owing to EC-1992 will occur, because EC member states are basically resource poor. EC sourcing is already taking place from resource-rich areas like sub-Saharan Africa, Latin America, Australia, Canada, and the Middle East. Parts of this sourcing occur through party-related trade (EC FDI); other parts comprise nonaffiliated trade.

Another option to attract foreign investment in domestic market-oriented industries is difficult to realize for two reasons. First, domestic markets in Arab countries are relatively small, and, second, the Arab region is highly unintegrated. Attempts to liberalize trade within the region through regional free trade areas or even more advanced integration schemes have failed for a number of reasons, both economic and political. Regions that at least recently have made serious efforts toward regional integration, like the Association of South East Asian Nations (ASEAN) or Mercosur in Latin America, are much better off in this respect. A third option, to attract EC export-oriented investment in manufactures, is equivalent to strong competition from host countries in East and Southeast Asia and increasingly in Central and Eastern Europe. In addition, it would have to cope with the specific disadvantage of economies that are richly endowed with natural resources. Such economies cannot easily sterilize the adverse effects of volatile prices in commodity markets on the real exchange rate. Especially in periods of price hikes, the so-called Dutch disease effect leads to a real exchange rate appreciation if capital inflows cannot be sterilized. Such effects penalize the noncommodity sector in general and export-oriented activities in particular. It is well known from past experience that this effect (sometimes also called the Kuwait effect) has often plagued oil exporting countries. Relatively resource-poor, small economies in the Arab world like Tunisia and Morocco had more success in attracting EC investment in export-oriented, labor-intensive industries (textiles and clothing). Alternatively, they linked domestic suppliers to EC companies by benefiting from special quotas for outward processing. However, as mentioned above, a phasing out of the MFA and the emergence of new suppliers from developing countries in Asia and Latin America as well as from Central and Eastern Europe could lead to losses in market shares if supply-side obstacles like macroeconomic instability and unsustainable domestic absorption cannot be overcome.5

Effects on Migration

Flows of migrants from the Arab countries in the Mediterranean area into the Community have a long tradition. In the early sixties, about 232,000 migrants from the three Maghreb countries lived in EC member countries. By 1974, this number had risen to 718,000. After stopping recruitment, migrant inflows dropped, but it is estimated that by early 1988 at least 621,000 migrants still stayed legally in EC member states (Korner, 1990; OECD, 1991). The total number of people from the Maghreb countries living in the EC was 1.9 million in 1989, that is, about one-fourth of the total non-EC population in the EC.

There are some grounds for assuming that migration from this part of the Arab world will become an important issue in EC-Arab relations. First, the demographic gap between the EC and the southern part of the Mediterranean region will remain almost as large as it was in the seventies and eighties.6

Second, the migration potential in the Maghreb countries is high, because the share of the population under 14 years is high (40–45 percent) and because more than 50 percent of unemployed people in Tunisia (80 percent in Algeria and 70 percent in Morocco) belong in this group. It is estimated that, because of the poor conditions in domestic labor markets, the annual migration potential will amount to 0.8–1 million people at the minimum (Korner, 1992).

Third, the income gap between the EC and the Maghreb countries threatens to widen if EC regional funds are increasingly channeled into the EC periphery; the single market is instrumental in improving living standards in the Mediterranean member states; and the macroeconomic conditions in the Maghreb countries remain as dismal as they are in the early nineties.

Fourth, other Arab countries in the GCC region suffer from severe problems of adjustment to lower oil prices and postwar conditions and might not be prepared to host a larger number of migrants from the Mediterranean region.

Fifth, inflows will concentrate on Italy, France, Spain, and Portugal rather than on Central and Northern Europe because of a higher cultural affinity with the local population, including the migrants already living there. This concentration may raise a problem of acceptance insofar as a problem currently exists in Central Europe toward inflows of migrants and refugees from Eastern Europe.

Sixth, illegal migration can increase rapidly and threatens social stability in host countries when competition for low-income jobs intensifies.

Seventh, further impetus will arise once border controls under the single market are virtually scrapped.

The Maastricht summit responded to such challenges by formulating three basic elements of a European immigration policy: first, a passive or reactive immigration policy that is likely to set social, economic, and humanitarian criteria for immigration and quotas by home countries; second, an active migration policy that includes all trade policy measures—technical and financial assistance and incentives for private investment in the migrants’ countries to induce potential migrants to stay in their home countries; and third, policies to improve the social status of those migrants and their families who already have lived in the EC for a long time.

Given the widening income gaps between Europe and its southern and eastern neighbors and the rapidly rising number of migrants and refugees, it is fairly safe to say that defensive measures to control and contain migration will be one of the early effects of EC integration that are going to become apparent to parts of the Arab population. Such measures are likely even if the active part of the EC immigration policy is substantial enough to encourage physical capital formation in Arab countries in close cooperation with the governments. With the transaction costs of migration falling steadily, migration has become an investment strategy for many families in which the risk of failure is minimized (or at least spread) by leaving parts of families at home (portfolio strategy). Such investment is unlikely to be fully discouraged even by opening EC markets extensively to Arab goods and/or by increasing the amount of financial assistance to those countries.

Deepening Integration and the Arab Countries: Polarization or Spread Effects as Second-Round Implications?

The effects discussed above are likely to emerge directly as first-round effects. Beyond them are two kinds of second-round effects that will affect the Arab countries as well as other nonmember states indirectly.

First, deepening integration will make part of the existing capacity of the EC obsolete and will trigger a substantial amount of physical and human investment in sectors that, because of deregulation and the dismantling of market segmentation, will become profitable. As the increasing EC current account deficit since 1989 has amply witnessed, EC domestic savings are insufficient to finance investment. Access to external investment is now needed where previously important capital exporters from the GCC area also raise domestic absorption after the Middle East war and where Central and Eastern Europe also badly need external savings. To encourage the mobilization of both domestic savings and the inflow of risk capital from abroad, EC member states’ monetary authorities will have to keep real rates of interest high, which will impede a rapid return to high economic growth rates. Demand for energy may remain sluggish, and high real rates of interest on international capital markets will not allow Arab countries to fuel domestic absorption by deficit spending. In short, competition for risk capital will intensify worldwide. Given the different positions of net capital importers and exporters in the Arab world, capital shortages could lead to widening income gaps between the Arab countries. Highly indebted countries that today are already subject to credit rationing could face even more difficult adjustment problems than in the past.

Second, deepening integration, which will lead to a catch-up process in the Mediterranean member countries, may fuel the consumption of internationally mobile resources in the Mediterranean basin such as the environment (using the Mediterranean Sea as a sink, for instance) and maritime resources. If the Arab countries—perhaps because of demographic pressure—also accelerate the exploitation of such resources, this would create a strong argument for EC-Arab policy coordination and cooperation to prevent further negative cross-border externalities from emerging in the region. With more former national public goods becoming public international goods (including regional political security), it is in the interest of the EC to prevent a further widening of income gaps. Otherwise the success of integration deepening would be threatened externally at the southern borders of the Community as it is threatened at its eastern borders. A revitalization of the global Mediterranean policy receives its strongest political and economic rationale from the existence of cross-border externalities in the Mediterranean basin.

Widening Integration Toward Eastern Europe: The Hierarchy of Privileges Under Revision

For years the hierarchy of privileges conceded to third countries was not subject to change (Mishalani and others, 1981; Faber, 1990). In addition to EFTA countries, the African, Caribbean, and Pacific (ACP) countries were at the top, followed by the Mediterranean countries. Nonpreferential cooperation with other regional groupings such as the ASEAN and the GCC came at the bottom of the pyramid.

With the collapse of the former socialist economies and the conclusion of association agreements with the three forerunners in economic transformation (the former Czech and Slovak Federal Republic, Poland, and Hungary), the latter have moved from the bottom to the top, thereby bypassing all Arab countries. This change in the ranking includes duty-free access to EC markets for manufactures, some special conditions for exports of CAP products (meat, dairy products, and vegetables), and in particular a more rapid removal of tariff barriers and quantitative restrictions on so-called sensitive products (MFA products, for instance) than for other third parties, including Arab countries. The objectives of the association agreements are free trade areas to be achieved within ten years, with the EC dismantling their trade barriers first. The option of future full membership is explicitly given and is politically undisputed.

If the success of internal transformation is constrained by the three countries’ export capacity because capital imports cannot be financed by access to international markets or by financial assistance, the EC will have to open further those markets in which the modernization of the capital stock is not as indispensable as in other sectors. These markets are basically the labor-intensive industries and the agricultural sector in which some Arab countries from the Mediterranean basin also have their stakes. It cannot be excluded that in such usually highly protected markets the Central and East European countries will enjoy clear privileges over competing suppliers from other third countries. Such a process was already initiated with the extension on March 1, 1992 of normal quotas for MFA products and of special quotas for outward processing (interim agreements to start with the trade parts of the association agreements).

In brief, the association agreements could duplicate the process of trade erosion and trade diversion to the detriment of Arab countries that started with the second enlargement of the EC. This process has been described by Plummer (1991, pp. 178–79), investigating the effects of the Greek accession, as of particular concern to North African agricultural exporters (especially Morocco, Algeria, and Tunisia) and to exporters of manufactures now enjoying GSP status.

Recent export data on Central and East European countries strongly support the argument that the provisions of the agreements have already triggered labor-intensive exports to the EC and that the countries benefit especially from extended quotas on outward processing of clothing and footwear. As such quotas are not similarly extended to the Arab countries, their preferences will be eroded. Given the importance of outward processing, for instance, to Tunisia in the past, this country could be among the main suppliers in the Arab region suffering from such an erosion.

To conclude, integration widening is very likely to have a negative effect on market access for Arab countries if the transformation process succeeds in removing some of the supply constraints. The OECD Group of 24 initiative to support this process with sizable financial transfers (the so-called PHARE program) can be an important instrument in reintegrating these countries into the international division of labor, but in protected markets the burden of such support has to be shouldered by the nonbeneficiaries, for instance, Arab countries. They can hope for a phasing out of agricultural and textile protectionism in the framework of the General Agreement on Tariffs and Trade (GATT) but during a transitional period the Central and East European countries will be better off. They seem to enjoy more patronage from Germany and its traditionally less restrictive trade policies than the Arab countries enjoy from the southern EC member states including France.

Conclusion

At the beginning of the nineties, the Arab countries from the Mediterranean basin as well as from the GCC area suffer from supply constraints, macroeconomic imbalances, and deteriorating conditions of access to the EC relative to other nonmember countries. Given their supply patterns, they are not among those that stand to gain most from European integration. Estimates on short-run trade effects of EC-1992 suggest that income effects (external trade creation) should be positive for Arab countries because of the higher EC demand for primary commodities but trade shares for the “implementation period” (1988–91) show that such effects either have not yet materialized or were offset by other supply-side constraints. Medium-term effects give reason for concern that Arab countries might be affected by resource-saving technological progress and that such effects might be more important than the terms of trade gains because of lowered prices for imports of capital goods.

Investment flows between the EC and the Arab countries have remained marginal, but Arab investors may find it more attractive after 1992 to invest in the EC rather than at home. Capital drain from the Arab region would make it more difficult for domestic suppliers in Arab countries to benefit from the options of a single market in Europe.

Migration will probably become the most controversial issue in the Euro-Arab dialogue if the single market attracts more migrants than in the past. On this issue, the Arab countries compete for political interest, with East and Central European countries also sending migrants. Given the link between economic transformation and migration, the East and Central European exporters of migrants still attract more political interest in EC circles than do the Arab countries. However, the demographic structures support the hypothesis of larger medium-term flows of migrants to the EC from the south than from the east.

Finally, integration widening toward Eastern and Central Europe poses a new challenge to the Mediterranean preferences. The association agreements with the former Czech and Slovak Federal Republic, Poland, and Hungary put all Arab countries in a less favorable position with respect to access to EC markets than before the collapse of the socialist systems. This is relevant in industries and sectors in which nonmember countries have to queue up owing to binding quantitative restrictions. Textiles and clothing are those industries that could worry Arab suppliers as the three former socialist countries seem to offer promising conditions for export-oriented investors.

Under such conditions, the future of the EC global Mediterranean policy in which Arab countries figured prominently is open to revision. This policy should concentrate more on policy coordination in issues of mutual interest (collective international goods), such as migration, environmental protection, efficient exploitation of cross-border mobile resources, and poverty relief, than on tariff preferences. To restore macroeconomic stability in Arab countries, the EC must open its market multilaterally, expand adjustment assistance, and refrain from any policy that would give rise to polarization effects at its southern borders.

COMMENTS

ASSIA BENSALAH ALAOUI

I would like, first of all, to thank the organizers of this seminar for giving me the opportunity to take part in this important event. My congratulations go as well to Rolf Langhammer, whose excellent paper makes my job easier.

Allow me also to emphasize the complexity of such an exercise. It is hard to analyze the full implications of a process that is still in the making. It is true that in an era of quick changes the Arabs will have to manage—not the end of history, as some have described it—but the acceleration of history, to meet the increasing demands of their growing populations for a better life and genuine political participation.

To remain in the limited framework of this seminar, it is appropriate to stress what we all know: the vulnerability of Arab countries to the impact of the European Community (EC), Although the EC remains their key economic partner, they account for only 3–4 percent of total EC trade. Moreover, their trade balance with the EC has recorded a deficit since 1985; their principal export to the EC, oil (over 90 percent), is subject to declining terms.1 The non-oil producing Arab countries face tremendous development challenges for a fast-growing demography, under extreme financial constraints, and, for the Maghreb, a heavy dependence on the EC. Indeed, the Arab countries’ macroeconomic imbalances and supply patterns do not favor them to gain most from European integration, as Rolf Langhammer argues, but neither does the insecure institutional framework linking the free trade of these countries to the EC. It defeats any feasible long-term development strategy.

Moreover, the preferential status of Maghreb and Mashreq countries declined substantially with the enlargement of the EC to include Greece, Spain, and Portugal. It was further eroded by the extension of the free trade area of the EC/European Free Trade Association (EFTA) to some non-EC member Mediterranean countries. The European agreements, contracted on March 1, 1992 with the three East European countries to establish a progressive free trade zone within ten years, will certainly duplicate this erosion. The option of future full membership is clear. These agreements secure for the East better access to EC markets during the transition period for sensitive products that are also exported by the poorer Arab countries. Also, the financial backing provided through the PHARE program and the European Bank for Reconstruction and Development to restore the East European economies is no match for the marginal package allocated to eight Mediterranean countries. Based on these trends, Langhammer’s overall conclusions do confirm most of the Arab countries’ fears about EC-1992 and their growing concerns regarding integration moving toward Eastern Europe. Allow me at this point to make a few remarks on the analysis proposed by Rolf Langhammer.

The reference periods—1985–88 and 1989–91—are ones in which the price of energy has decreased in real terms, hurting the oil exporting countries’ budgets; the Maghreb went through a profound financial crisis, mainly in external payment terms, while at the same time structural adjustment plans were being carried out.

This period saw the enlargement of the EC to Spain and Portugal. It was also a period in which the protection levels implemented by the European Community were probably the highest for farm products and petrochemicals, for instance. Accordingly, if this period was somehow disappointing, it does not represent a valid basis for future trends and performances.

On the other hand, the macroeconomic improvements recorded by countries like Morocco and Tunisia, albeit still modest, have not been taken into account. The evolution, for instance, of EC-Moroccan trade contradicts some of Mr. Langhammer’s findings as do the EC investment flows into that country.

The evolution of demand within EC-92, as foreseen in the paper, is probably more optimistic than the looming recession will allow.

The implications of the full integration of Spain and Portugal (in 1996) have not been estimated.

The overall assumed impact of the EC openness toward the East remains ambiguous. What would be the impact of an “improved” income in the East European countries on their trade with the Arab countries? Could it increase, for instance, our exports of energy and farm products to that region?

Finally, the potential changes in international and regional environments and their implications for Euro-Arab relations were not touched upon. What impact would the conclusion of the Uruguay Round negotiations have on European-Arab trade?

What would be the potential changes in the Arab region itself if peace talks were concluded, or if Arab cooperation in general and in the Gulf Cooperation Council (GCC) area and the Maghreb in particular were reinforced?

Much more concrete and predictable is the change within the interregional framework. The new cooperative approach, initiated by the EC with Morocco (to be extended to Tunisia and in due course to Algeria) will certainly alter the scope and the structure of the global relations of the subregion with the EC. Before discussing that issue, it is appropriate to focus on the Arab subgroups identified. The oil criteria appear valid for differentiation within the Arab region, at least as far as trade and investments are concerned.

The Arab oil producing countries enjoy an undenied advantage in their relations with the EC, which depends on them for almost half of its oil imports. This group is qualified by Rolf Langhammer as “relative gainers” from EC-92. He estimates that they could be forced to incur a terms of trade loss, not to lose market shares in chemical industry products, given the projected high gains to EC producers in that sector. Nevertheless, their exports in that particular field remain marginal. Oil actually represents a very high proportion of EC imports from Arab countries. It is not hampered by any new EC norms, unless the highly controversial eco-tax of $2 a barrel is established. New security norms to be respected by tankers may also prove detrimental.

The question evolves around the future levels of oil consumption in the Community. In the medium run, these should be fostered by the dynamic effects of EC-92. A European GDP growth of 5 percent a year should increase EC energy imports by 1.5–2 percent a year. The Arab countries are in a position to benefit most from this increase. The overall gain should not exceed $2 billion.2 The GCC countries have the largest resources. Algeria is linked to Europe by long-term gas supply contracts and by an important network of gas pipelines through the Mediterranean. This advantage will be further enhanced when the ambitious project to supply Spain and the rest of Europe, through Morocco, via another gas pipeline is carried out. The rules of origin established since December 31, 1979 for oil products from Algeria exempt these products from customs duties and the quota system, as does the European Coal and Steel Community (ECSC) agreement between the EC and Algeria for iron ore. Faced with severe external debt and a domestic crisis, however, Algeria does not seem in the best position to compete for the foreign investment and financial backing it badly needs. The other Maghreb oil producing country, the Libyan Arab Jamahiriya, depends heavily on its oil exports to the EC.3 Its oil products are subject to duties and quotas, since the Libyan Arab Jamahiriya has no particular agreement with the EC, but crude oil, which is its principal export (77.5 percent), is not.

Long-term prospects seem dimmer for energy exports to the EC. As Langhammer argues, energy savings through technological progress and environmental regulations could lead EC producers to reduce consumption levels. How far the implied losses could be offset by potential higher energy costs and lower EC export prices is still unknown. Indeed, the Arab countries will benefit, like all other countries, from lower import prices owing to fierce competition in world capital goods markets, which are the bulk of their imports from the EC. The 6 percent decrease in prices owing to the dynamic effects of EC-92 will still have to materialize. The looming recession might force the experts to lower this figure. Lower prices for EC services might, on the other hand, boost Arab imports to meet their increasing demand in that sector.

Trade Effects

Non-oil producing Arab countries are presented by Langhammer as “relative losers” from EC-92. In fact, their relations with the EC are more complex and their dependence heavier, as will be the full implications of EC-92. Much more than for the other Middle East countries, EC-92 and the integration widening to the East mean more severe norms to comply with and fiercer competition for market shares and for foreign direct investment. They cannot meet this challenge without carrying out the appropriate reforms and transformation of their economies. Some of them have already started.

The implementation period, 1988–91, is also a period in which the preferences of those countries had eroded due to enlargement of the EC, despite the specific measures taken. However, the Mashreq countries did not lose their market shares in EC non-oil imports and the Maghreb countries managed to raise theirs by 0.6 percent. Overall estimates for trade effects after 1992 are contrasted. A 1989 survey shows substantial reductions in exports to the EC by most Arab countries, boiling down to a financial loss of over 268 million European currency units (ECUs). These pessimistic prospects are confirmed by some Arab League studies. On the other hand, Davenport and Page,4 and more recently Page5 establish gains—not losses—for the Mediterranean region and the Maghreb. Small trade gains indeed: ECU 250 million for the Mediterranean, including ECU 80 million for the Maghreb over the period 1993–98. The commodity export gains, it is argued, are partly offset by losses in manufactures. Prospects for commodities raise hopes for the short run, but concerns for the longer run. A report by the United Nations Industrial Development Organization (UNIDO) estimates that additional EC imports of commodities should not exceed $5 billion (6 percent of present imports). Only Mauritania for iron ore, and Morocco, Tunisia, and Jordan for phosphates would benefit from this increase. Their overall gains should be about $100 million.

The longer-term effects of EC-92 might inhibit further growth of commodity imports owing to reductions in resource inputs and to environmental considerations. Under the combined effect of the Common Agricultural Policy (CAP) and of environmental concerns linked to new fertilizer strategies, European consumption of phosphates is assumed to decrease—from now to the year 2000—by 16–26.5 percent.6 Great efforts are being made by the Arab phosphate exporters, and especially by Morocco, to promote scientific and technical use of this commodity to comply with sustainable development requirements.

Manufactures is another kind of a problem. The EC Commission itself estimates that EC demand for manufactures should decrease by 10 percent.7 Besides trade diversion to EC countries, trade diversion to the East European countries under the European agreements is to be expected. Competition will be intense, given the clear privileges granted to these countries.

Textiles and clothing represent the main exports to the EC for Morocco (48 percent), Tunisia (35 percent), and Egypt. It is too complex a sector to do justice to in this limited space.8 However, what is worth mentioning is that the self-limitation arrangements with the EC certainly inhibit the further growth of this sector, although they have improved over the years. For a country like Morocco, for instance, only trousers are still subject to quotas.9

It is also argued that Community-wide quotas would be detrimental to Maghreb suppliers, which might lose their “historical” privileges of “free” access to the hitherto overprotected French market. In any case, the phasing-out of the MFA will introduce worldwide competition, which will certainly be intense from the larger Asian suppliers. Egypt might suffer less, given the high quality of its long-fiber cotton goods. The others will have to significantly improve the quality of their products.

According to Page, fast-growing exporters of manufactures may take more advantage of the medium-term options offered by the EC-92 than exporters of commodities. Some Arab countries do belong to this group. EC-92 may, in reality, seem much more of a challenge and an opportunity for Arab exporters to improve the competitiveness of their products and economies for the benefit of domestic consumers as well. Community-wide norms are, at times, perceived as additional obstacles to entering EC markets. Even if these markets are more demanding, in both quality and security, it will certainly be simpler for exporters to comply with a much more limited number of norms (2,000 is the figure estimated for 1993 instead of the previous 27,000).10 This evolution will oblige the captains of Arab industry to keep an eye open for Brussels regulations and decisions. Suppliers from the Maghreb could also take advantage of the close links they have established over the years with their fellow Europeans. All Arab countries will have to better penetrate the distribution networks, a sector expected to undergo considerable restructuring under EC-92. Joint ventures, strongly encouraged by the new European-Maghreb approach, will be a powerful tool to achieve that goal.

Equally prominent for Maghreb exporters is the issue of farm goods. CAP regulations will certainly remain a stumbling block, despite the increased flexibility expected from the combination of the CAP amendment and the Uruguay Round negotiations. Morocco and Tunisia, which are greatly concerned, will need expertise and talent to defend their exports in that sensitive sector. Given the differences in climate, the European agreements do not seem as much of a threat to the Maghreb as has sometimes been argued.11 Much more threatening for Arab countries will be the European agreements in the field of competition for foreign risk capital.

Investment Effects

Langhammer argues that Arab countries have failed up to now to attract substantial capital from EC member states. They may in future suffer from the growing attractiveness of the EC itself (and its EC/EFTA free trade area) to host foreign investments, including a capital drain from their own region.

There is not much to add to such a prospect, but we can only hope it does not materialize. Nevertheless, I will make a few comments on some points Rolf Langhammer touched upon briefly, and perhaps provide some additional information. Among the implications of the dynamic effects of EC-92, “European companies and those from other industrialized countries will, in fact, have numerous reasons to prefer EC rather than the Third World for their investments,” as Emmerij puts it.12 But some EC hosts may lose in competitiveness, as shown by Langhammer. Morocco and Tunisia seem in a position to be successful candidates for such outflows of capital. They have actually succeeded in doing so already, in export-oriented, labor-intensive industries like textiles and clothing. They have managed also to benefit from a “trickle-down” effect from neighboring Europe, contrary to what Langhammer states. In a country like Morocco, where investment flows from the EC have increased by 50 percent in the last three years, France was still the first foreign investor in 1991. Spain, whose economy was boosted by EC membership, has considerably increased its investments in Morocco (reaching the third rank among foreign investors), as has Italy in Tunisia. Some large French and Spanish companies have launched joint ventures with a few Moroccan companies in the sensitive sector of export-oriented farm goods—an interesting trend for more than one reason. Beyond the numerous implied gains for Morocco, in terms of labor creation, skills training, technological transfers, quality improvement, and so forth, it may be the key to securing the presence of Moroccan products on European markets. Certainly, this evolution will not wipe out the opposition and lobbying by the European peasants against Moroccan products. Even some EC members are occasionally victims of such procedures.13 But the process once initiated may in time promote interdependence rather than dependence and may ultimately help cooperation to prevail over confrontation.

At this point, allow me to elaborate briefly on the nature of the relations between the two rims of the Mediterranean and particularly between Europe and the Maghreb region.

Global Relations

Beyond the asymmetric relationship between the EC and the Arab countries, what is at stake cannot be approached through simple quantitative terms and arithmetic gains and losses. The figures are certainly important to have in mind—especially when they are so detrimental to the free trade Arab countries and so marginal for the EC—but what is really involved is the global stability of the Euro-Arab region. This aim can certainly not be achieved without lowering the prosperity gap within individual nations in the south, and between the EC and its southern “frontier,” nor can the latter be achieved by market rules alone.

The oversensitive human dimension and concerns with security have to be duly reckoned with. One of the basic motivations of the Spanish-Italian policy stance was certainly the trade-off: more investment in the southern shore for less migration toward the north. This argument is also strongly behind the U.S. strategy toward Mexico: short-term financial backing and debt-reduction through the Brady Plan to restore the severely damaged Mexican economy, and a longer-term free trade area through the NAFTA. This multiple-aim strategy is expected, among other things, to provide work for potential migrants in their own country, stabilize the extensive U.S. southern frontier, and also improve U.S. competitiveness vis-à-vis Japan and Europe.

Along with the deepening of its own integration, Europe had to make the appropriate adjustments to meet the new responsibilities implied by the collapse of communism. But its “external” attention—under the drive of cultural solidarity and a powerful Germany—seems to be monopolized by the East, newly born to democracy and to a market economy. As legitimate as these priorities may be, they have led to sheer indifference toward the Mediterranean frontier. Benign neglect of this fragile southern “front” may prove highly detrimental to Europe’s overall security and prosperity. In a world reduced to a “global village,” Europe cannot lock itself in its shell of prosperity when other needs are crying out at its door.

Although immigration was largely encouraged up to the early 1970s, it is now opposed by Europeans. No longer needed because labor markets are closed, it is no longer desired because xenophobia is rising. The integration of large Muslim communities with distinct cultural and religious differences may prove difficult to implement. But European policies, in this respect, have been restrictive rather than integrative. No containment strategy, as promoted by strict visa policies to prepare for EC-92 and by the “Schengenland,” can alone put an end to the overwhelming trend of migration to Europe. The underlying factors have to be properly addressed to keep the candidates in “self-imposed” exile in their own countries.

This remark raises the global equation of the Maghreb situation, the closest Arab neighbor of the EC and present in Europe through its Community ties. There is not enough time to elaborate on this complex issue here. I can only say that the Maghreb is increasingly analyzed in terms of “risks.” These risks do indeed vary, in their nature and degree, from one country to another. Mainly demographic, social, and economic, they are inherent in the very process of modernization and political change that the whole developing world is facing. Most feared of all, religious fundamentalism (responsible for the open crisis in Algeria) is itself nourished by economic frustrations. As distinct from “threats,” where military means are necessary, these “risks” have to be addressed by a wide range of measures within development strategies. Although these remain the prime responsibility of Maghreb policymakers, they are certainly inhibited by the heavy dependence on the EC and the prevailing cooperation schemes.

The vital link between the concept of security and the process of development is too well established to be repeated here. Stability and development in the Maghreb are certainly a component of overall European security; they cannot be met by lip service. I would like to conclude by discussing the new approach initiated with Morocco and extended recently to Tunisia, hoping it will be help to clarify the situation.

EC-Morocco : A New Framework

Substantial implied gains for both partners are expected from the new approach to relations between the EC and Morocco. It is of course too soon to evaluate the potential impact, as the concrete terms of the agreement are soon to be negotiated. It is supposed to be a turning point, launching an era of political and economic partnership. It should be very close in substance to the European agreements without, of course, the full membership option. The application Morocco had made to the EC in 1987 had been turned down on the basis that Morocco was not a European country. The transitional period toward a free trade zone should cover up to 12 years. Safeguards and the progressive dismantling of barriers should allow the appropriate adjustments and the reinforcement of the Moroccan economy to take place without major disruptions.

Ample challenges will certainly have to be faced. Among them are, immediately, much lobbying and diplomacy to convince the reluctant member states of the validity of Morocco’s claims to meet their own self-interests—not so easy to achieve—since its main “sponsors” and advocates in Brussels—the Mediterranean European countries—are Morocco’s competitors in sensitive products. Second, carrying out properly the most difficult negotiations ever undertaken in Moroccan history, followed by much sweat and tears for the lame-duck companies and for some sectors (about 40 percent of the manufacturing industry is estimated to disappear and about 20 percent to incur severe damage in order to survive); there are prospects of much suffering also for the important underground economy, which will have to be absorbed; compliance with stricter norms and a greater respect for property rights and copyrights; upgrading the transport and communications infrastructure and also improving managerial techniques; rationalizing administrative procedures and harmonizing and completing legislative measures; and reducing macroeconomic imbalances and adapting the whole production pattern to new realities. In sum, tremendous changes have to be made ultimately to secure some competitiveness with giants!

Finally, legal matters in the state have to be reinforced, a greater respect for human rights secured, and democratic improvements implemented in the wake of the changes in the Constitution of September 1992. Even if we genuinely consider that major reforms—through structural adjustment measures backed by many other policies and reinforced by trade liberalization—have paved the way during the last decade, a huge task remains.

But what is at stake is worth it, for the new vision means much more hope for all. The new relationship with the EC is backed by a consensus of Moroccan public opinion. Morocco’s link with a much larger area should involve a number of gains, and above all, a green light for a long-term coherent national development strategy. This strategy still has to be devised by Moroccan policymakers once the precise content of the new framework is defined. We cannot demand coherence of our partners and be severely lacking in such a virtue ourselves. A green light is also expected from this link to foreign capital for direct investment, including non-EC, and to Moroccan emigrants’ savings; modernization of the economy, transfer of technological and training skills, and quality gains; and better incorporation into the European distribution networks, mainly through partnership. These are some of the salient issues that can be perceived at this stage.

One can legitimately wonder why Morocco has been the first choice of partner for the EC’s change of vision. Beyond the particular context of the proposal (refusal of the European Parliament of the fourth financial protocol for Morocco in January 1992 and the use by Morocco of the fishery agreement), a few reasons can briefly be sketched. The move toward a more comprehensive approach by the EC came in fact in response to Morocco’s long-standing claim, but also from the recognition, albeit late, of Morocco’s specific accomplishments. Morocco engaged, as early as the 1980s, in harsh reforms to reinforce the basic options of political and economic liberalism operated since independence. The results have been judged satisfactory by most observers, including the institutions present here. We have had to pay a high price for such relative success, in terms of external debt, still to repay, and in terms of social deficit, still to make up for.

If I recall these facts, it is not to apologize for my country. I have already mentioned what tremendous tasks are in store to ensure the well-being of all Moroccan citizens. But it is is only to say that if the East can benefit from Europe’s fears, we Arab countries, to improve our status with our main partner, Europe, can only rely on the confidence and reliability we can convey. We still have to carry out or continue economic and political reforms, settle our conflicts, and enhance our regional cooperation. This recognition will certainly encourage our partners to bear their share of responsibility. “The European Community and each member state need to recognize that to dismiss problems of the Arab world as peripheral to its own concerns is shortsighted.”14 The proximity of the Arab world demands a coherent response, a long-term vision of our common future, and a concerted program of action to address immediate perils. Allow me to state the obvious when I say: becoming closer may be the only way to avoid being torn apart.

MABID AL-JARHI

I would like at the outset to express my appreciation to Mr. Langhammer for his valuable paper, which offers a good review of Euro-Arab trade relations, while showing how they can be affected by the deepening and widening of European integration. The importance of the study stems not only from the historical relations between the two regions and the common interests they share, but also from the timely issues underlying the topic of the study, both theoretically and empirically. I will therefore first discuss the paper’s conclusions and then the economic policy implications for Europe as well as for the Arab region.

The paper limited itself to Euro-Arab trade relations and migration issues. With the exception of the investment issues, it did not deal with financial and banking relations. I will therefore start by commenting on the paper’s conclusions in relation to trade and labor migration, before outlining the main features of financial and banking relations.

Trade Relations

The paper presents the following results regarding the future of Euro-Arab trade relations.

  • The Arab countries face, alongside their trade relations with Europe, supply-side constraints as well as internal economic imbalances. In addition, the terms of their entry to the European market have deteriorated relative to market members.
  • The increase in income associated with the unification of the European market could have led to larger Euro-Arab trade (the income effect). This, however, did not materialize because of supply constraints.
  • In the medium term, resource-saving technologies in Europe could lead to lower demand for Arab products, especially oil. This effect appears to exceed the gains from the expected improvements in Arab terms of trade with Europe, which might result from lower prices for Arab imports of European capital goods.
  • Trade preferences given by the European Community (EC) to the Mediterranean Arab countries have been eroded following the agreements recently concluded between the EC and the East European countries.

In the light of these results, the paper calls upon the EC to assist the Arab countries to regain macroeconomic stability by opening the European market to Arab products on a multilateral basis, as well as providing more support for adjustment programs. In addition, it calls for a new European policy in line with both Arab and European interests in the Mediterranean basin, focusing on coordination in the fields of migration, environment protection, poverty relief, and exploitation of cross-border mobile resources, rather than on tariff preferences.

In this regard, it is worth noting that the paper refers to the relatively less importance of the Arab market to the EC, as the Community draws from the Arab market only 9 percent of its total imports and directs to it only 11 percent of its total exports. However, the EC is the main trading partner of the Arab world, as 32 percent of Arab exports were directed to the EC in 1991, compared with 35 percent in 1985, and 42 percent of Arab imports came from the EC in 1991, compared with 41 percent in 1985. It must therefore be stressed that trade relations with Europe have special importance for the Arab countries.

Also, the paper overemphasizes supply constraints and imbalances in Arab economies, whereas most of the blame should fall upon the structural inadequacy of the European trading system, particularly with regard to subsidies and quantitative restrictions, which directly threaten Euro-Arab trade relations.

A special source of concern is that those relations have witnessed a number of unfavorable developments as a result of the completion of the European market, including the removal of trade preferences that had been given to some Arab exports after many years of dialogue and negotiations; the cancellation of the preferential quota system applied by France on the exports of Arab Maghreb textiles and clothes; the inaccessibility of European markets to Arab products because of subsidies and quantitative restrictions; and the possibility of decline in European demand for Arab oil, owing to policies of energy conservation, increasing use of non-Arab oil sources, and the attempt to bypass the carbon tax.

As noted, since the Arab trade deficit vis-a-vis the EC countries reached $5.2 billion in 1991, compared with a trade surplus of $36 billion in 1980, the fear of a continuing deterioration of the Arab trade balance with Europe becomes justifiable.

The recommendations provided by the paper seem to be reasonable. Yet they require further strengthening through clear European policies aimed at introducing structural reforms to the European trade regime, including the elimination of export subsidies and quantitative import restrictions, especially against the Arab countries. In addition, the EC countries must do their best to reduce the level of protectionism with the completion of the European market, to compensate for the trade diversion effects of their economic integration, and to promote competition within their own industries.

It is rather unfair for the Arab countries to find that their trade gains realized through years of Euro-Arab cooperation have suddenly evaporated. Those gains should as a minimum be maintained. In addition, the EC can take part in encouraging regional and subregional cooperation among the Arab countries, as it would lead to intratrade liberalization, and in the long run would facilitate future Euro-Arab cooperation.

In parallel, the Arab countries are called upon to persist in reforming their economic systems in a manner that would strengthen their relations, based on both liberalization and outward orientation. They are also urged to negotiate with the EC as one bloc, as the gains from trade liberalization increase as its scope widens, and as more Arab as well as European countries are included.

Migration Issues

The paper dealt with a number of migration issues, especially the expectations of unfavorable changes in attitudes toward Arab workers in Europe in favor of migrant workers from Eastern Europe.

Arab workers in Europe have already been exposed to several pressures, including the imposition of tougher procedures to obtain residence visas and the provision of financial incentives to return to their home countries. The preferential treatment they have enjoyed in France, Belgium, and Spain may also be lost as a result of the unification of labor, employment, and entry regulations across the EC.

Financial and Banking Relations

Despite the importance of financial and banking relations, the paper did not touch on them. Arab banks operating in the EC countries have been one, if not the most important, of the Arab investment channels in Europe. They have 190 banking institutions, representing an investment of close to $4 billion. In comparison, there are about 120 branches of European banks operating in the Arab countries, most of which are from the EC. They attract about 10 percent of Arab banking activities. In addition, the liabilities of European banks toward four Arab countries (the United Arab Emirates, Saudi Arabia, Kuwait, and Iraq) approached $45 billion in 1990, mostly in deposits.

There is concern that Arab banking activities in the EC may face difficulties owing to the application of the principle of reciprocity, as it would be rather difficult for some Arab countries to open up their markets completely to foreign banks, and especially that European banking activities in the Arab countries assume a larger proportion than their corresponding activities in the EC.

The paper also pointed out that the completion of the European market could attract a large proportion of Arab investment out of the region. In the same manner, European investment flows toward Arab industries could retreat in favor of a larger and more integrated European market. In addition, the EC adheres to the classification of the Arab countries (except for Saudi Arabia) as relatively high-risk countries. This can undoubtedly raise difficulties in the face of new European investment flows to the Arab region.

Also, more European aid and loans to finance Euro-Arab trade and to support Arab economic development—particularly in the agricultural sector—had been expected in the light of the EC proposal to consolidate all outstanding bilateral agreements to coordinate aid on a regional basis. Nonetheless, the rate of interest on the financing of risk capital has been raised from 1.0 percent to 2.5 percent. The EC has also started, as Mr. Langhammer pointed out in his paper, to limit aid to government budgetary requirements within an economic adjustment program. Naturally, this would further tighten aid conditionality and procedures. Besides, EC aid directed to the Arab region may decline in favor of aid to Eastern and Central Europe.

Finally, the best development aid that the EC can possibly provide to the Arab countries is to open the European market to Arab products. This can only be accomplished through the reorientation of European commercial, agricultural, and industrial policies toward a greater degree of openness vis-à-vis the Arab region. The ongoing economic adjustment efforts in a number of Arab countries and the continuous attempts to reach integration at the regional and subregional level could create the appropriate climate for greater movements of goods and capital between the EC and the Arab countries.

List of Participants
  • Moderator
    • Said El-Naggar
    • Professor Emeritus
    • University of Cairo
    • Egypt
  • Authors
    • Ahmed Abisourour
    • Arab Monetary Fund
    • Abu Dhabi
    • Mohamed El-Erian
    • International Monetary Fund
    • Washington, D.C.
    • Ghassan El-Rifai
    • Multilateral Investment Guarantee Agency
    • Washington, D.C.
    • Stephen Heyneman
    • World Bank
    • Washington, D.C.
    • Tayseer Abdel Jaber
    • Former Executive Secretary
    • Economic and Social Commission for West Asia
    • Amman, Jordan
    • Rolf J. Langhammer
    • Kiel Institute of World Economics
    • Kiel, Germany
    • Shamsuddin Tareq
    • International Monetary Fund
    • Washington, D.C.
    • Mostafa K. Tolba
    • Former Executive Director
    • United Nations Environment Program
    • Nairobi, Kenya
  • Discussants
    • Assia Bensalah Alaoui
    • Professor of Law
    • Rabat, Morocco
    • Mohamed Al-Amin Fares
    • Arab Labor Organization
    • Cairo, Egypt
    • Mabid Al-Jarhi
    • Arab Monetary Fund
    • Abu Dhabi
    • Salah El Serafy
    • World Bank
    • Washington, D.C.
    • Mustapha Kara
    • Arab Monetary Fund
    • Abu Dhabi
    • Badr Malalla
    • Arab Fund for Economic and Social Development
    • Kuwait
    • Samih Masoud
    • Arab Organization for Investment Guarantees
    • Cairo, Egypt
  • Participants
    • Ghazi Abdul-Jawad
    • Gulf International Bank
    • Manama, Bahrain
    • Abdulla Daud Abdulla
    • Central Bank of Oman
    • Oman
    • Abdulla Alattiya
    • Qatar Monetary Agency
    • Doha, Qatar
    • Hassan Al-Ebraheem
    • Kuwait Society for Arab Children
    • Kuwait
    • Yousef Al-Ebraheem
    • Professor of Economics
    • University of Kuwait
    • Kuwait
    • Abdulbar Al-Gain
    • Meteorological and Environmental Agency
    • Jedda, Saudi Arabia
    • Taleb Ali
    • Consultant
    • Kuwait
    • Abdel Rahman Al-Jaafari
    • Consultant
    • Doha, Qatar
    • Ali Al-Khalaf
    • Ministry of Finance and Economy
    • Doha, Qatar
    • Jassem Al-Manaie
    • Gulf Investment Organization
    • Kuwait
    • Majed Al-Moneef
    • Professor of Economics
    • King Saud University
    • Riyadh, Saudi Arabia
    • Abdulla Al-Mulla
    • Gulf Cooperation Council
    • Riyadh, Saudi Arabia
    • Abdulla Al-Nibari
    • Member of the National Assembly
    • Kuwait
    • Juma Ahmed Al-Salami
    • Chairman, Business and Economists Association
    • United Arab Emirates
    • Yousef Al-Shirawi
    • Minister of Development and Industry
    • Manama, Bahrain
    • Mohamed Al-Tawail
    • Institute of Public Administration
    • Riyadh, Saudi Arabia
    • Yousef K. Al-Yousef
    • University of the United Arab Emirates
    • Abu Dhabi
    • Henri Azzam
    • Consultant
    • Jedda, Saudi Arabia
    • Fakhri Bazzaz Professor
    • Harvard University
    • Cambridge, Massachusetts
    • Adnan N. Bseisu
    • Consultant
    • Manama, Bahrain
    • M.J. Chadwick
    • Research Director
    • Stockholm, Sweden
    • Ahmed Dhakkar
    • UNDP Resident Representative
    • Manama, Bahrain
    • Soraya Ahmed Ebaid
    • Economic and Social Commission for West Asia
    • Amman, Jordan
    • Mohamed Al-Awad Jalal El-Din
    • Consultant
    • Khartoum, Sudan
    • Ali Fakhro
    • Minister of Education
    • Manama, Bahrain
    • Mohamed Finaish
    • International Monetary Fund
    • Washington, D.C
    • George Houranieh
    • Former Minister of Economy
    • Damascus, Syria
    • Idriss Jazairy
    • Former President
    • International Fund for Agricultural Development
    • Rome, Italy
    • Taher Kanaan
    • Industrial Bank
    • Amman, Jordan
    • Gouda Abdel Khalek
    • Professor of Economics
    • University of Cairo
    • Cairo, Egypt
    • Mohamed Kherbash
    • Ministry of Finance and Industry
    • United Arab Emirates
    • Jaafar Hamed Mohamed
    • Ministry of Planning and Development
    • Sanaa, Yemen
    • Yacoub Mohamed
    • Arab Monetary Fund
    • Abu Dhabi
    • Saleh Nsouli
    • International Monetary Fund
    • Washington, D.C.
    • Awad Al-Kareem Osman
    • Central Bank of Sudan
    • Khartoum, Sudan
    • Abdel Kareem Sadek
    • World Bank
    • Washington, D.C.
    • Siddig Abdel Majeed Salih
    • World Institute for Development and Economic Research
    • Helsinki, Finland
    • Abdulla Saudi
    • Arab Bank Corporation
    • Manama, Bahrain
    • Salwa Soliman
    • Professor of Economics
    • University of Cairo
    • Cairo, Egypt
    • Umayya Toukan
    • Financial Market
    • Amman, Jordan
    • Abdel Hassan Zalzala
    • Consultant
    • Ottawa, Canada
  • Arab Fund for Economic and Social Development
    • Abdlatif Al-Hamad
    • Director General and Chairman of the Board
    • Omar Al-Nuss
    • Ismail Al-Zabri
    • Abdel Hameed Al Zikallaie
    • Mervat Badawi
    • Sami Iskander
    • Badr Malalla
  • Arab Monetary Fund
    • Osama Faquih
    • Director General and Chairman of the Board
    • Ahmed Abisourour
    • Samir Abyad
    • Mabid Al-Jarhi
    • Mustapha Kara
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    WagnerNorberted.ASEAN and the EC: The Impact of 1992 (Singapore: Institute of Southeast Asian Studies1991).

    YoungSoogil and MoonsooKangeds.The Single European Market and its Implications for Korea as an NIE (Seoul: Korea Development Institute1991).

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1In 1991, the west German share in extra-EC non-oil imports was 30.6 percent compared with 26.8 percent three years previously. Such a rapid increase was partly due to the “once-and-for-all” effects of rising domestic absorption in the aftermath of German reunification. However, it may also reflect Germany’s expected role as a leading beneficiary of the single market.
2Davenport and Page (1991, pp. 85–89) painstakingly discuss such changing access for a number of products exported by Morocco and Tunisia, such as horticultural and fish products, textiles and clothing, and oil refining.
3For such an analysis of U.S. and Japanese investment flows to the EC, see Langhammer (1991) and Gundlach and others (1993).
4In quantitative terms, portfolio investment from Arab countries in the EC seems to have been much more important than FDI, judging from scattered information. But given the volatility of such flows and their short-term determinants, it is not possible to relate them to EC-1992 measures.
5Since the beginning of falling world oil prices in 1982 many Arab countries have moved into a crisis of reconciling present living standards and domestic absorption with the lack of foreign exchange earnings (Overseas Development Council, 1991; Overseas Development Institute, 1992).
6Between 1975 and 1990, the natural rates of growth of population amounted to 3 percent in Algeria, 4.3 percent in Libya, 2.7 percent in Morocco, and 2.6 percent in Tunisia and Egypt, compared with 0.2 percent in the northern part of the Mediterranean basin. Although in 1950 the European countries of the region still accounted for 55 percent of the total population in the region, it is estimated that by the year 2025 this share will have declined to 40 percent (Di Comite, 1990).
1The trade deficit was $11.89 million in 1988; see Bichara Khader, “L’Europe et le Monde Arabe: Cousins, voisins,” Quorum (Cermac, France, 1992), Annex IV. 1, p, 203.
2Ibid.
3The EC absorbs 84.4 percent of Libya’s total exports, oil representing 95.6 percent of that share.
4Michael Davenport and Sheila Page, Europe: 1992 and the Developing World (London: Overseas Development Institute, 1991).
5Sheila Page, “Some Implications of Europe 1992 for Developing Countries,” OECD Technical Papers, No. 60 (April 1992).
6World Institute for Phosphates. The survey presents three scenarios that might lead to a 16 percent reduction, or a 19 percent reduction, or a 26.5 percent reduction.
7European Community, “The Economics of 1992,” European Economy. No. 35 (March 1988).
8Among numerous recent studies is “Le fil d’Ariane,” in Enjeux(Morocco), No. 46 (November 1992), pp. 48–61.
9According to the EC this quota is largely bypassed by real exports.
10Moroccan Center for Conjuncture, “The European Single Market: What Predictable Implications for Moroccan Entrepreneurs,” in Letter (December 1992), p. 11.
11The three East European countries were granted access to EC markets for CAP products like beef, pork, lamb, dairy products, potatoes, grains, and oilseeds. Except for potatoes, exported by Morocco, the Maghreb countries do not produce enough of these products for their own consumption.
12Louis Emmerij, “Nord-Sud, la grenade dépouillée,” First, Paris (1992), p. 41.
13Spain’s strawberries and Italy’s wines, for instance, are subject to intense boycott by French producers.
14David McDowall, ed., “The European Community and the Arab World,” Europe and the Arabs: Discords or Symbiosis? Royal Institute of International Affairs, Middle East Program (1992), p. 39.

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