Prospects for Greater Global and Regional Integration in the Maghreb Peterson Institute for International Economics Washington, DC May 29, 2008 Remarks of Stuart E. Eizenstat Introduction I would like to thank each of you for coming here today for the unveiling of these important studies on the prospects for economic integration in the Maghreb region of North Africa. I would also like to thank Fred Bergsten and Mostafa Terrab for hosting this event, and Gary Hufbauer and his colleagues at the Peterson Institute, IFPRI, and IEMED for performing this timely research. As some of you may know, I have a long and personal commitment to this afternoon s topic. While serving as Under Secretary of State for Economic Affairs in the Clinton Administration, I launched the U.S.-North Africa Economic Partnership, which became known as the Eizenstat Initiative. The goal of that initiative was to develop a closer relationship between the United States and the countries of the Maghreb and to encourage increased trade, investment and job creation. Because of the diplomatic situation at the time, however, neither Libya nor Mauritania was included. The current Administration has not in any way repudiated that initiative, although it has been largely subsumed in the Administration s Middle East Partnership Initiative. I have long been interested in renewing my work on economic development in the region because many of the problems that existed a decade ago remain, and the region faces a major new challenge in the form of spreading extremism and terrorism. To address these old and new challenges, I recently have begun work on a new, broader initiative that includes all countries of the region: Algeria, Morocco, and Tunisia, as well as Libya and Mauritania. This initiative has a dual focus. First, it is intended to encourage closer economic integration among the countries of the region. Second, it is intended to promote closer economic ties between the region and the broader world economy, in particular the United States and European Union. I am particularly pleased that the new diplomatic reality allows the inclusion of Libya and Mauritania. This is an important development. My hope is that this new initiative will focus the kind of attention on the Maghreb that the region deserves. There can be little doubt that increased economic opportunity for the Stuart E. Eizenstat chairs the international practice of Covington & Burling LLP. He was U.S. Ambassador to the European Union, Under Secretary of Commerce for International Trade, Under Secretary of State for Economic, Business, and Agricultural Affairs, and Deputy Secretary of the Treasury during the Clinton Administration from 1993-2001. He also served as chief White House domestic policy advisor to President Carter.
people of the Maghreb will improve their lives and contribute to international peace and security. The studies being unveiled today are a key part of this effort. They help to identify the barriers to, and potential benefits of, greater economic integration. Specifically, they show that comprehensive economic reform, including reducing tariff and non-tariff barriers and working towards regulatory harmonization to create a more positive investment climate, will yield increased economic opportunity for the region. I am very pleased to have come to know Mostafa Terrab. We share the belief that economic development in the region will benefit the people and the private sectors in each of the five Maghreb countries. My work is not American or Moroccan in outlook. My objective is to work for the benefit of all five countries of the region. During my brief comments today, I would like to touch on three topics: first, the political economy of the Maghreb; second, the prior efforts at integration in the region; and, third, the comparable experience with integration in Southeast Asia and Central America, which may serve as a potential model for the Maghreb. Political Economy of the Maghreb The Maghreb experienced average annual GDP growth of 2.5 percent from 2001-2005, which is disappointing in comparison to the results in other developing regions such as South Asia and East Asia. The Maghreb faces numerous political and economic challenges. There is limited cross-border trade and investment in the region. The countries of the Maghreb region trade little with each other. According to a recent World Bank study, intra-regional trade among the Maghreb countries was only 1.3% of their total merchandise trade in 2004. This is one of the lowest rates in the world for any region. While many tariffs have been reduced, these countries still have many non-tariff and regulatory barriers in place that impede trade flows and investment. Unemployment is high and economic opportunities for the growing demographic bulge of urban, young men are limited. Lack of opportunity encourages radicalization of this major demographic group. Terrorism and extremism, which is on the rise in the region, may, if unchecked, undermine the stability of the region s moderate, pro-west regimes and hurt the region s ability to attract FDI and tourism. In January 2007, an existing terror group called the Salafist Group for Preaching and Combat changed its name to Al Qaeda in the Islamic Maghreb with the approval of the global Al Qaeda network. Since then, the group has utilized new, more deadly tactics, including suicide bombings. The emergence of Al Qaeda in the Islamic Maghreb indicates Al Qaeda s intent to destabilize North Africa. - 2 -
In April 2007, suicide bombers in Casablanca, Morocco and Algiers, Algeria attacked a number of government and US-related targets, killing dozens. In December 2007, simultaneous car bombs were detonated in Algiers, damaging the United Nations headquarters there as well as the country s Constitutional Court. Again, dozens were killed. In February 2008, the group orchestrated an attack on the Israeli Embassy in Mauritania and has claimed responsibility for the kidnapping of two Austrian tourists in Tunisia and is demanding the release of terror suspects in exchange for the hostages. Just last month, officials in Mauritania uncovered a terror cell believed to be affiliated with Al Qaeda in the Islamic Maghreb. The group is suspected of planning attacks on western and government interests in Mauritania. In an effort to combat the terrorist threat, the countries of the region have tightened restrictions on the movement of people and goods at their borders, which has had the unintended consequence of further reducing cross-border commerce in the region and decreasing economic activity. The U.S. and EU likewise have encouraged the Maghreb countries to take anti-terrorism measures, and economic development and integration have consequently been deemphasized. These countries are taking steps to enhance their cooperation on security matters; in my view, these efforts should go hand-in-hand with cooperation on economic matters in order to create greater long-term stability in the region. Some countries lack well-diversified economies. For example, Libya and Algeria are highly dependent on oil and gas. Agriculture remains important, especially in Morocco and Tunisia. Political tensions, particularly between Algeria and Morocco -- which together represent 77 percent of the region s population and 66 percent of the region s GDP -- have limited economic cooperation in the region. Finally, the countries of the region do not necessarily look first to their Maghreb neighbors for close economic relationships, largely because each country has its own unique historical links to the rest of the Arab world, the rest of Africa, and Europe. Regional Integration There have been numerous attempts at integration in the Maghreb, internally and with Europe and the United States. Unfortunately, most have yet to fully realize their objectives. It is worth spending a few minutes to summarize these efforts. Among the countries of the region, there is the Arab Maghreb Union ( AMU ), the Greater Arab Free Trade Agreement ( GAFTA ), and the Agadir Agreement, among others. The AMU, which is the only effort that included all five Maghreb countries, was founded in 1989 to achieve economic integration, which ultimately was to have included a customs union in 1995 and a common market in 2000. Neither goal was met because, first, decisions must be made unanimously and, second, political tensions put a halt to meetings in 1994. More recently, however, there are signs of increased cooperation among AMU members. Since 2005, there have been three Ministerial-level meetings - 3 -
organized by the five Maghreb countries. In 2007, the Foreign Ministers of the AMU countries announced the creation of the Maghreb Investment and Foreign Trade Bank, capitalized at $1 billion, to promote investment, trade, and cross-border economic cooperation. The GAFTA was created in 1997 by 17 of the 22 members of the Arab League, including Libya, Morocco, and Tunisia. The objective was the establishment of a free trade area by 2007. Services and investment are excluded, as are sanitary and phytosanitary measures and technical barriers to trade. Strict rules of origin have been a major obstacle, as has been the approval process for certificates of origin at embassies. The Agadir Agreement of 2004 between Tunisia, Morocco, Egypt, and Jordan, builds upon other agreements like the GAFTA and Euro-Med Association Agreements. It remains open to countries that have Euro-Med Association Agreements and are members of GAFTA. Countries abide by pan-european rules of origin -- which may, however, conflict with GAFTA rules -- and receive technical assistance from the EU. The European Union has Euro-Med Association Agreements with Algeria, Morocco, and Tunisia, and Libya enjoys observer status. The EU would like for Libya to accede, although formal accession negotiations have not begun. Mauritania attends meetings of the Euro-Med Foreign Ministers as a special guest. Good progress has been made in liberalizing merchandise trade, excluding agriculture, but little headway has been made in respect of services and investment. Partners agree to a series of measures to facilitate trade, including the convergence of standards and conformity assessment. The parties are still in the process of implementing these commitments. The Euro-Med Partnership allows for full cumulation of origin between the Maghreb countries. The European Investment Bank is an important source of funding for the Euro-Med Partnership. I am pleased to have been joined here today by both Ambassador John Veroneau, Deputy U.S. Trade Representative, and Assistant Secretary of State for Economic Affairs, Dan Sullivan. The United States has entered into various bilateral arrangements with the countries of the region, which may offer it mechanisms to encourage greater integration. The U.S. has Bilateral Investment Treaties ( BITs ) with Morocco and Tunisia, Trade and Investment Framework Agreements ( TIFAs ) with Algeria and Tunisia, and a Free Trade Agreement with Morocco. The United States and Libya are exploring the possibility of a TIFA and recently have signed a science and technology agreement. Comparison with Other Regional Initiatives In both Southeast Asia and Central America, an acute need for regional political stability played a decisive role in promoting integration, which resulted in the Association of Southeast Asian Nations (ASEAN) and in regional integration efforts in Central America beginning with the Central American Common Market (CACM), which ultimately led to the CAFTA agreement with the United States. Similar forces are at play in the Maghreb. Like Central America, the Maghreb as a unified economic region stands to enjoy enhanced bargaining power regionally and worldwide, particularly with respect to the U.S. and EU. - 4 -
Both Southeast Asia and Central America were able to cope with different economic development levels among their members and internal resistance to liberalization. Both likewise were able overcome differences in internal political systems and differences in relative power. These regions were able to attain significant economic integration in part because they had the assistance of other countries with institution building and trade facilitation. These two examples, while not perfectly analogous, do provide convincing evidence that the challenges faced by the Maghreb today can be overcome to the mutual benefit of its constituent countries -- through increased intraregional trade and investment, as well as large-scale intraregional development projects. Intraregional merchandise trade is 1.3 percent of total merchandise trade in the Maghreb compared to 6.3 percent for CAFTA- DR and 19.2 percent for ASEAN. Regional FDI stock is similar for the Maghreb and CAFTA-DR but much higher for ASEAN. And per capita GDP has increased faster in ASEAN (excluding Indonesia) and CAFTA-DR than in the Maghreb over the past five years. Conclusion The countries of the Maghreb are finding ways to put their differences aside and work together to address common challenges. What I have taken away from my review of the studies being presented today is that a comprehensive approach to economic reform holds the most promise for the Maghreb. This means the countries of the region need to work together not only to reduce tariff barriers, but to focus on reducing non-tariff barriers and on harmonizing regulatory regimes to enhance the regional investment climate. The countries of the region likewise stand to benefit from working with the U.S. and European Union to enhance economic opportunity in the region. Now, therefore, is the time for the international community -- including the World Bank, IMF, the European Union, and the United States -- to encourage and assist the countries of the Maghreb in their efforts to enhance regional economic integration and to help these countries strengthen their economic ties to the broader world economy. - 5 -