Cross-regionalism and MENA countries

In the 1950s, 1960s and 1970s, PTAs were among countries of similar development levels, usually in close geographical proximity, and focused on eliminating tariffs on industrial goods. They took the form of Customs Unions (e.g. the EC, UDEAC, Arab Common Market) or Free Trade Areas (e.g. EFTA, LAIA, the Andean Pact). One exception to this type of regionalism was the EC, which had already started signing some reciprocal trade agreements with countries or FTAs in its proximity (e.g. the 1972 EC agreements with individual EFTA countries). The rest of the EC cooperation agreements with developing countries (such as Mediterranean countries) were non-reciprocal.⁶ The turn to the second type of regionalism at the end of the 1980s was, according to different experts, the result of declining US hegemony and the world economic recession, combined with the demise of the Soviet empire. What was new then was that the US wanted to establish itself as a regional benevolent hegemon in the western hemisphere. Admittedly Latin America had been the backyard (and, for some, the private garden) of the US since at least the 1940s, but with the end of Cold War the US could take a more relaxed view of Latin America. It could, for instance, try to promote democracy and reform in Latin America without taking big security risks for itself. This could be done in a business-like manner by drawing up very enticing FTA agreements for Latin American candidates, namely tariff-free unimpeded and secured access to the largest national market of the world - the US (including agricultural markets). In exchange, Latin American countries would have to respect some US-imposed rules (labour standards, environmental norms, Intellectual Property Rights). Hence the rapidly concluded deal of NAFTA and the proposal for an FTAA (Free Trade Area of the Americas) made by the US government to Latin America. At the same time, the US administrations of the period felt the US could not any longer act as a global hegemon (as had been the case since 1945). As Woolcock showed, in Geiger and Kennedy (1996), in the first half of the 1990s the preoccupation of multilateralists in GATT, and as from 1994 in the WTO, was with the emergence of trading blocs, i.e. contiguous countries forming a region (exemplified by the EU, NAFTA and Mercosur and the project of ANZCERTA⁷) and the possible reaction to all this by ASEAN countries. Among others, this was due to the uncertainty about the fate of the Uruguay Round of multilateral trade negotiations which had started in 1986 and had become stuck at different instances. Another frequently mentioned factor in the relevant literature was the fear of seeing the emergence of Fortress Europe as an outcome of the Completion of the Single Market (the so-called EC1992 programme) together with the perspective of further EU Enlargements. Observe, as well, that the main tensions during the Uruguay Round were between the US and the EU, with middle-income and developing countries wondering if it was no time to get a separate deal with the local hegemon. This was the time of the socalled domino regionalism and the hub-and-spoke systems, popularized in Baldwin et al. (1995) and Baldwin and Venables (1995). Since the formal initiation of the Doha Round in 2001, the fight has been between North and South (around the group of the G-20, captained by Brazil). The fear, then, is no longer that closed trading blocs will emerge as a result of the possible failure of the Doha Round. By now, every developing country has learned (and that includes Morocco, Jordan and Egypt), as some middle-income countries did a while before (e.g. Israel), that whereas a country can belong to only one Customs Union, it can be a member of an infinite number of Free Trade Areas. Nobody can prevent it from doing this - not the US or the EU.⁸ Countries need to be a ‘spoke’ of only one ‘hub’, and they can become a ‘hub’ as well. This dynamic explains the ‘free-for-all’ atmosphere characterizing this new wave of preferentialism, including prominent MENA countries, which is the object of this chapter. It is a development going well beyond the so-called ‘huband-spoke’ pattern. What seems to be emerging now is a multipolar trade system, rather than the multilateral one envisaged by the architects of the WTO a decade ago (Mathis, 2002). Individual PTAs increasingly overlap one with another. This was exceptional in the past but is rapidly becoming the rule now. The hub-and-spoke model tends to disappear or at least to be diluted, not only because there are agreements between the spokes, but also because some of the spokes rebel against their hub by signing with other hubs. Some of them actually become hubs themselves (e.g. Turkey). An answer to the ‘spokes’ rebellion developed quickly in 2001-2002, when the first US George W. Bush Administration launched what was denominated by its USTR Representative of the time, Robert Zoellick, ‘competitive regionalism’ - namely, that the US was open from now on to signing special preferential trade agreements (of course officially conforming with WTO rules and taking the form of FTAs) with any country in the world regardless of its location. The Economist (24 February 2004) reported that since the Cancun Summit ending in total discomfiture at the end of 2003, the US had turned bilateral. The EU did not wait for the ‘rebellion of the spokes’ to unfold when it decided, as from 1999, to try to get a deal with Mercosur. This was violating the unspoken rule of division of the trade world into specific spheres of influence (see the first and second regionalism). At the time it seemed innocuous, as the US had not budged when the EU succeeded in signing a separate FTA deal with Mexico which entered into force in 2000. But maybe the reason for the US passivity then was that the EU presented the agreement as an answer to NAFTA’s trade-diverting potential against the EU. In any case, it is the impatience with the lack of progress at the WTO multilateral level that explains the present race. Pessimism about the fate of the Round reached a high point for the first time after the sine die formal suspension of the negotiations by the WTO’s Director General, Pascal Lamy, on 24 July 2006.⁹ A subsequent meeting of the G-4 (i.e. Brazil, the EU, the US and India), held in Potsdam on 19 June 2007 and failing to produce concrete results, has only confirmed the prevailing pessimistic prognosis for the present Round (see Kohr, 2007). Therefore it does not come as a surprise that some countries have actually felt for quite some time now that they could beat not only some other competing countries in this race but, more to the point, all of them, by betting on the fact that the Doha Round results would and will not succeed, or in any case will take a lot of time to be implemented if at all. Confronted with this development, the WTO Secretariat has sharply reacted by stating that the multiplicity of preferential tariff rates depending on the countries, the groupings or the rules of origin would bring the system to a confusing state of affairs that private sectors would not enjoy (The Economist, 24 October 2003). The multiplicity of rules of origin might lead an exporter to tailor its products in accordance with a daunting array of product-specific criteria in order to reap benefits. In many cases, the exporter might give up. And, as is well known, enforcing origin rules has administrative costs, which in the case of EFTA have been estimated to be around 3% of the value of intra-EFTA and EFTA-EU trade (Baldwin and Venables, 1995: 1635). Moreover, small countries with limited human resources to examine and negotiate trade deals will be disadvantaged (see below).