In Theory: Benefits of the U.S. trade zone proposal

Addressing graduates at the University of South Carolina in Columbia, U.S. President George W. Bush proposed at the end of last week a comprehensive plan for the Middle East including, inter alia, the creation of a free trade zone between the United States and Middle Eastern countries.

Before going into its details and looking into the possibility of its implementation over the next 10 years, this proposal needs further clarifications.

The free trade exchange concept is quite different from the concept of free trade zones that is understood on a wide scale.

The intention here is scrapping customs tariffs completely on trade exchanges between the U.S. and Middle Eastern sides and total liberation of trade in goods and services.

This is certainly considered an extremely significant qualitative development. The huge U.S. market could become a major destination for exports of countries of the Middle East, including the Arab states, as their exports could enjoy enormous competitive advantages because of their duty free entry into the American market.

In addition, this will create real potential for the development of certain Arab industrial and manufacturing sectors that are given production preferences.

In exchange, the U.S. goods will gain further competitive capabilities in the Middle East markets that will result in an increase in U.S. exports to the region's countries enjoying tariff preferences compared with the Arab states' imports from Europe, Japan, China and Asia Pacific countries.

Obligations

Therefore, there are mutual interests arising from the creation of a free trade exchange zone between the United States and Middle Eastern countries.

At the same time, there are significant obligations demanded by the United States before the launch of this free trade exchange zone as understood from the experience of certain Arab states that concluded free trade zone agreements with the United States such as Jordan and Morocco.

The U.S. demands focus mainly on the need to open up various economic sectors, especially the liberation of the service sector, notably banks, insurance and telecommunications companies, tightening control over intellectual property rights, freeing the job markets and reviewing the terms and conditions of employment.

Some of these demands are particularly sensitive to some countries, especially those that have state controlled economies or those that impose high customs tariffs on their imports from abroad.

Modifications

The Arab countries that have a free market system and enjoy economic freedom and open markets will be more capable of reaching such agreement even though they will still need to modify their economic systems, particularly those related to the services and telecommunications services.

Meanwhile, it is noted that there are still quite large economic differences between the regional countries and the commitment to opening up markets and to alter rates of their customs duties are still subject to a great deal of controversy within these countries.

Obviously, further efforts will have to be made to reduce such differences considering that customs duties still represent, in many Arab countries, one of the most important sources of income for their annual budgets.

Moreover, there are certain factors that could contribute to speeding up the setting up of a free trade exchange zone between the U.S. and countries of the Middle East, such as the current attempts aimed at the launch of a pan-Arab free trade zone by the year 2005.

Indeed, there are real possibilities and significant gains that could be achieved from the launch of this multi-purpose plan.

To achieve this end, the Arab states must prepare their economies during the next ten years to achieve the best possible benefit from the free trade zone proposed to be established between the United States and Middle Eastern countries.

The author is Bahrain-based Gulf economic expert.