Monday, 11 April 2011

Traversing the borders: Integrating the Arab states

Under what conditions is an Arab regional integration possible?

At present, the Arab states are noted for their disintegration demonstrated by the lack of intra-Arab trade and the political rivalries that characterize the region. Arab unity was originally ideologically driven but in recent times efforts towards integration are largely non-ideological and economic in nature. The region was left fractionalized by the colonialist powers in the 20th century which led to weak institutions and poor infrastructure making regional trade expensive. This explains to an extent the region’s position as the least integrated area of the world in relation to development and per capita income.

 The benefits of Arab unity or at the very least cooperation and coordination are numerous. They include the formation of a united Arab economic bloc with greater bargaining power in an increasingly globalized and polarized world, increased trade and a better standard of living. International markets are increasingly dominated by regional economic powers such as the EU, NAFTA and East Asian alliances. Despite the clear incentives, the Arab world remains severely fractured to the extent that intra-Arab trade amounts to less than 7% of their total trade (Michael C. Hudson 1998).

Integration of the Arab states faces formidable challenges on political and economic levels. The range of political systems in the region and their largely undemocratic nature makes integration difficult as their leaders are unwilling to make concessions to each other or delegate power since this undermines the control of the regimes. Democratization would help enormously as non-democratic states are often inward-orientated. However I believe that in face of an impending employment crisis amongst the millions of young people entering the job market, the regimes will be willing to sacrifice their control in exchange for some social cohesion.  

The flow of labour to the Gulf and the rise of modern telecommunications and transport infrastructure means, “the Arab world is more closely linked socioeconomically at present than at any time in its modern history” -Saad Eddin Ibrahim (1982, 156). Yet obstacles to meaningful economic integration remain. Efforts to liberalize trade between Arab states has been achieved through GAFTA (Greater Arab Free Trade Agreement) that is working towards an Arab Common Market by removing tariffs and trade barriers. As of January 1st, 2005, the agreement reached full trade liberalisation of goods and removed customs duties and charges between all Arab members[1].

However the limited market size of many Arab economies and their own respective regulations means costs of trade are high compared to regions where the individual economies are larger. The economy of the Arab states (minus unsustainable oil exports) combined is less than that of Spain  (Bernard Hoekman & Patrick Messerlin 2003). They therefore suffer from diseconomies of scale which become greater the more different their regulations and trade laws are. They also share similar production structures, i.e. they are competing to export the same products, and this reduces incentives to trade intra-regionally.
The major impediments to integration and prosperity include disparities in economic policy and administration that are obstacles to trade liberalization and lead to high business costs.

One of the best ways to encourage regional integration would be to invest heavily in intra-regional infrastructure developments in partnership with the more efficient private sector to provide modern transport, telecommunications and energy synergies. This would allow the physical movement of goods and labour and allow greater investment throughout various countries and promoting trade by reducing the cost of logistics.

In addition the region needs a strong, transnational consultative institution to recommend, finance, coordinate and oversee economic reform. It should be independent but representative of the region and have the authority to operate effectively in all the Arab states without interference. This institution would implement “harmonization of institutions, laws, and regulations to facilitate comprehensive economic integration” to bring about “deep integration” as opposed to just the free movement of goods through removing tariffs etc (i.e. “shallow integration”)[2]. This harmony would drastically reduce the administrative costs involved in intra-regional trade and hence make the Arab region more productive and competitive.

These policies would allow the Arab countries to become a market of 300 million consumers with advantageous economies of scale.

The Middle East must create 50 million jobs by 2020 to prevent large scale unemployment and social upheaval, and the Arab states have realized that greater integration amongst themselves and in the global economy is the only way to avoid a disastrous slide into poverty.

With an effective, interconnected infrastructure, free movement of labour and goods, and removal of administrative costs overseen by multinational organisations, the Arab region could integrate much more effectively. It also has the example of the EU and other trade blocs to follow and benefit from.


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