3 Implications of the Uruguay Round for the Arab Countries A General Analysis
Author:
Paul Chabrier
Search for other papers by Paul Chabrier in
Current site
Google Scholar Close
,
Mr. Mohamed A. El-Erian https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Mr. Mohamed A. El-Erian in
Current site
Google Scholar Close
, and
Rakia Moalla-Fetini
Search for other papers by Rakia Moalla-Fetini in
Current site
Google Scholar Close
Language:
English
Print Publication Date:
20 Jun 1996
Keywords:
BOOK; country; Uruguay Round agreement; trade; liberalization; export; Arab country; coverage ratio; relations vis-à-vis; partner country market; tariff reduction; Tariffs; Trade liberalization; Trade relations; Agricultural sector
Download PDF (3.2 MB)

Abstract

The Uruguay Round has been heralded by many as constituting a major advance in the process of multilateral liberalization of trade in goods and services and in strengthening the supporting institutional base. By seeking to bring in the old but contentious issues of trade in agriculture and in textiles under comprehensive GATT discipline, as well as to expand GATT discipline to some new areas, the Uruguay Round has been regarded by many as the most ambitious of all GATT negotiating rounds. If fully implemented, the Uruguay Round agreements are expected to enhance welfare-increasing trade and to contribute to world economic growth.

The Uruguay Round has been heralded by many as constituting a major advance in the process of multilateral liberalization of trade in goods and services and in strengthening the supporting institutional base. By seeking to bring in the old but contentious issues of trade in agriculture and in textiles under comprehensive GATT discipline, as well as to expand GATT discipline to some new areas, the Uruguay Round has been regarded by many as the most ambitious of all GATT negotiating rounds. If fully implemented, the Uruguay Round agreements are expected to enhance welfare-increasing trade and to contribute to world economic growth.

Several studies have sought to establish the overall potential gains from increased trade liberalization. Early quantitative studies dealing mainly with static benefits from trade liberalization point to estimates of the annual real income gains by the year 2005 ranging from $200 billion to $270 billion (or about 1 percent of world GDP).1 Within this range, some $80 billion is projected to accrue to developing countries (or about 1.5 percent of their GDP). The impact on world trade expansion is estimated to be in the order of 10 percent.2

As with most major structural changes, the distribution of gains and losses varies across countries. It is thus widely recognized that the overall gains among the developing economies are likely to be unevenly spread. At a general level, those that stand to gain the most tend to be characterized by relatively open economic structures; such structures increase countries’ ability to take advantage of improved market opportunities and to adjust quickly to the new trade environment. Given the attributes of the Uruguay Round agreements, developing countries that are major food exporters are also expected to be primary beneficiaries. In contrast, some countries are likely to be adversely affected by the erosion of trade preferences and the deterioration in their terms of trade resulting from the expected increase in the price of imported agricultural commodities.

The uneven distribution of gains and losses calls for an early recognition by policymakers of the implied resource reallocations and related policies that improve the cost-benefit equation. This is particularly the case for Arab countries. Indeed, some studies suggest that these countries may be some of the potential losers, which makes it urgent to analyze the challenges ahead and to devise strategies to minimize the short-run adjustment costs. This involves, in particular, an early identification of the implications of the revised multilateral trade system and progress in policies to maximize the potential dynamic gains.

The purpose of this chapter is to contribute to a better understanding of the challenges that lie ahead for the Arab countries. Following this introduction, a brief outline of the results of the Uruguay Round is provided, with a view to identifying the key aspects of interest to Arab economies. The next section analyzes the key characteristics of Arab economies that will help to determine the impact of the new trade environment. This is followed by an assessment of issues arising from, inter alia, the potential impact of lower trade preferences, trade liberalization in the agricultural and industrial sectors, and the phasing out of the Multifibre Arrangement (MFA). The paper’s concluding section summarizes the main findings.

Three qualifications must be made at the outset. First, this chapter seeks to provide a general framework for examining the impact on Arab countries of the recent agreements to liberalize further multilateral trade and, more generally, to strengthen the international trading system. As such, it does not, nor does it seek to, meet the more detailed objective of specific sectoral or country studies. Rather, it points to the general issues that need to be covered in such studies. Second, the emphasis is essentially on the effects of trade with industrial countries. No attempt is made to analyze the impact of trade among developing countries. Although such trade is quantitatively less important at this stage, its significance will increase over time, given developing countries’ improved economic performance, their growing importance in global economic and financial activities, and their potential. Third, work is still under way to assess the overall price and demand impact of the Uruguay Round agreements—that is, the “parameters” for the present analysis. Accordingly, the estimates provided in this chapter should be regarded as indicative of broad magnitudes, rather than as point estimates.

An Analysis of the Key Elements of the Agreements

The Uruguay Round has led to far-reaching agreements in the following areas:

  • trade liberalization through further reductions in tariffs and nontariff barriers, including in the agricultural and the textile and clothing sectors;

  • extension of multilateral rules to the new areas of trade in services, trade-related intellectual property rights (TRIPs), and trade-related investment measures (TRIMs);

  • strengthening of rules, most notably those on subsidies, countervailing duties, anti-dumping, and safeguards; and

  • reinforcing the institutional structure, including through the establishment of the WTO.

An understanding of the way in which this will affect developing countries, including Arab countries, holds the key to the formulation of an appropriate policy response.

The previous seven GATT negotiating rounds since 1947 contributed to a lowering in average import tariffs on industrial goods from over 40 percent to 6 percent. The Uruguay Round involved another round of reductions, with import-weighted average tariff bindings being cut to 3.6 percent (a 38 percent cut in tariff bindings, on average). The highest cuts, ranging from 40 percent to 70 percent, were made in sectors where existing tariffs are the lowest (such as wood, paper, pulp, and furniture; metals; nonelectric machinery; mineral products; electric machinery; and chemicals and photographic supplies). More limited cuts, ranging from 20 percent to 25 percent, were made in more protected sectors such as textiles and clothing; transport equipment; fish and fish products; and leather, rubber, footwear, and travel products (Table 1).3 Because these more protected sectors are the main export sectors of developing countries, the reduction in the average tariff facing developing countries’ exports is estimated at some 34 percent.4

Table 1.

Industrial Countries: Tariff Reduction by Industrial Sector Before and After Uruguay Round

(In percent)

article image
Sources: GATT; and UNCTAD.

A major achievement of the Uruguay Round is its comprehensive incorporation of agriculture in a system of more transparent rules, on a path of gradual liberalization spanning a period of six years for developed countries and ten years for developing countries. Thus, all participating countries have committed to a “tariffication” of all nontariff border measures, to a binding of all tariffs at the new levels, and to an average reduction of 36 percent from their 1986–88 average tariff equivalents.5 As a result, it has been observed that the coverage for trade in agricultural products may well—for the first time in the GATT’s history—be greater than for industrial products.6 Industrial countries have committed to reducing export subsidies by 36 percent in value terms from a 1986–90 base. They have also committed to reducing domestic supports, for all products by 20 percent from a 1986–88 base. Developing country members of GATT have been allowed differential provisions that require reductions in tariffs, domestic support, and export subsidies only two-thirds the size of those required of developed countries.

The Uruguay Round agreements also provide for a phased elimination of restrictions on textiles and clothing. Specifically, nontariff measures (including MFA-type arrangements) are to be phased out over a ten-year period. Restrictions are to be removed from products accounting for not less than 16 percent in volume terms (1990 base) of the items covered by the MFA as soon as the agreement enters into force. Three additional phases will take effect at the beginning of the fourth and eighth years and at the end of the tenth year, in which an additional 17 percent, 18 percent, and 49 percent, respectively, of the 1990 import volumes must be fully integrated into the mainstream trading system.

The trade liberalization component may be expected to influence developing countries through three main interrelated channels: gains from improved access to partner country markets associated with changes in tariffs and nontariff barriers, offset in some cases by potential losses from the erosion in trade preferences; efficiency gains related in large part to countries’ own trade liberalization policies; and expected terms of trade shifts associated, in particular, with liberalization of trade in the agricultural sector.

Market access of developing countries as a whole to industrial country markets will be altered significantly as a result of lower tariffs on industrial goods, but much more substantially as a result of the removal or relaxation of nontariff barriers, especially in agriculture and textiles and clothing. Improved market access is expected to lead to gains stemming from trade creation associated with a redeployment of resources according to comparative advantage. Dynamic gains, which are likely to be more important than the static ones, arise from externalities generated by increased competition, economies of scale, greater innovation (including technological spillovers), and the positive effect of higher productivity on savings and investment.

The effect of a reduction in tariffs also raises, however, concern about potential losses from the erosion of trade preference. For imports receiving zero-duty preferential rate treatment, the reduction in tariff rates unambiguously reduces margins of preference, inducing trade diversion. For imports receiving a nonzero preferential rate, the effect is more complex because it depends on how the terms of preferential access change with the decline in tariffs. Should preferential rates be adjusted to retain their current relationship, the trade diversion associated with the erosion in preferences may outweigh the trade creation resulting from lower tariffs. The overall impact on any specific country will depend on whether the likely trade gains from lower tariffs on non-preference-receiving goods offset the expected losses on preference-receiving exports.

In their paper on developing countries’ benefits under the Generalized System of Preferences (GSP), Baldwin and Murray (1987) indicated that losses due to an erosion of trade preference under the GSP are likely to be small. In reaching this finding, they decomposed the trade benefit of the GSP to developing countries into a trade creation benefit resulting from the displacement of producers in the industrial countries for the benefit of producers in the GSP beneficiary countries, and a trade diversion benefit consisting of the displacement of producers in non-GSP beneficiary countries for the benefit of producers in the GSP beneficiary countries. They estimated that the bulk of trade expansion resulting from GSP tariff treatment represents trade creation, with the trade diversion component accounting for only 12 percent of the total trade expansion. This empirical evidence suggests that the loss due to the erosion of preferential tariff margins under the GSP is small. Moreover, trade expansion of many products coming under the GSP provisions faces volume limits that prevent the trade expansion incentives from operating.

Another side of the coin that is often overlooked but that might be important is that developing countries may experience gains from the erosion of intra-OECD trade preferences. European Free Trade Association (EFTA) and European Union intratrade is duty free for their respective members. The Uruguay Round tariff reduction will render some of this exchange less competitive and may divert it to outsiders.

Efficiency gains will be related to the status of developing countries’ own trade liberalization efforts and will stem from the reduction in losses resulting from present protection. Indeed, most quantitative studies of the economic implications of multilateral trade liberalization on real incomes consistently show that the benefits heavily depend on the extent of each country’s own trade liberalization policies. The major impact is expected to relate to the European markets, given that they contained greater distortionary features compared with those in Japan and the United States.

Trade liberalization of the agricultural sector will offer countries a potential to expand agricultural production—thereby improving employment and living standards in rural areas and reducing migration to urban areas. At the same time, however, because the Uruguay Round agreements will lead to a reduction in the scope of subsidized agricultural exports, this is expected to result in an increase in the relative prices of food products and, hence, to contribute to unfavorable terms of trade effects for net food importers among the developing countries.

The impact of the removal or relaxation of nontariff barriers—especially in agriculture and textiles—will also depend on the extent to which a country had a privileged access to certain markets in the context of the present nontariff barriers. As detailed in the next section, this is of particular relevance for some Arab textiles exporters to European Union markets.

The extension of multilateral rules to trade in services—most notably the implementation of nondiscrimination and transparency rules—is expected to foster liberalization of trade in services. Some observers see this as potentially providing a stimulus to the world economy that might be as important as the stimulus brought about since the end of World War II by the liberalization of trade in goods. The contribution of the extension of multilateral rules to intellectual property rights is seen in terms of the longer-run impact of the global levels of invention, innovation, and research and development—progress that would benefit consumers worldwide through lower costs of production and increased product variety. In the short run, however, the price of some intellectual property right-based products might increase (such as the price of pharmaceuticals and seeds).

Finally, strengthened rules affecting several trade policy instruments, as well as improvements in the dispute settlement system and a more solid institutional base, may be expected to enhance the security of market access and to improve the ability of governments to counter effectively domestic pressures for protection. The creation of the WTO, which will exercise surveillance over member countries’ trade policies and administer a strengthened dispute settlement system, will place the rules-based trade system on a strengthened legal and institutional footing. These developments may be expected to improve business confidence through enhancing the transparency and predictability of the multilateral trading system. Indeed, this effect has been identified by some observers as one of the most important positive implications of the Uruguay Round.7

Characteristics of the Arab Economies and the Impact of the Uruguay Round

The foregoing discussion of the main elements of the Uruguay Round agreements suggests that the impact on Arab economies will depend on two sets of interrelated factors:

  • the openness of their economies and the general characteristics of their trade in goods and services; and

  • their sensitivity to particular features of the agreements, including changes in trade preferences and exposure to terms of trade shifts.

General Characteristics

The degree of openness of Arab economies has increased in recent years. Specifically, the absolute value of the region’s merchandise exports and imports is estimated to have grown from below 40 percent of GDP in 1970 to almost 50 percent of GDP in the early 1990s. As illustrated in Table 2, countries within the region vary considerably in the extent of their openness, as well as in their external resource balances. Specifically, the ratio of merchandise trade (including import and re-export activities) to GDP is highest for Bahrain and the United Arab Emirates and lowest for Algeria, Egypt, and Sudan.

Table 2.

Arab Countries: Indicators of Openness in Merchandise Trade, Average 1990–92

article image
Source: International Monetary Fund, International Financial Statistics.

Includes imports for re-exports.

Includes re-exports.

Ratio of total merchandise trade to GDP.

There are also important variations in the dependence on external markets and its evolution in recent years. Table 3 presents an illustrative classification of countries according to the importance of their trade with OECD and non-OECD markets.8 As shown in the table, several Arab countries are highly dependent on industrial country markets that, in some cases, account for over three-quarters of the exports of goods. The dependence of Arab countries as a whole on such markets has increased in the past three to four years as a result, inter alia, of the disruption in trade with central and eastern European countries—an effect that has only been partially offset by faster economic growth in the developing countries.

Table 3.

Arab Countries: Major Export Markets, 1980–90

article image
article image
Source: International Monetary Fund, Direction of Trade Statistics.

For Iraq, Lebanon, and Mauritania, the average 1980–85 trade with the United States and Japan refers to the average for 1981–85.

Prior to unification.

As regards the commodity composition of export trade, Tables 4 and 5 confirm the regions dependence on oil products, which accounted for over 60 percent of the region’s total exports (with the highest levels recorded in Kuwait, Libya, and Saudi Arabia and the lowest in Jordan and Mauritania). The tables also document the dynamic shift in recent years between the three major export sectors: agriculture, mining, and manufactures. In particular, the share of exports in the manufacturing sector—considered by many as the most dynamic sector in the process of development—has increased from some 4 percent in the 1970s to 20 percent in the early 1990s. Within this sector, textiles and clothing constitute the most important product category (Table 6). It is of particular significance for countries such as Egypt, Morocco, the Syrian Arab Republic, and Tunisia—accounting in most of these cases for over half of total manufacturing exports. On the import side, it is important to note the Arab countries’ dependence on food imports. As illustrated in Table 7 (with background information provided in Table 8), production in countries in the Gulf and Maghreb regions covered around 75 percent of their domestic demand in 1990. Among the commodities with the lowest coverage were wheat, rice, sugar, and dairy products. Other countries’ self-sufficiency ratios averaged 86 percent in 1990 but, unlike the Gulf and Maghreb countries, they demonstrated an increase in import dependence since 1985.9

Table 4.

Arab Countries: Merchandise Exports by Sector

(Average share in total exports)

article image
Source: United Nations, COMTRADE records.

Oil exporters include Algeria, Bahrain, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Table 5.

Arab Countries: Merchandise Exports by Broad Categories

(Average share in total exports)

article image
article image
article image
Source: United Nations, COMTRADE records.

1990–91 average.

For Qatar, 1985–89 average includes only 1989, and 1990–92 average includes only 1991.

Table 6.

Selected Arab Countries: Commodity Composition of Manufactured Goods Exports, 1990

(In percent of total manufactured goods exports)

article image
Source: United Nations, COMTRADE records.
Table 7.

Middle Eastern Countries: Self-sufficiency Ratios1

article image
Source: United Nations, FAO supply utilization accounts.

Ratio of total domestic output to total domestic absorption.

Algeria, Morocco, and Tunisia.

Cyprus, Egypt, Israel, Jordan, Lebanon, Libya, Malta, the Syrian Arab Republic, and Turkey.

Bahrain, Iraq, Islamic Republic of Iran, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, and Yemen.

Table 8.

Arab Countries: Net Food Imports

(In millions of U.S. dollars)

article image
Source: United Nations, COMTRADE records.

Specific Characteristics

Trade Preferences

Arab countries—especially those that are not members of the Organization of Petroleum Exporting Countries (OPEC)—have enjoyed various trade preferences from their major industrial country trading partners.10 As documented further in Table 9, the main features of trade preferences may be summarized as follows:

  • Mauritania, Somalia, and Sudan have been granted least developed country treatment under the GSP by the European Union, Japan, and the United States and have benefited from additional preferences from the European Union as ACP (African, Caribbean, and Pacific) countries under the Lomé Convention.

  • Morocco, Tunisia, and Algeria have access to trade preferences from the European Union under the Maghreb—European Union agreements.11 Under these agreements—which are very similar to the Mashreq—European Union agreements—all industrial product exports from the Maghreb countries enjoy quota- and tariff-free access into the European markets, with the exception of some specific textile and clothing items that are subject to voluntary export restraints (VERs) and quotas. The agreements also provide preferential treatment to agricultural exports.12

  • Egypt, Jordan, and Syria’s trade preferences from the European Union are covered by the Mashreq-European Union agreements.13

  • All Arab countries enjoy GSP treatment from Japan, and non-OPEC members enjoy GSP treatment from the United States.

Table 9.

Trade Preferences for Arab Countries

article image

Generalized System of Preferences.

African, Caribbean, and Pacific countries.

Average 1986–90.

Least developed country treatment as given by the European Union, Japan, and the United States.

Two different sets of indicators may be used to measure the magnitude of these trade preferences: the share of tariff lines with zero or preferential rates, and the difference between the average tariff facing Arab countries’ exports and the average tariffs facing the exports of their competitors in the third markets under consideration.

Table 10 summarizes the current profiles of European Union tariffs facing Arab countries; it also includes a comparison of the Arab countries’ situation with that of a selected group of developing countries (consisting of Côte d’Ivoire, Mauritius, Korea, and Taiwan Province of China). Several observations relating to the Arab region are warranted that, as documented in the table, compare them favorably with some of the other developing countries:

Table 10.

Arab Export Products Facing Most-Favored-Nation or Preferential Duties in Japan and the European Union

(Number of tariff line items)

article image
article image
Source: World Bank-UNCTAD, SMART database.

In percent of total tariff line exported.

  • Apart from Egypt, Lebanon, Morocco, Saudi Arabia, and Tunisia, exports from other Arab countries are highly concentrated in a very small number of tariff lines, with the total number of tariff lines exported not exceeding 500.14

  • There is an extremely high incidence of zero-duty lines. Compared with the worldwide average of 20 percent duty-free lines, duty-free lines for Arab exports range from 65 percent to 97 percent. Thus, in addition to most-favored-nation (MFN) or preferential zero-duty rates, most Arab countries enjoy significant nonzero preferential rates.

  • Least developed country treatment accorded to Mauritania, Sudan, and Somalia under the GSP means that over 97 percent of their tariff lines exported are tariff free. The Maghreb and Mashreq agreements with the European Union also lead to a high proportion of duty-free export tariff lines. Other Arab countries that enjoy only GSP treatment from the European Union still have very high duty-free export lines (exceeding 80 percent for many of them).

Available information also indicates that Japan grants most of its major Arab trading partners important trade preferences.

With respect to the second measure of trade preferences, Table 11 examines the average preference margins provided by the European Union and Japan to the Arab countries compared with other exporters. The table shows the average nominal tariffs faced by Arab exports on each of these markets, as well as indicating the average margin of preference.15 On the European market, Mauritania enjoys the highest tariff preferences among all other Arab countries, facing an average tariff for its exports of only 0.2 percent compared with an average tariff of 4.1 percent for its competitors. Morocco, Algeria, and Somalia enjoy a tariff preference of almost 3 percentage points. Lebanon appears to confront the highest average tariff, facing tariffs that are 0.6 percentage point higher than its competitors. On the Japanese market, preference margins enjoyed by all Arab countries are smaller than the ones they receive on the European market. This reflects, in large part, the much stronger ties between Japan and its neighboring countries (as illustrated, for example, by the higher preference margins for Korea and Taiwan Province of China).

Table 11.

Incidence of European Union and Japanese Tariffs on Arab Countries’ Non-Oil Exports

(In percent)

article image
Source: World Bank-UNCTAD, SMART database.

Negative values show the average preferential tariff margins (in points) that the Arab League exporter has over all other exporters of the same goods. Positive values indicate that the exporter faces a higher tariff due to preference that other countries receive. All tariffs shown are the simple average (unweighted duties paid).

Specific Sectoral Aspects

Industry. As discussed earlier, the Uruguay Round involves differential tariff reductions among industrial sectors within industrial countries. Drawing on the information contained in Table 1 (industrial sector analysis of Uruguay Round tariff reductions) and Tables 4 and 5 (composition of Arab country trade), Table 12 identifies the Arab countries with a strong export interest in the different industrial sectors.16 Arab export interests are concentrated in three industrial sectors out of the ten: metals (Algeria, Bahrain, Egypt, Mauritania, Qatar, and the United Arab Emirates); chemicals (mainly petrochemicals; Algeria, Jordan, Kuwait, Libya, Morocco, Qatar, Saudi Arabia, Syria, and Tunisia); and textiles and clothing (Egypt, Morocco, Syria, Tunisia, and the United Arab Emirates). In addition, Mauritania has an export interest in fish and fish products. The extent of tariff reduction varies in these sectors; it is most pronounced (in percentage terms) for metals and least pronounced for textiles and clothing and fish and fish products.

Table 12.

Industrial Countries: Uruguay Round Tariff Reduction by Industrial Sector

(In percent)

article image
Sources: GATT; and UNCTAD.

Arab countries where exports of the mentioned category of products exceed 5 percent of total merchandise exports (excluding petroleum) and 20 percent of industrial product exports.

Given the above tariff preferences, however, some losses stemming from trade diversion should be expected for these Arab countries. For example, Mauritania’s exports of iron ore and fish and fish products (which represent more than 95 percent of its total exports) enter the OECD markets duty free. The reduction of MFN tariff rates on these items is thus likely to induce some trade diversion.17 Algeria, Morocco, and Tunisia are likely to be hurt by MFN tariff reductions on metals, chemicals, and textiles and clothing on European Union markets, their principal market outlet, since all their industrial exports to the European Union are duty free. Morocco and Tunisia would suffer relatively greater losses than Algeria, given the higher share of these sectors in their total exports.

Textiles and Clothing. As pointed out earlier, the textile and clothing sector is of strategic importance to Egypt, Syria, and Tunisia (accounting for more than 50 percent of their respective manufactured exports) and to Morocco (over 40 percent of manufactured exports). The phasing out of MFA-type arrangements should, other things being equal, have positive effects on these countries. At the same time, however, there may be adverse effects from the erosion of preferential treatment. Thus, the dismantling of the MFA is expected to significantly affect Morocco and Tunisia’s preferential access to European markets. Specifically, these countries will have to face more intensive competition as other economies (for example, Asian competitors) are granted improved access. In addition, the Maghreb countries will have to face the challenge posed by east European countries that are in the process of restructuring their textile industries and have negotiated favorable bilateral trade agreements with the European Union.18 Their proximity to the European common market and their competitiveness may divert some trade, especially as far as subcontracting is concerned.

Agriculture. Since the agricultural sector is where distortionary policies have been the most prevalent, the implications of trade liberalization, both on world commodity prices and on welfare, are the hardest to predict. A host of models have been built to try to estimate the impact of trade liberalization on world agricultural commodity prices.19 The basic intuition behind the models is as follows. Policies in industrial countries overall tend to provide the agricultural sector with positive protection, which stimulates production and depresses world prices. When this protection is eliminated, supply from the industrial countries will fall, and world prices will increase. Conversely, heavy border taxes on agricultural exports, untargeted subsidies to consumers through price controls, and overvalued exchange rates all tend to tax the agricultural sector in developing countries—leading to depressed production and increases in world prices. Trade liberalization in developing countries, by removing this negative protection, will stimulate their production and, hence, would exert downward pressure on world prices.

Under full trade liberalization in OECD countries only, the models predict an increase in world prices—albeit to different degrees. The prices of the relatively heavily protected dairy, sugar, and meat products are projected to rise most. The price of rice is expected to increase by less than the price of all other grains, reflecting the relatively minor importance of industrial countries in the production of rice. When trade liberalization in both industrial and developing countries is considered, results from the different models are less consistent: the decline in prices resulting from trade liberalization in developing countries tends to offset the increase in prices resulting from trade liberalization in the industrial economies.

The impact on Arab countries depends on their balance of trade in the affected products. At the aggregate level, several studies have suggested that Arab countries may be adversely affected because they are food importers. Clearly, the extent of this impact for individual Arab economies will depend on the commodity composition of trade in foodstuffs, as well as the country origin of their trade and the destination. The data presented earlier suggest that, to the extent that there are increases in agricultural prices, the Gulf countries will be the most affected, followed by the non-Maghreb ones.

Nontariff Barriers. The early elimination of nontariff measures on agricultural goods, the phasing out of the MFA within ten years, and the commitment taken by the Uruguay Round parties to eliminate nontariff measures on industrial goods within four years will all lead to a significant reduction in nontariff measures facing developing countries, thereby contributing to improved access to industrial country markets.20 Low and Yeats (1994) estimate that, as a result of the full implementation of the Uruguay Round agreements, the average trade coverage ratio of nontariff measures against imports from Arab countries will decline from 9 percent to around 6 percent. While not insignificant, this represents a much smaller gain relative to other countries. Indeed, Table 13 shows that the average trade coverage ratio of nontariff measures against imports from all developing countries will decline from 18 percent to 4–5 percent, with countries in South Asia witnessing a reduction by as much as 33 percentage points.

Table 13.

Estimated Impact of the Uruguay Round on Trade Coverage Ratios of Nontariff Measures of Regional Groups of Developing Countries

article image
Source: Low and Yeats (1994).

The smaller improvement for Arab countries as a group is due to the fact that OECD nontariff measures against Arab exports are low at present. This reflects the dominance of products that are not typically subject to nontariff measures. At the same time, however, there is variation among Arab countries. Thus, reflecting the earlier documented diversity in the export structure among Arab countries, the trade coverage of nontariff measures for some countries (mainly those with predominant textiles and clothing exports such as Egypt, Morocco, Syria, and Tunisia) is quite high. As a result, these countries will be more positively affected by the liberalization of nontariff measures.

Tariff Escalation. A major concern of many developing countries has been to reduce tariff escalation—a situation in which the tariff applied on a product rises as the level of processing increases, thereby creating an added disincentive to the export of products with a higher content of value added. A simple methodology in this area is to measure tariff escalation by the tariff wedge (that is, the absolute difference between the tariffs applied to the processed and unprocessed product).21 Based on this methodology, estimates by the GATT Secretariat indicate that some progress in reducing tariff escalation will be achieved as a result of the Uruguay Round agreements. This would, other things being equal, raise opportunities for more value-added processing in developing countries (Table 14).

Table 14.

Tariff Escalation on Industrial Countries’ Imports from Developing Countries Before and After the Uruguay Round, by Selected Product

(In percent)

article image
Source: GATT.

The percentage reduction in tariff escalation is defined as the decline in the tariff wedge, divided by the original tariff wedge.

Figures for selected product categories indicate that tariff escalation has been largely eliminated for paper and certain wood products and has been reduced for metals manufactures as well as some other products such as processed food. For the last of these, this will increase the incentive for food processing in Arab countries with a relatively strong agricultural export base (including Egypt, Jordan, Lebanon, Syria, and Morocco). No data have been compiled for the implications of the Uruguay Round on tariff escalation on petrochemicals, an area of significance to oil exporting countries in the Arab region.

Policy Implications

Previous sections have identified the elements that will determine both the positive and negative effects of the Uruguay Round agreements on Arab countries. When considering the policy implications, it is important to stress one point at the outset: all studies of the impact of the Uruguay Round to date show that when the developing countries participate in the liberalization process, the balance of gains and losses improves considerably. This is due to the static efficiency gains and to potential dynamic gains.22 Accordingly, any discussion of the policy implications of the Uruguay Round for the Arab countries must start from an analysis of the evolution of their trade and payments regimes. This must be followed by consideration of issues relating to some of the specific sectoral effects of the Uruguay Round, as well as of Arab countries’ relations vis-à-vis the strengthened institutional structure.

To be able to compete better in the more competitive international markets, Arab countries need to advance in the reform and liberalization of their economies. Reflecting, inter alia, the prolonged phase of public sector-led import substitution in several countries in the region (especially the non-oil countries), effective rates of protection have tended to be high and distortionary—thereby driving up domestic costs and hampering these countries’ ability to compete on the global market. The strategy also tended to weaken competitive forces, resulting in consumption and production inefficiencies and undermining the economies’ responsiveness to unanticipated changes in international price and demand conditions.

These aspects have been recognized by policymakers in the region, with several countries embarking on comprehensive programs of liberalization and reform. The external sector component of these programs has included the rationalization of the tariff structure, relaxation of nontariff barriers, reform of the exchange system, removal of restrictions on current payments and transfers, and measures to facilitate foreign direct and portfolio investment.23 Progress in these areas has been most pronounced in the case of Morocco and Tunisia, where, in addition to sharply reducing quantitative trade restrictions and tariffs, the authorities have adopted current account convertibility.

Broader regional progress in external sector liberalization will be a key determinant of countries’ ability to exploit the opportunities resulting from the process of multilateral trade liberalization. The sectoral aspects discussed earlier also give rise to questions about specific policy measures. As regards agriculture, some of the losses from the deterioration of the terms of trade owing to the increase in the price of food products could be recouped in several countries if the changes in prices are allowed to act as a stimulus for expanding agricultural production. Accordingly, governments will need to refrain from withholding the pass-through effects to the local markets. The challenge to the textile and clothing sectors associated with the erosion in trade preferences emphasizes the need to enhance competitiveness in this sector, including by improving product quality and aiming for the more quality-competitive areas of the market.

A final policy issue relates to Arab countries’ interaction with the strengthened rules-based multilateral trade system, and its implication for ongoing policy harmonization efforts in the region. Membership in such a system, including through the WTO, can improve the credibility of countries’ trade liberalization policies through the enhancement of the transparency and predictability of their trade regimes. This may be expected to have positive externalities on foreign direct investment flows, as well as on portfolio flows. For Arab countries, this requires not only timely membership in the WTO but also minimizing the use of transitional arrangements (for example, nonbinding of tariff lines), which, while facilitating membership, also undermines the credibility element. Finally, there is a need for careful coordination between this aspect and ongoing efforts to harmonize regional trade regimes, such as that being undertaken under the auspices of the Cooperation Council for the Arab States of the Gulf (GCC).

Concluding Remarks

Agreement on the Uruguay Round is an important step on the road to multilateral trade liberalization and a strengthened rules-based trading system. Of particular note are the more comprehensive coverage of the agricultural, textiles and clothing, and service sectors; further progress in reducing tariffs and nontariff barriers; and the strengthening of multilateral rules and institutions.

Implementation of the Uruguay Round may be expected to contribute to higher international trade and economic growth. The distribution of the gains and losses will vary among countries, especially with respect to the static components. The Arab countries are no exception. The distribution within the group of Arab countries is a function of a myriad of factors—including the overall responsiveness of their tradables sector, the country and commodity composition of their trade, their agricultural trade balance, and the pattern of trade preferences.

The changes in the multilateral trade system have implications for policies in the Arab countries. To maximize the favorable impact, these countries need to progress further in enhancing the responsiveness of their real economy. The key elements are, inter alia, further liberalization of their external trade and payments regimes and removal of structural rigidities. This may be supported by certain sector-based measures to facilitate the required structural changes consistent with countries’ comparative advantage. Finally, the countries would maximize the benefits of membership in the revised multilateral trading system through timely and credible adoption of measures enhancing the transparency and predictability of their trade regimes.

References

  • Baldwin, R.E., and T. Murray, 1987, “MFN Tariff Reductions and Developing Country Trade Benefits Under the GSP,” Economic Journal, Vol. 87, pp. 30–46.

    • Search Google Scholar
    • Export Citation

  • Brandao, Antonio, P. Salazar, and Will J. Martin, 1993, “Implications of Agricultural Trade Liberalization for the Developing Countries,” Agricultural Economics, Vol. 8, pp. 313–43.

    • Search Google Scholar
    • Export Citation

  • El-Erian, Mohamed A., and S. Tareq, 1993, “Economic Reform in Arab Countries: A Review of Structural Issues,” in Economic Development of the Arab Countries, ed. by Said El-Naggar (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

  • El-Naggar, Said, 1993, “Economic Development of the Arab Countries: Basic Issues,” in Economic Development of the Arab Countries, ed. by Said El-Naggar (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

  • Finger, Michael J., and Andrzei Olechowski, eds., 1987, Uruguay Round: A Handbook for the Multilateral Trade Negotiations (Washington: World Bank).

    • Search Google Scholar
    • Export Citation

  • GATT, 1993, An Analysis of the Proposed Uruguay Round Agreement, with Particular Emphasis on Aspects of Interest to Developing Countries (Geneva: GATT Secretariat).

    • Search Google Scholar
    • Export Citation

  • Goldin, Ian, and Odin Knudsen, 1990, Agricultural Trade Liberalization: Implications for Developing Countries (Paris: OECD; and Washington: World Bank).

    • Search Google Scholar
    • Export Citation

  • Goldin, Ian, Odin Knudsen, and Dominique van der Mensbrugghe, 1993, Trade Liberalization: Global Economic Implications (Paris: OECD; and Washington: World Bank).

    • Search Google Scholar
    • Export Citation

  • Hoda, Anwarul, 1994, “Trade Liberalization Results of the Uruguay Round” (Paris: OECD).

  • International Monetary Fund, 1994, World Economic Outlook (Washington, May and October).

  • Kirmani, Naheed, and others, 1994, International Trade Policies: The Uruguay Round and Beyond, 2 Vols. (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

  • Low, Patrick, and Alexander Yeats, 1994, “Nontariff Measures and Developing Countries: Has the Uruguay Round Leveled the Playing Field?” Policy Research Working Paper, No. 1353 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation

  • Martin, Will, and Koji Yanagishima, 1993, “Concerted Trade Liberalization and Economic Development in the Asia-Pacific Region” (Washington: World Bank).

    • Search Google Scholar
    • Export Citation

  • Nguyen, T., C. Perroni, and R. Wigle, 1993, “An Evaluation of the Draft Final Act of the Uruguay Round,” Economic Journal, Vol. 103, pp. 1540–49.

    • Search Google Scholar
    • Export Citation

  • Nsouli, Saleh M., and others, 1993, The Path to Convertibility and Growth: The Tunisian Experience, Occasional Paper No. 109 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

  • Odell, John S., 1990, “Understanding International Trade Policies: An Emerging Synthesis,” World Politics, Vol. 43, pp. 139–67.

  • OECD, 1993, Assessing the Effects of the Uruguay Round, Trade Policy Issues, No. 2 (Paris).

  • Pohl, Gerhard, and Piritta Sorsa, 1992, European Integration and Trade with the Developing World, Policy and Research Series, No. 21 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation

  • Richardson, J. David, 1987, “The Political Economy of Strategic Trade Policy” (Cambridge, Massachusetts: World Peace Foundation and Massachusetts Institute of Technology).

    • Search Google Scholar
    • Export Citation

  • Thomas, Vinod, and others, 1991, Best Practices in Trade Policy Reform (New York: Oxford University Press).

  • Yeats, Alexander J., 1994a, “What Are OECD Trade Preferences Worth to Sub-Saharan Africa?” Policy Research Working Paper, No. 1254 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation

  • Yeats, Alexander J., 1994b, “A Quantitative Assessment of the Uruguay Round’s Effects and Their Implications for Developing Countries” (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
*

The views expressed are those of the authors and do not necessarily represent those of the International Monetary Fund.

1

GATT (1993); Goldin, Knudsen, and van der Mensbrugghe (1993); Nguyen, Perroni, and Wigle (1993); and OECD (1993). These studies were completed before the conclusion of the Uruguay Round and therefore do not fully reflect all the details of the final agreements. Revisions are under way. Available indicators suggest a wider range of estimates of welfare gains, including as high as $510 billion according to the GATT Secretariat.

2

These studies concentrate on modeling the implication of improved market access, in particular lower tariffs. They do not fully incorporate the effect of lower nontariff barriers. The economic impact of strengthened rules and of integrating the service sector are also not fully taken into account.

3

As a result of these tariff cuts, the share of duty-free imports is expected to increase from 20 percent to 43 percent, and tariffs peaks (tariffs in excess of 15 percent) will apply to only 5 percent of imports instead of 7 percent.

4

Although still biased against developing countries in relative terms, the outcome of the Uruguay Round is less biased than previous rounds, which achieved considerably lower reduction in tariffs facing developing countries than the average tariff reduction.

5

Because world prices in 1986–88 were low, this could result in an initial increase in the level of protection in some countries.

6

Before the Uruguay Round, only one-third of agricultural products tariff lines were subject to bindings, and many countries applied nontariff measures.

7

It is unfortunately the one that is the most difficult to quantify, and no comprehensive attempt has been made as yet to do so.

8

These data do not reflect the trade pattern variations following the recent changes in central and eastern Europe. These are of particular importance for countries in the set of “diversified exporters,” including Egypt and the Syrian Arab Republic.

9

The data are derived from the supply utilization accounts of the United Nations Food and Agriculture Organization (FAO), which include the following non-Arab countries: the Islamic Republic of Iran (classified in the Gulf grouping) and Cyprus, Israel, Malta, and Turkey (classified in the Mediterranean grouping).

10

By contrast, the Arab oil economies have been subject to significant trade restrictions (such as the imposition in European Union markets of tariffs on methanol, polyethylene, and ethylene products).

11

The 1976 agreements; amended by the 1988 protocol.

12

Significant tariff reductions are granted (between 20 percent and 100 percent), albeit subject to a “tariff quota” (that is, reduced tariffs apply only to a given quota, beyond which exports are subject to the higher tariffs). Some exports, like citrus exports for Morocco and olive oil for Tunisia, are, however, subject to seasonal restriction to protect the European Union producers.

13

These regional trade preferences encompass GSP treatment.

14

The European Union customs schedule distinguishes among 9,506 individual tariff lines.

15

For example, on its exports to the European Union, Algeria faces tariffs that average 0.3 percent—a rate that is 2.7 percentage points lower than the average tariff facing other exporters of the same products to the European Union market.

16

According to the GATT definition, a sector is of strong export interest to a country if that sector’s share in the country’s total merchandise exports (excluding petroleum) exceeds 5 percent and its share in industrial product exports exceeds 20 percent.

17

Estimates of losses are provided in Yeats (1994a).

18

A recent study by the World Bank on determinants and prospects for export growth in Morocco and Tunisia showed that, during 1985–90, both countries improved their price competitiveness against European competitors, but they failed to catch up with the increased strength of Asian competitors.

20

However, several observers have expressed concern that as the Uruguay Round agreements are implemented, there is a risk that countries may attempt to use measures such as antidumping and countervailing duties to compensate for the removal of the traditional nontariff trade barriers.

21

The most accurate way of making estimates of tariff escalation is to calculate the effective rate of protection. This is a complicated exercise that requires information on input coefficients and is best undertaken on the basis of individual industrial units in particular countries.

22

This is most vividly illustrated in the study by Brandao, Salazar, and Martin (1993), which involves an exhaustive account of protection of the agricultural sector in the Arab countries. The study shows the potential gains that the Arab countries might derive from trade liberalization of their own agricultural sectors. Indeed, it shows that the impact of partial trade liberalization (that is, in the industrial countries) on the Maghreb and Middle East oil exporting countries is a loss of $3.2 billion, whereas if all countries participate in trade liberalization the impact becomes a gain of $3.2 billion.

Within Same Series

Other IMF Content

Other Publishers Content

  • Collapse
  • Expand
Cover The Uruguay Round and the Arab Countries
The Uruguay Round and the Arab Countries
ISBN:
9781557754974
Publication Date:
20 Jun 1996
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781557754974.071
Pages:
211