The universal language of trade
A formula for seizing regional and global opportunities in the Maghreb
There was a brief moment of confusion at the opening of the ministerial workshop on regional trade in the Maghreb. Habib Ben Yahia, the secretary general of the Arab Maghreb Union, wondered out loud about which language he should use. Before him was a diverse audience that he could address in Arabic, French, English? What to choose? Sitting next to him, the Moroccan minister of transport and equipment, Aziz Rabbah nailed it: ‘Speak the language of trade! ’
This exchange established a theme for the workshop, of how trade can bind people together; creating more resilient and dynamic regions, better able to integrate into the global economy. Yet for the common language of trade to flourish, and deliver its many benefits, it needs the right environment. It must be facilitated with easy access to regional markets through a shared set of regulations, and a transport network that supports the quick and efficient circulation of goods. The workshop, organized by the World Bank and co-sponsored by the Moroccan Ministry of Transport and Equipment and the Arab Maghreb Union, presented a number of examples of regions that achieved better integration through trade. The rewards were clear, both in increased internal trade and, even more critically, a more active and competitive engagement with the global economy.
The Maghreb has not lacked for motivation toward regional integration. With a shared language, culture and history, it also has fewer obstacles to overcome. Habib Ben Yahia made several pointed references to the founding of the Arab Maghreb Union in 1989, and to the 23-year wait for the fulfillment of its promise. One notable feature, as documented in a new World Bank report that was presented at the workshop, is that despite the region’s many affinities, it has a conspicuous absence of internal trade.
There are the usual suspects for the low level of trade within the Magheb, such as the lack of any significant supply and demand dynamic, the dominant role that oil plays in the Algerian or Libyan economies, and the diversion from regional opportunities caused by the dominant focus Moroccan and Tunisian firms have on business relations with European partners. However, as noted by several workshop participants, complementarities do exist, with strong potential for trade in agriculture or production sharing for regional and external markets in industries such as pharmaceuticals or automotives, among others. Ralf-Michael Kaltheier, a World Bank infrastructure specialist usually focused on Latin America, demonstrated how Central America achieved increased regional trade and integration, and how it complements the important relationship with their two powerful neighborhood players, Mexico and the United States. Central America now conducts 17 percent of its total trade internally, while the comparable rate for the Maghreb is less than three percent.
Much like regional integration, there is also motivation for internal trade. Many of the reasons for its current scarcity in the Maghreb lie outside the rules of supply and demand. Hakim Marrakchi, a representative of the Moroccan private sector, repeatedly used the word ‘uncertainty.’ Privately, he spoke of good relations with potential business partners throughout the region, but was hesitant to develop them due to a maze of regulations governing production and quality standards, and little predictability in how each is applied. A number of regional accords, each aimed at promoting integration, have reduced tariffs, but they are undermined by a series of overlapping rules and standards which, as described by World Bank Sector Manager for International Trade, Mona Haddad, create a ‘spaghetti bowl’ of regulations. This confusion reduces the use of trade preferences and is one of the primary obstacles stifling the growth of regional trade. It complicates and slows the shipment of goods, thus raising the cost, and ultimately dictates that multiple versions of the same product be manufactured to match multiple standards. This is in addition to weak infrastructure and a host of non-tariff measures which all add up to an extra burden weighing down on regional trade.
Professor Ruth Banomyong, of Thammasat University in Thailand, stressed the role of the private sector in the development of regional trade in the Association of Southeast Asian Nations (ASEAN). Regional and national business lobbies pushed for the regulatory reforms and infrastructure investments that have raised internal trade to 24 percent of total ASEAN trade, and will eventually lead to the creation of a common market. ASEAN is now a far stronger competitor in the global economy as a result of closer integration. It allowed for the development of regional production networks that make manufacturing more efficient and lower the cost of goods exported.
A common language of trade will have to be adopted in the Maghreb, based on uniform standards and a single set of regulations, to boost the confidence of the region’s private sector, and put it in a position to play a similar role. Morocco and Tunisia have taken steps in this direction, with a resulting increase in bilateral trade. Yet as noted by Abdemoula Ghzala, World Bank Lead Infrastructure Specialist and leader of the team that produced the Maghreb report, reforms and programs are most effective if implemented in a comprehensive and coordinated manner. The report concludes with a detailed action plan which was presented at the workshop. It provides a roadmap for a regional effort at eliminating the barriers to internal trade, into which all individual initiatives could be consolidated, and laying the foundation for closer economic integration.
“The countries of the Maghreb have immense unrealized potential, as the reduction of regional trade costs to a level closer to that of other regions would promote regional supply chains that would help them integrate further, generate economies of scale and allow them all to trade more competitively within the global economy, “says Jean François Arvis, World Bank Senior Economist and a co-author of the report. “But they need to move together, to remove the specific bottlenecks affecting regional trade as a critical complement to the efforts already made to facilitate trade with Europe.”