Economic Integration of the Maghreb

Floor Speech

Economic Integration of the Maghreb

Madam Speaker, I am placing in the record today the summary of an exceptionally important study on improving the global and regional economic immigration of the Maghreb.

This study was a collaborative effort of Ambassador Start Eizenstat and Dr. Cary Clyde Hufbauer. It highlights the critical importance of U.S. involvement in building a prosperous and stable Maghreb.

A draft of the full report is posted on-line by the Peterson Institute for International Economics at www.iie.com.

PROSPECTS FOR GREATER GLOBAL AND REGIONAL INTEGRATION IN THE MAGHREB: RECOMMENDATIONS FROM THE PETERSON INSTITUTE, IFPRI, AND IEMED

On May 29, 2008, the Peterson Institute for International Economics held an event to announce the results of a number of studies that examine, from both a macroeconomic and sectoral perspective, the barriers to and potential benefits of economic integration among the countries of the Maghreb, as well as between the region and the broader world economy. The two macroeconomic studies were performed by the Peterson Institute and the International Food Policy Research Institute (``IFPRI''). The sectoral studies were performed by the European Institute for the Mediterranean (``IEMED''). A final Report will be published in October 2008.

The studies generally show that integration among the countries of the region would yield increased trade and investment. Greater increases in trade and investment, however, would come from such regional integration combined with stronger links between the region and the global economy. The studies also demonstrate the importance of reducing non-tariff barriers to trade and investment, as well as the pursuit of regulatory harmonization to create a more positive investment climate. Finally, the experts from the three institutes who presented their findings offered specific policy recommendations for the United States and European Union, as well as sector-specific recommendations for the regional economy. Recommendations for the United States and the European Union

The core objective of closer ties between the United States, European Union, and the Maghreb is to transform the Maghreb economies, including by encouraging new industries and services, new jobs, and increased rates of growth. The United States and European Union should work with the Maghreb countries to enhance integration through bilateral trade or investment agreements or in companion agreements.

Aid for Technical Assistance and Capacity Building: The United States and European Union can help improve the business climate in the Maghreb by assisting with the acceleration of reforms. Such aid could encourage the harmonization of investment and regulatory regimes throughout the region to the highest standards provided for in bilateral trade agreements, promote sector-specific investment and regulatory reforms, assist in the development of transnational networks for transportation and energy infrastructure, and provide the best technology for ensuring that cross-border shipments can be processed efficiently and securely.

Tariffs: The United States and European Union could work with their Maghreb partners to negotiate lower tariffs, or no tariffs, on selected products imported from other Maghreb countries.

Rules of Origin: In the European Union's Euro-Med Partnership, Algeria, Morocco, and Tunisia apply full cumulation between themselves and diagonal cumulation with the other pan-European countries. This approach could be extended to Libya and Mauritania. The United States and its Maghreb partners, building on the U.S.-Morocco free trade agreement, could negotiate agreements similar to the Qualified Industrial Zone (``QIZ'') program with Jordan and Egypt or allow for the cumulation of inputs across the Maghreb.

Encouraging Sectoral Cooperation: The United States and the European Union could focus on how they can best stimulate regional cooperation at the sectoral level. Possible areas for collaboration with the countries of the Maghreb are highlighted below. Sectoral Recommendations

The countries of the region, with the support of the United States and European Union, should work together to increase intraregional integration in the major sectors of the regional economy, which include energy, banking, transportation, and agriculture and food.

Energy: It is not clear whether each Maghreb country will be able to mobilize, on its own, the necessary means to meet increased energy demands that will accompany increased regional population and economic growth. Consequently, a regional response is necessary. First, the flow of energy through the region is critical. For example, electricity constraints could be dealt with by optimizing the exploitation of electric interconnections that already exist between countries. Second, sustainable development should be favored to limit environmental constraints and to strengthen energy supply, for example by implementing renewable energy industries such as wind and solar. Finally, a global action plan could seek collaborative efforts on power generation, refining, transportation and distribution, and chemical manufacturing by creating global companies to gain access to European, U.S., and other markets.

Banking: The regional banking sector presents notable contrasts, with some countries possessing modern banking systems, while those of others have regressed since the 1960s. Regional banks are not necessarily relied upon to properly manage assets, which results in a loss of capital from the region. Banks are over-liquid, and credit is not readily available. In short, capital is not mobilized for development. A regional financial institution could transform unused liquidity into long-term financial instruments for saving and investment. Such an institution could build upon the future privatization of the Algerian banking system to create two regional banks with shareholding in all countries of the region, a mandate to encourage intraregional transactions, and a mandate to ensure currency convertibility.

Transportation: The countries of the region inherited an institutional framework that regulated transportation infrastructure based on the French model that de-emphasized competition. The failures of that model became apparent in the 1980s. Although Maghreb countries were slow to treat logistics as a strategic means of competitive leverage, monopolies have now been dismantled, and competition prevails. Morocco has an open skies agreement with Europe, and Royal Air Moroc has a strong network in West Africa. The first harbor ready to receive ultra-large carriers opened in Tangiers in 2007. Because the value of transportation infrastructure, including these projects, depends on the extent of the network, the Morocco-Algeria border desperately needs to be reopened. National networks currently end in cul de sacs, and duplicate infrastructure--for example the ports of Nador and Ghazaouet on either side of the border Morocco-Algeria border--has been developed. Both are examples of substantial inefficiency.

Agriculture and Food: The countries of the Maghreb are close in distance, are close in agricultural production, share similar patterns of consumption, and share problems including aridity, water scarcity, and volatility in agricultural GDP. Despite these similarities, there are substantial differences among the countries in agricultural and food policies, in terms of subsidies, norms, and enforcement.. Regional similarities in this sector allow for economies of scale, the potential for vertical integration, risk-sharing for ``discovering'' new markets and new products, regulatory harmonization to increase quality and decrease smuggling, and collective responses to the need for resource conservation.

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