appendixes - council on foreign relations · pdf file76 m2 lebanon 18 28 -64 -13 0 45 1.9...

APPENDIXES

[45]

APPENDIX 1:

Regions andCountries

Share ofNatural

Resourcesin TotalTrade

(%)

Population(millions)

GNP ($billions)

Trade to GNPRatio

FDI toGDPRatio

CollectedTariff

Revenues(share ofimports;

simpleaverage)

Goods ServicesAggregate estimates, by level of income and regionLow income 8.5 2,417 988 36.2 9.4 1.1 21.6Lower-middleincome

15.0 2,094 2,512 41.4 9.8 6.4 17.0

Upper-middleincome

11.3 573 2,810 41.2 8.3 2.4 15.3

High income 5.2 891 22,921 35.9 8.9 2.0 6.6MENA 31.7 291 599 40.0 9.0 0.8 9.6

Estimates by countryAlgeria 45.1 30 46.5 43.4 n.a. 0.01 15.1Bahrain 26.6 4.4Egypt 53.2 62 87.5 23.2 16.6 1.2 18.9Iran 85.6 63 110.5 23.7 3.0 0.02 15.0*Israel 1.9 6 99.0 54.0 19.2 1.9 1.0Jordan 34.7 5 7.0 81.2 48.9 4.4 8.0Kuwait 96.7 2 25.0 73.4 23.2 0.2 3.8Lebanon 11.3 4 15.8 49.4 3.1 1.3 9.8Libya 59.9 5 33.0 18.5 1.6 0.4 8.9Morocco 13.2 28 33.8 52.2 11.8 0.9 16.7Oman 50.1 2 12.1 46.2 5.5 0.7 2.7Qatar 53.3 1 9.5 46.3 n.a. 0.8 n.a.SaudiArabia

90.5 21 128.0 55.3 10.4 1.9 10.0

Syria 81.7 16 15.2 46.3 19.4 0.5 20.1Tunisia 16.0 9 19.9 75.2 20.4 3.3 8.6Turkey 3.9 64 186.3 36.6 16.4 0.5 1.8UAE 30.4 3 50.3 57.2 n.a. 0.2 n.a.Yemen 90.0 17 5.9 61.3 11.3 -3.5 9.1

Averages/Sum

Average Sum Sum Avg. Avg. Avg. Avg.

All MENA 48.2 327 780 51.9 18.2 0.9 9.6Israel/Turkey

2.9 70 285 45.3 17.8 1.2 1.4

Other MENA 57.3 257 495 53.1 18.3 0.8 10.8

* Valued at market exchange rates.Source: World Development Indicators (Washington, DC: World Bank, 2000). Tariff data: Government FinancialStatistics Yearbook and International Financial Statistics (Washington, DC: International Monetary Fund, 2000).M. Nabli and A. De Kleine, “Managing Global Integration in the Middle East and North Africa” in Trade PolicyDevelopments in the Middle East and North Africa, B. Hoekman and H. Kheir el-Din, eds. (Washington, DC: World Bank, 2000).

Table 1: Basic Indicators, 1998–99

Harnessing Trade in the Middle East

[46]

Table 2: Average Unweighted Tariff Rates By Region

Region 1978–80 1981–85 1986–90 1991–95 1996–99Africa 38.2 29.3 26.9 22.3 17.8East Asia 23.5 26.9 20.7 14.6 10.4Latin America 28.1 26.4 24.1 13.9 11.1MENA* 29.6 24.6 24.1 22.9 19.3South Asia NA 71.9 69.8 38.9 30.7

Europe/Central Asia 12.0 21.6 14.9 8.1 10.1Industrial economies 11.9 8.9 8.2 6.8 6.1Notes: MENA excludes Gulf States, Iran, Iraq, Turkey, and Israel.Source: World Development Indicators (Washington, DC: World Bank, various years), authors’ computations.

Table 3: Education and Research and Development in MENANet Enrollment Ratioin Secondary Schools

(% of age group)

Scientists andEngineers(millions)

Hi-techExports(% mfg.exports)

Patent ApplicationsFiled (number)

Regions and countries ByResidents

by Non-residents

1980 1997 1987–97 1998 1997 1997

Low Income 38 51 16,764 680,497

Lower-middle Income 64 70 763 15 34,272 445,265

Upper-middle Income 59 75 660 20 98,878 339,696

High Income 87 96 3,166 33 648,093 2,137,327

The MENA region 46 66 1 509 1,207

Averages/Sums Avg. Avg. Avg. Avg. Sum Sum

All MENA 49 58 293 3 397 8,402

Israel-Turkey 42 58 291 11 1,015 28,267

Other MENA 50 58 294 1 192 456

Central Europe 79 95 1,386 9 1,003 29,354

Source: World Development Indicators (Washington, DC: World Bank, 2000).

Appendixes

[47]


[48]

Tab

le 5

:P

rod

uct

Co

nce

ntr

atio

n a

nd

Dif

fere

nti

atio

n in

ME

NA

Exp

ort

s

Sh

are

of

SIT

CIt

ems

(%)

[a]

HH

In

dex

es o

fC

on

cen

trat

ion

[b

]In

tra-

ind

ust

ry T

rad

eIn

dex

es [

c]S

har

e o

f C

om

po

nen

ts in

To

tal I

nd

.T

rad

e (%

)19

8019

9419

8019

9419

8519

97Im

port

sE

xport

s

Nat

ura

l res

ou

rce-

po

or

cou

ntr

ies

Isra

el0

.84

0.8

20

.264

0.2

680

.59

0.6

612

.318

.3

Turk

ey0

.79

0.9

00

.230

0.1

130

.16

0.3

312

.53.

9

Cyp

rus

0.5

90

.40

0.1

480

.183

0.3

00

.29

8.0

2.6

Leb

anon

0.8

10

.68

0.1

580

.169

0.2

40

.18

13.3

2.4

Moro

cco

Tun

isia

Inte

rmed

iate

co

un

trie

s

Bah

rain

0.2

40

.49

0.7

900

.597

0.2

10

.31

13.8

2.4

Egy

pt

0.3

30

.72

0.5

750

.265

0.0

70

.17

11.9

2.1

Jord

an0

.45

0.4

70

.352

0.2

700

.14

0.1

612

.61.

8

Oil

-ric

h c

ou

ntr

ies

Om

an

Syr

ia0

.48

0.5

10

.619

0.6

550

.07

0.0

77.

60

.4

0.4

20

.54

0.9

220

.747

0.1

20

.24

22.7

21.8

UA

E0

.82

0.8

60

.870

0.6

830

.28

0.2

810

.51.

3

Iran

0.3

70

.72

0.8

140

.80

60

.23

0.1

315

.82.

6

Sau

di

Ara

bia

0.7

70

.83

0.9

420

.728

0.0

90

.19

23.1

0.3

Qat

ar0

.01

0.1

40

.934

0.6

280

.09

0.0

714

.30

.0

Lib

ya0

.18

0.3

20

.961

0.7

800

.20

0.1

617

.70

.3

Kuw

ait

0.7

90

.59

0.7

320

.932

0.1

20

.08

15.0

5.6

Mem

o i

tem

:

Ave

rage

ME

NA

0.5

30

.60

0.6

210

.521

0.1

90

.22

14.5

9.2

Not

es:

[a]

Per

cen

t of

Sta

nga

rd I

nd

ust

rial

Tra

de

Cla

ssif

icat

ion

(S

ITC

) it

ems

wit

h “

subst

anti

al”

exp

ort

s.[b

] T

he

Hir

sch

man

-Her

fin

dah

l in

dex

is

the

sum

of

the

squar

es o

f th

e m

arket

sh

are

hel

d b

y ea

ch e

xport

ite

m i

n t

ota

l ex

port

s. T

he

low

er t

he

ind

ex,

the

less

con

cen

trat

ed e

xport

s ar

e.

[c]

Th

e G

rubel

-Llo

yd i

nd

ex,

ran

gin

g fr

om

0 t

o 1

, is

def

ined

as

1 -

[Σ

Σ Σ

Χij

k -

Mij

k (

Xij

k +

Mij

k)]

, w

h er

e X

ij k r

ep re

s ents

the

ex p

o rt

s of

p ro

d uct

sfr

om in

dus

tr y

i fr o

m c

o un

try

j to

co un

try

k an

d M

ij k

r ep

res e

nts

the

im po rt

s of

p ro

d uc

ts f

ro m

ind u

stry

i b

y co

u n

try

j f ro

m c

oun

tr y

k . T

he

hig

her

th

e in

dex

the

hig

her

th

e sh

are

of

intr

a-in

dust

ry t

rad

e.S

ourc

es:

Han

dboo

k of

Tra

de S

tati

stic

s (G

enev

a: U

.N.

Con

fere

nce

on

Tra

de

and

Dev

elop

men

t, 1

999)

; A

lexa

nd

er Y

eats

an

d F

ran

cis

Ng,

“B

eyon

d t

he

Year

20

00

: I m

plic

atio

ns

of t

he M

id dl

e E

ast’

s R

ecen

t Tra

de

Per

fo rm

ance

,” i

n C

atch

ing

Up

wit

h th

e C

ompe

titi

on:

Tra

de O

ppor

tun

itie

s an

d C

hall

enge

sfo

r A

rab

Cou

ntr

ies,

B.

Hoek

man

an

d J

. Z

arro

uk,

eds.

(A

nn

Arb

or,

MI:

Un

iver

sity

of

Mic

hig

an P

ress

, 20

00

).

Appendixes

[49]

Tab

le 6

: R

eso

urc

e M

ob

iliz

atio

n: G

ross

Do

mes

tic

Inve

stm

ent

and

Sav

ings

, Hig

hes

t M

argi

nal

Tax

Rat

es a

nd

Sto

ck E

xch

ange

sR

egio

ns

and

Coun

trie

sG

ross

Dom

esti

cG

ross

Dom

esti

cH

igh

est

Tax

Rat

eS

tock

Mar

ket

Lis

ted

Com

pan

ies

Inve

stm

ent

Sav

ings

(%

GD

P)

Ind

ivid

ual

Corp

ora

teC

apit

aliz

atio

n

(%G

DP

)$ B

n$ B

n%

GD

PN

um

ber

Num

ber

1990

1999

1990

1999

1999

1999

1990

1999

1999

1990

1999

Agg

rega

te e

stim

ates

, by

leve

l of

inco

me

and

reg

ion

LL

ow

2420

2119

----

54.6

268.

10

.271

3446

8332

M1

Low

er-m

idd

le31

2730

30--

--58

.275

1.8

0.2

9918

3311

451

M2

Up

per

-mid

dle

2322

2523

----

372.

314

07.

50

.50

130

8151

09

HH

igh

2321

2322

----

8913

.233

603.

51.

466

170

6424

748

Th

e M

EN

A r

egio

n24

2222

19--

--5.

315

1.6

0.2

5381

718

63

Est

imat

es b

y in

div

idu

al c

ou

ntr

y

M2

Cze

ch R

ep.

2530

2829

4035

11.8

0.2

2716

4

M2

Hun

gary

2530

2828

4018

0.5

16.3

0.3

4921

66

M2

Pola

nd

2528

3218

4034

0.1

29.6

0.1

939

221

M2

Slo

vakia

3339

2428

4240

0.7

0.0

3784

5

M1

Alg

eria

2927

2712

M1

Egy

pt

2923

1614

3240

1.8

32.8

0.3

7557

310

32

M1

Iran

2916

2716

5454

34.3

21.8

0.1

9897

295

HIs

rael

2520

1410

5036

3.3

63.8

0.6

4521

664

4

M1

Jord

an32

272.

05.

80

.832

105

152

HK

uw

ait

1812

42

20

018

.80

.753

76

M2

Leb

anon

1828

-64

-13

045

1.9

0.1

2213

M1

Moro

cco

2523

1618

4435

1.0

13.7

0.4

05

7155

M2

Sau

di

Ara

bia

2021

3026

48.2

60.4

0.4

7259

73

M2

Syr

ia16

18

M2

Tun

isia

3228

2524

0.5

2.7

0.1

3613

44

M2

Turk

ey24

2420

2140

3019

.111

2.7

0.6

05

110

285

LY

emen

1521

91

3

Ave

rage

s/S

um

sA

vg.

Avg

.A

vg.

Avg

.A

vg.

Avg

.A

vg.

Avg

.A

vg.

Avg

.A

vg.

All

ME

NA

2523

1215

3134

110

.133

4.6

0.4

5412

4426

69

*

Isra

el-T

urk

ey25

2217

1645

3322

.417

6.5

0.6

2532

692

9

*

Oth

er M

EN

A25

2311

1526

3587

.815

8.1

0.4

1291

817

40

Cen

tral

Euro

pe

2732

2826

4132

0.6

58.4

0.2

01

3012

96

Sou

rce:

Wor

ld D

evel

opm

ent

Indi

cato

rs (

Was

hin

gton

, D

C:

Worl

d B

ank,

200

0).


[50]

Tab

le 7

: Im

pac

t o

f A

lter

nat

ive

Ref

orm

Sce

nar

ios

(%)

Euro

-Med

Agr

eem

ent:

Rem

ova

l of

Tar

iffs

on

Tra

de

wit

h E

U

EU

plu

sG

AF

TA

(tar

iffs

on

ly)

EU

plu

s G

AF

TA

(tar

iffs

an

d N

TB

rem

ova

l)

Lib

eral

izat

ion

of

Cro

ss-B

ord

erT

rad

e in

Ser

vice

s

Rem

ova

l of

Ser

vice

s(i

nve

stm

ent

bar

rier

s)

Full

Ser

vice

Ref

orm

Ser

vice

Ref

orm

plu

sT

arif

f R

emova

l (E

Up

lus

GA

FT

A)

Ser

vice

Ref

orm

plu

sT

arif

f an

d N

TB

Rem

ova

l (E

C a

nd

GA

FT

A)

Per

cen

tage

ch

ange

in:

A. T

un

isia

Wel

fare

(re

al i

nco

me)

4.4

4.5

7.0

2.2

6.9

9.2

9.3

Outp

ut

7.7

7.7

6.7

1.4

3.9

6.1

6.2

Con

sum

er p

rice

in

dex

-4.2

-4.3

-6.6

-2.2

-6.5

-8.5

-8.5

Outp

ut

shar

e of:

Agr

icult

ure

0.2

0.2

0.2

0.2

0.2

0.2

0.2

Man

ufa

cturi

ng

0.4

0.4

0.4

0.3

0.3

0.3

0.3

Ser

vice

s0

.40

.40

.40

.40

.40

.40

.4

Fac

tor

retu

rns

Cap

ital

0.6

0.8

3.8

2.2

7.4

9.9

9.9

Lab

or

7.7

7.6

5.9

0.9

2.6

3.3

3.3

Fac

tor

allo

cati

on

s

Cap

ital

8.0

7.8

6.6

1.8

5.5

6.3

6.2

Lab

or

8.0

7.7

5.0

1.5

3.7

4.2

4.3

2.9

B. E

gyp

t

12.8 9.9

-11.

4

0.2

0.3

0.4

11.0 7.0

3.8

Wel

fare

-0.3

-0.1

4.6

1.1

5.6

6.5

6.6

10.2

Outp

ut

0.7

1.4

3.8

0.2

1.9

2.7

3.2

6.4

Con

sum

er p

rice

in

dex

-3.1

-3.7

-8.3

-5.5

-17.

1-2

2.6

-27.

3-3

1.9

Outp

ut

shar

e:

Agr

icult

ure

0.2

0.2

0.2

0.2

0.2

0.2

0.2

0.2

Man

ufa

cturi

ng

0.4

0.4

0.4

0.4

0.4

0.4

0.4

0.4

Ser

vice

s0

.30

.30

.40

.30

.30

.30

.30

.3

Fac

tor

retu

rns

Cap

ital

1.0

1.1

4.3

0.2

7.8

7.6

9.3

11.3

Lab

or

4.7

7.9

16.2

1.5

3.3

4.8

6.1

14.1

Fac

tor

allo

cati

on

s

Cap

ital

1.8

2.9

5.1

0.8

2.9

2.2

2.6

4.3

Lab

or

3.5

5.9

9.5

0.5

2.5

2.2

2.2

3.5

Sou

rce:

Den

ise

Eby

Kon

an,

“Alt

ern

ativ

e P

ath

s to

Pro

sper

ity:

E

con

om

ic I

nte

grat

ion

Am

on

g A

rab C

oun

trie

s,”

pre

par

ed f

or

the

Coun

cil

on

Fore

ign

Rel

atio

ns

Stu

dy

Gro

up

on

Mid

dle

Eas

t T

rad

e O

pti

on

s (N

ew Y

ork

, N

Y:

Coun

cil

on

Fore

ign

Rel

atio

ns,

20

01)

.

[51]

APPENDIX 2:A SURVEY OF BARRIERS TO TRADE AND INVESTMENT

IN THE MENA REGION

Prepared by

Jamel Zarrouk49

I. OverviewThis survey was undertaken on behalf of the Council on ForeignRelations to better understand trading constraints that hinder the development of private businesses in the Middle Eastand North Africa (MENA) region. Per the request of the CFRStudy Group on Middle East Trade Options, the purpose of thissurvey is threefold: first, to generate information on trading costsand other trade policies that impose burdens on intra-regional tradeand investment in the MENA region; second, to shed further lighton the operations of the prevailing intra-regional trade agreementsthat have been concluded by many of the countries in the MENAregion; and, finally, to identify the most important factors inintra-regional investment decisions as well as the perceived con-straints to investment in MENA countries by the MENA investorswho took part in the survey.

Costs in international trade are transaction costs associated withinefficiencies in customs clearance procedures, land transportregulations and requirements, competition laws, and adminis-trative red tape. These trading constraints have not been quanti-fied, and their impact on intra-regional MENA trade andinvestment have not yet been fully understood. The survey ispart of a research project to quantify barriers to internationalexchange (goods, services, and investment) in the region.The gen-erated data is incorporated into a model-based assessment of the

49 A team of professionals from the nine countries conducted company interviews andmonitored the completion of the questionnaire by the surveyed companies under the author’s general direction.


[52]

potential gains from deeper intra-regional integration, takinginto account the eventual implementation of Euro-Med andPan-Arab trade agreements and the trade agreements between Israeland its neighboring countries ( Jordan and Egypt).

The survey was conducted during July-December 2000. Aprivate enterprise questionnaire was designed and completed innine countries and jurisdictions: Egypt, the West Bank and Gaza,Israel, Jordan, Lebanon, Saudi Arabia, Syria, Tunisia, and the United Arab Emirates (U.A.E.). The questionnaire covers somethirty to forty-five respondents in each country and was completedby randomly selected companies from a database of exportersand importers maintained by the Arab Trade Financing Pro-gram of the Arab Monetary Fund. Interviews were also con-ducted with key company managers for their opinions.

The questionnaire looks into the transaction costs of tradingin MENA through various operations and assesses the business environment.The questions are grouped into four maintopics.The first set deals with customs procedures, restrictions onoverland transport and transit, competition policy (e.g., businesslicensing, exclusive distribution systems and restraints on paral-lel imports, nationality requirements, etc.), as well as “informal”constraints (e.g., corruption, political barriers).The second set ofquestions was designed to understand the effectiveness of tradeagreements. The third set addresses the relative intensity of thebarriers that are perceived to prevail on a bilateral basis betweencountry pairs. Finally, the last part of the questionnaire surveys thebusiness environment that prevails when companies in the MENAregion decide to invest in other MENA countries.

The methodology adopted in this survey is mainly the rank-ing of regulatory and administrative constraints that create addi-tional burdens to trading in the MENA region. Moreover,companies were also asked to quantify administrative costs (in termsof numbers of working hours and days) and informal constraintssuch as irregular payments to customs and tax officials. A final sec-tion deals with ranking both the major factors for foreign invest-ment decisions and the constraints to intra-MENA investment.

Appendixes

[53]

• Survey ResultsA total of 250 companies in nine MENA countries completed thequestionnaire.The profiles of the surveyed countries and companiesare included in Appendix 2,Tables 10, and 11.The surveyed com-panies are representative of the manufacturing and services sec-tors in each of the selected MENA countries. The compiledresults are reported in four main sections: (a) estimates of tradingcosts in the MENA region; (b) the relative intensity of intra-region-al trade barriers between country pairs; (c) MENA traders’ assess-ment of the benefits or failures of regional trade agreements; and(d) MENA traders’ perceptions of the business environment forintra-regional direct investment decisions.

A. Traders’ Estimates of Trading Costs in the MENA CountriesThe surveyed companies estimate the average costs of trading inMENA countries (excluding customs duties and domestic taxeson imports) to be about 10.6 percent of the value of trade. A break-down of this estimate by type of trading activity shows that thereported values are close in magnitude and tend to confirm thatthere is no significant distinction in the approximated costs of trad-ing in the MENA region.

TTaabbllee 11::EEssttiimmaatteedd TTrraaddiinngg CCoossttss iinn tthhee MMEENNAA RReeggiioonn bbyy TTyyppee ooff

TTrraaddiinngg AAccttiivviittiieess((PPeerrcceenntt ooff tthhee vvaalluuee ooff iimmppoorrttss))

Range Percent of Responses

Manufacturer & Exporter only 10 to 15 17Manufacturer, Importer, & Exporter 8 to 10 33Importer & Distributor 8 to 10 20Importer & Exporter 5 to 10 16Others 10 to 20 14

100

Weighted Average Trading Costs 10.6%

The compiled results rank the major sources of trading costsas customs clearance first, then public sector corruption, followed


[54]

by mandatory product standards and conformity certification,transshipment regulations, and entry visa restrictions (for businessvisits). When companies were asked in the questionnaire to rankthe severity of a set of costly constraints including customs dutiesand domestic taxes, they ranked both of the latter at the top of thelist as the most binding constraints. This result shows that eventhough tariffs are being reduced in most MENA countries, theystill represent trade obstacles. Furthermore, the interviewed com-panies estimated that declining tariffs on imports were beingoffset by increases in domestic taxes.

TTaabbllee 22:: MMEENNAA CCoommppaanniieess’’ RRaannkkiinngg ooff TTrraaddiinngg CCoossttss

Ranking Average score* StandardDeviation

Customs Duties 1 3.0 1.1Domestic Taxes 2 2.6 1.3Customs Clearance 3 2.5 1.1Public Sector Corruption 4 2.4 1.4Inspection, conformity certification 5 2.2 1.3Transshipment regulatory measures 6 2.1 1.3Entry visa restrictions (for business) 7 1.8 1.5

* The average scores were scaled from 4 to 1, where 1 means that the constraint is not cost-

ly and 4 means that the constraint is prohibitive. Constraints with a score equal to or greater

than 1.8 were retained in the final results.

Regarding other “informal” trading costs, the questionnaireaddressed questions about corruption of customs officials andother trade-related officials when companies deal with import clear-ance and inspection. The compiled results show that MENAcompanies pay on average 1 percent of the value of imports as “addi-tional payments” to customs officials. A large number of interviewedcompanies mentioned that these “irregular payments” are usual-ly in kind. In addition, there was wide agreement among theinterviewed companies that additional payments are a commonpractice in most MENA countries (for instance, not a singlecompany is exempt from additional payments for clearance of animport transaction in Lebanon and Syria).

Appendixes

[55]

TTaabbllee 33:: AAvveerraaggee ““AAddddiittiioonnaall PPaayymmeennttss”” ((iinn ppeerrcceenntt ooff iimmppoorrtt vvaalluuee))

ttoo CCuussttoommss OOffffiicciiaallss,, bbyy CCoouunnttrryy

00--11%% 22--99%% 1100--1177%% 1188--2255%% >>2255%% DDoonn’’tt kknnooww

West Bank and Gaza 92 8

Egypt 33 12 3 3 48

Israel 73 27

Jordan 72 25 3

Lebanon 17 42 14 3 24

Saudi Arabia 33.3 33.3 33.3

Syria 41 42 8 9

Tunisia 77 23

U.A.E 82 18

AAvveerraaggee 5566..33 1188..66 33..66 00..55 11 2200

Note: The values represent company responses in %.

Estimates of additional payments to customs officials vary bycountry. As can be observed from the table above, at least half ofthe responding companies in Lebanon and Syria estimated typ-ical additional payments to customs officials in both countries torange between 2 and 17 percent

Another set of intangible costs that the questionnaire addressedare those associated with import and export procedures andrequirements, namely the time constraints for import clearance andinspection, the number of documents and signatures required toprocess a trade transaction, and the number of man-days that acompany spends in dealing with and resolving problems withcustoms and other government officials.

The compiled results provide some estimates. For instance, ittakes 2–5 days, on average, to release goods by imported air freightfrom customs, 2–10 days for sea shipment, and 1–3 days for aroad shipment, whereas the international norm is less than 6hours to clear air freight, less than 24 hours to clear sea freight,and less than 4 hours to clear transshipment by road. Another sig-nificant administrative cost is associated with the large number ofdocuments and signatures required for processing a trade trans-action, as shown in the following table.


[56]

TTaabbllee 44::TTyyppiiccaall NNuummbbeerr ooff DDooccuummeennttss aanndd SSiiggnnaattuurreess RReeqquuiirreedd ttoo

PPrroocceessss aa TTrraaddee TTrraannssaaccttiioonn

Transaction Number of Documents Number of SignaturesImports Exports Imports Exports

Air Freight 5 5 10–20 8–10Sea Freight 6 5 12–20 0Road Transport 5 5 11–15 11–15

Another administrative cost that the survey addresses is the number of man-days per year that MENA companies spendresolving problems with customs and other government officials.The compiled data show that the average company time is esti-mated at around 95 man-days per year, although the mode (i.e.,more than 50 percent of the respondents) is about 30 man-days.Moreover, about 10 percent of the respondents have daily contacts(365 days per year) with customs and other government officials.Interviewed companies consider such daily contacts with governmentofficials an inducement to corruption and view them as additionalcosts of trading. This significant factor may also explain the highranking of “public sector corruption” in the list of most costly con-straints perceived by MENA companies.The compiled results bycountry show that three countries spend more time than theregional average time in dealing with customs and tax departments:traders in Egypt, Jordan, and Syria spent an average of 100, 200,and 209 man-days, respectively.

Finally, companies were asked whether difficulties in dealingwith customs and other trade officials have decreased or increasedin the last three years. The compiled results show that, on aver-age, 41 percent of the respondents consider these difficulties to havedecreased, 36 percent believe that the difficulties have remainedabout the same, and 15 percent judged that the difficulties with cus-toms officials have increased.The following table displays detailedresponses to this question in each of the surveyed countries.

Appendixes

[57]

TTaabbllee 55::CCoommppaanniieess’’ PPeerrcceeppttiioonn ooff tthhee DDiiffffiiccuullttiieess iinn DDeeaalliinngg WWiitthh

CCuussttoommss && TTaaxx OOffffiicciiaallss TTooddaayy CCoommppaarreedd ttoo TThhrreeee YYeeaarrss AAggoo((PPeerrcceenntt ooff ttoottaall rreessppoonnsseess bbyy ssuurrvveeyyeedd ccoouunnttrryy))

Increased Remained the Same Decreased Don’t Know

Egypt 16 22 56 6West Bank and Gaza 35 35 18 12Israel 10 20 60 10Jordan 5 26 63 7Lebanon 17 50 31 3Saudi Arabia 17 67 17 –Syria 33 50 17 –Tunisia 17 46 25 13U.A.E 4 35 38 23AAvveerraaggee 1155 3366 4411 99

BBaarrrriieerrss ttoo SSeerrvviicceessThe survey addressed obstacles to establishing and operating a busi-ness in the services sector by asking MENA companies to judgehow problematic the laws and regulations are to service activities.The responding companies mentioned business licensing proce-dures, state monopoly in certain activities (e.g., insurance), exclu-sive agency laws, required employment of nationals, and publiccorruption as the major obstacles to services activities in theMENA region. Other results of restrictive factors to foreign sup-pliers of services are discussed later, in the section on barriers tointra-regional investment.

TTaabbllee 66::RRaannkkiinngg BBaarrrriieerrss ttoo EEssttaabblliisshhmmeenntt aanndd OOppeerraattiioonn ooff SSeerrvviiccee

AAccttiivviittiieess iinn MMEENNAA

Rank

Business Licensing 1State Monopoly 2Prohibited Parallel Imports (Exclusive Agency Laws) 3Employment of National Labor Required 4Public Sector Corruption and Red Tape 5


[58]

BB.. IInntteennssiittyy ooff TTrraaddee BBaarrrriieerrss oonn aa BBiillaatteerraall BBaassiiss BBeettwweeeenn CCoouunnttrryyPPaaiirrssThe questionnaire included a set of questions asking exporting com-panies to judge the relative intensity of trade barriers in other coun-tries of the MENA region on a bilateral pair basis. Preliminarycompiled results identify a group of MENA countries that werejudged as problematic by the interviewed companies. In thisgroup, the five most problematic for MENA traders are, from mostto least difficult, the West Bank and Gaza, Syria, Egypt,Tunisia,and Saudi Arabia.

The interviewed companies cited various reasons. For theWest Bank and Gaza, first in the list of the problematic countries,some of the frequently noted factors are “border closure, restric-tion by Israeli government, Israeli cross border restrictions.” In Syria,ranked the second-most problematic country, some of the citedreasons address the issues of “bureaucracy, complex trade laws, lackof banking services to open letters of credits for Syrian importers,and corruption.” In Egypt, which ranked third by interviewed com-panies, the market is judged to be “highly protected by high cus-toms duties, import prohibition, product standards, unclearconformity certification procedure, and red tape.” In Tunisia,which ranks fourth as a problematic country, some of the report-ed reasons include “complex trade laws and directives, high cus-toms duties, product inspection at the border takes too long,government subsidies to Tunisian exporters for air transportation,insurance, etc.” Saudi Arabia is ranked fifth for reasons such as “Saudivisa restrictions for business visit, local agency law that allows Saudinationals only to register for business and to be an agent of a for-eign company, discrimination by customs against Arab-madeproducts but easier access to Saudi markets for Asian, NorthAmerican, and European products.”

Appendixes

[59]

TTaabbllee 77::MMEENNAA CCoommppaanniieess RRaannkkiinngg ooff MMoosstt PPrroobblleemmaattiicc MMEENNAA

CCoouunnttrriieess FFoorr tthheeiirr TTrraaddiinngg AAccttiivviittiieess((PPeerrcceenntt ooff ttoottaall rreessppoonnsseess bbyy ccoouunnttrryy))

Extremely Problematic Not problematic Mean* Rank

Problematic Score

West Bank and Gaza 52.5 33.9 13.6 2.0 1

Syria 31.7 49.2 19.0 2.1 2

Egypt 30.0 46.3 23.8 2.41 3

Tunisia 28.6 52.3 19.0 2.43 4

Saudi Arabia 16.4 51.0 32.7 2.8 5

* Weighted average. The countries are ranked by mean score where a score of 1 means that

the country is extremely problematic and 4 means that the country is not problematic.

CC.. UUnnddeerrssttaannddiinngg tthhee EEffffeeccttiivveenneessss ooff TTrraaddee AAggrreeeemmeennttssThe questionnaire asked the interviewed companies whethertrade agreements signed with MENA countries or other foreigncountries have benefited their business, which of the trade agree-ments benefited their businesses, and how such agreementsworked in favor of their growth.

Regarding the interviewed companies’ view on trade agreements,51.5 percent replied that they have not benefited from any of thetrade agreements signed by their governments with foreign coun-tries, against 48.5 percent who replied that they have. For the lat-ter, the trade agreements that have most benefited their businessesare, in order of their beneficial impact, the Pan-Arab trade agree-ments such as bilateral protocols, followed by the WTO agree-ments, then the Gulf Cooperation Council (GCC) economicagreement, and finally the Euro-Med Free Trade Area. Accord-ing to the company responses, these agreements seem to work mostin lowering tariffs and in providing companies with preferentialaccess to exports. For the Euro-Med agreements, companiescited the “mise à niveau” (or restructuring) program supported bythe EU aid program for Mediterranean partner countries as themain item to have worked in their favor so far.

For those that replied as not having benefited from the tradeagreements, many obstacles were cited. Some of the obstacles thatare listed can be summarized as follows:


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• Lack of knowledge/awareness of the benefits of these agreements;• Government agencies do not make enough effort to inform the

public about the benefits of these agreements;• Strong competition from Asian countries outweighs the ben-

efits of agreements;• Implementation problems: partner countries do not commit

to terms and conditions of the agreements.The articles of someagreements are left to the interpretation of customs officials wholack knowledge about the operations of these agreements;

• Trade agreements did not resolve the numerous administra-tive procedures and paperwork and red tape;

• Implementation of certain articles of agreements is not reci-procal; and

• Transportation among Arab countries is difficult.

DD.. AAsssseessssiinngg tthhee BBuussiinneessss EEnnvviirroonnmmeenntt ffoorr DDiirreecctt IInnttrraa--RReeggiioonnaallIInnvveessttmmeenntt

The questionnaire includes a module for respondents who are deci-sion-makers about foreign direct investment (FDI).The questionsasked what the potential Arab investors think about intra-region-al FDI and asked them to rank the most important factors in FDIdecisions by potential MENA investors.

The compiled responses show that MENA investors name thefollowing factors as extremely important:

TTaabbllee 88

FFaaccttoorr RRaannkkAbility to repatriate capital 1Political stability 2Predictability and reliability 3Size of the domestic market 4Legal system to enforce contract 5

Who are the leading hosts for intra-regional FDI in MENA?Surveyed entrepreneurs rank Saudi Arabia first, the United ArabEmirates second, Egypt third, Lebanon fourth, Libya fifth, Israelsixth, and finally Algeria.

Appendixes

[61]

Regarding the reported responses to major factors constrain-ing investment in the MENA region, the provision of a legal sys-tem that ensures that the terms of business contracts can beenforced is listed as the primary factor.This is followed by the roleof the state in directly intervening to protect exclusive agents bygiving territorial distributors monopoly power over imports (thisis more so in the Gulf countries). Government limits on owner-ship of real estate and equities are ranked in third and fourth places,respectively.This is complemented by concerns about corruptionand red tape in the government of the FDI host.

TTaabbllee 99::CCoommppaanniieess’’ PPeerrcceeppttiioonnss ooff tthhee MMoosstt RReessttrriiccttiivvee CCoonnssttrraaiinnttss

ttoo IInnttrraa--RReeggiioonnaall IInnvveessttmmeenntt

CCoonnssttrraaiinntt RRaannkk

Legal system enforcement 1Agency law restricting business to nationals only 2Prohibited foreign ownership of real estate 3Limitation on foreign ownership of equities 4Government corruption and red tape in FDI host 5Tax system and fees 6

Concluding RemarksThe Council on Foreign Relations survey reveals the impact of thepolicy conditions under which trade and investment operate in MENAregion. Although tariffs and other taxes on imports have been declin-ing in most MENA countries in recent years, MENA companiesstill perceive tariffs and domestic taxes as relatively high andtending to top trading costs.These tend to be compounded by thecosts of complying with regulations and administrative con-straints. Finally, additional opinions of surveyed entrepreneurs onbarriers to trade and investment in MENA are listed as follows:

Lebanon1. Create an Arab regional Export-Import Bank to promote Arab

exports around the world.2. Lower customs tariff/taxes.3. Reduce customs inspections.4. Make transit operations in Syria cheaper and less complicated.


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5. Ease transit operations for trucks in Arab countries.6. Complicated customs clearance procedure, complicated doc-

uments, country of origin document not necessary, question-naire is too long and detailed.

7. Customs are expensive. Moreover, additional costs (non-tariff barriers) have to be taken into consideration.The ques-tionnaire did not include an important factor, which is the sizeof the state monopoly in Arab countries.

8. Non-tariff trade barriers still lead inter-Arab trade barriers andrestrictions.

9. Our wishes are to simplify customs procedures and to reducethe fines on non-conformity invoices.

10. Registration of pharmaceuticals at the ministries of health isa major obstacle in all Arab countries.

11. The questionnaire is very long. It states obvious problems thatare explicit to everybody. Instead we should have a project pro-posal to vote on for implementation of a new system.

12. To be able to export to a government institution withoutgetting into the headaches of administrative procedures.

13. What we really need is government loans through banks forlong-term periods and subsidies.

Saudi Arabia1. Import Tariff / Custom Inspection Charges / Legalization

Charges.2. Removal or substantial reduction of customs duties coverage

of trade risk by an Export-Import bank, similar to the U.S.Export-Import Bank or France’s Coface.

Tunisia1. Administrative obstacles, bribes, hard currency regulations are

major obstacles in Tunisia.2. Corruption is becoming rampant in Tunisia.3. Costs of trading are somewhat caused by government bureau-

cracy, which is a major obstacle. If you have no customs con-nections you will face troubles and obstacles or vice versa. Manyobstacles for businessmen with customs and taxation officials.

Appendixes

[63]

4. Rules and regulations are main obstacles to inter-Arab trade.5. Tax payment regulations are complex.6. There are noticeable incentives by the government to encour-

age exports.7. There are problems regarding sales tax of international trading

companies, especially value-added tax. Normal questionnaire.8. There is government support through export promotion fund.

However, there are difficulties with the Central Bank regard-ing hard currency earnings.

9. Trading is not costly in Tunisia. Relations with governmentare all right.

Egypt1. High rents are major trading costs in MENA.2. Increasing intra-regional trade information helps resolve

problems and suggest appropriate solutions.3. Commercial rentals in Arab countries are very high.4. Promote tourism by road between Arab countries. This is a

major potential market from which all Arab countries can ben-efit if they liberalize the movement of persons and intra-Arab tourism. Privatize national airlines and make themfunction effectively.

5. The company sees potential sales of its products in the Unit-ed States and Europe (software products, integration sys-tems) as well as in Arab countries.The company estimates that20 percent of its current sales can be diverted to Arab coun-tries (GCC, Jordan mainly).

Jordan1. Dealing with Arab countries is a major problem. It is impos-

sible to compare our products to theirs due to high cost in ourcountry for production. Trade agreements are not beneficial.No stability in labor. High cost of production and capital.

2. Registration procedures of pharmaceuticals take a long timeand many unnecessary documents.Tariffs have gone up on non-medical products: tariffs 30 percent, sales tax 175 percent,clearance charges 5 percent.


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Israel1. Because trade with the West Bank and Gaza is not regular import

and export, there are no customs duties between Israel and theWest Bank and Gaza. The only complication is that thePalestinian Authority supply ministry requests a label in Ara-bic that corresponds exactly to the Hebrew text.

2. Much of the actual work with customs and other agencies isdone through shipping agents or other companies (like“Toam”), and their answers could be highly relevant to this research.

United Arab Emirates1. Discrimination between nationals and foreigners. Obtain-

ing visa is difficult and cost is high, managing transport is expensive.

2. Flexibility is required in terms of day-to-day activities betweenprivate sector and customs/other regulatory agencies.

3. In general, there are no problems with government. Onlyproblem is the video rights paper that needs to be certified inthe Ministry of Foreign Affairs in Abu Dhabi.The whole pro-cedure takes one week.

4. Lack of national skilled labor in information-technologyindustry. Therefore cannot deal with government. The gov-ernment wants to deal only with nationals.

5. No problem with the government.6. Overall condition of conducting trading activity in MENA

region has improved7. System procedures are good and easy in UAE. Lack of bank-

ruptcy laws; companies are exposed to people who flee the coun-try. Restriction on visas for expatriate work force.

8. The law profession is reserved only for nationals. Othernationalities cannot appear in court. We are the only Asian firmin the country to get a “no objection” letter. Also the presenceof unqualified nationals in the Ministry of Labor.

9. The law that requires having a local sponsor is not good.The sponsors often end up earning a large percentage of theprofits without putting in any effort. Restriction on owningreal estate also prohibits setting up new businesses.

Appendixes

[65]

10. The Ministry of Labor requires the company to employnationals. But well-qualified nationals are not available.Thisregulation restricts the company’s growth.

11. The questionnaire does not have many questions related to hotelor service industry.

12. The system and policies of the government are very trade-friendly.

13. There is no problem in conducting business in Dubai.14. There is no unified customs policy. Some far Eastern mar-

kets use Dubai as a dumping market. There is no policy onquality standards.

15. Trading costs have been on the increase, and globalization hasled to fierce competition. Customs and municipality author-ities have been effective in controlling defective goods and at quality control.

16. Trading costs are extremely high and escalating. Establishmentcosts are increasing. Licensing costs are also high.

17. Trading costs are increased. Terminal handling costs anddelivery order fees have increased. Insufficient time to clearthe goods from the port.

18. Trading costs are high in the UAE due to general high costof living. Good understanding between private sector and customs agencies.

19. UAE customs procedures are generally less expensive andless time-consuming than those of neighboring countries inthe GCC and wider Middle East.

20. We have a very cordial and professional relationship withcustoms and our activity level is at its peak in the UAE.

Syria1. Additional trading cost in loading and reloading by customs

at the border. Laboratory analysis is inaccurate and too slow.For rice imports, non-transparent standard accepted by cus-toms officials. For dairy products, non-transparent directive.

2. Although some changes took place in the administration offoreign trade, we are still suffering from the lack of transparencyof the laws and lack of coordination between different admin-istrative agencies.


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3. Lack of facilities during customs clearance. No protection forperishable goods during inspection.

4. The relations between the private sector and the customsand other government agencies are very bad and not fair.The questionnaire is reasonable, and we hope it reaches inter-esting findings on trading cost in the region.

5. Trading costs and customs duties on imports and customs (pay-ments) for exports are all very high and hinder our trading activ-ities. The questionnaire is well detailed and can lead tointeresting conclusions and comments.

6. Trading costs are moderate for our business.The relationshipthat our business has with the official authorities is improv-ing. The questionnaire is good and well studied.

7. Trading costs are very high in Syria in comparison to otherArab countries with open trade regimes. Lack of transparen-cy of the relationship between the private sector and the offi-cial authorities in Syria.

8. Trading costs are very high in Syria. Customs duties in firstplace, then, additional payments that are as high as customsduties. Syrian authorities do not understand that the world ismoving fast in reforms and liberalization.

9. Unfortunately the cost of trading is very high. The addition-al payments are equal to the real cost of trading (customs duties).

Appendixes

[67]

Table 10:Sampled Country Profile


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Number of

companies

interviewed

PercentCumulative

Percent

34 13.6 13.6

20 8.0 21.6

32 12.8 34.4

32 12.8 47.2

10 4.0 51.2

30 12.0 63.2

Services

2.0 65.2

8 3.2 68.4

4 1.6 70.0

1.6 71.6

59 23.6 95 .2

2 0.8 96.0

4 1.6 97.6

6 2.4 100.0

Total 250 100.0

*

Type of Activity

9

Furniture, Paper Products, Leather, and

Travel, Hotels, Tourism

Construction, Civil Enginering &

Distribution (Wholesale Retail Trade,

Textiles and Garments Manufacturing

Chemicals, Plastics, and Pharmaceuticals

Heavy Industry*

Franchising)

Computer Services (Software, Systems

Miscellaneous Business Services (Legal,

Transportation and Storage Services

Handicrafts

Agro-Processing, Food, and Beverages

Stone, Clay, and Glass Products

Communications (Service Providers,

Courier, Video Production/Distribution)

Architectural Services

Insurance Services

Design, Data Processing, Computer

Maintenance, Repair)

Educational, Accounting, Personal

Primary and Manufactured Metal Products, Machinery and Equipment, Electronic Equipment,Transportation Equipment, and Other Miscellaneous Manufacturing Industries

Finance, etc.)

Table 11:Sampled Company Profile by Economic Activity

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APPENDIX 3:THE TRADE MODELS USED FOR SIMULATIONS

Prepared by

Denise Eby Konan

This appendix presents the theoretical structure of the Egypt and Tunisia computable general equilibrium (CGE) models anddescribes the benchmark datasets.50 The models used are standardcomputable general equilibrium models that incorporate detailedinformation on the structure of production, employment, andtrade in order to explore the magnitude of the potential gains fromliberalization. They are applied to two MENA countries: Egyptand Tunisia. They are based on a competitive, constant-returns-to-scale approach. The two MENA countries are modeled asprice takers on world markets—that is, their policy changes are assumednot to significantly alter prices in the region or the world.

The Tunisia model uses a Social Accounting Matrix (SAM)based on the 1995 input-output table provided by the InstitutNational de la Statistique. Economic activity is disaggregatedinto 36 sectors, including agriculture, petroleum and mining, util-ities, 17 manufacturing sectors, and 14 service sectors. Data on tar-iff collections and bilateral trade for the year 1995 were obtainedfrom the Ministry of International Cooperation and Investment.Collections data on the value-added tax were obtained from theMinistry of Finance. See Konan for further discussion.51

In the case of Egypt, the model is developed from a 1994SAM. The SAM is initially benchmarked to the 1990 input-output table from Central Agency for Public Mobilization and

50 The modeling exercises are discussed in detail in: Denise Eby Konan, “AlternativePaths to Prosperity: Economic Integration Among Arab Countries” prepared for the Coun-cil on Foreign Relations Study Group on Middle East Trade Options (New York, NY:Council on Foreign Relations, 2001).

51 Ibid.


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Statistics (CAPMAS) and is updated to 1994 using trade and tar-iff data. The 38-sector model includes agriculture, mining, man-ufacturing, and services. A rather complex tax structure isrepresented.The indirect tax cum subsidy levied on production inthe 1990 benchmark is phased out in 1993 and is replaced with agoods and services tax.52 Trade and tariff collections were obtainedon a bilateral basis from Egypt’s Ministry of International Coop-eration.

Constant returns to scale and perfect competition imply thatprices equal marginal costs of output. Final outputs are producedaccording to a Leontief function using intermediate inputs and realvalue-added. A constant elasticity of substitution (CES) produc-tion function describes the substitutability between labor andcapital inputs in producing real added value. Intermediate inputsand final goods are differentiated by country of origin accordingto the Armington assumption, so that export and import pricesdiffer across regions. In each sector, demand for domesticallyproduced and imported goods is represented by a CES function,and intermediate imports are also differentiated by region of sup-ply in a CES structure. Similarly, industries supply regionallydifferentiated goods to both domestic and foreign markets. Pro-duction follows a nested, two-stage constant elasticity of transformation(CET) function.Total output is first calculated as the sum of domes-tic supply and total exports, with the latter then being allocatedacross regions European Union [EU], Greater Arab Free Trade Area[GAFTA], and rest of the world according to a sub-CET func-tion. Capital is assumed to be freely mobile across sectors, as is labor.

A representative consumer maximizes a nested CES utility func-tion with a corresponding multistaged budget constraint. In thefirst stage, the consumer decides how much to spend on goods fromeach sector, given the budget constraint. Income elasticities acrosssectors are set at unity as given by a Cobb-Douglas (CD) utility

52 For further discussion of tax reform in Egypt in the context of this model, see Konanand Keith E. Maskus, “Joint Trade Liberalization and Tax Reform in a Small Open Econ-omy, The Case of Egypt,” October 1997, since published in Journal of Development Economics, vol. 61, no. 2: (April 2000), pp. 365–92.

Appendixes

[71]

nest. In the second nest, the consumer determines domestic andaggregate import expenditures in each sector according to a CESfunction. Then, given a budget for imports, the consumer selectspurchases of imports from each region.These latter functions alsocharacterize the split between government consumption andinvestment spending on domestic and imported goods and ser-vices. The representative consumer receives income from prima-ry factors (labor and capital), net transfers from the government,the current-account deficit, as well as any net economic rentsfrom the operation of non-tariff barriers (NTBs) to trade.Two stan-dard closure rules are imposed: the savings-investment balance anda fixed current account balance.

Traditional trade agreements involve the reduction of tariff andother border barriers in the flow of agricultural and manufacturedgoods.These barriers drive a wedge between domestic prices andworld prices. Some border barriers provide tax revenue (such aswith a tariff ) or rents for the domestic agents. Other barriers, suchas redundant customs procedures that might be streamlined withdeep integration, are simply frictional and use real economicresources. A deeper trade agreement might achieve cooperationin other domestic regulatory policies to allow foreign participa-tion in the provision of services. Service regulations may involvelegal impediments that raise market imperfections. For example,a licensing procedure that favors local firms may limit the num-ber of entrants (creating rents) and select inefficient suppliers(dead-weight loss). We thus distinguish, in our simulations,between frictional and rent- (or tax)-generating trade barriers.Todefine the initial situation, the models use data derived both fromthe survey and the literature.53 In the case of Tunisia, an NTB equiv-

53Riad al Khouri, “Trade Policies in Jordan, Lebanon and Saudi Arabia,” in Trade Pol-icy Developments in the Middle East and North Africa, B. Hoekman and H. Kheirel-Din, ed., (Washington, DC: World Bank, 2000). See also Cassing, et al, “Enhancing Egypt’sExports,” in Catching Up with the Competition:Trade Opportunities and Challenges for ArabCountries, Hoekman and J. Zarrouk, ed., (Ann Arbor, MI: University of Michigan Press,2000); Ahmed Galal, “The Welfare Impact of Telecom Reform in Egypt: An Ex AnteAnalysis,” in S. Fawzy and A. Galal, eds., Partners for Development: New Roles for Gov-ernment and the Private Sector in the Middle East and North Africa (Washington, DC: WorldBank, 1999); Maria Oliva, “Recent Trade Liberalization Experiences in Middle East andNorth African Countries,” IMF Working Paper Series WP/00/27 (Washington, DC:


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alent to a 5 percent tariff is assumed, based on the survey and otherstudies. The ad valorem equivalents of service sector policy dis-tortions range from 10 percent for business services to 30–50 per-cent for finance and insurance, to 200 percent for internationaltelecommunications. A 3 percent domestic wedge is applied to con-struction, transport, health, and education; a 15 percent wedge isapplied to domestic telecommunications; and a 10–50 percentwedge is applied to other services. In the Egyptian case, a 10 per-cent NTB is assumed on trade in goods, again in accordancewith the survey; a 6 percent service cost wedge is assumed for labor-intensive services and a 200 percent wedge is assumed for inter-national communications. Additional costs in the service sectorrange from 6 percent for construction and transport, to 10 percentfor distribution, 30 percent for communications and 60 percentfor financial services.

Liberalization scenarios presented in Appendix 1,Table 7, con-sider the following possibilities.The first option is a “shallow” tradeagreement with Europe (Column 2) or with Europe and GreaterArab League (Column 3) in which the country eliminates tariffbarriers on goods on a discriminatory basis. As discussed in thetext,Tunisia would experience a 4.4 percent increase in welfare froman EU agreement and would have little additional gain from anArab agreement.This reflects the concentration of Tunisian tradewith the EU. Egypt, in contrast, would likely lose from either ashallow EU agreement or GAFTA due to the significance of theUS as a trading partner.

It is possible that NTBs might be reduced or streamlined ona most-favored-nation basis in the course of a deep integration agree-ment with the EU and GAFTA countries. In column 4, resource-using NTBs are eliminated with all trading partners, while tariff

International Monetary Fund, February 2000); Jamel Zarrouk, “Regulatory Regimes andTrade Costs,” in Catching Up with the Competition:Trade Opportunities and Challenges forArab Countries; Jamel Zarrouk, “Para-Tariff Measures in Arab Countries,” in Trade Pol-icy Developments in the Middle East and North Africa; Jamel Zarrouk, “A Survey of Bar-riers to Trade and Investment in the MENA Region,” prepared for the Council on ForeignRelations Study Group on Middle East Trade Options (New York, NY: Council on For-eign Relations, 2001).

Appendixes

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barriers are reduced with partner European and MENA countries.Welfare gains are quite significant for Tunisia at 7 percent and arenotable for Egypt at 4.6 percent.

Services trade has witnessed dynamic growth rates in theadvanced world. Liberalization of domestic barriers to cross-bor-der trade and to foreign investment may provide a scope forgains. This possibility is considered in Columns 5 to 7 of Appen-dix 1,Table 7.The border barriers on services trade tend not to appearin the form of a tax (tariff equivalent) but rather in the form of resource-using regulatory restrictions. Column 5 assumes that services barriers are eliminated on an MFN basis.The resulting welfare gainis roughly 1 percent for Egypt and 2 percent for Tunisia.

Many services require close proximity between the provider andthe client, making foreign investment an important mode ofdelivery. Yet both Tunisia and Egypt maintain high regulatory bar-riers to inward foreign investment. Column 6 considers the pos-sibility that the domestic market becomes more competitive andoperates using world “best practices” when inward investment inservices is permitted. The potential welfare gain associated withinvestment liberalization is 7 percent in Tunisia and 5.6 percent inEgypt. Full service liberalization through a reduction of barriersto both trade and investment potentially raises Tunisian welfareby more than 9 percent and Egyptian welfare by nearly 7 percent,as seen in Column 7. Combining goods and services liberalizationin the context of an EU and GAFTA agreement provides sub-stantial scope for gains. Column 9 shows that Tunisia may gain12.8 percent and Egypt 10.2 percent in welfare.

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STUDY GROUP MEMBERS

Odeh F. AburdeneTHE CAPITAL TRUST GROUP

Nofal S. BarbarARAB BANK PLC

Judith BarnettGEORGETOWN GLOBAL INVESTMENT CORPORATION

Marjorie Ann ChorlinsMOTOROLA CORPORATION

Sam Y. CrossCOLUMBIA UNIVERSITY

Richard A. DebsMORGAN STANLEY DEAN WITTER & CO.

Ishac DiwanTHE WORLD BANK

Edward P. DjerejianTHE JAMES A. BAKER III INSTITUTE FOR PUBLIC POLICY

Lamine DjilaniARAB BANKING CORPORATION

Mohamed el-ErianPACIFIC INVESTMENT MANAGEMENT COMPANY

Abdallah el-MaaroufiEMBASSY OF MOROCCO TO THE UNITED STATES

Stephen P. FarrarGUARDIAN INDUSTRIES CORP.

Hani K. FindaklyPOTOMAC CAPITAL

Albert FishlowVIOLY, BYORUM & PARTNERS HOLDINGS, LLC

Randolph H. FleitmanBUREAU OF NEAR EASTERN AFFAIRS

DEPARTMENT OF STATE

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Jeffrey A. FrankelHARVARD UNIVERSITY

Jonathan M. FredmanCENTRAL INTELLIGENCE AGENCY

Michael GadbawGENERAL ELECTRIC COMPANY

Gene M. GrossmanPRINCETON UNIVERSITY

Tarek Ben HalimGOLDMAN, SACHS & CO.

Michael W. HodinPFIZER, INC.

Bernard HoekmanTHE WORLD BANK

Gary C. HufbauerINSTITUTE FOR INTERNATIONAL ECONOMICS

Shafiq IslamBRN ASSOCIATES

Paul JabberGEOFFREY (USA) INC.

Geoffrey KempTHE NIXON CENTER

Martha N. KesslerCENTRAL INTELLIGENCE AGENCY

Shaker A. KhayattKHAYATT & CO.

Zahi W. KhouriPALESTINIAN TELECOMMUNICATIONS CO.

Nemir A. KirdarINVESTCORP

Orde F. KittrieU.S. DEPARTMENT OF STATE

Ephraim KleimanHEBREW UNIVERSITY OF JERUSALEM

Denise Eby KonanUNIVERSITY OF HAWAII

Study Group Members


[76]

Harvey KruegerLEHMAN BROTHERS

Gerald W. LukomskiMOTOROLA, INC.

Robert A. MalleyCOUNCIL ON FOREIGN RELATIONS

Patrick MesserlinNATIONAL FOUNDATION OF POLITICAL SCIENCE, WORLD

ECONOMY GROUP

Richard W. MurphyCOUNCIL ON FOREIGN RELATIONS

Mustapha NabliTHE WORLD BANK

Karim NashashibiINTERNATIONAL MONETARY FUND

John PageTHE WORLD BANK

Thomas ParkerU.S. DEPARTMENT OF COMMERCE

Louis PerlmutterLAZARD FRÈRES & CO. LLC

Gustav RanisYALE UNIVERSITY

Eugene ReganIRISH INSTITUTE OF EUROPEAN AFFAIRS

Dani RodrikHARVARD UNIERSITY

Robert L. RosenNATIONAL FINANCIAL PARTNERS CORP.

George R. SalemAKIN, GUMP, STRAUSS, HAUER & FELD

Antranig SarkissianCITICORP

Jean-François SeznecTHE LAFAYETTE GROUP, LLC

Henry SiegmanCOUNCIL ON FOREIGN RELATIONS

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Joan E. SperoDORIS DUKE CHARITABLE FOUNDATION

Peter SutherlandGOLDMAN SACHS INTERNATIONAL

Kevin R. TaeckerENTERPRISE - SAUDI ARABIA

Emad TinawiARENT, FOX, KINTNER, PLOTKIN & KAHN

Irving A. WilliamsonWILLIAMSON INTERNATIONAL TRADE STRATEGIES, INC.

Frank G. WisnerAMERICAN INTERNATIONAL GROUP, INC.

Jamel ZarroukARAB MONETARY FUND

Study Group Members

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U.S./MIDDLE EAST PROJECT

INTERNATIONAL BOARD

CHAIR:Brent Scowcroft

HONORARY CHAIR:Bandar bin Sultan

CO-CHAIRS:Osama El Baz

Robert K. Lifton

FFoouuaadd MM..TT.. AAllgghhaanniimm Fouad M.T. Alghanim, Est.,Kuwait

BBaannddaarr bbiinn SSuullttaann Ambassador of Saudi Arabia tothe United States, Saudi Arabia

OOssaammaa eell BBaazz First Deputy, Egyptian Ministryof Foreign Affairs and PoliticalAdviser to the President, Egypt

LLeesstteerr CCrroowwnn Chair, Executive Committee,General Dynamics, U.S.A.

AAhhmmeedd AA.. EEzzzz Chairman, Ezz Group, EgyptHHaammaadd bbiinn JJaassssiimm Minister of Foreign Affairs, Qatar

bbiinn JJaabbrr aall TThhaanniiHHaassssaann bbiinn--TTaallaall Amman, JordanIIbbrraahhiimm KKaammeell CEO, Kato Aromatic, EgyptHHaammzzaa aall--KKhhoollii President and CEO, Saudi Build-

ing Technic Maintenance andOperations Co., Saudi Arabia

NNeemmiirr AA.. KKiirrddaarr President, Investcorp International,United Kingdom

[79]

U.S./Middle East Project

RRoobbeerrtt KK.. LLiiffttoonn Chairman and CEO, MedisTechnologies, Ltd., U.S.A.

YYoosseeff MMaaiimmaann President, Merhav, Inc., IsraelFFoouuaadd MMaakkhhzzoouummii Chairman, Future Pipe Group;

Founder, Future MillenniumFoundation and MakhzoumiFoundation, Lebanon

Jeeaann--MMaarriiee MMeessssiieerr Chairman and CEO, Vivendi,France

BBrryyaann MMoossss Vice Chairman, Gulfstream,U.S.A.

GGaammaall MMuubbaarraakk Executive Director, MedinvestAssociates, Ltd., Egypt

MMuussaallllaamm AAllii MMuussaallllaamm President & CEO, SKAB, SaudiArabia

LLoouuiiss PPeerrllmmuutttteerr Executive Managing Director,Lazard Frères & Co. LLC,U.S.A.

RRoobbeerrtt LL.. RRoosseenn Chairman, National FinancialPartners Corp., U.S.A.

DDeennnniiss RRoossss Washington Institute for NearEast Policy, U.S.A.

MMoohhaammmmeedd aall--SSaaggeerr Chairman, al-Mal Kuwaiti Co.,Kuwait

BBrreenntt SSccoowwccrroofftt Resident Trustee, Forum forInternational Policy, U.S.A.

HHeennrryy SSiieeggmmaann Director, and Senior Fellow,U.S./Middle East Project, Coun-cil on Foreign Relations, U.S.A.

PPeetteerr SSuutthheerrllaanndd Chairman, Goldman Sachs Inter-national; Chairman, BP p.l.c.,United Kingdom

SSaaaadd AAbbdduull--LLaattiiff President, Pepsi-Cola Interna-tional Middle East, UAE

YYuussuuff bbiinn AAllaawwii Minister of Foreign Affairs,bbiinn AAdduullllaahh Oman

EEnnzzoo VViissccuussii Senior Vice President, ENI,U.S.A.