BUSI 464 Week 7 Discussion Board Forum 7 Example

Discussion Board Forum 7: Regional Integration in the Middle East and North Africa

BUSI 464 International Market Integration and Trade Agreements, Discussion Board Forum 7 Thread and Replies

Thread by [Student Name]

The forum prompt and the classmates are composites; the textbook and the research cited are real.

Thread

The Middle East and North Africa should be a natural trading region. Most of its countries share a language, much of their history and long borders, and they have signed agreements meant to bind them together: the Greater Arab Free Trade Area, which removed tariffs on goods among most Arab League members by 2005, and the Gulf Cooperation Council, which created a customs union among six Gulf states in 2003. Yet trade among Arab countries remains a small share of their total trade, far below the share inside Europe or East Asia. Lynch (2010) describes the region's agreements as ambitious on paper and modest in effect.

I see three causes that tariff cuts could not remove. The first is what the economies sell. Much of the region exports oil, gas and petrochemicals, mostly to Europe and Asia, and an oil exporter has little to sell to another oil exporter. Agreements cannot create trade between economies that produce the same things. Economists sometimes call this a problem of complementarity: two countries trade most when one makes what the other needs. Jordan, Morocco, Tunisia and Egypt have more varied economies, and they do trade more with each other in manufactured goods, but they are small markets compared with Europe next door.

The second is the border itself. Lower tariffs matter less when goods face slow customs procedures, inconsistent product standards, licensing requirements and transport links built to reach ports rather than neighbors. Kohl et al. (2016) found that the effects of trade agreements vary widely and that agreements with deeper and enforceable provisions tend to raise trade more, while shallow tariff-only deals often achieve little. Most Arab agreements have remained shallow, cutting tariffs while leaving standards, services and investment rules largely national.

The third is politics. Trade depends on predictable relations, and the region has seen frequent disruptions. From 2017 to 2021, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and trade ties with Qatar, closing its only land border and forcing it to reroute imports, even though Qatar, Saudi Arabia, the UAE and Bahrain were all members of the same customs union. An agreement can lower the cost of trade, but it cannot guarantee that the border stays open.

The agreements were not useless. Abedini and Péridy (2008) estimated the trade effects of the Greater Arab Free Trade Area and found that it had a positive and significant effect on trade among its members. That finding matters for the research paper's argument: the agreement did what tariff cuts can do. What it could not do was diversify economies, modernize borders or settle political disputes, which suggests that the region's next agreements need to reach beyond tariffs to customs, standards and services if they are to change the pattern.

Reply to Fatima

Fatima, you pointed to the Gulf states' plans to diversify away from oil, such as Saudi Arabia's Vision 2030, as a reason intra-Gulf trade might grow. I think that is the most promising route, because diversification attacks the first cause in my thread: economies that sell the same things to the world.

If Gulf economies develop manufacturing, logistics, tourism and financial services, they will have more to sell each other. The research suggests that deep agreements can help at that stage. Kohl et al. (2016) found that agreements with deeper, enforceable provisions were associated with larger trade effects, and services trade in particular depends on rules about licensing, investment and the movement of professionals, which the Gulf customs union only partly covers. A Gulf agreement that opened services markets to each member's firms could matter more for diversified economies than the tariff cuts did for oil exporters. Baier and Bergstrand (2007) showed that agreements can raise members' trade substantially over a decade, so the payoff may take time. There is a risk as well: if every Gulf state builds the same new industries, such as airlines, logistics hubs and tourism, they may compete with each other rather than trade. Do you think the Gulf states would accept the services rules that a deeper agreement would need?

Reply to Noah

Noah, you suggested that the association agreements several Arab countries signed with the European Union pulled their trade toward Europe and away from each other. That is a fair concern, and it fits a pattern sometimes called hub and spoke: a large partner signs separate agreements with many smaller ones, and each smaller country ends up trading with the hub more than with its fellow spokes.

Freund and Ornelas (2010) review the evidence on trade diversion and conclude that diversion has generally been smaller than early theory feared, though it can matter where external tariffs stay high. For North African countries, Europe was already their largest market before the agreements, because of geography, history and the size of the European economy, so the agreements may have reinforced an existing pattern more than they created one. Still, by cutting tariffs with Europe before cutting barriers with each other, these countries made European suppliers cheaper relative to Arab ones, which is the mechanism you described. The Agadir Agreement among Morocco, Tunisia, Egypt and Jordan was partly designed to address this by letting the four countries cumulate content for exports to Europe. Lynch (2010) notes that the region's agreements have often been overshadowed by ties to outside powers, which supports part of your point. Has your research found evidence that Agadir changed trade among its members?

References

Abedini, J., & Péridy, N. (2008). The Greater Arab Free Trade Area (GAFTA): An estimation of its trade effects. Journal of Economic Integration, 23(4), 848-872. https://doi.org/10.11130/jei.2008.23.4.848

Baier, S. L., & Bergstrand, J. H. (2007). Do free trade agreements actually increase members' international trade? Journal of International Economics, 71(1), 72-95. https://doi.org/10.1016/j.jinteco.2006.02.005

Freund, C., & Ornelas, E. (2010). Regional trade agreements. Annual Review of Economics, 2, 139-166. https://doi.org/10.1146/annurev.economics.102308.124455

Kohl, T., Brakman, S., & Garretsen, H. (2016). Do trade agreements stimulate international trade differently? Evidence from 296 trade agreements. The World Economy, 39(1), 97-131. https://doi.org/10.1111/twec.12272

Lynch, D. A. (2010). Trade and globalization: An introduction to regional trade agreements. Rowman & Littlefield.