# **Changes in Cross-Border Trade Costs in the Pan-Arab Free Trade Area, 2001-2008**

Regional integration is a major feature of the trade policy strategy of all countries in the Middle East and North Africa. An important vehicle to achieve greater integration of Arab countries was the agreement to form the Pan-Arab Free Trade Area (PAFTA) in 1997 under Arab League auspices.<sup>1</sup> Under the PAFTA, all tariffs on goods of Arab origin were to be removed by January 1, 2008, which was subsequently brought forward to January 1, 2005. More recently, signatories of PAFTA have launched efforts to extend integration efforts to encompass trade and investment in services, and to increase efforts to deal with non-tariff measures restricting trade flows.

Little is known about the extent to which the provisions of PAFTA have been implemented. Regular monitoring of implementation is important for policymakers to be able to assess the effects of the agreement. It is also a precondition for action to be taken if necessary to address specific problems concerning the operation of the agreement. Absent information of the extent of implementation it is difficult for governments to either respond to concerns on the part of consumers, workers and businesses regarding the impacts of PAFTA or to make a compelling case that PAFTA has led to greater cross-border trade among Arab states. For example, it is sometimes reported in the trade press that PAFTA has not been implemented fully because customs officials do not accept that goods satisfy PAFTA rules of origin and therefore continue to levy tariffs.<sup>2</sup> More generally, it may be the case that specific policy measures or other factors unrelated to trade policy impede trade independent of implementation of the specific provisions of the PAFTA. As trade agreements are implemented and specific trade barriers are removed other constraints to trade become relatively more important. Having up-to-date information on what these constraints are is a necessary condition for policymakers to decide whether and how they might best be removed.

A primary source of information on the magnitude and type of constraints that affect crossborder trade are the firms that import and export, both those that are in the business of distribution and intermediation, and those that produce goods and either want to sell their output in other countries or want to import parts and components that they use to produce their goods or services. This paper summarizes the results of a survey of trading firms in 9 PAFTA members. The survey compiled information on the extent to which the costs of trading across Arab borders have declined since PAFTA was implemented. The survey spans official trade and tax policies, the administrative requirements that confront traders, and the costs/quality of transport infrastructure.

The survey is designed to allow comparisons with an earlier survey of bilateral trading costs among Arab countries undertaken in 2001. The purpose of that survey was threefold: first, to generate information on trading costs and other trade policies affecting trade and investment in the MENA region; second, to shed further light on the operation of the prevailing intra-regional trade agreements; and, third, to identify the most important factors affecting intra-regional investment decisions as well as the perceived constraints to investment in MENA countries by the investors who took part in the survey.

> 1  PAFTA is often also called the Greater Arab FTA (GAFTA) in the English-language literature.

> 2 For goods to be eligible for zero tariff status they must have at least 40 percent Arab content.

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