# Summary

The longer term economic potential of the Middle East and North Africa (MENA) region has improved significantly in recent years as a result of the progress made in the peace process. The challenge facing governments is to adopt policies that will allow this potential to be realized by fostering private sector development and encouraging export-led growth. Many of the countries in the region have been pursuing attempts to reduce the economic role of the state and shift away from traditional import substitution/infant industry protection strategies. While some progress has been made, the pace of trade policy reform has varied substantially across countries. In many economies an anti-export bias continues to exist. This is most vividly illustrated if the recent export growth of the MENA countries is compared to that of the Central and Eastern European countries (CEECs) and South-east Asian economies such as China or Malaysia. Trade data reveal clearly that the CEECs are well on the way to exploiting their geographic proximity to the EU, which in conjunction with their relatively low wages and significant stocks of human capital makes them formidable competitors for the MENA region. The geographic advantage that the MENA region used to have--because Eastern Europe was effectively closed to open exchange with the West--has now disappeared. MENA must now compete head-to-head with the CEECs. This is indeed a challenge, as relative labor costs in the CEECs and MENA are not that different and Eastern Europe is able to exploit sub-contracting of manufacturing products for export to the European Union to a much greater degree than MENA countries.

The major policy issue facing the MENA region as a whole is to implement much more farreaching liberalization, privatization and deregulation than has been done up to the present. A basic tenet of economic reform efforts in many of the countries of the region has been that this must not lead to social disruption. The consequence has been an insistence that reform be _gradual._ This has sometimes been complemented by a strategy of _non-transparency;_ little effort being devoted to publicizing reform efforts and mobilizing political support. The result has been uncertainty on the part of firms and households, and a lack of credibility. There is a trade-off between political feasibility of rapid reform efforts and the opportunity costs of gradualism. The slower the pace of reform and the less comprehensive its scope, the larger the gap between MENA's performance and that of the rest of the world is likely to become. The absence of a significant private sector supply response and inward foreign direct investment will in turn limit political support for reform. A vicious circle may result. What is needed is an institutional framework that enhances the credibility of a gradual reform strategy. The creation of the WTO and the EU offer to establish a EuroMediterranean Economic Area are very relevant in this regard.

The WTO offers an opportunity to adopt better trade policies and improve trade institutions. Many countries in the region were not GATT contracting parties, and are therefore not Members of the WTO (which entered into force in January 1995). Whether or not a GATT contracting party, all countries in the region will be affected by the liberalization of markets agreed to in the Uruguay round. Existing GATT members will also be confronted with a substantial number of policy and institutional changes that are required under the WTO (e.g., on customs valuation, product standards, services and intellectual property protection). Membership of the WTO can do much to move trade regimes closer towards 'good practices'. It provides a cheap and effective mechanism to lock in trade policy reforms and improve the transparency of policy implementation. By adopting and abiding by the rules of the game for the administration of trade laws and policies, current problems associated with bureaucratic red tape can diminish significantly. By binding tariffs at applied levels, the scope i