below, these agreements in turn reduce the scope for harmful trade diversion that may be associated with preferential liberalization of trade among Arab countries.

For most Arab countries, regional trade accounts for less than 10 percent of total trade – the average for all PAFTA member imports taken together was 9.5 percent in 2007; and just 6.3 percent for exports.<sup>4</sup> Exceptions are Bahrain, Djibouti, Jordan, Lebanon, Somalia and Syria. However, if the focus is limited to non-oil-related trade, the intra-regional trade ratio rises substantially. In the case of Syria and Yemen, regional markets account for more than half of all non-oil exports; for Bahrain, Lebanon, Oman, and the UAE it is in the 35-40 percent range; while it is more than 25 percent for Egypt, Jordan, Kuwait, and Saudi Arabia. The Maghreb countries have the lowest share of intra-regional non-oil merchandise trade—less than 5 percent. The exports of these countries go predominantly to the EU.

Since the late 1990s, the share of non-oil intra-regional trade has increased – in terms of exports, it has risen from around 20 percent to 24 percent in 2007; in terms of overall reported imports (a more reliable statistic), it has doubled, growing from 4.5 percent on average in 1998-99 to some 9 percent in 2006-07. Countries that have seen intra-regional exports expand the most include Yemen, Oman, Egypt, Kuwait and Lebanon. The increase in intra-regional sourcing of non-oil imports is more uniformly distributed – all PAFTA today source more from other PAFTA signatories as a group than they did in the late 1990s, when the PAFTA integration process was revitalized.

The extent of intra-regional trade for any country depends on many factors, including differences in endowments and incomes (preferences) and the costs that are associated with crossing borders. Such costs are determined by the applicable tariffs and non-tariff barriers, the administrative procedures that must be satisfied, as well as the availability/quality of transport-related logistics and infrastructure. Arab countries have undertaken significant liberalization of external trade in the last decade, complementing preferential liberalization under PAFTA and other agreements with reductions in MFN tariffs. The uniform tariff equivalent of all tariffs (ad valorem and specific) was 6.7 percent on average in 2007. Between 2002 and 2007 the average uniform tariff equivalent for the region fell by 8 percentage points (World Bank and IMF, 2009). The overall average level of trade restrictiveness, including NTMs, was 20 percent in 2007, down from 24 percent in 2006) (Table 1). Non-tariff measures increase real trade costs for many Arab countries significantly. As is the case for tariffs, governments have taken actions to reduce the incidence of certain types of NTMs, including documentary requirements.

Although significant progress has been made in reducing trade barriers, both tariffs and certain NTMs, the overall level of trade restrictiveness of a number of countries in the region remains high. The highest levels of MFN tariff protection are in the Maghreb countries, for both manufactures and agriculture. In Egypt, Jordan and Lebanon NTMs remain prevalent, resulting in overall trade restrictiveness levels that are more than double those prevailing in the GCC.

> 4 The data in this paragraph are from UN COMTRADE. It should be emphasized that trade data are often very weak and unreliable for some countries in the MENA region.

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