mechanical appliances, vegetable products and miscellaneous manufactures are higher and around 6 to 7.5 percent on average.

Summing up, this result reinforces the conclusion from aggregated survey data to the impact of constraints related to rules of origin and non-tariff barriers to trade in PAFTA countries.

# **4. Conclusions**

The main findings of the survey are that an overwhelming majority of respondent companies are of the view that they have benefited from PAFTA. These benefits stem in particular from the removal of tariffs on intra-PAFTA trade. The survey also reveals a marked improvement in customs clearance-related procedures, with a substantial decline in the number of required documents and signatures, a significant reduction in the variance of clearance times, and fewer firms reporting having to make irregular payments. A minority of respondents reported having problems with rules of origin (13 percent), and substantially fewer than those perceiving customs valuation and enforcement of product standards to be a problem (around 30 percent on average, with significant variation across countries).

In 2001, tariffs were ranked as one of the most important barriers to intra-regional trade; in 2008 they were ranked last. Instead, transport-related infrastructure and real trade costs (trade facilitation) was ranked as the most important constraint. Thus, the survey confirms recent analytical studies that conclude that the magnitude of Arab trade flows is significantly lower than it would otherwise be as a result of high real trade costs (e.g., Dennis, 2006; Harb, 2007; Péridy, 2007; Abedini and Péridy, 2008). It suggests that from a policy perspective efforts to facilitate trade and reduce the incidence of non-tariff measures deserve priority.

If such actions are implemented in a nondiscriminatory fashion – apply to and benefit all trade, independent of origin – potential trade diversion costs will be avoided. As noted in the Introduction, overall levels of trade restrictiveness of a number of the countries in the region remain relatively high. This reduces the competitiveness of firms and the real incomes of consumers. PAFTA-based initiatives to lower NTM-related real trade costs offer an opportunity to lower overall levels of trade restrictiveness in a way that does not generate trade diversion.<sup>8</sup> Regional cooperation to reduce trade costs can help stimulate both intraregional and trade with rest of world. The policy challenge is to identify what types of policies should be given priority attention and how regional cooperation in the PAFTA context can best be used to complement national efforts to facilitate trade.

The survey is an example of the type of monitoring that is needed to determine whether trade commitments are implemented and to identify where policy actions are needed to further reduce the costs of trade, thus improving competitiveness. An annual process of monitoring of the type implied by the survey – bringing in the private sector not only as a source of information but as a partner – can help to build public support for the process of regional integration and taking actions to reduce trade costs and enhance competitiveness. To be most effective, the data collected on implementation of PAFTA could be merged with information on the OTRI and other country-level data on trade and logistics costs/performance (such as the Logistics Performance Indicator and Trading Across Borders indicator (in the _Doing Business_ report). These data could be the basis for periodic engagement between governments and private sector on the “state of integration of markets”.

> 8  Countries with high average MFN tariffs can reduce potential trade diversion costs generated by PAFTA by reducing external levels of protection.

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