REPORT ON THE PROJECT OF THE AREA AMONG THE OIC MEMBER STATES

SUBMITTED BY

THE ISLAMIC CENTRE FOR DEVELOPMENT OF TRADE (ICDT)

FOREWORD

The goal of this report is to take stock of the recommendations and decisions of the various OIC bodies and meetings (Summits, ICFM, COMCEC etc…) relating to the creation of a free trade area and of a Common Market among the OIC member states.

To that effect, to better cover all the aspects of this matter and enable Member States to have a comprehensive and complete document on this matter, the following structure was adopted for this study namely:

- Introduction on the Regional Trade Agreements

Chapter I : THE OIC ‘S VISION

1- Reminder of the relevant resolutions of the OIC relating to a Common Islamic Market 2- ICDT’s activities within the framework of the implementation of these resolutions

A- STUDIES

B- SEMINARS

Chapter II : INTERNATIONAL EXPERIENCES IN THIS FIELD

Chapter III : EXPERIENCES IN THE OIC AREA

Chapter IV : IMPLEMENTATION MODALITIES OF THE RESOLUTION OF THE THIRD EXTRAORDINARY SUMMIT CONFERENCE OF THE OIC RELATING TO THE FREE TRADE AREA

- RECOMMENDATIONS

1 INTRODUCTION

History of the Regional Trade Agreements (RTA) - On the whole, we can distinguish three regional integration waves since the post-war history. The fist wave appeared in the 60’s, after the creation of the European Economic Community in 1957. South-South Cooperation, particularly in Africa and in Latin America, intensified in view of the desire of developing countries to bring together their import substitution industries in larger economic spaces. These agreements aimed at determining, through external customs tariffs and administrative policies, the sectors that needed to be developed, it was the era of closed regionalism. In the late 70’s, it was obvious that these agreements were inefficient. They had at the most contributed to industrial development in marginal manner, and the accumulation of foreign debt of several countries had given rise to confusion. A strategic change became a necessity as far as globalisation gained ground, stimulated by the quick technological advances and the decline of central planning. A second wave of regionalism appeared when countries reoriented their developmental strategy towards exports. Then it was the switch to open regionalism, so as to stimulate and not distort foreign trade and investments and reinforce export competitiveness. The membership to the GATT/WTO increased rapidly, while at the same time developing countries embarked more rapidly in trade liberalisation through regionalism. It was the entry into the golden age of multilateralism and regionalism, characterised by a liberalisation which strengthened them mutually. This golden age reached its peak in the early 90’s with the inception of the APEC, which represents open regionalism and non discriminatory (instead of preferential) in the strict sense of the word. That is to say, the most advantageous preferences granted by an APEC Member to other members were also extended to non APEC trading partners. By the end of the previous century, a change occurred at the level of the regionalism trend, which led to the third wave. The trigger element was the financial crisis of 1997. The APEC liberalisation process weakened when some big members of the APEC decided that in the case of sensitive products, such as the forest and fishery resources, they would be ready to liberalise their trade only in the context of negotiated, mutual and legally constraining arrangements of the WTO and of the regional trade preferential arrangements. At the same time, the unconditional countries of multilateral liberalisation such as Japan and the Republic of Korea gave up their initial reserves over the regional trade agreements and a new era of economic partnership agreements emerged1 . Definition of the Regional Trade Agreements (RTAs) - The regional trade agreements encompass the free trade areas defined in Article XXIV of the General Agreement on Tariffs and Trade (GATT) constituting “a group of two or more customs territories among which customs duties and the other

1 Economic and Social Commission for Asia and the Pacific, sub-committee on and investments, multilateralism and regionalism in a new era: permanent interaction, E/ESCAP/1, 1st September 2004. 2 restrictive trade regulations are abolished for most of trade exchanges”2. The regional trade agreements include also the trade preferential agreements concluded between developing countries by virtue of the GATT’s decision dated on 28th November 1979 on the arrangements made between weakly developed contracting parties with a view to reducing or abolishing on a mutual basis customs duties… levied on the products, which these contracting parties import from their respective countries (enabling clause). The regional trade agreements could also encompass the customs unions, but the latter are much less common in the OIC region. Economic stakes of the RTA - Economists have since a long time noted that the effects of the free trade areas on the functioning of the trade system are not all favourable. Of course, the reduction of obstacles to trade with a partner country improves the allocation of resources by further exposing national industries to competition that were previously protected (the trade flows thus created is advantageous for the concerned country and strengthens the regional labour division); But in so much as a partner country benefits from a preferential access to a market partially freed, it could be advantageous only if this partner is not the one offering the best cost effectiveness ratio. This trade distortion disadvantages on the one hand, the importing country, because the cost in foreign currencies of its imports is higher than if it has bought them from the better positioned suppliers and the world community on the other hand; because the distribution of resources is not optimized on the basis of comparative costs. This why partial free trade, which associates liberalisation measures to a de facto discrimination against third countries, which could be more efficient trading partners, has never been considered as the best policy. The debate on the role of regional trade agreements in the trading system is nothing more than the report between both trade creation and distortion. Economic arguments in favour of regional trade agreements are based on the idea that the abolition process of obstacles to trade will be facilitated by regionalisation and the latter is therefore a stage towards trade liberalisation with all countries. This argument is particularly meaningful for the services sector, in which there is no liberalisation at multilateral scale. It is also true that the dispute settlements can be facilitated in the areas where the legal system and traditions are comparable; accordingly, a number of these homogenous free trade areas have started in advance their work scheduled in the calendar of the calendar of the Final Act of the Uruguay Round. In brief, it is not excluded that the role of the regional trade blocs in trade liberalisation would be more and more important. Even though, it is above all the reduction of obstacles to trade that is tackled, the most important aspect the regional trade liberalisation is may be the fact that it boots investment The advantage for national investors, is that they can derive benefit from the differences in the costs of production factors (for example lower salaries) in the region and have the choice to invest in the partner country without being exposed to discriminatory measures. The third countries investors are also stimulated by the opening on a larger regional market for the final product.

2 The wording «regional » is used here to indicate all forms of regional trade arrangements, except for the preferential systems and north/south association agreements. 3 CHAPTER I THE OIC’s VISION

The issue of establishing a regional integration among the OIC Member States is contained in the resolutions of the various OIC bodies and meetings since a quarter of century. What are the constants and changes? SECTION 1: REMINDER OF THE RELEVANT RESOLUTIONS OF THE OIC RELATING TO AN ISLAMIC COMMON MARKET AND THE FREE TRADE AREA The idea of establishing a Trade Preferential System specific to O.I.C Member States is based on the recommendations of the General Agreement on Economic and Technical Cooperation between the OIC Member States and more precisely of the MECCA Declaration and the Plan of Action to strengthen economic and commercial cooperation among the OIC Member States set up by the third OIC Summit Conference in 1981. In fact paragraph II item 7 of the Plan of Action recommended: "To make an inventory of the existing preferential schemes applied by groups of Member States with a view to strengthening and linking them in order to establish a system of trade preferences through a step by step approach by all interested Member States. It should be based on the principles of mutuality of advantages yielding benefits to all participants and taking into account the respective levels of economic and industrial development, trade regimes and international obligations of individual Member States with the ultimate aim of establishing a free trade area…» In implementation of these relevant resolutions of the third and the fourth summit of the OIC, which included trade among the priority sectors, the Standing Committee for Economic and Commercial Cooperation (COMCEC) and ICDT have strived jointly since 1984 for the working out of a draft Framework Agreement on TPS/OIC. In fact since the holding of its first session in 1984 in Istanbul, the COMCEC recommended the setting of a working group to define the principles and rules that are to rule negotiations; this group held its first session in Izmir (Turkey) and was followed by the presentation by ICDT of the first version of TPS/OIC. In order to solemnly corroborate the necessity of setting up a trade preferential system specific to the OIC member States, the COMCEC adopted at its fourth session held in Istanbul in September 1988, a declaration of intent on the establishment of Trade Preferential System among the OIC Member States specifying the basic principles and the orientations to be followed for the setting up of such a system. During this period of time, ICDT finalised the draft agreement, in consultation with the GATT and the UNCTAD and submitted it to experts for appreciation, who met twice, in December 1989 in (Turkey) and in 1990 in (Casablanca) to put the finishing touches to the draft agreement. Six years after its inclusion in the agenda items of the COMCEC’s meetings, the Framework Agreement on TPS/OIC was endorsed by the sixth session of the COMCEC, which submitted it to the OIC General Secretariat for signature and ratification. It came into force in October 2002 after having reached the legal quorum.

4 Therefore, the provisions of the Plan of Action for Economic and commercial Cooperation among the OIC Member States adopted by the Third Islamic Summit Conference of the OIC in 1981 had already set the objective of establishing a Free Trade among the OIC Member States. Then, the 8th Islamic Summit Conference held in Tehran, Islamic Republic of Iran from 9 to 11 Shaaban 1418 H (9 - 11 December 1997) in its resolution n° 33/8 - E (IS) on the Islamic Common Market which requested notably the O.I.C organs and institutions to study the implications of establishing an Islamic Common Market among Member States. Resolution N° 33/8-E (Is) on the Islamic Common Market of the Eighth Session of the Islamic Summit Conference (Session of Dignity, Dialogue, Participation) held in Tehran, Islamic Republic of Iran, from 8 to 10 Shabaan 1418H (9-11 December 1997). 1. Emphasizes the importance of implementation of the Strategy and Plan of Action of COMCEC; Agreement on Promotion, Protection and Guarantee of Investments among Member States; General Agreement on Economic, Technical and Commercial Cooperation among Member States; Framework Agreement on the Establishment of the Trade Preferential System among Member States; and Agreement on Islamic Corporation for Insurance of Investment and Export Credit, for strengthening economic and commercial cooperation among Member States for realization of the ultimate objective of establishment of an Islamic Common market. 5. Urges related bodies and institutions, in the OIC, concerned regional and national institutions, and public and private sectors in Islamic Countries to study implications of establishing an Islamic Common Market among Member States, and requests the Member States to provide the necessary information for making such studies. 8. Requests the Secretary General to set up an expert group from Member States to study the implications of establishing an Islamic Common Market, to follow-up this question and submit a report thereon to the next session of the Islamic Conference of Foreign Ministers. Likewise resolution N° 37/9-E(IS) on the creation of an Islamic Common Market of the 9th Session of the Islamic Summit Conference (Session of Peace and Development “Al- Aqsa Intifada” held in Doha, State of , from 16 to 17 Shaban 1421H (12 – 13 November 2000), 2. “Requests COMCEC to undertake in collaboration with the ICDT and other relevant OIC institutions – a study of the necessary practical steps to reach the objectives related to the establishment of an Islamic Common Market”. Resolution N°/10-E (IS) on the establishment of an Islamic Common Market of the 10th Session of the Islamic Summit Conference ( (Session of Knowledge and Morality for the Progress of Ummah) held in Putrajaya, Malaysia, from 20-21 Shaban 1424H (16-17 October 2003); having taken cognizance of the report of the Secretary General on this issue; 2. Emphasises also the need to reinforce economic cooperation for establishing free trade zones and common markets among the Member States through their regional groupings as a positive stage towards establishing a free trade zone among the OIC Member States with the ultimate aim of creating an Islamic Common Market.

5 3. Requests the COMCEC to coordinate the efforts and studies undertaken or to be undertaken in this regard by ICDT or the other relevant OIC institutions and centres with a view to taking necessary practical steps to reach the objectives related to the establishment of an Islamic Common Market. 12. Emphasises the importance of the launching of a round of trade negotiations among the Member States under the Framework Agreement on Trade Preferential System which constitutes the first stage towards the establishment of an Islamic Common Market. Likewise, the 3rd extraordinary Islamic summit Conference of the OIC held in Makkah Al Mukarramah in the kingdom of from 7th to 8th December 2005 adopted the “Ten Year Programme of Action to meet the challenges facing the Islamic Ummah in the 21st Century” mandated the OIC: “The COMCEC to promote measures to expand the scope of intra-OIC trade, and to consider the possibility of establishing a Free Trade Zone between the Member States in order to achieve greater to raise it to a percentage of 20% of the overall trade volume during the period covered by the plan, and call on the Member States to support its activities and to participate in those activities at the highest possible level”. - In the light of the foregoing, the different OIC resolutions relating to the Islamic Common Market and to the Free Trade Area, directly interpellate ICDT as the Subsidiary Organ in charge of Promoting trade and investments among the OIC member States. In this respect, we particularly underline the following objectives:  To search for possible options and the ways and means with a view to achieving the project of the Islamic Common Market;  To study the possibility of establishing a Free Trade Area among the OIC Member States;  And to reach the goal of raising the level of intra-OIC trade to a percentage of 20% of the overall trade volume during the period covered by the Ten Year Programme of Action of the OIC adopted by the 3rd Extraordinary Summit Conference of the OIC. - Further to these resolutions and notably, those adopted the Islamic Conferences of foreign Ministers (the resolutions successively adopted by the 21st, 24th and 30th ICFM on this matter, ICDT conducted several technical studies on the Islamic Common Market. - In December 2005, the Ten Year Programme of Action adopted by third Extraordinary Islamic Summit Conference, held in Makkah Al Mukarramah, has included once more in the OIC Agenda, the issue of the establishment of AFTA, requesting to study the possibility of setting up a Free Trade Area among the OIC Member States. Likewise resolution N 1/III/i/9 of the 22nd Session of the COMCEC, “Requested in pursuance of the relevant resolution of the 33rd ICFM, the SESRTCIC in collaboration with ICDT, to study the reports and proposals of the Expert Group Meetings on Islamic Common Market and report its findings to the next session of the COMCEC.”

6 SECTION II ACTIVITIES OF ICDT WITHIN THE FRAMEWORK OF THE IMPLEMENTATION OF THESE RESOLUTIONS

A/ STUDIES: Within the framework of the ongoing reflection on the creation of an Islamic Common market or of any other form of economic complementarity, I.C.D.T prepared and followed up the studies mentioned below: 1. A study on the "regional economic groupings within the O.I.C" this study is divided into three parts:  Economic mechanisms of the regional groupings within the O.I.C;  The achievements of regional economic groupings;  The obstacles to the development of regional economic groupings. 2. A study on the approaches with a view to establishing an Islamic Common Market. 3. A study on the implications of the regional economic groupings of the industrialized world on the O.I.C Member States in the foreign trade sector. 4. Study on the Trade preferential agreements within the OIC and the prospects for the setting up of an Islamic Common Market. 5. Study on the Trade Preferential System among the OIC Member States. 6. Feasibility Study on the Free Trade Area among the OIC Member Sates This study was presented by ICDT at “ the sensitizing seminar on the Importance of the Framework Agreement on the Trade Preferential System among the Islamic Countries” organized in Istanbul on 0ctober 19th 2001, during the seventeenth session of the Standing Committee for Economic and Commercial Cooperation of the OIC (COMCEC) and to the training seminar organized for the benefit of the Executives of the Golf Cooperation Council in Riyadh in October 2004 and will be submitted to the 23rd Session of the COMCEC scheduled to be held in November 2007 in the Republic of Turkey.

B/ SEMINARS AND MEETINGS: In 2000, ICDT participated in two meetings of experts with a view to establishing an Islamic Common Market;

1. International Seminar on the “ways and means to establish an Islamic Common Market”: ICDT participated in the international seminar on the “ways and means to establish an Islamic Common Market” organized by the Government of the Islamic Republic of Iran in Tehran from September 27th to 28th 2000. The recommendations of this seminar were presented to the group of Experts that was set up by the OIC General Secretariat. This group of Experts held its first meeting in Doha, from 13th to 14th October 2000.

7 2. The 1st Experts' Meeting on the implications of the establishment of an Islamic Common Market: I.C.D.T actively participated in the 1st experts Meeting on the implications of the establishment of an Islamic Common Market organized by the O.I.C General Secretariat in collaboration with the State of Qatar. This meeting was held in Doha on October 13th – 14th, 2000 at the headquarters of the Chamber of Commerce and Industry of the State of Qatar. The following countries attended this meeting: Bangladesh, , Iraq, Iran, , Lebanon, Oman, Qatar, Saudi Arabia, Syria and Uganda, along with the O.I.C Secretariat General, I.C.D.T, I.D.B, SESRTCIC, the Islamic Chamber of Commerce and Industry, the Chamber of Commerce and Industry of Qatar, the Islamic Development Bank and the Economic Cooperation Organisation (ECO). I.C.D.T presented a working paper on "the preferential agreements within the O.I.C and the prospects for the establishment of an Islamic Common Market" in which the Centre introduced experiences on economic and commercial integration and Cooperation within the O.I.C along with the different scenarios with a view to establishing an Islamic Common Market.

3. Sensitising seminar on the importance of the Framework Agreement TPS/OIC: Istanbul, 19th October 2001. In prospect of a progressive setting up of an Islamic Common Market and since the first stage of such a project is the establishment of a Trade Preferential Area; ICDT organised a “sensitising” seminar to the importance of the TPS/OIC Agreement, on October 19th 2001 in Istanbul. 4. Training Seminar on TPS/OIC: Riyadh, 3-4 October 2004. Within the framework of its technical assistance to the OIC Member States in the field of trade negotiations, ICDT organised in Riyadh, at the headquarters of General Secretariat of the (GCC), a training seminar on “the Framework Agreement on the Trade Preferences System among the OIC Member States” for the benefit of the senior executives of the GCC Member States. This meeting was attended by about 25 executives coming from 6 GCC Member States as well as by the executives of the GCC General Secretariat. The papers of ICDT’s experts dealt with the following points: . General presentation of the main provisions of the TPS/OIC Agreement; . Structure and methodology of negotiations; . The TPS/OIC Agreement and the regional preferential agreements; . The TPS/OIC and the WTO agreements; . Results of negotiations started in Antalya in April 2004; . The probable impact of the Agreement on the GCC countries. ICDT is ready to provide in the future the same training to other OIC regions on the request of Member States and in close cooperation with the COMCEC Coordination Office, which acts jointly with ICDT as the Secretariat of the Trade Negotiating Committee.

8 CHAPTER II

INTERNATIONAL EXPERIENCES IN THE FIELD OF RTAs

The RTAs are set up to liberalise trade among their Members. These Agreements take the shape of customs unions or free trade areas. The General Agreement on Tariffs and Trade (GATT) is based on the principle of non- discrimination between contracting parties, but article 24 of the GATT recognizes the existence of regional trade agreements, which allow the granting of preference for those participants benefiting from a waiver from the MFN only, provided that they not restrict trade with other countries and meet some other conditions. This waiver to the MFN clause is coupled with the disciplines fixed at multilateral level: Article XXIV of the GATT recognizes the compatibility of customs Unions and the free trade area with the general agreements under some conditions: a) The Agreement shall enhance free trade among participating countries; b) It shall not oppose obstacles to trade with third countries; c) It shall eliminate trade restrictions among Member States for most of the trade exchanges (i.e. about 90% in the European conception); d) Is hall be notified to the WTO to be examined by the Committee on regional trade agreements; e) In the case of a provisional agreement, a pal and a programme for the establishing within a reasonable deadline of a or of a Free Trade Area should be provided for (i.e. 10 years except for “exceptional cases)”according to the Memorandum of Understanding on the interpretation of Article XXIV). Article V on the GATS provides also for an exception to the MFN clause in the field of services. In this respect, the regional agreements should: a) Cover a substantial number of sectors (to satisfy this condition, the RTAs should not provide a priori for the exclusion of a mode of supply whatever it might be); b) To provide for the absence of or the elimination of any discriminatory behaviour among participants; c) To provide, in the case of a provisional agreement for a transitory period on the basis of reasonable calendar. Of course Article 24 stipulates that a regional trade agreement should deal with “most of trade exchanges” of commodities between parties and Article 5of the GTAS stipulates that the Agreement should “cover a number of substantial sectors” of services, yet Members have not agreed on the meaning of these expressions and in practice, several agreements exclude important fields such agriculture and financial services3.

3 The problem of Article XXIV lies in the fact that it remains unclear on the definition of a free trade agreement of a customs union by simply indicating that this agreement should concern a substantial part of trade and should be implemented over a reasonable period. These two terms, “substantial part” of trade and “reasonable period” are the object to different interpretations hence the difficulties, which arise when it is question of appraising the compatibility of these agreements with the rules of the WTO. 9 - Enabling clause, decision adopted by the General Council in 1979; authorises the WTO Members to grant a differential and more favourable treatment” to those countries benefiting from a waiver to the MFN clause. DCs may also develop among them regional integrations within the framework of the CU or FTA by being exempted from the reciprocity constraint imposed by Article XXIV of the GATT4.

SECTION I VARIANTS OF REGIONAL TRADE AGREEMENTS

Customs Union

Same level of trade barriers vis- à -vis non- members Common Market Trade Preferential Free movement of Agreement production factors Free Trade Area Removal of all tariffs, quotas and non trade barriers Integration of National Diagram 1: The different forms of regional agreements economic policies

Diagram 1 : Different Kinds of agreements

A regional integration can more or less be deepened. By ascending order, we may distinguish:

1. Trade Preferential Agreement. Partners reduce customs barriers among them but hey do not abolish them. In this case, at least two countries commit themselves to grant each other preferential conditions (reduction of customs duties) for trade in some products. 2. Free Trade Area. The Customs Tariffs and quotas are abolished among Member states. But each one of them keeps national protection system vis-à-vis third countries. In order to prevent the goods of these countries to accede to the free trade area by the least protectionist member, rules of origin should be provided for trade between the agreement partners: only the goods containing a minimal content of the value added acquired in a partner country may transit among Member States. This minimum content might vary according to agreements: 40%, 60%, etc. There is not

4 The regional trade agreements copyrights: MINEFI-DREE, September 2003. 10 any trade policy vis-à-vis third countries. 3. Customs Union: In addition to the removal of the customs duties and non tariff obstacles to trade (import quotas, voluntary limitations of exports, the Customs Union is characterised by the establishment of a common tariff. According to Article XXIV, this tariff cannot exceed the average of the old customs tariffs. A real customs union will adopt a common trade policy with third countries and participate in international trade negotiations with a single delegation. The advantage of a customs union lies in the fact that it will abolish the rules of origin whose implementation requires controls on borders in addition of being very complex. 4. The common market represents a customs union in which the movements of the production factors, which are labour and the capital among Member States are fully liberalised. 5. The Economic Union: to be provided with a among partners, the harmonisation of institutions and taxations an abandonment of national preferences, a common single currency, etc are needed. Benelux, which was created in 1921, is a good example. The current European Union tends to get closer to an economic union (but is has still along way to go). 6. Followed by a monetary union that either adopts fixed exchange rates or leads to a single foreign currency. In a political union, concerned States give up their political sovereignty and delegate their decision-making power to supranational institutions.

SECTION II TRADE LIBERALISATION DEGREE IN THE RTAS5

The RTAs vary considerably from the point of views of Members, at the level of style, conception and efficiency, which corresponds to the heterogeneous nature of the economic and political environment. Some of the actors provide for elaborate and institutionalised rules, while others are more informal and are based on voluntary cooperation (APEC). Some of them are open to new Members; others have established a moratorium on the integration of new members. The coverage scope per products and services vary also; services being really covered on in a few agreements only. Agriculture is sometimes partially or totally excluded as well, and the movement of the production factors, the extent of tariff reduction, the coverage of non tariff measures and the decisional factors are also very varied. Similarly, the results obtained very considerably. The most integrated arrangements are those, which are based on the liberalisation formula consisting in drawing up negative lists of products according to which all products and services are inevitably covered, unless they are enumerated in an exemption list. Some other trade regional arrangements called also preferential trade arrangements are founded on a liberalisation approach consisting in drawing up a positive list of products. This is a far more advanced integration form, which is perhaps due to the

5 Peter J. Lloyd, régionalisation et commerce mondial, Revue économique de l’OCDE, n° 18, printemps 1992 11 trade potential of mutually advantageous trade among Members, in view of similar economic structures, the small size of economies or to lack of political will of Members to advance the liberalisation process. Some of these agreements do not include any provision concerning the movements of production factors (e.g. ASEAN) ,some of them state the principle of the freedom of capital movements (Free Trade Agreements between Canada and the United States, for example) or of labour (Agreement of economic rapprochement for instance) or even (Single Market of the Community). Ambivalent results of the RTAs: The trade liberalisation degree differs according to diagrams. Except for the European Union and NAFTA, of which more than half of trade are carried out within the Members of the Agreement, most of the free trade areas concern only a limited trade share of their signatories. Agreements among developing countries particularly, come up against the lack of complementarity of their economies, the narrowness of domestic markets. With regard to the ASEAN and for instance, intra-regional trade are estimated to about 20% only of the trade of the countries of the area, in view of the importance of the outmost in the United States and in Europe. This share is even lower for most of the agreements signed in Africa (about 10%) or in the Middle East (about 3%). For these regional areas whose economies are weakly integrated, the gains from the creation of a large market are only potential, notably because trade liberalisation among countries requires more than the removal of customs barriers. A deeper integration, like that which was achieved within the framework of a Single European Market, may be the means of reducing non-tariff barriers to trade, such as standards differences. An improvement of the functioning of domestic markets is also necessary in most cases. In case some African countries for example, the lack of transport infrastructures, the existence of obstacles to trade within the country itself represent impediments of the prime importance, which should first be reduced. - The new trends of the RTAs Yet, it should be underlined that some new features characterise the recent agreements. Deepening of Agreements: the extension of the tackled subjects to non tariff aspects The economic integration is more and more extending beyond the classical trade liberalisation and may include, on the one hand, subjects like services and intellectual property and the harmonisation of regulations and the coordination of domestic policies. The non tariff issues are more and more considered as essential components of regional agreements. The tariff dismantling made at multilateral level led to the reduction of the relative margin obtained through the negotiation of preferential agreements. On the contrary, with respect to several obstacles to trade, no solutions have been proposed in the multilateral negotiations. For example, the European Union started negotiations with MERCOSUR and Chile by non tariff negotiations. In fact, in several cases, the fact of keeping non tariff obstacles would to a large extent, jeopardize the results obtained in the field of tariffs. The Agreements, covering also services are henceforth numerous. The European Union had first negotiated this kind of agreements with the countries

12 applying for accession. The European Union negotiated a very comprehensive agreement with Mexico encompassing services, Intellectual Property and government procurements. The negotiations scope was even extended to investments in the case of the Agreement with Chile, signed in 2002. Periodic review clause in the Euro- Mediterranean Agreements led to the creation of a working group devoted to services, jointly with the 77 partners of the Barcelona process. Negotiations are in process for the extension of the customs union with Turkey to services and government procurements. Likewise, the European Union negotiated currently with the Gulf Cooperation Council, a Free Trade Agreement dealing also with these “new issues” ‘services, government procurements, intellectual property, etc.). With NAFTA, the United States of America have also concluded with Mexico and Canada an ambitious Agreement including, notably services, government procurements and investments. NAFTA is complemented by an Agreement on social standards and by and agreement on environmental standards, which provide for penalties in case of the non respect by concerned parties of their domestic rules. These social and environmental standards are also targeted by the Agreement concluded with Jordan by the United States. Increasing resort to the notion of the “WTO+” Agreement The “WTO Plus” Agreement consists in a free trade area whose provisions covers aspects, which are provided for by the WTO. In addition to the preferential nature of the free trade agreement in the fields of tariffs deposited by the parties to the WTO), this kind of agreement encompasses also fields, which are not or partially governed by the WTO agreements: - Adoption within the framework of free trade agreement, of the provisions of the multilateral Agreement on government procurements (AGP)(its question notably of the national treatment and non-discrimination principles); - Treatment in the Agreement of “new issues related to regulations”, which are not yet covered at multilateral level, such as investment, the protection of geographical indications or competition. Of course, the notion of the “WTO Plus” does not have the same meaning for the United States or the European Union, in so much as such an agreement, especially for the concerned party, aims at exploiting the framework of the free trade agreement to bolster its multilateral positions. For example, the European Union will deal with investment within the framework of positive lists (liberalisation of listed sectors only), while the United States will use the negative lists process (liberalise of all the sectors that not expressly liberalised), reflecting positions opposing those of the WTO on this point. Contrary to the United States, the European Union will attempt to obtain additional restrictive regulations on geographical indications. It is the case of the Agreement with Chile, which valorises the positions defended by the European Union at the WTO on matters of offensive interest: regime of geographical indications, future negotiations on investment. Besides, the Chile Agreement contributes to the recognizance by the third countries of the principles on which lie the community regulations, notably in the field of government procurements or the rules of origin.

13 SECTION III LEARNINGS FROM THE EU’S EXPERIENCE

The experience of the EU is exemplary, but it would be difficult to transpose it to other regions. Nevertheless, this experience shows that beyond the political commitment, the fundamental role of institutions and market forces, a series of other factors can play an important role in the integration process. Besides, the European experience lies on a key element, a gradual approach, by stages, combining both enlargement and deepening. Need for a hard core of pilot country/countries: In Europe and hard core of countries formed around France and Germany) has clearly constituted a driving force of the progress achieved in several key fields (trade, single currency, defence etc.). At several stage, and European integration process, France and Germany have played a crucial role in the emergence of supranational institutions. No one of these countries, with relatively similar “size”, would not have accepted a regional integration process based on a simple extension of policies or jurisdiction of one or the other; hence the need for establishing supranational institutions (neutral) to govern the regional integration process. This contradicts in no way the fact that only one pilot country could also play a catalysing role in a particular field of the integration process. For example, in the European context of the quest for the exchange rate stability, in the seventies, Germany had progressively imposed itself as the central country, in view f the performances of the federal bank and the characteristics if its monetary policy: A stability objective , which clearly shown and an Independent monetary policy Committee. Yet, for the sake of “neutrality”, the institutional framework that was created to establish a foreign exchange agreement was deliberately established with supranational elements (decision making procedures, European Currency unit, etc.). Such a configuration, with a country or group of pilot country/countries, has not been found elsewhere. In Africa, no country was able to play such a role in the long term? In Latin America, Brazil, which is likely to play such a role, has sometimes been perceived as ambivalent with respect to MERCOSUR. The United States are as is evident, the driving force for the NAFTA, but their preponderant weight make this association very specific. In Asia, Japan and China enjoy a legitimacy to jointly head the movement, but their will to reinforce integration in the region has given rise to some doubts. Similarity of the economic development levels and patterns: The European experience shows that a certain degree of homogeneity, in terms of the economic developmental level does not represent a major obstacle. Yet, a minimum of homogeneity in this field allows of course facilitating the regional integration process. In this context, the economies of the OIC countries are characterised by differences in terms of the GDP per capita, which are higher than those of any other region whose integration is in process. The OIC numbers about 22 LDCs. Structural factors: Besides, other factors can be considered as determining of the regional integration process. The relative absence of regional infrastructures (notably transborder road and

14 railway networks) in Asia, Africa, and in Latin America induces transport costs impeding intra-regional trade. In Europe, in the fifties, special funds were allocated to the development of such infrastructures. In Asia, the coexistence of different political systems, varying from democratic to totalitarian regimes, risks o prevent Member States to make mutual commitments in the long term in the field of regional integration. In Europe, they consider that member States must be democracies, as it is illustrated by the successive accessions of Greece and Portugal and of the Central and Eastern Europe in 1981, 1984 and 2004, respectively. A common language and heritage can as is evident facilitate the development of common institutions and the dissemination of information. Yet, the French speaking African countries and to some extent, Latin America are counter-examples showing that an historical heritage or even a common language are not adequate enough to achieve a deep regional integration. On the contrary, the EU illustrates the fact that languages and in a certain manner, different cultural heritages do not constitute obstacles (notably, if these differences are taken into account through the implementation of the “proximity “principle as it is for example, the case within the EURO system6.

6 Sopanha, SA, Philippe Bonzom, Marc Olivier Strauss-Kahnn interaction entre dimension économique et institutionnelle de l’intégration régionale : l’expérience européenne, Bulletin de la Banque de France. N) 142. Octobre 2005.

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CHAPTER III

EXPERIENCES OF THE RTAS IN THE OIC AREA

ON the whole, the OIC Countries have embarked on the establishment of a RTA under the form of a free trade area, a customs union, a common market or a monetary or economic union. These RTAs include, notably trade liberalisation programmes of tradei n goods and services, provisions for the free movement of persons and production factors and the harmonisation of taxation and monetary policies. At regional and sub-regional levels, a number of the RTAs implement trade liberalisation programmes coupled with measures aiming at removing Tariff and non- tariff barriers and the other obstacles to trade and allow the movement of goods and services. The implementation modalities and pace of trade liberalisation programmes vary from a region to another, but they have common aspects such as the provisions that would lead to the creation at the level of each area, of free trade areas, customs unions and common markets within prescribed times. Yet, despite the special importance given to trade liberalisation diagram as an expansion tool of intra-community trade, it should be underline that there is a contrast from a region to another in the implementation process of these trade liberalisation diagrams. While, some RTAs are still endeavouring to set up a free trade area, other sub-regions have succeeded in reaching the stage of a customs union with an operational common external tariff (case of the GCC, WAEMU and COMESA).

SECTION I STOCK TAKING OF REGIONAL ECONOMIC GROUPINGS: a) The Gulf Cooperation Council:

Areas and Objectives:

On 21st Rajab 1401 AH corresponding to 25th May 1981, the State of the United Arab Emirates, the Kingdom of Bahrain, Kingdom of Saudi Arabia, Sultanate of Oman, State of Qatar and State of Kuwait met in Abu Dhabi, where they reached a cooperative framework joining the six states to effect coordination, integration and inter-connection among the Member States in all fields in order to achieve unity,

The objectives of the Gulf Cooperation Council mainly aiming at achieving coordination; complementarity and inter-connection among Member States in all fields so as to attain unity are the following:

1. To effect coordination, integration and inter-connection between Member States in all fields in order to achieve unity between them.

16 2. To deepen and strengthen relations, links and areas of cooperation now prevailing between their peoples in various fields.

3. To formulate similar regulations in various fields including the following: a. Economic and financial affairs b. Commerce, customs and communications c. Education and culture d. Health and social matters e. Information and tourism fields f. Legal and administrative affairs. 4. To stimulate scientific and technological progress in the fields of industry, mining, agriculture, water and animal resources; to establish scientific research; to establish joint ventures and encourage cooperation by the private sector for the good of their peoples.

Organisational Structure

1- The Supreme Court

The Supreme Court is the highest authority of the GCC formed of the Heads of States of Member States.

The Consultative Commission: Formed of thirty GCC citizens (five from each Member States) chosen according to their experience and qualification for a period of three years. The Consultative Commission is charged with studying matters referred to it by the Supreme Council.

The Commission for settlement of disputes:

The Commission for the settlement of disputes is formed by the Supreme Court for every case on an ad-hoc basis in accordance with the nature of dispute.

2. The Ministerial Council:

It is composed of the Ministers of foreign Affairs of Member States or other Ministers acting on heir behalf. Among other jurisdictions, the Ministerial Council is authorised to propose policies, lay out recommendations and encourage and coordinate the already existing activities among Member States in all fields.

3. The General Secretariat:

The functions of the General Secretariat are as follows:

1. It prepare studies related to cooperation, coordination, and integrated plans and programmes for joint work among the Member States of the GCC; 2. It is also entrusted with the preparation of periodic reports on the work of the GCC; 3. It follows up the implementation by Member States of resolutions and recommendations of the Supreme Court and the Ministerial Council;

17 4. It prepares reports and studies when requested by the Supreme Court or the Ministerial Council; 5. It prepares the draft of administrative and financial regulations commensurate with the growth of the Cooperation Council and its expanding responsibilities; 6. It prepares the budgets and closing accounts of the Cooperation Council; 7. It makes preparations for meetings and prepares agendas and draft resolutions for the Ministerial Council; 8. It recommends to the Chairman of the Ministerial Council the convening of an extraordinary session of the Council when necessary; 9. Any other tasks entrusted by the Supreme Council or Ministerial Council.

PROGRESSION FROM A TRADE FREE AREA TO A CUSTOMS UNION

The new Economic Agreement contains a comprehensive revision of the original Economic Agreement that was signed in November 1981 (Muharram 1402 AH), which laid down the ground for the economic relationship among Member States and established the GCC Free Trade Area. The new Economic Agreement furthers the objectives achieved by the 1981 agreement, enhancing and strengthening economic ties among Member Sates, and harmonizing their economic, financial and monetary policies, their commercial and industrial laws, as well as their customs regulations.

This Agreement has contributed to the passage from a Free Trade Area to a Customs Union of the GCC Countries.

The Free Trade Area came into force in March 1983 and lasted for about 20 years until the end of 2002 and was replaced by the Customs Union of the GCC countries. The FTA allowed the exemption of the industrial and agricultural products and natural resources from customs duties provided that they are coupled with the certificate of origin delivered by the competent authorities of the exporting country. The following has also been provided for by the FTA:

 To import and export of national products from and to the GCC countries are allowed without resorting to a local agent or go through to any procedures except for the certificate of origin;  In case of the payment of the customs duties or the insurance of any national product in view of a doubt over its origin, these duties or insurance fees shall be refunded to the owner of products after their national origin is proved;  Prompt customs clearance should be applied for the completion of customs procedures relating to the products of travellers on the Customs borders of the GCC Countries:  Preparation of the exporter’s declaration of products of national origin on the Customs borders of the GCC countries

CUSTOMS UNION AMONG THE GCC COUNTRIES:

The Customs Union was implemented in 2003 and the main principles of this Union are as follows:

18 1. Unified customs regulations and rules for all the GCC countries as well as the procedures relating to importation, exportation and re-exportation;

2. Single Point of Entry and it means that the first customs post of the GCC (air or maritime port) of the GCC countries vis-à-vis the external world shall conduct the inspection of the goods imported to any Member State, verify their conformity to the required documents, ensure that they do not contain any prohibited commodities and collect the applicable duties, After this foreign goods can move freely after the completion of customs procedures in the first port of entry of the GCC countries.

3. All the Customs Administrations in the GCC undertake to use unified declaration (or documents) for customs or statistical purposes;

4. A unified declaration (document) to classify products and implement rules according to a unified system (Common Customs Tariff of the GCC countries);

5. Common Customs Tariff vis-à-vis the outside world is 5% on all foreign goods imported from the outside applicable on the first port of entry of the GCC countries through which goods arrived;

6. Exemption of many basic commodities necessary to citizens such as food products, medicine, medical appliances and equipment, books, newspapers, magazines, civil ships and aircrafts, animal food, wood, cool and all goods exempted by some countries of the GCC, which committed themselves to do so within the WTO and the exemptions provided for in the Unified Customs regulations of the GCC (Diplomatic exemptions, personal belongings, the requisites of the charitable organisations), exemptions from the customs clearance of the GCC countries (requisites contained in production); and exemption of all the above mentioned items only, or of all those on which Member States agreed upon unanimously;

7. To levy compulsorily customs duties as much as 100% on tobacco and products thereof, maximal limit of the specific duty shall be adopted (according to the number, weight and trend);

8. Importance of laying down complementary regulations for common collection of customs duties and distribution of the customs receipts to Member States

Rules of origin:

In order to be considered as products of origin, one of the following conditions should be met:

- Products must be wholly produced locally; - Or products processed substantially, provided that the content of the domestic value added is not less than 40% of the product.

The certificates of origin are required to clear imports through customs; these certificates must be delivered by the competent authorities and certified by the authorised body of the exporting country.

19 The Heads of States the GCC’s Members who met in Doha in December 2002, adopted an Agreement on the establishment of a customs union. The implementation of this agreement, which was scheduled for March 2005 Agreement, came into force on 1st January 2003. By virtue of this text, the GCC announces the setting up of a customs union starting from January 1st 2003, with a common customs duty by 5% “for all the products from abroad, except for those exempted in compliance with the decision adopted at its 20th summit». The agreement also provides for the exemption of 53 food products and essential drugs. This customs union is based on the principle of single entry point according to which all the customs duties charged on foreign goods would be levied in the first port of the goods’ arrival. A list of products benefiting from customs protection will be exempted in a first stage from this provision; each country of the GCC will draw up a list of protected products and will apply a different rate during a transitory period, a single list was established in 2003 by the commission for GCC industrial cooperation. The GCC has also liberalised trade in services in 100 sub-sectors of which professional services, services to enterprises, telecommunications, banking services and other financing services, distribution, education, environmental services, health and related social services, as well as tourism. Member States have agreed to progressively liberalise other services sectors and sub-sectors. Besides, the 22nd Summit of Mascat had entrusted a commission gathering the governors of the six countries’ central banks with implementing "the indexation of the six countries’ currencies on the dollar as reference currency by the end of 2002 as last deadline, with a view to establishing the single currency before January 1st, 2010". According to the final communiqué: "the new agreement is in harmony with the latest developments at the level of the international economic scene", referring in particular to the requirements of the World Trade Organisation (WTO), of which five GCC countries have become members. At the 26th Summit of the GCC in December 2005 at the State of United Arab Emirates called “King Fahd Summit”, Member States adopted a road map entitled “The common trade policy” and whose objective is to harmonise foreign trade policies of the GCC and adopted also a common domestic policy to facilitate the movement of persons, goods and services within the GCC’s territory. The Summit has also reviewed the functioning of the GCC Customs Union and its positive effects on the GCC intra-OIC trade and commodity trade flows. It also decided to extend the transitory period of the Customs Union by the end of 2007. b) The Great Arab Free Trade Zone: The trade facilitation and development convention between Arab countries signed in Tunis on 17/02/1981 and the implementation programme adopted by the Economic and Social Council of the at its 59th Session held in on February 17- 19, 1997 and following the Cairo Declaration on the Great Arab Free Trade Area, constitute the two basic instruments of inter-Arab trade cooperation. The main objective of this programme is to establish a free trade area over a 10 years period starting from January 1st, 1998. The implementation programme has instituted starting from January 1st 1998, a

20 preferential system in favour of all products originating from contracting Arab countries, except for the following countries that are not yet member of this convention: Djibouti, Algeria, Mauritania and Comoros Islands. Tariff system: In compliance with the provisions of Article 6 of the convention, the products originating from contracting Arab countries are exempted from customs duties and from taxes of equivalent effect. In compliance with the implementation programme of the convention, all products originating from and directly coming from contracting Arab countries are exchanged on the basis of the gradual tariff removal system at the rate of 10% per year of import duties and of taxes of equivalent effect, starting from January 1st, 1998, pending their total exemption at the end of a 10 years transitory period that was fixed for the establishment of the Great Arab Free Trade Area.

The duties and taxes of equivalent effect that were enforced on 1/1/1998 constitute the basis of tariff removal. 1) Criteria of Origin: Rules of origin: By virtue of article 9 of the convention and rules 2 and 7 of the provisions relating to the origin of commodities, products, which are considered as originating in an Arab country, should meet the following criteria:

Products wholly obtained Products transformed from raw materials of third origin, provided that the national value added is at least equivalent to 40% of ex works price of the finished product The raw materials originating in Arab countries imported within the framework of the Convention and its implementation programme area considered as products of origin and their value is accordingly, included in the domestic value added. In February 2002, 15 members among the 22 numbered by the Arab League undertook to abolish their customs duties, on a mutual basis by 2005 (and not 2007 as decided before); they will be reduced by 10% in 2003 and by 20% in 2004 and 2005 respectively, in which they will be reduced to 0%. The signatories to this commitment are Saudi Arabia, Bahrain, Egypt, the State of United Arab Emirates, Iraq, Jordan, Kuwait, Lebanon, Libya, , Oman, Palestine, Qatar, Syria and Tunisia. In 2003, the customs duties will be reduced by 60%. It should be noted that Sudan, Yemen and Palestine as Least Developed Countries have benefited from the advantages of the Great Arab Free trade Area without reciprocity, provided that they start dismantling their tariffs between 2005 and 2010 as provided by the Agreement.

2) Trade system applicable to products exchanged within the framework of the convention and of its implementation programme:

21 By virtue of Article 6 of the convention and of the title number 3 of its implementation programme, imported products are exempted from non-tariff restrictions (quantitative restrictions, monetary and administrative restrictions), except for products and commodities whose imports, manipulation or utilisation are prohibited for sanitary and phytosanitary reasons, or for morality, public safety and environment protection reasons. Commodities imported within the framework of the implementation programme benefit by virtue of the Rules and Principles of this programme (Title 1, paragraph 4) from the same treatment granted to products locally obtained, as far as the rules of origin, standards, sanitary and safety conditions as well as domestic taxes are concerned. It should be noted that within the framework of the Agreement on trade in services among Arab States, bilateral negotiations started effectively between 5 countries. Five other countries expressed their intention to participate in the negotiations, which were resumed in May 2004. Once the rules of this agreement are finalised, the latter should enable the liberalisation of several services sectors in at least ten Arab countries. After a period of progressive dismantling of the customs duties started in 1988, the Great Arab Free Trade Area (GAFTA) came into force on 1st January, it provides for the total abolition of the Customs Duties between the signatory countries of the Agreement (Morocco, Tunisia, Libya, Egypt, Lebanon, Syria, Palestine, Jordan, Iraq, Kuwait, Saudi Arabia, State of United Arab Emirates, Oman, Qatar, Bahrain and Yemen). The setting up of this space will contribute to increasing inter-Arab trade and to strengthening the negotiating power of Member States, with powerful economic blocs such as the European Union or NAFTA. Likewise, it should favour the coordination of macroeconomic and sector based policies of the countries parties to the Agreement, notably in the fields of agriculture, foreign trade, industry, taxation, customs services in addition to its contribution to the standardisation of legislations in the economic field of signatory countries. The GAFTA has encountered several impediments, whether administrative, technical and financial ones. One of the limits of the Great Arab Free Trade Area lies in the fact that agricultural products do not benefit from tariff reductions during the harvest period. The technical and standardisation regulations remain outside the concerns of the GAFTA. Within the framework of the GAFTA, a mechanism of dispute settlements was created; signatory countries are pooling their resources together to standardise their customs policies with a view to establishing a customs union. The proceedings of the Economic and Social Council (ESC) of the League of Arab States, which were held in Abu Dhabi (State of United Arab Emirates) in February 2006, tackled the follow up of the setting up of a Great Arab Free tare Area, the preparations for the liberalisation of trade in services, the study of the possibility for establishing an Arab Customs Union, cooperation between Arab Countries and the other economic groupings and the follow up of the structures and organisations of the Common Arab Action. Participants have notably recommended the working out of comprehensive rules of origin.

22 c) Quadripartite Free Trade Area: On May 8th, 2001 four OIC Member States: Jordan, Egypt, Tunisia and Morocco have signed in the presence of their counterparts from Algeria, Mauritania, Syria, Lebanon, Libya and Palestine "Agadir Declaration" establishing a free trade area between Arab Mediterranean countries. The signature of this declaration took place on the initiative of His Majesty MOHAMMED the Sixth, King of Morocco and in compliance with the resolutions of the 13th Arab Summit of Amman. By virtue of this Declaration, signatory parties undertake to do their utmost for the establishment of a wide free zone between Mediterranean Arab countries and open to other Arab countries’ Membership. They have also decided to entrust working groups composed of experts from four countries to strengthen the political framework and to set up required mechanisms that would allow the free trade zone to be really operational.

The expert groups held periodical meetings for the working out of the draft treaty establishing a wide free zone and will submit reports to the commission of senior officials with a view to presenting a general conception to the Ministers of Foreign Affairs within the shortest possible time. Actually, an ad hoc commission was established with a view to submitting to the officials of the various countries a legal framework for the future free trade area based on the following principles: . Advantages and preferences should not be more substantial than those granted under bilateral agreements, . This agreement does in now way replace the existing bilateral agreements or undermine them, . To apply the European rules of origin in order to allow the four countries’ exports to Europe to benefit from regional accumulation of the value added, provided that these rules do not undermine the advantages instituted under the associations agreements with the European Union. The Foreign Ministers of Morocco, Egypt, Tunisia, and Jordan initialled on 11th January 2003 in Manama, an agreement for the establishment of a free trade area between Arab Mediterranean countries. The Agreement provides for the establishment of a free trade zone between Morocco, Egypt, Tunisia, Jordan, and the other Arab Mediterranean countries that will join this zone soon. The Agreement was signed in Rabat on 25th February 2004. It came into force on 1st June 2006. Economy of the Agreement: The Agreement defines the liberalisation provisions of trade in industrial an agricultural products through tariff removal, with a view to developing trade. Under this agreement, each country is authorised to implement sanitary control procedures in case domestic goods are threatened, as stipulated by the provisions of the WTO. Besides, these countries undertake to protect the Intellectual property rights, of which the copy rights and patents, and abide by the commercial logos and art works and

23 books. Besides, these countries have agreed to set a commission composed of Foreign Ministers to be held once a year and will supervise the implementation of the provisions of the agreement. With respect to the provisions relating to foreign trade liberalization, this agreement provides for a progressive dismantling of Customs duties for industrial products in compliance with the following schema: - 65% on the date of signature - 80% on 1st January 2004 - 90% on 1st January 2005 - 100% on 1ST January 2006 Besides, it was agreed to liberalize trade in agricultural products and agribusiness products in compliance with the operating programme of trade management and development agreement among Arab Countries for the establishment of the Great Arab Free Trade Area. The terms of the Agreement stipulate also the implementation of the Arab- Mediterranean rules of origin which comply with the Euro-Mediterranean rules of origin, even if it means adopting any amendment that could be introduced subsequently to this agreement. With respect to customs barriers, subsidies, the measures relating to dumping, preventive measures, disequilibrium in the balance of payment, intellectual property, sanitary and phytosanitary measures, will be applied in compliance with the WTO relevant agreements. The services sector will be liberalized in compliance with the provisions of the General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO). - Institutional aspects: Four structures will take charge of the implementation of this Agreement, namely the Commission of Foreign Affairs Ministers, which has been entrusted with supporting the political framework of the Agreement and defining the political measures likely to give impetus and extend this instrument, the Commission of the Ministers of foreign Trade which will tackle the implementation of the Agreement and identify the ways and means likely to develop cooperation and integration between the signatory parties to this Agreement. The technical Commission stemming from the Foreign Ministers Commission has also been entrusted with following up the Implementation of this Agreement, extending assistance for the settlement of disputes, in addition to other matters that will be submitted to it by the Ministerial Commission and finally the Technical unit based in Amman whose tasks consists in putting into a concrete shape the decisions taken by the first two commissions and play the role of technical adviser concerning the different issues relating to the Agreement. With respect to Membership in Agadir Agreement, it has been decided that each Arab Member Country of the States of the Arab League and of the Great Arab Free Trade Area party to an association or a Free trade agreement with the European Union may become party to Agadir Agreement with the consent of all Member States given at the level of the Commission of Foreign Ministers. d) The Arab Union: The (AMU), created on February 17th 1989 by Marrakech Treaty gathers 5 Maghreb countries: Algeria, Libya, Mauritania, Morocco and Tunisia.

24 The aim of the AMU is to achieve in the long run the free movement of goods and services and the economic union of Member States. Legal trade framework: Pending the establishment of a customs union, a trade and tariff convention was signed on March 10th 1991. This convention provides for: . Exemption from customs and from taxes of equivalent effect for the products originating from Member States and the removal of tariff barriers for a list of products (Article 2); . Implementation of a countervailing duty of 17.50% for products benefiting from economic customs systems and in the event of the existence of a similar production in the importing country (Article 6); . The implementation of safeguard measures in the event of: serious perturbations in the economic sector or difficulties affecting the economic situation of a Member Country or to protect a growing national industry, dumping or subsidies practices. Besides, a convention relating to trade in agricultural products was signed on 27/7/1990; within the framework of the Ministerial Commission in charge of food security. At its fifth session held in Nouakchott on 10 and 11 November 1992, the Presidency Council invited Member States to take necessary steps and establish practical modalities for the setting up of a free trade area.

 The Presidency Council of the Union adopted about 36 conventions, five of which were enforced, namely those relating to:  Trade in agricultural products;  Investment guarantee and incentives;  Transport of travellers, goods and transit;  Non-double taxation and the definition of the rules relating to income tax;  Protection of plants. The coming into force of the other conventions requires the drafting of a number of additional texts and the finalisation of the modalities agreed on by Member States. The AMU has also defined a list of regional projects, by giving priority to the improvement of the connection of their road and railways networks and to the development of transport means and telecommunications. Such projects are meant on the one hand, to further strengthen their integration and consolidate the foundations of their economic and social union and to facilitate their liaison with Europe and Africa, on the other. At present, the AMU countries are negotiating a draft agreement on a Maghreb free trade zone, which takes into account the evolution of their economies and the new multilateral trading system. Intra-AMU trade was estimated at 1.18 billion US dollars in 2002 against 1.14 billion US dollars in 2000, i.e. an increase by 3%, but the share of this trade in intra-OIC trade experienced a decrease by 6.7% falling from 2.13% in 2000 to 2% in 2002 against 5% in 2000, i.e. a slight reduction by 3.3%.

25 The 24th Council of the Foreign Ministers of the Arab Maghreb Union (AMU°, held in January 2006 in Tripoli created a working group to prepare the creation project of a Maghreb Free Trade Area. Ministers have requested the working group to present the results of its proceedings to the Maghreb Trade Council and to the Ministerial Commission of Economy and Finance. e) The West African Economic and Monetary Union (WAEMU): The January 10th 1994 Treaty establishing the WAEMU, marks a turning point in the economic integration efforts made by the Member States of this grouping (Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo) since their independence. The WAEMU was created in order to set up a Common Market based on the free movement of goods, individuals, services and capitals in response to the devaluation of the CFA Franc. Starting from January 2000, approved agricultural and industrial products will be exempted from customs tariffs and admission taxes, Domestic taxes only, of which VAT will be applied. The eight Member States of the West African Economic and Monetary Union became a Single Customs Area starting from January 1st, 2000. The customs area of the WAEMU opens an African market of 70 million consumers and is expected to become a catalyst element for investments and the area’s economy. Yet, the WAEMU may also generate some access problems to the WAEMU’ markets for non-member countries. The following actions are so far numbered among the most effective ones:

 The implementation of the transitory preferential system, starting from July 1st 1996, fixing the period and modalities for the removal of customs duties, quantitative restrictions and any other measures of equivalent effect concerning the products of origin exchanged between WAEMU Member States.  The setting up starting from January 1st, 1998, of a Customs Union with a common External tariff. 1. Intra-WAEMU Preferential System: The transitory preferential system, instituted by the Additional Act n° 04/96 of May 10th 1996, entered into force on July 1st 1996. It marked an important progress in the economic recovery of States through intra- community trade development and the combined effect of a domestic tariff removal and the blocking of any increase in customs duties. In addition to raw products and traditional arts and crafts that are exempted from duties and taxes, 948 licensed products manufactured by 244 enterprises of Member States (in 1999), circulate in the community area under the Community Preferential Tax System; in addition to an 80% reduction from January 1st, 1999 and a total exemption from January 2000, Unlicensed industrial products of origin circulate under the regime of the Community Preferential Tax, while benefiting from a reduction by 5% from July 1st 1996. During its Meeting of November 28th 1997, the Council of Ministers adopted regulations fixing the period of domestic tariff removal for licensed industrial products of origin according to the following time schedule:

Until December 31st 1998: Upholding of the rate of reduction by 60%;

26 From January 1st, 1999: Upholding of the rate of reduction by 80%; From January 1st 2000: total tariff removal by 100% concomitantly with the implementation of the Common External Tariff.

 In addition to the Transitory Preferential Tariff, the Traditional Act n° 04/96 includes other provisions of which:

Compensation for deficits in customs receipts generated by the system. With respect to compensation for deficits in customs receipts, the Council if Ministers has adopted the rule n° 6/98 of July 3rd 1998, establishing the creation of a compensation fund for deficits in customs receipts and fixing the functioning rules. Cooperation in the statistical field; Promotion of the community products exchanged within the WAEMU and those exported to third countries. 2005 was a transitory year, with respect to the management of the instruments of intra- community trade liberalisation scheme, in so much as two important measures came into force since 1st January 2006:  The transfer of the rules of origin to Member States: with the end of the transition period on 31st December 2005, States will commit themselves to recognize the community origin for the goods produced in the Union.  The end of the compensation of the capital losses of customs receipts, which yield important resources for Member States’ budgets. The number of concerned industrial products by the preferential regime of the WAEMU increased from 948 in May 1998 to more than 2,600 by the end of 2005. 1. Customs Union: The WAEMU has reached the stage of customs union on January 1st 2000. The Common External Tariff (CET) lays stress on the labelling of products whose customs rates are fixed as follows:

. Category 0: 0% . Category 1: 5% . Category 2: 10% . Category 3: 20% The Tariff and Statistical Nomenclature of the Union is based on the Tariff and Statistical Nomenclature of the Economic Union of West African states (ECOWAS). The CET is a means of integrating the WAEMU to the world economy, in so far as it entails a perceptible drop in customs duties with a maximal tax amounting to 22% as admission fees-VAT excluded- allowing thus a wider opening of the WAEMU countries to the rest of the world. The CET has a direct impact on customs tariffs, which it tends to reduce owing to a reduction in import duties and taxes. Accordingly, States will undoubtedly be compelled to introduce reforms to their domestic fiscal laws in order to make up for losses in customs receipts. Products are henceforth, distributed into four categories with a customs rate corresponding to each one of the following categories:

 Category 0: Social essential products, especially, pharmaceutical ones, medico- surgical, books, newsprints etc, goods of such category are subject to a 0% rate.  Category 1: Commodities, raw materials, capital goods, specific inputs etc, Goods

27 of this category are subject to a 5% rate.  Category 2: Inputs, intermediary goods etc… goods of this category are subject to a 10% rate  Category 3: Final consumption products and any other product not included in the previous categories are subject to 20%. In addition to Community solidarity levies (0.5% of customs value of consumer goods), the table of applicable customs duties and taxes to imported products includes, customs duties, statistical charges (1% of customs duties on all imported goods for consumption including those that are exempted from customs duties), and if necessary an import levy and a protection digressive tax, Customs dues stamp is abolished. Upon the meeting of the management committee of the TEC held in Ouagadougou from 4th to 8th July 2005, the Commission decided to submit to the Council of Ministers an amendment proposal relating to the WAEMU Tariff, in order to allow a change of categories for some inputs and improve the competitiveness of the Union’s industries. The change of categories concerns vegetable fats or performs that are proposed at a 10% rate instead of 20%. With respect to tariff breakout, proposals concern five tariff lines, without any category change: oils, lubricants, plastic packaging, new rubber tires for motorcycles, inner tubes for motorcycles and auto cycles with an engine displacement ranging between 50 and 250 f) The Economic Community of West African States (ECOWAS)7: In view of the slow progress achieved by the ECOWAS, the 1975 Treaty was revised. The supranational principles in the implementation of decisions and of the self- financing of the institutions’ budget were introduced. It is in the field of market integration that the community’s efforts were the most frustrating. In fact, trade liberalisation is not operational yet as reflected by the low volume of intra-regional trade, which is still accounting for 11% only, compared to trade with third countries. Besides, the Common External Tariff (CET) of the ECOWAS has not been worked out yet and economic and financial policies are not harmonised in spite of the fact that a framework has already been defined. 1. Free Movement of Goods: The objective of the liberalisation programme of the ECOWAS is to progressively establish, within a 15 years period from the date of its enforcement (in other words on January 1st 1990) a customs union between Member States of the Community. This Customs Union involves the total abolition of duties and taxes of equivalent effect, non- tariff obstacles and the establishment of a Common External Tariff (CET). - Liberalisation of raw products and traditional Arts and Crafts: Raw products and traditional Arts and Crafts should move freely between Member States and exempted from all duties and taxes of equivalent effect, without any quantitative or administrative restriction. To be exempted from the various duties and taxes, raw products and traditional Arts and Crafts should meet the following conditions:

7 This grouping includes the WAEMU Countries. 28  To be originating in one of Member States;  To be included in the list of products annexed to the decisions liberalising trade in these products; and  A certificate of origin relating to these products should be produced along with an ECOWAS export declaration. - Liberalisation of origin industrial products: Import customs duties and taxes of equivalent effect are gradually reduced until their total abolition, over a 10 years period, on January 1st, 1990. Likewise, it has also been provided for the removal of non-tariff barriers that affect these products at import level. To benefit from a preferential treatment industrial product should meet the following conditions:

 To be originating in one of Member States;  To be licensed;  To come along with a certificate of origin and an export declaration. - The Accompanying measures of the Trade Liberalisation Scheme (TLS): Within the framework of the accompanying measures of the TLS, customs and statistical instruments, such as the certificates of origin, customs and statistical nomenclature, customs declaration were harmonised. Besides, a protocol on Inter-States road transit was adopted along with a guarantee system of transit operations. A single draft customs document was worked out in collaboration with the WAEMU and submitted for examination by the 39th Meeting of the Commission on Trade and Customs held in Abuja from May 17th to 19th, 1999 which approved and recommended it to the Council of Ministers for adoption. This document should be substituted for the numerous forms of customs declarations in Member States with a view to facilitating goods clearing through customs and accordingly limit the waiting time at the customs. Besides, the document will allow the standardization of codifications and other statistical or regulations data with a view to better working out the Foreign Trade Statistics of the ECOWAS Member States. 2. Removal of the tariff barriers within the framework trade liberalisation scheme (TLS): 12 countries have abolished tariff barriers within the framework of the TLS on raw products, these are: Benin, Burkina Faso, Côte d’Ivoire, the Gambia, Ghana, Guinea, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo, while for industrial products, Benin only has eliminated tariff barriers on these products. On the whole, according to the Executive General Secretariat of the ECOWAS, the trade liberalisation programme is not operational yet. Such situation stems from the fact that some Member States have not printed yet harmonisation customs. It is also due to the non-removal of tariff barriers and to the high compensation cost, duplication of the TLS of both the ECOWAS and WAEMU and to lack of information at the level of the economic operators on the ECOWAS’ trade liberalisation scheme. 3. Establishment of a Common External Tariff of the ECOWAS: Starting from May 2005, the 15 Members of the ECOWAS have adopted the same tariff system to tax imports coming from a country outside the community. At the 29th Session of the Conference of the heads of State held in Niamey on 12th 29 January 2006, it was decided to extend the CET of WAEMU to the ECOWAS Member States. Imported goods will be submitted to a customs duty ranging from 5% to 20% according to the product category. The expected profits from the establishment of this system will be the reduction of commodity smuggling. In fact, the taxes on the imports of some products are at present higher than 20% of their value, maximal threshold that will be applied to by the ECOWAS countries. The 15 countries of the ECOWAS have agreed on a three-year transitory period (2005/2007) that will enable them to adjust their customs policy. The CET is expected to be applied in all the ECOWAS countries by the end of 2007. A convergence process is scheduled for 2006-O7 with a view to adopting a CET of the ECOWAS starting from 1st January 2008 in compliance with the calendar of the Economic Partnership Agreement (EPA) with the EU. During this transition period, all Member States apply the customs duties and taxes of the ECOWAS. Yet, Member States are allowed to have schedules of exception of A type and list of type B. The exceptions of a type concern the products for which Member States request the implementation of taxation rates different from those of the CET during the transitory period. The exceptions of type B concern products for which Member States wish changes of categories. The adoption of a Common External Tariff is only one of the six stages, which pave the way for the creation of a customs union. Between now and the year 2007, the ECOWAS Countries should set up a free trade area, harmonize their legislation in the field of customs duties and indirect taxation (VAT and excise tax), to transfer to the ECOWAS their competences in the field of trade policy and competition regulation, to reform the institutional framework of the economic community and allocate to the organization adequate resources. Progress indicators at regional and national levels shall be adopted to follow the introduction process of the CET. The countries, which will take long time to set up a tariffication system will submitted to sanctions. The ECOWAS is planning to appoint a mediator to settle all the problems stemming from the adequacy of national systems to the common system. The ECOWAS has also embarked on several projects of trade facilitation: development of the road network and telecommunications infrastructure; creation of a car insurance scheme within the ECOWAS; establishment of a road transit regime among States, compulsory abolition of visa for all the sub area countries; environmental programmes; regional programmes for the strengthening of peace and security. Besides, the ECOWAS is involved in the regional economic communities, which are in charge of achieving the objectives defined within the NEPAD framework. The ECOWAS conducts in collaboration with the ECOWAS Commission, negotiations with the EU with a view to concluding an Economic Partnership Agreement. The ECOWAS adopted its regional agricultural policy (ECOWAP) on 19 January 2005. It launched several projects with a view to completing and making the communications, energy, transport and tourism networks interoperable within the region. 4. Monetary Cooperation Programme: The Middle and long term of The Monetary Cooperation Programme of the ECOWAS

30 aims at achieving the convertibility of West African currencies and the establishment of a single currency within the ECOWAS. The establishment of the West African Monetary Zone (WAMZ) by some ECOWAS countries (The Gambia, Ghana, Guinea, Nigeria and Sierra Leone), no-members of the franc area has been postponed until 1 December 2009, in view of the weak performances of Member States in the achievement of the convergence criteria. g) Association of South East Asian Nations (ASEAN): The Association of South East Asian Nations (ASEAN) which includes three OIC Member States, Indonesia, Malaysia and Brunei Darussalam is currently numbering ten countries of South East Asia: the other ASEAN Members are Philippines, Singapore, Thailand, Vietnam (1995), Burma, Laos, (1997), Cambodia (1999). In January 1992, the ASEAN’s Head of States agreed on establishing the ASEAN Free Trade Area by the year 2003 (AFTA). The ASEAN Free Trade Area (AFTA) Commodity trade For the six founding members, import duties are expected to be reduced with respect to trade within the ASEAN (products whose content in components originating in the ASEAN is 40% at least) to maximal rate of 5% by the end of 2002, the deadline being fixed for the end of 2003 for some products. By the end of 2001, the list of tariff position included in the Common Effective Preferential Tariff aimed at on the average 85% of the tariff lines of all the ECOWAS countries (98 % for the original members and 57% for the new members); for original members 93% of the total number of the tariff lines of the CEPT were submitted to 5% customs duties at the most (38 % were exempted from customs duties). For all Members in the average customs duty of the CEPT was 3.3% in 2002 (5.4% in 1998) and expected to fall to 2.7% in 2003 (the duty ranging from 0% for Singapore to 5% for Laos). In 1999, Members decided to abolish all import duties between the original Members by the year 2010 and in principle to put forward the suppression deadline for the new Members from 2015 to 2018, except for some sensitive products; the quantitative restrictions and other tariff obstacles should also be removed. Initially, the CEPT is expected to be fully implemented for 2008, the process has been speeded up, since the delay was put forward to 2003 for original Members then to 2002 for most of products upon the financial crisis. Longer transition periods are applied to the ASEAN new Members: 2006 for Vietnam, 2008 for Laos and the Myanmar and 2010 for Cambodia. Since September 2005, 98.9% of the products appearing in the inclusion list of the ASEAN-6 (Brunei, Indonesia, Singapore, Philippines, Thailand and Malaysia) are subjected to duties ranging between zero and 5%. The commitment that was undertaken to remove all the customs duties has been correctly respected, since 64.2% of the products are henceforth, duty free. The average of customs duties applied in the ASEAN-6 under the Common Effective Preferential Tariff (CEPT) fell from 12.8% in 1993 to 1.9% in 2005. - Trade in services Besides, the ASEAN countries are currently negotiating inter regional services 31 liberalization (Framework Agreement of 1995 on services (AFAS). The commitments taken in this respect have enabled the liberalization of trade in priority sectors, that is to say air transport, business services, construction, financial services, maritime transport, telecommunications and tourism. A third series of negotiations targeting 12 sectors and the four supply modes founded by the GATS was launched in September 2001 and was expected to be completed in 2004. In 2001, Members decided to speed up the services liberalization and to negotiate arrangements of mutual recognizance for professional services. Other agreements aiming at promoting trade, investments as well as a bigger regional integration within the ASEAN include the ASEAN Industrial Cooperation Scheme (AICO) and the ASEAN Investment Area (AIA). - The ASEAN Industrial Cooperation Scheme (AICO) The AICO, which was signed in 1996, encourages investments based on technologies inside the ASEAN. The enterprises established in the ASEAN Countries, which meet some conditions may benefit from this Agreement8. Products, raw materials and intermediate goods approved under the AICO are immediately subjected to maximal duty of 5% and can benefit from accreditation by virtue of their local content as well as to “non tariff incentives” which are not defined yet. - The Agreement on the ASEAN Investment Area (AIA): This Agreement, which was signed in October 1998 aims at increasing foreign investment from the ASEAN and from regional sources outside the ASEAN by removing obstacles by the year 2020 for all ASEAN investors. The AIA is based on the opening of all sectors to foreign investments and the progressive abolition of exclusions, the immediate granting of national treatment to all investors coming from the ASEAN, with a few exceptions, the removal of obstacles to investment, the simplification of investment procedures, the strengthening of transparency and the implementation of investment facilitation measures. h) The Common Market of Eastern and Southern Africa (COMESA): The Common Market of Eastern and Southern Africa (COMESA), numbering 5 OIC Member States was created in 1994 to replace the Preferential Trade Area (PTA) that was unable to achieve the economic and social integration of the area. It covers the following 21 Member States: Angola, Burundi, Comoros, Democratic Republic of Congo, Egypt (in 1998), Eritrea, Ethiopia, Djibouti, Kenya, Libya, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. After almost 16 years of market liberalisation and economic adjustments, the 21 Member States of the COMESA have finalised the agreement providing for the setting up of a free trade area (FTA) in October 2000. The COMESA’s secretariat had made necessary arrangements for the removal of customs tariffs between its members in October 2000. It has also planned the

8 Enterprises should form companies and operate in an ASEAN Country; at least 30% of their capitals should originate from an ASEAN country and they should ensure a sharing of resources (for example sharing of technologies or markets, or regrouping of purchases of raw materials). The participation of at least two enterprises of two ASEAN countries is compulsory. An exemption is possible in some conditions. In April 2002, the projects approved within the framework of the AICO were estimated at 90 (annual transactions of a value of 1.09 million US dollars). 32 establishment of a customs and tariff union by the year 2004. The monetary union and the creation of a common central bank as well as the free movements of persons are scheduled for 2025. The COMESA should therefore become a Customs and Monetary Union. Its free trade area was created on 1st November 2000; most of Members respected the cut-off date9. The participation degree of several other Member States varies considerably. The Customs Union was scheduled to be set up by the year 2004, with a Common External Tariff (CET) including four duty ranges: 0% on capital goods, 5% on raw materials, 15% on intermediate goods and 30% on final goods.

Yet, since most of the COMESA Member States, apply duty ranges below 30%; talks are underway in order to consider the possibility of decreasing the rate of the Common External Tariff applicable to finished products. Rules of origin: Tariff preferences are submitted to prescriptions concerning the rules of origin. The COMESA established four criteria for the determination of the origin by virtue of which, an exporter may request a preferential treatment: when the goods are fully produced in the area, without using materials coming from outside the COMESA area; when the content in imported materials does not exceed 60% of the C.I.F value used of the total cost of materials used in the production of goods; when the ex-factory goods value added contains no less than 35% reduced by 25% if the product is listed as being of vital importance to the economic development of Member States10; or in the event of a change in tariff position after processing. The monetary harmonization shall be implemented in four stages from 1992 to 2025. The last stage should lead to a real monetary union within which there will be either irrevocably fixed rates of exchange, or a single currency; the complete harmonisation of economic, budgetary and monetary policies of Member States; the total integration of the financial structure; pooling of foreign exchange reserves; and the establishment of a common monetary authority. At the 21st meeting of the COMESA Ministers held in Kigali in Rwanda on 15th May 2006, the accession of Libya, Comoros to the COMESA Free trade Area was announced, increasing thus the number of Member Countries to 13. The countries, which were already members are: Burundi, Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Zambia and Zimbabwe. i) Establishment of the Community of Sahel-Saharan States (CEN-SAD) The Community of Sahel-Saharan- States was created on 4th February 1998 in Tripoli in Libya. 23 African countries are Members of this community: Benin, Burkina Faso, Central Africa, Chad, Côte d’Ivoire, Djibouti, Egypt, Eritrea, The Gambia, Guinea Bissau, Liberia, Libya, Mali, Morocco, Niger, Nigeria, Senegal, Somalia, Sudan, Togo and Tunisia. In 2005, two new countries became members of the CEN-SAD: Ghana and Sierra Leone.

9 Commodity trade between the Members of the COMESA Free Trade Area is submitted to a zero tariff rate, without exception 10 The COMESA Treaty has made a long list of products approved invested with a vital importance to the economic development of Member States. 33 1- Objectives of the CEN-SAD The main objectives of the CEN-SAD are as follows: The establishment of a global economic union based on a strategy aiming at developing a complementary developmental plan with that of the national developmental plans of concerned countries, encompassing investment in the agricultural, industrial, energy, social and cultural fields. The abolition of all the restrictions hampering the gathering of these countries through adequate measures to ensure: . The free movements of goods, capitals and protection of the interests of Member Sates’ Nationals; . Freedom of staying, acquiring properties and undertaking economic activities; . Freedom of exchange, free movement of goods, products and services originating in signatory countries. The promotion of foreign trade through an investment policy in Member States; The increase among Member States of land, air and maritime transport and communication means through the execution of common projects; To grant to the nationals of Member States the same rights, advantages that are conceded to their own citizens in compliance with their respective provisions and constitutions; The harmonization of their educational, pedagogical, scientific and cultural systems in the different training cycles In brief, the objective of the CEN-SAD is to achieve economic unity through the establishment of the free movement of persons and goods with a view to setting up a free trade area within this space. In addition to inciting trading partners to achieve a greater macro-economic convergence, the CEN-SAD has initiated investment in road, railway, electric, air and telecommunications infrastructures, which constitute several community projects. The CEN-SAD, which gathers all the States concerned by the growing desertification and scarcity of water, gives special importance to the establishment of common market of basic agricultural products. At regional level, the CEN –SAD has become in a few years only the largest Regional Economic Community (REC) in Africa both in terms of area and population, accounting for 41% of the whole African territory, i.e. 12.5 million square meters and for 43% of the African population, i.e. 350 million inhabitants. 2. The Sahel-Saharan Bank for investment and trade: The convention for the establishment of the Sahel-Saharan Bank for Investment and Trade was signed on 14th April 1999 in Syrte in Libya. The objective of the Bank is to undertake all the banking, financing and trade activities, including those concerning development, financing and foreign trade projects. The Bank gives priority to projects that are implemented in Member States. To reach such objectives, the Bank is entitled upon the decision of its Board of Directors to open branches or offices outside Member countries. The head office of the Bank is Libya. 3.CEN-SAD Economic, Social and Cultural Council (ESCC) The ESCC is a consultative organ composed of ten members. Its main goal is to held the

34 organs of the CEN-SAD in the working out and preparation of developmental plans, policies, economic, social and cultural programmes and plans of Member States. The head office of the Economic, Social and Cultural Council is in Bamako in Mali. The eighth Summit of the CEN-SAD: Libya-June 2006. Eleven heads of Sates participated in the 8th Summit of the CEN-SAD, which was held in Libya on 1st and 2nd June 2006. Participants examined the recommendations of the 14th session of the executive council of the CEN-SAD held in March in Rabat (Morocco). The main recommendations that were submitted concern the following points:

 The establishment of the Economic, Social and Cultural Council  Free circulation of persons, new measures.  Inter-State Communication and transport:  Project of a railways network linking Libya, Chad and Niger  Project of KADDAFI Trans-Saharan Road linking Libya, Chad, Niger and Libya-Sudan- Eritrea.

 Cooperation in the field of energy.  Supply of hydrocarbons  Electric interconnections  Renewable energies  Abolition of the Customs duties on solar energy equipment staring from 1st January 2007. The movement of persons being a fundamental aspect of the integration process launched by the community, the CEN-SAD as community set among others as major target, the free movement of persons in the community space. Towards this end, a travel document may allow achieving progress in this field. But in the last few years, this community is facing a major problem: illegal immigration, which has become blight in African Countries in general and the CEN-SAD space in particular. The Summit was informed of the setting up of an Economic, Social and Cultural Council, as a consultative organ of the CEN SAD whose mission is to extend assistance to the CEN-SAD Organs in working out economic, social and cultural developmental policies and plans.

SECTION II ASSESSMENT OF REGIONAL GROUPINGS

In spite of the proliferation of the regional economic groupings, their impact on trade remains low, in fact in addition to technical obstacles, some political factors hinder trade flows. Political problems: The persistence of the major political tensions between some countries of the zone, as well the existence of international sanctions measures affecting Libya and some neighbouring countries (Iran, Sudan), constitute currently, the most important obstacles

35 to economic integration11. Lack for economic policies convergence: The main divides oppose the countries, which have firmly undertaken a structural adjustment and economic liberalisation policy (Jordan, Morocco, Tunisia, Malaysia, Turkey, Indonesia etc…) and those countries, which are currently keeping some degree of public intervention (Syria, Libya, Algeria and some transition countries). The second divergence concerns the disagreement between the policies of the WTO member and non-member countries (Algeria, Lebanon, Syria and Libya etc..). The IMF research works tend to establish a correlation between the insertion degree in the world trade and the participation rate in regional trade. Besides, such analysis is confirmed by the fact that the main players of intra-OIC trade are also those which are the most integrated in the world market. a) Free trade agreements between the OIC countries suffer from lack for political will, which is reflected at the level of their content and implementation. The trade agreements, which were concluded between the OIC countries reflect a narrow and gradual conception of free trade, which can be explained by their concern for keeping balanced budgets, compensating for the loss of customs earnings and protecting domestic industries. Consequently, such agreements can hardly motivate the private sector mobilisation and incite it to prepare itself to strict liberalisation deadlines. Most of the agreements on tariff removal and reduction establish progressive calendars, increasing in the short term, the effective protection of domestic industries, by favouring in a first stage, the reduction of their input costs. They are essentially limited to industrial products, while excluding the products, which are considered as strategic by negative lists and most of them do not cover trade in agricultural products. A large number of these agreements are limited to customs tariff, except for non tariff barriers and tax levies on imports with a few exceptions, some agreements only regulate investments, such as the agreement between Egypt and Saudi Arabia. Besides, the administrative and political application conditions of agreements hamper frequently their entry into force (apparition of new non-tariff measures).

11 MINIFE-DREE, note de synthèse, l’intégration économique « sud-sud » Updating: January 2002. 36 CHAPTER IV

IMPLEMENTATION MODALITIES OF THE RESOLUTION OF THE 3RD EXTRAODINARY ISLAMIC SUMMIT CONFERENCE OF MAKKAH AL MUKARRAMH RELATING TO A FREE TRADE AREA AMONG THE OIC MEMBER STATES

SECTION I

INTRA-OIC TRADE NEGOTIATIONS WITHIN THE FRAMEWORK OF THE TRADE PREFERENTIAL SYSTEM AMONG THE OIC MEMBER STATES

In compliance with the relevant resolutions of the Different OIC Summits, especially the 3rd Summit of Makkah Al Mukarramah in 1981, the OIC Member States provided themselves with a Trade Preferential System (TPS/OIC) that was adopted by the 6th Session of the COMCEC in 1990, which submitted it to the OIC General Secretariat for signature and ratification. The TPS/OIC Agreement came into force in 2003 and upon its enforcement two rounds of negotiations where held whose outcomes were marked by two protocols, the PRETAS Protocol and the Draft Protocol on the Rules of Origin.

PARAGRAPH I: INTRA-OIC TRADE NEGOTIATIONS: The framework Agreement on TPS/OIC provides for the creation by the COMCEC of a Trade Negotiations Committee within ICDT that will be entrusted with organising negotiations according to a schedule aimed at by the COMCEC, in principle, the rounds should not exceed 12 months. The agreement offer to Member States a full array of negotiations methods that they might combine if need be, these are: product by product negotiations, general tariff reductions, sector based negotiations and direct trade measures. The negotiations rounds will be held as bilateral, and multilateral rounds, the multilateralisation of negotiated concessions at bilateral level will be implemented on the basis of the most Favoured Nation clause, however it is allowed under some conditions, to a participating State not to extend special concessions negotiated with one or several States to other Participating States (Article 6 paragraphs 2 and 3). The concessions resulting from negotiations must be ratified by participating countries and shall be enforced three months after having been ratified at least by ten participating States. - The TPS/OIC will undoubtedly pave the way for the setting up of a unified economic space between the OIC Member States, since the economic integration methodology implies first a gradual elimination of obstacles to the free movement of goods and services before tackling harmonisation issues and other economic policies that are more difficult to achieve, such as the harmonisation of industrial and monetary policies.

37 - In anticipation of the progressive setting up of the Islamic Common Market; advocated by the 8th Islamic Summit held in Tehran in December 1997, it is pressing to set up in the short term, the first stage of such a project, namely the establishment of a Preferential Trade Zone that will progress into an Islamic Free Trade Area; the latter will be followed in the medium term by the second stage, namely a Customs Union, reaching thus the final stage of Common Market. Furthermore, the last attempts to achieve economic integration that are experienced by the Islamic zone will facilitate this process: The Great Arab Free Trade Area, the Economic Cooperation Organization (ECO), and the Gulf Cooperation Council (GCC). The Arab Maghreb Union (AMU), the Association of South-Eastern Asian States (ASEAN), The West African Economic and Monetary Union (WAEMU), The Economic Community of Western African States (ECOWAS), the Common Market of Eastern and Southern African States (COMESA) etc… - Enforcement of the Agreement: The TPS/OIC agreement was deposited in 1990 in the OIC General Secretariat for signature and ratification, in compliance with article 18, it will enter into force three months after ten Member States have deposited their instruments of ratification. Thirty One Member States have so far signed the framework agreement on TPS/OIC: Kingdom of Bahrain, People’s Republic of Bangladesh, Burkina Faso, Republic of Cameroon, Republic of Chad, Arab Republic of Egypt, Republic of The Gambia, Republic of Guinea, Republic of Indonesia, Islamic Republic of Iran, Republic of Iraq, Hashemite Kingdom of Jordan, State of Kuwait, Republic of Lebanon, the Great People’s Socialist Arab Libyan Jamahyria, Malaysia, Maldives, Kingdom of Morocco, Federal Republic of Nigeria, Sultanate of Oman, Islamic Republic of Pakistan, State of Palestine, Qatar, Kingdom of Saudi Arabia, Republic of Senegal, Republic of Sudan, Arab Republic of Syria, Republic of Tunisia, Republic of Turkey, Republic of Uganda and the State of United Arab Emirates. Twenty Member States have ratified it so far: People’s Republic of Bangladesh, Republic of Cameroon, Arab Republic of Egypt, Republic of Guinea, Islamic Republic of Iran, Hashemite Kingdom of Jordan, Republic of Lebanon, the Great People’s Socialist Arab Libyan Jamahyria, Malaysia, Maldives, Sultanate of Oman, Islamic Republic of Pakistan, Qatar, Republic of Senegal, Republic of Tunisia, Republic of Turkey, Kingdom of Morocco, Arab Republic of Syria, Republic of Uganda and the State of the United Arab Emirates. - Results of the Trade Negotiating Committee for Establishing the Trade Preferential System among the OIC Member States: Antalya (Turkey), April 2004-April 2005. The First Session of the Trade Negotiating Committee for Establishing the Trade Preferential System among the Member Countries of the OIC (TPS-OIC), hosted by the Republic of Turkey, was held in Antalya from April 2004 to November 2005. - During the special session, the TNC finalised the “Draft Protocol on the Preferential Tariff Scheme for the TPS/OIC (PRETAS)” and after having tackled the issues on which debates were suspended during the fourth meeting. The TNC adopted the final version of the PRETAS and submitted it to the 21st session of the COMCEC for signature. Six countries signed the Protocol; these are Egypt, Jordan, Malaysia, Tunisia, Turkey and Syria.

38 PARAGRAPH II: ECONOMY OF THE PROTOCOL ON THE PREFERENTIAL TARIFF SCHEME FOR THE TPS/OIC (PRETAS): After arduous negotiations and deliberations, which lasted one year, the TNC has managed to reach a compromise solution by adopting the “Draft Protocol on the Preferential Tariff Scheme for the TPS/OIC (PRETAS)”. 1. General principles of the PRETAS: The PRETAS is only an additional protocol to the TPS/OIC Agreement, which remains the reference for all the issues, which are not expressly examined by the PREATAS. Therefore, this protocol, which records the outcomes of negotiations, shall be signed and ratified by Participating States only. The Protocol covers industrial and agricultural products alike; the products to be included in the PRETAS should be identified at HS level of the National Tariff Codes of the Participating States. The base rate of the tariffs to be used for reduction shall be the Most Favoured Nation (MFN) rates and the rules of origin of eligible products to the preferential treatment are those annexed to the framework Agreement TPS/OIC (Annexe III). The Least Developed Countries shall be given a three year grace period for the tariff reduction on products covered by the PRETAS, as of the date of implementation. Likewise, other participating States facing unusual situations may be allowed upon request of the State and approval of the COMCEC, to benefit from the same grace period as of the date of implementation. The Protocol shall enter into force on the ninetieth day of the date of receipt by the depository of instruments of ratification, acceptance or approval by at least 10 Member Governments of the Participating States. 2. Tariff reduction programme: The approach that has been adopted consists of two systems of tariff and non-tariff reduction; a normal track and a fast track.

 The normal track of tariff reduction  Tariff lines between 0 and 10% are exempted from tariff reduction  Each participating state should cover 7% of all its tariff lines identified at HS level of National Tariff Codes above 10%.  Participating States, whose 90% and above of its total tariff lines, estimated at the base rate, are between 0% and 10%, shall only cover 1% of the same total HS lines.  Tariff slabs at the end of the tariff reduction process. The tariffs levied on 7% of all the HS lines of Participating States shall be reduced as follows:

 Tariffs above 25% shall be reduced to 25%  Tariffs above 15% and up to 25%, shall be reduced to 15%  Tariffs above 10% and up to 15% shall be reduced to 10%.  The implementation period shall be divided into six instalments by the Least Developed Countries and into four annual instalments by the other countries, beginning from the date of coming into force of the PRETAS.  Similarly, Participating States are free to choose the list of products to be

39 liberalised each year, to that effect, they shall notify on an annual basis, the TNC Secretariat of their specific annual instalments along with the list of products.  Abolition of Non Tariff Barriers Another new aspect of the PRETAS is that it also deals with non tariff barriers upon the entry into force of the Protocol. Thus Participating States shall abolish their para tariffs and their non tariff barriers on products subjected to reduction over a two year period for DCs and four years for the LDCs. Likewise, no new para tariff, or non tariff barriers shall be introduced, nor shall those already applied be increased, on the products, which are already subject to tariff reduction. 2.1- Voluntary Fast Track Tariff Reduction Schedule The Participating States wishing to further deepen the concessions, may do so on voluntary basis. The participating States willing to join the Fast Track Tariff Reduction will notify the TNC Secretariat within three months after the coming into force of the PRETAS. Contrarily to the normal process of Tariff Reduction, which covers only 7% of the HS lines, the fast track covers all products other than those included in the negative list; covered products may range according to the amplitude of the negative list of the country, from 70% for the LDCS to 85%, which is very promising. The negative list: It shall not exceed: . 25% of all HS tariff lines, plus lines with tariffs of 10% and below, for developing countries whose average tariff is 20% and above; . 20% of all HS tariff lines, plus lines with tariffs of 10% and below, for developing countries whose average tariff rate is between 15% and 20%; . 15% of all tariff lines for developing countries whose average tariff is below 15%; . 30% of all HS tariff lines for LDCs. Modality of the fast track tariff reduction schedule The fast tack tariff reduction, which has been adopted for the fast track tariff reduction is relatively innovative in so much as it is not referred to tariffs slab, as in the normal process, but rather to a preferential margin to current MFN applied rate (HS level National Tariff Codes). It means that this modality will prevent any possible erosion of preferences due to the erga omnes of the MFN tariff, notably following the multilateral trade negotiations within the WTO. The reduction of the preferential margin shall be made as follows:

 Margin of preference shall be increased to 50% in five instalments beginning from the ninetieth day of entry into force of this protocol, while the LDCs shall implement the programme in seven instalments.  The developing countries shall increase the margin of preference to 50% for the products of the LDCs in three instalments. - At the beginning of the fifth year of the date of implementation of this voluntary fast track schedule or earlier, participating countries may enter into negotiations with a view to expanding the product coverage ad deepening the concessions.

40 SECTION II

POTENTIAL IMPACT OF THE FUTURE INTRA-OIC FTA THEORETICAL AND PRACTICAL IMPACT

PARAGRAPH I: CREATION OR DISTORTION OF TRADE FLOWS AND OTHER CONSEQUENCES The theory of the Regional Trade Agreements (RTA) dates back to Jacob Viner (1950), which made distinction between the effects of trade creation and those of trade distortion, which result from the formation of a RTA. His contribution showed that even if an RTA liberalise trade by reducing at least a few obstacles, it does not necessarily entails net trade revenues. One could expect such revenues if all the obstacles to trade are reduced on a non discriminatory basis. Now in view of the nature of the RTAs, they are discriminatory vis-à- vis non Members. Within the framework of these agreements, distortions between supply sources are not eliminated, they only moved. If the production of the partner country takes the place of a more costly domestic production, there is gain or trade creation. On the other hand, if the production of the partner country replaces the less expensive imports from the rest of the world, it results in trade distortion. Jacob Vinter (1950) was among the first theoretician to be tackling the effects of the trade flows on the economic welfare of countries and this concern has since then remained at the core of the analysis of the regional trade agreements. This wording had been used before, but its implications were neither defined nor perceived in a clear manner. Viner described the distortion of trade flows as the transfer of the production of a domestic source at a lesser cost located outside the group covered by the regional trade agreement to a supply source at higher cost in a member country of the group. He opposed it to the second type of effects on trade, namely, the creation of trade flows, which is a transfer of production originating from a domestic source with a high cost to a less costly source belonging to the same regional group. This distinction is solely the result of the discriminatory nature of liberalisation within a regional trade agreement, which has an influence in some cases on the products markets in the same manner as a non discriminatory liberalisation, but distorts in other cases trade flows towards the direction, which they would have normally followed in the absence of discrimination. The conclusion of Viner is not subject to review: “When the creation of trade flows is prevailing, one of the members of the group should at least derive benefit from it, the two members can derive benefit, both of them should in total gain net profits; but the rest of the world sustains a loss, at least in the short term… if trade flows distortion is predominant, one of the members at least incurs a loss, taken as whole both of them will experience a net loss, and the rest of the world and the whole world will suffer a loss as well. (Viner, 1950, p.44). Trade distortion from the point of view of Viner is a modification of the terms of trade due the change of the supply source. With the ensuing cost increase, third parties can continue to supply part of imported products, after the conclusion of the regional trade agreement, at the same time as a member country. The trade volume thus distorted is difficult to be determined. The loss of market share sustained by third countries overrate the value of the trade flows that were really distorted, even in a context of partial balance, because the effect on consumption increases total imports. Besides, in a world characterised by increasingly

41 global production and trade, the creation of trade flows can be advantageous for enterprises of third countries operating in the region and the distortion of trade flows can be prejudicial to enterprises from member states having production facilities in third countries and exporting to the region.

PARAGRAPH II: THE IMPACT ON GOVERNMENT REVENUES The government revenues in several developing countries, especially in Africa depend at the rate of more than 50% on tariff incomes. A commercial agreement directly gives rise to losses, since customs duties on trade among member states are no more levied. A change of the commercial course, in other words the reduction of imports subjected to customs duties from third countries for the benefit of duty free imports from member countries has the same effect. In this case, the conclusion of an agreement should be in line with the search for substitution income sources, which requires a fiscal reform policy (for example the introduction of a value added tax). The setting up of a free trade area will necessarily have significant effects on the public finance of member countries. Furthermore one should consider that this decrease in government revenues is proportional to the importance of tariff incomes for the state budget and taxation.

PARAGRAPH III: THE IMPACT OF THE RTAS ON FOREIGN DIRECT INVESTMENT The dynamic effects, which are often presenting as more promising are of various nature, but they only few studies were conducted on them in view of some difficulties encountered to be properly taken into account (Fukase and Winters 1999). The increase of the market size is likely to allow the economies for scale and the increase of competition, in economies where the few existing industrial sectors are often protected from foreign competition may prove to have a boosting effect. On the contrary, the intensification of competition may turn out to be destructive for the domestic capacities. Among the major effects that are expected from regional integration, we may quote foreign investment attractiveness, vital for those countries in quest for steady and durable financial resources as well as the diversification of export structures and exports. The most important effect, which gave rise to more comments, is the repercussion on foreign direct investment. As preferences modify the incentives of enterprises, whether they are located inside or outside the bloc, the formation of a RTA will probably have an influence on direct trade flows. It should be noted in this respect that the effects on investment may show up before those on trade. Some FDI are mainly motivated by the desire to counteract obstacles to trade. Other are due to the fact that foreign investors are trying to exploit the market of the production means or those of products located abroad in sectors where the presence of a foreign subsidiary company seems to be the most efficient strategy. Other investment projects may be carried out to win economies of scale or when face with an increasing competition. Accordingly, the reaction to an integration agreement depends on cases and results from influences which can cancel each other. The theory does not propose a final conclusion as to the general effect of regional integration on investment. We therefore can judge only by empirical studies. Yet, it is difficult to evaluate the impact that the setting up of a an EPA, on foreign investments in so much as a large number of other factors (such as political instability) may

42 be essential in the determination of the foreign direct investments flows (FDI). The research works on the role of regional integration in the attractiveness of the FDI are not very numerous. The motivations of the foreign companies to set up abroad are mainly based on the availability of natural resources (oil, etc.), the labour cost and the markets size, importance of infrastructures, skilled labour.

PARAGRAPH IV: THE POLARIZATION EFFECT OF GAINS. Another problem arises when the advantages obtained through integration are distributed unequally, which might be the case for example when a less industrially developed country looses jobs within the integration area for the benefit of a more developed partner country in the event of harsh competition. This might arouse the requirements of compensation mechanisms. As a general rule, a slowing down of the liberalisation speed or a regional structural policy, like in the EU, becomes necessary to counter such developments. The African regional integrations experiences of the 60’s and 70’s (West and East Africa) show in effect the polarization of activities in the most developed countries or areas that are provided with infrastructures and qualified skills (etc.). Decaluwé, Dumont, Mesplé-Sops, Robichaud (2001) have demonstrated such facts using a general calculable balance pattern applied to the WAEMU countries. The pattern assesses the impact on export structure and the migratory flows. The global effects are minimal but the shocks of gains redistribution are not negligible. The big winners would be Côte d’Ivoire, and Senegal (in accordance with the results of Venables) that would strengthen the role of the regional pole. The big looser would be Burkina Faso (moss of labour and industrial capitals). The poorest countries in a South-South process would not have any economic interest in regional integration, except in case of compensations. According to these analyses, the setting up of a real customs union in West Africa could also be beneficial for two to three poles, namely Côte d’Ivoire, Nigeria, Senegal. Several methodological questions have not been answered yet: what are the initial conditions, which differentiate the losers from the winners? (Economic size, geographical situation, initial diversification of production…) and consequently what countries would be the contributing /recipient ones in case of the setting up of a compensation system? In which manner should a short-lived compensation system in African experiences be perpetuated?

43 SECTION III POTENTIAL IMPACT OF THE FUTURE INTRA-OIC FTA

According to a study carried out by ICDT in collaboration with the UNCTAD, the global impact of the TPS-OIC, in the event the next negotiations rounds reach a total exemption from customs duties, in other words the free trade (removal of all obstacles to trade), intra-OIC will increase by about 53%, i.e. about a 19 billion US dollars rise of intra-OIC trade (1997 data) without taking into account the dynamic effects of the trade liberalization process, such as the attraction of foreign investments and the horizontal integration of the OIC area enterprises, which can derive benefit from the possibilities offered by regional accumulation of the rules of origin provided for by the TPS-OIC.

ASSESSMENT OF THE TARIFF LINES TO BE LIBERALISED WITHIN THE FRAMAEWORK OF THE PRETAS

Number of the Tariff Number of Tariff Share in % of Country lines subjected to tariffs lines ≤ 10 tariff lines ≤ 10 dismantling Bangladesh 6637 (8 digit) 1978 29.8 465 Cameroon 5577 (8 digit) 2829 50.9 390 Egypt 5687 3094 54.4 398 Guinea 5546 3264 58.9 388 Iran 5225 2295 44 366 Jordan 6412 3798 59 449 Lebanon 5737 5222 91 57 Libya 5738 3560 62 402 Malaysia 10579 7786 73.6 741 Maldives 5321 990 18.6 372 Morocco 16676 3276 19.7 1167 Pakistan 5477 2297 42.3 383 Senegal 5546 3264 58.9 388 Tunisia 16232 4577 28.2 1136 Turkey 19478 15194 78.01 1363 U A E 7154 7061 98.7 72 Uganda 5161 3131 60.7 361

These figures updated on the basis of the 2003 data are estimated at about 40 billion US dollars, this beneficial contribution of the FTA is expected to increase the share of intra- OIC trade in total trade to 22% instead of 13% currently.

44 Graph. n° 9

The study prepared by the UNCTAD and the ICDT are based on the hypothesis of a free trade area (removal of all customs duties and taxes of equivalent effect on intra- OIC trade); the statistics mentioned in this paragraph were calculated on the basis of the statistical data of 1997. - At export level, it can be noted that exports of Turkey are expected to increase by 6.7 billion US dollars followed by Malaysia with 3.7 billion US dollars, Indonesia with 3.2 billion US dollars, all the Middle East countries of which the GCC with 2.7 billion US dollars, North Africa except Morocco with 1.5 billion US dollars, Morocco with 1 billion US dollars, Bangladesh with about 179 million US dollars, Uganda with 21 million US dollars and Mozambique with 2 million US dollars. The other Sub African countries will experience a drop in exports by about -54.6% if some measures are not taken. Besides, among the measures, which are provided for in this respect by the TPS-OIC there are: the possibility of granting to the LDCs longer grace periods, a negative list for all sensitive products, flexibility at the level of the rules of origin for products exported by the Least Developed Countries in general etc.

45 Graph n° 10 Impact of the FTA on the exports of Member States

Turkey 6788.57 7000

6000

5000 Malaysia 3711.91

Indonesia 4000 3248.52 Middle East/GCC 2721.89

3000

North Africa 1533.05 2000 Morocco 1048.63

Bangladesh 1000 179.07 Mozambique Uganda 1.88 20.95

Sub Saharan Africa 0 -54.58

-1000

Table n° 7 Impact of the Free Trade Area on the exports of Member States

Exporting country Potential impact of Exporting country Exports after the FTA before the FTA (1997) the FTA on Exports Indonesia 3947.79 7196.31 3248.52 Malaysia 4640.62 8352.53 3711.91 Bangladesh 308.43 487.5 179.07 Turkey 4630.39 11418.96 6788.57 Middle East/GCC 14587.8 17309.69 2721.89 Morocco 581.54 1630.17 1048.63 North Africa 4243.24 5776.29 1533.05 Sub Saharan Africa 2930.25 2875.67 -54.58 Mozambique 30.15 32.03 1.88 Uganda 33.52 54.47 20.95 Total 35933.73 55133.62 19199.89

- At import level, it can be noted that some country groups will experience an important rise in their imports, those of the Middle East will show an increase by 10 billion US dollars, the AMU countries will also experience an increase in their imports by 4.2 billion US dollars, Malaysia (+1.5 billion US dollars), Indonesia (1.2 billion US dollars), Turkey (900 million US dollars), Bangladesh (833 million US dollars), Morocco (415 million US dollars), Mozambique (27 million US dollars) and Uganda (24 million US dollars). The rest of Sub Saharan Africa will experience a decrease in its imports by 27 million US dollars.

46 Table n° 8 Impact of the Free Trade Area on imports of the OIC Member States

Importing country Potential impact of Exporting Country Imports after the FTA before the FTA (1997) the FTA on Imports Indonesia 3847.83 5027.25 1179.42 Malaysia 3292.65 4848.21 1555.56 Bangladesh 672.67 1506.17 833.5 Turkey 5498.56 6435.75 937.19 Middle East/GCC 12800 22763.50 9963.48 Morocco 1236.52 1652.45 415.93 North Africa 4022.42 8312.86 4290.44 Sub-Saharan Africa 4302.94 4276.01 -26.93 Mozambique 81.49 108.31 26.82 Uganda 178.63 203.11 24.48 Total 35933.73 55133.62 19199.89

Table n° 9 Net Impact of the Free Trade Area on the OIC Member States

Potential impact Potential impact of the FTA on of the FTA on Net Impact Exports Imports Indonesia 3248.52 1179.42 2069.1 Malaysia 3711.91 1555.56 2156.35 Bangladesh 179.07 833.5 -654.43 Turkey 6788.57 937.19 5851.38 Middle East/GCC 2721.89 9963.48 -7241.59 Morocco 1048.63 415.93 632.7 North Africa 1533.05 4290.44 -2757.39 Sub Saharan Africa -54.58 -26.93 -27.65 Mozambique 1.88 26.82 -24.94 Uganda 20.95 24.48 -3.53

47 Graph n° 11 Impact of the FTA on the imports of Member States

9963.48

10000

9000

8000

7000

6000

5000 4290.44

4000

3000

1555.56 2000 1179.42 833.5 937.19

415.93 1000 -26.93 26.82 24.48

0

-1000 Indonesia Malaysia Bangladesh Turkey Middle Morocco North Africa Sub Saharan Mozambique Uganda East/GCC Africa

If we make a global assessment of the creation or the distortion of trade, in other words the net impact of the FTA (exports less imports), two country groups can be identified: the group of recipient countries (Turkey, Malaysia, Indonesia, Morocco) and the group of deficit countries (Middle East, GCC, North Africa, Morocco excluded), Bangladesh and Sub Saharan Africa taken globally).

It should be noted once again that these figures are only projections based on the 1997 data and which are based on the hypothesis that there will be no associated measures of the integration process, in other words laissez faire pattern based on market rules and this is not the philosophy of the TPS-OIC. Besides, it would be difficult to parameterize in the forecasts of non quantifiable and unforeseeable qualitative measures.

48 Graph n° 12 Net Impact of the Free Trade Area on the OIC Member States

5851.38

6000

4000 2069.1 2156.35

2000 632.7

0 -27.65 -24.94 -3.53 -654.43

-2000

-2757.39

-4000

-6000

-7241.59

-8000 Indonesia Malaysia Bangladesh Turkey Middle Morocco North Africa Sub Saharan Mozambique Uganda East/GCC Africa - Another study carried out by the CARSICM of the Ministry of Commerce of the Islamic Republic of Iran, shows that the total implementation of the TPS-OIC among the 14 participating countries in the first round of trade negotiations could increase by 19 billion US dollars the value of intra-OIC trade without taking into account the contribution of the countries which will accede to the PRETAS in near future.

Table n° 10 Impact of the TPS/OIC on the intra-OIC trade Current exports to the 14 Potential exports of the group Country participating Member of the 14 participating States countries Bangladesh 77.5 363.7 Cameroon 27.1 258.9 Egypt 376.4 832.9 Guinea 10.5 140 Iran 251.3 778 Jordan 159.9 321.6 Lebanon 109 130.6 Libya 169.1 Malaysia 1328.4 8506.7 Pakistan 619.7 1320.7 Senegal 26.9 193.7 Tunisia 419 680.7 Turkey 1108.5 5217.8 Uganda 6.3 123.8 Total 4689.8 18700.4 Source : K.YAVARI, S YARANDI, HASANPOOR, H SAGHEB, Trade potential among the TPS/OIC. Participating Countries, CARSICM, Ministry of Commerce, Iran.

49 Graph n° 13

8000

6000

4000

2000

0

-2000

-4000

-6000

50 SECTION IV

RECOMMENDATIONS

To make the intra-OIC Free Trade Area concrete, two options may be envisaged: either the transformation of the TPS/OIC into a Free Trade Agreement or the conclusion of a new Free Trade Agreement between the OIC Member States.

Option A: Establishment of a Free Trade Area within the framework of the TPS/OIC.

This option would be more viable in view of the fact that it does not eliminate all the agreements that have been already concluded within the framework of the OIC, particularly, the Framework Agreement on the Trade Preferences among the OIC Member States (TPS/OIC) and the PRETAS. The procedure of the setting up of a Free Trade Area under the supervision and in the context of the TPS/OIC, which shall become its legal reference, would consist in adopting a Ministerial Declaration within the COMCEC calling for the establishment of an intra-OIC free trade area coupled by a clear-cut programme of trade liberalisation and tariff removal over at least a ten-year period. The text of the Declaration should contain operative paragraphs requesting the Secretariat of the Trade Negotiating Committee, composed of the COMCEC Coordination Office and ICDT to hold a meeting of an experts group that would be entrusted with working out the legal instruments of the free trade are; namely the drawing up of an implementation programme spread over 10 years as well as the notification of the WTO of the TPS/OIC’s developments. Afterwards, these instruments shall be adopted by all the OIC Member States within the COMCEC in order to involve the States, which have not ratified the TPS/OIC yet.

Option B: Conclusion of a new Free Trade Agreement.

The second option consists in negotiating a new free trade agreement. If this formula is adopted, the COMCEC should adopt a resolution requesting its Coordination Office and ICDT to hold a meeting of an experts group to work out the draft agreement. Then, the draft will be submitted to the COMCEC for adoption. Once the draft agreement is adopted by the COMCEC, the free trade agreement will be deposited at the OIC General Secretariat for signature and ratification. If this option is chosen, there is a chance that the setting up of a Free Trade Area might take a very long time in view of the signature and ratification procedures in force in the OIC countries and taking into account the experience of the TPS/OIC, which was initiated in 1990 and which numbers after 15 years, 29 signatory countries and 16 ratifications.

51 With respect to the rules of origin, the new rules to be adopted by the TNC during the second round of trade negotiations (November 2006-2007) could be served perfectly for the FTA, because they are adequately detailed.

With respect to sensitive products, according to the experience of the previous free trade agreements, flexibilities could be planned at several levels:

 Different calendars on the date of the beginning of the implementation of the FTA according to the more less sensitive agricultural product groups;  Calendars also different on the implementation duration according to these product groups. Liberalisation progressiveness could be defined: the reduction of customs duties would thus be implemented step by step for specific product groups;  Revision clauses could also be fixed in order to bring an additional flexibility to exempted products from trade liberalisation (for a period of time).

CONCLUSION

In the light of the foregoing, it would be appropriate to chose Option “A”; in other words to consolidate the TPS/OIC by a quick implementation of the PRETAS in order to put into a concrete shape a Preferential Trade Area (PTA) as a first step, starting from 1st January 2009 as endorsed officially in the Ministerial Declaration adopted by the 22nd Session of the COMCEC in November 2006 in Istanbul.

At the same time, the feasibility study on the future free trade area should be launched as requested by the 3rd Extraordinary Islamic Summit Conference of the OIC held in Makkah Al Mukarramah in December 2005.

This study will indicate to us the implementation calendar and modalities of the concerned Free Trade Area.

52