BUS613: Advanced International Business

Over the past 15 years, there has been an unprecedented worldwide increase in the number and scope of PTAs. The number of PTAs has doubled, reaching 278 at the end of 2010. PTAs have been employed in all regions with bilateral PTAs becoming the norm, often between countries in different regions. South–South PTAs represent about two-thirds of all PTAs and North–South PTAs about one-quarter. A large number of PTAs have been adopted in MENA over the past decade and a half, both within the region and between countries of the region, the EU, Turkey, and the United States. This proliferation of PTAs, with their varying sector and product coverage, rules of origin, and implementation requirements, constitutes a formidable implementation challenge for capacity-constrained MENA institutions. This explains, in large part, why implementation of the PTAs has been a gradual process that is still evolving. 

In MENA PTAs have contributed to a significant reduction in trade and investment barriers, provided an impetus for behind-the-border economic reforms, and helped spur rising trade. PTAs have also encouraged countries to improve their trade infrastructure, harmonize border policies and procedures, and improve supply chains and logistics facilities. There is little evidence regarding causality between PTAs and policy reforms, however, as countries such as Egypt, Jordan, Morocco, and Tunisia have embarked on major reforms on their own. There is also no evidence that PTAs have contributed to investment flows into the region. Total FDI has risen sharply in MENA over the past decade, but the bulk of it comes from within MENA, essentially from the GCC. EU and United States contributions have been relatively small. 

The PTAs that MENA countries have signed with the EU and United States have led to a more rapid expansion in imports into the region than exports (figure 2). The findings from a gravity panel model prepared suggests that trade preferences granted to MENA countries by the United States, EU, and Turkey do not have an additional effect on exports compared to PTAs in general (which averages about 21 %). In fact, the additional effect is negative in the case of the EU–MENA PTA, not significant in the case of the Turkey–MENA PTA, and largely accounted for by Jordan's Qualifying Industrial Zone (QIZ) in the case of the US–MENA PTA. By contrast, PAFTA and the Agadir Agreement for the Establishment of a Free Trade Zone between Egypt, Jordan, Morocco, and Tunisia do have an additional effect in expanding the exports of their members. It should be highlighted, however, that this expansion is starting from a low intraregional trade base. 

Figure 2: Change in PTA Volume of Trade 

The ways in which rules of origin are calculated in different PTAs can inadvertently impede trade. Rules of origin exist in the different PTAs to preserve the value of preferences accorded to PTA members when they maintain different external tariffs. Typically, PTA members define a percentage of the value-added that must originate in another PTA member for the product to be deemed eligible for preferential tariff treatment. The rules of origin prevent products from entering the member country with lower external tariffs for transshipment to another PTA member that maintains higher tariffs against the third country's goods. As a result, the rules of origin penalize regional producers by forcing them to source from less efficient suppliers located within the region, rather than from the most competitive sources globally.