TRADE LIBERALIZATION AND POVERTY in the MIDDLE EAST and NORTH AFRICA Nicholas Minot, Mohamed Abdelbasset Chemingui, Marcelle Thomas, Reno Dewina, and David Orden About IFPRI The International Food Policy Research Institute (IFPRI®) was established in 1975 to identify and analyze alternative national and international strategies and policies for meeting food needs of the developing world on a sustainable basis, with particular emphasis on low-income countries and on the poorer groups in those countries. While the research effort is geared to the precise objective of contributing to the reduction of hunger and malnutrition, the factors involved are many and wide-ranging, requiring analysis of underlying processes and extending beyond a narrowly defined food sector. The Insti- tute’s research program reflects worldwide collaboration with governments and private and public institutions interested in increasing food produc- tion and improving the equity of its distribution. Research results are dis- seminated to policymakers, opinion formers, administrators, policy analysts, researchers, and others concerned with national and international food and agricultural policy. About IFPRI Research Monographs IFPRI Research Monographs are well-focused, policy-relevant monographs based on original and innovative research conducted at IFPRI. All manuscripts submitted for publication as IFPRI Research Monographs undergo extensive external and internal reviews. Prior to submission to the Publications Review Committee, each manuscript is circulated informally among the author’s colleagues. Upon submission to the Committee, the manuscript is reviewed by an IFPRI reviewer and presented in a formal seminar. Three additional reviewers—at least two external to IFPRI and one from the Committee—are selected to review the manuscript. Reviewers are chosen for their familiarity with the country setting. The Committee provides the author its reaction to the reviewers’ comments. After revising as necessary, the author resubmits the manuscript to the Committee with a written response to the reviewers’ and Committee’s comments. The Committee then makes its recommenda- tions on publication of the manuscript to the Director General of IFPRI. With the Director General’s approval, the manuscript becomes part of the IFPRI Research Monograph series. The publication series, under the original name of IFPRI Research Reports, began in 1977. Trade Liberalization and Poverty in the Middle East and North Africa Nicholas Minot, Mohamed Abdelbasset Chemingui, Marcelle Thomas, Reno Dewina, and David Orden RESEARCH MONOGRAPH Copyright © 2010 International Food Policy Research Institute. All rights reserved. Sections of this material may be reproduced for personal and not-for-profit use without the express written permission of but with acknowledgment to IFPRI. To reproduce material contained herein for profit or commercial use requires express written permission. To obtain permission, contact the Communications Division at ifpri-copyright@cgiar.org. International Food Policy Research Institute 2033 K Street, NW Washington, D.C. 20006-1002, U.S.A. Telephone +1-202-862-5600 www.ifpri.org DOI: 10.2499/9780896291744 Library of Congress Cataloging-in-Publication Data Trade liberalization and poverty in the Middle East and North Africa / Nicholas Minot . . . [et al.]. p. cm. — (IFPRI research monograph) Includes bibliographical references and index. ISBN 978-0-89629-174-4 (alk. paper) 1. Free trade. 2. Agricultural prices—Middle East. 3. Agricultural prices—Africa, North. I. Minot, Nicholas. II. Series: IFPRI research monograph. HF2296.T73 2009 382′.410956—dc22 2009043356 Contents List of Tables vi List of Figures x Foreword xi Acknowledgments xiii Acronyms and Abbreviations xiv Currencies xvi Summary xvii 1. Introduction 1 2. Overview of Selected MENA Economies 7 3. The Impact of Trade Liberalization 41 4. Agriculture, Trade, and Poverty in Egypt 67 5. Agriculture, Trade, and Poverty in Tunisia 100 6. Agriculture, Trade, and Poverty in Syria 135 7. Agriculture, Trade, and Poverty in Morocco 165 8. Summary and Policy Implications 181 References 205 About the Authors 216 Index 217 v Tables 1.1 Summary statistics for selected MENA economies, 2006 3 2.1 Structure of the economies and the agricultural sectors of selected MENA countries, 2006 10 2.2 Average agricultural production of selected MENA economies, 2005–07 12 2.3 Average net exports of selected commodities, 2004–06 (thousand metric tons) 14 2.4 Average structure of agricultural imports, 2004–06 15 2.5 Average structure of agricultural exports, 2004–06 16 2.6 Agricultural trade flows in MENA, 2004 (percent) 20 2.7 Applied levels of protection by region, 2004 23 2.8 Applied bilateral protection on agriculture, 2004 (percent) 24 2.9 Applied protection rates for selected agricultural sectors, 2004 26 2.10 MENA countries’ trade agreements outside the MENA region, 2009 29 3.1 Impact of higher agricultural prices on MENA countries, 2004–06 50 4.1 Tariff rates in and value of imports in Egypt, 2005 71 4.2 Distribution of households based on occupation and location in Egypt, 1998 74 4.3 Expenditure and household size of different types of households in Egypt, 1998 75 4.4 Incidence of poverty and number of poor people in Egypt, 1981/82–1999/2000 76 4.5 Incidence of poverty for different types of households in Egypt, 1998 (percent) 76 4.6 Percentage of households involved in income activities in Egypt, by region, 1998 78 vi 4.7 Sources of income for different types of households in Egypt, 1998 79 4.8 Sources of income for rural households in Egypt, by expenditure tercile and farm size, 1998 81 4.9 Expenditure patterns for different types of households in Egypt, 1998 83 4.10 Percentage of households in Egypt that were producers and consumers of wheat, 1998 85 4.11 Estimated effects of increased wheat prices on poverty among wheat growers in Egypt 86 4.12 Percentage of households in Egypt that were producers and consumers of rice, 1998 87 4.13 Estimated effects of increased rice prices on poverty among rice growers in Egypt 87 4.14 Estimated effects of increased cotton prices on poverty among cotton growers in Egypt 88 4.15 Percentage of households in Egypt that were producers and consumers of fruits and vegetables, 1998 89 4.16 Estimated effects of increased fruit and vegetable prices on poverty among fruit and vegetable growers in Egypt 90 4.17 Percentage of households in Egypt that were producers of sugarcane and consumers of sugar, 1998 91 4.18 Estimated effects of increased sugarcane prices on poverty among sugarcane growers in Egypt 92 4.19 Estimated effects of increased commodities prices on poverty in Egypt 93 5.1 Contribution of agriculture and food processing to GDP in Tunisia, 1995–2001 102 5.2 Composition of the Tunisian agricultural sector, 1995–2001 103 5.3 Share of crop area allocated to different crop categories in Tunisia, by farm size (hectares), 2006 103 5.4 Structure and importance of food subsidies in Tunisia, 1999–2004 106 5.5 Nominal protection by major economic activity in Tunisia, 1995–2003 (percent) 107 TABLES vii 5.6 Tariff rates in and out of quotas, 2005, and use of tariff quotas in Tunisia, 2001–04 108 5.7 Effective protection in Tunisia, by major economic activity, 1995, 2000–03 (percent) 107 5.8 Poverty lines and poverty incidence in Tunisia, 1990, 1995, and 2000 115 5.9 Estimated impact of trade liberalization on macroeconomic variables in Tunisia 118 5.10 Estimated impact of trade liberalization on production in Tunisia 118 5.11 Estimated impact of trade liberalization on food and agricultural imports in Tunisia 119 5.12 Estimated impact of trade liberalization on food and agricultural exports in Tunisia 120 5.13 Estimated impact of trade liberalization on incidence of poverty in Tunisia 120 5.14 Representativeness of the sample in Tunisia, by occupation of head of household, 1995 129 5.15 Dimensions of the Tunisian SAM 131 6.1 Characteristics of farm households in Syria, 1981 and 1994 136 6.2 Budget cost of food and agricultural subsidies in Syria, 1995–2003 140 6.3 Cost of government price intervention in Syria, 1998/99 141 6.4 Tariff equivalents of quantitative restrictions and tariffs on agricultural products in Syria, 2004 (percent) 146 6.5 Comparison of official and parity producer prices in Syria, 2003 149 6.6 Proposed changes in European Union quotas for Syrian exports 150 6.7 Poverty measures in Syria, by region, 2003–04 151 6.8 Distribution of the population in Syria, by location, poverty status, and agricultural or other pursuits, 2005 (percent) 152 6.9 Poverty measures for households in Syria whose heads are working in agriculture, 2005 153 6.10 Estimated impact of wheat subsidy removal on macroeconomic indicators in Syria 156 viii TABLES 6.11 Estimated impact of wheat subsidy removal on prices and production in Syria (percent change) 157 6.12 Estimated impact of wheat subsidy removal on welfare in Syria, by income decile 158 7.1 Estimated impact of trade liberalization in Morocco using the static MIRAGE model (percent change) 176 7.2 Trade liberalization scenarios under the dynamic version of MIRAGE 178 7.3 Estimated impact of trade liberalization in Morocco using the dynamic MIRAGE model (percent change) 179 TABLES ix Figures 2.1 Ratio of food imports to total exports for selected MENA countries 17 2.2 Composition of trading partners in agricultural trade for the MENA region, 2004 19 2.3 Regional agreement for MENA countries 36 5.1 The evolution of poverty reduction in Tunisia, 1990–2000 114 x Foreword Interest in the effect of trade liberalization on agriculture and poverty in developing countries has increased during the past decade, with the agri- cultural sector and the effect of trade liberalization on the poor being the focus of numerous debates in the Doha Round of multilateral trade negotia- tions. The inability to find common ground on these and other issues stalled the negotiations. The global food crisis of 2007–08 further highlighted some of the risks associated with relying on imports for staple foods, as well as the need to strengthen the rules-based agricultural trade system, despite the dif- ficulties involved. The crisis has also led policymakers and researchers to pay greater attention to factors contributing to agricultural growth. Given that global trade liberalization would (probably) raise agricultural prices, concern has focused on net food-importing regions, including the Mid- dle East and North Africa (MENA). Many of the countries in the MENA region have implemented reforms to lower agricultural tariffs, liberalize domestic markets, and improve targeting in consumer-subsidy programs. Nevertheless, trade restrictions and domestic price supports are still prevalent, particu- larly for strategic commodities such as wheat. In addition, the countries vary widely in the degree of liberalization. There is a large volume of research on trade liberalization in the MENA region, but few studies focus on the impact on small farmers and other poor households. This monograph addresses this gap, combining a review of the existing data and literature on the topic with a new analysis of four case studies of Egypt, Tunisia, Syria, and Morocco. The country case studies use household survey data and computable general equilibrium models to esti- mate the effect of different types of trade reform on small farmers or poor households or both. The results paint a complex picture, in which the impact depends greatly on the type of liberalization, the initial degree of trade protection in the coun- try, and the structure of the economy. For example, global trade liberaliza- tion tends to raise world food prices, which hurts most of the MENA countries on aggregate, but benefits the agricultural sector within these countries. On the other hand, trade liberalization within the MENA countries would lower the price of food, particularly imported staple foodgrains. Finally, the effect of food prices on poverty is somewhat ambiguous because urban house- xi holds and many rural households benefit from lower prices, while some farm households gain from higher prices. The analysis suggests that the net effect of higher agricultural prices is to lower poverty, but the impact is quite small. The monograph also discusses the importance of complementary poli- cies to accompany trade liberalization. For example, a favorable investment climate, streamlined customs procedures, lower nontariff barriers, and com- petitive markets for transportation services may promote trade and growth at least as much as tariff reduction. Similarly, decoupled payments to farmers, labor-intensive public works programs, and conditional cash transfers can be more effective in assisting farmers and poor households than maintaining trade barriers. We hope that the study will be useful to development practitioners and researchers, and will provide policymakers in the region with the empirically based analysis they need to make informed pro-poor decisions in the area of trade policy. Shenggen Fan Director General, International Food Policy Research Institute xii FOREWORD Acknowledgments We gratefully acknowledge the support of the International Fund for Agricultural Development (IFAD), which funded the research leading to this research monograph. The study was commissioned by the Near East and North Africa (NENA) Division of IFAD, under the direction of Mona Beshay. Management and technical guidance were provided by Mylène Kherallah, the project coordinator for IFAD. The monograph benefited from comments and suggestions by Mylène Kherallah and others in the NENA Division. The monograph draft was further improved in response to comments and suggestions from the participants in a World Bank workshop in October 2008. We also appreciate the detailed comments and suggestions made by three anonymous reviewers as part of the IFPRI peer-review process. We thank John Whitehead for coordinating the production of this monograph. Finally, we are grateful to Maximo Torero, director of IFPRI’s Markets, Trade, and Institutions Division, who provided the necessary impetus and resources to complete the revisions. xiii Acronyms and Abbreviations AAs association agreements AGOA African Growth and Opportunity Act AMU Arab Maghreb Union AVE ad valorem equivalent CAPMAS Central Agency for Public Mobilization and Statistics CGE computable general equilibrium (model) EBA Everything But Arms (initiative) EMAA European Union–Mediterranean Association Agreement EMP Euro-Mediterranean Partnership E.U. European Union EU25 European Union (25 members as of 2004) FAO Food and Agriculture Organization of the United Nations FTA free trade agreement GAFTA Greater Arab Free Trade Area GATT General Agreement on Tariffs and Trade GCC Gulf Cooperation Council GDP gross domestic product GTAP Global Trade Analysis Project IFC International Finance Corporation of the World Bank IMF International Monetary Fund INS Institut National de la Statistique LDC least developed country LE Egyptian pound xiv ACRONYMS AND ABBREVIATIONS xv MENA Middle East and North Africa MFN most favored nation (status) NTB nontariff barrier OECD Organisation for Economic Co-operation and Development SAM social accounting matrix SCTs single commodity transfers SM southern Mediterranean SYP Syrian pound TND Tunisian dinar UNCTAD United Nations Conference on Trade and Development URAA Uruguay Round Agreement on Agriculture VAT value-added tax WTO World Trade Organization xv Currencies Djibouti Djibouti franc (DJF) Egypt Egyptian pound (LE) Jordan Jordanian dinar (JOD) Lebanon Lebanese pound (LBP) Morocco Moroccan dirham (DH) Syria Syrian pound (SYP) Tunisia Tunisian dinar (TND) West Bank Israeli shekel / Jordanian dinar and Gaza xvi xvii 1 We define major oil exporters as those countries whose exports exceed 80 percent of domes- tic consumption. Although Egypt and Syria export oil, they are not major exporters under this definition. Summary This report examines the impact of trade liberalization on non-oil- exporting countries of the Middle East and North Africa (MENA), with particular emphasis on its impact on the poor. First the report describes the basic characteristics related to agriculture, trade, and poverty for eight MENA countries and reviews previous studies examining the impact of trade liberalization on these countries. The eight are the developing countries in the MENA region that are not major oil exporters: Djibouti, Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia, and the West Bank and Gaza.1 Second, the report uses household survey data and computable general equilibrium mod- els to simulate the effect of trade liberalization on low-income households in four of these countries: Egypt, Tunisia, Syria, and Morocco. Background The MENA region has experienced relatively slow economic growth, with insufficient expansion of formal sector employment and high rates of un- employment. Almost all the MENA countries are net food importers. Wheat is the staple food and a major import in most of the countries under consid- eration. Many of the MENA countries maintain relatively high levels of agri- cultural protection, partly to support their farmers, partly to reduce import dependence, and partly to generate revenue. Egypt, Morocco, and Tunisia are among the 15 most protected economies in the world, according to one study. The commodities that are the most protected in the region are wheat, sugar, dairy, and livestock products. The E.U. is the most important trading partner of most of the countries in the region. The MENA countries have signed a series of multilateral, regional, and bilateral trade agreements. Multilateral agreements are within the frame- work of the World Trade Organization (WTO), of which, with the exception of Syria and the West Bank and Gaza, all countries in the region are members or have observer status. Within the WTO, the bound rates are often far above the applied tariff rates, particularly for agricultural products. Thus, the WTO commitments to reduce the bound rate have had little effect on the actual level of agricultural protection, which reflects the various regional and bi- lateral agreements. Ten MENA countries have signed European Union–Mediterranean Association Agreements (EMAAs) with the E.U. These agreements replace the preferential access to European markets for goods from African, Caribbean, and Pacific countries with a reciprocal reduction in tariffs on many goods. However, these agreements generally exempt agricultural commodities. Under the U.S.–Middle East Free Trade Initiative, the United States has signed bilateral free trade agreements (FTAs) or entered into trade and investment framework agreements with several MENA countries. The poten- tial effects of these agreements are expected to be small in the case of the U.S.-Jordan FTA because Jordan’s level of protection is already low and because the amount of U.S.-Jordan trade is small. The effects of the U.S.- Morocco FTA are expected to be larger because Moroccan trade barriers are higher. Of particular importance, Morocco’s wheat tariffs will be phased out over 10 years. Both the E.U. and the United States have launched initiatives specific to the poorest countries. Under the Everything But Arms (EBA) initiative, the least developed countries have duty-free access to E.U. markets for almost all goods,2 while the African Growth and Opportunity Act (AGOA) allows duty- free access to U.S. markets for Sub-Saharan African countries that meet cer- tain criteria. Within the MENA region, only Djibouti and Yemen qualify under the EBA, while only Djibouti qualifies for preferences under the AGOA. A number of bilateral and regional agreements within the MENA region have been signed, but their effectiveness has been limited by the structural similarities of the MENA economies, the prevalence of nontariff barriers, and the granting of exceptions for sensitive products. A number of MENA countries, most notably Egypt and Tunisia, have reduced their tariff barriers unilaterally in recent years. In other words, trade liberalization has occurred outside the context of global, regional, and bilateral trade agreements. The Impact of Trade Liberalization The evidence suggests that global trade liberalization will increase world agricultural prices by reducing agricultural support policies in countries of the Organisation for Economic Co-operation and Development (OECD) and by xviii SUMMARY 2 Duty-free access for bananas, rice, and sugar was phased in under the EBA initiative. Duty-free access for bananas was delayed until January 2006, while sugar and rice were scheduled to be liberalized in the second half of 2009. reducing protection. The markets for wheat, rice, sugar, cotton, and dairy products are the most distorted, and simulation models suggest that trade liberalization will increase the price of these commodities by 3–20 percent. Almost all the MENA countries are net agricultural importers, so there is clearly some basis for concern that global trade liberalization will worsen the terms of trade for these countries. A simple analysis finds that the terms-of- trade losses associated with a 15 percent increase in world agricultural prices for eight non-oil-exporting MENA countries would be US$922 million, or 0.4 percent of regional gross domestic product (GDP). This estimate is an upper limit because it assumes no response on the part of producers and consum- ers and because it does not take into account the efficiency gains associated with reducing distortions in domestic agricultural markets. Most studies of trade liberalization suggest that the efficiency benefits are larger than the terms-of-trade losses. Several dozen studies have been undertaken to examine the macro- economic impact of various types of trade liberalization in MENA. These stud- ies suggest that multilateral trade liberalization generally results in net gains to countries in the region, with real GDP expanding between 1 and 3 percent. Other studies have illustrated the importance of complementary policies in increasing the benefits of multilateral trade liberalization, including the countries’ own domestic liberalization and reforms. Finally, the benefits of multilateral trade liberalization are shown to yield greater gains than the gains associated with bilateral and regional trade agreements. This is because bilateral and regional agreements are more likely to result in trade diversion than is a global agreement. The Effects of Trade Liberalization on Poverty Few studies have examined the effects of trade liberalization on the poor in the MENA region. We use household survey data and computable general equilibrium (CGE) models to simulate the impact of trade liberalization on poor households in Egypt, Tunisia, Syria, and Morocco. Egypt has undertaken significant trade liberalization, but costly obstacles to doing business and investing remain. The country is a major wheat importer and exports cotton, rice, and horticultural products. We analyze the data from the 1998 Egypt Inte- grated Household Survey to simulate the distributional effect of hypothetical changes in agricultural prices due to global trade liberalization. According to this analysis, a 40 percent increase in the wheat price would lower the poverty rate among wheat farmers by 3 percentage points. In the case of rice and cotton, the effect would be to reduce the poverty rate among growers of each by 7 percentage points, in the case of fruits and vegetables, by 5 percent- SUMMARY xix age points. And a 40 percent increase in sugar prices would reduce poverty among sugarcane growers by 20 percentage points, largely because they are poor and highly dependent on sugarcane income. However, the effect of each of these price increases on national poverty would be very small. The higher wheat price would lower national poverty by 1 percentage point, while higher rice and fruit and vegetable prices would raise national poverty by 1 percentage point. The effect of higher prices of cotton and sugarcane on the national poverty rate would be negligible (less than 0.5 percentage points). Finally, a 40 percent increase in all five com- modity categories would increase poverty in urban and rural areas, though by just 1–2 percentage points. Unlike Egypt, Tunisia maintains high tariffs on many products, including agricultural commodities. At the same time, Tunisia has a relatively good invest- ment climate, which contributed to significant inflows of foreign direct invest- ment and a healthy growth rate through the 1990s. Tunisia’s main exports are olives and dates, while its principal imports are wheat and maize. In order to study the distributional impact of trade liberalization in Tunisia, we use a CGE model linked to survey data for 397 representative households. The model is used to simulate the elimination of industrial tariffs on goods from the E.U., the removal of all tariffs on imports from the E.U., the elimination of all tariffs from all countries, and the elimination of all tariffs combined with global liberalization, which it is assumed would raise world agricultural prices by 15 percent. Domestic trade liberalization would have the largest positive effect on GDP, but the fourth scenario (global trade liberalization) would have the most positive effect on agriculture and poverty. In this scenario, poverty would decline to its lowest level among the four scenarios. Syria has one of the most highly regulated economies in the region. Reforms in recent years have only begun to dismantle some of these restric- tions. Although Syria has been successful in achieving wheat self-sufficiency and promoting cotton exports, these accomplishments have come at a high cost in terms of inefficiency and an unsustainable fiscal burden. The likely depletion of oil reserves is forcing the government to reduce costs and find new sources of revenue. We use a CGE model to simulate the effect of lib- eralizing wheat markets on households in 10 income categories. The macro- economic effects would be relatively modest, although government savings would increase by almost 3 percent of GDP. Complete liberalization would reduce the producer price of wheat by about 17 percent and production by about 2 percent. The effects of subsidy removal on Syrian households would be regressive in the sense that high-income households would gain, while low- er-income households would lose. The size of the effects, however, would be less than 1 percent of the base income of all but the richest income group. xx SUMMARY Since the mid-1980s, Morocco has carried out a series of economic reforms to allow the market to play a larger role in the economy, including price liber- alization, reduction of the role of state enterprises, and the promotion of pri- vate investment. Morocco has signed an EMAA with the E.U. and an FTA with the United States. The level of agricultural protection remains quite high but will be reduced under the U.S.-Morocco FTA. One study combined household survey data and a CGE model to simulate the impact of liberalization of cereal imports. Our analysis uses two versions of a global CGE model. The static ver- sion of the model is used to simulate the impact of alternative types of trade liberalization. An FTA with the other North African countries appears likely to have little impact on the Moroccan economy because of the similarities in the economies in the region. A bilateral FTA with the E.U. would stimulate exports significantly but would have a small negative effect on national income and returns to unskilled agricultural labor. Global trade liberalization would com- bine a strong positive effect on exports and a small positive effect on national income but would have a large negative effect on unskilled agricultural labor. Simulations with the dynamic version of the model show that liberalization in services, trade facilitation, and increased investment would have a positive effect on exports and income but would not fully offset the negative effect of trade liberalization on the returns to unskilled agricultural labor. Implications for Trade Policy Global trade liberalization will likely increase world agricultural prices by 3–20 percent, imposing a terms-of-trade loss on all the MENA countries under consideration. The net food-importing countries have used the expected terms-of-trade loss associated with global trade liberalization to request special concessions in the form of reduced commitments to opening their own borders. This mercantilist logic is flawed in that it takes into account only the gains and losses of producers, ignoring the effects of trade policy on consumers. Studies of trade liberalization suggest that most of the benefits to a given country from trade liberalization are the result of reforms within the country. Thus, the net food-importing countries appear to be demanding the right to forgo the efficiency gains associated with domestic trade liberaliza- tion as “compensation” for the terms-of-trade losses associated with reforms in other countries. The effect of agricultural trade liberalization on poverty varies widely across countries, in part because the effect of liberalization on agricultural prices is ambiguous. Global agricultural trade reform is likely to increase world agricultural prices, but domestic trade liberalization will reduce domestic agricultural prices relative to the world price. The net effect of liberalization on domestic agricultural prices will depend partly on each country’s trade SUMMARY xxi patterns, the original level of protection, and the details of the liberalization. If the initial level of domestic agricultural protection is high, as in Morocco and Tunisia, full trade liberalization is likely to reduce domestic agricultural prices. If, on the other hand, initial agricultural protection is modest, as in Egypt and Lebanon, full trade liberalization should have no effect or slightly increase domestic agricultural prices. Furthermore, the impact of changes in agricultural prices on poverty is ambiguous. Higher agricultural prices benefit farmers who can produce a marketed surplus, but they hurt the urban poor and rural net buyers. The analysis presented in this report suggests that higher agricultural prices gen- erally benefit the poor on balance, but the effect is quite small.3 Thus, the link between trade liberalization and agricultural price changes is ambiguous, and the effect of agricultural price changes on poverty is weak. This suggests that trade policy is a poor instrument for addressing overall poverty in the MENA region. The economic benefits of regional integration (such as that achieved through the agreement to create the Greater Arab Free Trade Area) have been limited to date. One reason is that these agreements tend to be fairly flexible, allowing numerous exceptions for “sensitive goods.” A relatively small number of exceptions can largely negate the gains from trade liber- alization. To generate significant gains for member countries, the Greater Arab Free Trade Area and other regional trade zones will have to achieve a greater level of discipline over tariff and nontariff barriers. The second reason for the modest benefits associated with these trade agreements is that regional trade is hampered by a variety of factors in addition to trade policy. The transportation infrastructure linking MENA countries is generally poor, transportation services in the region are characterized by a lack of competition and high costs, and many of the countries in the region suffer from cumbersome customs procedures that raise the cost of trade. Measures to streamline customs procedures and introduce greater competition in regional transportation services would enhance the benefits of regional trade agreements. The third reason for the modest gains associated with regional trade agreements is the similarity of the economic structures in the member countries. If all member countries import wheat and maize, export fruits and vegetables, and have similar wage rates, the gains from agricultural trade are likely to be limited. Regarding bilateral agreements, the EMAAs generally exclude agriculture. Simulation studies confirm the economic intuition that the gains from these xxii SUMMARY 3 In Egypt this is true for wheat but not for agricultural prices in general. agreements would be much larger if they included liberalization in the agri- cultural sector. The five countries with EMAAs should begin to explore the feasibility of a second round of negotiations that would include agriculture. While recognizing the political sensitivity of agricultural prices, MENA coun- tries should keep in mind that most of the benefits of an expanded associa- tion agreement will be related to the degree of domestic liberalization in their own countries. At the same time, the liberalization of E.U. tariff and nontariff barriers on fruits, vegetables, olive oil, and sugar would be particu- larly beneficial to the MENA countries. Regarding the U.S. FTAs, the United States is a relatively minor trading partner with all of these countries, so, the MENA countries should not expect large impacts, positive or negative, as a result of these agreements. On the other hand, these agreements may facilitate investment (local and foreign) in the MENA countries, partly because they include measures to create a more favorable climate for private investment and partly because they signal a commitment to greater integration in the global economy. Regarding unilateral liberalization, economic analysis suggests that, in general, unilaterally reducing import protection and domestic support of agriculture will increase aggregate income. Indeed, it is easy to demonstrate that, in most cases, the benefits of lower domestic prices to consumers are greater than the losses to producers. Yet policymakers, trade negotiators, and many noneconomists see reducing domestic protection as the “price” a country must pay to gain access to markets in other countries. One argument is that poor farmers in developing countries cannot compete with large-scale technologically advanced farmers in developed countries, particularly if the latter receive production subsidies. Certainly commercial farmers in develop- ing countries are hurt by the subsidies given to farmers in the countries of the OECD. However, in spite of these subsidies, Egypt is a competitive exporter of cotton and rice, Morocco is able to export tomatoes to Europe, and Tunisia is a major exporter of olive oil. These examples suggest that the MENA coun- tries can compete in markets where they have a comparative advantage. According to another argument, domestic import barriers to agricultural products help poor farmers by raising domestic agricultural prices. The analysis presented in this report suggests that higher agricultural prices have mixed effects on poor households. This is because (1) higher agricultural prices benefit some poor households (farmers with net sales) but hurt other poor households (the urban poor and net buyers in rural areas); (2) the percent- age of households that are net sellers of agricultural goods is relatively small; (3) farmers who are net sellers tend to be richer than the average farmer, so higher farm income does not always translate into lower poverty; and (4) even those farmers who are both poor and net sellers rely on nonagricultural SUMMARY xxiii activities for a significant share of their incomes. In other words, agricultural protection is a costly and imprecise tool with which to address the problem of rural poverty. Complementary Policies The impact of trade liberalization on small farmers and other poor households in the MENA region partly depends on nontrade policies. Several studies have indicated that the size of the gains from trade liberalization will be greater when there are flexible factor markets that allow land, labor, and capital to be reallocated from formerly protected sectors to newly profitable sec- tors. Regulations that constrain the response of these factor markets reduce the positive impact of liberalization. In agriculture, flexibility is likely to be enhanced by effective agricultural services such as extension and market information systems that can provide farmers with useful information about the agronomic and economic aspects of shifting into new commodities. Another type of policy that enhances the economic effect of trade liberal- ization is trade facilitation. This refers to measures that reduce the trans- action costs related to trade, including the costs of excessive documentation requirements, the need to obtain authorizations from multiple agencies, unclear or subjective criteria for applications of duties, and delays and uncertainties related to customs clearance. One study found that the gains from trade liberalization are twice as large if combined with trade facilita- tion measures. Under WTO rules, the agricultural sector can be directly supported through a variety of green box expenditures, such as investments in agricultural research and extension, pest and disease control, inspection services, marketing infra- structure, market information services, environmental protection programs, and regional assistance programs. Most of these investments involve the provi- sion of public goods, implying that they may be justified in terms of economic efficiency as well as in terms of supporting poor farmers. One type of green box support does not involve the provision of public goods: decoupled payments to farmers. Payments are decoupled when they are based not on current production but rather on some fixed measure such as production or area planted in a base year. Over the past 15 years, econo- mists and policymakers have become increasingly interested in agricultural reform that shifts from producer subsidies and import protection toward decoupled payments to farmers. This type of reform has been tried in the E.U., Mexico, Turkey, and the United States with some success. At the same time, it should be recognized that switching from import protection to a program of decoupled payments implies both a loss in tariff revenue and significant new expenditure. xxiv SUMMARY SUMMARY xxv If the objective is to assist poor and vulnerable households regardless of their occupation, a different type of measure should be considered. A wide variety of safety net programs have been established in developing coun- tries with the goal of reducing poverty. Targeted food subsidies make sub- sidized food available to selected households either geographically, through low-priced shops located in poor neighborhoods, or through some form of ration card that entitles the bearer to purchase food at subsidized prices. Egypt, Jordan, and Tunisia have attempted to introduce targeting into food subsidy programs. Labor-intensive public works programs usually combine infrastructure development (such as road building) with hiring policies to maximize their pro-poor impact. If designed well, they can improve com- munity infrastructure and provide assistance to the poorest households with able-bodied members. Conditional cash transfer programs have generated considerable interest in the past 10–15 years. These programs provide cash grants to households that comply with certain requirements, usually keeping children in school, attending health clinics, or receiving pre- and postnatal care. Conditional cash transfers serve a dual purpose: providing assistance to poor households and encouraging investments in human capital that reduce the chance that poverty will be transmitted to the next generation. CHAPTER 1 Introduction Agriculture and Trade Liberalization Agriculture is one of the most problematic areas in international trade negotiations. Although significant progress has been achieved in reducing trade barriers and other policy distortions in manufacturing through various multilateral agreements, in regional and bilateral arrange- ments and under unilateral trade reforms, agricultural markets remain highly distorted. Both industrial and developing countries still provide relatively high levels of protection to agricultural sectors. In addition, many countries, particularly the industrialized countries, provide various forms of support for agriculture. Agricultural trade liberalization is a politically sensitive topic in developing countries because policymakers are concerned about the poten- tial impact on small-scale farmers, who typically account for a large share of the poor. The issue is politically sensitive in industrialized countries as well, at least partly because of the disproportionate political power of farm groups. In spite of this sensitivity, there is a widespread belief that reducing the trade barriers and policy distortions affecting agriculture will increase eco- nomic efficiency and aggregate income. The theory of comparative advan- tage suggests that aggregate income is higher when trade barriers are lower. Empirical studies of trade liberalization generally show that the aggregate benefits of trade liberalization outweigh the costs. Studies also show that more outward-oriented countries tend to grow more rapidly over time, sug- gesting that trade liberalization generates dynamic gains through the free flow of investment and technology. By this logic, even unilateral trade lib- eralization should usually benefit a country. In the political arena, however, there is strong resistance to unilateral liberalization. In the view of many policymakers, reducing domestic protection is a necessary cost used as a bar- gaining chip to gain access to markets in other countries. In addition, there is concern that even if liberalization brings benefits in the aggregate, it may adversely affect the poor or exacerbate income inequality. 1 Economic theory and empirical studies suggest that current agricul- tural policies suppress the world price of many agricultural commodities below what they would be under liberalized trade. This is because import restrictions reduce world demand and agricultural producer support tends to stimulate supply. The effect on domestic agricultural prices in countries that protect their agriculture is ambiguous, however, because multilateral trade liberalization would probably increase world agricultural prices, but tariff reduction within a country will reduce domestic prices relative to world prices. In addition to trade barriers, imperfect transmission of world prices resulting from transaction costs may mute the signals from changes in world prices. The impact of trade policy reforms varies substantially across commodi- ties, countries, and households within a country. Some commodity markets, such as those for sugar and rice, are more distorted than others, so trade liberalization will likely have a larger effect on the prices of these commodi- ties. Some countries are net exporters of agricultural commodities, so they would gain from the higher agricultural prices associated with multilateral liberalization. Net importers of agricultural commodities could lose from multilateral trade liberalization, though this will depend on the degree of reform they carry out in their domestic policies. The issues of trade liberalization and agriculture are of particular impor- tance to the non-oil-exporting countries of the Middle East and North Africa (MENA) for several reasons: • The growth of per capita gross domestic product (GDP) in the MENA region stagnated at around 2 percent between the periods 1990–99 and 2000–06 and in the more recent period lagged behind the average of most of the developing country groups (Table 1.1). The slow economic growth has led to various social problems, including high levels of unemployment. • The countries of the region generally have levels of trade protection that are higher than in most of the developing world (see “Structure of Pro- tection” in Chapter 2). This is particularly true in agricultural protection among the non-oil-exporting MENA countries. • High rates of agricultural protection in countries like Morocco and Tuni- sia imply that domestic trade liberalization will have significant adverse effects on farmers, and thus on the rural poor. • Almost all the MENA countries are net food importers, so they are vulner- able to fluctuations in food prices, such as the dramatic rise in commodity prices in 2007–08. The non-oil-exporting MENA countries are more vulner- able to commodity price shocks because they do not have increased oil revenue to offset the higher cost of imported food. 2 CHAPTER 1 • The proximity of the MENA region to the high-income markets in Europe creates significant opportunities for international trade, yet the importance of trade in the economy is no greater than in Sub-Saharan Africa or in developing countries in general.1 INTRODUCTION 3 Table 1.1 Summary statistics for selected MENA economies, 2006 Region/country MENA Djibouti 817 –4.3 0.8 62.0 87.0 87.0 56.0 Egypt 1,724 2.5 2.5 11.0 43.0 43.9 3.1 Jordan 2,173 0.7 3.3 12.0 83.0 6.9 2.0 Lebanon 5,059 6.9 1.9 9.0 87.0 18.0 6.3 Morocco 1,667 1.0 3.7 10.0 59.0 14.3 2.0 Syria 1,287 2.6 1.4 12.0 51.0 — — Tunisia 2,513 3.3 3.6 14.0 66.0 6.6 2.0 West Bank 1,014 1.8 –5.4 27.0 72.0 36.0 24.0 and Gaza MENA average 1,862 1.9 2.2 14.0 57.0 19.7 1.5 East Asia and 1,475 6.8 7.4 4.9 42.0 40.7 14.9 the Pacific South Asia 604 3.2 4.7 5.3 29.0 77.8 31.3 Latin America 4,329 1.3 1.8 8.9 78.0 22.6 9.5 and the Caribbean Sub-Saharan 578 –0.5 2.0 — 36.0 74.9 46.4 Africa Sources: Laithy, Abu-Ismail, and Hamdan (2008); World Bank (2008a, 2008b); CIA (2009). Notes: —, data not available. The poverty rates for Lebanon are based on estimations by Laithy, Abu-Ismail, and Hamdan (2008) relative to two poverty lines of US$4.00 and US$2.40 per day instead of the World Bank’s lines of US$2.00 and US$1.00 per day, respectively. aLatest year available: 2007 for Djibouti; 2004 for Egypt, the West Bank and Gaza, Jordan, MENA (Middle East and North Africa), South Asia, and Latin America and the Caribbean; 2006 for Morocco; 2003 for Syria; and 2005 for Tunisia and East Asia and the Pacific. Re al G D P pe r ca pi ta (2 00 0 U S$ ) 19 90 –2 00 0 20 00 –0 6 U ne m pl oy m en t ra te ( % )a Sh ar e of u rb an po pu la ti on ( % ) Le ss t ha n U S$ 2 pe r da y Le ss t ha n U S$ 1 pe r da y Annual growth in GDP per capita (%) Population below poverty line (%) 1 A common measure of the importance of trade in the economy is the sum of the value of exports and imports as a ratio of GDP. The ratio is 65–70 percent for the MENA countries and for developing countries in general (World Bank 2008b). These patterns raise the question of whether there is a connection between the relatively high rates of protection among the non-oil-exporting MENA countries and the relatively low rates of economic growth in the region. The distributional impact of trade liberalization is important because it has impli- cations for the desirability of trade liberalization, its political acceptability, and the need for complementary policies to ameliorate the adverse effects. Objectives In light of the previous discussion, this report has four objectives: • to describe the current agricultural and trade policies of the non-oil- exporting MENA countries and their impact on the agricultural economy of the region; • to describe the current status of agricultural trade liberalization in the region and the extent of additional agricultural trade liberalization that will result from the Euro-Mediterranean Partnership (EMP) agreements, bilateral free trade agreements (FTAs), and World Trade Organization (WTO) multilateral trade negotiations; • to analyze the potential impact of unilateral, bilateral, and multilateral trade liberalization efforts (including the reduction of domestic support) on the agricultural economy in the MENA region, with particular emphasis on their distributional impact; and • to explore the types of measures that could be used to mitigate the poten- tial negative impact of trade liberalization on the poor, particularly the rural poor, in the MENA region. This study adopts two levels of geographic focus. First, we provide a descriptive analysis of trade patterns and levels of trade protection and a review of previous research on the impact of trade liberalization for eight MENA countries: Djibouti, Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia, and the West Bank and Gaza. This list was derived using two criteria: • Among the 21 MENA countries, we exclude major oil exporters, defined as those whose oil exports are more than 80 percent of their domestic con- sumption, that is, Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and Yemen.2 • We also exclude the two high-income countries in the region, Israel and Malta, for which poverty is not a major issue. 4 CHAPTER 1 2 The MENA region, as defined by the World Bank, includes Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Malta, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, the United Arab Emirates, the West Bank and Gaza, and Yemen. Second, we use household survey data and computable general equilibrium (CGE) models to simulate the effects of trade liberalization on the poor in four of them: Egypt, Morocco, Syria, and Tunisia. Although we do not claim that these countries are representative of the region, we hope that the study con- tributes further to the empirical evidence on the distributional effects of agri- cultural trade liberalization in a region that has received limited attention. Organization of the Report Chapter 2 of the report provides a regional overview on agriculture, trade, and poverty in the non-oil-exporting MENA countries. MENA is an economi- cally diverse region that comprises 21 countries. The region’s economic development over the past 25 years has been influenced by both the price of oil and the dominance of the role of the state in economic policies and structures (World Bank 2009). The MENA region has experienced slow eco- nomic growth in recent years, leading to various social problems, including high levels of unemployment. The growth of per capita GDP in the region has generally lagged behind the average of developing countries (World Bank 2008b). Agriculture contributes modestly to GDP but employs a sizable share of the labor force. This chapter also explores the global and regional trade environment by analyzing the structure of protection that the countries in the region apply and face and examines the trade integration options in the region. These countries share levels of trade protection that are higher than the levels in many other regions of the world, especially in agriculture. But the countries enjoy good market access to developed economies due to the multiple trade preferences granted by their two main trading partners, the E.U. and the United States. In spite of high applied tariffs, nontariff barriers constitute even a higher trade impediment in the region. For these countries, comple- mentary policies aimed at reducing the transport costs and improving the quality standards of traded goods must accompany a more outward-oriented trade policy in order to stimulate more rapid growth in the region and con- tribute positively to reducing poverty. Chapter 3 reviews the evidence on the impact of trade liberalization in the selected MENA countries, with emphasis on studies that examine its impact on poor households. The relationship between trade liberalization and poverty alleviation is a complex one because although the relationship can be positive, it must take into account several key factors in addition to prices (Winters, McCulloch, and McKay 2004). The traditional argument focuses on prices of goods and factors. Given that the majority of poor people live in rural areas and work in the agricultural sector, where trade distortion is usu- ally higher, global trade liberalization could imply higher world agricultural INTRODUCTION 5 prices and increased activity and returns to the sector in developing countries (Bouët 2008). Chapters 4–7 address the potential distributional impact from trade liber- alization in four MENA countries. As described in Chapter 4, Egypt represents an early reformer with relatively low levels of agricultural protection, though it maintains a large system of consumer food subsidies. We simulate the impact of trade liberalization on different types of households using a partial equilibrium analysis that combines household survey data and hypothetical changes in the price of individual agricultural commodities. This analysis allows us to estimate the change in poverty overall, in urban and rural areas, and for specific types of households. Chapter 5 examines Tunisia, a country that has made significant progress in recent years by opening its borders to trade and foreign investment, though the overall level of agricultural protection remains high. A CGE model of the Tunisian economy is linked to data from 397 representative households, allow- ing estimation of the impact of three variants of domestic trade liberalization and one scenario combining domestic and multilateral trade liberalization. In Chapter 6 we focus on Syria, which has retained many of the policies that characterized the region 20 years ago: fixed producer prices, large-scale public procurement of major crops, and high levels of agricultural protec- tion. The Syrian CGE model incorporates 10 household groups represented by income deciles of the population. Because wheat is the most distorted agricultural market and the most sensitive crop politically, the model is used to simulate a reduction in producer wheat subsidies and consumer bread subsidies of 20 percent, 50 percent, and 100 percent. Chapter 7 describes the case of Morocco. Although Morocco has negoti- ated a number of trade agreements with the E.U., the United States, and its neighbors in the region, it maintains relatively high levels of protection, particularly on wheat. We use a global trade model to examine the impact of different types of trade liberalization on the returns to different categories of labor, including unskilled agricultural labor. In the final chapter of the report we summarize the main findings and dis- cuss the implications for policy. In particular, we explore alternative policies and programs that might enhance the positive impact of trade liberalization and alleviate some of its negative effects, with attention to its impact on the poor, particularly the rural poor. 6 CHAPTER 1 CHAPTER 2 Overview of Selected MENA Economies The MENA countries form a heterogeneous group of countries with respect to income, food security, and their integration in the global economy. As discussed in Chapter 1, we focus our overview on the lower- and middle-income non-oil-exporting countries of MENA: Djibouti, Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia, and the West Bank and Gaza. These coun- tries fall under the categories of low-income food-deficit countries or net-food- importing developing countries. This second category is a WTO classification that has implications for the negotiations in agriculture. WTO recognizes that this last group of countries (together with the group of least developing coun- tries, or LDCs) is vulnerable to the possible negative effects of implementing agreements for free trade in agriculture and experiences difficulties in financ- ing food imports (WTO 2006).1 Economic Performance and the Role of Agriculture Among the selected MENA countries, the per capita GDP ranges from US$817 in Djibouti to US$5,069 in Lebanon, though most fall in the range of US$1,000– 2,500 and the average for all MENA countries is US$1,862 (see Table 1.1).2 The average growth in per capita GDP for the region as a whole was around 2 percent over the periods 1990–99 and 2000–06, but growth was uneven among countries. Lebanon, the West Bank and Gaza, and Tunisia experienced 7 1 The net food-importing developing countries are a WTO-defined group that is subject to dif- ferential treatment under a special ministerial decision agreed during the Uruguay Round WTO negotiations. The decision recognizes that trade reforms in agriculture could have negative effects on these groups “in terms of the availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions, including short-term difficulties in financing normal levels of commercial imports of basic foodstuffs.” The ministerial decision recommends such measures as food aid and aid for agricultural development. It also refers to the possibility of assistance from the International Monetary Fund and the World Bank to finance commercial food imports (WTO 2006). The definition of low-income food-deficit countries pro- vided by the Food and Agriculture Organization of the United Nations may overlap with the clas- sification of net food-importing developing countries. 2 These figures are expressed in constant 2000 U.S. dollars. solid economic growth (above 3 percent in per capita GDP) during the 1990s. While Tunisia continued to enjoy solid growth in 2000–06, joined by Jordan and Morocco, Lebanon and the West Bank and Gaza experienced a sharp slowing of their economies due to conflict. Most regions experienced higher growth over 2000–06 than in the 1990s, but growth in the MENA region barely increased. During 2000–06, growth in the MENA region was comparable to that in Sub-Saharan Africa and lagged behind growth in South Asia and in East Asia and the Pacific (see Table 1.1). Various hypotheses have been advanced for the relatively weak growth rates among the MENA countries: • Conflict: While some of our selected countries have known relative stabil- ity, many have been affected by the Israeli–Palestinian conflict, the Iraq war, and the 2006 conflict between Hezbollah and Israel in Lebanon. For example, Lebanon’s economy went from a strong growth rate (6 percent) in 2004 to negative growth (–1 percent) in 2006 (World Bank 2008b). Conflicts have direct costs in terms of lives and property, but they also destroy social capital (Collier 1999). Moreover, conflicts create a climate of uncertainty and discourage investment. • The policy and regulatory environment: In 2005, the International Finance Corporation (IFC) of the World Bank started ranking countries annually on the ease of doing business within them based on 39 indicators grouped into 10 categories. The categories include starting a business, dealing with construction permits, employing workers, registering property, obtaining credit, protecting investors, paying taxes, trading across borders, enforc- ing contracts, and closing a business. While on average the MENA region is on an upward trend with regard to the ease of doing business, only one country, Tunisia, is ranked in the top half. On the other hand, Syria ranks in the bottom 25 percent of all countries (IFC 2009). • Trade barriers: High import barriers in the region distort economic incen- tives and impede the flow of new technology, thus reducing productivity growth. As discussed later, import protection is higher on average in the MENA region than in other developing countries. In Morocco and Tunisia, agricultural import tariffs are 30 percentage points higher than the aver- age for other developing countries. A serious economic problem facing many of the MENA countries is un- employment. Reflecting the low rates of economic growth combined with the rapid population growth in some countries, the unemployment rate averaged 14 percent for the MENA region, higher than in other developing regions. A recent report summarized the situation as follows: 8 CHAPTER 2 Average unemployment rates are highest among both youth and adults in MENA, when compared to all other developing regions. The share of young people among the region’s unemployed is higher than 50 percent in most countries. In Egypt and Syria, youth make up more than 60 percent of the unemployed. In Tunisia, the unemployment rate for 20–24 year olds is more than three times higher than that for people above 40. And low labor force participation rate among females per- sists, even among younger cohorts with higher educational attainment. (World Bank 2007) The MENA region is relatively urbanized, with 57 percent of the popula- tion in urban areas. Djibouti, Jordan, and Lebanon are the most urbanized, with urbanization rates of more than 80 percent (see Table 1.1). According to Fedjari (2000, cited in Radwan and Reiffers 2003), there are 180,000 rural migrants per year in Morocco, and 60,000 of these head for Casablanca. The high proportion of the population in urban area contributes to the depen- dence on food imports to satisfy domestic demand. The incidence of poverty using the poverty line of US$2 per day is on aver- age 20 percent for the MENA region, but the incidence varies greatly across the countries (see Table 1.1). Using the poverty line of US$1 per day, Djibouti has the highest poverty incidence (56 percent), followed by the West Bank and Gaza (24 percent). The subnational indicators (not shown here) reveal un- ambiguously that poverty in the MENA region, as in many developing countries, is more prevalent in rural areas than in urban ones (World Bank 2008b). The GDP structure of the MENA countries indicates the dominant role of services and industry in these economies. On average, in the region the ser- vice sector contributes nearly half of GDP and industry more than a third. But countries differ widely around these averages. Services account for two-thirds or more of GDP in Djibouti, Jordan, and Lebanon (Table 2.1). In Djibouti, port and transport services are an important part of the economy because the country serves as the main trans-shipment route for Ethiopian trade. The contribution of industry to GDP averages 40 percent for the MENA region, but it is less than this in all eight of the non-oil-exporting countries under consideration. For most of these countries, manufacturing dominates the contribution of the industrial sector to GDP. Egypt, Jordan, and Syria are the most industrialized, with this sector accounting for 30 percent or more of their GDP (see Table 2.1). The agricultural sector accounts for 12 percent of GDP on average for the MENA region. Among the eight countries under consideration, the contribu- OVERVIEW OF SELECTED MENA ECONOMIES 9 10 CHAPTER 2 Ta bl e 2. 1 S tr uc tu re o f th e ec on om ie s an d th e ag ri cu lt ur al s ec to rs o f se le ct ed M EN A c ou nt ri es , 20 06 A gr ic ul tu re In du st ry A nn ua l gr ow th ( % ) P er ce nt Sh ar e (% ) Sh ar e (% ) To ta l of w hi ch 19 90 – 20 00 – in t ot al in t ot al Re gi on /c ou nt ry A gr ic ul tu re in du st ry m an uf ac tu ri ng Se rv ic es Ex po rt s Im po rt s 20 00 06 em pl oy m en tb e xp or ts c M EN A D ji bo ut i 4 16 3 80 40 57 –0 3 2 <1 Eg yp t 14 38 17 48 30 32 3 3 30 3 Jo rd an 3 30 19 67 55 92 3 8 4 9 Le ba no n 7 24 11 70 24 40 3 1 3 5 M or oc co 16 28 16 57 33 38 4 7 45 6 Sy ri a 18 32 7 49 39 36 8 6 27 15 Tu ni si a 11 28 17 60 54 54 6 2 23 8 W es t Ba nk a nd G az a — — — — 14 70 — — 16 <1 M EN A av er ag ea 12 40 13 48 38 35 3 4 — 7 Ea st A si a an d th e Pa ci fi c 12 47 32 41 47 40 3 4 44 2 So ut h As ia 18 28 17 54 22 26 3 3 65 2 La ti n Am er ic a an d th e 6 31 18 62 26 23 2 3 17 2 Ca ri bb ea n Su b- Sa ha ra n Af ri ca 15 30 14 55 35 36 3 3 — 6 So ur ce s: W or ld B an k (2 00 8b ); W TO ( 20 08 ); F AO ( 20 09 a, b) . N ot e: — , da ta n ot a va ila bl e. a 1 99 1 fo r D ji bo ut i; 1 99 5 fo r So ut h As ia ; 20 02 f or E as t As ia a nd t he P ac if ic ; 20 03 f or E gy pt a nd J or da n; 2 00 4 fo r th e W es t Ba nk a nd G az a, S yr ia , an d La ti n Am er ic a an d th e Ca ri bb ea n; 2 00 6 fo r M or oc co . b 2 00 3 fo r Su b- Sa ha ra n Af ri ca ; 20 06 f or a ll ot he r co un tr ie s an d re gi on s. c T he M EN A (M id dl e Ea st a nd N or th A fr ic a) a ve ra ge i s fo r 20 05 . In du st ry A nn ua l gr ow th ( % ) St ru ct ur e of p ro du ct io n (% s ha re i n G D P) Tr ad e (% s ha re in G D P) A gr ic ul tu re tion is less than 10 percent in Djibouti, Jordan, and Lebanon. On the other hand, it is more than 15 percent in just two countries: Morocco and Syria. Although the agricultural sector in most MENA countries is relatively small, this does not imply that it is a stagnant sector. As shown in Table 2.1, the agricultural sector grew at 4 percent per year on average over 2000–06 and at more than 5 percent per year in Jordan, Morocco, and Syria. Furthermore, the agricultural sector accounts for an important share in national employment. As in most developing countries, its share of employ- ment is significantly larger than its share in GDP. This pattern reflects the low productivity in agriculture in these countries and, consequently, the relatively large share of poverty in rural areas (IFAD 2003). In the MENA region, Morocco has the highest share of employment in agriculture, 45 percent, followed by Egypt and Syria, with 30 and 27 percent, respectively (see Table 2.1). Another measure of the importance of the agricultural sector is the share of agricultural exports in total exports. The contribution of agriculture to exports is below 10 percent in the region as a whole and for most selected countries with the exception of Syria (see Table 2.1). However, the impact of agricultural trade liberalization on households may be large even if only a small share of exports is from the agricultural sector because agriculture trade affects food prices, and thus food security, especially among poor households. The Structure of Agricultural Production and Trade in MENA Trade liberalization is expected to result in relative price changes that will affect each country at the national level according to its pattern of produc- tion and trade. MENA countries are characterized by a high dependence on food imports, a situation that may threaten their food security when inter- national food prices rise significantly, as they did in 2007–08 (Benson et al. 2008; Von Braun 2008). This section examines the patterns of agricultural production and trade in the eight countries under consideration. Production The MENA region faces adverse climatic conditions, including low and highly variable annual rainfall patterns and poor soils for the most part. According to the Food and Agriculture Organization of the United Nations (FAO 2004), 62 percent of the region is hyperarid, 17 percent arid, 11 percent semiarid, and 4.4 percent subhumid. Agriculture in the region operates under severe limita- tions in water resources. Irrigation plays an essential role in the agricultural sector of Egypt, where all cropland is irrigated, and an important supporting role in Jordan, Lebanon, and Syria, where 24–31 percent of the cropland is irrigated (Table 2.2). Agriculture in the other MENA countries relies largely on rainfall (FAO 2003). OVERVIEW OF SELECTED MENA ECONOMIES 11 12 CHAPTER 2 Ta bl e 2. 2 A ve ra ge a gr ic ul tu ra l pr od uc ti on o f se le ct ed M EN A e co no m ie s, 2 00 5– 07 Sh ar e of ir ri ga te d M ea t la nd i n an d Fr ui ts cr op la nd da ir y To ta l M ill ed an d Co tt on Co un tr y (% ) pr od uc ts ce re al s W he at ri ce ve ge ta bl es Be et s Ca ne lin t O liv e oi l D ji bo ut i — 25 0 — — 28 — 0 — — Eg yp t 10 0 5, 98 8 22 ,6 82 7, 93 1 4, 38 5 24 ,1 90 4, 77 7 16 ,1 72 19 9 8 Jo rd an 29 44 1 82 31 — 1, 62 0 0 0 — 26 Le ba no n 31 44 9 17 3 14 0 — 1, 61 7 53 0 — 6 M or oc co 15 2, 27 5 5, 35 4 3, 65 1 20 7, 84 7 2, 95 1 89 3 — 73 Sy ri a 24 2, 40 8 5, 63 6 4, 69 0 — 4, 62 4 1, 12 9 0 29 2 15 0 Tu ni si a 7 1, 22 0 1, 93 4 1, 44 0 — 3, 41 3 0 0 — 19 2 W es t Ba nk a nd G az a 7 28 0 62 41 — 83 0 — — — 21 So ur ce s: W or ld B an k (2 00 8b ); F AO ( 20 09 a) ; U SD A (2 00 9) . N ot e: — , da ta n ot a va ila bl e. Su ga r To ta l pr od uc ti on ( 1, 00 0 to ns ) Yet irrigated agriculture often plays a critical role in agricultural exports. For example, in Morocco products from irrigated land account for 75 percent of the total primary and processed agricultural exports (Roe et al. 2005). In the countries where irrigated agriculture is important, water for expansion will have to come mainly from efficiency savings on existing schemes (FAO 2004). In Egypt, agricultural production is highly concentrated along the Nile River and in the Nile Delta. About 97 percent of the area of Egypt is un- cultivated due to the extremely limited rainfall. Virtually all agricultural land is allocated to crop production, and all crop production is irrigated (World Bank 2008b and Table 2.2). Although the amount of arable land per person is quite small (0.04 hectares), this is offset by multiple cropping and intensive production. For the other countries, fruits and vegetables and meat products consti- tute an important share of agricultural production. Cereal production is sub- stantial in Egypt, Morocco, Syria, and Tunisia. Wheat is the dominant cereal in all eight countries, though rice is also important in Egypt. Sugar crop production is concentrated in Egypt, Morocco, and Syria. In Egypt it is mainly in the form of sugarcane, while in the other two countries sugar beets are dominant. Egypt and Syria are the only cotton producers in the region. Egyptian cotton commands a premium in world markets because of the length of its fibers. Almost all the countries under consideration grow olives and produce olive oil, but production is concentrated in Tunisia, Syria, and, to a lesser degree, Morocco (see Table 2.2). Trade The MENA region is a net importer of many agricultural commodities, includ- ing cereals, sugar, and cotton. Among the eight MENA countries under con- sideration, all but Syria are net importers of wheat, and all but Egypt are net importers of rice. On the other hand, all the countries under consideration are net exporters of olive oil except Djibouti. Tunisia is by far the most important olive oil exporter among the eight (Table 2.3). Agricultural imports are dominated by food and animal products, which represent about three quarters of the total value for the MENA region. Cere- als represent 25–40 percent of the value of agricultural imports in all the countries except Djibouti and Lebanon, where the share is less than 15 per- cent. Within cereal imports, wheat accounts for almost half of the total for the MENA region. Egypt is one of the largest wheat importers in the world, in part due to its policy of subsidizing some types of bread. Morocco and Tunisia are also major importers of wheat. Fruit and vegetable imports are a par- ticularly large share of agricultural imports in the West Bank and Gaza and in OVERVIEW OF SELECTED MENA ECONOMIES 13 Lebanon. Other significant components of agricultural imports include dairy and eggs (particularly in Lebanon), meat and meat products (most notably in Egypt), and sugar (particularly in Syria) (Table 2.4). Fruits and vegetables make up the main export sector in the MENA region as a whole and in most of the selected countries. Fruits and vegetables account for nearly two-thirds of agricultural exports in Morocco and over half in the West Bank and Gaza. Tunisia is an exception; there olive oil repre- sents 60 percent of total agricultural export revenue. Egypt and Syria display a more diverse export structure, with an important role played by cereal exports, rice in Egypt and wheat in Syria (Table 2.5). Cotton is the most important nonfood agricultural export of Egypt, con- tributing 22 percent of its total agriculture export revenue. It should be noted, however, that the cotton export revenue in Egypt has been quite vola- tile due to fluctuations in the world price and in domestic production. Over the period 2004–06 (the latest years available from the FAO database), the annual cotton export revenue was US$265 million, a third below the 2002–04 average of US$393 million, after reaching a record high of close to US$500 million in 2004. Higher world prices were recorded between 2006 and 2008, which may spur export revenues, especially if production follows the same trend. Cotton is also used in Egypt’s textile sector, which produces cloth and garments for domestic use and for export. The Multi-Fiber Arrangement, which established quotas to regulate trade in textiles and apparel, expired in January 2005, exposing textile and apparel exporters in the MENA region to greater competition, particularly from China, India, and Pakistan. 14 CHAPTER 2 Table 2.3 Average net exports of selected commodities, 2004–06 (thousand metric tons) Sugar Total Rice (raw Cotton Country cereals Wheat (milled) equivalent) lint Olive oil Djibouti –149 –102 –19 –34 0 –0 Egypt –8,099 –5,290 911 –336 64 1 Jordan –1,967 –671 –134 –243 0 3 Lebanon –802 –401 –45 –146 0 1 Morocco –4,110 –2,368 –1 –63 –33 21 Syria –1,383 683 –177 –574 135 41 Tunisia –2,337 –1,145 –19 –372 –18 197 West Bank –626 –126 –19 –78 — 1 and Gaza Total MENA –54,108 –26,962 –3,067 –7,703 –393 328 Source: FAO (2009a). Note: MENA, Middle East and North Africa; —, data not available. OVERVIEW OF SELECTED MENA ECONOMIES 15 Ta bl e 2. 4 A ve ra ge s tr uc tu re o f ag ri cu lt ur al i m po rt s, 2 00 4– 06 Sh ar e in a gr ic ul tu ra l im po rt s (% ) To ta l ag ri cu lt ur e im po rt s Fo od M ea t D ai ry Fr ui ts Su ga r (t ho us an ds an d an d m ea t an d an d (r aw Co tt on Co un tr y of U S$ )a an im al s pr od uc ts eg gs Ce re al s W he at Ri ce ve ge ta bl es eq ui va le nt ) lin t O liv e oi l D ji bo ut i 19 6, 81 7 57 .7 6. 0 8. 2 14 .9 8. 2 3. 6 7. 5 7. 6 0. 0 0. 1 Eg yp t 3, 61 7, 13 6 74 .1 9. 4 3. 8 39 .2 24 .1 0. 1 7. 8 3. 3 2. 0 0. 0 Jo rd an 1, 43 0, 45 4 78 .1 7. 0 8. 0 25 .3 8. 1 4. 4 10 .0 5. 9 0. 0 0. 0 Le ba no n 1, 39 3, 30 0 77 .6 6. 6 12 .7 10 .4 5. 0 1. 5 12 .8 3. 2 0. 0 0. 2 M or oc co 2, 21 3, 53 4 69 .2 0. 3 5. 6 33 .7 20 .7 0. 1 4. 6 8. 1 2. 0 0. 2 Sy ri a 1, 38 7, 52 8 79 .3 0. 1 5. 7 25 .1 1. 7 6. 5 9. 0 18 .0 0. 0 0. 0 Tu ni si a 1, 20 0, 44 6 69 .0 2. 2 3. 2 32 .0 16 .3 0. 5 5. 1 8. 8 2. 0 0. 3 W es t Ba nk 53 7, 12 8 88 .4 4. 6 6. 3 27 .1 5. 2 4. 8 16 .2 5. 8 — 0. 1 an d G az a To ta l M EN A 48 ,4 48 ,9 82 75 .2 6. 3 8. 4 23 .1 10 .2 3. 9 10 .5 5. 7 2. 2 0. 1 So ur ce : Ba se d on t ra de v al ue s fr om F AO ( 20 09 a) . N ot e: M EN A, M id dl e Ea st a nd N or th A fr ic a; — , da ta n ot a va ila bl e. a F AO d ef in es i m po rt s as i nc lu di ng f oo d ai d. 16 CHAPTER 2 Ta bl e 2. 5 A ve ra ge s tr uc tu re o f ag ri cu lt ur al e xp or ts , 20 04 –0 6 Sh ar e in a gr ic ul tu ra l im po rt s (% ) To ta l ag ri cu lt ur e im po rt s Fo od M ea t D ai ry Fr ui ts Su ga r (t ho us an ds an d an d m ea t an d an d (r aw Co tt on Co un tr y of U S$ )a an im al s pr od uc ts eg gs Ce re al s W he at Ri ce ve ge ta bl es eq ui va le nt ) lin t O liv e oi l D ji bo ut i 28 ,0 84 75 .4 0. 0 1. 7 5. 1 0. 0 5. 0 7. 9 24 .3 — — Eg yp t 1, 19 0, 21 6 69 .0 0. 1 2. 9 24 .2 0. 0 23 .7 30 .9 2. 1 22 .3 0. 2 Jo rd an 63 6, 52 3 66 .8 3. 3 8. 7 0. 3 0. 0 0. 1 39 .0 0. 3 0. 0 1. 3 Le ba no n 28 1, 32 5 70 .3 2. 5 1. 6 1. 3 0. 2 0. 4 39 .6 0. 1 0. 0 2. 0 M or oc co 1, 21 3, 07 5 79 .4 0. 1 6. 1 1. 6 0. 0 0. 0 65 .5 0. 0 0. 0 6. 6 Sy ri a 1, 36 7, 99 0 73 .7 0. 0 3. 3 10 .2 9. 2 0. 0 23 .3 4. 2 12 .1 7. 5 Tu ni si a 1, 06 3, 06 0 27 .8 0. 0 1. 0 1. 4 0. 0 0. 0 14 .2 0. 0 0. 0 59 .8 W es t Ba nk 52 ,6 23 85 .1 1. 5 3. 8 5. 6 1. 3 0. 4 53 .1 1. 2 — 3. 5 an d G az a To ta l M EN A 19 ,1 20 ,6 30 71 .9 1. 4 4. 7 5. 7 1. 1 1. 9 39 .8 2. 5 3. 5 5. 6 So ur ce : Ba se d on t ra de v al ue s fr om F AO ( 20 09 a) . N ot e: M EN A, M id dl e Ea st a nd N or th A fr ic a; — , da ta n ot a va ila bl e. The high dependence on food imports of the MENA region as a whole and of individual MENA countries in particular challenges the countries’ efforts to improve their food security. In the study by Diaz-Bonilla et al. (2000), the authors generated indicators of the food security status of countries. They used cluster analysis to classify 163 developed and developing countries based on five measures of food security: food production per capita (measur- ing the ability of a country to feed itself), the ratio of food imports to total exports (an indication of a country’s ability to finance its food imports), calories per capita and protein per capita (measuring the level of nutrition), and the nonagricultural population share (an indication of how vulnerable the population is to changes in trade and agricultural policies). Results from the cluster analysis classify the six middle-income MENA countries, Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia, as “food neutral” but suggest that these countries are nonetheless trade stressed due to a high ratio of food imports to total exports. Figure 2.1 shows that these ratios have been on a declining trend for some of the countries under consideration in this study, but the ratio is still above 15 percent in Egypt and Jordan and reached an average of 42 percent in Lebanon for the period 2000–06. This trend in OVERVIEW OF SELECTED MENA ECONOMIES 17 0 Percent Egypt Jordan Lebanon Morocco Syria Tunisia Middle East and North Africa 1990–99 30 25 20 15 10 5 35 40 45 2000–06 Figure 2.1 Ratio of food imports to total exports for selected MENA countries Source: World Bank (2008b). Note: Data not available for Djibouti or for the West Bank and Gaza. some of the MENA countries may have reversed during the recent spike in food prices, which worsened the terms of trade of non-oil-exporting MENA countries (World Bank 2009). The Pattern of Trade and Protection of MENA Countries The potential effects of trade liberalization on the MENA countries are depen- dent on the patterns of trade flows of the countries and the original level of protection they apply and face with respect to their trade partners. This section uses the MAcMap–HS6 database developed by CEPII (2008) to illustrate the patterns of agricultural trade in the region and compute average levels of protection among the selected MENA countries and their trading partners. The MAcMap–HS6 database provides a set of consistent and exhaustive ad valorem equivalents (AVEs) of applied border protection for 165 reporting countries, 5,111 commodities, and 208 trading partners. The tariff equiva- lents reflect tariffs (ad valorem, specific, mixed, compound, and antidump- ing duties), and tariff quotas, taking into account all regional agreements and trade preferences. The trade data in MAcMap–HS6 are sourced from Base pour l’Analyse du Commerce International (BACI) (CEPII 2008). Patterns of Agricultural Trade Flows Intraregional trade in MENA with respect to agriculture is dominant in exports, representing 41 percent of the region’s total agricultural exports. Outside the region, the EU25 and the group of developing countries absorb 29 and 20 per- cent of MENA agricultural exports, respectively.3 Among single-country des- tinations, the United States is the destination of 2 percent of MENA exports. Imports present a different structure in which intraregional trade represents only 13 percent of agricultural imports and developing countries and the EU25 are the main sources of MENA imports, 42 and 26 percent, respectively. The United States plays a larger role in the region’s imports than in its exports, contributing 9 percent of the region’s total agricultural imports (Figure 2.2). Developing countries as a group play a dominant role in MENA trade: imports are much more concentrated and dominated by large exporters of agriculture in Latin America, such as Argentina and Brazil, which together contribute 15 percent of MENA agricultural imports. China and India are also active sources of agricultural imports for the MENA region. Among single MENA countries, the direction of trade varies: North African countries like Morocco and Tunisia are more likely to trade with the EU25, 18 CHAPTER 2 3 EU25 refers to the membership of the European Union as of 2004. In 2007 two more countries joined the E.U.: Bulgaria and Romania. while Middle Eastern countries favor South–South trade within the MENA region, with shares of exports ranging between 39 percent for Egypt and 82 percent for Jordan. In terms of imports, all countries mostly import from the EU25, with the exception of Syria, which seems to favor imports from devel- oping countries (see Table 2.6). The Structure of Protection Table 2.7 indicates that although overall protection continues to be higher in developing countries and in the MENA region than in developed countries, agricultural protection is very similar across various groups of countries. MENA protection in agriculture is slightly higher on average than the level in developed countries and lower than the average protection in developing coun- tries and the LDCs. Among the MENA countries, overall protection is highest in Tunisia followed by Morocco, Syria, and Egypt. Bouët (2006) ranks Egypt, Morocco, and Tunisia among the 11 most protectionist countries among coun- tries in the MAcMap–HS6 database for 2001. For these countries, the results are consistent with earlier tariff rankings generated between 1988 and 1998 by various international organizations, including the United Nations Confer- ence on Trade and Development (UNCTAD), the Organisation for Economic OVERVIEW OF SELECTED MENA ECONOMIES 19 Exports Imports LDC 3% MENA 41% EU25 29% Other developed 5% Developing 20% United States 2% LDC 1% MENA 13% EU25 26% Other developed 9% Developing 42% United States 9% Figure 2.2 Composition of trading partners in agricultural trade for the MENA region, 2004 Source: Authors’ calculations based on the MAcMap–HS6 database, 2004. Notes: Developing, developing countries not including LDC; EU25, European Union (25 members as of 2004); LDC, least developed countries; MENA, Middle East and North Africa; Other developed, other developed countries. 20 CHAPTER 2 Ta bl e 2. 6 A gr ic ul tu ra l tr ad e fl ow s in M EN A , 20 04 ( pe rc en t) W es t Ba nk Re st o f To ta l Re gi on /c ou nt ry D ji bo ut i Eg yp t Jo rd an Le ba no n M or oc co Sy ri a Tu ni si a an d G az a M EN A M EN A Ex po rt s ha re s M EN A D ji bo ut i 0 0 0 0 0 0 0 0 0 0 Eg yp t 0 0 2 4 1 8 0 0 0 1 Jo rd an 0 4 7 1 12 0 36 2 3 Le ba no n 0 5 8 0 1 10 0 0 1 2 M or oc co 0 1 0 0 0 1 2 0 0 0 Sy ri a 0 5 10 8 1 0 0 0 2 2 Tu ni si a 0 2 0 0 0 1 0 0 0 1 W es t Ba nk a nd G az a n. a. n. a. n. a. n. a. n. a. n. a. n. a. n. a. n. a. n. a. Re st o f M EN A 8 21 62 44 3 37 20 16 45 32 To ta l M EN A 8 39 82 63 7 68 22 52 52 41 O EC D EU 25 4 33 6 15 68 15 67 44 10 29 U ni te d St at es 1 2 2 7 4 1 3 0 1 2 Ja pa n 0 1 0 0 7 0 1 0 1 2 To ta l de ve lo pe d 8 41 12 26 83 21 73 47 15 36 co un tr ie s O th er Ar ge nt in a 2 0 0 0 0 0 0 0 0 0 Br az il 0 0 0 0 0 1 0 0 0 0 Ch in a 4 2 0 1 0 0 0 0 3 2 In di a 1 0 0 0 0 0 0 0 2 1 To ta l de ve lo pi ng 10 17 5 10 9 10 3 2 30 20 co un tr ie s To ta l LD Cs 74 3 2 1 2 1 2 0 3 3 OVERVIEW OF SELECTED MENA ECONOMIES 21 Im po rt s ha re s M EN A D ji bo ut i 0 0 0 0 0 0 0 n. a. 0 0 Eg yp t 0 3 4 1 4 2 n. a. 1 1 Jo rd an 0 0 2 0 2 0 n. a. 1 1 Le ba no n 0 0 2 0 0 2 0 n. a. 1 1 M or oc co 0 0 1 1 0 1 1 n. a. 0 0 Sy ri a 0 2 6 7 0 0 1 n. a. 1 2 Tu ni si a 0 0 0 0 1 0 0 n. a. 1 0 W es t Ba nk a nd G az a 0 0 0 0 0 0 0 0 0 0 Re st o f M EN A 7 0 9 6 1 10 2 n. a. 11 8 To ta l M EN A 7 3 22 20 3 19 5 n. a. 15 13 O EC D EU 25 24 19 17 36 37 17 39 n. a. 26 26 U ni te d St at es 24 27 11 9 10 10 11 n. a. 6 9 Ja pa n 0 0 0 0 0 0 0 n. a. 0 0 To ta l de ve lo pe d 55 50 35 49 55 29 57 n. a. 42 44 co un tr ie s O th er Ar ge nt in a 0 13 9 4 9 11 10 n. a. 5 6 Br az il 3 8 2 4 12 7 6 n. a. 10 9 Ch in a 0 2 2 2 5 1 1 n. a. 3 3 In di a 5 1 5 2 0 1 1 n. a. 6 5 To ta l de ve lo pi ng 21 45 42 29 41 51 37 n. a. 42 42 co un tr ie s To ta l LD Cs 17 2 1 2 1 1 1 n. a. 1 1 So ur ce : Au th or s’ c al cu la ti on s ba se d on M Ac M ap –H S6 d at ab as e fo r 20 04 . N ot es : EU 25 , Eu ro pe an U ni on ( 25 m em be rs a s of 2 00 4) ; LD Cs , le as t de ve lo pe d co un tr ie s; M EN A, M id dl e Ea st a nd N or th A fr ic a; O EC D , O rg an is at io n fo r Ec on om ic C o- op er at io n an d D ev el op m en t; n .a ., n ot a pp lic ab le . Co-operation and Development (OECD), the World Bank, and the International Monetary Fund (IMF), summarized in Oliva (2000). These organizations rank Egypt, Morocco, and Tunisia as more often restrictive than not, but the rank- ings differ among the studies.4 There is less consistency on Jordan and Syria, which appear restrictive in some studies (such as that of the IMF and Oliva’s own index in the case of Syria) and open in others (that of UNCTAD). Zarrouk and Zallio (2000) argue that industrial strategies founded on import substitu- tion and a large public sector have led to high protection in MENA countries and that governments have ended up relying on import duties as a main source of revenues. By contrast, Egypt, Jordan, and Lebanon are more open, with levels of protection in agriculture that are comparable to the average in developed countries.5 Table 2.7 identifies countries as protectors of agriculture if the ratio of the level of agricultural protection to industrial protection is at least 1.4. On aver- age, countries protect agriculture more than industry, and this is particularly notable for developed countries, which have low levels of industrial protection combined with high rates of protection of agriculture (Japan and Switzerland are the most illustrative). The MENA countries are protectors of agriculture on average: the level of their protection in agriculture is more than twice the industrial rate. Since the advent of structural adjustment programs and acces- sion to the WTO, which curtailed industrial protection, the average global tariff has decreased (WTO 2002), but agriculture protection has been reduced at a much slower pace. The exceptions are Djibouti, Egypt, and Syria, which have higher rates of protection in industry than in agriculture. Morocco and Tunisia have very high levels of agricultural protection, matched only by Switzerland among the OECD countries and India among the developing countries and more than double the average for the MENA region. These results testify to the shift in protection by developing countries since the findings in Schiff and Valdes (1992), which illustrate the bias against agriculture emanating from agricultural sector policies (direct effects) and from industrial protection and macroeconomic policies (indirect effects) in 18 developing countries. Considering only the direct effects, the study esti- mated that taxation on agriculture was 25 percent in Egypt over the period 1964–84 and 15 percent in Morocco over the same period.6 22 CHAPTER 2 4 These assessments do not take into account the substantial liberalization of trade policy in Egypt in 2004, as discussed later. 5 In this aggregation, the beverages and tobacco sector is not included in agriculture. This classification matters in the case of Egypt, which has an AVE of 818 percent for beverages and tobacco. 6 To maintain consistency in comparing the results of Schiff and Valdes (1992) and the MAcMap– HS6 database, we do not include the indirect effect of the tax on agriculture from the former study. Agricultural protection in the MENA countries also varies relative to their trading partners. Table 2.8 shows applied protection by importers along the rows and the protection faced by exporters along the columns. MENA coun- tries apply, on average, slightly higher rates on agricultural imports from the rest of the world than on those from other MENA countries. In particular, Morocco and Tunisia are more protectionist with respect to the rest of the world than to other MENA countries, applying rates of 45 and 50 percent, respectively. The protection faced by MENA countries varies across countries. Djibouti and the West Bank and Gaza face higher protection in MENA than in developed countries, as is the case for Jordan, Lebanon, and Morocco. But OVERVIEW OF SELECTED MENA ECONOMIES 23 Table 2.7 Applied levels of protection by region, 2004 Level of protection (%) Is agriculture Overall Agriculture Industry Ratio more protected? Region/country (1) (2) (3) (2)/(3) (ratio > 1.4) MENA 30 14 32 0.4 No Djibouti Egypt 15 8 15 0.5 No Jordan 8 11 8 1.3 No Lebanon 4 9 3 2.7 Yes Morocco 19 44 17 2.6 Yes Syria 16 13 16 0.8 No Tunisia 20 50 17 2.9 Yes West Bank and Gaza n.a. n.a. n.a. n.a. n.a. Rest of MENA 8 14 8 1.7 Yes MENA average 11 14 10 2.5 Yes OECD 4 23 4 0.6 No Australia Canada 3 16 3 6.2 Yes EU25 2 11 1 8.0 Yes Japan 3 27 1 18.5 Yes Switzerland 5 51 1 44.7 Yes United States 2 8 2 4.0 Yes Developed-country 2 13 2 6.5 Yes average Other Argentina 11 11 11 1.0 No Brazil 11 10 11 0.9 No China 5 6 5 1.3 No India 19 61 15 4.0 Yes Developing-country 8 18 7 2.4 Yes average LDCs average 12 15 11 1.4 No Source: Authors’ calculations based on MAcMap–HS6 database for 2004. Notes: EU25, European Union (25 members as of 2004); LDCs, least developed countries; MENA, Middle East and North Africa; OECD, Organisation for Economic Co-operation and Devel- opment; n.a., not applicable. 24 CHAPTER 2 Ta bl e 2. 8 A pp lie d bi la te ra l pr ot ec ti on o n ag ri cu lt ur e, 2 00 4 (p er ce nt ) Im po rt er s Ex po rt er s W es t Ba nk Re st o f Re st o f Re gi on /c ou nt ry D ji bo ut i Eg yp t Jo rd an Le ba no n M or oc co Sy ri a Tu ni si a an d G az a M EN A w or ld M EN A D ji bo ut i 0 0 16 22 18 9 17 0 14 14 Eg yp t 0 0 4 7 4 4 6 10 7 8 Jo rd an 10 5 0 6 5 4 7 11 9 11 Le ba no n 6 7 20 0 4 2 7 6 8 9 M or oc co 63 28 19 13 0 18 18 18 23 45 Sy ri a 16 19 19 17 14 0 22 23 19 12 Tu ni si a 35 26 46 26 32 42 68 41 50 W es t Ba nk a nd G az a n. a. n. a. n. a. n. a. n. a. n. a. n. a. n. a. n. a. n. a. Re st o f M EN A 9 11 12 14 5 11 17 20 11 10 M EN A a ve ra ge 9 13 14 14 6 12 15 21 13 14 O EC D Au st ra lia 0 1 1 2 1 1 1 0 2 2 Ca na da 1 5 12 8 3 6 1 6 27 16 EU 25 0 12 9 1 4 19 32 11 25 10 Ja pa n 11 44 8 26 8 25 3 3 43 27 Sw it ze rl an d 7 55 24 49 10 51 16 14 8 93 51 U ni te d St at es 0 7 1 12 2 5 2 4 14 8 D ev el op ed -c ou nt ry 1 14 9 8 4 16 20 12 25 13 av er ag e O th er Ar ge nt in a 13 12 14 14 13 12 14 13 14 11 Br az il 12 13 13 9 15 9 14 14 13 10 Ch in a 4 7 11 15 5 32 10 15 11 6 In di a 50 68 45 48 40 59 33 0 41 62 D ev el op in g- co un tr y 25 23 21 21 21 22 16 20 21 18 av er ag e LD Cs a ve ra ge 8 10 13 16 20 11 17 15 15 15 So ur ce : Au th or s’ c al cu la ti on s ba se d on M Ac M ap –H S6 d at ab as e fo r 20 04 . N ot es : EU 25 , Eu ro pe an U ni on ( 25 m em be rs a s of 2 00 4) ; LD Cs , le as t de ve lo pe d co un tr ie s; M EN A, M id dl e Ea st a nd N or th A fr ic a; O EC D , O rg an is at io n fo r Ec on om ic C o- op er at io n an d D ev el op m en t; n .a ., n ot a pp lic ab le . Im po rt er s countries such as Egypt, Syria, and Tunisia face higher tariffs among devel- oped countries, especially with respect to the EU25 in the case of Tunisia and Switzerland in the case of Syria. The regional average translates to a wide range of equivalent tariffs among MENA countries. The highest AVEs are applied by Tunisia and Morocco, rang- ing from 26 to 68 percent in the former and from 13 to 63 percent in the latter. Egypt, Jordan, and Lebanon apply some of the lowest rates to most other MENA countries (see Table 2.8). Among developed countries, Japan and Switzerland apply the highest protection to imports from MENA countries, especially with regard to Egypt, Lebanon, and Syria. Among developing countries, protection is higher, in India ranging from 41 to 68 percent. MENA countries face lower tariffs with respect to the United States than the EU25, but Lebanon is an exception. The rates are particularly low for Jordan, Morocco, and Tunisia in the case of the United States, which has signed FTAs with the three countries, and for Lebanon and Morocco in the case of the EU25 (see Table 2.8). The MENA countries with the highest average tariff rates also have very high tariffs on selected commodities: Morocco has a 172 percent equivalent tariff on livestock, 71 percent on meat, and 140 percent on milled rice. Tuni- sia protects fruits and vegetables at an average tariff of 137 percent and olive oil at 152 percent. Both countries apply high protection to wheat, 58 and 50 percent, respectively. Fruits and vegetables, olive oil, meat, and cotton are consistently protected across the region (Table 2.9). Egypt has a more evenly distributed protection pattern and lower rates on agricultural imports. Since the swearing in of a new cabi