Can free trade help convert the ‘Arab Spring’ into permanent peace and democracy?

Abstract

Using a panel gravity model of trade for the period 1995–2010, this paper estimates the potential for increased intra-regional trade among 10 countries of the southern and eastern Mediterranean coast. It examines how closer integration through the EU’s revised neighborhood policy can encourage democratisation and conflict resolution. The main results indicate that while the gains realized to date from regional integration have been small, significant potential gains from deep integration exist. The paper proposes that the EU starts by negotiating deep and comprehensive free trade agreements with Egypt, Israel and Jordan provided these countries also negotiate them with each other.

Keywords:

• Arab Spring
• Democratisation
• Potential trade
• Gravity model
• Integration

JEL Code:

• F10

ACKNOWLEDGEMENTS

We would like to thank María D. Parra for collecting and preparing the data used in the regression analysis. We are also grateful to the participants at the 14th Annual Swedish Network for European Studies in Economics and Business (SNEE) European Integration Conference in Mölle, Sweden, 22–25 May 2012, at the European Economic Association meeting in Gothenburg, Sweden, 17 August 2013 and an anonymous referee and the editor for their helpful comments and suggestions and the library of the Stockholm School of Economics.

FUNDING

Inmaculada Martínez-Zarzoso gratefully acknowledges the financial support received from the research project (ECO2010-15863) granted by the Spanish Ministry of Science and Innovation.

Notes

¹ These States are, from West to East, Morocco, Algeria, Tunisia, Libya, Egypt, Israel, occupied Palestinian territories, Jordan, Lebanon and Syria. For brevity, we shall refer to these countries as the southern Mediterranean coastal States, omitting the word eastern, or as the Middle East and North Africa (MENA) countries.

² The ENP was adopted in 2004 to further economic growth and political reforms in the southern and eastern neighbors of the EU and to encourage conflict resolution in these regions. The Barcelona Process, adopted in 1995, and the Eastern Partnership, adopted in 2009, aim at closer economic and political relations between the EU and its neighbors.

³ COM (2011) 202.

⁴ Important goals are to: Build deep and sustainable democracy, Strengthen civil societies (NGOs, political parties and trade unions) to ensure freedom of expression, association and assembly; Advance respect for minorities, women’s rights and social justice by establishing a European Endowment for Democracy and a Civil Society Facility; Enhance EU involvement in solving protracted conflicts (Israel-Palestine, Morocco-Polisario concerning Western Sahara), including developing post-conflict reconstruction scenarios; Negotiate Deep and Comprehensive Free Trade Areas with willing and able parties; and Build effective regional partnerships to strengthen the regional dimension in the ENP.

⁵ Lee and Pyun (2013) and Barberi (2005).

⁶ The expression was coined by Gunnar Myrdal.

⁷ This occurred through the Stability Pact for South Eastern Europe in which the EU played a lead role (Wijkman 2009).

⁸ Lord Acton stated that ‘Power corrupts; absolute power corrupts absolutely’. When Estonia regained its independence after the collapse of the USSR, the new government considered that those who had held office during the old regime were contaminated by the old ideas and hence replaced them systematically.

⁹ In East Germany, even university professors were replaced; one became the office administrator of the academic faculty he had directed under the old regime.

¹⁰ One of the authors participated in the first EFTA Delegation that visited the Baltic States one month after the restoration of independence. The Delegation was received by an official representative of the Foreign Ministry who was perhaps 22 years old. The average age of the host country’s delegations at the various meetings during the visit was about half the average age of the Delegations of the EFTA countries. This is a concrete example of one way to throw off the dead hand of the past.

¹¹ David Eduard (2013) suggests nicely that ideas rather than geographic borders define the countries of Europe.

¹² The Barcelona Process was transformed into the Union for the Mediterranean in 2008. However, for simplicity, we shall refer to it as the Barcelona Process or the Euro-Mediterranean Partnership.

¹³ Péridy and Roux (2012) have identified a number of reasons for this failure, including those mentioned here, in their aptly entitled article ‘Why are the Trade Gains from the Euro-Mediterranean Partnership so Small?’

¹⁴ The agreement concluded with Syria in 2004 was put on hold several times for political reasons.

¹⁵ It includes Morocco, Algeria, Tunisia, Libya, Egypt, Jordan, Occupied Palestinian territories, Lebanon and Syria but also eight Arab League countries which are not members of the Barcelona Process (Bahrain, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, United Arab Emirates and Yemen). It is also called the Greater Arab Free Trade Area (GAFTA). This paper refers to it as PAFTA.

¹⁶ Source: Declaration Pan-Arab Free Trade Area Economic and Social Council’s Resolution No. 1317-O.S. 59, 19 February 1997. See http://www.bilaterals.org/spip.php?article2309. Second: Liberalisation of Trade among Party-States. 2. “Production season (Farmer’s Almanac) in which a number of agricultural goods shall not enjoy exemptions and reductions of customs duties and other charges and taxes of a similar effect shall be specified. This specification shall come to an end no later than the deadline for implementation of this Program”.

¹⁷ See Hoekman and Sekkat (2010, 24). These authors also note that some agricultural products were excluded from PAFTA during much of the transition period (1998–2005).

¹⁸ The reverse is also possible. For an extensive and pessimistic overview, see Hufbauer and Brunel (2008).

¹⁹ Mandelson (2008).

²⁰ Trade among neighboring countries is also limited in parts of Sub-Saharan Africa.

²¹ This allows for diagonal cumulation of origin for participating countries when exporting products to the EU that contain components from several Agadir countries. This will stimulate foreign direct investment in MENA countries to produce products for the EU market containing components from several southern Mediterranean countries.

²² The Arab Maghreb Union of 1989 consisted of Mauritania, Morocco, Algeria, Tunisia and Libya and broke down as a result of the conflict over Western Sahara.

²³ See Péridy and Roux (2012) for an extensive review of the recent literature estimating the ex-post effects of the Barcelona process.

²⁴ The south Mediterranean countries considered are: Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Syria, Tunisia and Turkey.

²⁵ Output and distance variables are not included in the final specification because the output variables are collinear with the multilateral resistance terms (δ_it  and ψ_jt in Equation (2)) and distance with the dyadic fixed effects (η_ij in Equation (2)). Specifically, the former controls for the effect on trade of all variables that are country-specific and vary over time, and the latter control for of all time-invariant variables, like colonial ties, common language and common religion.

²⁶ See, e.g., Nowak-Lehmann et al. (2007).

²⁷ When it started in 1995, the Barcelona Process was fuelled by optimism generated by the Madrid Conference of 1991, the Oslo Accords of 1993 between Israel and the PLO and the Israel-Jordan Peace Treaty of 1994. However, Israel and the Palestinian Authority failed to reach a final settlement at the Camp David Summit in 2000.

²⁸ This was the procedure followed by the Stability Pact for South Eastern Europe in the Balkans in 2001. Each Balkan States wanted a deep free trade agreement with the EU, called a Stability and Association Agreement (SAA). The EU required that any Balkan country with such an agreement would have to have a deep agreement with any other Balkan country that had a SAA with the EU.

²⁹ Messerlin and Hong (2013) in a similar vein view a free trade agreement or customs union between North and South Korea as a trust building exercise.

³⁰ The EU has indicated that the institutional framework for the Neighborhood Economic Community will be similar to that governing the European Economic Area that the EU negotiated with the EFTA States.

³¹ It also borders Azerbaijan but for a very short distance.

³² Turkey will need to normalise its relations with Armenia. Armenia, in turn, has an unresolved conflict with Azerbaijan concerning Nagorno Karabakh. Turkey can play a critical role in resolving this dispute.

³³ As before, the percentage is calculated from estimates in column 1 of Table II (e^0.593− 1 = 0.80).

³⁴ A brief indication of these complexities is given in Gylfason and Wijkman (2010) and Böhler, Pelkmans, and Selcuki (2012).

³⁵ COM (2011) 202.

³⁶ This requires them to be WTO members and to adopt far-reaching ‘key recommendations’ presented by the EC.

³⁷ See Messerlin et al. (2011) for the difficulties encountered by Georgia.

³⁸ See Messerlin et al. (2011) and Wijkman (2011).