Chronicle of the Middle East and North Africa

Arab Economic Integration: Needs and Challenges

The significance of Arab economic integration today lies in facilitating the development of shared policies among Arab countries to effectively address crises that necessitate collaborative global efforts, such as desertification and other environmental concerns.

Arab Economic Integration
A general view shows the city of Dubai, with the Burj Khalifa at the center. Karim SAHIB / AFP

Ali Noureddine

This article was translated from Arabic.

Economic concerns, such as escalating tensions and trade disputes between major economic blocs that restrict open international trade, are increasingly posing dilemmas for governments all across the world.

Food security, climate change, and global price inflation are all on the rise, as are geopolitical concerns to energy supply chains. The year has seen a variety of stressors, including a global rise in interest rates, which has put a pressure on banking institutions as well as rising and developing economies.

The need for Arab economic integration

Global trends are no longer progressing toward increased commercial globalization, as was the case in past decades.

Furthermore, major economic blocs are no longer pursuing market liberalization to enable specialization in industries and production chains that align with their competitive strengths.

In addition, the scope of international cooperation aimed at addressing global challenges such as climate change and pollution has contracted.

It has become increasingly common for countries to prioritize energy security and implement protectionist policies whilst developing their economic strategies and plans.

This fierce global competition has even influenced the relationship between traditionally liberal economic powers such as the European Union and the United States. This trend has become a source of concern in recent economic research since it poses a conundrum for policymakers.

These developments have raised questions about the role of economic unions and blocs in emerging and developing countries.

Such entities have proven critical in assisting nations to overcome challenges as they arise. As such, the importance of economic integration among Arab countries is becoming increasingly evident. The League of Arab States and Arab governments have long acknowledged this as a crucial goal.

The significance of Arab economic integration today does not rest on the Arab world becoming an economic powerhouse that engages in trade wars with other nations. On the contrary, the true importance of such integration lies in facilitating the development of shared policies among Arab countries to effectively address crises that necessitate collaborative global efforts, such as desertification and other environmental concerns.

Furthermore, economic integration encourages the opening of new markets between Arab nations, ultimately promoting trade, investments, and economic growth while ensuring long-term access to food and energy sources and allowing for the management of emerging monetary and financial challenges. As a result, Arab economic integration is a critical instrument for addressing current and future global market difficulties.

Despite the modest steps Arab countries have taken in recent decades toward economic integration, they have not been able to fully develop or reap the benefits. As a result, these countries are saddled with the issues of dealing with the global economy in the absence of a united plan or vision.

History of Arab economic integration

In 1945, the Arab countries addressed the issue of economic cooperation for the first time, in the Charter establishing the League of Arab States. The second article of the Charter emphasized the importance of joint Arab cooperation in economic and financial affairs, which included trade exchange, customs and monetary policies, as well as matters concerning the agricultural and industrial sectors. Furthermore, the Charter highlighted the need for collaboration among Arab countries in transportation such as railways, roads, aviation, navigation, telegraph and post.

To achieve this goal, the Council of Arab Economic Unity was established in 1957, under the umbrella of the Arab League, to be the body tasked with drawing up a practical plan to achieve economic integration among Arab countries and to set the required stages and legislation. The Council worked in coordination with the ministries of Economy and Finance in each Arab country. Its decisions were binding on the member states, and the Council began holding meetings in 1964, seven years after its establishment.

At this stage, the Council established ambitious objectives for itself. These included the unrestricted movement of capital and people between Arab countries, the removal of barriers to the exchange of goods and services, and the freedom of movement, transit, residence, work and economic activity for all citizens of Arab countries within all Arab League member states.

In essence, the Council’s aim was to attain full economic integration among the Arab countries, as suggested by its name. The Council made it clear that it sought to establish a unified customs area, a common Arab market and a free trade zone.

Despite its ambitious goals, the Council’s achievements were limited during the 1960s and 1970s to the establishment of a few Arab cooperation organizations, including the Arab Organization for Administrative Development, the Arab Academy for Science, Technology and Maritime Transport (AAST), the Arab Organization for Agricultural Development (AOAD), and the Arab Organization for Satellite Communications. However, the capabilities and achievements of some of these organizations were often constrained by the financial limitations of most Arab countries at that time and the limited expertise available to activate them.

Prior to the 1990s, the achievements of the Arab countries’ trade exchange were limited to signing preferential trade agreements that specified customs tariff schedules. These agreements granted certain preferences to other Arab countries, but their constant modification and negotiation prevented them from achieving full economic integration.

After numerous failed attempts, the Arab world saw a major breakthrough in economic integration in 1997 with the signing of the Arab Free Trade Agreement. This pact aimed to eliminate any limitations or customs fees on mutual goods trade among Arab countries.

Additionally, it included a phased approach for the gradual elimination of these restrictions and fees, allowing economic sectors and public policies in each country to adjust to the new reality. Over the years that followed, Arab nations committed to progressively reducing customs fees and restrictions, resulting in the Arab Free Trade Agreement becoming the most successful initiative to date toward achieving Arab economic integration.

Missed opportunities

Despite some small and limited accomplishments, Arab countries are still struggling to achieve optimal economic integration. While customs barriers have been eliminated to encourage intra-regional trade, a complete customs union among member states has yet to be established.

This is due to the requirement of a unified tariff and customs restrictions toward external countries in a customs union. Although the Arab League summit held in 2009 set the goal of achieving a full customs union by 2020, it has not yet been realized.

The Arab Customs Union holds significant importance as it enables Arab nations to conclude collective agreements to purchase goods in bulk from non-Arab countries, thereby securing better prices and favorable conditions for distribution among Arab countries based on their respective needs.

Additionally, the union facilitates collaborative negotiations between Arab countries and other economic blocs to promote mutually beneficial international trade. Furthermore, the Arab Customs Union ensures the unrestricted movement of imported goods within Arab nations, after harmonizing the conditions and charges associated with importing goods from foreign countries.

At present, the Arab nations have yet to achieve sufficient levels of integration and cooperation to effectively address financial challenges stemming from liquidity crises, high interest rates, and government indebtedness. Furthermore, they have not devised collective solutions to tackle these issues. In addition, the Arab countries have been unable to establish effective collaborative strategies for addressing the climate change crisis and its impact on the region.

Despite the critical food security and energy supply chain crises, the Arab League failed to play a substantial role in coordinating the response of Arab countries to these challenges. As these issues demand comprehensive regional collaboration to address their severe repercussions, which go beyond the capabilities of individual governments, it is widely acknowledged that the League’s inaction was regrettable.

Despite the significant liquidity surpluses in Gulf countries due to the increase in oil and gas prices, Arab countries failed to collaborate on joint agreements to regulate cross-border investments or to develop unified local legislation that would facilitate the flow of capital.

This lack of coordination has resulted in bilateral agreements with limited impact between Arab countries, such as those currently in place between many Gulf countries and Egypt, which have made the movement of capital hostage to individual relationships rather than a cohesive regional strategy.

Political and developmental obstacles

Arab countries face numerous political and developmental challenges that impede their cooperation in achieving economic integration. Political and geopolitical disagreements among Arab League member states have resulted in economic cooperation being utilized as a tool for mutual pressure.

The varying levels of development among Arab nations, particularly between oil-exporting and importing countries, have led to differing interests and requirements, further hindering economic integration efforts. As a result, the Gulf states have shifted their focus toward alternative economic integration plans, primarily through the Gulf Cooperation Council.

Ultimately, it is critical for Arab countries to launch a transparent and open dialogue, facilitated by the Arab League, in order to address the common challenges brought about by global economic crises.

Through this forum, they can raise pertinent questions and search for solutions to the regional interests that currently impede their progress toward Arab economic integration. Such efforts can lead to the development of concrete policies that prioritize this goal and pave the way for regional cooperation and growth.

Policies can be tailored to accommodate the divergent priorities of oil-exporting and importing countries and leverage each of their unique resources. For instance, while the Gulf states boast surplus capital, oil-importing countries possess untapped investment opportunities, skilled labor and competitive advantages in the agricultural and industrial sectors. Failure to initiate a constructive dialogue, as is presently the case, risks squandering potential benefits of economic integration within the Arab world.