Alexandre Rocha
São Paulo – Brazil may benefit from the creation of a Greater Arab Free Trade Zone. This may happen if Brazilian businessmen are prepared to invest in or sign partnerships with companies in the region. "One positive fact is that, with the free trade agreement, Brazilian companies may, in future, use one of these countries, through partnerships that guarantee the rules of origin, to sell to other nations in the region," stated the secretary general of the Arab Brazilian Chamber of Commerce (CCAB), Michel Alaby.
"I believe that the free trade area is going to open a great market, which represents around 300 million people, for the Brazilians," added Mohamad Bakry Agami, the Egyptian commercial consul in São Paulo, the financial capital of Brazil.
The treaty that created the free trade zone between the Arab countries began on January 01 and forecasts the eliminations of customs fees between the Arab countries.
However, for the products to receive the tariff benefit, they must have a certain percentage of local components. According to Alaby, most of the agreements of this kind include the so-called "rules of origin" which forecast that the products traded must have at least 40% of local inputs. In the case of the Mercosur, which includes Brazil, Argentina, Uruguay and Paraguay, the figure is 60%.
This is why Brazilian companies interested in taking advantage of these agreements must make, for example, investment in factories in some Arab country or establish partnerships with Arab companies so as to add local components and labour to the Brazilian product.
"In the case of orange juice, for example, a Brazilian company may export the product to some Arab country so that it may be mixed to the local juice, packed, and then shipped to other markets in the region," stated Alaby.
The attraction of foreign investment is one of the objectives of creation of the free trade zone. In an interview to paper Khaleej Times, from the United Arab Emirates, the secretary general for economic affairs at the United Nations Development Programme (UNDP), Taha Al Tayeb Omair, stated that, if everything occurs as planned, it is expected that over US$ 700 billion in investment may be attracted to the region in three years.
Mentioning his country as an example, Agami said he believes Brazilian companies may install assembly lines or establish partnerships with local companies so as to benefit from the agreement. "Brazilian companies will be able to re-export their products to other countries without paying customs fees," he stated. To him, the opportunities are going to rise even more when Egypt and the Mercosur sign the tariff preference agreement that is currently being negotiated.
Negotiations with the Mercosur
Alaby added that the creation of the free trade area may simplify future negotiations between other Arab countries and the Mercosur. "We may thus negotiate in block, as negotiations from country to country are difficult," he said. Apart from Egypt, the South American bloc is also discussing the signing of a tariff preference agreement with Morocco. The nations in the Gulf Cooperation Council (GCC) have also shown interest in negotiating with the Mercosur.
In all, 17 of the 22 countries included in the League of Arab States signed the creation of the free trade zone. They are: Bahrain, Egypt, the Emirates, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Syria, Sudan, Tunisia and Yemen. Algeria is currently negotiating its entry and, for the time being, Mauritania, Somalia, Djibouti and the Comoros are out.
Total elimination of the tariffs, however, is not considered an easy task. In his interview to Khaleej Times, Taha Al Tayeb Omair said "it will not be easy to knock down the customs barriers between the Arab countries from night to day". "There will be a series of obstacles that will reduce the speed of total implementation of the details of the accord," he stated.
In the same line, Alaby stated that during a process like this one, various measures are necessary, among them the adoption of mechanisms to balance the regional economic differences, the opening of economies, privatisations and the reduction of bureaucracy, among others. As an example he mentioned the Mercosur, whose customs union was created 10 years ago, and there are still some areas to be corrected, such as the recent talks between Brazil and Argentina with regard to the trade of electronic appliances and other products.
He also pointed out that the creation of the free trade area may generate a "detour in trade." That is, products that are traditionally bought from countries outside the bloc may start being purchased from neighbouring regions, as the absence of tariffs will make local producers more competitive. Once again he mentioned the Mercosur as an example, as it promoted an increase of wheat exports from Argentina to Brazil, reducing purchases from suppliers like the United States, Canada and Russia.
