The most significant aspect of the current slowdown in world trade is the synchronized nature of the decline in exports and imports of major developed and developing economies since September 2008. Trade is one of the important channels spreading the contagion of the current global economic recession. The countries of the Middle East in general and the six-member Gulf Cooperation Council (GCC) in particular, which are characteristically over-dependent on international trade for their overall economic growth and development, are therefore bound to be affected. Importantly, the impact of the global economic slowdown is clearly evident in the trade of bulk commodities which has been hit by plunging commodity prices and the crunch in trade-financing. As a result, the Middle Eastern economies, being primary exporters of commodities, have been negatively affected by the global demand destruction for commodities, especially oil and petrochemicals. Besides, the surge of protectionist tendencies as a counteractive measure against the ongoing economic crisis further compounds the problems for the Middle Eastern countries that are also equally dependent on imports. It may be premature to draw broader conclusions at the moment, but looking at the recent trade restrictive measures implemented by countries across the globe as evident from the comprehensive coverage by the Global Trade Alert initiative (GTA), it is quite certain that the Middle East region has been very negatively affected. GTA is a global network of independent researchers and analysts, which monitors and investigates state measures that have been implemented since the first crisis-related G20 meeting in November 2008. London-based CEPR coordinates the GTA project and Dubai-based Gulf Research Center is the Middle East regional partner.
The Middle East could be an interesting case study in an analysis of the impact of trade policy measures implemented during the current global economic crisis. Indeed, the Middle Eastern countries are highly open economies with a total average trade-to-GDP ratio of 105.2 in 2008. Both exports and imports of goods and services constitute a highly significant portion of each country’s GDP, signifying the importance of international trade for the Middle Eastern economies. The peculiar factor endowment of the Middle East — which is rich in oil and poor in water — makes international trade an indispensable factor in the growth and economic development of the region and simultaneously makes the countries highly vulnerable to the cyclical pattern of world trade movements.
Of late, a clear shift is taking place in the geographic direction of the Middle East’s world trade in consonance with the changing economic strength of countries in the region. While in the past, highly populous and more diversified nonoil exporting countries like Egypt used to be the major economic powers, of late, the GCC has emerged as the most important economic center of the region — accounting for nearly 60 percent of the total GDP of the Middle East region. The GCC countries are even more closely integrated in the globalization process than the rest of the region.
The drop in world trade due to the economic crisis has affected the countries of the Middle East. As evident from the latest trends, Middle East exports to North America which accounted for 10.5 percent and 14.2 percent of its total exports in the years 2005 and 2006, respectively, declined to 2.3 percent in 2007. The US is an important export destination for Middle Eastern countries — in 2006, the US accounted for 19 percent of total exports of Egypt and Saudi Arabia and 15.6 percent of Jordan’s total exports. Thus it is natural that with recession taking its toll in the US, these Middle Eastern countries have been most affected. Similar negative trends are also likely to emerge in Europe, another major trading partner of countries in the Middle East. In particular, nonoil exporting countries are highly dependent on the European market. Sluggish economic activity in European countries, therefore, will have an impact on the exports of these countries. However, looking from the perspective of the major oil exporting countries’ (GCC’s) trade with Asia, a different picture emerges. While on the one hand, exports of oil and petrochemicals to the developed world has declined due to low demand and negative oil prices, the Asian region being the largest export destination continues to be an important trade partner, even though there is moderate decline in exports to Asia.
As of Sept. 11, 2009, a total number of 240 state measures affecting Middle Eastern countries have been identified in the GTA database, out of which 146 measures affect the GCC countries. It is important to note that discriminatory measures (marked red and amber in the GTA database) comprise an overwhelming 95 percent of total measures against the Middle East countries and trade liberalizing measures constitute the rest.
The UAE is faced with the highest number of discriminatory trade measures followed by Saudi Arabia, Iran, Oman, Jordan, Kuwait, Syria, Lebanon, Bahrain, Qatar and Iraq. Moreover, the nature of discriminatory measures confirms the increasing protectionism around the world, which could considerably hinder the Middle East’s world trade in the near future. .
While Middle Eastern countries in general and the GCC in particular confront an increasingly discriminatory trade environment in the aftermath of the global economic recession, they are not taking substantial counteractive measures pertaining to international trade. This is evident from the trends of measures identified in the GTA database. As of Sept. 11, 2009, countries of the Middle East have implemented or are about to implement only 15 measures, out of which 12 are trade discriminatory measures while the remaining three are trade-liberalizing measures. Importantly, these discriminatory measures are highly transitory in nature and were undertaken solely on the basis of health concerns and therefore would have marginal localized impact on the global trade. Thus, Middle Eastern countries in general and the GCC in particular would face daunting challenges in their international trade during the current global economic recession. By virtue of being highly trade dependent economies, future economic growth of the region will no doubt be affected by these negative trends. Since the success of any trade policy crucially hinges on its actual contribution toward improving market access for domestically produced products and services and its ability to minimize the consequences of openness, trade liberalization and globalization on the domestic market, Middle Eastern countries need to reorient their trade strategy to address the increasing proliferation of trade discriminatory measures across the globe. This in turn makes it imperative for the Middle Eastern countries to enable appropriate policy regimes at the national as well as at the regional level. In this regard, the GCC countries should take the lead in projecting a collective front at the various multilateral fora such as the G20 and WTO urging better surveillance, and monitoring and ensuring an enabling multilateral trade regime. Moreover, the GCC countries should also intensify economic integration at the broader regional level in the Middle East, which could result in greater bargaining power at the global level. While trade diplomacy in the region is still in its infancy, multilateral bodies such as WTO also need to enhance capacity building in the region.
Unlike other regional economies, the Middle East has huge stakes in the multilateral trade regime. The increasing spate of trade distortionary measures undertaken by economies across the world in response to the economic recession would negatively affect the Middle Eastern countries in general and the GCC in particular and, thereby, may become an obstacle to future economic growth. While paradoxically the industrial economies are increasingly tempted to fall back on the good old protectionist practices, the Middle East region, especially the GCC, continues to tread the path of trade liberalization even in the face of severe global economic recession. As analyzed from the GTA indicators, the trends of trade-related measures taken by the Middle Eastern countries vis-à-vis rest of the world during the ongoing economic crisis is less trade distortionary in comparison to the measures taken by rest of the world negatively affecting the Middle East. While recent attempts may be a move ‘back to fundamentals’, trade-related policymaking has been relatively weak in the Middle East region during the ongoing financial crisis. This policy deficit is due to insufficient awareness and lack of trade-related capacity building in the region. Therefore, policymakers in the region should address these concerns at the earliest.
— Dr. Samir Pradhan is senior researcher, Economics Program, Gulf Research Center, Dubai.
