LONDON, 12 May 2003 — A few days ago, US President George W. Bush declared that he would like to see the establishment of a Middle East Free Trade Area (MEFTA). The reality is of course that the idea is hardly new and has merely resurfaced. I remember in the aftermath of the 1991 Gulf War when the establishment of a Middle East Development Bank was suggested. That idea failed primarily because of the failure of the Madrid peace process, and the objections of the Arab countries to the US suggestion of Israel’s participation in the proposed Middle East Development Bank.
If George Bush Junior is keen to learn from recent history, he should realize that his proposal of the establishment of a Middle East Free Trade Area (which would include the state of Israel) would only be possible after the resolution of the Middle East conflict in line with the various UN resolutions — not only between Israel and the Palestinians; but also between Israel and Syria; and Israel and Lebanon. That would mean a viable Palestinian state bereft of Bantustan-like Jewish settlement enclaves; the return of the Golan Heights to Syria; normalization of the Israeli-Lebanese border; and yes, Arab recognition of the state of Israel and its right to exist within secure borders.
Neither should thinking Arabs and Israelis dismiss the idea of a Middle East Development Bank (MEDB) and a Middle East Free Trade Area (MEFTA) lightly — not because the idea is not workable, but because of the seeming futility of the peace process and the dogged intractability of its resolution.
An important additional reason why economic cooperation between Israel and its Arab neighbors has not yet become a driver of Middle East peace is because the price of peace for Israel is not high enough; and although the cost of war has been an enormous drain on the Israeli exchequer with the economy virtually on a permanent “war footing”, this cost has been borne by the American taxpayer for the last few decades — otherwise called “military aid” by the US Congress, which has consistently approved and voted for it. MEFTA is not an unrealistic idea. It has merits which far outweigh the disadvantages. The Middle East and North Africa (MENA) is one of the few regions in the world that does not have a regional free trade or economic cooperation pact. Why has MENA not followed the examples of other regions of the world? The MENA states are, and have been, politically underdeveloped, especially from an institutional and political point of view. Many MENA countries have also been built on competing nationalisms — Arab nationalism versus Turkish nationalism; Arab nationalism versus Iranian nationalism; Turkish nationalism versus Iranian nationalism; and of course the petty nationalisms between the Arab states themselves. The economic system of MENA countries is similarly diverse and structurally unsound.
Even without Israel’s participation, I doubt whether a MEFTA would be easy. The disparities are great. The GDP forecast for 2003 ranges from $192.3 billion for Saudi Arabia, $86.9 billion for Iran, $77.3 billion for Egypt, $17.6 billion for Lebanon, $70.5 billion for the UAE, $40.5 billion for Kuwait and $9.8 billion for Jordan. Israel’s nominal GDP for 2003 is estimated at $102.6 billion. Total external debt for Iran for the same year is forecast at $8 billion, compared with $16 billion for the UAE, $129 billion for Turkey, $29 billion for Egypt, and $66 billion for Israel. Most Gulf states have no substantial foreign debt although Saudi Arabia has enormous internal debts. The combined GCC population is not even half of Turkey, Iran or Egypt. The MEFTA concept needs more thought, substance and framework. Will it have free movement of labor as in the EU? Free movement of labor would have serious implications for unemployment, especially in the smaller but richer oil and technology-based economies, which might fear being “swamped”. Will it move toward a unified currency? If so what would be the implications?
As for Israel’s participation, the Muslim countries in MENA should seize the opportunity to capitalize and to expose some of the myths of the economic acumen and invincibility of the Jewish state — whose economy contracted by 1.1 percent in 2002.
