Implications of the free trade agreements between the EU and the Maghrib economies for employment in the latter, given current trends in North African exports: Cline's fallacy of composition revisited

Journal of North African Studies

Volumn 10, Issue 2, 2005, Pages 201-221

  Hunt, Diana ^a  

^a UNIVERSITY OF SUSSEX   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

EMPLOYMENT; EUROPEAN UNION; FREE TRADE; INTERNATIONAL TRADE; LABOR MARKET;

AFRICA; EASTERN HEMISPHERE; EURASIA; EUROPE; MAGHREB; NORTH AFRICA; WORLD;

EID: 26444598552     PISSN: 13629387     EISSN: 17439345     Source Type: Journal    
DOI: 10.1080/13629380500252275     Document Type: Article

References (68)

1. Algeria's FTA, signed in December 2001, envisages the gradual removal of import duties on EU industrial products over 12 years: '25 per cent following ratification of the treaty, 40 per cent after a seven year period and the balance after twelve years'. Economist Intelligence Unit, Algeria: Country Profile, 2002 (London: Economist Intelligence Unit 2002) p.49.
2. 'From the European perspective, it was not so much the progressive abolition of all import barriers or the free and preferential access that European business would obtain in Mediterranean markets that mattered, but the reform process and enhancement of competitiveness that were expected to go along with the establishment of free trade. Free trade was seen as a catalyst that would bring about urgently needed reforms in the overall business environment' (E. Rhein, 'Euro-Med Free trade Area for 2010: Whom Will It Benefit?, in G. Joffe [ed.], Perspectives on Development: The Euro-Mediterranean Partnership (London: Frank Cass 1999] p.5). Eberhard Rhein was Director for the Mediterranean, Near East and Middle East at the European Commission at the time of the planning and initial implementation of the EMPI (Europe-Mediterranean Partnership Initiative).
3. But a comparative disadvantage for others: meat, dairy products and wheat are particularly heavily protected; see e.g. .
4. Following its initial FTA, Tunisia also reached an agreement on agricultural trade with the EU which came into force in January 2001. This increases Tunisia's annual quotas for duty-free olive oil exports to the EU from 46,000 tonnes to 56,000 in 2005 and fixed quotas for tomatoes, potatoes, figs and ostrich meat. In return, Tunisia will remove duties on European wheat and vegetable oil imports over five years (Economist Intelligence Unit, Tunisia: Country Profile, 2002 (London, New York and Hong Kong: Economist Intelligence Unit 2002) p.40)
5. Under Algeria's FTA with the EU many agricultural exports are granted duty-free access to the EU, but these generate only between 0.2 and 0.7 per cent of Algeria's total export earnings (Economist Intelligence Unit [note 1]). By 2003, Morocco had still failed to reach agreement with the EU on liberalisation of agricultural trade.
6. From an EU perspective the FTAs were seen as a step towards restoring reciprocity to 'the first generation of asymmetrical free trade agreements with the Maghrib and Mashrik'. Rhein (note 2) p.5.
7. I. Bensidoun and A. Chevalier, Europe-Mediterranee: Le Pari de l'Ouverture (Paris: Editions economica 1996) p. 104
8. This compares with mean rates of protection in industrially advanced economies of under four per cent. For Morocco, the unweighted average was 20 per cent in the late 1990s. For Tunisia, the unweighted average was still 28.3 per cent in 2001 (Economist Intelligence Unit [note 4] p.24).
9. United Nations, Statistical Office, 1996 International Trade Statistics, Vol II Trade by Commodity (New York: United Nations, 1997) p.1032.
10. Economist Intelligence Unit, Morocco: Country Profile, 2002 (London: Economist Intelligence Unit 2003);
11. and Economist Intelligence Unit (note 1) p.49.
12. Kingdom of Morocco, Direction de la Statistique, Annuaire Statistique 1993, 1993 p.473.
13. The deficits arise from: the need to import most capital equipment, the dependence of their main manufactured exports (textiles and leather goods, mechanical and electrical products) on imported raw materials and other inputs, the significance of food imports, especially in Tunisia, the influence of rising disposable incomes on the demand for consumer goods imports, and in Morocco, and increasingly in Tunisia, dependence on energy imports.
14. Tunisia has run an overall deficit on the current account of the country's balance of payments for 17 of the last 20 years. The deficit has been covered by long-term borrowing (Economist Intelligence Unit [note 4] pp.40-44).
15. See, for example, the statistics on FDI presented in S. Dupuch, E. Mouhoud and F. Talahite, 'Les Perspectives d'Integration de l'Union Européenne, les PECO et les Pays Sud Méditerranéen', paper presented to the Colloque International: Accords d'Association Euro-Méditerranéens - Experiences et Perspectives, Tlemcen: Université A. Belkaid-Tlemcen, Faculté des Sciences Economiques et de Gestion, 22-23 October 2003. The variability in reported statistics on FDI, even for the same country and year, arises because these statistics are often revised by the reporting country (S. Dupuch, personal communication, October 2003).
16. According to World Bank data, FDI inflows in 2000 were US$10 million, US$10million and US$752 million in Morocco, Algeria and Tunisia, respectively (World Bank, World Development Report, 2003 [New York: Oxford University Press 2003] Appendix Table 4).
17. 'Tunisia's tax rate on profits compares favourably with other Mediterranean economies; the current range of tax exemptions frees exporting firms from almost all taxes for ten years. Moreover, Tunisia has an improving infrastructure, a reasonably well-trained and adaptable workforce (not withstanding some skill shortages), and enjoys proximity to Europe. The World Economic Forum rates Tunisia the most competitive country for investors in Africa' (Economist Intelligence Unit [note 4] p.45).
18. H. Yang and A. Zehnder, 'Water Scarcity and Food Import: A Case Study for Southern Mediterranean Countries', World Development 30/8 (2002) p. 1418.
19. Selective tariff reduction may induce suboptimal import sourcing due to trade diversion from RoW (Rest of the World) to the FTA partner, leading to increased tariff loss. For a detailed exposition of FTA impacts see A. Winters, 'Post-Lomé Trading Arrangements: The Multilateral Alternative', Washington Development Research Group, World Bank, 2001.
20. W. Cline, 'Can the East Asian Export Model of Development Be Generalised?', World Development 10/2 (1982) pp.81-90.
21. See, for example, M. David, M. Dirven and F. Vogelgesang, 'The Impact of the New Economic Model on Latin America's Agriculture', World Development, 28/9 (2000) pp.1673-88
22. and U. Kambhambati and J. Howell, 'Liberalisation and Labour: The Effect on Formal Employment', Journal of International Development 10/4 (1998) pp.439-52. See also below.
23. In what follows, unless otherwise indicated, the 'textile sector' is taken to refer to the production of textiles, clothing and footwear.
24. Cline (note 17) p.81.
25. Economist Intelligence Unit (note 8) p.39.
26. Economist Intelligence Unit (note 4) p.41
27. In Tunisia, 79 per cent of textile firms (1,690) are reported to produce solely for export, of which 997 have foreign participation, with 632 wholly foreign owned. Since 1998, the main focus of FDI in Tunisia has been manufacturing and one-third of foreign firms in this sector are in textiles. In Tunisia in 2001, textiles accounted for one-third of manufacturing output (Economist Intelligence Unit [note 4] p.34).
28. See Economist Intelligence Unit, Morocco Country Report (London: Economist Intelligence Unit 2002) p.31, and the Government of the Republic of Tunisia website: (accessed 2 January 2004).
29. However, according to Tunisia's Ministry of Commerce, the labour force is larger than that recorded by the Ministry for Industry. In contrast to the 2,100 textile firms recorded by the Ministry for Industry, a 1999 survey, conducted by the Ministry of Commerce, reported 3,425 small and micro textile enterprises with under 20 employees per firm, all formally registered, as well as some 2,000 medium-size firms with between 20 and 50 employees (B. Chourou, 'Small and Medium-Sized Enterprises in Tunisia', Roskilde: University of Roskilde, Research Report, Federico Caffè Centre, 2001, p.9) In Tunisia in 2001, textiles accounted for one-third of manufacturing output.
30. See Kingdom of Morocco, Enquete Nationale sur le Secteur Informel Non Agricole, 1999/2000: Rapport des Premiers Resultats (Rabat: Départment de la Prévision Économique et du Plan, Direction de la Satistique, no date) pp.29, 41.
31. I am indebted to Bechir Chourou for explanation of this point (Roskilde: Federico Caffè Centre, Roskilde University, September 2004).
32. F. Palpacuer, P. Gibbon and L. Thomsen, 'New Challenges for Developing Country Suppliers in Global Clothing Chains: A Comparative European Perspective', World Development 33/3 (2005) p.412.
33. By 1999, China was the world's largest clothing exporter, supplying 16.2 per cent of world exports (B. Loo, 'The Textile and Clothing Industries under the Fifth Kondratieff Wave: Some Insights from the Case of Hong Kong', World Development 30/5 [2002] p.857), chiefly to the mass market.
34. On the threat from China, see also S. Lall and M. Albaldejo, 'China's Competitive Performance: A Threat to East Asian Manufactured Exports?', World Development 32/9 (2004) pp.1441-66.
35. China is estimated to supply 20-25 per cent of the global mass clothing market (Palpacuer et al. [note 26]).
36. Computer assisted design and computer assisted manufacturing: These methods feature high levels of product differentiation and rapid response to shifts in taste, based on flexibility in adjustment and high innovative ability.
37. Loo (note 27).
38. Textiles, as an intermediate input, are the single most important import into Tunisia (Economist Intelligenc Unit [note 4] P.60)
39. while textile fibres, yarn, cloth and manufactures are the third most important import into Morocco (Economist Intelligence Unit p.44 [note 8]).
40. In Sri Lanka on average 65 per cent of non-labour inputs into textile production are imported (S. Kelegama and F. Foley, 'Impediments to Promoting Backward Linkages from the Garment Industry in Sri Lanka', World Development 27/8 (1999) p.1446).
41. These include: thread, labels, padding, shoulder pads, buttons, zips, other fastenings, cartons, polybags and hangers, as well as textiles.
42. 'Retailers' efforts to increase shareholder value in a flat market, together with intensification of global competition in clothing production, are thus imposing new limits on suppliers' capacity to appropriate greater value' (Palpacuer et al. [note 26] pp.424-25).
43. Initial estimates indicate that textile exports from Morocco and Tunisia to the EU fell by 10-15 per cent between January 2004 and January 2005 (communication to Wilton Park Conference 776 'The Enlarged EU and Its Southern Neighbours', Malta, 15-18 March 2005, session on 'The Barcelona Process and Its Prospects for Consolidation', 17 March).
44. However, several features of Turkey's success are noteworthy. They include: identification of a market niche in Western Europe in domestic textiles rather than in clothing, based on the prediction that China will not become a significant competitor in this section of the market for several decades; investment in state-of the-art equipment that, being on average newer, is superior to that in many European textile factories; and the time taken to restructure the Turkish sector (two decades). A. Aktar, 'Tranformation of Bursa Artificial Silk Industry: 1981-2001', paper presented to Workshop No. 2, 5th Mediterranean Social and Political Research Meeting, Robert Schumann Centre for Advanced Studies, European University Institute, Florence, 24-28 March 2004.
45. Informal communication, Wilton Park Conference 776 'The Enlarged EU and Its Southern Neighbours', Malta, 15-18 March 2005.
46. In the short to medium term there may be some scope for supplying niches at the top end of the market but as CAD-CAM production methods plus design and marketing expertise become increasingly diffused through Asia these opportunities too may be eroded by lower-cost suppliers.
47. Tunisia's publicly announced strategy for the future development of textile production gives prime emphasis to further expansion of clothing production for the export market but also includes six 'sector integration projects' (spinning, fabric making, finishing), indicating optimism that the sector is sufficiently developed, and has sufficiently good prospects, to justify a move towards the development of domestic backward linkages. However, even if Tunisia succeeds in sustaining, or expanding, both the real value of its textile exports and domestic production linkages, the country would be unlikely to sustain existing levels of employment in the formal textile sector. See Government of the Republic of Tunisia website (note 23). Tunisia's publicly announced strategy for the future development of textile production gives prime emphasis to further expansion of clothing production for the export market but also includes six 'sector integration projects' (spinning, fabric making, finishing), indicating optimism that the sector is sufficiently developed, and has sufficiently good prospects, to justify a move towards the development of domestic backward linkages. However, even if Tunisia succeeds in sustaining, or expanding, both the real value of its textile exports and domestic production linkages, the country would be unlikely to sustain existing levels of employment in the formal textile sector. See Government of the Republic of Tunisia website (note 23)
48. As in India: see Khambhambati and Howell (note 18).
49. North Africa's other main employment generator in the export sector, tourism, has faced sluggish demand in recent years due to perceived security threats, although there are now hopes that the sector will start to revive.
50. As in agriculture in Latin America (see David et al. [note 18]) and in the Indian textile sector:
51. and U. Kambhambati and J. Howell, 'Liberalisation and Labour: The Effect on Formal Employment', Journal of International Development 10/4 (1998) pp.439-52. See also below.
52. Chourou (note 23) p.11.
53. Kingdom of Morocco (note 24) p.56.
54. Ibid.
55. C. Chérif, M. Charif and G. Djelti, 'Parténariat Euro-Méditerranéen et Développement de la PME (cas Algérie)', paper presented to Colloque International: Accords d'Association Euro-Méditerranéens - Experiences et Perspectives, Tlemcen: Université A. Belkaid-Tlemcen, Faculté des Sciences Economiques et de Gestion, 22-23 October 2003.
56. Kingdom of Morocco (note 24) pp.30, 33.
57. In recent years Southern European exports have undercut producers of leather goods in Jordan and Lebanon (A. Gallina, 'Innovation and Diffusion of Knowledge in Micro and Small Enterprises', Research Report, Federico Caffe Centre, Roskilde: University of Roskilde, 1999);
58. meanwhile in Tunisia small and medium enterprises have been 'dependent on trade protection and government support' (A. Jbili and K. Enders, 'The Association Agreement between Tunisia and the European Union', Finance and Development, 33 (Sept. 1996) p.77);
59. see also D. Brown, A. Deardoff and R. Stern, 'Some Economic Effects of the Free Trade Agreement between Tunisia and the European Union', in A. Galal and B. Hoekman (eds) Regional Partners in Global Markets: Limits and Possibilities of the Euro-Med Agreements (London: Centre for Economic Policy, 1977) p.77.
60. Although not the focus of this paper, unemployment among young graduates is also high.
61. J. Mellor, The New Economics of Growth (Cornell University Press: Ithaca, NY 1976),
62. and I. Adelman, 'Beyond Export-Led Growth: Agricultural Demand Led Industrialisation', World Development 12/9 (1984) pp.937-49.
63. Provided that measures are in place to develop and disseminate technology to, and to deliver inputs and market outputs from, the small farm sector.
64. In their model, rising farm incomes led to rising non-farm employment and incomes, which in turn led to a further increase in the value of farm output and incomes as non-farm workers begin to demand more diversified and higher-value foodstuffs.
65. This, however, would entail state backing for land redistribution, including a determination to overcome the complexities of existing land rights.
66. Yang and Zehnder (note 15) suggest that there may be scope for expansion of the irrigated area in Morocco. In Algeria and Tunisia labour absorption into agriculture would depend entirely on changes in land use towards high-value labour-intensive horticulture combined with more efficient use of irrigation water. Such activities also offer scope for employment expansion in processing and packaging.
67. Adelman (note 48) also notes the need for policy intervention in the form of farm price support to sustain the early stages of agricultural-demand-led industrialisation.
68. The growth rates will peak during the period of FTA implementation. J. Aoudia and F. Talahite, 'Le Prtenariat Euro-Mediterranéen: entre libreéchange et réformes structurelles', paper presented to the Colloque International: Accords d'Association Euro-Méditerranéens - Experiences et Perspectives, Université A Belkaid-Tlemcen, Faculté des Sciences Economiques et de Gestion, 22-23 October 2003.