Macro-Economic Issues(B) R&W Chapters 7-9, 13 plus pp. 133-142 of 5

1. Macro-Economic Issues(B) R&W Chapters 7-9, 13 plus pp. 133-142 of 5 Link to Syllabus Link to WDI

2. Tariffs and Trade Policy

3. Unweighted Import Tariff Rates-Regions SAR: South Asia, SSA: Sub.Sah. Africa, ECA: East Asia Source: World Bank: Trade Investment and Development in MENA Figure 3.1

4. Theory of Tariffs A tariff is a tax on imports, whose economic effects are to raise the domestic price, increase domestic production, and lower imports. Standard theory says tariffs are harmful because they lead to an inefficient production. They also have secondary negative effects on other production, such as exported products. The famous argument in favor of tariffs is called infant industry, in which activities are protected for a while, as they grow and mature. This is quite controversial: Japan and Korea can be cited in favor, while there are many negative examples, in MENA and elsewhere. Perhaps it worked in Turkey, although that country has liberalized. The ‘average’ tariff is difficult to measure.

5. Trade Policy Indicators Source: Dasgupta et al., Reform and Elusive Growth in the Middle East… MENA behind LAC and East Asia

6. MENA Tariffs Simple Weighted Standard Average Average Deviation ECA4 – Central Europe & Turkey EAP5 – East Asia Source: World Bank Trade, Inv. and Development

7. Long Term Trends in Trade Integration: World and MENA Source: World Bank: Trade Investment and Development in MENA Figure 2.2

8. Intra-Industry Trade Ratio in MENA Index for all manufactures, in 1988 and 2000. Higher numbers indicate more integrated trade. MENA has low levels. Source: World Bank: Trade Investment and Development in MENA Figure 2.7 p. 81

9. Export Diversification of MENA (late 1990s) The smaller the number, the more diversified

10. Inter-regional trade among ESCWA

11. Mfg Exports/Total MENA Source: WDI

12. Mfg Exports/Total - MENA Turkey Israel Tunisia Jordan Moroc (fewer countries on the next slide) Source: WDI

13. Mfg Exports/Total – MENA - shorter

14. World Market Share of Textiles and Garments MENA is way behind. Source: World Bank: Trade Investment and Development in MENA Figure 1.7

15. Share of World Exports of Services: MENA and Other Regions Source: World Bank: Trade Investment and Development in MENA Figure 2.10

16. Free Trade Agreements Involving MENA Countries Most MENA countries are members of the World Trade Organization: Algeria, Iraq, Iran, Lebanon, Libya, and Yemen are negotiating accession, and only Syria is not actively seeking entry. Jordan also has FTA type agreements with Syria, Kuwait, and Singapore. Israel has FTAs with U.S., Canada, Mexico, and several other countries Turkey and the EU have an agreement which involves significant reduction of tariffs (everything but agriculture), but does not include Turkey’s membership in the EU EUAA – Association Agreement to the European Union–Mediterranean FTA - is a proto-FTA of the EU with the Mediterranean countries, also involving foreign aid, investment regulations, and similar arrangements. The Greater Arab Free Trade Area (1997) is a work in progress.

17. Merkel to repeat offer to Turkey of EU "privileged partnership" Deutsche Press-Agentur - Sunday, March 21, 2010 Eds: Merkel to visit Turkey on March 29-30 Berlin (dpa) - German Chancellor Angela Merkel will offer Turkey alternatives to full European Union (EU) membership during a visit to Turkey later this month, she said in a media interview on Sunday. "I am of the opinion that we should rather aim for a privileged partnership, in other words a very close affiliation of Turkey to the European Union,“ Merkel told Deutschlandfunk radio. Turkey has previously rejected similar statements by the German chancellor, calling them "unacceptable." Progress has been sluggish on Turkish EU accession talks, which began in 2005. Merkel 's two-day visit to Turkey begins March 29. Her trip will focus on the European Capital of Culture, Istanbul. The chancellor is also due to discuss the integration of German immigrants of Turkish origin with Prime Minister Recep Tayyip Erdogan.

18. Euro-Med Agreements: WB Source: WB (2003) Trade and Investment pp. 208-209

19. Jordan Times on Vietnamese Women’s Strike in Jordan: March 2008 Link to article Link to site on QIZ’s http://www.jordanecb.org/investment_qiz.shtm

20. Jordan Times: March 5, 2008 QIZ Vietnamese workers refuse to end strike By Hani Hazaimeh SAHAB - A total of 176 Vietnamese women at a Taiwanese-owned apparel manufacturing company in Al Tajamouat Industrial Estate are still on strike demanding a pay increase. Upon the work stoppage on February 10, the workers linked their return to a W&D Apparel Corporation’s consent to increase their monthly salary from $175 to $265 per month and a basic eight-hour workday. The factory owner said the demand contradicts employment contracts they had signed. He accused some strikers of exercising violence and sabotage. “When the company refused to meet their conditions, they started rioting and sabotaged some of the company’s properties. The management had no choice but to call police to restore order,” James Shen, W&D general manager, told The Jordan Times yesterday. “Some of the strikers stole mechanical parts from sewing machines to prevent the company from hiring other workers to replace them,” he charged. He added that the management has met with 10 representatives of the strikers, but the two sides reached no agreement although the managers offered some “compensation”. He explained that the financial compensation was paid for those who had worked overtime hours and were the most productive. “Those were satisfied with the compensation and wanted to go back to work. But those who did not get compensation threatened them,” Shen claimed. Thirty-year-old Di Thi Wei, one of the workers, upheld his claim. She told The Jordan Times that she accepted the compensation and decided to go back to work despite the strike leaders’ threats. “The company moved us to a different place to protect us from being assaulted by the strike leaders,” she added. Di Thi was one of the 85 women who resumed work, said the general manager, noting that the company had to rent new dormitories to ensure their safety. Echoing her colleague’s words, Nguyen Thi Tuoi, 26, said she was beaten badly by the strike leaders for going back to work before she moved to the new dorms. “They even poured cold water on me while I was sleeping in bed in the middle of a cold night,” she told The Jordan Times. “They tore my clothes and my shoes and I had to borrow clothes from another worker.”

21. Qualifying Industrial Zones – QIZ's Israeli Min of Industryhttp://www.tamas.gov.il/NR/exeres/2124E799-4876-40EF-831C-6410830D8F02.htm Background on Qualifying Industrial Zones (QIZ's) In 1996, U.S Congress authorized designation of qualifying industrial zones (QIZ's) between Israel and Jordan, and Israel and Egypt. The QIZ's allow Egypt and Jordan to export products to the United States duty-free if the products contain inputs from Israel (8% in the Israeli-Jordanians QIZ agreement, 11.7% in the Israeli-Egyptian QIZ agreement). The purpose of this trade initiative has been to support the prosperity and stability in the Middle East by encouraging regional economic integration. In order for a QIZ article to gain duty-free entry, QIZ factories must add at least 35 percent to the value of the article. This 35 percent minimum content figure can include value added in Israel, Egypt/Jordan, or the United States. QIZs must encompass portions of Egypt/Jordan and Israel, though the areas do not have to be contiguous. The immediate saving for an investor in the QIZ is the amount of the U.S. tariff on any specified good.  Generally speaking, U.S. tariffs on clothing and textile goods are relatively high, which makes production of these goods in QIZs especially attractive. QIZ with Jordan Since 1998, the United States has designated thirteen QIZs in Jordan; On March 6th, 1998, the United States Trade Representative (USTR) designated Jordan's Al-Hassan Industrial Estate in the northern city of Irbid as the world's first QIZ. Other industrial parks designated by the U.S. government as QIZs in Jordan include; the Al-Hassan Industrial Estate (Irbid), and Al-Hussein Ibn Abdullah II Industrial Estate (Al Karak), both owned and operated by the Jordan Industrial Estate Corporation. Also, the now privately owned and operated Al-Tajamouat Industrial Estate (Amman), Ad-Dulayl Industrial Park (near Zarka), Jordan Cyber City (Irbid), Al-Qastal Industrial Zone (Amman), and El-Zai Ready-wear Manufacturing Co. sub-zone (Zarqa). Other QIZs expected to be operational in the near future include the Gateway QIZ (northern Jordan-Israel border), Aqaba Industrial Estate (Aqaba), and the Mushatta International complex (Amman). Benefits of QIZwith Jordan

22. Data from Kandeel: Arab Studies Quarterly 2008 End of 2006, 54,062 people were employed in Jordan’s QIZ. 31% of them were Jordanians. Total labor force in Jordan was 1,900,000. So QIZs employed 1% of Jordanians.

23. Foreign Investment Distinguish between Foreign Direct Investment (FDI) which provides foreigners with control, compared to Portfolio Investment (loans and non-controlling stock investments) which do not. Since around 1960, more money goes overseas as Portfolio investment than as FDI. Either of these terms can be ‘inward’ or ‘outward.’

24. US: International Investments/GDP US is a net importer of portfolio capital, and a net exporter of FDI. Data source: US DoC

25. Debt Data

26. Table 8.2 p. 214. External Debt, 1994 and 2004

27. Debt/GDP Jordan Syria Egypt Lebanon Data source: WDI

28. Gulf Currency Union

29. Gulf Currency UnionSaudi Arabia, Kuwait, Qatar, Bahrain: UAE? Oman? The most important example of a currency union is the euro in the EMS. Monetary integration is feasible if the countries have similar rates of inflation, and presumably would be implemented after the countries had maintained fixed exchange rates among themselves. (Theory is called ‘optimum currency area.’) The Gulf countries have relatively free capital markets, effectively free trade, and fixed exchange rates (except Kuwait). One aspect of a GCC Currency Union would be a complete integration of capital markets – stock markets and investment banking. Also, no transactions commissions. A major drawback of monetary integration is that it reduces the economic independence of the individual countries. In the Gulf, it would accentuate dependence on Saudi Arabia. One also wonders about the Sovereign Wealth Funds. Other reasons given for non-agreement in the GCC: location of the bank; the issue of pegging to the dollar, a basket ($, ¥, £, €), or floating.

31. Inflation in GCC

32. Sovereign Wealth Funds “Government Owned” purchases of financial instruments in other countries. Implications: Reduce domestic inflation Spread out bonanza from oil or other raw material Reduce domestic instability caused by unstable world prices Puts these countries ‘on the map’ of international finance Indicates that these countries are growing more sophisticated in their economic policy (while US and Europe are declining in our ability to throw our weight around)

33. Foreign Assets/GDP: Oil Exporters, 2007 (Data in billion US$) This Ratio for Norway would be 1.1 – 1.5. Sources: Estimates on overseas assets – referring to 2007-, from Setser and Ziemba, “Understanding the New Financial Superpower- The Management of GCC Official Foreign Assets,” RGE Monitor Dec. 2007. GDP estimates (for 2007) from EIU Monthly Reports. Link to Sovereign Wealth Fund Institute online www.swfinstitute.org

34. Size of SWFs Saudi Arabia (SAMA) ~ $400b Source: Legrenzi and Momani (2011) Shifting Geo-Economic Power of the Gulf

35. SWF Strategy and Transparency Source: Sovereign Wealth Funds Institute

36. Accumulated Stocks of FI for Oil Exporters. (Stocks as % of GDP) Estimates, using as the basic data source International Financial Statistics

37. Foreign Direct Investment

38. Quick Review of Theory of Foreign Investment Distinguish Direct Investment (control) from Portfolio Investment (Loans) Direct Investment because of special advantage of Investing Company: Technology, Trademark/Patent, Operational practice, Access to credit or external markets, protection of home country Attraction of country: low wages, availability of resources, tax benefits, access to market Profit rates, wages, import reliance, etc. will be higher for FDI company Benefits will decline over time (product cycle) FDI will be either market seeking or resource seeking. This theory is an alternative to the theory that FDI seeks to exploit.

39. Share of FDI Inflows p. 182 Source: World Bank (2004) Unlocking the Employment Potential in the MENA page182

40. FDI Potential Source: World Bank: Trade Investment and Development in MENA Figure 1.18

41. Openness to FDI in Services, by Regions, 2004. Closed West Asia (MENA) East Asia South America Central and Eastern Europe Open SE ASIA Source: UNCTAD World Investment Report, 2007

42. Source: WDI, in OPECFDIRev2.xls

43. IDP Source: UNCTAD: World Investment Report, 2006

44. Recent FDI From West Asia From Kuwait and UAE, to Turkey, Saudi A, and UAE Source: UNCTAD World Investment Report, 2007

45. West Asia: M&As, by Sector Mostly in Services! Source: UNCTAD World Investment Report, 2007

46. Turkey’s FDI in Egypt Link to article (or, next slide)

47. Turkey Sets Up Its First Industrial Park in Egypt AFP PHOTO/ KHALED DESOUKI Turkey sets up its first Industrial Park in EgyptBy Sherine El MadanyFirst Published: January 17, 2008 CAIRO: After signing a free trade agreement in 2005 that was dubbed “a turning point in relations between two regional powers,” it was only a matter of time before Turkey established its first private industrial park in Egypt. Turkish President Abdullah Gul inaugurated Wednesday “The Polaris” industrial park, the first of its kind in Egypt, with investments totaling $1.5 billion. The private industrial park is a joint venture between the two countries that is estimated to attract $4 billion of investments in the next four years. “Trade ties between the two countries have already been on the rise since [ratification] of the FTA,” said Minister of Trade and Industry Rachid Mohamed Rachid in a press statement. “The majority of Turkish investments in Egypt seek to export to foreign markets, especially in Europe, the Middle East and Africa, as well as benefit from partnership agreements between Egypt and Europe, allowing preferential advantage of products manufactured in Egypt to enter these markets without customs,” he added. Sprawling two million square meters in the Sixth of October City — an area fit to host some 300 companies and factories — the cluster will include Turkish manufacturing operations from a number of sectors including textile and ready-made garments, furniture, automotive, glass, and food processing. The ministry expects total production capacity to reach $3.5–4 billion per year. Gul, who started an official visit to Egypt on Tuesday, told Reuters that recent economic reforms in the Arab country spurred interest from Turkish investors.

48. Saudi investors demand their $12 billion invested in Egypt be protected Author: Egypt Independent March 17, 2012 Saudi businessmen have said that Egypt has responded positively to demands that their investments in the country be protected, reported Saudi paper Al-Eqtisadiah on Saturday. Saudi investments in Egypt are estimated as being worth around US$12 billion, of which $4 billion worth are facing major problems, the paper said. It quoted a Saudi businessman in Egypt as saying that during an upcoming meeting between the Saudi-Egyptian Business Council and the Egyptian People's Assembly speaker, the investors will list their grievances and the rights they have been deprived of without compensation since the Egyptian uprising began. A large community of around 700,000 Saudis live in Egypt. According to the newspaper, Saudi investors in Egypt believe that their rights have been disregarded after the government revoked their contracts, considering them null and void.

49. Privatization, andEquity Market Reform

50. Privatization Proceeds Source: Dasgupta et al., Reform and Elusive Growth in the Middle East…