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9 January 2006
Author: Farida Moha, Propos Recuellis
Translated by Anoosha Boralessa (Feb 2016). Not reviewed by bilaterals.org or any other organization or person.
The free trade agreement signed with the Americans on 2 March 2004, ratified by Parliament last June, entered into force on 1 January 2006. Morocco is the second country in the Arab World to conclude a free trade agreement with the United States, the objectives of which are twofold: manifestly political aims on the one hand and establishing an opportunity for the wholesale modernization of our economy and business environment on the other.
Mohamed Benayad, Secretary General of the National Council for Foreign Trade, claims to be an advocate of the free trade agreement between Morocco and the United States.
In your opinion is the free trade agreement signed with the United States an economic agreement or is it, on the contrary, as many assure, a profoundly political agreement that is meant to strengthen American influence in the region?
This is a false debate. We do not sign free trade agreements with enemy states. Historically, the United States is a friendly nation and all agreements that our country has signed have been with friendly nations. When one says friendly nation, there is necessarily a good dose of politics, and the decision is neither taken on an exclusively political basis nor on the basis of economic calculations. What we care about most, is the content of the agreement.
In both Brussels and Paris, the signature of this agreement has created waves as it presents a counterweight to European interests. Some go even further and talk about its capacity to harm Europe. Apart from these verdicts, can one say that this agreement introduces a significant change in the traditional foreign relations of the kingdom?
It is necessary to contextualize the agreement. The current context that you evoke of Morocco’s foreign trade makes Europe our principal partner. The agreement signed with the United States will not change the objective nature of our relationship with Europe. This relationship is the result of a common history, geographical proximity and trade in men and goods.
A common history that evolves with ups and downs and which has been significantly reduced with the passage of time. Are we a long way off from the euphoria of the Barcelona Declaration in November 1995?
There is no causal link between the two events. Of course, we must acknowledge that after signing the association agreement with the European Union, the objectives we agreed upon have failed [to be achieved]. Taking into account the political hazards in the region and in the Middle and Far East, we may talk of failure. The promises made – for example, for modernizing businesses have not been kept. The implementation of financial systems is revealed as Kafkaesque and we have not had the expected compensation. That said, there is no need to interpret the signing of the [US] agreement as a reaction to this failure. The free trade agreement - it is the opening up of the Moroccan economy to the new world and presents us with an opportunity to diversify our partners, our markets and sharpen our weapons of competition in an economy that is increasingly globalized. There is no longer only Europe; the world increasingly opens up and if we do not seize this opportunity to diversify our markets and our capacities to go elsewhere than in Europe, we risk becoming increasingly marginalized. So this is one perspective. From another angle, the nature of the agreement signed with the Americans is different from the association agreement and forces us to be bolder. The agreement is more general; it focuses on agriculture, industry, services, goods and contains a schedule for implementation which will perhaps forces us to take up a level the reforms that are already underway.
In an interview given to the daily newspaper, l’Economiste, the US Ambassador in Morocco, Thomas Riley, highlighted this aspect by declaring that signing this agreement, «did not mean simply changing tariffs, but modernizing market rules, investment protection and the business environment generally». What changes in relation to the Association Agreement with the EU?
The essence of the association agreement focused on non-agricultural products, that is to say, industrial and energy products that represent, at the most, 25% of the GDP. The opening up only focuses on this part while the logic of opening advocated in the free trade agreement is a global logic. For example, if you manufacture an industrial good and you have loans, transports and expensive services, you cannot be competitive. The logic of opening up can only be global in order to be able to provide consistency for the package, even if (and it is occasionally indispensable), there are some schedules that are differentiated according sector capacity. That is the strong point of the free trade agreement.
This strong point makes this logic extremely dangerous. Are our businesses sufficiently armed to be hurling themselves in this opening up without this safety net?
The ball is entirely in our court; the Americans have negotiated a global framework that is logical and coherent; now it’s up to us. Are we going to initiate reforms with this same global, coherent approach, which pick up the spirit of the agreement? The difficulty is bringing people together, working together and avoiding the situation where each person reasons exclusively for his sector. For our part, we need a national approach that is global and coherent. This is important if we want to benefit from the agreement. We have to be sufficiently attractive to be able to attract US investment without which the agreement would lack a raison d’etre.
Are you expecting huge US investment?
There were initial signs of this with the CMCP (Compagnie marocaine de papier et de carton) but we are only at the very beginning and everything will depend on the improvement in Morocco’s business climate. For many US businesses that we have contacted, if this climate improves, Morocco will be able to become a platform for exports to Europe.
Concerning the reforms that you evoke and according to the World Bank, it is no longer a question of the tempo or speed of implementing these reforms. The problematic issue here is the package, coherence, control and governance. What do you have to say on this point?
That each person, whatever his level, must do his job as best he can and adopt international standards as his benchmark. That is reform. We have to organize ourselves for action, to conduct ourselves and to manufacture in accordance with international standards - and that at all levels. Take Justice for example. If we do not have a justice system that is effective, fair and which enables us to resolve disputes as quickly as possible, we will have a problem that generates a loss of money, energy and above all, a bad reputation. In this regard, we have built for ourselves a reputational deficit that is a liability; we also have delays and the reforms are difficult to implement.
The interests and profits of certain sectors are such that they have generated resistance and hurdles to reforms. Otherwise, how else could we interpret these speeches that are constantly repeated on large reform projects?
The system of profit cannot work and has only generated blockades for Morocco. Take agriculture for example. For 40 years, we protected the cereal sector on the pretext of protecting the peasants. The results were dramatic in terms of productivity. Can we generate revenues that respond at least to the subsistence level with small allotments of 5000m2 using tools of a bygone era?
Under the pretext of protecting the poor, we have cultivated poverty. We have refused to take the necessary decisions to reform this sector. Today, we only succeed in safeguarding poverty.
For the past fifty years, the rural world, notably the Berber world, was the most side-lined in terms of human, economic or social development. If due to the free trade agreement, it still must pay the bill for fresh marginalization, could we not fear new forms of peasant revolts or riots?
I do not believe that riots could originate from the rural world. They have always occurred in the cities or suburbs and are the product of poorly managed emigration that generates problems. We have had riots because we have done nothing in the campaigns. Status quo and political apathy have never been the solution nor will they ever be. To face the problem of stripping lands, a minister had proposed that the eldest son could inherit and reimburse the other heirs. This proposition was rejected because it did not comply with Shariah law and of course, the basic situation of agricultural lands has not stopped deteriorating. Now, it is not possible to have productivity and mechanization and to use modern means of production with such a basic structure! It is a substantive issue because one cannot work on allotments of one or two hectares.
What do you think about the programme of modernizing businesses?
Following the association agreement, we have really glossed over this modernization. We were on a false track and we have generated false debates. We asked ourselves who must do what? Modernization is not a discrete step. It has to be done every day and we have to adapt and make permanent changes. Everyday we have to restructure to maintain our market shares, our manufacturing capabilities and our jobs. It is also a global approach that involves everyone.
As regards investment, does Morocco’s geographical position provide it with the opportunity to become a platform for production for Europe?
Generally speaking, the issue of foreign direct investment must be viewed from the perspective of market size. The Moroccan market by itself is not sufficiently big to establish an interesting lever. In general, US investors invest in big markets. In our region, Maghreb has broken down and the only opportunity that remains is Europe. But that European market is also ruthlessly competitive and we in Morocco are not adequately armed to face this competition.
You say there are still opportunities to export to niche markets such as textiles, crafts or agri-foods. Do you not fear on the one hand, an invasion of US products and the dumping of agricultural goods and on the other hand, dominance in the insurance services and banking sectors?
The concern is legitimate because if you compare US insurance companies with our companies, there is no real comparison. Once again, I repeat that the size of the Moroccan market is not significant enough to motivate a mega investor in Moroccan companies. We put the question: what is the level of insurance in Morocco? Is there a dynamism in this sector? It also must be highlighted that during negotiations with the Americans, safeguards had been inserted in the framework of the agreement. Now, on the subject of exports, we have the problem of offers and niches that can become important. It is for us to invest and to try to exploit niches in this huge economy that match our productive capabilities.
The special editorial devoted to the free trade agreement by the Centre Marocain de Conjoncture warns Moroccan exporters by stating: «Unless you have a competitive offer in terms of cost and quality and a better position vis-à-vis competitive products and services, eliminating customs duties will not resolve the problem of access to the US market». If you know the conditions of access to large retailers in the US, you are convinced. Let us delve further into the debate. Tell us, which niches could present an opportunity?
Let’s take textiles as an example. We have more than 30 million m2 of material that can be imported from any region in the world. We can work them without any restrictions imposed by rules of origin. We can derogate from this rule and re-export to the Untied States. But once again, this niche is only valid for five years. At the multilateral level and the WTO, preparation is underway to ensure that these preferences on the US market and even on the European market will be eroded. It is necessary to be aware of this. Today we have businesses that try to benefit from this advantage. The final call for offers for quotas launched by the Minister for Trade and Industry has been exhausted. That means that there are entrepreneurs that are organized to seize the opportunity and to develop their capabilities to improve their competitivity. There are other niches in the automobile and electronic industry that match our capacities for production. From January 1 2006, 98% of industrial products enter the US market exempt from customs duties. The importation of US industrial products is going to undergo a dismantling according to the set of the lists. What is not manufactured locally can be exempt from custom duties and where there is local production, the tempo for dismantling has been adjusted. That is in the process of being done with the Europeans so that by 2012, we will have the same degree of openness. By this date, both US and European products will have access to our markets on the same terms.
In the aforementioned interview, the US ambassador declared that the «growth rate can increase by 5 or 6% instead of 3 or 4 now». What’s your opinion?
The growth rate raises the whole issue of growth by trade. This theory is only confirmed in the framework of a positive trade balance, in a nutshell, when you sell more than you import. In Morocco, we are not in line with this, because we have some structural constraints. We lack energy, we import cereals and capital goods. If we manage to expand our manufacturing capabilities and thereby our exporting capabilities, we will be able to achieve growing points.
What proves to be more difficult when one knows that the principle of the Americans is «trade and not aid». In other words, there is no financial aid to back a policy of strengthening capabilities?
The US logic is clear: «We are doing business and we do not have to help you». Personally, I prefer this approach, because there will be no development unless it originates from the grass roots.
But for that, do we need to accelerate reforms?
Yes, macroeconomic balances cannot generate sufficient growth. We need to undertake reforms on governance and management that lend coherence to the whole; these are known as third generation reforms that allow us to skilfully steer our ship. There we have a deficit that will need to be quickly plugged up.
We are learning about democracy with all that entails in terms of respecting majority rule, decision-making; consensus costs us dearly because decisions are not taken at the right time and measures are staggered in relation to the international dynamic. Now, we need to learn to reason in relation to the world and that requires expediting our decision-making.
Here do we need to also take into account the devastating effects of globalization and social tensions and do we have reason to fear the free trade agreement?
We can judge situations with reference to the choice that we have to act or not to act.
The agreement offers us a framework for action, for reform. Now, everything hinges on how we are going to benefit from this agreement. We need to act and profit from this agreement without setting up false debates.
Morocco is the second Arab country after Jordan to sign this free trade agreement. Did Morocco delay to see the results of this agreement in Jordan?
There certainly was a significant growth in exports in some niches. The Americans have developed programs through US AID, for example, to help businesses that want to get familiar with the US market. Americans, as the Chinese adage goes, are not handing out fish; they are helping businessmen to fish and sell. Now, it is up to us, and our willingness to extract a profit from this agreement.
After decades of protection and profits, do our entrepreneurs have a sufficient risk-taking culture?
Opening up has ensured that many revenue streams have been dismantled. Today we have a number of entrepreneurs who operate on the basis of market logic and who are effective. But that’s not enough. We need to improve the matrix; we need to ensure the administration becomes more reliable, that services function better and the package is more coherent. We also need to anticipate and take decisions at the right time. In the case of textiles, we lost much time when we needed to implement accompanying measures for the sector. If we do the same thing in the agricultural sector instead of tackling its restructuring, we will be heading towards serious setbacks.
Time becomes a strategic element that we need to factor into our decisions.