By the time the European Common Market was created by the treaty of Rome in 1957, the Arab League states had signed among themselves a treaty for joint defense and economic cooperation, a convention for facilitating trade and regulating transit trade, and an Arab economic unity agreement. In addition, they had created the Arab League in 1945 as an institution for political coordination. Ironically, though the Arab states pioneered regional economic and political integration, the Middle East today has the least trade within itself of any region in the world.
Arab Economic Integration, initiated by the Egyptian Center for Economic Studies, documents this depressing history and analyzes the failures. The study's seven chapters are brutally frank about the past and bluntly realistic in their forecasts. They show that the failure to integrate results only in small part from the countries' low degree of complementarity (does country A need what country B has to sell?). More important are inward-looking economic policies that discourage trade. Galal and Samiha Fawzy present simulations showing that in industry after industry, an Egyptian firm that sells on the domestic market does better than an identical firm selling for export. From 1990 to 1999, they point out, the share of exports in Egypt's national output fell by half, from 14 percent to 7 percent. From a simulation of the benefits to Egypt and Tunisia, Jamel Zarouk shows that the greatest benefits come from reducing the excessive state regulation of the economy, which prevents free trade in services. Even more important than bad economic policies, poor political leadership has held back Arab economic integration. Fawzy targets the unwillingness of political leaders to integrate, out of concern about which nations would benefit most and from fear about who would emerge as the regional political leader.
The two chapters on the relevance of the European experience at economic integration, one by L. Alan Winters and the other by Hoekman and Patrick Messerlin, seem less in touch with the Arab experience. For instance, Winters argues that Europe was successful because its integration was a political-ideological phenomenon: "It was not driven by the careful calculation of economic costs and benefits but by a grand vision that had fortunate economic side effects." The obvious question he does not explore is why, given the power of the Arab unity vision, no such dynamic worked in the Arab world.