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Free-Trade Agreements Not Yet in Favor of Morocco
The same can be said about Morocco’s free trade with the European Union (EU) and the European Free Trade Association (EFTA), a grouping of four European countries, Island, Liechtenstein, Norway and Switzerland. Trade deficits with these zones have been a constant factor, reaching MAD 7.5 billion and MAD 1.17 billion, respectively in 2005. The bad news for the Moroccan trade balance with its free-trading partners goes on. Whether it is Tunisia, Egypt or the United Arab Emirates, these trade agreements put Morocco in a tough position. The question therefore is why Morocco is in so much of a competitive disadvantage? There are several explanations, many related to country-specific conditions.
Observers in Morocco argue that in the case of the European Union, the agreement turned out in favor of European companies precisely because Moroccan firms already had preferential access before the agreement was inked, while their European counterparts did not benefit from reciprocity. The agreement fixed that discrepancy, allowing European companies to catch up, but also to expand their sales into Morocco at a faster pace. In the case of Arab countries, in particular, the agreements and the negotiations leading to them, failed to recognize the gap that existed (and still does) between Morocco and its partners in the areas of fiscal policy and overall economic fundamentals. These gaps did not favor Morocco, which needed first to overhaul its economic structures. Now that Morocco knows that, will it do something about it? Movements in Rabat signal that changes are likely to happen.
Almost two years since the free-trade agreements Morocco inked with the United States and Turkey and the benefits of such deals remain uncertain. For now, official data indicates that trade has not exploded in ways that many business leaders anticipated. Moroccan exporters have not been pushing as hard as they could, in particular among businesses operating in sectors said to be the most promising such as garment and textile, leather, auto parts, and fish products. The conclusion that many make is that Moroccan businesses' adaptation to the changes and their ability to grab opportunities will take longer than expected. The learning curve is indeed steep.
For some textile professionals, the industry is doing relatively well given the free-trade agreement with the United States opened new opportunities in a market that was not previously targeted. Marketing their products through trade shows such as the Las Vegas Magic Show, textile companies from Morocco managed to grow their exports to the United States by as much as 30% year on year as of 2006. Moroccan businesses have also been active seeking to expand their sales into Turkey, in particular as products using Turkish raw materials benefit from higher priority. It is also expected that Turkish companies will soon begin to relocate their manufacturing activities in Morocco and are likely to raise their purchases there.
In contrast, the leather industry remains lethargic and its leaders have not been rushing to conquer the American market. The industry says it currently lacks support and a special export assistance program is in the offing. But the industry’s federation says its members are well equipped to handle the demanding and mature American market.
The bulk of their work thus far with respect to the American market occurs in form of contract manufacturing on behalf of European companies. In other words, leather products can already be found in U.S. retailers but they carry European brand names. As such, they expect that at some point competition for the U.S. consumers could actually be with their European clients. And in this context, the Moroccan hold a competitive advantage given their sales to the United States are paid in U.S. dollars, instead of the Euro as practiced by the Europeans. In addition, production cost in Morocco is 30% lower than in Europe. As for Turkey, the biggest benefit is the Moroccan businesses' ability to purchase their raw materials are reduced cost.
In the automotive sector, businesses are still in the process of analyzing the U.S. market and working with the industry ministry to establish an export strategy that works. The focus is on a series of extremely competitive products often imported from China, ranging from dashboards to gearboxes, and from windshields to radiators.
But Morocco is not just thinking about export only. It is working to convince American small and medium-size businesses to use it as a platform for their exports to Europe. They are using the case of some small American companies that have establish operations in Morocco to establish their value proposition and lure other US companies.
For the Turkish market, the agreement as it stands today has essentially benefited Turkish companies instead, despite some cases of Moroccan successes such as Plastex, Siprof, and Detroit Industries, three companies that managed to establish a presence in Turkey and sell their products there.
In the fisheries sector, exports witnessed a slight increase in value. This is attributed to the rise in the sale of tuna and mackerel generating some MAD 300 million last year, compared to MAD 215 million in 2005. The export of canned sardine rose by some MAD 4 million to a total revenue figure of MAD 59 million. In this sector, fish products, with the exception of untreated sardines have been exonerated from import taxes by the Americans. Although the removal of tax barrier bodes well, there is still however a major problem and that is 98% of Morocco’s canned sardine actually do not benefit from tax exoneration given it is processed. This requirement imposed by U.S. trade negotiators is essentially meant to protect the few sardine companies still operating in the United States.
As for the Turks, canned fish is not of interest to them. Instead they have imported some 5,000 tons of Moroccan frozen sardines in 2006. In the electrical component sector, Moroccan industries are finding difficult accessing the U.S. market. The main culprit is neither quality nor the industry's will but standards. Morocco is lined up with European standards, which are often different than American standards. This means the Moroccan electrical component industry will have to think hard on a strategy for a North American expansion.
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