Hot spots: Morocco.(International Section)(economy)

Morocco and the U.S. have concluded a bilateral free trade agreement. It is only the second Washington entered into with a Moslem nation (after that with Jordan in 2001) and the first with a country in Africa. The deal is part of an effort by the Bush Administration to pursue a mosaic of trade pacts in order to spread prosperity and democracy "across the Middle East and North Africa," a region of vital interest to the United States. The impact of the accord on both countries will no doubt be discussed when global business leaders gather in Marrakesh in June for the 35th World Congress of the International Chamber of Commerce. But it is already clear that the agreement is one of the most comprehensive and ambitious bilateral pacts the US has negotiated to date.

Once ratified by both sides, it will immediately eliminate duties on more than 95% of bilateral trade in industrial and consumer products. All remaining tariffs are to be scrapped within nine years. The pact is broad and seeks to set a new standard for the protection of intellectual property rights. It aims to open markets for services, ensure government transparency, generate commitments for foreign investment, and provide for the enforcement of U.S.--style environmental and labor standards. To help Morocco generate rapid economic progress and, perhaps, become a model for other countries in the region to imitate, the U.S. will raise its financial aid in 2005 to USD 57.3 million from USD 19.8 million now.

This is still a paltry sum when one compares it, for instance, to the nearly USD 2 billion in U.S. assistance that Egypt receives annually, but the Moroccan economy is already doing quite well, both internally and externally. While tourism and exports proved to be laggards in 2003, the important agricultural sector had a good year, buoyed by good and timely rainfall. When farming performs well, overall production and exports are boosted and all sorts of related industries thrive. Early indications are that real GDP grew by at least 5.0% and possibly closet to 5.5% in 2003, with inflation having accelerated only modestly from 2.9% in 2002.

The main problem on the export side has been that key commodities sold abroad by Morocco, such as phosphates, are traded in dollars, so that earnings suffered with the worldwide slump of the greenback. But this is not to say that the country's foreign balances are causing any headaches these days. Official foreign exchange restores were reported by the IMF at USD 13,851 million as of end 2003, up from USD 10,133 million at the start of last year and from USD 8,474 million 12 months before that, At the end-2003 level, such assets covered over a year's worth of imports, which is a comfortable cushion by all standards.

The overall external debt is quite manageable at about USD 14 billion (official hard-currency reserves cover virtually all of it). Reliable, strong and steadily rising inflows of foreign exchange are generated by the homebound remittances of Moroccan expatriates living and working abroad. Foreign investor interest in Morocco, which has been keen for some time, can only increase with the new trade pact.

To conclude from all this that other, similar trade agreements in the region will now follow quickly and easily would be a mistake, though. Morocco is, in many respects, a special case. As the U.S. Assistant Secretary of State for Near East Affairs put it in remarks to the Senate Foreign Relations Committee, "King Mohammed and his government have launched a very serious and courageous program of reforms ... it is very much in the U.S. interest to see ways in which we can expand our support."

King Hassan II, who ran the country as a despot for most of his reign, began to open up the tightly sealed political system in his last years on the throne. The process was then ...