July 17, 2003

July 17, 2003 | Backgrounder on Trade, Economic Freedom

Moving Ahead with Morocco _

The United States and Morocco are in the midst of negotiating a free trade agreement (FTA). America should ensure that Morocco is ready to match economic liberalization with other reforms such as the enforcement of intellectual property rights and improving the judicial system.

The United States Trade Representative (USTR) should make every effort to finish these negotiations by the end of this year, and the U.S. Congress should support this endeavor. The negotiations cover agriculture, market access, intellectual property rights protection, investment, services, government procurement, labor rights, environmental protection, textiles, electronic commerce, and customs rules.

These negotiations offer benefits beyond expanded access for American and Moroccan exporters. An FTA would offer a shot of economic liberalization for this North African nation that is struggling to do the right thing. Morocco is undergoing significant political and economic reform, and this trade agreement would boost these efforts. As Ambassador Robert Zoellick has noted, "A free trade agreement with Morocco will expand our already strong relationship with a key economic and political partner in the Middle East."1

Longstanding Relationship

The United States and Morocco have a longstanding friendship. Morocco was the first country to recognize the fledgling American republic on December 20, 1777. On July 18, 1787, the Treaty of Marrakech was implemented, providing "for the protection of American shipping along the Moroccan coast and for commerce between the two nations on the basis of most favored nation."2 The relationship has continued to grow stronger with several agreements between the two countries, including the U.S.-Morocco Bilateral Investment Agreement in 1991, the Trade and Investment Framework Agreement in 1995, and the Open Skies Agreement in 2001.

Morocco was also one of the first countries to condemn the September 11 terrorist attacks on the United States and has been a strong ally in the war against terrorism. One significant example is "the arrest on May 2002 of three Saudis and seven Moroccans accused of having been part of an Al-Qaeda plot to blow up U.S. and British warships crossing the Strait of Gibraltar."3

Why Liberalization Is Needed

The 2003 Index of Economic Freedom characterizes Morocco as a "mostly free" country with a very high level of protectionism.4 According to a report from the American Chamber of Commerce in Morocco, Morocco needs "a balanced and coherent labor code, a transparent and efficient justice system, [and] the enforcement of intellectual property rights."5 The report also notes that, "in order to attract significant trade and investment under an FTA, Morocco will need to match tariff reductions with improvements in the overall business environment."6

In order for U.S. investors to take advantage of the liberalization under an FTA, a strong rule of law must be established in Morocco, and this should be addressed in the FTA negotiations. Specifically, an FTA with Morocco must address property rights. American exporters have lost money because of software piracy. In 2001, Morocco had a piracy rate of 61 percent.7 Within certain industries, it is even higher: For example, the piracy rate for music is 95 percent.8

Currently, American products face an average tariff of over 20 percent while Moroccan products entering the United States face an average tariff of 4 percent.9 Morocco also subsidizes certain agricultural products, such as sugar and wheat flour,10 and uses tariffs to protect its wheat and sugar producers. For its part, the U.S. heavily subsidizes agriculture and protects some other industries, including steel and textiles. Reducing tariffs and agricultural subsidies would help both countries.

Morocco is eager to boost tourism and foreign direct investment. As a result, the Moroccan government, backed by King Mohamed, has announced significant political and economic reforms, including efforts in telecommunications, finance, and transportation. One such effort is an initiative to streamline investment procedures and eliminate barriers to foreign and domestic investment in the Moroccan economy. Negotiating an FTA with the United States would fuel this momentum toward reform.

According to the U.S.-Morocco FTA Coalition, an FTA would "provide an opportunity to ensure the full implementation of a new Moroccan law allowing for the 100 percent foreign ownership in the insurance sector." Additionally, the Organisation for Economic Cooperation and Development reports that "a privatization program was launched in 1993 after steps in the 1980s to open up the economy. By the end of June 2001, 65 firms (including 28 hotels) had been privatized."11

In addition to encouraging economic liberalization in Morocco, the United States should liberalize trade at home. U.S. agriculture is heavily subsidized, and America is known for its stalwart protection of other industries such as steel and textiles. The United States should seek to rid itself of this "do as we say, not as we do" reputation by putting everything on the table in its negotiations with Morocco.

Opportunities for U.S. Exporters

American exports to Morocco average around $475 million each year. "Leading exports," according to one report, "include aircraft, corn, and machinery. Recently, exports of fabrics and pharmaceuticals have increased significantly."12 An FTA with Morocco would continue this trend.

Because America is the world's largest agricultural exporter, American farmers would particularly benefit from expanded market access. During periods of drought, Morocco relies heavily on imported farm products, such as wheat, soybeans, and corn, thus giving U.S. farmers a significant opportunity to export.

According to David McGuire of the U.S. Grains Council:

While Morocco signed a free trade agreement in March of 2001 with the E.U., agricultural issues were largely excluded in that treaty. Therefore, tariff elimination under a U.S.-Moroccan free trade agreement would give U.S. exporters significant tariff advantages over those competitors.13

Under an FTA, U.S. farmers would have more market access than European farmers do. Such competition would put pressure on the countries that engage most in agricultural protectionism, like France, to move toward more open markets.

The FTA negotiations also coincide with construction of a new port in Tangier, which will be the largest port in North Africa and possibly the second largest in the Mediterranean basin after Genoa. Construction is scheduled for completion by the end of 2006.

Recommendations

Congress and the USTR should seek to conclude a comprehensive FTA with Morocco by the end of this year. An FTA would undergird Morocco's reform efforts and would expand market access for U.S. and Moroccan exporters.

Specifically, as part of the FTA negotiations, the United States should:

  • Seek greater access for American exporters and encourage further liberalization by granting greater market access to Moroccan exporters.
  • Seek to liberalize agriculture by reducing U.S. tariffs on products such as sugar and urge Morocco to do the same. (Agriculture is the toughest issue in these negotiations, and both parties should come to the table with economic liberalization in mind.)
  • Ensure that Morocco matches economic liberalization with improvements in the judicial system, institution of a strong rule of law, and enforcement of intellectual property rights. It is ironic that Morocco once protected the United States from pirates only to struggle today with another brand of piracy. U.S. negotiators must press Morocco to commit to effective enforcement.

Conclusion

An FTA would reinforce the strong bond between the United States and Morocco. If these measures are implemented, this agreement would create a greater momentum for reform in Morocco, give greater market access to both economies, and encourage the continuation of the long and fruitful relationship that has existed between the two countries.

Sara J. Fitzgerald is a Trade Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation.


1. Office of the United States Trade Representative, "United States and Morocco Launch Free Trade Negotiations," press release, January 21, 2003.

2. U.S. Embassy in Morocco, "Historical Background on United States--Morocco Relations," at www.usembassy.
ma/U.S.-Moroccan%20Relations/US_Moroccan_Relations2.htm .

3. Guilain Denoeux Washington, "Morocco/United States Friends in Need," Arabies Trends, April 7, 2003.

4. Gerald P. O'Driscoll, Jr., Edwin J. Feulner, and Mary Anastasia O'Grady, 2003 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Co., Inc., 2003), p. 305.

5. "Amcham in Morocco: US-Morocco FTA Success Depends on Improvements of Moroccan Business Environment," ArabicNews.com, December 4, 2002, at www.arabicnews.com/ansub/Daily/Day/021204/2002120422.html (May 5, 2003).

6. Ibid.

7. Business Software Alliance, "Seventh Annual BSA Global Software Piracy Study," June 2002, at www.bsa.org/usa/policyres/admin/2002-06-10.130.pdf. According to the BSA, "software piracy is measured in this study as the amount of business application software installed in 2001 without a license."

8. Laura Lane, Vice President, International Public Policy, AOL Time Warner, testimony before the U.S. Trade Representative, Public Hearings of the Trade Policy Staff Committee, November 21, 2002.

9. Ibid.

10. U.S. Department of Agriculture, "Morocco Exporter Guide Annual 2002," Foreign Agricultural Information Network Report No. MO2018, October 4, 2002.

11. African Development Bank and Organisation for Economic Cooperation and Development, "Morocco," in African Economic Outlook (Paris: Organisation for Economic Cooperation and Development, 2003), at www.oecd.org/pdf/M00039000/M00039328.pdf.

12. Ibid.

13. David McGuire, testimony before the U.S. Trade Representative, Public Hearings of the Trade Policy Staff Committee, November 21, 2002.

About the Author

Sara J. Fitzgerald Policy Analyst
Center for Trade and Economics (CTE)