Morocco expanding trade and investment to develop partnerships

Over the past 15 years Morocco has signed free trade agreements (FTAs) with some of the largest economies in the world. This has impacted the kingdom’s trade figures, though in some cases it has also been followed by increases in trade deficits with these partners. The next major accord Morocco is likely to sign is a Deep and Comprehensive FTA (DCFTA) with the EU that expands the existing Association Agreement (AA) to cover trade in services as well as harmonising Morocco’s trade regulatory framework with the EU.

The accord has, however, faced some domestic opposition and negotiations remain on hold. The kingdom has also been working to sign trade and investment accords with two African economic blocs, against a backdrop of efforts to transform itself into a hub for trade and investment with the continent.

Agreements With Europe

By far the most important of Morocco’s FTAs in terms of the volume of trade affected is the kingdom’s AA with the EU. The accord came into force in 2000 and led to the establishment of an industrial duty-free zone by 2012 as well as the gradual liberalisation of agricultural trade. This latter element was fulfilled in 2012 when the two partners signed an agricultural agreement, under which the EU gives duty access to 55% of Moroccan agricultural products, with 70% of the EU’s agricultural products to be given duty-free access to the kingdom within 10 years.

Industrial goods dominate trade in both directions; in 2013 industrial products accounted for some 91.8% of EU exports to Morocco and as much as 78% of exports from the kingdom to the EU.

Despite such agreements, Morocco’s share of the EU’s external trade has remained more or less constant over the past decade, accounting for 0.6% of EU imports in 2013 compared to 0.7% in 2003, and 1% of EU exports in 2013, up slightly from 0.9% in 2003.

In absolute terms, trade levels have come close to doubling, from €14.57bn to €27.37bn (though the increase is partly a result of the EU’s expansion over the period). The kingdom’s trade deficit with the bloc has also expanded over the same period, from €1.8bn in 2003 to €7.26bn in 2013.

Deepening European Ties

Following the granting of “advanced status” under the European Neighbourhood Policy in 2008, when Morocco became the first country in the southern Mediterranean region to receive the status, the EU issued negotiation directives in 2012 for the establishment of so-called DCFTAs with the kingdom and three other Arab countries.

Such an accord will substantially widen the scope of previous agreements between the two economic partners, covering not only trade in goods but also in services; furthermore, it will also largely bring Morocco’s commercial regulatory framework in alignment with that of the EU through the harmonisation of regulations in areas such as intellectual property, procurement and investment protection, among others.

In June 2014, Morocco put a fifth round of negotiations on the accord on hold for an unspecified period of time. This was done in order to conduct an assessment of the likely impact of an agreement on a number of economic segments, following concern by local industries that services firms, for example, could struggle to compete with European competitors.

At the time of writing, a date for holding the latest round of talks had yet to be announced. In the meantime, however, other efforts to harmonise Morocco’s economy with the EU continue.

In March 2015, an agreement came into force allowing applicants for European patents to also have them validated in Morocco, with the same legal status under Moroccan law as locally granted patents.

Jean-Pierre Chauffour, lead country economist for Morocco at the World Bank, told OBG that despite local concerns regarding the impact of an agreement, it could provide the kingdom with a major economic boost. “The DCFTA can provide a transformational platform to improve the regulatory environment,” he said. Inés Pérez-Durántez Bayona, economic and commercial counsellor at the Spanish Embassy to Morocco, echoed such support for the accord. “The EU impact assessment of a DCFTA with Morocco shows mutual gains. In Morocco it could help to boost internal competition in particular, which is needed to dynamise some sectors,” she said. “It would also boost competition in government tenders as the government has not yet signed the WTO agreement on tenders and many contain national content requirements.”

Other Agreements

The kingdom has also signed FTAs with a number of economies. In 2005 an FTA between the kingdom and the US fully came into effect, having been ratified by the US Congress and the Moroccan Parliament in 2004 and 2005, respectively. In November 2013, the two countries signed a trade facilitation agreement to speed up Customs procedures.

Overall trade with the US has increased over fourfold since the 2005 accord was signed, although imports from the US have grown much more quickly than exports from Morocco. This has led to a widening in the trade deficit with the US, from Dh3.75bn (€408m) in 2005 to Dh21.44bn (€2.33bn) in 2013 – close to a six-fold increase – according to Office des Changes data.

Exports to the US are also stymied by provisions of the agreement such as requirements that US inputs are included in Moroccan textiles products in order for them to benefit from the accord, and officials have said that the US has not worked to facilitate agricultural imports from the kingdom.

Closer to home, 2006 also saw an FTA with Turkey come into effect, and in 2007, the so-called Agadir Agreement establishing a free trade area among Morocco, Egypt, Jordan and Tunisia came into force, having been signed in 2004. The latter agreement abolishes duties on industrial and agricultural goods (albeit while permitting exceptions).

The kingdom is also a member of the Arab Maghreb Union, established in 1989, which aims to eventually create a single economic area between Algeria, Libya, Mauritania, Morocco and Tunisia. However, obstacles such as long-standing poor relations between Rabat and Algiers have blocked its implementation, and the project is effectively defunct. Morocco’s trade deficit with Turkey, meanwhile, has grown since the implementation of the FTA between the two countries, albeit it at a slower rate than overall bilateral trade. According to the Financial Times,investments by Turkish firms in the kingdom have reached around $240m, while trade now exceeds $1bn, with several projects centred on construction and infrastructure.

Plans for Africa

While the kingdom has been working to position itself as an investment hub for Africa, trade with sub-Saharan Africa remains small, partly as a result of few free trade agreements in place. According to figures from the Ministry of Economy and Finance, trade rose from Dh4.7bn (€511.3m) to Dh14.4bn (€1.57bn) between 2003 and 2013, which represents an annual average growth rate of 12%. While the kingdom has been working to boost this total, progress so far has been slow.

Negotiations on a preferential trade and investment agreement with the eight-member West African Economic and Monetary Union (Union Economique et Monétaire Ouest Africainé, UEOMA) began in 2000 and led to a draft accord being penned in 2008; however, both sides have yet to sign it.

In January 2015, the National Foreign Trade Council called on the authorities to speed up efforts to sign an agreement with the bloc. The agreement would give countries from the UEOMA duty-free access for industrial exports to Morocco, while gradually having to reduce duties of their own on Moroccan industrial goods. The kingdom has blamed the lack of progress since then on unwillingness by some UEOMA members to open up their economies to competition.

Morocco has also been working to establish a free trade area with the 10-member Central African Economic and Monetary Community. The kingdom ranked first among countries from the continent in 2013 in terms of investment in the economic bloc, though at the time of writing there were few indicators of any sort of progress in taking this relationship to a new level.