Habib Kazzi
Full Professor of International Trade and Investment Law (Lebanese University); Lawyer at the Paris Bar (France)
Abstract
This article makes the case for the transposition of the American Manufacturing Competitiveness Act of 2016 within the legal frameworks of Arab States. This legislation provides for a temporary cut tariffs on raw materials and other products not or insufficiently available on local markets, thereby enhancing the competitiveness of U.S. manufacturers in both local and export markets, and easing access of U.S. consumers to more affordable products. Needless to say, the adoption of a similar tool in the Arab States would provide effective leverage to support the economic diversification and export strategies undertaken over the last decade.
INTRODUCTION
As part of the national competitiveness strategy, the U.S. Congress has enacted, on May 20, 2016 the so-called “American Manufacturing Competitiveness Act of 2016” (AMCA) with the purpose to correct, on a temporary basis, distortions in the Harmonized Tariff Schedule of the United States that place an unnecessary and anti-competitive tax on manufacturers, retailers and other businesses across the country relying on imported raw materials and intermediate products for which there is no domestic availability or insufficient domestic availability.
While Congress had effectively addressed such distortions through the enactment of specific legislation with strong bipartisan support for three decades, the U.S. Manufacturing Enhancement Act expired at the end of 2012. Since then, manufacturers throughout the country have faced an annual $748 million tax increase on their inputs, and the U.S. economy has suffered a $1.875 billion economic loss (National Association of Manufacturers, 2016). At the same time, some economists reveal that such legislation would increase U.S. production by $4.6 billion and support almost 90,000 jobs (SZAMOSSZEGI, 2009).
So far, American manufacturers are forced to pay tariffs on the materials they need but are not made in the United States. These needless taxes drive up the price of American-made products and make it harder for American business to compete in the global marketplace. By ensuring a more open and transparent process for the submission and consideration of petitions for temporary duty suspensions and reductions, the AMCA helps create economic benefits for consumers while bolstering the competitiveness of U.S. manufacturers on domestic and foreign markets. While most Arab countries are engaged in comprehensive economic diversification strategies with mixed outcomes, the relevance of the introduction of such a mechanism in their legal frameworks is an inevitable issue.
It is widely assumed that the prevailing development model in Arab states still remains vulnerable. In the MENA region, the State is the most important economic actor, eclipsing all independent, productive sectors. This region's pathologies are mainly segmented labor markets, limited regional integration, and a weak private sector. Such a development paradigm is ultimately rooted in an economic structure that relies overwhelmingly on rents derived from fuel exports, foreign aid or remittances. Largely driven by geopolitical considerations, these external rents have expanded the public sector, bolstering its ability to provide employment and subsidized public consumption (MALIK and AWADALLAH, 2011).
Such a business environment adversely affects the performance of firms. The private sector in the MENA region is notable for its limited export presence, few productive spill-overs across firms, and has one of the lowest levels of productivity. In this context, a long-term vision for the region must, therefore, involve a gradual shift away from natural resources towards a globally competitive private sector. In virtually all countries that succeed in reducing poverty and unemployment, labor-intensive manufacturing was an essential component of the development strategy.
It is not a coincidence that the need for diversification has become the panacea of Arab policymakers. Government documents frequently cite diversification as a core development objective. International development institutions have, on their part, advanced globalization as a cornerstone, insisting on trade liberalization and deregulation of domestic economies. But apart from atrial success stories in some Gulf countries (UAE, Oman, and Bahrain), diversification has merely remained a paper aspiration. Despite reforms launched in a decade, Arab firms still remain insignificant in export markets, with limited success in entering new markets or introducing new products.
Within the context of wider industrial policies, four industries related to raw materials are of critical importance for industrial development. First, the metal industries process non-ferrous metals such as aluminum, copper, and zinc, as well as ferrous materials such as steel. Second, non-metallic mineral products comprise the production of cement, ceramics, glass, and lime. These manufacturing sectors are characterized by the transformation of naturally occurring minerals such as limestone, silica, and clays through an energy-intensive process. Third, minerals are raw materials essential for modern society. They are used to build roads and houses and to produce cars, computers, and household appliances. The mining and quarrying industry which extracts these minerals is very important to industrial, social, and technological progress in Arab societies. Finally, the MENA region forest-based industries consist of four major sectors: woodworking, furniture, pulp & paper manufacturing and converting, and printing.
It is clear that strengthening economic diversification and private sector competitiveness is not a gamble or a twist of fate. This is the outcome of a delicate strategy based on instruments with short and long-term impact. For Arab States, economic and export diversification policies require wide-ranging reforms, including a more stable macroeconomic environment, an intensification of investment in infrastructure, an improvement of educational outcomes, the development of specific sectors, an easier financing for companies, particularly small and medium-sized enterprises (SMEs), the promotion of entrepreneurship through SMEs, and more generally the strengthening of business climate across the Arab region.
In this toolbox, the AMCA can play a crucial role by rewarding firms that produce and export in tradable sectors to compete internationally. Such a legal instrument may constitute the "missing link" in current policies by creating incentives for firms to improve their industrial production and technology, create jobs, spend more on research and development thank savings achieved and, ultimately, develop export markets. In addition, such an initiative would be an appropriate solution to the failure of sporadic and opaque incentives for imports of raw materials provided for in some Arab countries, such as GCC States under GCC Common Industrial Law and Islamic financial instruments (Istisna).
The remaining article is organized as follows. Section I highlights the coverage and features of the AMCA. Section II discusses the compliance of the AMCA with WTO disciplines, particularly the Agreement on Subsidies and Countervailing Measures. Section III stresses the benefits for Arab economies of the transposition of the AMCA into their domestic legal frameworks. Finally, Section IV concludes.
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