Morocco faces reform challenges with US FTA deal

Morocco's commitment to economic reforms faces a key test after it sealed Africa's first free trade accord with the United States, analysts said.

While exports to the Kingdom represent a trickle for the world's largest economy, the stakes are high for Morocco - a staunch ally with a fifth of the population below the poverty line, chronic unemployment, underdeveloped infrastructure and rife red-tape.

The two countries agreed on March 2 to lift tariff barriers on 95% of consumer and industrial products traded immediately once their respective legislatures approve the historic pact.

The deal is expected to boost business and investment ties, and Washington has said the pact showed its commitment to helping Muslim societies, such as Morocco.

"This deal will hopefully be a catalyst for the kind of change Morocco needs," according to Peter Worthington, Emerging Markets Research Director at Credit Suisse First Boston.

"Morocco is spending far too much money to support the underproductive agricultural sector and (on) a huge legion of civil servants and on educating students in the wrong way," he added.

Analysts say Rabat has a window of opportunity to boost bilateral trade or lure US firms seeking a closer reach to European Union and African markets.

Lahcen Daoudi, an economist and opposition member of parliament, agreed.

"Such a deal can never be 100% profitable to Morocco or the United States. But we have to limit the losses," he said.

Authorities must now boost transparency and productivity, improve training to raise the competitiveness of employees and provide firms with tools that enable them to meet the challenges, Daoudi added.

Morocco will totally abolish by 2012 trade barriers with key trade partner, the European Union, part of a gradual dismantling of tariffs.

The US market accounts for about 3.5% of Morocco's total exports and imports, while France, for example, holds 30% of Morocco's exports and 20% of its imports.

Balancing act

Free trade talks hit a hitch last December over agriculture, a sensitive issue for Morocco because it employs some 40% of the workforce but only contributes 15% of Gross Domestic Product, which stood at $47.5 billion in 2003.

Local pharmaceutical firms also fear drugs would become unaffordable to larger numbers of Moroccans under the deal's intellectual property rights.

Abdelmounaim Dilami, head of Rabat Mohammed V University's political department, brushed aside concerns.

"The major win from this deal lies in the philosophy of what it brings. It will help Morocco integrate modernity. What we need is fast modernization," Dilami said.

"We are not happy about the current state of our economy and we want to change it. So the outcome of the deal will depend on what we will achieve in 10 to 15 years time," he said.

The deal was a win-win proposition because it would facilitate exports, spur investment and economic growth, improve the business environment and create jobs, said the US Trade Department.

It also urges each government to prohibit bribery and protect whistle-blowers. (Reuters)