Morocco-U.S. Free Trade Agreement
CRS Report for Congress
Morocco-U.S. Free Trade Agreement
Raymond J. Ahearn
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
The United States and Morocco reached agreement on March 2, 2004 to create a
free trade agreement (FTA). The Senate approved implementing legislation (S. 2677)
on July 2, 2004 by a vote of 85-13 and the House approved identical legislation (H.R.
4842) on July 22, 2004 by a vote of 323-99. The next day, the Senate passed House
approved H.R. 4842 without amendment by unanimous consent. The legislation was
signed by President Bush into law (P.L.108-302) on August 3, 2004. The agreement
entered into force on January 1, 2006, a year later than planned due to the need for
Morocco’s Parliament to pass amendments to its intellectual property laws. The FTA
is intended to strengthen bilateral ties, boost trade and investment flows, and bolster
Morocco’s position as a moderate Arab state. More than 95% of bilateral trade in
consumer and industrial products became duty-free upon entry into force, while most
other remaining barriers are to be phased out over a number of years. This report will
be updated later this year.
Introduction
President Bush and Moroccan King Mohammed VI announced at a meeting in
Washington, D.C. on April 23, 2002, that the two countries would seek to negotiate a free
trade agreement. On October 1, 2002, U.S. Trade Representative Robert Zoellick sent
Congress formal notification of the Administration’s intention to begin FTA talks with
Morocco. In his notification letter, Zoellick stated that the completion of an FTA with
Morocco would “support this Administration’s commitment to promote more tolerant,1
open and prosperous Muslim societies.”
1 Office of the U.S. Trade Representative Home Page. Found at [http://www.ustr.gov/
Docume nt_Li b r a r y/ L e tters_to_Congress/2002/Morocco_FT A_Senate_Notification_Letter.html ]
and [http://www.ustr.gov/Document_Library/Letters_to_Congress/2002/
Morocco_FT A_House_Notification_Letter.html ]
Congressional Research Service ˜ The Library of Congress
Negotiations for the FTA were launched on January 21, 2003, in Washington. After
a total of eight negotiating rounds, U.S. Trade Representative Robert Zoellick and
Moroccan Minister Taib Fassi-Fihri reached agreement on March 2, 2004 on a
comprehensive FTA. After the required 90-day congressional notification period expired,
the two sides signed the agreement on June 15, 2004. Both the Senate and House
approved implementing legislation in July 2004, and President Bush signed the legislation
into law (P.L. 108-302) on August 3, 2004. The Moroccan Parliament ratified the
agreement on January 18, 2005, but subsequently had to legislate changes in the country’s
intellectual property laws to implement its FTA obligations.
According to the Office of the U.S. Trade Representative, Morocco was chosen as
an FTA partner for multiple reasons. First, USTR officials stated that a trade agreement
with Morocco would further the executive branch’s goal of promoting openness,
tolerance, and economic growth across the Muslim world. Second, Morocco has been a
strong ally in the war against terrorism. Third, the FTA would ensure stronger Moroccan
support for U.S. positions in WTO negotiations. Fourth, USTR officials maintained that
an FTA would help Morocco strengthen its economic and political reforms. Fifth, the
agreement is expected to provide U.S. exporters and investors with increased market
access.
The Moroccan trade pact is now the fourth FTA (after Israel, Jordan, and Bahrain)
the United States has in force with a Middle Eastern country. An agreement with Oman
has been signed, but not yet considered by Congress. Each agreement is intended to be
an integral part of President Bush’s strategy to create a Middle East Free Trade Area by
Background
Morocco is a moderate Arab state which maintains close relations with Europe and
the United States. Situated in North Africa on a land mass slightly larger than California,
Morocco borders the North Atlantic ocean and Mediterranean Sea between Algeria and
Western Sahara. Approximately 99% of its 30 million people are Muslim.2
The government of Morocco today is a constitutional monarchy. King Mohammed
VI, who assumed the throne in July 1999, is the head of state. The constitution grants the
King extensive powers, including the authority to appoint the prime minister and several
key ministers individually, and approve the Council of Ministers, the power to dismiss the
government, the power to dissolve the parliament, and the power to rule by decree. The
King also serves as the supreme commander of the armed forces and serves as Morocco’s
religious leader or “Commander of the Faithful.” The King, and not the Prime Minister,
also defines the policy directions and priorities of the government.3
On the one hand, there have been some calls from elements of the Moroccan press
for reform of the constitution to reduce the powers of the King, while enhancing the
2 For general information, see CRS Report RS21579, Morocco: Current Issues, by Carol
Migdalovitz.
3 Economic Intelligence Unit, Country Report Morocco, 2003 Main Report, p.12.
powers of the Parliament. On the other hand, many analysts believe that King Mohammed
VI is dedicated to addressing Morocco’s underlying social problems, while gradually
liberalizing the political system further.4
Following September 2002 parliamentary elections, King Mohammed named Driss
Jettou as Prime Minister and head a six-party center-left coalition government. Mr. Jettou
is often described as a forceful technocratic leader. Yet Morocco’s over 20 political
parties create a fragmented political system, making it difficult for the government to
reach consensus on how best to address its many social and economic problems.
Critically, high unemployment that averages over 20% in urban areas, increasing income
inequality, and widespread poverty provide fertile ground for increasing support for a
fundamentalist Islamist movement, al-Adl wal-Ihsane (Justice and Charity).5
With a per capita income of about $2,000 (2002), Morocco also faces challenges
typical of many poor developing countries. These include preparing the economy for
freer trade, reducing public sector wage rates and bloated ministries, increasing labor
market flexibility and skills, restoring a crumbling infrastructure, and reducing
dependence on imported energy.6
Morocco’s economy is based on mining, agriculture, fishing, tourism, a growing
manufacturing sector, and a deregulated telecommunications sector. Morocco has the
world’s largest phosphate reserves, and exports of phosphates from state-owned
companies account for about 17% of Morocco’s total exports. Agriculture accounts for
between 15-20% of GDP and employs between 40-45% of its workforce (services
employs around 35% and industry around 15%). Morocco is a net exporter of fruits and
vegetables and a net importer of cereals, oilseeds, and sugar. Severe droughts often hurt
Morocco’s farm production, thereby serving as a drag on economic growth.7
The Moroccan economy also depends heavily on the inflow of funds from
Moroccans working abroad. The illegal production and export of cannabis also plays a
role in the economy, particularly in the north. The European Union is its primary trading
partner, accounting for nearly 67% of its exports and 55% of its imports in 2002. France
is Morocco’s single largest trading partner by a wide margin. The United States is a
relatively small trading partner, accounting for about 5% of Morocco’s total trade.8
Why Morocco?
The Bush Administration’s decision to negotiate a FTA with Morocco was a surprise
to a number of observers. A U.S. Chamber of Commerce official, for example, questioned
the decision on the grounds that the United States does not do a lot of business with
4 Global Insight, Morocco, p.3. Found at [ht]tp://www.globalinsight.com/MyInsight/.
5 Ibid., p. 6.
6 CIA World Factbook, 2002 - Morocco, p.7. Found at
[ ht t p: / / www.ci a.gov/ ci a/ publ i cat i ons/ f act book/ geos/ mo.ht ml ]
7 U.S. Commercial Service, Morocco Country Commercial Guide FY2002, p.1.
8 CIA World Factbook, p.9.
Morocco and that other Middle Eastern countries, such as Egypt and Turkey, would be
more suitable partners.9 The Bush Administration, backed by a coalition of U.S.
companies that support the negotiation, responded that both U.S. economic and political
interests (see below) will be well served by the proposed FTA.
U.S. Commercial and Trade Policy Benefits. Before the FTA, U.S. exports
to Morocco faced an average tariff of 20% versus a 4% average tariff that Moroccan
exports face in the U.S. market. By moving towards duty-free treatment, two-way trade
flows should expand beyond the current small $ 854 million level (comprising U.S.
exports of $469 million and imports of $385 million in 2003). In addition to the current
leading U.S. exports to Morocco (aircraft, corn, and machinery), U.S. exports of products
such as wheat, soybeans and feed grains, beef and poultry are expected to increase under
the FTA.
New commercial opportunities for U.S. exporters may also be derived by offsetting
current tariff preferences as embodied in the European Union-Morocco Association
Agreement, which became effective on March 1, 2000. This agreement provides
preferential tariff treatment for most EU industrial goods, but largely excludes agriculture.
Because agriculture will be included in the U.S.-Moroccan FTA, many U.S. agricultural
interests believe they can enhance their position vis-a-vis European producers.10
The U.S.-Moroccan Business coalition also argues that the FTA will increase the
access American firms have to Morocco’s service sector. Besides telecommunications and
tourism, the coalition maintains that new opportunities for U.S. firms in the banking,
energy, audio-visual, telecommunications, finance, and insurance sectors are likely to be
opened up as a result of Moroccan economic reforms.11
In addition, the FTA could support the Bush Administration’s trade strategy of
“competitive liberalization.” By helping a developing country that recognizes the
importance of trade liberalization as a key ingredient of development, the Moroccan FTA
could demonstrate to other developing countries the benefits of economic reform and
trade liberalization, including the WTO round of multilateral negotiations - the Doha
Development Agenda. As a Chair of the G-77 and Africa Group within the WTO, the
Bush Administration maintains that Morocco is in a leading position to promote the
benefits of the Doha Round to other developing countries.
Political Benefits. Similar to the Jordan-U.S. FTA, the FTA with Morocco is
viewed by the Administration as a tool to support a moderate Muslim state in the region.
By contributing to increased development and prosperity in Morocco, the FTA is intended
to contribute to the stability of the region and send a concrete signal to countries in the
Middle East about the benefits of closer economic and political ties with the United
9 Inside U.S. Trade, “Chamber Official Says USTR Understaffed, Criticizes U.S. Choice of FTA
Partners,” February 7, 2003.
10 Office of the United States Trade Representative, Free Trade With Morocco, January 21, 2003.
Found at [http://www.ustr.gov]
11 U.S.-Morocco FTA Coalition: Talking Points. Found at the National Foreign Trade Council
Website: [http://www.nftc.org/]
States. The FTA is also a mechanism for advancing the overall U.S.-Moroccan
relationship. As Morocco is one of the strongest U.S. allies in the war on terrorism in the
Middle East, the FTA is intended as a reward for its support, as well as send a signal to
the rest of the Arab world that the United States wants closer ties. At a time many voices
in the Arab and Muslim world are calling for boycotts against the United States, Morocco
is seeking a closer economic relationship.12
Key Provisions of the FTA13
The agreement provides that more than 95% of bilateral trade in consumer and
industrial products will become duty-free immediately, and all other remaining tariffs will
be eliminated within nine years. U.S. export sectors such as information technology
products, construction equipment, and chemical stand to benefit. For the import-sensitive
textile and apparel sector, trade will be duty-free if imports meet the Agreement’s rules
of origin. The Agreement requires qualifying apparel to contain either U.S. or Moroccan
yarn and fabric and a limited amount of third country content.
On agriculture, U.S. poultry, beef, and wheat exports will benefit from liberalization
of Morocco’s tariff-rate quotas. Morocco will also provide immediate duty-free access
on products such as pecans, frozen potatoes, and breakfast cereals and more graduated
duty-free access on other products such as soybeans, sorghum, and grapes. For its part,
the United States will phase-out all agricultural tariffs, most in fifteen years. Morocco
will provide U.S. service providers such as audiovisual, express delivery,
telecommunications, computer and related services, construction, and engineering with
enhanced access to its market. U.S. banks and insurance companies will have the right to
establish subsidiaries and joint ventures in Morocco, as well as the right to establish
branches, subject to a four year phase-in for most insurance providers.
Protections and non-discriminatory treatment are provided for digital products such
as U.S. software, music, text, and videos. Protections for U.S. patents, trademarks, and
copyrights parallel and in some cases deepen the standards of other U.S. FTAs.
In the area of telecommunications, each government commits to that users of the
telecom network will have reasonable and non-discriminatory access to the network. U.S.
phone companies will have the right to interconnect with former monopoly networks in
Morocco at non-discriminatory, cost-based rates.
The agreement provides for anti-corruption measures in government contracting.
U.S. companies are provided access to bidding on a range of Moroccan government
contracts and procurement. Both countries also commit to enforce their domestic labor
and environmental laws, and the agreement includes a cooperative mechanism in both
labor and environmental areas.
12 Testimony of Bill Reinsch, President, National Foreign Trade Council Before the U.S. Trade
Policy Staff Committee on a U.S. — Morocco Free Trade Agreement, November 21, 2002.
13 Office of the United States Trade Representative, “Free Trade with Morocco: Trade Facts.”
March 2, 2004.
U.S. Reactions to the FTA
Agricultural producers in the United States welcome the tariff reductions that will
be phased in as a result of the FTA. In particular, the American Soybean Association said
that the duty on soybeans for processing will be eliminated immediately, and soybeans
imported for other uses and processed soy products will be reduced by 50% in the first
year of the agreement and phased out over the next five years. Previous import duties in
Morocco were 2.5% on soybeans for processing, 25% on soybean meal, and 75.5% for
soy products that are used in human food.14 The National Cattlemen’s Beef Association
looks forward to increased market access to Morocco’s hotel and restaurant industry as
Morocco opens its market to U.S. beef with a low in-quota tariff that goes to zero quickly.
According the U.S. Trade Representative’s Office, producers of poultry, wheat, corn, and
sorghum will also gain from the agreement.15
Most U.S. trade advisory committees endorsed the agreement. The most senior
committee, the Advisory Committee for Trade Policy and Negotiations, found the
agreement “to be strongly in the U.S. interest and to be an incentive for additional
bilateral and regional agreements.” Advisory committees on services, goods, and
intellectual property also expressed broad support. However, the Labor Advisory
Committee expressed concerns that were echoed by several Ways and Means Committee
Democrats at the July 7, 2004 hearing. These concerns were basically whether the trade
agreement goes far enough in encouraging Morocco to meet basic international labor
standards.
However, the accord generally is credited with influencing significant labor reforms
in Morocco. For example, a new labor law that went into effect on June 8, 2004 (1) raises
the minimum employment age from 12 to 15 to combat child labor; (2) reduces the work
week from 48 to 44 hours with overtime rates payable for additional hours; (3) calls for
periodic review of the Moroccan minimum wage; and (4) guarantees rights of association
and collective bargaining and prohibits workers from taking actions against workers
because they are union members. The U.S. Department of Labor, meanwhile, has created
an assistance program with a budget of nearly $9.5 million to improve industrial relations
and child labor standards in Morocco, and the Moroccan government has ratified seven
of the eight core International Labor (ILO) conventions.
14 Food Chemical News Publishing, “Industry Applauds U.S.-Morocco Free Trade Agreement,”
Food Chemical News, March 15, 2004.
15 Ibid.