• Value in adding value  - Riad al Khouri
Though political reform is still a distant mirage for many in the region, some positive economic developments are becoming apparent.

• Failed states: new threat to Egypt's national interest  - Gamal A. G. Soltan
The Middle East lacks an institutional framework that can address the problem of failing states.

• Toward a genuinely new Middle East?  - Claire Spencer
Everything has to change in order for things to stay the same.

• Jordan and the new realities in the region  - Nawaf W. Tell
A prominent Saudi role enhances Jordan's ability to maneuver.

Value in adding value
 Riad al Khouri

The Arab world is fragmented, its 22 "sister" countries regularly bickering in one endless political soap opera. The state structures within each country are also fragile, with soldiers and policemen propping up corrupt regimes, or misdirected coercive power causing mayhem (as in the different but equally sad examples of contemporary Iraq, Lebanon, Palestine and Somalia). The special case of the Palestinians aside, decades after the last Arab country gained independence the internal and external disarray of Arab states is mutually re-enforcing to make a complex vicious circle.

But putting aside the political weakness and fragmentation of Arab countries, what about economic structures? Not surprisingly, the same is true of Arab economic structures as it is of politics: Arab economies have historically been unintegrated with each other, while internally they still have a long way to go to become sustainably prosperous. Could that now be changing?

Though political reform is still a distant mirage for many in the region, some positive economic developments are becoming apparent. Among these are internal business liberalization processes in several Arab countries, while external trade developments also look promising. It used to be the case that Arab states did little business with each other, but that is starting to change, thanks in part to the Arab Free Trade Area (AFTA). AFTA was launched in 1997, and 17 countries are now part of it (Mauritania, Djibouti, Somalia, the Comoros, and Algeria are still outside) accounting for 96 percent of total intra-Arab trade. The AFTA aims to abolish tariffs and other barriers to intra-Arab commerce, and the goal of duty-free merchandise trade among members is now close to being achieved. (Services had initially been excluded, but 11 countries have now started the process of integrating their non-merchandise trade into AFTA.)

Partly thanks to AFTA, trade among Arab states has risen: in 2001, 7.2 percent of Arab merchandise exports went to other Arab states; by 2005, the figure was 8.1 percent; with the comparable numbers for imports moving from 10.2 percent to 12.4 percent over the same period. This is not a spectacular jump, and is still far from the percentages for intra- EU or North American commerce but the trend is clear, with partial figures for 2006 indicating a further rise and the outlook for 2007 even better. The same is true for non-merchandise trade, as business in sectors such as banking, transport, and tourism is booming among Arab countries. Finally, and related to this trend, intra-Arab investment is also rising strongly.

Parallel to but going beyond AFTA, Egypt, Morocco, Tunisia, and Jordan in 2004 entered into the Agadir Agreement, which seeks to establish an Arab-Mediterranean free trade zone by 2010. (Lebanon and Syria have also expressed interest in joining Agadir, and other serious potential members are Algeria, Libya, Mauritania, and Palestine.) Encouraged by the highly successful Israeli-Jordanian-American Qualifying Industrial Zone (QIZ) model, which has seen Jordan selling billions of dollars worth of goods to America in the past decade, Agadir seeks to boost exports to Europe through accumulation of value added among Arab and European producers.

To do this first requires unifying "rules of origin" (i.e., the way that countries determine where and how goods are transformed into finished products) to allow member exports to benefit from duty-free entry into the EU market. The principle is simple: for the manufacturers of one country to enter another at a low or no tariff charge under a free trade agreement, a certain amount of local value added has to occur. In the case of the QIZs, a product with 11.7 percent added value that is Jordanian, 7-8 percent Israeli and the balance of 35 percent from either the US or Palestine, can enjoy duty free entry into the American market. For example, if a skirt costing $1 is imported into Jordan from India and dyed in Amman to raise its value to $1.12, it cannot by that transformation alone enter the US market free of duty under current Jordanian-American trade rules. However, if that same skirt also gets Israeli trim worth $0.08 and an American zipper costing $0.16, then the finished product has added the necessary amount of value (in this case stipulated at 35 percent or more) to qualify for duty free entry into the American market. Agadir aims to do something similar vis-a-vis Europe, adding value from European countries and Arab signatories to enter the EU duty-free.

While not a panacea for economic fragmentation, AFTA and the more ambitious Agadir accord are quietly drawing Arab countries closer. As the rest of the world integrates economically, the Arabs will have little choice but to do the same.- Published 8/3/2007 © bitterlemons-international.org

Riad al Khouri is visiting scholar, Carnegie Middle East Center, Beirut, and senior fellow, William Davidson Institute, the University of Michigan, Ann Arbor.

In an interview published last fall, King Abdullah II of Jordan warned against the eruption of civil war in Iraq, Lebanon and Palestine. Indeed, civil war is an imminent threat in three out of the five Arab countries in the eastern Mediterranean. Political developments in these countries during the past few months have demonstrated the fragility of the political situation there.

If we bring the broader neighborhood into the discussion, this raises the number of states that are failing. Somalia has been a failed state for more than 15 years. The Sudan may be disintegrating, with the South moving toward independence and the western province of Darfur torn apart under pressure of a brutal civil war among the different ethnic and tribal groups.

These unhappy developments cause great concern in Egypt. Its immediate neighborhood to the east and the south is changing rapidly. The regional system around Egypt is disintegrating as a result of the disintegration of its building blocks, i.e., the states. Egypt, a pivotal state in this region for decades, is concerned about both the risks engendered by these developments and their impact on Egyptian interests.

Indeed, for Egypt these developments bring with them only risks--no opportunities of any kind. Failed states are likely to provide a safe haven for terrorism. Although Egypt was able to curb the dangers of domestic terrorism in the 1990s, a new wave of terror cannot be excluded. The past two years' terrorist activities in Sinai seem closely related to the deteriorating situation in Palestine. Iraq provides an ideal training field for terrorists from all around. Darfur could be another magnet for terrorists if the role of the international community continues to be seen as an encroachment on Muslim terrain. Nor is the Ethiopian intervention in Somalia likely to curb the threat of extremism as long as it is perceived as a non-Muslim aggression and national reconciliation is not achieved.

Conflicts in failed states are likely to spill over to the rest of the region through multiple mechanisms. The ethnic and sectarian diversity characterizing many societies allows for the spillover effect to operate. Countries in the Gulf region, in particular, are quite vulnerable regarding the sectarian conflicts in Iraq and Lebanon. Destabilization of the Gulf--the economic engine of the entire Middle East, Egypt included--is a serious threat.

Failed states help intensify regional rivalries. Lebanon, Iraq and Somalia have become battlefields for regional and international actors to settle their accounts. Conflicts in these countries are both civil and by proxy. The power vacuum in failed states allows regional powers an opportunity to consolidate their influence at the expense of other regional actors.

Changes in the neighborhood balance of power have a destabilizing effect that creates political and security concerns for Egypt. Certain regional actors are better positioned to take advantage of the power vacuum in failed states. The Ethiopian intervention in Somalia is just an example.

However, it is Iran that benefits the most from the deterioration of order in failed states. Both sectarian and ideological forces fuel many of the civil conflicts around the region and it is Iran more than any other regional actor that can manipulate both to serve its national interests. Its involvement serves as the linkage between civil conflicts in failed states, on the one hand, and the regional rivalry between moderates and radicals, on the other.

Unfortunately, the Middle East lacks an institutional framework that can address the problem of failing states. The Arab League, the only regional institution in place, is not equipped to intervene effectively in failing states. The League's attempts to mediate the Somali conflict have been in vain. The complex situation in Iraq is far beyond the League's capacity. The League secretary general's mediation mission in Lebanon is facing tremendous obstacles. The Arab League has neither the legacy, the experience nor the resources to address situations of civil conflict.

Moreover, the Arab League does not embody a vision of politics, domestic and regional, to guide its mediation efforts. Liberal values, typically needed in order to reconcile rivals in civil conflicts, are to a great extent alien to the Arab League's ideology, however that may be defined. To make things even worse, the Arab League lacks the credibility needed to mediate civil conflicts. The League's members don't share a common vision and interest regarding the diverse conflicts. Rather, the regional divide between radicals and moderates cuts through the ranks of the Arab League. The League can offer a diplomatic forum for its members to communicate, but it cannot develop a common vision regarding conflict in failed states.

The alternative to the absence of a regional institutional framework capable of addressing the risks posed by failed states is the joint efforts made by like-minded states. The coordinated regional policies of Egypt, Saudi Arabia, Jordan and the GCC countries is the most viable replacement for the missing regional institutions.

Yet, further adjustments are needed for Egypt's foreign policy to be effectively able to influence developments in its neighborhood. For the past three decades, Egypt has refrained from intervening in the internal affairs of its neighbors. This was Egypt's "Nasser complex", which developed as a reaction to the high cost of the excessive interventionist policies of the 1950s and 1960s. Refraining from intervention in the internal affairs of other states was an essential part of Egypt's perception of its role as a stabilizing force in the Middle East. Now, recent developments in the region require a redefinition of Egypt's role regarding regional stability. Maintaining the status quo sometimes requires as many resources and as much activism as are needed to challenge it.- Published 8/3/2007 © bitterlemons-international.org

Gamal A. G. Soltan is director of al-Ahram Center for Political and Strategic Studies, Cairo.

With the language of multiple and inter-related crises dominating descriptions of the Middle East, it is easy to believe that the Arab state is fragmenting into fiefdoms, sectarian strife and trans-nationally inspired chaos. Yet of the 22 member states of the Arab League, only three--Sudan, Iraq and Lebanon--show signs of current or potential collapse. The rest, with the ever-present exception of the Palestinian state-still-to-be-created, continue to adapt and change with a resilience that belies current perceptions.

Much hinges on how one defines the Arab state. For an increasing majority of Arab populations, the state has long since ceased to be a public entity, accessible to its citizens. Instead, it is a largely privatized concept, controlled and inhabited by the minority of those who populate its decision-making apparatus and exclusively determine the dispensation of its assets. For all the talk of democracy, it is accountability and access to a broader concept of the state that the Arab world's dispossessed citizenry seeks most. But even in the societies where civic space has (haltingly) opened in the form of elected parliaments and press and public freedoms, their purpose has been for discontents to let off steam, not to extend their political access. Few institutions of state function as mechanisms to bring transgressors to account or to change official policy, despite occasional concessions to a wider set of interest groups. Still less can public debate direct or influence "public" spending toward productive and sustainable ends.

What is fragmenting is the social and political consensus underlying the state, acting as a super-structure over an increasingly distanced populace of quasi-citizens. A few enlightened leaderships have realized the dangers of this narrowing of their political base, not least in the face of the rising challenges of Islamism. However, it is the regional context of the recent few years that has both brought them up short and provided the impetus for a new approach. As Arab governments and people alike have watched with horror the disintegration of Iraq and the debilitating effects of war in Lebanon, each side of the divide has adopted different coping strategies.

The Arab states are loosening up in areas that pose few threats to their existence (expanding consumer choice, investing in infrastructure and palliative public spending) and tightening up on public discussion of the half dozen or so taboos that do threaten them (national security, the monarchy, the president, their cousins, national identity, borders, minorities, judicial and financial abuses).

The quasi-citizens in turn are finding less directly confrontational ways either to subvert or sidestep the existing logic of the state. The subverters (the minority) have gone underground or abroad--both literally and metaphorically--through blogging, migration and/or adherence to the clandestine networks (including al-Qaeda) that best serve their various causes. The side-steppers (the majority) stay put, but direct their energies toward getting on with business according to the red lines and taboos they cannot cross. In the main business--survival--some surprising things can be seen: in Damascus, cafe life is thriving, while children skid across the marbled courtyard of the Ummayad mosque; despite one huge crater, Beirutis continue to stroll in numbers along the Corniche in the sun; in Cairo, Amman and Dubai, the traffic clogs and the horns blast; everywhere, mobile phones, gadgets and fairy lights are sold by the truck-load, al-Jazeera blares and internet cafes are full. Everyone blames the US where they don't already blame Israel, and the wisest of them know--drawing on Lampedusa's 19th century Sicily--that everything has to change in order for things to stay the same.

Paradoxically, under this false air of calm, some good may come. Not for Lebanon, unless the region's new-found Saudi-led Arab unity includes a pact on saving both the state and society of Lebanon from years of irresponsible external interference. Certainly not for Iraq, enmeshed in violence for some time to come. But for those who have made a covert pact not to rock the region's boat more than it can stand, there could and should be some ultimate reward. The bloggers are not all enraged fanatics, any more than the Islamists standing in elections in which, even in victory, they will receive only marginal benefits. In the longer term, the international currents crossing the Arab world are setting up new forms of citizenship that individual states can no longer control, and a new set of Arab identities that years of Arab League declarations have consistently failed to solder.

While Arab states focus their attention on the terrorist networks, the militias, the sectarian divides and the gun-runners, they are missing a trick in the making. If they continue demonizing, arresting and harassing the side-steppers, they will lose the very base of support they now need to contain the subverters. If they fail to build on the new alternatives and the few and fragile solidarities with the state that remain within Arab societies, then the US, Israel, Iran and the usual mix of Europeans will indeed dictate the region's future. The stakes are already too high for Arab leaders to ignore the turning of the tide toward a new Middle East state system: the best resources of the Arab world are needed now for its collective defense.- Published 8/3/2007 © bitterlemons-international.org

Dr. Claire Spencer heads the Middle East Programme at Chatham House in London.

In late 2005, when King Abdullah II warned against an emerging Shi'ite arc, his warnings encountered hostility and, at best, misunderstanding. As the year 2006 unfolded, however, and particularly during the summer 2006 war in Lebanon, the king's warnings were revived--this time generating greater understanding and appreciation. The Shi'ite arc prophecy was being fulfilled.

The warnings, which were subject to many official and unofficial interpretations, centered on the increase of the Iranian sphere of influence from Tehran to Beirut, via Baghdad, Damascus and, following the Palestinian elections, the occupied Palestinian territories. From Jordan's standpoint, the Iranian role threatened polarization of the region along sectarian Sunni-Shi'ite lines. This would lead to further fragmentation within the Arab system into pro-Iran and anti-Iran camps. This, indeed, was the case following the Israeli war on Lebanon and the sectarian domestic unravelling of some Arab states such as Iraq and Lebanon, as well as threats to the stability of some of the other Arab states that have Shi'ite communities.

The warnings from the Jordanian monarch came against the backdrop of the inability of the Arab system to either diagnose or act against the looming threat from Iran. For Jordan, Iranian influence has two major repercussions; these directly affect its eastern and western borders.

In Iraq, the Iranian role is viewed as adding fuel to the fire of sectarian divides among the different Iraqi groups and threatening all-out sectarian conflict between the Sunnis and the Shi'ites. Such a development would have serious and immediate repercussions on Jordan by adding to the hundreds of thousands of Iraqi refugees who have already fled the security situation in Iraq and taken up residence in Jordan, and by threatening the spread of violence beyond Iraq.

To the west, the Iranian role in the region--particularly after the Hamas victory and in view of Iran's alliance with Syria, which hosts radical Palestinian groups, and bearing in mind Iran's support for Hizballah--has contributed to further radicalization in the region. This in turn further hinders efforts to bring a Palestinian-Israeli peace process back to life.

While deterioration in the situation in Iraq might make conditions harder for Jordan, particularly from a security perspective, lack of progress on the Palestinian-Israeli track or deterioration in the security situation in the West Bank would have severe repercussions on Jordan internally. The instability that this might trigger could in turn be exacerbated by pro-Iran forces at the local level.

Since the war on Iraq in 2003, Jordan has strengthened its alliance with the United States and boosted its relations with the Arab Gulf states, and particularly Saudi Arabia, to a degree that exceeds pre-1990-91 Gulf War levels. The emergence of a moderate alliance comprising Egypt, Saudi Arabia and Jordan to counter the Iran-Syria-Hizballah-Hamas alliance following the Israeli war on Lebanon in the summer of 2006 echoed the warnings issued by the Jordanian monarch in late 2005 and enabled Jordan to deal with the threat posed by emerging trends in the region.

Jordan, Egypt and Saudi Arabia share the same concerns with regard to Iranian influence in the region, but to varying extents. The Egyptians do not view the Iranian threat as gravely as do the Saudis and Jordanians. And in the post-Lebanon war era Saudi Arabia has adopted a proactive stance, assuming its rightful leadership role in full, as witnessed by the Mecca agreement, the visit of Iranian President Mahmoud Ahmadinezhad and Riyadh's hosting of the Arab summit conference in late March 2007 for the first time, in sharp contrast with its behind-the-scenes role in the past.

Given its size and resources, Jordan has always relied on its regional allies to advance regional initiatives. Hence a prominent Saudi role enhances Jordan's ability to maneuver in the region, both in terms of countering Iranian influence and in addressing the Palestinian-Israeli issue regionally and internationally.

The main feature of the Arab system today is its fragility and fragmentation, largely due to the deficiency created by the Syrian presence in the Iranian camp and the absence of Iraq as a regional player. The emergence of the Saudi role at the forefront may compensate significantly for these deficiencies. This is turn would allow Jordan to pursue its national interest and more effectively address the challenges it faces.- Published 8/3/2007 © bitterlemons-international.org

Nawaf W. Tell is an associate research fellow at the Center for Strategic Studies at the University of Jordan.