Regional free trade deals secure the economic future

Meanwhile, the US has concluded a bilateral Free Trade Agreement with Bahrain and has opened FTA negotiations with Oman and the UAE. The aim is to have a US-Middle East Free trade Area by 2013.

What a contrast to the state-controlled, isolationist economic policies that prevailed in the region in the 1980s and 1990s. This led to minimal inter-Arab trade and closed economies, with consequent structural inefficiencies and lower productivity.

Consider the example of a humble TV set manufactured in Korea with its final destination in Iran. By the time this TV has past through middlemen and made its way on a Dhow from Dubai to Iran and been taxed heavily, the consumer pays a much higher price.

Does such protectionism benefit the local economy? Well, look at it this way, clearly the person buying the TV will have less to spend on other local products. The tax on TVs might also be supporting a highly inefficient local TV manufacturer.

No, the process of free trade is a one-way bonus to economies. Countries then specialize in products where they have a comparative advantage, and trade with other countries that produce products more efficiently than they can.

So where in lies the comparative advantage for the Middle East? For the Gulf States oil, gas and petrochemicals is the obvious answer; these are the lowest global cost producers, and should have a bigger global market share than they currently enjoy - partly due to the absence of free trade in energy related products.

After that there are a whole host of allied services that can and will be developed on the back of a larger energy sector. Plus leisure and tourism fit well with the other great asset of the Middle East, year-round sunshine. And both tourism and services are big employers.

Why produce agricultural products that need massive state subsidies to survive against foreign competition? Why not buy in the international market and allow the poor cows to move to a cooler climate?

It will take a decade or two for the new free trade regimes being laid down to become fully functional. The greatest free trade zone of them all, the European Union, for example is still not without its flaws and internal arguments.

But the prize for economic reformers in the Middle East of freer, open and more efficient markets for capital, labour and trade is well worth the sweat and tears required to bring it about.