A story from last week:

Muslim countries have been urged to set up an Islamic common market as a way of boosting trade and development. The call came at the end of a three-day World Islamic Economic Forum held under the auspices of the Organization of the Islamic Conference (OIC).

The forum in Kuala Lumpur said the OIC’s 57 nations could gain economic clout internationally by signing an Islamic free trade agreement. At present, OIC countries’ collective GDP is less than 5% of the world total. Trading between OIC countries is worth about $800bn (£456bn) – no more than 7% of global trade as a whole. [BBC]

I don’t have enough time to post an in-depth examination of the proposal (as I’ve already procrastinated sufficiently on my grad school applications), but here are a few thoughts.

Why this agreement would be undesirable –

– As with all discriminatory trade, there’d be some trade diversion. Currently, trade within the bloc amounts to 13 percent of the grouping’s total trade, so there’s plenty of potential for diversion.
– Some member states — Indonesia, Malaysia, Turkey — are heavily engaged in the global economy, and they would certainly suffer some trade diversion.
– Member states might lose interest in the WTO negotiations. The Doha Round can’t afford to lose any of it already paltry momentum.

Why this agreement isn’t a serious threat to multilateral trade liberalization –

– A number of the Islamic participants — Algeria, Saudi Arabia, Somalia — aren’t WTO members. This is an alternative mechanism for international trade cooperation.
– It’s a non-hegemonic agreement – these countries aren’t determining whether the WTO talks go well or not. The EU and US will make or break the Doha round.
– The potential for trade creation likely outweighs the risk of trade diversion, as most of these economies aren’t heavily engaged in international commerce.

Why this agreement is even being proposed –

– The US has been neglecting Muslim countries in pursuing its “competitive liberalization” trade negotiation strategy.