Diversification and growth: How the US-Morocco FTA boosts Rabat’s modern trade
Twenty years ago, on June 15, 2004, the United States and the Kingdom of Morocco signed the US-Morocco Free Trade Agreement (FTA), which was implemented on January 1, 2006. The FTA was aimed at promoting bilateral trade and economic growth and improving investment opportunities between the two economies. After two decades, it is essential to highlight some of its successes, its challenges, and the prospects of free trade with Rabat, especially within the context of the US-Morocco FTA.
Economic diversification and foreign direct investment
The US-Morocco FTA removed tariffs and significantly reduced trade barriers between the two countries. This, alongside other FTA and advanced trade agreements with the European Union (EU), China, Egypt, Turkey, and the United Arab Emirates (UAE), contributed to Morocco’s efforts to diversify its economy and trade. Through providing access to the US market, the FTA encouraged Moroccan firms to expand into new high-tech manufacturing such as automotive and aeronautics parts, as well as electronics. The agreement has also contributed to a steady increase in bilateral trade. According to the Office of the United States Trade Representative, US-Morocco trade in goods and services has grown to nearly $7 billion annually. This trade growth reflects a deepening of economic ties between the two countries.
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Another significant impact of the US-Morocco FTA and other trade agreements has been increased foreign direct investment (FDI). The agreement provided a framework that infused confidence in US and EU investors and caused an inflow of investment in various sectors, including manufacturing, tourism, and renewable energy. These investments have been central in creating jobs and developing the skills of the Moroccan workforce.
One example is the automotive industry, in which major companies like Japan-based Yazaki, Ireland-based Delphi Technologies, Germany-based Schlemmer, and US-based Lear Corporation have established operations in Morocco. These investments have created thousands of jobs and positioned Morocco as a regional hub for automotive parts manufacturing, generating more than $10 billion in revenue and making it a leading sector in the country’s export market. Additionally, the growth of the renewable energy sector has made Morocco a global leader in the green energy industry, with ambitious projects like the Noor Ouarzazate Solar Complex.
Challenges and structural reforms
While Morocco’s FTA and trade agreements with the United States and other major economies have brought numerous benefits, challenges exist. One of the main issues has been guaranteeing that the gains from free trade are distributed equitably across Moroccan society. There is a need for sustained efforts to address regional disparities and support small and medium-sized enterprises (SMEs) that may struggle to compete with state-owned enterprises (SOEs) in a liberalized trade environment.
Moreover, the agreement has highlighted the importance of structural reforms to enhance Morocco’s competitiveness. Hence, the Moroccan government has undertaken various measures to improve the business climate, such as simplifying regulatory procedures, developing and improving infrastructure, and investing in education and vocational training, with a particular focus on empowering girls and women. These reforms are crucial for sustaining long-term economic growth and ensuring that Morocco can fully capitalize on the opportunities presented by free trade.
Future prospects
Looking ahead, the US-Morocco FTA serves as a foundation for further economic cooperation and integration between the two economies. Both countries have expressed a commitment to deepening their trade relationship and exploring new areas of collaboration. For Morocco, this includes leveraging the FTA to attract more investment in high-tech industries and innovation-driven sectors. Morocco’s strategic location and proximity to European Union and African markets, coupled with its relatively modern infrastructure and stable political environment, position it as an attractive investment destination in emerging market economies.
Alongside the agreements signed between Morocco and other countries, the US-Morocco FTA remains one of the most important as it has played an integral role in transforming Morocco’s economy and labor force, contributing to the diversification of its trade portfolio and helping to attract foreign investment. However, regulatory, legal, and labor force challenges remain, and continued efforts are needed to ensure that the benefits of free trade are more equitably shared across various sectors of Moroccan society.
As Morocco looks to the future, the strategic vision should focus on further enhancing its competitive edge and strengthening its position as a key player in the global supply chain. Morocco’s Atlantic Sahel initiative is an important step in this direction. With sustained commitment and strategic planning, the next twenty years can bring even more prosperity and development for the Moroccan economy and greater profits for US and other foreign businesses operating in the kingdom.
Amin Mohseni-Cheraghlou leads the Bretton Woods 2.0 Project at the Atlantic Council’s GeoEconomics Center. He is also a senior lecturer of economics at the American University in Washington, DC.
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Image: SHANGHAI, CHINA - MAY 27: People visit a booth of Morocco during ITB China 2024 at the Shanghai World Expo Exhibition & Convention Center on May 27, 2024 in Shanghai, China. ITB China 2024, a travel trade show focusing on the Chinese travel market, kicked off in Shanghai on May 27. (Photo by VCG/VCG )