The Euro - Mediterranean Partnership: Political and Economic aspects (*)

Clara Mira Salama.(**)

This paper reviews the progress that the EU has been making in implementation of the Barcelona Process. It considers both the political and security provisions and the economic and financial dimensions. The implications of the adoption of free trade agreements is critically assessed and the major future policy issues highlighted.

Introduction

Since the very beginning of the European Integration process the EU has had specific policies addressed to the Mediterranean region arising from the many important links that bind the countries on both shores. These are not only cultural and historic - mainly with countries such as France, the United Kingdom, Italy and Spain, former regional colonial powers - but also economic. The Mediterranean countries are important suppliers to the EU market of natural resources such as gas and petroleum and are an important market for EU exports. Europe also has an interest in the political stability of the zone; its proximity means that what happens in the region has important repercussions on the other shore of the sea. Military and commercial areas of strategic importance are located in the region, such as the Suez Canal and the Straits of Gibraltar^1[1]. All of these factors explain the development of specific policies towards these countries, evolving over time in response to changing political and economic circumstances.

The Treaty of Rome enabled France to keep special relations with her former colonies –Morocco and Tunisia (Algeria was still a French département) - through a special Protocol. In the 1960s Association Agreements were signed with these and other Mediterranean countries^2[2]; the privileged relationship they enjoyed being extended to all the EC members. They were granted free access for their exports of industrial products and some concessions for their agricultural exports.

The first general EEC policy for the region came with the establishment of the Global Mediterranean Policy (GMP) launched in the early 70s, in the context of the oil crisis, and in force until the beginning of the 90s. It involved all the non-EEC member Mediterranean countries^3[3] except Libya and Albania. Bilateral cooperation agreements were negotiated covering, for the first time, not just trade preferences but also aid through financial protocols. In fact the approach was not really regional, but bilateral, and the Agreements were quite different from each other^4[4].

The subsequent Southern enlargement of the EEC had adverse consequences for the Maghreb countries. Since the export pattern of the two groups of countries is quite similar the non-EEC ones suffered an important loss in their EEC market share. Even though new Protocols were signed to try to palliate these effects, the results of the GMP were unimpressive.

This unsatisfactory outcome, together with the new political situation (the Gulf War and the support to Iraq granted by the Maghreb/Mashrek countries, the end of the Cold War and the fall of the Berlin Wall) led the EU to change its approach to the region. A Renewed Mediterranean Policy was launched in 1992, increasing the amount of development aid (the MED programmes of decentralised cooperation were created) and extending trade preferences. Cooperation was also to cover subjects such as human rights, the environment and the promotion of democracy^5[5].

Nonetheless this policy did not bring the expected development to the region and was seen merely as a continuation of the previous phase. The political situation, the concerns with Eastern European enlargement, the economic trend towards globalisation (the creation of the WTO and the Uruguay Round), together with regionalisation and the completion of the Single European Market, led to the general belief in Europe that the policy towards the Mediterranean needed a reorientation. Spain proposed the creation of a Euro-Maghreb free-trade area in March 1992; the Commission agreed^6[6] and this was confirmed by the European Council at Lisbon in June of the same year. Negotiations were started, but the problems in EU-Libya relations and the crisis in Algeria prevented this regional initiative from being successful. After this failure and some changes in the political situation^7[7], the EC considered the extension of the initiative to the whole Mediterranean region. Accordingly, the Corfu European Council charged the Commission to review current policy towards this area. The Commission drew up a proposal for the creation of a Euro-Mediterranean Association^8[8], accepted by the Essen European Council of December 1994. Spain, one of the most committed countries vis-à-vis the Mediterranean, together with France and, to a lesser extent Italy, was mandated to prepare a meeting of all EU members and the Mediterranean countries at the highest level. During the negotiations divergent views emerged within the EU; the Southern countries favoured an approach based upon more aid and fewer trade concessions than the Northern Member States (who advocated the maintenance of the current aid ratio of 5:1 in favour of the Central and Eastern Europe Countries (CEEC)). At the end the ratio was raised to 5:3.5^9[9]. The opinions of the non-EU Mediterranean countries were sought through visits of the Troika and the Commission. It was in this context that the Barcelona Conference took place on the 27^th and 28^th November 1995 and the Barcelona Declaration was adopted, inaugurating the so-called Euro-Mediterranean Partnership (EMP) or Barcelona process.

The Barcelona process calls for both a multilateral and complementary bilateral approach, covering three main fields of cooperation: security and stability; economic and financial; and cultural, social and human. This integrated approach is based on the Conference on Security and Cooperation in Europe (CSCE). The EMP draws inspiration from the CSCE and also from the earlier project of the Euro-Maghreb Partnership^10[10]. The importance of this Conference and of the adoption of the Declaration cannot be underestimated; at the negotiations table were Greece and Turkey, the Arab Mediterranean States, the PLO for the Palestinian Authority, taking part as another state and, sitting next to them, Israel^11[11].

In this paper an initial assessment of the effectiveness of the new process created in Barcelona will be attempted. It is obviously too early to try to analyse the full impact of the new policies on the Mediterranean Partnership Countries (MPC), as it is a policy with long-term objectives, and therefore we would only be able to analyse its outcome once it has been fully implemented. Thus the issue addressed is not the outcome of the process but an assessment of the effectiveness of the mechanisms and instruments. The paper focuses upon the political and security provisions and the economic and financial aspects. The third part of the Partnership, the Social and Cultural, will not be considered. Under this heading cooperation with civil society is encouraged, with programmes covering young people, audiovisual arts and culture (Euromed Heritage, Euromed Audiovisual, Euromed Youth). There are many other important issues falling in this chapter, such as migration, cooperation in the fight against terrorism, drug trafficking, international crime and corruption, but some of these are also mentioned in the political and security partnership.

The Barcelona Declaration

The Barcelona Declaration has three chapters: Political and Security; Economic and Financial and Social, Cultural and Human Affairs. A Work Programme is attached to the Declaration as an Annex, outlining the means by which the Declaration's objectives are to be achieved.

The EMP has two dimensions, a regional/multilateral and a bilateral one. The regional dimension targets the Mediterranean area as a whole and covers such areas as industrial cooperation, the management of water, energy, environment, transport, and the information society^12[12].

The bilateral dimension regulates the relationship between the EU and each Mediterranean Partner Country (MPC); this relation is established by the Euro-Mediterranean Association Agreements (EMAA) concluded - or being currently negotiated^13[13]- between the EU and its Member States, on the one side, and each MPC on the other. These Agreements have been reached with countries with very diverse economies, from developed states, such as Israel, to less developed ones such as Morocco. They also include the three EU membership candidates Malta, Cyprus and Turkey^14[14], who have their own “Pre-accession Strategy”, and whose relations and programmes are managed by DG Enlargement. Turkey has also already established a customs union with the EU^15[15]. The bilateral nature of these Agreements provides the flexibility necessary to meet the needs of such a diverse group^16[16].

The notable absence from this process is Libya. In 1999, at the Stuttgart Euro-Mediterranean Conference, following the lifting of the UN Security Council sanctions^17[17], the partners decided to give Libya observer status to the process. The EU would like Libya to join, but only if it is able and willing to adopt all the Barcelona “acquis” (human rights, democracy and free trade). Nowadays Libya seems to be willing to join the process. The US, Canada and Russia also showed an interest in the initiative, but the EU wanted to keep the project “Euro-Mediterranean”^18[18].

The three chapters of the Barcelona Declaration are interrelated and mutually reinforcing; even if they apparently deal with very different fields of cooperation they cannot be considered in isolation. Clearly the economic and social situation of the MPCs influences their political stability and therefore has enormous consequences for the security of the region. As Mortimer^19[19] points out “the issues of trade, economic assistance and population movement are closely interrelated”. In fact nowadays the perceived “threat from the South” finds its origins in these socio-economic problems, rather than in territorial expansionism. Thus the establishment of a Free Trade Area (FTA), as envisaged in the second chapter of the partnership, will have repercussions for the Security basket of the EMP. For some authors the positive effects that free trade may bring, in the form of economic growth and creation of employment, are a necessary condition for the reduction of emigration towards Europe and for the stability of the region. The case of the US and Mexico illustrates this argument; one of the reasons that moved the US to propose the establishment of NAFTA was the risk of massive immigration from Mexico . This argument seems reasonable for the medium to long-term, that is, once the positive consequences of free trade start to be felt by the countries and once the painful short-run structural adjustment is over. But in the meantime the accelerated market liberalisation process may exacerbate instability in the region^20[20].

The interrelation of the three chapters is also reflected in the Barcelona Declaration and the Euro-Mediterranean Association Agreements (EMAA). For the former, even where it deals with drug trafficking and organised crime under the Political and Security Partnership, they are referred to in the Work Programme under the heading of Social, Cultural and Human affairs. Meanwhile the EMAAs deal with drug trafficking and money laundering in the chapter on economic cooperation. This may reflect the MPCs rejection of the EU perception of social affairs as including security issues^21[21].

The EMP is managed by the External Relations DG and not by the Development DG, reflecting the comprehensive scope of the EU's policy towards this region. Trade and financial aid have been the classic tools through which the EU has approached development cooperation in major agreements such as Lomé (Cotonou) with the ACP states. In the EMP we find these same instruments, but the proximity of the MPCs makes the EU want to achieve something more ambitious. There are political and security measures, as well as a social and human dimension aiming to promote exchanges and develop common values. These kinds of aims are not to be found in the EU's other development cooperation measures.

THE POLITICAL AND SECURITY PARTNERSHIP

The first question to be asked is what has motivated the creation of such a partnership? Since the end of the Cold War the EU has focused upon its southern neighbours as a possible threat to its security. The perceived threat does not originate from military aggression - although there is concern about the acquisition of weapons of mass destruction (nuclear, biological and chemical) - nor from the creation of a unified Arab State. It is seen more in the consequences of political instability in these countries (terrorism, crime, religious extremism) and the problems of migratory pressure arising from their poor economic performance. A few commentators however go further^22[22] and see the “communist threat” as being replaced by an “Islamic one.

The terrorist attacks of September the 11^th has contributed to the feeling that more cooperation is needed in the political/security arena.

For the non-EU partners, they have an interest in maintaining confidence and stability in their countries so as to attract investment, stimulate growth and promote employment^23[23].

Aims of this Partnership

The aim of this first aspect of the Barcelona Declaration is to create “an area of peace and stability in the Mediterranean”. To achieve this objective the parties have committed themselves to political dialogue, and to acting in accordance with certain principles.

There are three major aspects to this chapter of the Declaration - the behaviour of individual States, bilateral relations and security cooperation.

State Commitments

The first focuses upon the individual behaviour expected from each country taking part in the process. Among these we find unilateral measures, such as the need to ensure the respect of human rights, fundamental freedoms, diversity and tolerance, democracy, the rule of law and equality of the peoples. Thus in regard to human rights and democratic principles, specific clauses have been introduced in the EMAA; according to which human rights constitute an “essential element”^24[24]. These provisions are backed by another – the so-called Bulgarian clause - under which a party that considers that another has failed to fulfil an obligation under the Convention can take appropriate measures. The measures should be notified to the other party and a consultation process commenced if it is requested. The form that these measures will take is not defined, the only guidance being that measures should be preferred that “least disturb the functioning of this Agreement”^25[25] and that they should be in accordance with international law^26[26]. In addition there is a requirement that the Association Council should be informed before any measures are adopted; but this is unnecessary in cases of “special urgency”. Violations of human rights and democratic principles are considered violations of essential elements and therefore cases of such special urgency (Art. 2 together with a joint declaration on Article 90). In this situation the party who suffers sanctions can set in motion the dispute settlement procedure. These provisions constitute the counterpart to Arts. 60 and 65 of the Vienna Convention on the termination or suspension of the Agreement (the so-called “exceptio non-adimpleti contractus”).

The introduction of these kind of clauses in EU agreements was challenged by Portugal on the basis of lack of EU competence, but the ECJ rejected the claim stating that according to Art. 130u(2) (now Art. 177(2)) human rights are one of the aims of the EU's development cooperation policy^27[27]. They are also an aim under the Common Foreign and Security Policy (CFSP) (Art. 11 Treaty on European Union) and following the Treaty of Nice^28[28] they are expressly mentioned as an objective to pursue in relations with third countries (new Art. 181a TEC).

A similar human rights clause has been introduced into the financial aid provided to the region, channelled through the MEDA programme. According to Art. 3 of the Regulation^29[29], democratic principles, the rule of law and human rights constitute an essential element “the violation of which [¼] will justify the adoption of appropriate measures”. Art. 16 outlines the procedural mechanism; proposal by the Commission and decision by Qualified Majority Voting by the Council. Since the MEDA Regulation is a unilateral EC measure there is no requirement for information and consultation, as in the case of the EMPA. The existence of these two provisions is necessary since many Mediterranean countries do not yet have a EMAA and the old Cooperation Agreements do not include a human right clause. Conversely, Israel is not covered by the MEDA Regulation. Furthermore, economic conditionality has been introduced, as discussed below^30[30].

The introduction of such clauses is in line with general EU policy. Since the 1991 Luxembourg European Council, tying financial assistance to a good human rights record is seen as an important incentive to realising these fundamental objectives. However this practice has been criticised. It has been argued that donors are motivated by their own interests, that the appraisal of the violations may be subjective and that it may generate instability by isolating the state concerned. In particular the EU is accused of using “double standards” in the application of such clauses, with weaker states more likely to be subject to the suspension of aid than important EU trade partners^31[31]. What is clear is that the more intensive the relationship of an EMP with the EU, the higher the expected standards in human rights^32[32].

The European Parliament has been the greatest advocate of the inclusion of such clauses, while the other EC institutions have been more reticent in their application. It is true that if they are properly applied – if it is possible not to punish the poorest sectors of the country but the government - and preference is given to positive conditionality (that is, increasing aid and concessions following positive human rights achievements) they could be an effective mean of spreading worldwide respect for these fundamental values.

An important question here is what human rights are to be protected, since across the Mediterranean the concepts may differ. However the Universal Declaration of Human Rights is mentioned in the Barcelona Declaration and particular human rights identified; freedom of expression, association, thought, conscience and religion, and non discrimination.

These aims are also being supported through the MEDA Democracy programme. Democracy is also an essential principle of the agreement with a clear interdependence with the security objectives; “democratic states make peaceful neighbours”^33[33].

Bilateral relations

The second dimension addresses the relations between the individual parties. They are required to commit themselves not to intervene in the internal affairs of the other parties, to respect their territorial integrity and unity, not to use force against the territory of a State and not to develop their military capacity “beyond their legitimate defence requirements” (something which presents serious problems of determination). These aims have clearly not been achieved as illustrated by relations between Israel and the Lebanon and between Turkey and Greece.

Security Cooperation

Actions to be undertaken under this Partnership

In the Work Programme attached to the Declaration the emphasis is upon political dialogue and the establishment of a network of cooperation between the foreign policy institutes of the region. This network has been established (EuroMeSCo) and is encouraging research in this field.

In terms of political dialogue this has both a regional and bilateral dimension. At the regional level regular meetings of Ministers and senior officials have been taking place^37[37]. Political dialogue has survived the vicissitudes of the now fragile Middle East Peace Process (MEPP), which in itself can be considered an important accomplishment. At the same time the introduction of political dialogue is to be welcomed because it allows the parties to share information and their concerns, giving the MPCs a voice. Nonetheless some authors have argued that the Partnership is “paternalistic”^38[38], only accepted by the MPCs in order to access the associated financial aid. There is a danger that this political dialogue is not really two-way, that it is only the EU which “speaks”. Nonetheless, the evidence so far suggests that dialogue is actually taking place, even if it is clear that the EU is the strongest voice. However there is considerable variation in the degree to which the MPCs are making use of the system^39[39].

Before the launch of the EMP there were already other organisations working to achieve stability in the region, for since the end of the Cold War there has been a general feeling of uneasiness about the south European “frontier”. Thus we have the Western European Union (WEU) Mediterranean Initiative, dating from 1992, the NATO Mediterranean dialogue, launched in 1994, and the OSCE, whose Mediterranean Dialogue was launched in Budapest in December 1994. The interaction between these pre-existing initiatives and the political chapter of the EMP is something that requires attention. In areas where there are shared objectives coordination is clearly desirable. For example, some authors^40[40] regard it as now appropriate to subsume the WEU Mediterranean initiatives into the EMP dialogue. For others^41[41] the EMP is regarded as the best-equipped framework to achieve stabilisation in the region, given the comprehensive character of the EU´s approach. The EMP is the only one of these structures attempting to address the economic and social problems that lie at the heart of regional instability, the only one looking and dealing with the roots of instability (economic and social problems). However the different parties involved in the other regional initiatives would make it difficult to subsume them all into the EMP, thus the emphasise must be upon cooperation, coordination and synergy. To overcome these problems various options have been proposed^42[42], such as starting with non-controversial measures, allowing for an opting-out system during a transitional period and permitting sub-regional projects.

Other measures taken in this area relate to cooperation among civil protection services for disaster management. These “partnership-building measures” are considered soft security issues and are rather limited as a result of the problems of the Middle East Peace Process (MEPP). It is highly unlikely that “hard security measures” such as arms control could be implemented under the circumstances of a confrontation between Israel and the Arab States. Thus the only obligations for the parties are to engage in the ratification process of the international conventions relating to non-proliferation of nuclear weapons. But even hard security measures might prove inadequate in the Mediterranean context, since economic, social, demographic and environmental problems “have a considerable impact on national security and political stability [¼] a broader concept of security should be adopted”^43[43]. As for the EU, a more far reaching security policy, including military aspects, might also present difficulties since it has only the CFSP instruments to cooperate in this field and these are inadequate. Nevertheless the EU is attempting to try to address these issues, as will be discussed below^44[44].

Finally mention must be made of the Charter for Peace and Stability. The parties have been working on the elaboration of a document that would institutionalise political dialogue. The main guidelines^45[45] were drafted at the Stuttgart Euro-Mediterranean Foreign Ministers meeting of 1999. According to the Commission this document – a politically binding instrument - should contribute to the prevention of tension and the maintenance of stability “by means of co-operative security”^46[46], with dispute settlement mechanisms. To achieve these objectives the guidelines mention five instruments: a) enhanced political dialogue, b) partnership building measures, c) measures to improve good-neighbourly relations and regional cooperation, d) preventive diplomacy, crisis management and post-conflict rehabilitation, and e) mechanisms for joint action.

Although military cooperation is not mentioned in the Barcelona Declaration it has been argued^47[47] that military dialogue should be included in the Charter, either as a new mechanism or as a category under an existing one.

There have been various proposals as to how the Charter could attain its aim; principally it is seen as being evolutionary and flexible. In a report from the EuroMeSCo Working Group on the Charter (October 1999) a strategy in three stages was proposed, starting with security Partnership Building Measures based upon an exchange of basic information and dialogue between the politico-military authorities. A second stage – non-institutionalised cooperation - would entail the sporadic cooperation of the armed forces in peacekeeping operations and joint military exercises. The third stage would involve the development of permanent institutionalised cooperation, including the establishment of common multinational forces or at least strong links between them. This incremental approach seems appropriate given the current situation in the region. Nevertheless we are still very far away from achieving the desired close cooperation with the EU´s Mediterranean neighbours and considerable effort and time will be needed if this is to be realised.

It is doubtful that this Charter can “enter into force” (it will not be a legally binding text, nor will it be an international agreement) unless the MEPP is successful and a settlement is reached in the Middle East.

The EU acts in these matters under the Common Foreign and Security Policy (CFSP).

The Common Strategy on the Mediterranean Region

The CFSP - the second –intergovernmental- pillar of the Treaty of European Union (TEU) - functions under the unanimity rule until the Treaty of Nice comes into force. According to Art. 12 of the TEU, the CFSP instruments are general guidelines, common strategies, joint actions and common positions. Common strategies have to establish the objectives, duration and means available in areas of the EU´s Member States (MS) common interest. They are adopted by the European Council and implemented by the Council by common positions or joint actions. In this sense, a "Common Strategy on the Mediterranean Region" was adopted at the Feira European Council of June 2000^49[49]. A common strategy is obviously an EC measure – that is, it has not been agreed with the MPCs. It deals with the relations between the EU and the Barcelona partners, excluding the candidates for membership (Malta, Turkey, Cyprus) and including Libya. This strategy outlines the objectives that the EU will try to achieve in each of the chapters of the Barcelona Programme. Thus we find initiatives to be taken concerning political and security aspects; democracy, human rights and the rule of law; economic and financial relations; environmental issues; social and cultural aspects and justice and home affairs. The broad scope of this document is surprising; as an instrument of the CFSP it would have been reasonable to expect to find in it only the political and security aspects of the partnership (the first Barcelona chapter). But it goes beyond that limit; it covers economic, social and even justice and home affairs measures. This approach has much to recommend it in that an integrated approach ensures coherence. But from a legal perspective it calls into question the constitutional structure of the Union; for we have three separate pillars with different decision-making procedures, mechanisms and instruments. It is surprising that a typical CFSP measure covers questions falling under the EC treaty (the community pillar) and under the Justice and Home Affairs pillar. This may be an indication that this strict pillar distinction may be starting to blur in the field of external relations. A similar approach appears to be being taken in dealings with the Ukraine and Russia^50[50].

The Common Strategy merely reaffirms the engagement of the EC in the Barcelona process, adding the issue of landmines to the security and political aspects. Illegal immigration is dealt with under the heading “Justice and Home Affairs”, with a focus upon the negotiation of readmission agreements. The Common Strategy has also placed upon any incoming President the obligation to present to the Council their priorities for implementation of the strategy, and for the Council to evaluate and review the progress achieved under this text, at least annually^51[51]. This requirement is a clear sign of the priority that the Community is giving to its Mediterranean policy. Nevertheless the Common Strategy does not add anything new to the fields of action already present in the Barcelona Declaration.

The European Parliament has been very critical of the Common Strategy^52[52]. It has regretted the fact that it was not involved in the drafting of the document and that it is offered no role. It also considers that the instruments and means to implement the strategy are weak and vague and criticises the absence of a budgetary framework to finance the strategy. Most significantly it regrets the exclusion of free movement of persons and of agricultural products from the partnership.

The instruments and powers provided for under the CFSP are insufficient for engagement in a defence and military dialogue or partnership with the Mediterranean countries. However this situation may change with the development of the EU's common security and defence policy; an issue raised at the Cologne European Council of June 1999 and continued at the Helsinki European Council of December 1999 and at the Nice European Council. The entry into force of the Treaty of Nice^53[53] may contribute significantly to this shift, since the EU seems to be moving towards a less “intergovernmental” approach to security and defence policy; the modification of Art. 24 of TEU has been agreed extending qualified majority voting (QMV) to those issues in external agreements where QMV would apply to internal decisions, removing the current general rule of unanimity.

These reforms are to be welcomed since until now there has been a lack of consistency between the objectives and actions of the EU in its CFSP, in the EC's external relations and in Member States´ national policies^54[54].

THE ECONOMIC AND FINANCIAL PARTNERSHIP

The aim of the second “basket” of the partnership is the creation of an area of shared prosperity. This goal would be achieved through the establishment of a Euro-Mediterranean free-trade area (FTA) by 2010. As intermediate steps bilateral FTAs between each MPC and the EU will be established, with a maximum transitional period of a twelve years, together with coordination and cooperation measures (institutional and financial assistance from the EU's MEDA programme).

The Economic Situation of the MPCs

Most MPCs have been through structural adjustment programmes supported by the international financial institutions^55[55] in order to open-up their economies, establish market mechanisms and liberalise prices^56[56]. As a result they have managed to correct many of their macroeconomic imbalances, but the situation remains fragile and most have experienced a slow down in their rate of growth^57[57].

Three main groups can be identified according to their level of development: Cyprus, Israel and Malta, whose economies are comparable to the EU; the territories under the control of the Palestinian Authority and finally the Mediterranean Arab countries and Turkey. The following analysis is mainly focused upon the third group, which accounts for 96% of the population of the region. Even within this group there are significant differences in regard to the relative importance of agriculture, mining and manufacturing:

Source: OECD, 2000.

The most industrialised of the group are Turkey and Tunisia, while the other economies are still dependent upon agriculture (Morocco, Syria) or on mining (Algeria). Overall the combined GDP of the Maghreb States (Morocco, Algeria, Tunisia) is less than that of Portugal, and that of the Mashrek States (Jordan, Egypt, Lebanon, Syria) is roughly equal to that of Greece or Finland.

The EU is the main trading partner of these countries; it absorbs 60-75% of their exports:

Shares of the Mediterranean Countries Trade Partners in Percentages.

Europe as a trade partner for each MPC.

Source: FEMISE Report, 2000.

This trade follows the usual pattern between a developing and a developed country; the exchange of manufactures for agricultural products and raw materials (see Table V).

Similarly foreign direct investment comes mainly comes from the EU^58[58], although the amount remains very limited compared with that attracted by other developing countries such as those of CEECs (see Table VII).

The insufficient rate of capital accumulation is one of the major problems facing the MPCs. In part this arises from the high level of import protection, the lack of diversification in exports, the dominance of uncompetitive state-owned enterprises and from the existence of rigidities in the labour market. Thus the region requires more investment, access to funding and to embark on further significant structural reform.

The Free Trade Areas

Given these problems the encouragement of the establishment of free trade between the two shores of the Mediterranean has been considered an appropriate means to promote growth. When the Mediterranean countries decided to embark on this process with the EU they accepted the principles of a market economy; there is an explicit link in the Barcelona Declaration between the promotion of free trade and institutional adjustment. However a FTA will clearly involve very unequal partners.

Although the creation of a FTA is mentioned in the Barcelona Declaration it is through the bilateral EMAAs that the detailed conditions are negotiated, although the provisions are similar in all of the Association Agreements. Each Agreement considers separately industrial and agricultural products. In regard to manufactures we find a prohibition on the introduction of new customs duties or charges having equivalent effect. Duties already in force will be removed immediately by the EU, so that the MPC´s exports can enter the EU market duty-free. The partner country is under an obligation to phase out its duties, with different periods established for different goods. The general rule is that duties on all industrial products should be abolished immediately, with exceptions defined in the Annexes. Specific derogations are provided for in the cases of infant industries or for sectors facing serious difficulties in adjustment, with a maximum transition period of five years.

In regard to agricultural and fishery products, the Agreements provide for a gradual and reciprocal liberalisation. The final aim is not the establishment of free trade, since this is prevented by the EU´s Common Agricultural Policy (CAP). The system merely requires the reduction or elimination of custom duties in different proportions, according to the product and subject to quotas. The situation is to be reviewed five years after the signing of the Agreement.

The usual clause is included allowing possible restrictions on exports and imports on the grounds of public policy, morality or public security, protection of health and life of humans, animals, plants, of national treasures and of intellectual, industrial and commercial property.

According to the Barcelona Declaration, and the EMAAs themselves, they should all be compatible with GATT and WTO rules. Despite these statements the exclusion of agriculture presents a serious problem^59[59]; for a FTA to be compatible with the WTO provisions it should cover “substantially all the trade between the constituent territories” (Art. XXIV (8)b GATT). If agriculture represents an important part of the commercial exchanges between the parties in each FTA its exclusion renders it incompatible with WTO requirements. The twelve-year transitional period is also beyond the maximum ten years allowed by the GATT^60[60].

The system of bilateral agreements may well produce a domino effect; as more and more countries negotiate a FTA neighbouring countries may feel marginalized and disadvantaged, providing an incentive to sign a similar agreement^61[61].

The Expected Effects of the FTA

The establishment of free trade is expected to produce several important effects:

1. Firstly, it should encourage Foreign Direct Investment (FDI), which would itself lead to the creation of jobs and growth.

2. It should lead to a more efficient allocation of resources and enhanced competition making local firms more efficient.

3. The possibility of importing cheaper intermediate products should entail lower production costs for local producers and therefore lower final prices.

4. The loss of tariff revenues for the public sector should be compensated by the increase in indirect tax revenue once production and trade grow.

So far we have considered the advantages of the FTAs, however significant difficulties have been identified. The major criticism has focused upon the different treatment of industrial and agricultural products and services (tourism). The exclusion of agriculture from the movement to free-trade is particularly damaging for the MPCs, because it is in this sector that they enjoy a comparative advantage. By contrast free access to the EU market for many Mediterranean industrial products has already existed since the cooperation agreements of the '70s. Therefore the establishment of a FTA in manufactures under the EMAAs is an asymmetric liberalisation process that entails the unilateral removal of trade barriers for EU exports entering the MPCs markets. The consequences of this opening-up of their domestic markets could present serious difficulties for many of the MPCs. Without access to appropriate technology, human capital and finance they will remain uncompetitive with EU industrial products. In the short term this may lead to the elimination of mainly small and medium sized business, with consequent reductions in employment. The establishment of the Customs Union with Turkey illustrates this problem with nearly 20,000 small and medium sized enterprises closing^62[62]. The MEDA Regulation will attempt to address this problem during the transition period, although doubts must exist as to whether it will be sufficient for the task.

Given these difficulties, and the existing balance of trade deficit of the MPCs with the EU, the main short-run beneficiary of liberalisation under the EMAAs is likely to be the EU^63[63].

Doubts have also been expressed as to whether the establishment of FTAs will really enhance foreign direct investment (FDI). Since they will not improve access to the EU market for industrial exports it is difficult to see how this will encourage additional FDI, although it is true that the MPCs will gain economic credibility and that the partnership should encourage institutional and political stability. However some FDI may only have been undertaken to overcome the MPCs protective import duties^64[64] and once these tariff barriers are removed such FDI may decline, diverted to countries such as the CEECs that offer similar advantages to foreign investors, with the added attraction of future full EU membership^65[65].

The efficiency gains from the FTAs will also only be realised in the long-term, while the short-run adjustment costs are likely to be considerable. It has been estimated that one-quarter of the industrial labour force will have to be transferred into more viable activities at considerable social cost. The economic impact of adopting an FTA will be greater the higher the existing rate of unemployment and the current rate of protection. In regard to the argument that FTAs will enhance competitiveness through the provision of cheaper imported intermediate inputs, it has to be observed that many MPCs have already established special export processing zones which are not subject to import duty. Nonetheless some scope for competitiveness gains may exist

As for the reduction in tariff revenues for the MPCs, the fiscal systems will have to be reformed to increase the revenues from other sources, such as direct taxation. But if no mechanism is found to compensate for the loss of tariff revenues the government would be obliged to reduce public spending, something which could have particularly adverse consequences during a period of transition and job losses. The economist Bachir Hamdouch has estimated that for Morocco the loss in tariff revenues would be more than 6% of GDP at the end of the first 5 year period, and at the end of the full transitional period of 12 years it would amount to more than 3% of GDP: for Tunisia the equivalent figure is 6% of GDP. Although recognising that in the long-term there may be offsetting economic gains, nonetheless he estimates that in the meantime 30-40% of Moroccan firms could disappear^66[66].

The establishment of such bilateral FTAs may also have other adverse effects. It may cause trade diversion towards the EU, that is, the substitution of EU imports for cheaper products currently being supplied by third countries.

The process may also discourage regional integration in the area. Regional integration is vital because it allows producers to exploit economies of scale and to access larger “domestic” markets. Currently South-South trade represents only 5% of commercial exchanges. There are some South-South free trade agreements in force (Maghreb Union and the Greater Arab FTA–GAFTA) but they are not very effective^67[67]. Some further bilateral FTAs are being concluded^68[68] and an ambitious free trade area between Morocco, Tunisia, Jordan and Egypt is on its way (Agadir Process).

The effect of regional cumulation of rules of origin in the enhancement of regional integration could be very significant. Such regional cumulation had not been established in the EMAAs, despite several countries pressing the issue^69[69]. What we have had so far is the gradual implementation of partial cumulation, according to which final goods produced using raw materials originating from another partner country can be considered as products coming from that other country. Nonetheless things are moving in the right direction; after the meeting of Trade Ministers of May 2001, a Working Group was established to examine the extension of the pan-European system of cumulation to the Mediterranean Partners. This group concluded in December 2001 that their inclusion was technically possible. After further analysis a decision is expected at the next Trade Ministers meeting taking place in Toledo (Spain) in March 2002 and, if the Commission's recommendation is followed, endorsed by the Valencia Foreign Ministers meeting of April 2002^70[70].

Some commentators have suggested that if the countries take advantage of the transitional period of 12 years to embark on a real restructuring, with the aid of the EU through the MEDA funds, and not make only the minimal transformations required to comply with the conditions established by the donors, they could be in a much stronger position to face the challenge of free trade^71[71]. The provisions in the agreements on administrative and technological cooperation would also be of considerable help in this task.

A study undertaken by the OECD (2000) suggests that the static effects of the FTAs would probably be very small, but that the dynamic, long term ones, should be more significant. Nonetheless it is clear that for the MPCs to realise the potential gains from the FTAs will require significant adjustment - economic, political and social - and that the social costs may well be substantial. During this same period government revenues are likely to be under pressure from the reduction in import tariff revenues. The exclusion of agricultural products from the FTAs, to meet the demands of the CAP, is a particularly important handicap for the MPCs and difficult to justify. Structural adjustment appears only a demand placed upon the MPCs, not upon the EU's agricultural sector.

Coordination

The Association Agreements require the approximation of MPCs laws to those of the EU in essential sectors for international trade, such as competition law, technical rules and standards, state aids and financial services. The enhancement of EU-MPC trade and investment requires that both sides are able to understand each other, that they “speak the same language” or have “the same voltage”, as Mr. Philippe^72[72] calls it. This will have broader positive effects; for example, the lack of adequate judicial systems and investment codes is seen as a major deterrent to international investment in some of the MPCs. Further, as all of these countries harmonise their legislation with the EU the foundations will be laid for greater regional economic integration and a regional FTA. Thus the EU's bilateral approach has to balance the specific requirements of each MPC whilst trying to establish the greatest degree of uniformity possible to lay the foundations for intra-regional free trade.

Financial support

The EU has provided funds to this region for many years through a number of Financial Protocols. The MED programmes (MED-MEDIA, MED-URBS, MED-CAMPUS, MED-INVEST, MED-TEHCNO, MED-MIGRATION) were created in 1992 with the Renewed Mediterranean Policy. However after management problems these projects were all suspended. Subsequently the first three programmes were revived, with financial aid channelled through the MEDA programme. Together with the United States, the EU is the major provider of aid to the Mediterranean region^73[73].

The management of MEDA funds was initially based on Regulation 1488/96^74[74]. However the Commission had identified serious weaknesses in the process and the European Parliament (EP) was equally critical of progress with the Barcelona Process^75[75]. Thus the Commission proposed amendments based upon Art.15 (6) of the Regulation (the need to re-examine its provisions before the 30^th June 1999) leading to the adoption of MEDA II^76[76].

MEDA funds are used to support projects under all three chapters of the Barcelona Declaration, with 90% of the funds being allocated to bilateral programmes. Commitments under MEDA are grants, in contrast to the loans from the European Investment Bank. They are allocated according to the priorities established through the National Indicative Programmes (NIP) and Regional Indicative Programmes (RIP). The allocations are only provisional, with conditionality introduced to take into account the progress achieved by each country “as regards structural reforms, macroeconomic stabilisation, industrial development and social advancement, or the outcome of cooperation under the new Association Agreements” (Art. 5 (3)3 MEDA Regulation). A further human rights clause (Art. 3) is also included, as explained earlier^77[77]. Clear conditionality criteria will be an important requirement if EU policy is not to be regarded as arbitrary and inconsistent by its Mediterranean partners. The MEDA programme is intended to assist these countries in the process of transition and thus is focused, amongst other area, on social projects (education, health), rural development, economic cooperation and structural adjustment^78[78]. The amount of funding under MEDA and its country allocation is illustrated in the following figures.

Source: The Barcelona process, five years on. European Commission.

Source: The Barcelona process, five years on. European Commission.

The amount actually allocated under MEDA for the period 2000-2006 (€ 5350 million) is considered by many commentators to be inadequate and does not represent a significant increase above the previous allocation (€3435 million for 1995-1999). Following the interruption of monthly tax receipts' transfers to the Palestinian Authority (PA) by Israel the Commission has been providing direct budgetary assistance to the Palestinians in the form of €10 million a month. The aim of this assistance is to keep the PA alive and allow it to continue providing essential services such as health and education. This monthly transfer is subject to macroeconomic conditions and more general conditions agreed with the PA, that includes more transparency in the management of public finances, reform of pension schemes and of the legal system. The IMF monitors the expenditure of this money and informs the Commission through monthly comfort letters. In the light of this unexpected commitment the allocations for each country under MEDA for the period 2002-2006 have had to be adjusted.

The deficiencies of the initial MEDA system arose mainly from the complexities of the administrative procedures and the lack of staff^79[79], both of which contributed to the slow implementation of the projects^80[80]. The delay in signing the necessary Framework Agreements^81[81] – the legal basis of MEDA cooperation - also contributed to the delays in implementation. Further difficulties arose from the lack of coordination between this EU programme and national bilateral assistance to the region. The EP called for the system to be more transparent, more decentralised and for the Commission to take a more strategic approach to planning^82[82].

The new system of aid management has tried to address some of these deficiencies and to introduce streamlined decision-making. In order to achieve a more strategic approach a new sequence of planning has been established: the long-term objectives (over 6 years) will be defined in Strategy Papers; the National and Regional Indicative Programmes will draw up the priorities for 3 years (not 5 as before) and finally annual financing plans will be adopted. With the approval of the annual financial plan, authorisation of individual projects by the MED Committee would no longer be required.

The Commission has explicitly been given the role of coordinating the activities of the European Investment Bank (EIB), the Member States^83[83] and other international financial institutions, especially the World Bank and IMF. This latter responsibility is important since many Mediterranean countries are engaged in structural adjustment programmes and, since the funds coming from the EU under MEDA are grants, while those provided by the Bretton Woods´ institutions are loans, there is the danger of funding substitution. The EU's Member States have also been criticised for interfering too much in the functioning of MEDA through the regulatory MED Committee. To improve the situation the new Regulation has reconstituted this Committee as a management committee. In fact projects, before being considered for MEDA funding, have already been through the Euro-Mediterranean Committee where the regional programmes are established. At this stage the Member States have already had an opportunity to influence policy.

The Commission has introduced a new Directorate General, “EuropeAid” ^84[84], which will be responsible for the allocation of MEDA funds. The management of EC external aid is currently undergoing a process of reform aimed at achieving more coherence and effectiveness^85[85]. As part of this process, in order to respond to criticism that external aid management is too “Brussels-centred”, the Commission is preparing to devolve responsibilities to its Delegations in the recipient countries (deconcentration). In the Mediterranean region the process is to commence with the Delegations in Egypt, Morocco, Gaza Strip/West Bank, Tunisia and Turkey. However an important criticism of the new system has been the reduced involvement of the MPCs. With the previous arrangements the decisions on allocations under the Financial Protocols were made after consultations with the MPCs; under the new system MEDA allocations are made unilaterally by the EU. Although in practice MPCs are still likely to be consulted^86[86] these changes may still undermine the feeling of ownership, and therefore that of partnership. A more explicit statement of an active role for the MPCs in the management of the MEDA funds might contribute significantly to overcoming this danger.

The change of status of the European Parliament in the new Regulation is surprising; in MEDA I, Art. 11(7) it was stated that it should be regularly informed on the implementation of the Regulation. The EP itself considered that more powers should be assigned to it. In its 06/09/2000 Minutes, when debating the proposal for MEDA II, it suggested the extension of the Article to include the kind of detailed information it should receive (agendas for committee meetings, draft measures, results of voting and summary records of meeting). The EP also proposed compulsory consultation before an eventual suspension of aid under Art. 16. Not only was this proposal rejected, but the final outcome was the deletion of Art. 11(7), removing any obligation to provide information. This is an unusual modification of the Regulation and seemingly incompatible with the trend to grant the EP additional powers.^87[87].

CONCLUSION

The Barcelona process was launched in an atmosphere of enthusiasm and confidence, but six years later we cannot say that it has completely fulfilled these expectations. It is possible that these expectations were too high. In 1995 at Barcelona there was a feeling of optimism.; under the Treaty of European Union the EU had just created its CFSP, the Maghreb countries had established the Union du Maghreb Arab (Treaty of Marrakech, 1989) and the Middle East peace negotiations seemed to be finally making progress. Of all the factors that might account for the relative failure of the EMP it is the cessation of the peace process that is probably most significant.

Nonetheless the process started in Barcelona has had important practical repercussions for both shores of the Mediterranean. It has inaugurated a period of political, social and economic dialogue and created important new institutional structures. Indeed it is remarkable how the process has managed to survive tensions between the partners. Progress is being achieved in all three fields covered by the Declaration (political and security, economic and financial, social and cultural). There remains an EU commitment to the region that has increased over time^88[88], and a willingness to reform the programmes if they do not function effectively; as evidenced by the changes to the MEDA Regulation.

The results of the EU's Mediterranean policy will only be apparent in the longer term, but it is already clear that in some areas significant progress has been made. However the political and security dimension remains the weakest. Here only a regular political dialogue has been created. Although the uneasy political situation explains much of this failure, the weakness of the EU's CFSP is recognised by the partners and may have undermined the EU's credibility^89[89]. The complex structure of the EU's CFSP creates particular difficulties; its different decision-making procedures limiting the EC's competence (eg. in the area of migration)^90[90].

Furthermore, issues of importance for the MPCs have not been addressed. No debt elimination/conversion initiative has been mooted by the EU nor the issue of migrant workers discussed. Nor has sufficient account been taken of the interests of the MPCs in the creation of the FTAs; in particular the exclusion of agricultural products, in which the MPCs have a comparative advantage, presents a significant cause for concern. The CAP remains "the albatross around the neck of the European Union" and is long overdue for reform, both for domestic and international reasons. The imminent enlargement of the EU offers both an opportunity and a threat to CAP reform. For the CEECs agriculture production is an important activity, both in terms of employment and GDP^91[91]. The size of these sectors would place an unsustainable burden on the existing CAP system, forcing change. Nonetheless once they are beneficiaries of agricultural protectionism they are likely to support the efforts of the EU's Southern Member States to resist the opening up of the EU market to competition from Mediterranean produce. The most likely outcome for the CEECs is a period of transition, with only partial access to CAP support. But clearly this situation is unsustainable in the longer term.

An alternative to the inclusion of agriculture in the FTA has been suggested by the socialist MEP Menéndez^92[92]; the FTAs should be delayed until the other fields of cooperation (partnerships) are properly established. This idea of creating a chronological link between the three partnerships could be an interesting approach to achieving a balanced outcome.

But as things now stand it is difficult to refute the argument, often made by the EP, that the establishment of free trade with the MPCs will be mainly to the benefit of the EU. Especially as, with the world economy moving towards trade liberalisation, under WTO rules, the advantage to the MPCs of free access to the EU market is being eroded^93[93].

Further problems have arisen with the negotiation and ratification of the individual Association Agreements. This is proving much slower than expected; the fact that, on the EU side, these Agreements have to be ratified by the 15 Member States complicates things further. It has been argued that ratification of particular Agreements by some Member States has been delayed as a result of broader internal political conflicts in those countries.

The EMP has also contributed relatively little to regional integration. A substantial majority of MEDA funds are allocated to individual countries on a bilateral basis. MEDA II has linked the granting of funds to each MPCs to progress in the signing of an Association Agreement. It is to be questioned whether greater weight should not be given to the regional dimension and funds reallocated towards the Regional Indicative Programmes. It has also been observed by the EP, that since the main objective of the MEDA funds is to assist in the transformation and opening-up of the MPC economies, should not funds be allocated to MPCs before they enter into an Association Agreement and enter into a FTA, rather than after?

Regional integration could also be encouraged through trade provisions, with a shift to multilateral or regional trade Agreements. The African, Pacific and Caribbean (ACP) group is moving towards just such regional FTAs. However the limitations of this approach must be recognised. Historical enmities would make a comprehensive regional Agreement problematic, but there remains substantial scope for such a shift in policy^94[94]. Even within the bilateral approach chosen a greater emphasise could placed upon the gradual achievement of South-South free-trade. Improvements in the rules on 'regional cumulation' could also make a significant contribution to encouraging intra-MPC trade.

Some positive developments towards regional integration have nonetheless taken place: in May 2001 four members of the Barcelona process (Morocco, Tunisia, Egypt and Jordan) signed the so-called Agadir Declaration, under which they are aiming at establishing a free trade area among themselves. Technical work is under way and the target date set to conclude negotiations and sign the agreement is May 2002. The Commission is strongly committed to supporting this process and has offered any assistance that they may deem necessary.

The new MEDA Regulation has introduced conditionality clauses, as have the Association Agreements. How these two different sets of requirements will interact is yet to be seen. But the main criticism that has so far been offered has focused upon the EU's lack of political will to initiate them in the face of significant human rights violations by some MPCs. The Commission appears to find it much more difficult to freeze aid to Morocco or Tunisia (or to suspend cooperation – since there is no aid - under the Association Agreement with Israel) than in the case of an African ACP country or, as in a recent example, Haiti^95[95], under the Cotonou Convention. Although if cooperation is suspended the EU would loose its capacity to influence these countries, the failure to take action in the face of human rights violations undermines the credibility of the whole policy. The innovation in EU development policy of the introduction of human rights, rule-of-law and good governance as a central criteria for the allocation of aid, is long overdue. But it requires consistent application and the development of clear and, as far as possible, objective criteria. A change in the Commission's historic approach to the MPCs, one of political tempering, is a stark test of the EU's resolve in this regard. It will have implications for the similar approach that it is advocating under Cotonou and in its general dealing with the developing world. The new conditionality, together with the emphasise upon a 'poverty focus', are likely to prove the most challenging issues for the Commission and the Community in the coming years.

The EU should also show more flexibility in its approach to the regional dimension of cooperation^96[96]. Instead of waiting for all the countries of the region to agree to go forward in a certain field, it should proceed as long as their are a sufficient number. This could speed up the process, creating a situation similar to that which obtains within the EU itself.

It is clear that the EU is not acting in the region out of altruism; it is pursuing its security and economic interests. This might be regarded as merely a recognition of the nature of real politik. This self-interest can be regarded as advantageous, in that it should make the EU more committed to its Mediterranean policy, but the EP has been very critical of the way in which the process has been developing,

“It is as though Europe is interested in the Mediterranean solely for security reasons [...] and conceives its economic involvement solely as a means of opening up the markets of the countries of the South” ^97[97].

Table I:

Historical evolution of the EU Mediterranean Agreements.

Special Association Agreements under art. 238 (limited duration except Greece and Turkey).

Greece 1961

Turkey 1963 (additional protocol 1980)

Tunisia 1969

Morocco 1969

Malta 1970

Cyprus 1972

Trade Agreements under art. 113 and 114 (limited duration)

Preferential Non-preferential

Spain 1970 Israel (I) 1964

Israel (II) 1970 Lebanon (I) 1965

Lebanon (II) 1972 Yugoslavia (I) 1970

Egypt (I) 1972 Yugoslavia (II) 1973

Portugal 1972

Cooperation Agreements under art. 238 (Unlimited duration)

Israel (III) 1975

Algeria 1976

Morocco 1976

Tunisia 1976

Egypt (II) 1977

Lebanon (III) 1977

Jordan 1977

Syria 1977

Yugoslavia (III) 1980

Source: Raya, 1999.

Table II:

Table III:

Progress of negotiations on Euro-Mediterranean Association Agreements.

Chart IV:

GDP growth rate in the EU and Med partners (annual percentage).

Source: World Development Indicators

Table V:

Sectorial breakdown of Exports to EU in 1995

 

 

Sectorial breakdown of Imports from the EU in 1995

Source: OECD, 2000.

Chart VI:

Chart VII:

FDI attracted by the CEECs, Mediterranean, Latin America and South and East Asia.

Source: UNCTAD.

Chart VIII:

Evolution of the MPC trade deficit vis-à-vis the rest of the world and vis-à-vis the European Union (EU15). Base 100 their respective values in 1995.

Source: FEMISE Report 2000

Table IX:

Bilateral FTA concluded between MPCs.

Several Arab Countries have concluded a new generation of bilateral FTAs following the implementation of the Execuve Program establishing GAFTA.

The Egypt-Tunisia FTA:

The Egypt-Morocco FTA:

Concluded in 1998 and into effect in 1999. The minimum required local content is 40 percent.

The Egypt-Lebanon FTA:

The Egypt-Lebanon trade agreement aims at achieving bilateral trade liberalization within the framework of GAFTA but in a more 'expeditious way

Source: Jamel Zarrouk (2000).

Chart X:

Regional Distribution of Aid (annual average 1986–96 net disbursements $m)

Source: Development Cooperation, OECD, DAC. European Commission/ODI database 1999

Chart XI:

Sectoral Allocation of EC Cooperation with Med & Mid East

(1986-98, commitments, % of allocable aid)

Source: European Commission/ODI database 1999

Table XII:

Number of officials per $10 m in 1994