EU sees boosting trade between states in region as vital for future development

Date: 11/05/2000

By Simon Taylor

As External Relations Commissioner Chris Patten underlined during his recent visit to the Middle East, the Barcelona process has been a success in boosting trade between the EU and the 12 countries participating in the programme since 1995.

"Mediterranean imports from Europe now amount to more than €30 billion, or 47% of the total volume of imports. On the export side, the figure is even higher: more than €63 billion of Mediterranean exports are to the Union, amounting to some 52% of the total," he said.

But when it comes to developing trade flows between the countries of the region themselves, the Euro-Med programme faces a major challenge. The European Commission estimates that less than 5% of total Mediterranean trade flows are within the region.

The EU executive has identified the need to liberalise regional trade areas as a key priority in the development of the programme as part of its attempts to create an Euro-Mediterranean free-trade zone by 2010. Patten emphasised this point in recent speeches to leaders in the region. "Encouraging south-south trade is one of the most important objectives of our partnership. Economic integration in the southern belt of the Mediterranean is an essential prerequisite for the development of the region as a whole," he insisted.

Patten stressed that the Union and its partners "needed to renew the drive to create sub-regional free-trade areas". Emphasising the importance of boosting local trade within the region, he cited the example of Israel, which buys nearly half of its imports from the EU. "Greater integration between Israel's and Europe's economies would not be completed if at the same time there was insufficient economic integration on both sides with other Barcelona partners," he argued.

But the ambition will be a tough one to fulfil, as a Commission paper drawn up by the external relations department dealing with the Mediterranean region last year underlined.

The single biggest obstacle to greater regional free trade is the relative poverty of the 12 countries themselves, which have an average per-capita income which is a tenth of the Union average. The Commission admits that "halving this income gap will take more than 40 years, even under the optimistic scenario of an annual per-capita growth performance of 5% in the Mediterranean".

Given the low levels of domestic saving in countries in the region, higher growth rates can only come from higher flows of foreign direct investment.This presents another problem. As the Commission has acknowledged: "The markets of the individual partners are simply too small to attract meaningful levels of investment."

To illustrate how small these countries' economies are, the Commission points out that the combined gross domestic product of the three Maghreb countries - Tunisia, Morocco and Algeria - with a total population of 66 million, is less than that of Portugal with only ten million people. For the Mashrek countries - Egypt, Jordan, Lebannon and Syria - which have a combined population of 86 million, the figure is less than that of Finland with five million people or Greece with a population of 11 million.

The poor performance of these countries in attracting foreign investment comes despite their closeness to the EU and the favourable access they enjoy to the Union's market. Even among the world's developing countries, the Euro-Med 12 have a poor record in securing foreign capital. While investment from abroad accounts for about 7.5% of total investment in poor countries, the figure for the southern Mediterranean countries is significantly lower on average and, in the worst cases of Jordan and Syria, less than 1%.

The other impediment to creating a better trading environment within the region is the fact that so few of the countries are members of the World Trade Organisation. So far, only seven Mediterranean partner-countries are in the WTO, which allows a range of multilateral trade concessions and imposes trading disciplines that make it easier for businesses to operate across national borders.

The EU has tried to tackle these problems by offering assistance to countries to improve the regulatory and administrative environment for investment and helping to boost standards of company management in the region. But meeting the objectives of better economic integration for the region poses bigger problems than Union cooperation programmes alone can solve.

The EU's push for wide-ranging economic modernisation in the region faces serious political obstacles in the countries themselves. The Union's insistence that the Barcelona 12 should rejig their tax systems and introduce sales taxes to reduce their reliance on import duties as a source of state revenue is a bitter pill for many countries to swallow. Efforts to convince Lebanon to sign up to the more difficult parts of the Euro-Med agreement have run into problems because of local politicians' reluctance to introduce unpopular consumer taxes ahead of parliamentary elections.

As the head of the EU's delegation in Lebanon Michael Ryan explains: "It has been like dragging a reluctant child out of the room."