WTO, the European-Mediterranean Agreements
and the Unified Arab Market: A European Perspective

The European-Mediterranean economic and financial partnership is intended to create a zone of shared prosperity between Europe and the Mediterranean. This partnership should enable the Mediterranean partners to carry out the reforms required by the agreements in a stable framework. By inviting them to integrate into a established economic and regulatory structure and adapt its standards, the partnership enables these countries to avoid a choice between two questionable alternatives: excessively prudent gradualism — without the possibility to initiate all the reforms necessary — and a "big bang" which could prove socially intolerable.

All this should strengthen the credibility and ability of the Mediterranean partners to undertake indispensable internal reforms which would ultimately be conducive to investment and employment. Establishing strong links with the EU, including the financing that goes with it, will however only bear fruit if each Mediterranean country introduces appropriate sectoral and economic policies, underpinned by a transparent and efficient administration. The partnership’s success is thus strongly conditional upon the scope and intensity of the internal reforms carried out.

Two fundamental Euro-Med transitional issues arise. First, the three pillars of the partnership — competition, coordination and solidarity — should be optimally combined to ensure both synergy and their incorporation into a medium-term strategic vision. Second, the agreements’ effectiveness rests on three additional pillars: bilateral links, a better articulation of the regional framework and a harmonious multilateral arrangement.

Expected Effects of the Euro-Med Partnership

The Euro-Med zone is bound to speed up the emergence of a dynamic private sector based on three mutually complementary elements: competition (free trade) which stimulates the development of the private sector, coordination (including harmonization of laws and regulations) which strengthens it, and cooperation (financial and institutional) which creates a mutually beneficial environment, where growing pains are smoothed out and the necessary involvement undertaken.

Competition. Pervious Mediterranean agreements were based on asymmetric free trade (non-reciprocity of trade concessions). Europe dismantled its protection — at least its industrial protection — while the Mediterranean partner countries continued to protect their own markets. Symmetric trade liberalization is now at the heart of the Euro-Med economic and financial partnership. The Mediterranean partners have adopted this strategy because they concur that the internal and external liberalization of their economies will give a strong impetus to modernization and progress. By reducing the many distortions caused by internal and external protection systems, liberalization will also be conducive to greater transparency. However, the dismantling of protection requires courageous decisions as it leads to the elimination of special advantages enjoyed by those benefiting from protection. The gradual progression towards free trade, which is to be implemented over a 12 year period, should prevent the competitive pressure exerted by Europe from becoming intolerable.

Coordination. It is not enough to open up borders for trade to flow; it is also necessary to ensure that markets can "communicate" efficiently. Going beyond a "spontaneous" dimension (e.g., progressive convergence of inflation rates resulting from interpenetration of the economies), coordination also encompasses an "organized" component: harmonization of rules and regulations (rules or origin, competition rules, norms and standards, rules governing intellectual, industrial and commercial property). This harmonization should in particular facilitate the trading of goods and services, including investment. It should also be conducive to the emergence of a dynamic private sector.

Cooperation. The necessary adjustments faced by the Mediterranean countries will be facilitated by the increasing cooperation stemming from expanded financial assistance — in the form of project and budget aid, technical assistance, European Investment Bank loans, etc. However, for cooperation to succeed, these assistance instruments must be better coordinated, particularly as they are applied to support the priorities highlighted by the Mediterranean partners in their three-year rolling programs, which currently cover 1996-1998: modernization and opening-up of economies, emergence of a dynamic private sector and strengthening of social equilibrium.

Bilateralism, Regionalism and Multilateralism:
Three Complementary Tracks

The Euro-Med integration must be accelerated on its bilateral, regional and multilateral fronts. There will be tensions and necessary adjustments here and there, but the

trend is now pointing in the direction of regionalism — not in the old sense of closed, post-war autarkic regionalism, but rather as a window into greater interactions with a fast globalizing world.

Bilateralism. The establishment of bilateral free trade is an important starting point of the Euro-Med agreements. However, it must be quickly complemented by an increased harmonization of legal and regulatory frameworks, and a greater integration of specific sectors and themes. As is the case with Central and Eastern European countries, these actions would greatly benefit the Mediterranean countries. While the European framework is neither perfect nor fully flexible, legal issues that affect intellectual property, the right to compete, and other rules are indispensable complements to liberalization that would both increase communication between economies and long-term security. This would encourage investment and thus growth and employment.

Regionalism. Beyond basic bilateralism, regionalism presents complex trade issues in that it must deal with sectors such as agriculture that are difficult to integrate. However, their progressive integration can be achieved through the adoption of appropriate mechanisms based on a pragmatic approach. In the field of services and investment, the resolution of regional issues will be facilitated by greater economic integration between Europe and the Mediterranean countries. In addition, greater regional coordination and integration between countries of the Mediterranean region — Maghreb, Mashreq, Turkey — is necessary to avoid potential negative effects of integration such as investment diversion to the benefit of Europe. Also, to promote the growth of a regional market, the establishment of European relations with only select countries must be avoided. In this respect, the Barcelona Declaration has clearly indicated the right path and shown that there are instruments and mechanisms available to facilitate good regional cooperation — including the harmonization of rules of origin and their ability to emulate them on a regional basis and, therefore, benefit collectively from greater access to the EU market.

Multilateralism. Bilateralism and regionalism are not sufficient, however. The whole structure must be in harmony with multilateral developments and, in particular, with the rules of the World Trade Organization which has to approve the association agreements. Conformity with the WTO is also a condition to reduce the risk of trade distortion or diversion effects. In designing these new links between Europe and the Mediterranean region, the requirements of the WTO must be anticipated. The WTO stipulates, among other things, that the transitional period allowed for customs union and the free-trade zones extend to a maximum of ten years. We will be asking for twelve years, and we will need a strong case to get the approval.

For each of the countries that are not members of the WTO — and those are numerous in the Mashreq — the measures taken under the Euro-Med agreements will also be beneficial upon joining the WTO. When tariffs are reduced and the tariff structure is rationalized, or when rules pertaining to intellectual property are adopted, these become assets which will facilitate access to the WTO and shorten transitional periods.

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