The gains and pains of economic integration

The successful launch of the physical euro has fleshed out Europe's aspirations for economic integration and many hope it will pave the road towards political integration. Meanwhile, an increasingly divided Middle East slips a notch closer to war as one “bloodiest week” in the Israeli-Palestinian conflict replaces another.

Although international diplomacy has so far proven powerless to arrest the evolution of the bloody cycle, the EU is hoping that the quiet diplomacy of trade will have a long-term stabilising effect on the region.

European diplomats hope that a Euro-Mediterranean free trade area (FTA), as set out in the 1995 Barcelona Agreement, will achieve its declared aims of creating peace, stability and prosperity in the area. Although partially operational, the FTA will take another decade to become a full reality.

“We want to inject new life into the Euro-Mediterranean process and use it to help resolve conflicts in the region, in particular the Middle East,” European Commission President Roman Prodi said in a recent keynote speech.

“Europe's recent past highlights the potential advantages of a Euro-Mediterranean FTA,” a negotiator at the European Commission, who wished not to be named, said, noting that the lessons of two world wars have been the driving force behind European integration.

Although the Barcelona Process is more than a trade pact and encompasses basic human rights standards, as well as social and political reforms, European diplomats are quick to point out that it is not a substitute for the resumption of the Middle East peace process.

“We have long held that the Barcelona Process isn't the right vehicle for trying to address the Middle East peace process,” said another European Commission diplomat, noting that the gradual move towards inter-regional trade and investment could, nonetheless, act as an indirect incentive to peace.

Critical mass

In the seven years since the ambitious idea of creating a Euro-Mediterranean trading bloc was floated, the Barcelona Process has, as one diplomat put it, reached “critical mass”, although it will probably miss its target date of 2010 by a few years.

Cyprus, Malta and Turkey already have what are called first generation association agreements that date back to the 1960s and 1970s. The earliest MENA region signatories: Tunisia (1995), Morocco (1996), Israel and the Palestinian Authority (1995) also have functioning agreements.

However, the laborious process of ratification by the parliaments of both the partner country and all 15 EU members have caused delays in enforcing later deals. The Jordan agreement, which was signed in 1997, will only come into full force in May. MENA's largest market, Egypt signed its agreement last summer, while Algeria and Lebanon initialled theirs in December and January.

Of the EU's 12 Mediterranean partners, only Syria remains without a deal. A pact with Syria, isolated for decades from the global marketplace, awaits the implementation of a series of wide-ranging reforms to prepare its sheltered economy for the open market.

Libya, which currently enjoys observer status, has never been part of the Barcelona Process, which began while the country was still under UN sanctions, but diplomats do not rule out it joining the pact at a later stage.

The gains and pains of free trade

Europe and its Mediterranean partners are gearing up excitedly for the advent of the free trade area and the vast new export markets it will undoubtedly open up. Although Algeria aspires to become Africa's gas hub to Europe, it also hopes to diversify its petrochemicals-based economy by attracting more foreign direct investment. Lebanon hopes to restore its pre-war entrepreneurial heyday as the Switzerland of the Middle East, while Egypt hopes to become a major clothing and agricultural exporter to the EU, as well as an IT subcontractor.

Ahmed Galal, an Egyptian economic analyst, envisions a “bonanza” for his country's exporters who will be able to better utilise economies of scale as they tap into the vast EU market of some 350 million consumers.

Despite urgent calls by the EU for legislative reforms to promote investment, the Lebanese are no less upbeat. “Our dynamic private sector and highly educated workforce will carve out a prominent role for Lebanon in the Euro-Med area,” a Lebanese diplomat, who wished to remain anonymous, said.

Nevertheless, concern has been voiced that local industries will have trouble competing against their larger European rivals.

“If we wait until our economy is ready for competition, we will never do it,” Galal said at a recent conference, maintaining that free trade will force Egyptian industry to modernise and become more competitive. “(The Egyptian automobile) industry has been in its infant stage for 40 years, when is it going to grow up?” he cited as an example against protectionism.

“The Barcelona Process does involve opening up local industry to tough European competition, so it's important that Mediterranean countries prepare themselves,” the European Commission diplomat said, referring to EU-funded reforms being implemented by Mediterranean countries.

One preparation that is lagging behind is inter-regional free-trade pacts, which MENA countries need if they are to trade freely with one another, as well as the EU. Although a string of bilateral trade agreements have recently been signed between Arab countries, only one currently looks set to go beyond ink on paper. Egypt, Morocco, Tunisia and Jordan plan to launch the Mediterranean Arab Free Trade Area (MAFTA), which other Arab countries are free to join later, to complement their agreements with the EU.

Beyond economics

Although many MENA governments regard the human rights and political aspects of the Barcelona Process as an excuse for the EU to meddle in their internal affairs, civil society has criticised the EU for not going far enough. Five human rights groups, including Amnesty International, recently urged the EU to bring pressure to bear on the Tunisian government for its handling of opposition figures.

For its part, the European Commission has gone to some pains to highlight, particularly since the 11 September terrorism attacks, the human rights and cultural aspect of the Barcelona Process, saying it has set itself three new priorities, which include strengthening political and cultural dialogue in the region.

Nevertheless, thousands of European, Arab and Jewish peace activists held a protest march in Brussels at the end of February calling on the EU to suspend its association agreement with Israel until it resumes peace negotiations with the Palestinians. “The resolution of the Israeli-Palestinian issue is of paramount importance to the future of the Euro-Mediterranean FTA,” said one MENA analyst.

Other analysts and diplomats, however, dismiss the possibility that the current volatility in the Middle East might derail or disrupt the fruition of the Euro-Mediterranean free zone. “Stalemating one process doesn't necessarily stalemate the other,” the EC negotiator said. “There's too much at stake for the parties involved and they stand to benefit too much.”

Some analysts maintain that the free zone is a win-win situation for everyone and the attractive prospect of European Union membership for some or all Mediterranean countries might one day be on the table.

“The question isn't whether the Euro-Mediterranean free trade area will hold together. More recently, discussion has been opened on the possibility that some Mediterranean countries, e.g. Israel and the Maghreb states, might join the EU in the long-term future,” Eberherd Rhein, a senior policy adviser at the European Policy Centre, a Brussels-based think tank, said.

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This article first appeared in the April 2002 issue of Middle East magazine.