Getting the Mediterranean region to work together

OECD Observer
Page 49 

The countries of the southern Mediterranean suffer from a crucial lack of capital, and there is a danger of investment flows going to the centre – particularly European countries – from the periphery, which in the event is MENA, which regroups the Middle East and North African countries of the Mediterranean basin). This risk, sometimes referred to as hub-and-spoke, is that much greater in that all the countries are linked to Europe by bilateral agreements and that trade relations between them are relatively infrequent. How to prevent this periphery-centre divide from deepening was a recurrent theme of the conference organised by the OECD Development Centre, the World Bank and the Economic Research Forum, ‘The Dynamics of New Regionalism in MENA: Integration, Euro-Med Partnership Agreements and After’, held in Cairo (Egypt) in February 1999.

A number of southern Mediterranean countries have already signed free trade agreements with the European Union, which provide for the dismantling of tariff barriers for manufactures over a period of twelve years, while others are on the point of doing so. The expected impact of the Euro-Med Partnership must not be confined to the gains resulting from a mere reduction in customs tariffs, the key to success lying more in the potential dynamic effects on industrial develop-ment, technology transfers and direct investment.

Nevertheless, domestic reforms are needed in order to pursue macroeconomic stabilisation and improve the business environment.

There are a great many impediments to the growth of foreign investment: administrative shortcomings, mono-polies, poor infrastructure and lengthy customs procedures are a few ex-amples. What is more, far too many reforms have been announced but never implemented. Policy credibility is essential if foreign investors are to regain confidence.

At present, trade between the countries of the region, which represents a market of 300 million people, accounts for only 5% of total exports to the rest of the world. Still, a number of the conditions for successful regional integration are there: a common cultural and linguistic heritage, complementary economic structures and geographical proximity. The last attempt at regionalism goes back to 1997 and the signing by eighteen Arab countries of AFTA (the Arab League Free Trade Agreement). This provides for the dismantling of tariff and non-tariff barriers over a 10-year period, starting on 1 January 1998. The object is to encourage the Arab countries to create regional norms, promote free circulation of capital and labour – that of individuals is not included in the Euro-Med Agreement – and improve trade and infrastructure networks. All of this would have the effect of redu-cing costs and increasing producti-vity, while at the same time preventing the Arab countries from being at the mercy of the economic situation in Europe. They would then be better equipped to contend with the next stage of liberalisation planned by the WTO.

Credibility has to be reciprocal

The warning was made at the Cairo conference that the dismantling of the Multifibre Arrangement, for example, would certainly affect countries such as Morocco, Syria, Egypt and Tunisia, where between 20% and 40% of total exports are accounted for by textiles. Another point emphasised by the experts is that agriculture and services cannot be left out of the agreements. An OECD study on the Tunisian economy shows that agriculture has everything to gain from opening up, rather than remaining sheltered and restricted to its target of self-sufficiency. Liberalisation will have to be accompanied by transfer mechanisms for rural populations. For its part, Europe has to open its markets further to agricultural produce from elsewhere in the region. As one speaker pointed out, credibility has to be reciprocal; at present the Euro-Med Partnership resembled a sort of marriage contract whose terms were borrowed from divorce proceedings.

©OECD Observer No 216, March 1999 

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