There goes the neighborhood?

Egypt Today - July 2005

There Goes the Neighborhood?

By Rania Oteify

As the European Union enters a difficult watershed moment in its internal affairs, Egypt and the partner countries in the EU’s ten-year Euro-Mediterranean Partnership ponder their own new administrative spiderweb. The new European Neighborhood Policy was designed to speed up free trade and strengthen human rights and political reforms - but it could pass us over altogether.

Extinguishing the last ray of hope that Europe’s unification lies along the straight path of destiny, France’s rejection of the European Union Constitution by referendum on May 29th threw the nascent confederation into confusion. After three years of work on a detailed document that would have further lowered legal and immigration barriers among member states, it seems the French have again forced an “agonizing reappraisal” of both intra-European relations and the EU’s growing role in liberalizing the global economy.

Senior EU officials attending the 7th Euro-Mediterranean Conference of Ministers of Foreign Affairs in Luxembourg were still in shock on the morning of May 30th. Under discussion was the progress of the Barcelona Declaration, a treaty that established the Euro-Mediterranean Partnership (Euro-Med, or the Barcelona Process) and ultimately aims to create a free-trade zone between the EU and ten Mediterranean countries including Egypt.

But as ministers and their staffs sat down to examine the status of the Barcelona Process 10 years on, they identified factors far beyond the EU’s present-day constitutional crisis that have slowed Euro-Med’s pace - and renewed their commitment to further integration with the Mediterranean region even as their plans for internal integration came to a crashing halt.

The Euro-Med Partnership has often given the impression of falling short of its own goals, and there is no disputing that the changing political atmosphere in the Middle East has hampered progress that seemed possible in 1995, when the document was written during the heady days of Oslo Accords. The partnership has certainly not reached its stated goal of “creating an area of peace and stability based on respect for fundamental rights, to create an area of shared prosperity, and to help improve mutual understanding among the peoples of the region.”

With the continuation of the Arab-Israeli conflict and the slow pace of economic liberalization, a network of interim bilateral treaties may succeed in galvanizing a free trade zone, but it seems unlikely to be completed by 2010.

While praising the ten Mediterranean ministers for uniformly and formally subscribing to the Barcelona Declaration’s goals through association agreements that set a concrete schedule for trade liberalization, EU representatives sent a strong message that several of the nations in attendance, including Egypt, need to become more committed to reform by drafting Action Plans to join the new European Neighborhood Policy (ENP).

Even though the Neighborhood Policy ties significant funding to this Action Plan, Egyptian government officials seem reluctant to make commitments to political or other reforms, ahead of this fall’s presidential and parliamentary elections.

EU Commissioner for External Relations and European Neighborhood Policy Benita Ferrero-Waldner confirmed in no uncertain terms that the European Union’s partnership with its southern neighbors is at a critical juncture.

“After ten years, we have to take stock but at the same time we have to put a fresh impetus in it,” she said at a meeting with reporters during the conference. “We have to take some key decisions that will determine the future shape of our relationship. The program I proposed for the next five years includes, therefore, measures that require courage and determination. I think by agreeing our aim [is] to ensure it brings a value to people’s lives.”

After discussing developments that have hindered the political, economic and social aspects of the Barcelona Process, the conference’s summary report presented a new set of future goals in three fields: peace, security, good governance and democracy; sustainable economic development and reform; andt education and socio-cultural exchanges.

According to Ferrero-Waldner, European support for each Euro-Med country’s Action Plan covering the three pillars will target only “work programs that are target-based.”

She confirmed that the EU believes “that the full potential [of the Euro-Med Partnership] has not yet been exploited. Therefore, there is a necessity to accelerate and reinvigorate the process and the progress of the Barcelona Process.”

A free-trade stone soup

Regarding Euro-Med’s economic goals, Ferrero-Waldner reaffirmed the Barcelona Declaration’s intention to create Euro-Mediterranean Free Trade Area (EMFTA) by the target date of 2010 through bilateral Euro-Mediterranean Association Agreements negotiated and concluded between the European Union and the Mediterranean partner countries.

The countries include Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the Palestinian Authority, Syria, Tunisia and Turkey.

Association agreements are currently in force with all the Mediterranean partners except Syria, whose agreement is still in negotiation. The EU-Egypt Association Agreement, inked on June 25, 2001, entered into effect June 1, 2004 and is currently the main treaty governing economic and political ties between the two sides. The agreement restates UN charter principles regarding human, civil and economic rights; presents a coherent immigration policy, and provides a plan that gradually phases out tariffs on set schedules for industrial and agricultural products.

Ferrero-Waldner called the bilateral association agreements, the most important building blocks in the Euro-Mediterranean partnership, “very successful, especially in laying the grounds for the foundation of free trade with regards to industrial goods.”

However, she added that trade liberalization will not be mutually beneficial without corresponding growth in employment and infrastructure in Mediterranean partners.

“We look at the question of investment; you have to boost investment and also reduce the wealth gap between Europe and its neighbors. Five million new jobs a year are indeed required to meet the needs of the Mediterranean region’s young population,” she said. “Meeting this target would mean not just keeping the political promise; I think it would mean that we would have to go on working on it.”

Ferrero-Waldner also reiterated the importance of south-south trade for the purpose of reinforcing the ultimate EMFTA. The Agadir Agreement, signed on February 25, 2005, set up the framework for a free-trade zone between Jordan, Egypt, Morocco and Tunisia.

“The Agadir Process is absolutely crucial,” she said. “It means not only thinking of goods, but also thinking of services and thinking also of the liberalization of other key areas, for instance, the establishment of SMEs.”

The European Commission has offered strong support to the Agadir initiative since its inception by providing 4 million in financing through the MEDA framework for technical assistance to Agadir member countries and the Agadir secretariat.

Egypt is now negotiating a similar agreement with Turkey, according to Nehad Abdel Latif, secretary-general of the Permanent Secretariat for the Implementation of the Egypt-EU Association Agreement. Minister of Foreign Trade and Industry Rachid Mohamed Rachid signed a memorandum of understanding in April committing Egypt to a free-trade agreement with Turkey that could see total trade with the country, $511 million last year, top $1 billion in the coming year. There have been conflicting signals from Ankara as to when the deal itself might be inked, but both sides expect it to happen by the end of this year.

Under the association agreements, treaties such as Agadir and the Turkish-Egyptian agreement will also allow cumulation of origin of products made by Mediterranean partners, according to Abdel Latif. This means more than one nation may contribute to a product, for example, to meet the minimum value-added content for duty-free export to the EU, but the product will be considered to have a single point of origin.

“When we all have association agreements with the European Union, we can establish a free-trade area and we apply identical rules of origin. This gives us better access to the European market,” he says.

Intra-regional trade has been a top priority for Rachid. “It is very important that we know that we will not have a position in the global marketplace unless we are able to properly tap the regional [Middle East and North African] market,” the minister told reporters in April. (For more on Rachid, see this month’s cover story, page 68.)

New to the neighborhood

The EU-Egypt Association Agreement celebrated its first year of implementation last month. In April, the opening of the Anna Lindh Euro-Mediterranean Foundation for the Dialogue of Cultures in Alexandria marked the most important accomplishment for the cultural pillar of the Barcelona Process. (See sidebar, “A Long Road Ahead”).

But just as the Barcelona Process finally started to move after a decade, the EU introduced an overlapping new plan, the European Neighborhood Policy, to address these problems implementation issues and speed integration by ensuring partner countries have more targeted Action Plans.

Ahmed Ghoneim, professor of economics at Cairo University’s Faculty of Economics and Political Sciences, says the EU has not made its reasons for introducing the ENP entirely clear.

Ghoneim is on the steering committee of the Femise Network, an association of more than 80 independent economic institutes in the 27 partner states of the Barcelona Process. Co-managed by Institute de la Mediterranean in France and the Economic Research Forum in Egypt, the network recently published a report titled “The Euro-Mediterranean Partnership 10 years after Barcelona: Achievements and Perspectives.”

“This is the EU’s habit: They launch a new policy every 10 years or so,” he claims. “I am not optimistic about the ENP after Barcelona did nothing [in the past decade],” he claims. “Another expectation from the Barcelona Process was to have a more flexible aid mechanism. However, with the enlargement plan, the European bureaucracy tends to increase.” he asks.

On the European side, the answer seems quite direct: The key word is “action.” The EU maintains that the ENP was created to share the benefits granted to nations that joined the EU in 2004 with the Mediterranean partners who did not. However, it means another round of bilateral agreements (the Action Plans) between Europe and its Mediterranean partners. Each country-specific Action Plan is to define a set of priorities on a bilateral basis with each partner nation that essentially specifies and expedites the general principles of the association agreement.

These priorities cover a number of key areas: political dialogue and reform; trade and measures preparing partners for gradually obtaining a stake in the EU’s internal market; justice and home affairs; energy; transport; information; society; environment and research and innovation, and social policy.

According to Ferrero-Waldner, these ENP Action Plans, which also cover Eastern European nations who are not presently candidates for EU membership, come on top of the Barcelona Process. “We negotiate those Action Plans with every country. The priorities of the country and our own priorities are being matched Of course, we will give money [according to] the way the Action Plan is being implemented by the country,” she said.

Officials in most partner countries appear sensitive about the more direct manner in which Action Plans stipulate democratic reforms. Ferrero-Waldner says that the European Union wants to help the countries move toward real change.

However, she confirms that all Mediterranean partners were voluntary participants, so the EU “[does] not want to impose reforms on the countries. This is also a cornerstone of the Barcelona Process,” she added.

The EU plans to create ample opportunities and incentives to promote voluntary reform, Ferrero-Waldner said. “One of the concrete ideas is to [establish] the democracy facility fund by 2007 onwards to support those who advance on political reforms, to give them some sort of incentive. It could be in some money, but it can be in any other support that we can give in addition,” she explains.

Seven partner countries have already signed ENP Action Plans, namely Israel, Jordan, Moldova, Morocco, the Palestinian Authority, Tunisia and Ukraine. Ferrero-Waldner said last month she was hoping to agree on Action Plans by the end of this year with another five countries: Armenia, Azerbaijan, Georgia, Lebanon - and Egypt.

On Schuman Day, the EU’s anniversary, European Commission Delegation to Cairo chief Klaus Ebermann said that the European Commission’s goal is to have these negotiations and the Action Plan with Egypt in place by the end of the year.

“It is important because a number of Action Plans with other neighbors are already in place and are already being implemented,” Ebermann says. “It would be unfair and unfortunate for Egypt to reach the goal after many others have taken benefits of the funding capacity of this instrument, which was made available at the same time for all neighbors.”

The unspoken message? The EU is worried that Egypt might be stalling. Egypt needs to hurry up and decide at what level, if any, it wants to join the ENP, because there is a limited amount of funding available for the ENP members and it is available on a first-come, first-served basis. The irony is that, except for the political commitments ENP Action Plans require, the EU’s developmental goals closely align with those Prime Minister Ahmed Nazif outlined in his 10-point Action Plan presented to the People’s Assembly in his annual State of the Nation address this past December.

The Egyptian side, however, seems to be downplaying the importance of catching up with the Palestinians, Moroccans, Jordanians and Israelis on an Action Plan. Foreign Affairs Minister Ahmed Abul Gheit told reporters in Luxembourg that the ENP Action Plan is still under study by both sides.

“The Egyptian side is still studying it, and the European side has not reached concrete ideas. Therefore, we still need some time - extended time - to reach a point that we can say we have an agreement,” he said.

Risking exclusion

A senior official at the European Commission in Brussels, who spoke to Business Today Egypt on condition of anonymity explained how the proposed ENP Action Plans will use both incentives and coercion to encourage economic, social and democratic political reform.

“If there is no Action Plan, or the scope of the Action Plan is reduced, this means less money,” he says.

“The money is linked to the ambition of the Action Plan,” he continues. “It is to perform many activities at the same time. It means that if Morocco is more ambitious, and therefore wants to achieve more from its relations with the European Union, they need to have the money to implement their Action Plan. If Egypt decides to have a less ambitious Action Plan, which we hope is not the case, we will have the amount of funds that is compatible with the ambition of the country’s Action Plan.”

In an informal meeting at the end of June to prepare for the start of formal talks on the Action Plan, Ebermann stressed, “It is not the money but the capacity for sharing knowledge. There is no quota [set for Egypt], but [funding] depends on the quality of projects and the readiness of Egypt to cooperate.”

In any case, the EC official continues, the Association Agreement will continue to work the same way even if there is no Action Plan. “The Action Plan is a bonus to the association agreement,” he stresses. “If you have an Action Plan, then what we have in the association agreement will have a much greater impact than without an Action Plan. But the absence of the Action Plan does not hamper the association agreement [in moving forward].”

This solidifies the EU’s evolution in the treatment of partner assistance from financing projects to an almost exclusive focus on reforms and policy. In the EU’s major aid project in Egypt, the Industrial Modernization Program (IMP), it granted 250 million for the development of small and medium sized enterprises before the money had been allocated to specific projects. As a result, the money sat unused in the government’s coffers (See “Industrial Mystery Program?” Business Today, March 2005).

“For programs like IMP, I think it will be much more difficult to be funded nowadays as they were funded and accepted a few years ago,” the senior adds. “Now, funds from the European Union allocated to Egypt are more and more linked to policy and reforms that are framed in the Action Plan of ENP.”

At the end of the day, it’s not just a new opportunity the ENP is holding out: it will shortly be the only avenue for development aid for trade and industry from the EU. Although loans from the European Investment Bank should still be available, when the MEDA II finance program affiliated with Euro-Med concludes at the end of 2006, the only source of aid will be a new program, the European Neighborhood and Partnership Instrument - available only to countries with signed Action Plans.

Point by point

Abdel Latif explains that in order to have started negotiations on the Action Plan, we need to have the association agreement in place. Although we are behind other countries, much of the framework is in place for Egypt’s inclusion.

“Morocco and Tunisia took a year and half each to negotiate their Action Plans. We did not begin this process until September last year, after the agreement entered into force. Other countries’ association agreements came into force before us. There has been no delay, it’s simply that the process began with us later than the others.”

The benefit, according to Abdel Latif, is that this Action Plan will make the generalities of association agreement more concrete.

“It is what we can call an executive plan for the association agreement,” he says. “For example, transport is a very important sector. We are not going to say that the Europeans will come and give us 50 million in port services, but instead that the action will be to upgrade the ports by using the best practices and to modernize or enhance the services at the ports. This Action Plan will be based upon our priorities, after which we will agree on the different actions, policies, and strategies.

“When we agree on the action, then we come to the second phase: planning a project and the way it will be financed. It will not be financed wholly by the European Union. It is our priority and we are implementing it whether they support us or not,” he says.

Ferrero-Waldner is again adamant that the EU will not impose reforms on Egypt or any partner country.

“We give them their own pace, but we cannot ignore the importance of democratic reforms, and we do not ignore that,” she concluded. “The Action Plan includes concrete actions on all the different policies. In the end, the country gets a share of our markets and of course can also participate in different sectors.”

With more promotion and persuasion by the EU of the benefits of further integration - and the passage of this fall’s political contests -analysts expect the Nazif government, if reappointed, may make a quick dash towards adopting an Action Plan that brings the long-debated partnership a step forward. And they had better: Regardless of the temporary internal disarray caused by the constitutional fiasco, the government must take into account that the EU is here to stay - and remains one of our two largest trading partners.

Exclusion from continuing economic and industrial development aid that neighbors like Tunisia and Jordan are now set to receive, will only put Egypt at a long-term disadvantage

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source: Egypt Today