Final Report on Phase 1 of the SIA/EMFTA Project€¦ · Foreign direct investment ... FEMIP...

SUSTAINABILITY IMPACT ASSESSMENT STUDY OF THE EURO-MEDITERRANEAN FREE TRADE AREA

SIA METHODOLOGY

Final Report on Phase 1 of the SIA-EMFTA Project

September 2004

Prepared by:

Impact Assessment Research Centre Institute for Development Policy and Management

University of Manchester

in partnership with:

Personal data in this document have been redacted according to the General Data Protection Regulation 2016/679 and the European Commission Internal Data Protection Regulation 2018/1725

This Report was prepared with financial assistance from the Commission of the European Communities. The views expressed herein are those of the Contractor, and do not represent any

official view of the Commission.

This Report has been prepared for the European Commission under Contract No: EuropeAid/114340/C/SV/CME

by:

Institute for Development Policy and Management, University of Manchester (IDPM) Bocconi University

The International Centre for Advanced Mediterranean Agronomic Studies (CIHEAM) Centre International des Technologies de l’Environnement de Tunis (CITET)

Deloitte & Touche, Sustainable Emerging Markets Overseas Development Institute (ODI)

United Nations Economic and Social Commission for Western Asia (ESCWA)

Project website: http://www.sia-trade.org/emfta

Project email address: [email protected]

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CONTENTS

ABBREVIATIONS................................................................................................................................. 1 1. INTRODUCTION ........................................................................................................................ 3 2. TRADE IN THE EURO-MEDITERRANEAN REGION............................................................ 5

2.1. Trade flows................................................................................................................................... 5 2.2. Tariff rates .................................................................................................................................... 8 2.3. Foreign direct investment ............................................................................................................. 9 2.4. Trade agreements ....................................................................................................................... 11 2.5. The EMFTA ............................................................................................................................... 12

3. SUSTAINABLE DEVELOPMENT IN THE EURO-MEDITERRANEAN REGION ............. 13 3.1. Regional issues for sustainable development ............................................................................. 13 3.2. Regional programmes and institutions for sustainable development ......................................... 16 3.3. Support for the sustainable development of the region .............................................................. 17

4. REVIEW OF PREVIOUS STUDIES ......................................................................................... 20 4.1. Trade impact assessment methodologies.................................................................................... 20 4.2. Trade Impact Assessment Studies for the Mediterranean Region.............................................. 21 4.3. Synthesis studies of the Mediterranean region........................................................................... 22 4.4. Modelling studies for Mediterranean trade ................................................................................ 23 4.5. Case studies and sectoral reviews............................................................................................... 24

5. PROPOSED METHODOLOGY FOR ASSESSING THE SUSTAINABILITY IMPACTS OF THE EMFTA .............................................................................................................................. 27

5.1. Introduction ................................................................................................................................ 27 5.2. Adapting the SIA Methodology to the EMFTA......................................................................... 27 5.3. Major components of the SIA methodology .............................................................................. 28 5.4. Screening criteria for selecting key economic sectors for detailed assessment.......................... 29 5.5. Choice of scenarios .................................................................................................................... 30 5.6. Methods of assessing impacts .................................................................................................... 32

5.6.1. Conceptual framework ........................................................................................................ 32 5.6.2. Economic models ................................................................................................................ 33 5.6.3. Causal chain analysis, literature reviews and case studies .................................................. 34 5.6.4. Impact significance.............................................................................................................. 34 5.6.5. Uncertainty .......................................................................................................................... 35 5.6.6. National policy responses.................................................................................................... 35

5.7. Indicators and monitoring .......................................................................................................... 35 5.8. Integrating the SIA into decision-making processes .................................................................. 37

6. CONSULTATION AND DISSEMINATION STRATEGY FOR THE SIA PROJECT ........... 38 6.1. Consultation Mechanisms ......................................................................................................... 38 6.2. Dissemination............................................................................................................................ 41 6.3. Information material.................................................................................................................. 42 6.4 Implementation.......................................................................................................................... 42 6.5 Response to contributions ......................................................................................................... 44

7. WORKPLAN FOR PHASES TWO AND THREE.................................................................... 45 7.1. Project workplan for Phases Two and Three.............................................................................. 45 7.2. Procedure for review/refinement of the methodology................................................................ 45 7.3. System for monitoring progress with the study.......................................................................... 45

REFERENCES...................................................................................................................................... 46

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ANNEX 1. SAMPLE LIST OF STAKEHOLDERS .......................................................................... A1 1. Governments ............................................................................................................................... A1 2. European Commission ................................................................................................................ A1 3. Mediterranean Institutes, Networks and Regional NGOs ........................................................... A1 4. Civil Society Groups (National).................................................................................................. A2 5. International organisations .......................................................................................................... A3 6. United Nations organisations ...................................................................................................... A3

ANNEX 2. CONSULTATION ACTIVITIES .................................................................................... A4 1. Summary of Consultations .......................................................................................................... A4 2. Upcoming consultations .............................................................................................................. A5 3. List of consultations and meetings .............................................................................................. A6

ANNEX 3. WORKPLAN FOR PHASES 2 AND 3 ........................................................................... A7 1. Overview of Action Plan.............................................................................................................. A7 2. Implementation Plan Phase 2 ....................................................................................................... A8

ANNEX 4. TRADE AGREEMENTS IN THE MEDITERRANEAN REGION................................ A9 1. Regional and multilateral agreements .......................................................................................... A9 2. Modalities of South-South Integration ....................................................................................... A14 3. Experience of South-South Integration ...................................................................................... A17 4. Conclusion and Challenges ........................................................................................................ A18

ANNEX 5. REVIEW OF PREVIOUS STUDIES ............................................................................ A20 1. Trade impact assessment methodologies................................................................................... A20 2. Trade Impact Assessment Studies for the Mediterranean Region............................................. A23 3. Synthesis studies of the Mediterranean region.......................................................................... A24 4. Modelling studies for Mediterranean trade ............................................................................... A29 5. Case studies and sectoral reviews.............................................................................................. A44

ANNEX 6. SUSTAINABLE DEVELOPMENT INDICATORS ..................................................... A57 ANNEX 7. MONITORING AND VERIFICATION........................................................................ A61

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ABBREVIATIONS AA Agadir Agreement AMU Arab Maghreb Union CAP Common Agricultural Policy CBD United Nations Convention on Biological Diversity CCA Causal Chain Analysis CEC North American Commission for Environmental Cooperation CEEC Central and Eastern European Country CGE Computable General Equilibrium CIHEAM International Centre for Advanced Mediterranean Agronomic Studies CITET Centre International des Technologies de l’Environnement de Tunis CSO Civil Society Organisations ECE United Nation Economic Commission for Europe EIA Environmental Impact Assessment EMFTA Euro-Mediterranean Free Trade Area EMP Euro-Mediterranean Partnership ERF Economic Research Forum ESCWA United Nations Economic and Social Commission for Western Asia ETB United Nations Environment Programme, Economics and Trade Branch EC European Commission EU European Union FBT Food, Beverages and Tobacco FDI Foreign Direct Investment FEMIP Facility for Euro-Mediterranean Investment and Partnership FEMISE Euro-Mediterranean Investment Facility FoE Friends of the Earth FTA Free Trade Area GAFTA Greater Arab Free Trade Agreement GATS General Agreement on Trade in Services GDI Gender-related Development Index GDP Gross Domestic Product GTAP Global Trade Analysis Project HDI Human Development Index IDPM Institute for Development Policy and Management IISD International Institute for Sustainable Development JWPTE Joint Working Party on Trade and Environment M&E Mitigation and Enhancement MAP Mediterranean Action Plan MCSD Mediterranean Commission on Sustainable Development MDG Millennium Development Goal METAP Mediterranean Environmental Technical Assistance Programme MENA Middle East and North Africa region MFN Most Favoured Nation MPC Mediterranean Partner Countries NGO Non-Governmental Organisation NIS Newly Independent States NNP New Neighbourhood Policy NSDS National Sustainable Development Strategy ODA Official Development Aid ODI Overseas Development Institute OECD Organisation for Economic Co-operation and Development PAP Priority Actions Programme

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R&D Research and Development RAC Regional Activity Centre RSPB Royal Society for the Protection of Birds SAP Strategic Action Programme SIA Sustainability Impact Assessment SMAP Short and Medium-term Priority Environmental Action Programme TRIPS Trade Related Aspects of Intellectual Property Rights UNCED United Nations Conference on Environment and Development UNDP United Nations Development Programme UNEP United Nations Environment Programme WIPO World Intellectual Property Rights Organisation WTO World Trade Organisation WWF Worldwide Fund for Nature


1. INTRODUCTION At the Euro-Mediterranean Ministerial Meeting held in Stuttgart in 1999, the European Commission made a commitment to carry out a sustainability impact assessment (SIA) of the Euro-Mediterranean Free Trade Area (EMFTA). This report describes the first steps of a project to implement this commitment, and is published as part of the consultation process that will take place throughout the SIA programme. The project is intended to contribute to the overall objective of streamlining sustainable development principles into the framework of the EMFTA, in the context of the agreements that have already been made, and on-going and future negotiations. Through a combination of consultative processes and technical studies, the study aims to provide a reliable and widely accepted analysis and understanding of the potential impacts on sustainable development of the trade measures covered by these agreements and negotiations, and an analysis of the policy options that are available for maximising benefits and avoiding or mitigating adverse effects. As well as providing a concrete input for negotiators representing all the countries of the region, the study will provide information for other policy makers and stakeholders involved in the development of related measures that interact with trade policy in relation to the goals of sustainable development. In particular, the outputs of the consultations and analyses undertaken in the study are expected to influence the design of the EU’s technical assistance and related support programmes for trade issues and sustainable development in the region. The SIA study is being carried out in three phases over a two year period. • The first phase (concluding with this report and consultation on it) will define the methodology

for carrying out the SIA study in the subsequent phases.

• The second phase will include: o testing and where necessary refining the methodology; o identifying the scenarios that will be assessed; o a broad assessment of the economic, social and environmental impacts of the EMFTA at

regional level; o a review of strategic options on how best to avoid or mitigate negative impacts and

maximise positive ones; and o identifying key economic sectors whose impact on sustainability is most likely to be

influenced by the EMFTA process.

• The third phase is expected to include: o detailed assessment of the impacts of the EMFTA on the sectors identified in Phase Two; o proposals for a participatory monitoring mechanism to assist Euro-Mediterranean Partners

and stakeholders to promote sustainability in the future evolution of EMFTA; o recommendations for further integration of sustainable development in the remaining

EMFTA trade negotiations, in the implementation of Association Agreements and MEDA Programmes, and in the further orientation of policies within the Euro-Mediterranean Partnership (EMP).

Three reports (Inception, Interim and Final) are to be prepared for the European Commission during each Phase of the project. This Final Report for Phase One includes the main elements of the Inception Report and Interim Report that have been submitted to the Commission. In accordance with the project’s Terms of Reference1, it presents:

• a critical overview of the work during the 1st Phase (Sections 2 to 4)

1 The Terms of Reference may be downloaded from the project website, http://www.sia-trade/emfta


• conclusions and recommendations (Section 5) • more focussed orientations for the 2nd Phase (Sections 5 to 7) • annexes containing necessary material and documentation (Annexes 1 to 7).

Sections 2 and 3 describe the background to the EMFTA, covering trade in the region and sustainable development in the region. Section 4 summarises the findings of a critical review of previous related studies. The remainder of the report gives details of the proposed methodology for conducting the subsequent stages of the SIA of the EMFTA. Stakeholder views on these proposals will be welcomed, and will be taken into account in the later stages of the project.


2.4. Trade agreements With the support of the EU, several south-south trade agreements have been negotiated with the aim of increasing intra-regional trade. These include: • The Arab Maghreb Union (AMU), between Algeria, Libya, Mauritania, Morocco and Tunisia.

This was formed through the Marrakech Treaty of 1989, with the aim of creating a customs union. A number of external factors, such as the international embargo imposed on Libya until 1999, Algeria’s domestic crisis, and certain disagreements among member countries concerning the Western Sahara issue appear to have halted the integration process.

• The Greater Arab Free Trade Agreement (GAFTA) includes 7 of the Euro-Mediterranean partners

(Algeria since 2002, Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia), along with Bahrain, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia and United Arab Emirates. The liberalisation measures are included into the Executive Programme of the Economic and Social Council of the Arab League adopted on 19th February 1997 and to be implemented by 21st July 2007 with the creation of a Pan-Arab Free Trade Area. The 9 paragraphs of the Executive Programme incorporate specific commitments for tariff reductions, imposing a schedule for implementation, and addressing rules of origin and non-tariff restrictions. In February 2002 the Economic and Social Council decided to accelerate the establishment of the FTA setting 2005 as deadline for its launch. In addition a progressive reduction of tariffs on industrial products was implemented in the same year.

• The Agadir Agreement (AA) between Morocco, Tunisia, Egypt and Jordan aims to establish a free

trade area. This declaration linked Maghreb and Mashreq countries and is based on the principle of open regionalism. In principle, other countries can join. Targets have been agreed for a 65% reduction of tariffs in the first year, 80% in the second, 90% in the third and 100% reduction to achieve a full free trade area by 2006. The four partners launched the integration process with the Agadir declaration in May 2001 and subsequently signed the formal agreement in February 2004. The European Commission has supported the Agadir initiative since its inception, and will provide funding through a MEDA programme to give technical assistance to Agadir member countries and its planned Secretariat.

• Bilateral trade agreements include Egypt-Tunisia, Egypt-Morocco, Egypt-Lebanon, Egypt-

Jordan, Morocco-Jordan, Morocco-Tunisia, Jordan-Lebanon, Syria-Lebanon, Turkey-Israel, and the Israel-Palestine agreement within the Oslo process.

These regional and bilateral agreements aim to reduce tariffs for a large number of products, from levels which make the region one of the most protected in the world (Table 6). The extent of protection differs according to the country, sector and trade measure under consideration, with particularly high tariff rates in countries such as Algeria, Egypt, Morocco and Tunisia. Most of the bilateral and regional agreements involve slow and gradual trade liberalisation reflected by, inter alia, various exemption lists. Many exclude agricultural products and services. GAFTA includes agriculture but with seasonal exemptions. In practice, many imports competing with domestic production have not been liberalised, bilaterally or regionally. The United States is also promoting trade in the region, and has signed trade agreements with Israel (1985), Jordan (2000) and Morocco (2004). These eliminate all tariffs on industrial and agricultural products, open the countries’ services markets to United States companies and liberalise the regulatory framework for foreign direct investments. They include significant sections on environmental protection and workers’ rights. The rules of origin provide that at least 35 percent of the customs value of the imported products must be material. The US Middle East Partnership Initiative also includes trade components.


Further details of these south-south trade agreements are given in Annex 4. 2.5. The EMFTA The Euro-Mediterranean Free Trade Area is being implemented through Association Agreements between the EU and the partner countries. Agreements have been signed with Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Tunisia and Turkey. The agreements with Egypt (2004), Israel (2000), Jordan (2002), Lebanon (interim agreement in 2003), Morocco (2000), Tunisia (1998) and Turkey (1963) have been ratified and are in force. The Association Agreement with Algeria is now in the process of ratification. Regarding the Palestinian Authority, an Interim Association Agreement on Trade and Cooperation was signed on 24th February 1997, entering in force on 1st July 1997. The partnership agreements provide for regulations governing commerce, intellectual property, services, competition, and social cooperation. Generally speaking, the Mediterranean countries that have signed an agreement have accepted the principle of a progressive reduction in all customs charges on EU-originating products, including those containing an agricultural component. The tariff reduction is asymmetric: all EU tariffs are eliminated for Mediterranean industrial products while Mediterranean countries undergo gradual and differentiated reduction of duties over 12 years. For agriculture, the agreements stipulate reductions in duties and equivalent measures, but only for a limited number of products listed in annexes or protocols. This consolidates and in some cases improves the existing access on a preferential basis, with provisions for review at some time after the agreement has come into force. Hence, the fate of several agricultural products has so far not been decided, as no specific schedule for liberalisation has been agreed. The services sector is mentioned in the EU-Med agreements, but no new trade measures are defined. For those MPC partners that are part of the WTO, the agreements contain a confirmation of commitments under the General Agreement on Trade in Services (GATS). For others there are some minor changes. The Association Agreements also establish that products must comply with standards, regulations, and certification procedures, and that the validity of the agreements is linked to other correlated measures such as the protection of intellectual property rights, workers’ rights, and the environment. The Agreements are however lacking in detail in most of these areas.


3. SUSTAINABLE DEVELOPMENT IN THE EURO-MEDITERRANEAN REGION

The Barcelona Declaration acknowledged that it is important to “reconcile economic development with the protection of the environment, integrate environmental concerns with the relevant aspects of economic policy and lessen the negative results which might arise from development at environmental level.” This was reinforced in the 2002 Athens Declaration of Euro-Mediterranean Environment Ministers, which underlined the importance of sustainable development as ‘the predominant global and guiding objective of the Euro-Mediterranean Partnership’, and strongly reaffirmed its commitment to the Rio Principles, the full implementation of Agenda 21 and the Programme for the Further Implementation of Agenda 21. The Declaration was adopted at the Euro-Mediterranean Mid-Term Meeting of Foreign Ministers held in Crete in May 2003. For the Mediterranean area the integration of economy, social development and environment is particularly relevant for two reasons: first, the development of agriculture, manufacturing industry and services (including tourism) depends directly on environmental resources and largely determines the future of the region; second, natural resources are precious and fragile in many parts of the region. 3.1. Regional issues for sustainable development The Mediterranean Sea creates a common focus for many of the issues of sustainable development in the region, while other issues differ significantly between the industrialised north and the developing south and east. The high income economies of the European Union have well established institutions for environmental management, whose main task is to contain the negative impacts of further social and economic development, and where possible reduce those from past development. In some areas these are quite significant. In the south and east, economic and social development are the main priority, with attendant environmental concerns that are exacerbated by levels of environmental stress that are already high in many areas7. While the southern countries aim to move towards similar levels of productivity and economic performance as Europe, their distinct cultural heritage influences social aspirations in ways which differ from those of the north. The southern and eastern countries share a largely arid climate and a broadly similar cultural heritage, with populations concentrated in the fertile coastal areas and river valleys. These support both agriculture and the region’s long established cities, many of which have grown rapidly in recent decades. Israel is the most developed of the countries, with high productivity in agriculture, manufacturing and services, and also with high per capita rates of water usage. Agriculture is a major component of all the countries’ economies. Oil extraction is a major component in several countries, and other significant extractive industries include phosphates and potash. Tourism makes an important contribution in many areas, based in particular on the region’s archaeological heritage and the beaches of the Mediterranean and Red Sea coasts. The tourism sector is playing an increasingly important role in many of the countries’ economies, with potentially significant environmental and social effects. Industrialisation is taking place in most of the countries, at varying rates. An influx of capital into some countries has resulted in extensive construction activity, including high value domestic property. The main economic, social and environmental issues are summarised below under the same nine headings as are proposed for the core indicators of the SIA methodology (see Section 5).

7 George et al (2003)


Economic indicators Real income Israel is the only high income country among the southern and eastern partners. Lebanon is classified as an upper middle income economy, and all the other partners are in the lower middle income group8. Economic growth has been weak in partner countries, despite successful macro-economic programmes to stabilise the region’s economies, and significant progress towards trade liberalisation. During the 1990s, average per capita growth in the Middle East and North Africa was only 1 percent a year, leaving it even further behind the EU than at the beginning of the decade9. Fixed capital formation Total investment in the region is close to the world average, with gross capital formation ranging from 15% of GDP in Turkey to 28 % in Tunisia and Algeria10. Tunisia has been particularly successful at attracting foreign direct investment (FDI), which was 3.8% of GDP in 200211. In the other countries FDI ranges from 0.6% (Jordan and Turkey) to 1.9% (Algeria). Most investment in Palestine comes from development assistance. With official development aid (ODA) close to 50% of GDP, the Palestinian Authority is one of the most heavily aid dependent economies in the world. Elsewhere ODA ranges from 0.3% (Turkey) to 5.7% (Jordan) of GDP. Investment in science and technology has been particularly high in Jordan as well as Israel, with R&D expenditure close to high income country levels. In most of the other countries R&D expenditure is only a tenth of this or less. Employment Agriculture provides significant proportion of employment in many of the southern and eastern countries. The rural population is particularly high in Egypt, at 56%, with 29% in Palestine, 22% in Jordan and 8.8% in Israel12. As a proportion of GDP, agriculture accounts for around 20% in Egypt, 17% in Palestine, 7% in Jordan and 2.5% in Israel. Unemployment is high in many of the countries at around 14%13. It is particularly high in Algeria, at 28%, and the Palestinian Authority, where it rose to almost 40% by the end of 2000 as a consequence of the intifada. In Egypt in particular, unemployment is biased strongly towards those under 25, and is significantly higher for women than for men. Social indicators Poverty Associated with poor economic growth, progress in social development has been limited, leaving high social disparities throughout most of the region. Poverty levels are particularly high in Morocco and Egypt, with figures of over 30 in UNDP’s human poverty index (HPI-1). Poverty is also high in Algeria and Tunisia, with indices of around 20, compared with under 10 in Jordan and Lebanon14.

8 World Bank (2003a) 9 World Bank (2003a) 10 World Bank (2003b) 11 World Bank (2003a) 12 Awwad (2003) 13 ERF (2002) 14 UNDP (2004)


Food security is a concern throughout the region, which is a net food importer, and the world’s largest importer of grain. Health and education All the countries except Israel fall in the medium range of UNDP’s human development index (HDI), which combines GDP per capita with indices for education and life expectancy15. Morocco had the lowest HDI in 2002, at 0.62, followed by Egypt (0.65), with Israel at 0.9 and the other countries between 0.7 and 0.76 (Lebanon). Significant improvements have been made in both health and education, although most countries still lag behind Europe in most respects. In 1970 under-five mortality ranged from 27 per thousand in Israel and 54 in Lebanon, to over 230 in Algeria and Egypt. By 2002 the figure was under 50 for all the countries, with Lebanon at 32 and Israel at 6. Morocco lags behind the other countries on access to sanitation, at 68% of the population, with the others above 80% and several approaching 100%. Morocco and Syria are well behind the other countries in secondary school enrolment, at 31% and 39% of children, compared with about 80% in Egypt, Jordan and Palestine, and 89% in Israel. Syria has fairly high adult literacy however, at over 80%, along with Israel, Jordan and Turkey. Adult literacy is lowest in Egypt and Morocco, at 56% and 51%. Equity Inequality as measured by the Gini index ranges from 34.4 in Egypt to 40 in Turkey. This compares with figures of around 25 in Nordic countries, and over 50 in parts of sub-Saharan Africa. In gender issues, all the developing countries of the region fall within the medium range of UNDP’s Gender-related Development Index (GDI), generally between 0.6 and 0.7. This compares with figures of 0.9 and above for most developed countries, and 0.4 and below for many sub-Saharan African countries. The proportion of women in the labour force is low in many countries in the region, ranging between 21 and 30 % in Egypt, Jordan, Lebanon and Syria16 Environmental indicators Biodiversity Coastal degradation is a concern in many areas, arising from urbanisation, industrialisation, tourism, and the oil industry. Desertification and soil erosion are important concerns in several of the countries, influenced by a combination of weak land use controls and inappropriate agricultural practices. Since the 1950s rangelands have widely been designated as government property and converted to intensive agriculture, resulting in the collapse of traditional nomadic conservation systems. Despite land conversion, rapid population growth has reduced the region’s average cultivated area per capita from 0.4 ha in the 1970s to 0.24 ha in 199817. Relatively lax land use controls have permitted urban sprawl in many areas, with significant effects on landscape and ecology. Similar effects arise from quarrying and uncontrolled dumping of solid wastes, along with potential pollution of air, water and soil.

15 UNDP (2004) 16 ESCWA (2001) 17 UNDP (2002)


Environmental quality Water quality problems arise from salination due to over-abstraction of groundwater, poor management of irrigation, pollution from extensive use of fertilisers and pesticides, and pollution from municipal and industrial effluents associated with increasing urbanisation and industrialisation. Air pollution is an important concern in many parts of the region. Its principal sources in most of the large cities include heavy motor traffic and large and small scale industrial activity, often sited within poorer communities. Cement factories and other large scale facilities located close to urban centres may produce high local levels of particulates and other pollutants. In rural areas high local levels of particulates can arise from the production of construction materials, including quarrying, stone crushing and cement manufacture. The region’s high temperatures and extensive sunshine convert primary pollutants to ozone, sulphates and other secondary pollutants. Controlled disposal of solid waste is largely lacking throughout the region, especially in rural areas and the poorer areas of major cities. Waste is often left in unsanitary dumps or is burned in the open air, further contributing to the degradation of air quality, and risks of leakage into groundwater. Arrangements for hazardous waste management are limited. Natural resource stocks Water resources are the most important of the environmental issues in the region. Limited resources place a significant constraint on both agricultural and urban development, with consequent pressures on ground and surface waters. The MED region tends to have lower agricultural output per unit of water consumed than other countries in the same income group18. Countries such as Egypt produce all cereals on irrigated land. Water resource problems are often compounded by transboundary issues. The catchments of the Maghreb are relatively local, so that transboundary issues are generally less of a concern than the overall management of the resource. In the Middle East, most water resources are shared, and transboundary management is essential. Sustainable development legislation and planning All of the southern and eastern partner countries have environmental laws and regulations, although none has national procedures for sustainability impact studies. Only Tunisia has yet developed an operational national sustainable development strategy (NSDS), in the form of its National Agenda 21. Israel, Turkey and Morocco have NSDS in preparation. Environmental regulation is weak in most of the partner countries, with lack of funds and shortages of qualified staff as well as limited legislation. In general, environmental management is poorly integrated with economic planning. In this context, it is likely that the contribution that the EMFTA can make to the sustainable development of the region will depend on the careful design of integrated economic, social and environmental policies at both national and regional level, which capitalise on the opportunities and avoid potential threats. 3.2. Regional programmes and institutions for sustainable development Regional cooperation on environmental issues has taken place since 1975 through the Mediterranean Action Plan (MAP). Established in support of the Barcelona Convention for the Protection of the Mediterranean Sea against Pollution, under the auspices of UNEP, MAP brings together southern Mediterranean countries and the European Commission on regional issues of concern. Early initiatives included the creation of regional activity centres (RAC) and a Priority Actions Programme 18 World Bank (2003)


(PAP). Several countries host programmes and specialised RACs, which cover a variety of environmental issues. In 1980, a protocol to the Barcelona Convention was adopted entitled the Protocol for the Protection of the Mediterranean Sea against Pollution from Land-Based Sources and Activities. This included a commitment to prepare regional and national plans of action under the Strategic Action Programme (SAP). In 1996 the Mediterranean Commission on Sustainable Development (MCSD) was established under the auspices of MAP, to facilitate discussion and strategy formulation in the Mediterranean region on the integration of environment and development policy. The Commission is comprised of representatives from 21 Mediterranean coastal states and 15 representatives from civil society. Its aim is to foster a participatory and inclusive dialogue among stakeholder groups in the Mediterranean basin on sustainable development issues. Shortly after its establishment, the MCSD formed a Task Force on Free Trade and the Environment in the Euro-Mediterranean Context, to examine the impact of trade liberalisation on the Mediterranean environment and to report to the Commission on its findings. A series of studies were subsequently commissioned for this purpose, with technical support provided by the Blue Plan for Environment and Development in the Mediterranean Region (Plan Bleu), which is a major supplier of technical studies for the MCSD. The scenarios, findings and recommendations from this work are contributing to the preparation of a Mediterranean Strategy for Sustainable Development. In the context of the EMP, the Short and Medium-term Priority Environmental Action Programme (SMAP) was adopted in 1997 at the Euro-Mediterranean Ministerial Conference on the Environment held in Helsinki. SMAP is a framework programme of action for the protection of the Mediterranean environment, which provides a common basis for policy orientation and funding. Technical assistance for environmental management and policy formulation in the region is also provided by the Mediterranean Environmental Technical Assistance Programme (METAP), a regional initiative implemented as a partnership between the European Commission, the European Investment Bank, the United Nations Development Programme (UNDP), the World Bank and several bilateral donors. Its activities have included research and capacity building related to environment and trade, institutional strengthening for environmental management, environmental impact assessment, and economic valuation of environmental degradation. The METAP MedPolicies Initiative has conducted strategic environmental assessments of the impact of environmental requirements on trade and competitiveness in Southern Mediterranean countries. The MedCities initiative has undertaken similar activities related to urban-rural interactions and the planning of urban development in the region. 3.3. Support for the sustainable development of the region One of the main aims of the SIA is to identify appropriate complementary policies that can be implemented in parallel with the EMFTA, to promote and enhance positive contributions to sustainable development and avoid or mitigate adverse effects. In addition to policies that may be adopted within the EU or by the governments of partner countries, this includes regional policies and programmes supported by the EU. In June 2003 the European Commission’s policy towards its Mediterranean partners became part of its New Neighbourhood Policy (NNP), which aims to strengthen the framework for the EU’s relations with neighbour countries that do not currently have the perspective of membership of the EU: namely Russia, the Western Newly Independent States (NIS) and the Southern and Eastern Mediterranean. The NNP Communication proposes that the EU should aim to develop a zone of prosperity and a friendly neighbourhood with which the EU enjoys close, peaceful and co-operative relations. To this end, new neighbour countries should be offered the prospect of a stake in the EU’s internal market and further integration and liberalisation to promote the free movement of persons, goods, services and capital.


The EU’s support for the Mediterranean countries is based on the Mediterranean Development Assistance Programme (MEDA). MEDA I, which ran from 1995 to 2000, was refinanced in 2001 and renamed MEDA II. Its aim is to support the private sector, the transition of institutions, and social measures for reform. The Regional Indicative Programme 2005-2006 confirms the major strategic objectives of co-operation with the Euro-Mediterranean region based on the Regional Strategy Paper 2002-2006. Other regional support programmes established for 2005-2006 are:

• EUROMESCO (Euro-Mediterranean Study Commission). The objective is to consolidate and develop the network of Euro-Mediterranean Foreign Policy Institutes, including the recruitment of institutes from the member states joining the EU on 1 May 2004.

• FEMISE (a research network coordinated by the Economic Research Forum for Arab Countries, Iran and Turkey, and the Mediterranean Institute) contributes substantial research studies on the Euro-Med partnership, monitors the progress of Mediterranean partner countries on their way towards economic transition and opening, and takes part in the strengthening of dialogue on economic and trade issues, in particular between FEMISE member institutes.

• Programme on regulatory approximation in the fields of wider Europe and completion of the Euro-Mediterranean Free Trade Area. This programme aims to promote consistency, compatibility and harmonisation of measures and reforms undertaken by the Mediterranean partners in their approximation efforts to the internal market, and to promote the completion and smooth functioning of the Euro-Mediterranean Free Trade Area.

• MEDACT. The Euro-Med Programme of cooperation between town and local authorities. • EUROMED Youth III Regional Programme. This Programme has the objective of enhancing

intercultural dialogue, through the promotion of international experiences for young people (girls in particular).

• FEMIP (Facility for Euro-Mediterranean Investment and Partnership) provides technical assistance and risk capital support. FEMIP was established in March 2002 with the goal of supporting investment and private sector development in Mediterranean partner countries. In November 2003 the Council endorsed a strategy to reinforce FEMIP, including a special envelope for private risk sharing operations and the establishment of a donors Trust Fund to complement EC budget support.

The main policy objectives of the Regional Indicative Programme for 2005-2006 are:

To work with each other in a way compatible with the political undertakings embodied in the Barcelona Declaration;

•

•

•

•

•

•

To use possibilities for sub-regional cooperation, while preserving the global character of the Euro-Med Partnership; To build a multilateral network of close contractual relationships – the Free Trade Agreements – between the signatories of the Euro-Mediterranean Association Agreements; To link the Association Agreement signatories with the Trans-European infrastructure networks for transport, energy, and telecommunication and create such networks among themselves; To tackle common regional challenges affecting the sustainability of Euro-Mediterranean integration: environment protection and sustainable development; To co-operate in developing understanding between peoples, in order to fight intolerance, racism and xenophobia.

The previous Regional Indicative Programme for 2002-2004 identified five priority areas that remain valid for the period 2005-2006:


Making the Euro-MED Free Trade Zone a reality • • • • •

Promoting regional infrastructure Interconnections Promoting the Sustainability of the Euro-Mediterranean Integration Enhancing the rule of law and good governance Bringing the partnership closer to the people

For the next two years, the Regional Indicative Programme emphasises the role of regional cooperation in three aspects of major relevance in the Barcelona Process and the new Neighbourhood policy:

• the focus on reform (aimed at the harmonisation and compatibility of the Mediterranean Partners’ legislative and regulatory frameworks towards common EU legislation, especially as regards the internal market),

• the need for enhanced dialogue between cultures (Euro-Mediterranean Foundation for Dialogue of Cultures, Euro-Med Youth Programme), and

• the promotion of networks of cooperation (EUROMESCO for institutes of foreign policy and FEMISE for economic research institutes).

These policy objectives, priority areas and support programmes offer significant opportunities for implementing the types of regional policy which the SIA may show to be desirable. .


4. REVIEW OF PREVIOUS STUDIES Many previous studies provide valuable information for identifying appropriate quantitative and qualitative methodologies and procedural frameworks for implementing the SIA of the EMFTA, and in many cases, information on the types of impact that may occur. These include:

• The development of trade impact assessment methodologies; • Trade Impact Assessment Studies for the Mediterranean Region; • Synthesis studies of the Mediterranean region; • Modelling studies for Mediterranean trade; • Case studies and sectoral reviews.

A review of these studies is presented in Annex 5, and the main findings are summarised below. 4.1. Trade impact assessment methodologies The Sustainability Impact Assessment of the EMFTA follows a series of other SIA studies undertaken for the European Commission, beginning in 1999 during the preparations for the World Trade Organisation (WTO) Ministerial Conference in Seattle. The methodology that was developed for these studies differs from many of those that have been used in other impact assessments of trade policies and agreements, in that it covers impacts in all three spheres of sustainable development (social, economic and environmental), whereas several of the others focus primarily on environmental issues. Much of the early work on trade impact assessment was carried out by the OECD and by the North American Commission for Environmental Cooperation (CEC), particularly in relation to the North American Free Trade Agreement (NAFTA). The United States government and the Canadian government have both developed methodologies for trade impact assessment, and more recent work has been undertaken by UNEP in support of its capacity building and integrated assessment programmes. Among NGOs that have developed impact assessment methodologies, the Worldwide Fund for Nature (WWF) uses an approach similar to that developed by OECD, while the Royal Society for the Protection of Birds (RSPB) and Birdlife International have prepared recommendations for SIA studies and developed guidance for the assessment of biodiversity impacts. Of particular interest to the present study, WWF has conducted a preliminary assessment of the impacts of trade in tourism, including a case study on Turkey. Although some of these other approaches concentrate on environmental impacts, all of the methodologies have much in common. The EU’s SIA methodology that was developed prior to the Seattle Conference has since been refined and adapted for application to the broad WTO agenda of the Doha Declaration, and for several regional studies. An SIA study for major food crops in the WTO negotiations was carried out by Stockholm Environment Institute in parallel with the refinement of the methodology. Lessons from this study were incorporated into the application of the methodology for the EU’s subsequent SIAs. These have included a series of studies for the Doha Development Agenda as a whole and for individual sectors, and also for bilateral and regional trade agreements for EU-Chile, EU-GCC and EU-ACP. The main adaptations to the methodology made in some of these studies were the use of bespoke economic models to estimate economic effects, and greater degrees of proactive contact with specific stakeholders. In parallel with its SIA programme for global and regional trade negotiations, the EC has issued a more general Communication on Impact Assessment, which defines the procedures through which Commission staff organise, design, carry out and/or review impact assessments of major proposals adopted by the Commission. The series of SIA studies being undertaken for trade policy will be used as sources of information for Commission staff undertaking impact assessments in accordance with


these more general procedures. The Guidelines issued in support of the Communication include a number of suggested tools for identifying and measuring potential impacts. They are not prescriptive, but many of the recommended techniques form part of the SIA methodology. A number of NGOs have commented on the methodology used for the EC SIA studies. Their recommendations include that: SIA should begin at an early stage in order to inform negotiating positions; SIA should be fully integrated into the policy-making process; enhanced policy coherence and inter-service co-ordination; increased stakeholder involvement in the process; expanded roles of other EU institutions such as the European Parliament, the General Affairs Council and Member States, with an emphasis on transparency. The EC framework for SIA has recently been reviewed by the Secretariat of the United Nations Convention on Biological Diversity (CBD), along with the methodologies developed by OECD, UNEP, the North American Commission for Environmental Cooperation (CEC), the Canadian government, and the United States government. The UNEP framework was singled out as placing greater emphasis on significant impacts in developing countries, but in other respects all the methodologies were seen to suffer from similar shortcomings. These relate to indicator specification, data availability, analytical tools, and the availability of well-substantiated case studies. The differences between these frameworks relate primarily to the different purposes of the assessments that are carried out, and to differences in the policy-making frameworks of the national and international institutions which undertake or commission them. All use a variety of techniques for obtaining quantitative estimates of likely impacts, chosen according to the needs of individual studies. The UNEP framework differs from most of the others in being focused on the needs of developing countries, with a strong element of capacity building, as well as extension to include social and economic issues. A series of case studies have been conducted since the late 1990s, and have led to the preparation of a Reference Manual for the Integrated Assessment of Trade-Related Policies. This presents a variety of different tools and methods for conducting impact assessments of trade liberalisation from an integrated perspective, namely one that takes into account the economic, environmental and social implications of trade liberalisation. Emphasis is given to the importance that such tools can play in estimating the positive and negative impacts of trade policies and agreements, to support the development of sound sustainable development policies. 4.2. Trade Impact Assessment Studies for the Mediterranean Region Previous trade impact assessments for the region have been undertaken on behalf of the Mediterranean Commission for Sustainable Development (MCSD), the Mediterranean Environmental Technical Assistance Programme (METAP), and Friends of the Earth Middle East (FoEME). The MCSD has formed a Task Force on Free Trade and the Environment in the Euro-Mediterranean Context to examine the impact of trade liberalisation on the Mediterranean environment. A series of studies were subsequently commissioned for this purpose, with support provided by the Blue Plan. Studies and meetings conducted since 1999 have drawn lessons from non-Mediterranean countries, discussed the environmental aspects of Euro-Mediterranean Partnership Agreements, highlighted potential challenges and opportunities associated with trade liberalisation in the region, and provided qualitative and prospective analysis on the implications of free trade for the environment and key industries in several MEDA countries. The scenarios, findings and recommendations from this work are contributing to the preparation of the Mediterranean Strategy for Sustainable Development. METAP has provided technical assistance to 15 countries in the Mediterranean region since 1990. Its MedPolicies Initiative has conducted strategic environmental assessments of the impact of environmental requirements on trade and competitiveness in Southern Mediterranean countries, with a focus on micro-economic policy analysis, consultation and capacity building. Assessment methods are based on the application of a partial-equilibrium model, which estimates the impact of environmental


compliance on output and trade for key export sectors in Southern Mediterranean economies. Over three dozen case studies and policy notes have been developed at the national and sector levels. The METAP competitiveness assessments aim to assist decision makers in shaping economically sustainable environmental policies. With this goal, the potential impact that environmental regulation may impose on production costs, output levels and exports are analysed. While this type of sensitivity analysis does not identify the specific costs of compliance with a specific standard, it does provide policy-makers with a sense of which sectors are most sensitive to cost changes. METAP work on the Cost of Environmental Degradation assesses the impact of existing environmental degradation trends on gross domestic product, health/quality of life and natural resources. The quantitative impact assessment methodology has been applied through the preparation of national studies in consultation with government counterparts in seven Middle East and North African countries. The objectives of these studies are to estimate the damage costs resulting from environmental degradation, provide a methodological framework that can be applied periodically to assess the cost of environmental degradation over time, and provide a basis for training programmes for ministries, agencies and institutes to incorporate assessments of the cost of environmental degradation into policy making and environmental management. Damage costs include impact on human health and the quality of life (morbidity, mortality, loss of recreation value, etc.), and impacts on natural resources (ecosystems, water and land resources, deforestation). Friends of the Earth Middle East have conducted a series of case studies on the potential impacts of the EMFTA. These cover the textile sector in Egypt, Jordan’s phosphate sector, agriculture and environment in the Southeastern Mediterranean, the influence of gaps in environmental legislation in the region, and a review of lessons from other trade agreements. Their findings provide valuable information and suggestions for the present study. All of these previous assessments will be of particular benefit to the present project through the information provided by their many case studies, which give qualitative and quantitative indications of specific impacts of trade liberalisation which may occur within the region. 4.3. Synthesis studies of the Mediterranean region Studies covering the economic, social and environmental dimensions of development in the region have been conducted by Blue Plan and by the European Commission. The Blue Plan studies of environment and sustainable development in the Mediterranean region have primarily been conducted for the MCSD, which is a consulting body intended as a forum for dialogue, discussion and proposals for defining regional sustainable development strategies. In 1998 MCSD started work on the potential impact of free trade on the environment, in relation to the EMFTA. Lessons from the effects of past experiences of regional integration on environment have been drawn, including impacts in Greece, Spain and Portugal during their accession to the EU. From these experiences it can be deduced that regional free trade agreements are generally accompanied by the creation of regional disparities, that can have repercussions on the environment, and highly specific economic and environmental impacts which vary according to the countries. A second step in these studies is represented by the creation of a conceptual framework covering the interacting economic, environmental and social dimensions of sustainable development. The economic dimension is represented by a simplified model which allows the impact of free trade on the economic system, and therefore on environment, to be analysed through its effects on macro-economic variables, on production and on consumption. The macroeconomic variables with environmental repercussions are mainly the trade balance, the government budget, the composition of imports and exports, and comparative advantages. At production level, the possible effects of free trade occur through scale effects (increased economic activity), composition effects (change in the relative prices for imported and exported goods and services), technical effects (newer technologies) and location


effects (relocation of production to areas with the highest comparative advantages). Three social variables are identified as especially affected by free trade through either the economic and/or the environmental systems: income distribution, employment levels and regional disparities. However, the analysis of this dimension was not the main goal of the studies carried out. A series of case studies has been carried out under the direction of Blue Plan with the aim of shedding light, through retrospective, comparative and prospective research on economic, environmental, social and territorial impacts of trade liberalisation policies. The studies have focused on the possible environmental and social effects of free trade in the following spheres: agriculture, agrifood industry, textile industry, consumption patterns and consideration of environmental concerns in the agreements between the EU and MEDA countries. In total 17 studies have been carried out, 5 of which were at regional and international level and 12 at national level. The MEDA countries involved are: Morocco, Tunisia, Egypt, Israel, Palestinian Authority, Lebanon, Syria and Turkey. Blue Plan has also conducted a synthesis study on the policy implications of potential trade impacts. The extreme relevance of the environment for the region’s economic development is stressed. This is the case for tourism, agriculture, fishing, and for the sectors that depend on the preservation of the quality of the coast, of water, of the land, of the stock of fish or fossil energy. It is also noted that the region is characterised by great disparities, with wealth and population concentrated in coastal areas and towns. This accentuates pressures on natural resources and the difficulty of managing them. Rural areas, with a reduction in population and economy, face other types of problems related to sustainable development. The European Commission has looked in particular at economic and governance issues in a review of the region’s macroeconomic stability and perspectives of growth. The study looks at changes in growth rates for the region as a whole and differences between countries, and other factors such as inflation rates, fiscal deficit and exchange rate regimes. Trade balance has worsened in the region, but thanks to significant private remittances, positive balances of services and official transfers, the current account balances have continued to show a brighter picture. Some progress in selected areas of structural reform are noted, including particular progress in Morocco, Tunisia and Lebanon with regard to trade liberalisation. The privatisation process yielded mixed results, with some successful operations in particular in Jordan, Morocco and Israel. Some important fiscal reforms are noted (Lebanon and Jordan) and in the labour market (Egypt and Morocco). However, governance reform indicators reveal that, after progressing in the second half of the 1990’s, the reform agenda has worsened since 2000. This is associated with the worsening security situation, the slowdown in economic growth, and various domestic factors that have reduced governments’ willingness to reform. These and other studies provide a wide range of case study information on specific types of impacts that may arise from trade liberalisation, and on changes in the economic, social and environmental baseline on which those impacts occur. 4.4. Modelling studies for Mediterranean trade Some forty economic modelling studies of Mediterranean trade liberalisation have been reviewed, covering Egypt, Jordan, Morocco, Tunisia, Turkey and the region as a whole. Most of these model the effects of individual countries’ association agreements with the EU, and some extend the analysis to consider, for example, fuller liberalisation of agriculture and services. Some of the studies compare the effects of a bilateral EU trade agreement with non-discriminatory multilateral liberalisation, and some examine the effects of countries’ trade agreements with the USA. Whereas most of the studies focus on a single country, the model used by Augier and Gasiorek comprises 10 countries, and takes account of interactions between the partner countries themselves as well as with the EU. The majority of the studies are fairly consistent in projecting only small changes in economic welfare, mainly positive but in some cases negative. The Augier and Gasiorek study gives similar results for Israel, Jordan, Syria and Turkey, but shows much larger welfare gains for Egypt, Morocco and Tunisia


(18% for Tunisia, and even higher in some of the modelling experiments). These three countries differ from the others largely because they have particularly high initial tariffs. Augier and Gasiorek are careful to point out that their results do not represent precise predictions, but give only an indication of the potential gains that may be available from trade liberalisation, dependent on the nature and success of other measures adopted by national governments, and associated changes in the economic environment. In particular, it is noted that in the countries where a large increase in welfare is projected, this is associated with extremely large falls in production and increases in imports. The paper argues that the indirect effects of liberalisation on productivity and foreign direct investment may serve to increase these countries’ competitiveness sufficiently to achieve the necessary exports without a major adjustment of the exchange rate, but acknowledges that this may not be the case. Whereas the other studies show much smaller changes in welfare resulting directly from tariff changes, some anticipate larger gains conditional on domestic reforms, or on estimated effects on productivity. One of the Egyptian studies suggests that the gain in efficiency and welfare that would be obtained from simply reducing its administrative barriers to trade is much larger than is available from an association agreement with the EU. The studies which examine the extension of Euro-Mediterranean liberalisation, to include agriculture and services, generally show significantly greater gains, particularly when accompanied by harmonisation of standards. Several of the studies compare the effects of a free trade agreement with the EU with those of non-discriminatory tariff reduction, and are consistent in finding that broad multilateral liberalisation has the greater effect on welfare. Many of the studies identify a significant loss in tariff revenues in southern Mediterranean countries, with different effects on income distribution depending on whether this is compensated by taxes on consumption or on capital. One of the studies suggests that if tariffs are replaced by capital taxes, the effect on welfare may be negative. A clear message emerging from all the studies is that the potential for large welfare gains associated with the EMFTA is dependent on the success of related national domestic policies. In this, many of the studies provide valuable indications of the types of policy which may offer appropriate mitigation and enhancement measures. Additionally, although there is a degree of ambiguity on the net effects on economic welfare, many of the studies provide quantitative information on the magnitude of production increases and decreases in specific sectors of countries’ economies, allowing fairly reliable estimates to be made of associated social and environmental effects. 4.5. Case studies and sectoral reviews Many individual case studies and sectoral reviews related to trade and sustainable development have been conducted for the Mediterranean region, providing valuable inputs to the SIA. A selection of these have been reviewed at this stage. Options for the Mediterranean: Blue Plan/CIHEAM Symposium on free trade, agriculture and environment in the Euro-Mediterranean context The symposium generated 16 papers covering a wide range of topics. In total, the studies show that a Euro-Mediterranean free trade area would have important impacts on the sustainable development for certain sectors and regions in the East and in the South. The paper by Roux argues that the weaknesses of the Mediterranean agricultural sector come primarily from the natural constraints of the region, together with demographic constraints and problems related to rural underdevelopment. Scenarios are proposed that would be desirable in order to mitigate negative effects of free trade on


social differentiation, economic and territorial concentration and degradation of natural resources. Cistulli examines constraints and opportunities in relation to free trade and the environment in the Mediterranean. Socio-economic and environmental effects depend closely on the initial capital (human, natural, physical and institutional) of countries and their stage of development. The southern Mediterranean countries form a reasonably heterogeneous group, but all display fragility that requires public regulation policies capable of ensuring the sustainable development of the agricultural sector. The role of public policies is considered to be all the more important during the trade liberalisation process. Michelini presents an assessment of the progress of the EU-Mediterranean association agreements in relation to agricultural trade between the North and the South of the Mediterranean, and an analysis of the evolution of liberalisation. The liberalisation of agricultural trade is centred on traditional trade and functions on the basis of preferential and reciprocal access. Concerning the progressive liberalisation of agricultural trade, it is argued that a balance between liberalisation and market sensitivity is far from being reached. Free trade and the environment in the Euro-Mediterranean context: Lessons learned from Spain, Portugal, Greece and Poland The paper analyses the experiences of Greece, Portugal, Spain and Poland in becoming EU members, in relation to sustainable development. It provides lessons from the experiences of these four countries that are relevant to the creation of a free trade area between the EU and the Southern and Eastern Mediterranean Countries. Effects of the EMFTA on the Maghreb The article argues that under the global conditions which guide the EMFTA, there might be doubts that the North African countries could benefit from an increased economic opening in Europe and that the free trade area is essentially an alternative to existing blocking mechanisms of the development process, in particular with regard to industrial development. Regional cooperation This document analyses the possible outcomes and economic perspectives of the Mediterranean region. These countries are not only related by proximity but they are also interconnected by extensive historic and cultural roots. Hence, the establishment of a free trade zone will be directly linked to the social, political and cultural fabric of the Euro-Mediterranean project. Environmental effects of the EMFTA in the Palestinian Authority The paper considers the environmental aspects of cooperation agreements between the EU and the Palestinian Authority, and proposes mitigation measures. These relate primarily to institutional strengthening. Environmental effects of the EMFTA in Egypt The paper examines the impacts of the EU/Egypt trade agreement on natural resources, pollution, the export of depletable resources, transport effects, solid waste load, energy demand and funds available for environmental upgrading. Recommendations are made regarding mitigation measures and the environmental aspects of future negotiations. Femise reports on trade, employment and investment The Femise reports of 2002 and 2003 stress the importance of the following issues: job creation; migration; macroeconomic stabilisation; improving the dynamism of growth; accelerated implementation of reforms.


Femise report on competition from the candidate countries This report discusses a number of issues that determine the evaluation of the effects of the enlargement on partner countries. In particular the following questions are addressed: (i) the respective macroeconomic environment of both groups of countries; (ii) the development of certain reform processes; (iii) trends of foreign direct investment and of trade in goods and services; (iv) the movement of people. Femise report on opening of agricultural trade The report considers three types of possible future scenarios for the agricultural sector in the framework of the Euro-Med Partnership: unilateral liberalisation by the European Union; reciprocal bilateral liberalisation in the Euro-Med region (with or without agricultural liberalisation in multilateral negotiations); asymmetrical bilateral liberalisation (the EU liberalise, the MED do not liberalise on all the specified products and not at the same rate), accompanied by a programme tackling problems of adjustment and structure, within the framework of a global vision of agriculture in the region Blue Plan case studies These studies carried out for Tunisia, Lebanon and Turkey stress that overall consumption in the MEDA countries will increase in the future partly due to the increase of population and partly following economic growth and free trade. Moreover, consumption patterns in MEDA countries are rapidly growing towards the model of Northern countries (increased meat and milk product consumption, and reducing consumption of vegetables and cereals; increased packaging). Free trade may intensify further these consumption patterns. New consumer habits, trade intensification, and increased mobility of people will contribute to growth in transport that is expected to increase at a higher rate than production and incomes. The increase in number of cars will obviously raise several environmental issues.


5. PROPOSED METHODOLOGY FOR ASSESSING THE SUSTAINABILITY IMPACTS OF THE EMFTA

5.1. Introduction The proposed methodology is based on that developed for the European Commission’s SIA studies of the World Trade Organisation (WTO) negotiations19, and a review of other relevant impact assessment methodologies and studies. It has been adapted for the needs of agreements in the region and the specific characteristics of the EMFTA. 5.2. Adapting the SIA Methodology to the EMFTA The overall methodological approach includes the following elements:

• selection of trade measures and economic sectors to be assessed (screening); • identification of key sustainability issues (scoping); • selection of a reasonable number of realistic scenarios; • selection of country groupings and use of case studies for the assessment; • assessment of impacts; • evaluation of alternative mitigation and enhancement (M&E) measures; • monitoring and ex post evaluation

together with, at key stages of the process,

• consultation and stakeholder participation. The principal adaptations proposed for the current study relate to the consultation process and the evaluation of M&E measures. The Euro-Mediterranean Partnership and the EMFTA differ from many other trade negotiations, in offering more scope for integrating the SIA study more fully into the negotiation and policy formulation process itself, on behalf of the EU and all its partners. While the EU is facilitating the development of the EMFTA and the undertaking of the SIA, partner countries should also play a significant role, in helping to steer the SIA study and its recommendations towards common approaches to strengthening the sustainability of the region’s development. In the EU, in partner countries, and in the partnership as a whole, the integration of sustainability factors into the development process rests on building a degree of consensus and common commitment between the overlapping and sometimes contrasting interests and responsibilities of government and the various components of civil society, in all the countries involved. It also involves proposing actions to implement recommendations identified following mutually beneficial consultations. In order to make an important contribution, the SIA study must therefore engage key representatives of governmental and non-governmental stakeholders in the EU and its partner countries, in both the design of the study and its follow-up. The following adaptations to the methodology are therefore proposed:

• Engaging key stakeholders from the region at an early stage of the project, to help adapt and refine the SIA methodology that will be adopted.

• Including stakeholders with whom direct consultation is expected to take place throughout the project and its follow-up. This should include government trade directorate representatives in partner countries, as well as their counterparts in the EU, representatives from environmental

19 Kirkpatrick, Lee and Morrissey (1999), Kirkpatrick and Lee (2002)


and social agencies, and key representatives of both the private sector and NGOs in partner countries and the EU.

• Emphasising, during early consultations with these stakeholders, the importance placed on building their understanding of the potential role of the SIA in the policy formulation and implementation processes.

• Working with institutions and networks based in the Northern and Southern Mediterranean region, through regional consultations and consortium arrangements to identify practical and operational measures for moving towards regional sustainability based on the SIA findings. A summary of upcoming consultations is given in Annex 2.

In particular, it needs to be made clear that the SIA will not itself resolve any disputes or disagreements in negotiation or policy-making. The integration of the SIA into the negotiation and policy-making process serves only to provide objective information on the likely impacts of decisions which may be made, while leaving the negotiation and policy-making processes to make the necessary value judgements in coming to their decisions. The SIA will not attempt to make value judgements on the relative importance of different impacts, or trade-offs between adverse and beneficial effects. It will however identify areas where countries may need to undertake their own studies and consultation exercises as part of their decision-making processes. On this basis, the aim is to win stakeholders’ confidence in the value of the SIA process and its findings in helping them to reach optimal decisions for the sustainable development of the region. The early consultations discussed above will play a vital role in this. It is anticipated that one of the principal potential benefits of the SIA study will be to enable closer alignment of EU and Member States’ development assistance programmes with the implementation of the EMFTA, in order to maximise the potential contribution of the EMFTA to the sustainable development of the region. Such programmes could contribute to the identification of practical mechanisms to implement mitigation measures that may be proposed based on the SIA findings. To this end, close consultation throughout the project on potential development assistance will take place with the EU’s MEDA representatives. EU technical assistance may play an important role in helping partner country governments improve the sustainability of their development policies and strategies, while the SIA findings are expected to encourage similar improvements within the EU itself. A feature of the SIA methodology which is expected to be important in this respect is the analysis of process factors and the use of process indicators, in addition to the assessment of short and medium term impacts on the social, economic and environmental components of sustainable development. It has been found in other SIA studies20 that while the more immediate effects of trade liberalisation are significant, as measured for example by general equilibrium economic analysis, effects on countries’ social and economic development processes, and their associated environmental effects, can have a greater long term influence on the achievement of sustainable development goals. This aspect of the study is expected to be particularly beneficial in contributing to the design of accompanying measures, in support of the overall objectives of the Barcelona process. 5.3. Major components of the SIA methodology Each of the main components of the proposed methodology will be undertaken as summarised below.

Screening The selection of key trade measures and economic sectors to be assessed in Phase Three of the project will be based on a broad overview assessment of the economic, social and environmental impacts of the EMFTA at regional level, to be undertaken in Phase Two, and consultation on its findings. Proposed selection criteria for these sectors are discussed in Section 5.4.

20 George and Kirkpatrick (2003)


Scoping In parallel with the screening process, the preliminary overview assessment undertaken in Phase Two will identify key sustainability issues to be assessed in Phase Three. Consultation throughout the project, and in particular on the Phase Two report, will add to or amend the selection of issues as appropriate. Scenarios Phase Two of the study will include the development of a baseline and other potential 20-year scenarios for development in the Mediterranean region, in the context of the establishment of the EMFTA. The number of potential scenarios to be examined in Phase Three will be decided on the basis of the Phase Two scoping study, the realistic options for negotiation and policy formulation, and the resources available. The issues involved are discussed more fully in Section 5.5. Country groupings The SIA will assess separately the likely impacts in the EU and in the partner countries as a whole. Additionally, the scoping study of Phase Two will identify those factors that are likely to result in different impacts in different countries within each of these two broad groups. Individual countries or sub-groups of countries will be identified for more detailed analysis or case studies, from which general conclusions may be drawn for all countries possessing similar characteristics. Assessment of impacts The technical analysis of potential impacts will use similar methods to those used previously, as discussed in Section 5.6. Evaluation of alternative mitigation and enhancement (M&E) measures A review of strategic options on how best to avoid or mitigate negative impacts and maximise positive ones will be undertaken in Phase Two of the study. These options will be evaluated more fully in Phase Three. Monitoring and ex post evaluation Proposals for a participatory and practicable monitoring mechanism to assist EMP countries and stakeholders to promote sustainability during the evolution of EMFTA will be prepared in Phase Three. The possible nature of the monitoring system is discussed in Section 5.7, in relation to the use of indicators in the assessment. Integration into decision-making processes The mechanisms by which the SIA may be integrated into decision-making and monitoring are discussed in Section 5.8. Consultation and stakeholder participation Four groups of interested parties have been identified for targeted consultation throughout the course of the project: governments of EU and EMP countries; the European Commission; civil society; regional experts. In addition, the project website will encourage and enable contributions from all sources. The consultation strategy and details of the civil society representatives whose participation is sought are described more fully in Section 6.

5.4. Screening criteria for selecting key economic sectors for detailed assessment Two basic criteria are proposed for the selection of key economic sectors to be analysed in the 3rd Phase, whose impacts on sustainability are likely to be affected by the establishment of the EMFTA.


1. Selected sectors should be significantly affected by trade measures that have been agreed in existing EU-MED agreements, or by trade measures that are likely to be influenced by further discussions under EU-MED agreements.

2. Selected sectors should be representative of the economic, social and/or environmental issues

that are of greatest concern in relation to the sustainability impacts of agreed or likely trade measures, at the regional, country or sub-region level.

In applying criterion 1, sectors will be identified that are most influenced under each of the scenarios. In applying criterion 2, account will be taken of both the intensity and the breadth of potential impacts. In certain circumstances, a high intensity local impact may make a sector a priority for detailed study, even though the overall impact for a country or the region as a whole may be low. 5.5. Choice of scenarios The Association Agreements for the EMFTA have already been negotiated and signed, although not all details are defined at this stage. For those aspects of the agreements which are already defined, the main purpose of the SIA is to contribute to the design of complementary mitigation and enhancement measures. The effects of the agreements will be assessed by comparison with a baseline scenario, which reflects the situation that would exist if the agreements had not been made. For details of the agreements which have yet to be defined, the SIA will additionally provide information for negotiations. Two basic criteria are proposed for deciding the number, scope and content of potential scenarios to be analysed in the 2nd Phase, with regard to sustainable development trends in the region in the context of EMFTA. These will be in addition to the baseline scenario against which they will be compared.

1. Closeness of scenarios to the specific trade measures contained in EU-MED association agreements.

2. Relevance of the scenarios to the key issues and impacts identified in the overview study of

Phase Two. In applying criterion 1, separate account must be taken of those trade measures for which details have yet to be agreed, as specified in the Association Agreements. The provisions of the Association Agreements vary from one Mediterranean Partner to another, but have certain aspects in common:

• Political dialogue • Establishment of WTO-compatible free trade area over a transitional period • Provisions relating to intellectual property, services, public procurement, competition rules,

state aid and monopolies • Economic cooperation in a wide range of sectors • Cooperation relating to social affairs and migration • Cultural cooperation

The main trade measures in the agreements centre on trade liberalisation in agriculture, industrial products and services. Agricultural products


remaining sectors a gradual elimination which could take between 10-15 years (slow paced liberalisation)21. The 20-year scenarios to be developed in Phase Two will reflect these liberalisation timescales. Services For those MED partners that are part of the WTO, the agreements contain a confirmation of commitments under GATS. For others there are some minor changes. Some of the partners, who are also WTO members, have accepted some commitments within the GATS framework, while non-member partners (Algeria, Lebanon, Syria) are to hold bilateral negotiations22. Algeria agreed to recognise certain GATS principles even though it was not (yet) a member of the WTO. Discussion on the scope of further liberalisation is generally referred until five years after the agreements come into force. There are few new trade measures covered in the chapter on services, although it is possible that the future may include negotiations with the aim of creating a services agreement compatible with GATS Article V. Phase Two of the SIA will identify one or more scenarios for possible further liberalisation of services trade.. 5.6. Methods of assessing impacts 5.6.1. Conceptual framework The overall conceptual framework for the impact assessment element of the SIA process is similar to that used in previous studies23. The generic causal linkages which have to be analysed may be described as in Figure 1, which shows the sequence of significant cause-effect relationships, starting with the negotiated change in trade policy, or scenario. Causal chain analysis (CCA) is used to identify and evaluate these linkages. For example, a change in tariff levels will directly alter the pattern of prices facing producers and consumers. The new structure of incentives and market opportunities will induce a change in the economic behaviour of producers, consumers and intermediaries. Changes in behaviour will affect the production system, inducing changes in the scale, composition, and technology. A change in economic production may give rise to significant changes in employment, investment and/or income, and may have attendant social impacts such as the level and distribution of household income, or the gender balance of paid and unpaid labour services. Changes in prices of essential goods and services may also have a significant impact on livelihood and poverty levels. Environmental impacts may arise from the effect of changes in the production system on environmental quality, natural resource stocks and/or biodiversity. In addition to these direct impacts on economic, social and environmental factors, the induced change in the production system may also affect sustainable development processes. For example, changes in investment resulting from a tariff change may influence the rate of development of indigenous industries, and hence accelerate or decelerate processes of economic, social and environmental transformation (referred to in the analysis as ‘process effects’). The changes represented in the figure do not occur instantaneously or simultaneously, and the speed of adjustment will vary in different parts and at different stages in the causal chains. There may also be feedback processes during the intermediate stages of the cause-effect relationships, before the final impacts on sustainable development occur. The SIA studies therefore make a distinction between short-term adjustment effects, longer term effects which may be thought of as ‘equilibrium’ outcomes, and process effects which reflect the non-equilibrium nature of a developing economy.

21 Augier and Gasiorek (2001) 22 Femise (2002) 23 Kirkpatrick and Lee (2002)


5.6.3. Causal chain analysis, literature reviews and case studies Although the results of CGE studies represent an equilibrium economic outcome, they also provide information for assessing impacts which occur during the period of adjustment, by inference from the type and magnitude of the adjustment that has to be made. Social, environmental and process impacts may then be assessed as in Figure 1. For those trade measures which cannot be adequately modelled, the CCA is carried out for the entire set of linkages shown in the figure. The evaluation of potential impacts generally employs a combination of logical analysis and empirical evidence from the literature. Empirical evidence will be sought from other countries’ experience of integration with the EU, as well as studies of past trade liberalisation in the region, and the effects of liberalisation more generally. These findings, together with those from case studies conducted within the project, may reveal impacts that are not immediately apparent from CCA, and may also give an indication of likely impact magnitudes. Meanwhile, the logical analysis of CCA may be used to attribute empirical results to causal effects, and to evaluate the validity of case study findings. Where quantitative information is available, either from modelling studies or case study experience, impact significance may be evaluated directly in relation to the appropriate base situation, taking account of the significance factors discussed below. Otherwise, a more qualitative judgement is made of the likely significance of the impact. The analysis will be presented in the form of a discussion of the information available, taking all these factors into account. The presentation of findings will be as specific as possible in relation to affected economic sectors, environmental characteristics and particular social groups. In order to avoid key results being lost in the description, a summary table or other approaches will be used to draw out the key findings. 5.6.4. Impact significance The SIA methodology defines three levels of significance:

• non-significant impact – compared with the base situation • lesser significant impact – marginally significant to the negotiation decision, and if negative, a

potential candidate for mitigation • greater significant impact – significant to the negotiation decision, and if negative, merits

serious consideration for mitigation. The level of precision in the evaluation of impact magnitude is rarely sufficient to allow specific levels of significance to be defined, as may for example be done in the environmental impact assessment of development projects24. A similar overall approach is however adopted, in judging greater or lesser significance according to compatibility with established norms and standards, levels of public concern, and concerns in the scientific community which have yet to spread to the more general public. The methodology also defines the following factors which need to be taken into account in evaluating significance:

• the extent of existing economic, social and environmental stress in affected areas; • the direction of changes to base-line conditions; • the nature, order of magnitude, geographic extent, duration and reversibility of changes; • the regulatory and institutional capacity to implement mitigation and enhancement measures.

In interpreting these definitions, judgements have to be made on the importance of the predicted change in relation to the base situation, i.e. the prevailing circumstances and their extrapolation into

24 See for example Canter (1996).


the future. Where impacts cannot be quantified, a judgement must be made of the likelihood that impact magnitude would reach the level at which it would be considered significant. 5.6.5. Uncertainty Uncertainties in strategic impact assessments are inevitably high25. In many cases, the net impact will be the residual of two or more large effects in opposite directions, such that small uncertainties in impact magnitude can have a large effect on the result. Further, the magnitude, direction and significance of many potential impacts is strongly dependent on national policy responses, and on development processes which are themselves subject to high degrees of uncertainty. Many of the CGE studies whose results will be used provide sufficient information to indicate the level of uncertainty in the predicted economic equilibrium effects, and comparison of different studies provides a further indication. The analysis of empirical findings gives further understanding of uncertainties in the assessment. Key methods of dealing with uncertainty26 include:

• monitoring of actual impacts; • flexibility in policy responses.

The uncertainty associated with a potential impact must be taken into account in the formulation of policy, in such a way that policies may be amended if necessary, and appropriate mitigation introduced. The SIA will highlight areas where this is the case. The need to generate appropriate policy responses will be one of the factors taken into account in the design of the proposed monitoring mechanism that will be developed in Phase Three of the SIA. 5.6.6. National policy responses The magnitude and significance of many potential sustainability impacts depends strongly on the effectiveness of existing national policy frameworks and regulatory processes, and associated mechanisms for implementation and enforcement. Typically, a change in a trade measure may have a beneficial economic effect in certain sectors of the economy, and negative effects on economic, social or environmental factors elsewhere. Mitigation of negative effects will in many cases depend on national decisions to share the expected economic benefit more uniformly, and corresponding action on social or environmental protection. In most countries, development policies and strategies are less sustainable than they must become. Additionally, in many developing countries, the state’s regulatory capacity is weak, in terms of expertise and experience. Where regulatory agencies have been established they are often subject to ‘capture’ by political interest groups or rent-seeking by the private sector27. In such circumstances the SIA cannot predict impacts, but only identify impacts which may occur, dependent on the capacity of government to adopt and implement appropriate mitigation and enhancing policy measures. The SIA will identify potential impacts of this nature, give an indication of the effectiveness of the relevant institutional capacity in different countries, and identify options for appropriate institutional strengthening and development assistance. 5.7. Indicators and monitoring In some forms of impact assessment, notably those used in the planning and execution of international development assistance projects and some types of strategic planning, indicators play a major role in 25 Lee and George (2000) 26 Partidario (2000) 27 Kirkpatrick and Parker (2003), Parker and Kirkpatrick (2003)


steering the assessment. Objectives are defined, targets are set, and indicators are devised through which to measure whether the targets have been met and the objectives achieved. This approach is only partially applicable to a trade agreement. The decision-making process is one of negotiation instead of planning, with only the broadest of objectives, and no targets from which to derive indicators. In this case, the impact assessment needs to be more like the environmental impact assessments carried out for major industrial projects. The objective of the project may for example be to build a power station. The objective of the impact assessment is not to ensure that it is built and assess how much electricity it will produce, but to evaluate what other impacts will arise, intentionally or unintentionally. The indicators needed for subsequent monitoring cannot normally be devised until the assessment is complete, when it is known what impacts need to be monitored. Indicators do not steer the assessment. The assessment steers the indicators. In the proposed SIA methodology, indicators serve two prime purposes. A set of broad-brush “core” indicators is used to categorise the types of sustainability impact that can be expected, giving a general indication of the areas which the SIA should study, and providing a framework for summarising the results. Once the assessment is complete, more detailed indicators are needed for subsequent monitoring. For the first of these purposes, the methodology uses the same set of nine core indicators of sustainability outcomes that have been used in previous SIA studies, and two indicators of sustainable development processes28. These aggregate indicators are:

Economic: real income; fixed capital formation; employment Social: poverty; health and education; equity Environmental: biodiversity; environmental quality; natural resource stocks Process: adherence to sustainable development principles; effectiveness of

sustainable development strategies The eleven indicators aim to focus attention on key issues of sustainable development, as discussed in Section 3.1 above. They encapsulate all the Millennium Development Goals (MDGs), and each specific impact that can be expected to occur contributes to one or more of them, positively or negatively. For ongoing monitoring, more detailed indicators are needed. These cannot be fully defined until the assessment is complete, but to be of maximum value, they need to link as closely as possible to existing monitoring programmes, and be consistent throughout the region. In its draft Handbook for Sustainability Impact Assessment29, the European Commission has proposed an initial set of detailed indicators, which has been developed further in the SIA studies for the WTO negotiations30. In relation to specific issues in Mediterranean countries, the MCSD has developed a similar set of 130 indicators of sustainable development, with the aim of region-wide monitoring of progress in achieving sustainable development31. These are presented in Annex 6, along with an indication of their relationship to the core indicators. In many cases, the parameter measured by the MCSD indicator can be expected to influence more than one sustainability issue, and some will have effects in all three of the economic, social and environmental spheres. In all cases however, the relationship to one of the core indicators may be regarded as a particularly influential one. The table in the Annex indicates which of the core indicators is likely to be influenced the most significantly by an impact in the area of each of the MCSD indicators. It is proposed that the MCSD indicator set be used in the SIA study, supported as necessary by those developed for other EC SIA studies, mainly as a guide to the selection of appropriate indicators for

28 Kirkpatrick and Lee (2002) 29 EC (2004) 30 George and Kirkpatrick (2004) 31 Plan Bleu (2002)


monitoring impacts that are identified in the SIA. These indicators may additionally be used to give further guidance on the types of impact the SIA should consider, but for both purposes, the lists are only indicative. Other significant impacts may occur that are not represented among these indicators, while only a small proportion of those listed may be relevant to a particular trade measure for a particular economic sector. In Phase 3 of the project, the results of the impact assessment will be used to highlight which of these indicators are particularly relevant for ongoing monitoring of the impacts of the trade agreements, and to identify any other detailed indicators which may need to be added for the monitoring programme. These may for example include: Economic

GDP growth, trade balance, current account, exchange rate, savings and investment, consumer prices, unemployment;

Social Human Poverty Index (HPI) and/or its components, Human Development Index (HDI) and/or its components, Gender Development Index (GDI) and/or its components, income distribution;

Environmental non-sustainable water use, energy intensity, water global quality index, air global quality index, emissions of greenhouse gases, land use change, desertification, marine biodiversity;

Process application of polluter pays principle and precautionary principle, quality and enforcement of environmental legislation, design and implementation of integrated development strategy.

5.8. Integrating the SIA into decision-making processes The SIA is intended to influence decision-making bodies in the EC and in partner countries, including:

• trade policy-makers and negotiators; • government departments responsible for development policy; • departments responsible for environmental and social issues; • officials responsible for the design of development assistance strategies and programmes; • agencies responsible for monitoring programmes associated with sustainable development.

The SIA is not a formal part of the decision-making process for any of these bodies. Its success will depend on its ability to provide information which decision-makers recognise as being needed, and which is otherwise unavailable or difficult to obtain. The gathering and analysis of stakeholders’ concerns which will be undertaken in the SIA is intended to provide an efficient means of conveying those concerns to decision-makers, along with an understanding of their significance. Additionally, at the beginning of phase two of the project, decision-makers in the EC and partner country governments will be asked to identify those specific areas where they themselves would like additional information to guide their decisions. By these means, the SIA aims to make decision-makers in the EC and partner countries aware of the study, and steer it in such a way as to make a positive contribution to their decision-making processes. Because the results of the study will be in the public domain, it is anticipated that the relevant government bodies will wish to demonstrate that the findings have been taken into account.


6. CONSULTATION AND DISSEMINATION STRATEGY FOR THE SIA PROJECT

6.1. Consultation Mechanisms The preparation of the SIA/EMFTA is a much anticipated event in the Mediterranean region. Governments and representatives of civil society have expressed their support for the conduct of the assessment in various declarations and documents issued over the last several years32. Expectations have also been voiced regarding the utility and importance of the SIA/EMFTA for decision-making. This demonstrates that an initial baseline of awareness exists about the SIA/EMFTA activity in the region, although this needs to be strengthened. The effectiveness of the consultation strategy will thus depend upon its ability to successfully promote dialogue and partnership with interested stakeholder groups within the parameters of the SIA/EMFTA objectives. This will include identifying the concerns and perspectives of interested parties in the SIA/EMFTA, engaging governments, regional experts and civil society in the preparation process and providing adequate and accessible information about the SIA process and assessment progress. The consultation process will serve to promote dialogue and partnership with interested stakeholders and members of civil society. This will be achieved within the context of the following principles of consultation espoused by the European Community, namely clarity, transparency and equity in view of ensuring access to information, balanced consultation and effective engagement by public and non-governmental representatives33. An effective consultation strategy must clearly define its target groups and formulate a set of criteria for identifying the members of its target group. Within this context, the target groups for consultation during the SIA/EMFTA preparation process must fall within one or more of the following parameters, namely the targeted stakeholder must be:

potentially affected by the establishment of the EMFTA; • •

•

• • • •

involved in the formulation and/or implementation of the EMFTA policies or flanking measures; and/or directly interested in EMFTA policies, as exhibited by previous statements.

Within this context, four groups of interested parties will be targeted for consultation throughout the course of the project:

EU and Mediterranean partner county governments European Commission Civil society Regional experts

Special effort will be made to access regional networks and federations of associations who can relay information on the SIA process so as to access the widest range and largest number of interested parties in the most cost-effective manner. Countries and Governments The scope of SIA/EMFTA activities extend to all 35 members of the Euro-Mediterranean Partnership (EMP). This is because all members are affected by the impact and implications of SIA/EMFTA policies, and have shown themselves to be interested parties in the policy making process. 32 EMCF (2000) 33 CEC (2002)


The EMP represents the 25 members of the European Union (effective 1 May 2004) and the 10 MPC countries, namely Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the Palestinian Territories, Syria, Tunisia and Turkey. In order to facilitate consultation with the EU Member States, consultation will be sought with the:

• European Parliament – by accessing members in one or more of the following committees, the: Committee on Industry, External Trade, Research and Energy; Committee on the Environment, Public Health and Consumer Policy; Committee on Agriculture and Rural Development; Committee on Fisheries; Committee on Regional Policy, Transport and Tourism; and/or the Committee on Development and Cooperation.

• Council of Europe – through the Parliamentary Assembly, possibly through accessing members with standing before the Committee on the Environment, Agriculture and Local and Regional Affairs.

In southern Mediterranean countries, regional organisations will be consulted about the SIA/EMFTA and invited to inform their Member States about the assessment process. These organizations include the United Nations Economic Commission for Europe (ECE), the United Nations Economic Commission for Africa (ECA) and the Economic and Social Commission for Western Asia (ESCWA), as well as the League of Arab States through its associated institutions. At the national level, representatives of ministries of trade, environment, agriculture, industry and related public institutions will be informed about the SIA/EMFTA project so as to solicit their input in the preparation process. In addition, special efforts will be made to access the network of SMAP correspondents, which is comprised of official representatives of EMP countries responsible for addressing environmental affairs within the context of the EC’s Short and Medium-term Priority Environmental Action Programme (SMAP). European Commission In view of its direct role in implementing SIA/EMFTA policies, the EC will play a pivotal role in SIA preparation by providing input and guidance during various consultation activities. Consultation with the EC will be organized through the SIA/EMFTA Steering Committee, which will be formalised by the Commission under the leadership of the Directorate General EuropeAid Co-operation Office. Members of the Steering Committee include representatives from DG-Trade, DG-Environment, DG-RELEX, DG Social Affairs, DC ECFIN, the European Environmental Agency and others. The Steering Committee will be an inter-service body that will gather and convey the relevant expertise of the concerned Directorate Generals to the Consortium. The Committee will also supervise the work of the Consortium and provide guidance as consulted. The Consortium will consult with the committee regularly and as requested by Committee members. Civil Society Groups A wide range of civil society institutions have expressed interest in the EMFTA development process and the launching of the SIA. Effort will be made to ensure balance and equity of representation among civil society stakeholders. This will include seeking appropriate balance between:

social and economic organizations; • • • •

large and small organizations; European and MPC organizations; and specialized organizations representing different constituencies (e.g., gender, religion, industry, agriculture, etc.).


The balance of representation between these groups is discussed more fully below, and Annex 1 gives a preliminary list of targeted stakeholders. In view of seeking balanced representation, a database of interested parties has been developed and classified in accordance with the following twelve groups of civil society constituencies identified by the EC, so as to better ensure and monitor the various constituencies informed and engaged in consultations. This classification system differentiates between organisations and experts primarily focused on issues concerning: consumers; development; health; environment; trade unions; women’s groups; indigenous peoples; education and research; agricultural producers; commerce; employers; service industries. Sub-classifications have also been developed to build upon the EC framework, so as to better target organisations focusing on social and economic issues of special interest to the region, e.g., textiles/garments, processed agro-food industries, tourism, cultural organizations and those specifically concerned with water or energy resources. Special consideration will be given to networks and organisations that represent a number of such groups, such as federations, associations or forums that have the capacity to relay information about the SIA methodology and preparation process to its membership. These include, among others, the MCSD, the SMAP NGO Steering Committee and the General Union of Arab Chambers of Commerce, Industry and Agriculture. The preliminary list of stakeholder groups given in Annex 1 has been based on these criteria. A summary of the targeted consultations that have been carried out to date is presented in Annex 2. Advisory Committee The purpose of the Advisory Committee is to provide high-level advice and expertise on the preparation and implementation of the SIA/EMFTA. The committee is comprised of representatives from a limited number of regional institutions that are directly engaged in issues related to the formulation of the assessment. The following criteria were applied in identifying the members of the Advisory Committee:

Expertise in Euro-Mediterranean trade relations and sustainability issues; • • • • • •

Regional perspective about the issues; Geographic and technical balance among member institutions; Complementarity of expertise between Committee members and Consortium experts; Capacity of member to represent the interests of major stakeholder group(s) in the region; Capacity of member to access and inform major stakeholder group(s) about SIA/EMFTA activities.

Based on these criteria, the following four institutions were identified and invited to become members of the Advisory Committee:

1. Plan Bleu pour l'environnement et le développement en Méditerranée (Plan Bleu), represented by on behalf of (France). The Blue Plan serves as a Regional Activity Centre for the Mediterranean Action Plan and a technical support centre on trade and environment for the Mediterranean Commission for Sustainable Development.

2. Economic Research Forum for the Arab Countries, Iran and Turkey (ERF), represented by

(Egypt). ERF is a regional think tank that conducts policy research on current socio-economic issues facing the region through a regional network of experts; EFT is also a coordinator of the FEMISE network of Euro-Mediterranean research institutions.


Newsletter An electronic newsletter (English and French) will be prepared and disseminated to all interested parties. The newsletter will provide information about SIA process and methodology, provide information on upcoming consultative events, and report on project developments. In preparing these Internet-based information tools, links have been provided to organizations with information related to SIA development in the Mediterranean region. This will widen access to information resources and attract new interested parties to the SIA/EMFTA website. Information bulletins and links have already been placed in the ERF News Bulletin and the MedForum electronic newsletter/Med info flash. 6.3. Information material The following presentation material has been prepared, to be used for in-house and public presentations by the Commission services.

Quick briefing documents and digital slide shows (in-house and public versions, English and French versions) providing information on the process and content of the SIA study;

•

•

• • •

•

•

Blueprint of an ‘SIA of EMFTA information pamphlet’ aimed at public information. English, French and Arabic versions will be considered for publication by the Commission.

6.4 Implementation Implementation of the consultation strategy is being pursued through a variety of mechanisms that will be staggered across the three project phases. These can be organized into three groups of activities:

Working group meetings Regional consultations Information dissemination and awareness raising (electronic and Internet-based media)

The objectives for Phase 1 are:

To inform stakeholders on SIA process and its role in EMFTA negotiations so as to build confidence and engagement in the process To consult with stakeholders to finalize the SIA methodology and implementation frameworks

The following activities have been undertaken during Phase I: Working Group Meetings

Regular meetings with EC SIA/EMFTA Steering Committee • • •

Formation of Advisory Committee Meeting of the Advisory Committee

Regional Consultation

Identification of major stakeholder groups • • • •

Nomination of SIA local coordinators EC SIA/EMFTA Public Meeting (forthcoming) Consultations with members of regional groups


At each stage of consultation, consultees will be classified according to which cell/s of the matrix they represent (A1, A2 etc.), and entries will be made in the table to record their contributions. Recording will be expanded as necessary to cover specific issues identified in the assessment, e.g. textile industry, water resource issues etc. Where significant gaps are identified by lack of entries in the table, efforts will be made to seek further contributions. 6.5 Response to contributions Different types of contribution will be sought at different stages of the study, covering:

• methodological issues; • issues of concern which the SIA should address; • choice of scenarios to be assessed; • documented information that will be of use in conducting the assessment; • criticisms, comments and suggestions on the assessments and their conclusions; • suggestions on economic sectors and geographical areas that should be subject to detailed

study in Phase 3; • comments on the evaluation of potential mitigation and enhancement measures and

monitoring proposals. Issues that are raised will be evaluated as objectively as possible, in relation to the available empirical and theoretical evidence. Contributions received will be posted on the project website, along with a summary of the actions taken in response.


7. WORKPLAN FOR PHASES TWO AND THREE 7.1. Project workplan for Phases Two and Three The workplan for Phase 2 of the project is presented in Annex 3, along with the outline workplan for Phases 2 and 3. The detailed workplan for phase 3 will be developed during phase 2. The activity numbers used in the Phase 2 workplan are based on those developed in the project proposal, with the ordering revised on the basis of a critical path analysis. 7.2. Procedure for review/refinement of the methodology The methodology proposed in Section 5 above has been developed on the basis of extensive consultation over several years, including the consultations that have taken place during phase 1. It is nonetheless expected that further consultation on this report, along with continuing consultation during phase 2 and the experience gained in applying the methodology, will result in additional recommendations for refinements and adaptations. It is proposed that any significant changes to the methodology as described in this report will first be discussed with the Steering Committee and Advisory Committee, and then posted on the project website. Comments received will be handled and reported in the same way as for other contributions, and taken into account in the subsequent application of the methodology. 7.3. System for monitoring progress with the study Monitoring indicators and the proposed means of verification to be used for assessing progress of the study and its impact on the sustainability of the EMFTA are presented in Annex 7. In the table, verification is identified as quantitative, qualitative or both, according to the nature of the outcome to be evaluated. In relation to the overall objectives of the EMFTA, no attempt has been made to identify means of disaggregating the specific contribution made by the SIA project, and all monitoring is identified as external. For the project’s own purpose and results, much of the evaluation rests on judgements that must be independent of the study team. For these factors monitoring is therefore identified as external only. Where objective monitoring information can be gathered within the SIA, this is identified as internal, and will be carried out by the study team during the course of the project. Comments and suggestions on these proposals, and on all other aspects of the SIA, are invited through the project e-mail address:

[email protected]


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World Wide Fund for Nature (2001) Preliminary Assessment of the Environmental & Social Effects of Trade in Tourism, WWF, Gland

Zarrouk J and Zallio F (2000) Integrating Free Trade Agreements


ANNEX 1. SAMPLE LIST OF STAKEHOLDERS The institutions and organization listed below represents a sample of those included in the extensive contact database prepared to target and inform stakeholders about the SIA/EMFTA and engage them in the SIA/EMFTA preparation process. The list is not comprehensive and also does not reflect the number of individuals at each institution contacted regarding the project. 1. Governments

Council of Europe • • • • • •

• • • • • • • • • • • • •

•

•

• •

•

•

Council of Arab Ministers Responsible for the Environment, League of Arab States (CAMRE) Global Legislators Organization for a Balanced Environment (GLOBE Europe) European Federation of Green Parties European Parliament National ministries, agencies, parliaments and parliamentary committees

2. European Commission

Directorate General of External Relations, Mediterranean Directorate General of Environment Directorate General of Trade Directorate General of Agriculture Directorate General of Energy and Transport Directorate General of Development Directorate General of Economics and Finance Directorate General of Social Affairs EUR-Lex (Portail d'accès au droit de l'Union européenne) European Environment Agency (EEA) European Investment Bank (EIB) Eurostat Joint Research Centre • Institute for Environment and Sustainability, Italy • Institute for Prospective Technological Studies, Spain • European Science and Technology Observatory Network (ESTO) SMAP Correspondents of the Short and Medium-term Priority Environmental Action Programme

3. Mediterranean Institutes, Networks and Regional NGOs

Arab Network for Environment and Development (RAED) • Centre for Environment and Development for the Arab Region and Europe (CEDARE) • Collectif pour le développement de la coopération décentralisée en Méditerranée

(MEDCOOP.COM) • Economic Research Forum for the Arab Countries, Iran and Turkey (ERF) • EuroMediterranean Network of Social Economy (ESMED)

Euro-Mediterranean Water Management Information System (EMWIS) European Environment Bureau (EEB)

• FEMISE Network (Euro-Mediterranean network of independent economic institutes analysing the economic and financial chapter of the Euro-Mediterranean partnership)

• Forêt méditerranéenne Forum of Mediterranean NGOs for Ecology and Sustainable Development ( MedForum)

• Friends of the Earth (Europe, MedNet, and Middle East Offices) General Union of Arab Chambers of Commerce, Industry and Agriculture (GUACCIA)

SIA of the Euro-Mediterranean Free Trade Area A1

• Greenpeace Mediterranean • Institut de la Méditerranée (iMed) • International Association for Mediterranean Forests • International Centre for Advanced Mediterranean Agronomic Studies (ICAMAS) • International Federation of Agricultural Producers (IFAP), Mediterranean Committee • International Union for the Conservation of Nature (IUCN), Centre for Mediterranean Cooperation

MedCoast (Turkey) •

•

•

•

• • •

• •

• Mediterranean Development Forum (World Bank) • Mediterranean Euro Forum

Mediterranean Commission for Sustainable Development (MCSD) • Mediterranean Hydrological Cycle Observing System (MED-HYCOS)

Mediterranean Information Office for Environment, Culture and Sustainable Development (MIO/ECSDE)

• Mediterranean S.O.S. Mediterranean Water Network

• Oxfam Plan Bleu pour l’environnement et le développement en Méditerranée (Plan Bleu) Union of Industrial and Employers' Confederations of Europe (UNICE) World Wildlife Fund Mediterranean Program Office (WWF/MPO)

4. Civil Society Groups (National) • AKCEP Mediterranean NGO Platform of Turkey, Turkey • AMWAJ pour l’Environnement, Lebanon • Associations, Federations and Syndicates (particularly on agriculture, agro-food, textiles, garments) • Association Ecologique de Bou-Merdes, Algeria • Association Homme, Environnement et Réseaux de Développement, Morocco • Association Les Amis de la Saoura, Algeria • Association de Protection de la Nature et de l’Environnement de Kairouan, Tunisia • Association Tunisienne pour la Protection de la Nature et de l’Environnement, Tunisia • Bibliothèque d’Echanges de Documentation et d’Expérience, France • Comité 21, France • Coptic Evangelical Organization for Social Services, Egypt • Chambers of Commerce • CSEAAM, Italy • Ecological Malta Foundation, Malta • Eco-Mediterrania, Spain • ENDS Environment Daily, United Kingdom

Environment and Development Action in the Third World (ENDA)/ENDA Maghreb, Morocco Environment and Development Action in the Third World (ENDA)/ENDA Tiers Monde, France

• Environment and Development Magazine, Lebanon • Environmental Policy Centre Europe, Belgium • Energies Alternatives, France • Fédération Nationale du Textile, Tunisia • Heinrich Boell Foundation, Belgium • Israeli Union for Environmental Defence, Israel • Institut Arabe des Chefs d'Entreprises, Tunisia • Lawyers for Environment Group, Turkey • Lebanese Environment Forum, Lebanon • Life and Environment, Israel • Maison de l’Environnement, France • Maison des Tiers Mondes, France


• Mouvement Ecologique Algérien, Algeria • Nature Trust, Malta • Organization for Energy Planning, Egypt • Society for the Conservation of Nature, Turkey • SOLAGRAL, France • World Wide Fund for Nature, Belgium • Turkish Economic and Social Studies Foundation, Turkey 5. International organisations • Organisation for Economic Co-operation and Development (OECD) • Sahara and Sahel Observatory (OSS) • World Bank • World Tourism Organisation (WTO) • World Trade Organisation (WTO) 6. United Nations organisations • United Nations Commission on Sustainable Development • United Nations Conference on Trade and Development, Trade, Environment and Development

Branch (UNCTAD/TED) • United Nations Development Programme (UNDP) • United Nations Economic Commission for Africa (ECA) • United Nations Economic Commission for Europe (ECE) • United Nations Economic and Social Commission for Western Asia (ESCWA) • United Nations Educational, Scientific and Cultural Organisation (UNESCO) • United Nations Environment Programme, Economic and Trade Branch (UNEP/ETB) • United Nations Environment Programme, Mediterranean Action Plan (UNEP/MAP) • United Nations Environment Programme, Regional Office for Western Asia (UNEP/ROWA) • United Nations Food and Agriculture Organisation (FAO) • World Meteorological Organisation (WMO)


ANNEX 2. CONSULTATION ACTIVITIES 1. Summary of Consultations A series of consultative meetings have been conducted with targeted stakeholders to inform them about the SIA project and process, and to solicit their feedback on means to access networks in the region. A presentation was made to the 9th Meeting of the Mediterranean Commission on Sustainable Development (MCSD) in Genoa, Italy (June 2004) to inform and engage government officials and representatives of civil society about the SIA/EMFTA project and process. The contribution was arranged following consultations with the Secretariat of the Mediterranean Action Plan (MAP) and the Blue Plan. The Regional Arab Network for Environment and Development (RAED), which served as rapporteur of the MCSD during its 8th Session and currently serves and a member of the SMAP Comite de Suivi, welcomed the opportunity to discuss the SIA/EMFTA at the MCSD and provided insights on how to best to inform members of regional networks about SIA/EMFTA progress during a meeting in Cairo (May 2004). A meeting with the Technical Secretariat of the Council of Arab Ministers Responsible for the Environment (CAMRE) at the League of Arab States (Cairo, May 2004) exposed complementarity between the SIA/EMFTA project and the Program on Trade and Environment Capacity Building in the Arab Region sanctioned by CAMRE regarding the efforts to raise awareness in the region about the benefits of SIA policy analyses to inform decision-making. Discussions resulted in an agreement to present the SIA/EMFTA project to governmental and non-governmental members of the Joint Commission for Environment and Development in the Arab Region (JCEDAR) and the CAMRE Executive Bureau at upcoming meetings. The Economic Research Forum for the Arab Countries, Iran and Turkey (ERF) welcomed the opportunity to inform their network of researchers and experts about the SIA/EMFTA project. A news item on the project and project website was disseminated in the ERF E-Bullet in May 2004 (Issue 10), and was included in their newsletter. Preliminary discussions were also conducted in Cairo (May 2004) on the organisation of a consultative meeting as a side event to the Eleventh Annual Conference of the Economic Research Forum, which will be held in Beirut from 14-16 December 2004. Preliminary discussions were held with the government and civil society representatives in Turkey (June 2004). Representatives from the State Planning Organization and Small and Medium Industry Development Organization (KOSGEB), which is affiliated with the Ministry of Industry and Trade, and others emphasized the importance of taking into consideration the impact of trade liberalization on small entrepreneurs and local industry, as well as the benefits of formalizing private networks and international partnerships through sub-contract arrangements, as being witnessed in the automotive sector in Turkey. Independent think tanks in Istanbul are also expressed interest in the SIA/EMFTA, including the Economic Development Foundation and the Turkish Economic and Social Studies Foundation (TESEV). Discussions were also held with the Institute for Industrial Promotion of Italy during the OECD Second Ministerial Meeting for Small and Medium Sized Enterprises (Istanbul, June 2004), which revealed how business networks are being promoted between Italy and Southern Mediterranean countries through information communication technologies. Focus was placed on opportunities for knowledge transfer and innovation that more open trade relations between the Northern and Southern Mediterranean countries might bring to key sectors. Technical cooperation initiatives and industry partnerships are already underway between the European Commission and Italian counterparts in Egypt, Morocco, Tunisia and Turkey.


A presentation of the objectives of the SIA/EMFTA was made to Member States and non-governmental organizations during the meeting of the Joint Committee on Environment and Development in the Arab Region (JCEDAR) and to Member States that serve on the Executive Bureau of the Council of Arab Ministers Responsible for the Environment (CAMRE) at their biannual meeting in Cairo (September 2004). Materials regarding the project were distributed in Arabic. Stakeholders from ministries of environment of Southern Mediterranean countries were informed about the SIA/EMFTA at the METAP National Focal Points meeting in Tunis (September 2004). 2. Upcoming consultations It is expected that a Public Consultation on the SIA/EMFTA will be held in November 2004 in Brussels to discuss Phase I of the SIA/EMFTA preparation process. The consultation will be sponsored by the European Commission and will allow for an exchange regarding methodological issues and scenarios to be developed during the course of the SIA/EMFTA. It is expected that the meeting will attract representatives of public and private organizations based in Brussels, officials from embassies and consultants based in Brussels, as well as government delegates and representatives from civil society from Euro-Mediterranean Partner countries. A meeting with the Ministry of Economy of Trade of Lebanon in September 2004 revealed that the ministry is collaborating with the Ministry of Environment to prepare a UNEP-sponsored study on the environmental implications of the EC’s New Neighbourhood Policy within the context of trade and environment relations. A workshop to launch the study is expected to be organized in Fall 2004, and it was agreed with the Ministry that this would provide an opportunity to discuss the SIA/EMFTA with national stakeholders. Opportunities to discuss the SIA/EMFTA with members of the private sector on a regional basis are also being organized. ESCWA will make a presentation on the SIA/EMFTA project within the context of regional issues facing small and medium sized enterprises (SMEs) at the First Euro-Mediterranean Industrial Cooperation Forum in Barcelona, Spain (October 2004). The SIA/EMFTA will also be discussed among SME policy advisors at the joint ILO-ESCWA workshop on “Policies and Strategies for SME Development,” which will be held in Cairo, Egypt (22-30 November 2004). A Side Event on the SIA/EMFTA will be organized on 13 December 2004 in Beirut as a pre-conference activity to the Eleventh Annual Conference of the Economic Research Forum for Arab Countries, Turkey and Iran. The session is expected to attract leading researchers and experts in economics, trade and environment from the region and allow for an interactive exchange regarding methods and scenarios to be developed during the preparation of the SIA/EMFTA. Arrangements are also underway to discuss SIA/EMFTA progress and methods during regional meetings of non-governmental organizations, regional organization associated with the EU-Mediterranean Partnership and other groups during late 2004 and early 2005. A list of consultation activities will be made available on the project website.


3. List of consultations and meetings Technical Secretariat of the Council for Arab Ministers Responsible for the Environment, League of Arab States, Cairo, Egypt (Cairo, May 2004) Department of Economic Affairs, League of Arab States, Cairo, Egypt (Cairo, May 2004)

Regional Arab Network for Environment and Development; Member of JCEDAR, Member of SMAP Comite de Suivi, Rapporteur of MCSD, Cairo, Egypt (Cairo, May 2004) Economic Research Form for the Arab Countries, Iran & Turkey (ERF), Cairo, Egypt (Cairo, May 2004) State Planning Organization, Government of Turkey, Ankara, Turkey (Istanbul, June 2004) Small and Medium Industry Development Organization (KOSGEB), Ministry of Industry and Trade, Government of Turkey, Ankara, Turkey (Istanbul, June 2004) MEDA Automotive Project, Istanbul, Turkey (Istanbul, June 2004) International Relations and Foreign Markets Area, International Relations Office, Institute for Industrial Promotion, Rome, Italy (Istanbul, June 2004) Department for the International Network of Small and Medium Sized Enterprises (INSME), Institute for Industrial Promotion, Rome, Italy (Istanbul, June 2004) Italian Centers and Networks Department, Directorate for Transfer of Knowledge and Innovation, Institute for Industrial Promotion, Rome, Italy (Istanbul, June 2004) Mediterranean Information Office for Environment, Culture and Sustainable Development, Athens, Greece (Genoa, June 2004) Regional Environmental Center for Central and Eastern Europe Country Office for Turkey, Ankara, Turkey (Genoa, June 2004) International Chamber of Commerce, Monaco; Member of the Mediterranean Commission for Sustainable Development, supportive of private sector linkages between companies in Northern and Southern Mediterranean (Genoa, June 2004) Secretariat of State Responsible for the Environment, Ministry of Urban Planning, Environment, Urbanisation and Habitat, Rabat, Morocco (Genoa, June 2004) MENA Regional Environmental Advisor, The World Bank, Washington, DC (Genoa, June 2004) Ministry of Economy and Trade, Beirut, Lebanon (Beirut, September 2004) European Environmental Agency, Copenhagen, Denmark (Copenhagen, September 2004) METAP National Focal Points meeting, Tunisia; stakeholders from ministries of environment of Southern Mediterranean countries informed about the SIA/EMFTA (Tunis, September 2004)


Table A2: Bilateral trade agreements amongst Mediterranean partners

Algeria Cyprus Egypt Israel Jordan Lebanon Malta Morocco Syria PalestinianTerritories

Tunisia Turkey

Algeria Cyprus Egypt Signed

1998 In force 1999

Signed27/05/1998 In force 29/04/1999

Completed1998 In force 1999

Israel Signed03/1996 In Force 01/05/1997

Jordan Signed 1998

Signed1992

Signed 1998In force 1999

Yes Economicagreement signed 4/1995

Signed 04/98

Lebanon In force1999

Signed1992

Libya Signed 2001Malta Morocco Signed

27/05/1998 In force 29/04/1999

Signed1998 In force 1999

Signed16/03/1999 In force 16/03/1999

Syria Yes

Signed03/99

Palestinian Territories

Economicagreement signed 28/04/1998

Economicagreement signed 04/1995

Tunisia Completed1998 In force 1999

Signed03/99

Turkey Signed03/1996 Into Force 01/05/1997

Femise (2002) ‘The FEMISE report on the evolution of the structure of trade and investments between the European Union and the Mediterranean partners’, updated using WTO Trade Policy Reviews and http://www.dtm.gov.tr/ab/ingilizce/STA/stamenu.htm


2. Modalities of South-South Integration Integration agreements differ by design and by degree of implementation. The modalities in bilateral, regional and multilateral integration agreements range from simple tariff reductions and an intent on cooperation, to provisions on trade in services and the right to establish foreign firms. Some agreements are supported by parliaments, councils and courts of justice; other have a secretariat. Integration agreements among the 12 Mediterranean partners are limited mainly to traditional trade provisions, unlike the association agreements, which have included some provisions on services and investment. Below we describe modalities and provisions in key regional and bilateral integration agreements, and these can be compared with provisions in other agreements: for instance, with provisions in EU association agreements (an example is provided in Box 1) or regional integration agreements outside the Mediterranean region. Box 1: Modalities in the EU-Morocco association agreement on the basis of ‘titles’: II Free movement of goods III Right of establishment and services IV Payments, Capital, Competition, and other economic provisions V Economic Co-operations VI Co-operation in Social and Cultural Matters VII Financial Cooperation VIII Institutional, general and final provisions Maghreb and Mashreq Algeria, Libya, Mauritania, Morocco and Tunisia signed the Marrakech Treat on 17 February 1989 to establish the Arab Maghreb Union. The institutions include (WTO, 2003, Trade Policy Review for Morocco) the Council of Heads of State, the Council of Foreign Ministers, the Follow-up Committee, the Court of Justice, an Advisory Chamber, and four Expert Ministerial Commissions. It does not have a permanent Secretariat. The AMU had as its aim the creation of a customs union; around 20 conventions and agreements have been signed within AMU. However, El Hedi Lahouel (2001)42 has argued that neither the Treaty nor the later agreements had any concrete timetables for putting the customs union into practice. The WTO (2003, Trade Policy Review for Morocco) finds that the UMA does not appear to be functioning in practice, despite the recent efforts made to revive it. A number of external factors, such as the international embargo imposed on Libya until 1999, Algeria’s domestic crisis, and certain disagreements among member countries concerning the Western Sahara issue appear to have halted the integration process. Another grouping, the Mashreq group, consists of Egypt, Israel, Jordan, Lebanon, Syria, and the West Bank and Gaza Strip. However, this group does not seem to have acted as an integrated regional grouping.

42 El Hedi Lahouel (2001) ‘Foreign Direct Investment, The European Mediterranean Agreements and Integration between Middle East and North African Countries’; chapter 4 in S. Dessus, J. Devlin and R.Safadi, Towards Arab and Euro-Med Regional Integration, OECD, ERF and World Bank.


Greater Arab Free Trade Agreement (GAFTA) GAFTA was created out of the Arab League Executive Programme for Arab Free Trade signed in 1997 for all 22 Arab states, including 7 out of 12 Mediterranean partners. It aimed to implement the Agreement on Facilitation and Development of Trade among Arab Countries, dated 27 February 1981. Currently, 17 members are implementing the programme (Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libyan Arab Jamahiriya, Morocco, Oman, Palestinian Authority, Qatar, Saudi Arabia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, and Yemen). GAFTA is meant to be consistent with the needs of all Arab countries and with international norms. Devlin and Page (2001)43 argue that GAFTA has gone beyond previous Arab regional integration processes by incorporating specific commitments to tariff reductions, imposing a schedule for implementation and addressing non-tariff barriers. One of the reasons for GAFTA’s emergence was the fact that EU association agreements could involve itself in trade and in investment diversion away from intra-Arab trade and investment, favouring North-South trade: the so-called ‘hub and spoke’ effect. A regional south-south block was needed to prevent this. The modalities of GAFTA are as follows (Zarrouk and Zallio, 2000)44

• Tariffs will be reduced across the board by 10% per year in a period of 10 years beginning in 1998 until full removal by 2008.

• Members are allowed to draw up a list of products excluded from the tariff reduction scheme for three years in order for the industry to adjust and restructure. This has led several countries to submit lists of products (679 products at HS 6 digit level in Egypt, 800 in Morocco, 229 in Syria, 161 in Tunisia, 41 in Lebanon).

• Seasonal exclusions from tariff reductions for eligible agriculture products can last more than between 7-10 months.

• In the first few years, members have not entered into negotiations about non-tariff barriers such as quantitative restrictions, import licensing for health and safety standards.

• The programme calls for harmonisation of customs clearance procedures, and application of international rules regarding subsidies, countervailing measures, safeguards and anti-dumping measures.

• The rules of origin for tariff free treatment are based on a value-added requirement of 40 per cent, and allows for cumulation in the region.

• The union of Arab chambers of commerce is to monitor implementation. It can be concluded that GAFTA is essentially about trade in goods. The agreement initially comprised 14 countries. Only Algeria and seven least developed members of the Arab League did not participate. One observer notes that there has been a greater commitment to this than previous agreements. Annual tariff reductions have taken place in a limited way, and discussion and action regarding non-tariff barriers are subject to delay. The Greater Arab Free Trade Area Agreement (GAFTA) is a step toward fostering trade integration among Arab countries. The initiative was approved by the Economic Council of the Arab League the same year (1996) with the aim of establishing a free-trade area over a ten-year period and to be fully operational as of 1 January 2007. No provisions are expected to enhance free trade in services; similarly, no commitment has been taken to liberalise the transport sector, a very critical aspect of the South-South integration. However, since the 14 member countries are allowed to draw up a list of exemptions for agricultural and manufactured products until 2008, the inter-Arab trade has remained relatively stable over time, in contrast with other regional groupings 12. In order to speed up the pan-

43 J. Devlin and J. Page (2001) ‘Testing the Waters: Arab Integration, Competitiveness, and the Euro-Med agreements’; chapter 9 in S. Dessus, J. Devlin and R.Safadi, Towards Arab and Euro-Med Regional Integration, OECD, ERF and World Bank. 44 J. Zarrouk and F. Zallio (2000) ‘Integrating Free Trade Agreements’.


Arab economic and industrial co-operation, the member countries decided in February 2002 to accelerate the tariff reduction by 200545. Agadir Agreement At a meeting in May 2001 in Agadir, foreign ministers of Morocco, Tunisia, Egypt and Jordan decided to establish a free trade area, partly based on consultation in an earlier Euro-Med conference. This declaration linked Maghreb and Mashreq countries and is based on the principle of open regionalism. In principle, other countries can join. A meeting of experts agreed (Hamoudeh, 2002)46 that the free trade area should be achieved by 2006, with a 65% reduction of tariffs in the first year, 80% in the second, 90% in the third and 100% reduction by 2006. There have also been discussions on rules of origin, with the aim of being able to use full cumulation among the Agadir countries under the EU Association agreements. The formal agreement was signed in February 2004 with the aim of creating a free trade area. The European Commission has supported the Agadir initiative since its inception, and will continue to do so through a MEDA programme of €4 million that will provide technical assistance to Agadir member countries and to its planned Secretariat. Key intra-med bilateral trade agreements: Egypt The Egypt-Tunisia trade agreement came into force in 1999. It calls for

• Tariff reduction in three parts: first a list of products would become tariff free; secondly, other products would be progressively phased out by 2007; finally, both countries have included a negative list of products not subject to tariff reductions.

• Conclusion of mutual recognition agreements in conformity assessments • National treatment in intellectual property rights, trademarks, and industrial design laws to

Egypt and Tunisia The Egypt-Morocco FTA is very similar and allows for a FTA within 12 years after the start in 1999. The Egypt-Lebanon FTA also contains similar information. Key intra-med bilateral trade agreements: Morocco Morocco has three bilateral agreements with Egypt, Jordan and Tunisia, which entered into force in 1999 (WTO, 2003, Trade Policy Review for Morocco). The agreements with Egypt and Jordan provide for the creation of a free trade area over a period of 12 years, with lists of industrial products for which import duties were abolished. For other manufactures, there will be gradual reduction in tariffs over a period of between five and seven years, until they reach zero. The agreements also contain a negative list of manufactures not covered by the dismantling, while agricultural products are not covered. The free trade agreement with Tunisia is slightly different and aims to reduce tariffs by 1 January 2008. The agreement also contains a negative list of manufactures not covered, and agricultural products are not covered. Key intra-med bilateral trade agreements: Turkey The Turkey-Israel trade agreement allows for a phased reduction of tariffs on industrial goods and complete elimination on industrial goods by 2000. WTO (2003, Trade Policy Review for Turkey) mentions that this agreement also includes provisions on right of establishment and supply of services, internal taxation, structural adjustment, dumping, state monopolies, rules of origin, payments, rules of competition, state aid, balance-of-payments difficulties, protection of intellectual property, and government procurement.

45 J. E. Zarroouk (1998), Arab Free Trade Area: Potential and Effects, MDF Forum September 1998 Marrakech 46 M. Hamoudeh (2002) ‘The Aghadir Process’, presentation at the Mediterranean Academy of Diplomatic Studies, University of Malta, 4-6 May 2002.


authors (e.g. Galal and Hoekman, 2003)52 suggest that most of the gains from integration in the region would come from service liberalisation, not goods liberalisation, since the countries in the region have similar goods production structures.

• Should the scope and coverage in intra-Med regional integration agreements follow that of EU-Association agreements in order to avoid the ‘hub and spoke’ effect? If so, what would need to change and how? What would be the implications for rules of origin? For instance, while GAFTA allows for cumulation of rules of origin, this is more narrowly defined in the EU-association agreements with individual Mediterranean partners.

These are questions that could be asked as part of the Barcelona process, which involves the creation of a free trade zone among all partners (15, soon to be 25, European and 12 Mediterranean). The SIA of EMFTA will assess the impact of the EU-Association agreements (which are reviewed elsewhere), but it is likely that the impact would depend on the assumptions or baseline scenarios regarding the path for intra-Mediterranean cooperation.

52 A. Galal and B. Hoekman (2003) ‘Aran Economic Integration. Between hope and reality.’, Brookings institutions and Egyptian Centre for Economic Studies.


ANNEX 5. REVIEW OF PREVIOUS STUDIES Contents 1. Trade impact assessment methodologies 2. Trade impact assessment studies for the Mediterranean region 3. Synthesis studies of the Mediterranean region 4. Modelling studies for Mediterranean trade 5. Case studies and sectoral reviews 6. Frameworks for national sustainable development strategies 1. Trade impact assessment methodologies The European Commission’s SIA Methodology The SIA methodology was originally developed for the launch of the Commission’s SIA programme in 1999 (Kirkpatrick, Lee and Morrissey, 1999). The methodology was designed to provide a framework within which the potential impacts of trade negotiating options could be assessed in a systematic, consistent and transparent way. It was recognised that the SIA methodology needed to be sufficiently comprehensive and adaptable to be applied to a range of measures and tasks, and it was envisaged that the approach would be refined and updated to meet the changing priorities of the SIA programme, to incorporate developments in impact assessment techniques and data availability, and to respond to the views and expert opinion of stakeholders. The original methodology was subsequently refined for application to the broad Doha Declaration SIA Work Programme, (Kirkpatrick and Lee, 2002). An SIA study for major food crops in the WTO negotiations was carried out by Stockholm Environment Institute in parallel with the development of the methodology (Maltais et al, 2002). Lessons from this study were incorporated into the application of the methodology for the subsequent SIAs. A series of SIA studies have since been undertaken on the Doha Development Agenda as a whole (George and Kirkpatrick, 2003) and for other individual sectors (Kirkpatrick and George, 2003). The methodology developed for the WTO studies has also been used in SIAs of the single country and regional trade agreements for EU-Chile, EU-GCC and EU-ACP (Planistat, 2002, Price Waterhouse Cooper, 2004a, 2004b, 2004c). The main adaptations to the methodology made in these studies were the use of bespoke economic models to estimate economic effects (where the geographical coverage of existing modelling studies was inadequate), and proactive contact with specific stakeholders (to compensate for limited data sources for the region). In parallel with its SIA programme for trade negotiations, the EC has issued a more general Communication on Impact Assessment (COM(2002)276). This defines the procedures through which Commission staff organise, design, carry out and/or review impact assessments of major proposals adopted by the Commission, including EC directives and regulatory and other proposals having significant economic, social and environmental impact. It is intended that the series of SIA studies being undertaken for trade policy, which were initiated prior to the introduction of the Communication, will be used as sources of information for Commission staff undertaking impact assessments in accordance with its procedures. The Guidelines issued in support of COM(2002)276 include a number of suggested tools for identifying and measuring potential impacts. These include:

the use of impact matrices


scenario analysis compliance cost assessment environmental assessment social assessment and the identification of distributive effects risk analysis cost benefit analysis cost-effectiveness analysis multi-criteria analysis sensitivity analysis external consultation

The Guidelines are not prescriptive, but are intended for use in the selection of appropriate tools for the specific assessments being conducted. Many of the recommended techniques form part of the SIA methodology, and the findings of the SIA studies may be used as one of the sources of information needed by others. A number of NGOs have commented on the methodology used for the EC SIA studies, and have prepared a joint statement (WIDE 2002). This recommends that: SIA should begin at an early stage in order to inform negotiating positions; SIA should be fully integrated into the policy-making process; enhance policy coherence and inter-service co-ordination; increase stakeholder involvement in the process; expand the roles of other EU institutions such as the European Parliament, the General Affairs Council and Member States, with an emphasis on transparency. International trade impact assessment methodologies A review of methodologies used internationally for the impact assessment of trade policy has recently been undertaken by the Secretariat of the UN Convention on Biological Diversity (CBD) (UNEP/CBD, 2003). The EC framework for SIA was reviewed along with the methodologies developed by OECD, UNEP, CEC (the North American Commission for Environmental Cooperation), the Canadian government, and the US government. The UNEP framework was singled out as placing greater emphasis on significant impacts in developing countries, but in other respects all the methodologies were seen to suffer from similar shortcomings. These relate to indicator specification, data availability, analytical tools, and the availability of well-substantiated case studies. These other frameworks were all taken into account during the original development and subsequent refinement of the methodology used for the EC SIA studies. The differences relate primarily to the different purposes of the assessments that are carried out, and to differences in the policy-making frameworks of the national and international institutions which undertake or commission them. All use a variety of techniques for obtaining quantitative estimates of likely impacts, chosen according to the needs of individual studies. Organization for Economic Co-operation and Development (OECD) The OECD began its work on trade and environment impact assessment in 1991 through what is now called the Joint Working Party on Trade and Environment (JWPTE). Support for trade and environment assessment was formalized in June 1993 when the OECD Ministerial Council recommended that Governments should examine or review trade and environment policies and agreements with a view to assessing whether trade policies may have an impact on the environment, or the environment policies may impact trade. The OECD subsequently conducted studies and convened meetings within the context of improving global understanding about trade and environment linkages. A methodology for environment and trade reviews was proposed in 1994 and a workshop organized in 1999 to discuss methodologies for conducting environmental assessments of trade liberalization agreements. A methodology for assessing the environmental impacts of trade in services was released in 2002. While the OECD


applies various types of models when conducting impact assessments, the methodological framework it has adopted for conducting environment and trade reviews encompasses a series of screening criteria, scoping approaches and forecasting and policy evaluation techniques, which are complemented by participatory processes, consideration for timing, monitoring and follow-up. Studies and reports have been prepared on the environmental implications of trade liberalization and the role of consultation in the European Union and Northern Mediterranean countries, product and production requirements and market access problems that impact developing country, as well as environmental good and services within the context of global trade negotiations. United Nations Environment Program (UNEP) UNEP launched an Environment and Trade Program in 1993 to follow-up on outcomes from United Nations Conference on Environment and Development (UNCED). A series of case studies were conducted during the late 1990s as part of a capacity building program to develop analytical skills and methods for integrating environmental considerations into development planning. This experience contributed to the preparation of a Reference Manual for the Integrated Assessment of Trade-Related Policies (2001) as well as a series of global meetings for increasing understanding about the role that integrated assessment can play in supporting trade and environment decision-making and negotiations. The UNEP reference manual presents a variety of different tools and methods for conducting impact assessments of trade liberalization from an integrated perspective, namely one that takes into account the economic, environment and social implications of trade liberalization. Emphasis is given to the importance that such tools can play in estimating the positive and negative impacts of trade policies and agreements to support the development of sound sustainable development policies. UNEP has continued its work on impact assessment methodology, and has made available a draft of its forthcoming Handbook on Integrated Assessment of Agriculture. This incorporates many of the findings of the CBD review discussed above, and provides valuable guidance on potential impacts and assessment techniques. Worldwide Fund for Nature (WWF) The impact assessment methodology developed by WWF53 is similar to that developed by OECD. It starts with an institutional analysis, covering procedural steps and institutional arrangements, followed by sectoral analysis of potential impacts. WWF has conducted a preliminary assessment of the environmental and social effects of tourism54, which includes a case study on Turkey, and recommendations for more detailed assessments of the sector. Royal Society for the Protection of Birds (RSPB) RSPB has provided specific advice on the SIA of trade, in association with Birdlife International55, and has also developed detailed guidance on the treatment of biodiversity impacts in strategic environmental assessment, in association with the Countryside Council for Wales, English Nature and the UK Environment Agency56. Recommendations for SIAs include integrated consideration of social, environmental and economic impacts; the use of sustainability rather than trade as the baseline for analysis; reflect the aims and targets of international agreements dealing with sustainable development; decisions and subsequent actions should calculate and incorporate external and future values fairly, particularly those of ecosystem services; assessments should be transparent and participatory; SIAs should give clear and explicit guidelines or criteria that countries can use to

53 WWF (1998, 1999) 54 WWF (2001) 55 Birdlife International and RSPB (2003) 56 Countryside Council for Wales et al (2004)


integrate environment and development concerns into negotiations; post-evaluation and review should be carried out. 2. Trade Impact Assessment Studies for the Mediterranean Region

Work on impact assessment in the Mediterranean region has been conducted by several regional and international organizations. Much of this work has been supported within the framework of increasing understanding about economic and environment linkages from an integrated perspective. A summary of some of the more extensive programs that support impact assessment in the region is provided below. Mediterranean Commission for Sustainable Development (MCSD) The MCSD was established in 1996 under the auspices of the Mediterranean Action Plan (MAP) to facilitate discussion and strategy formulation in the Mediterranean region on the integration between environment and development policy. The Commission is comprised of representatives from 21 Mediterranean costal states and 15 representatives from civil society so as to foster a participatory and inclusive dialogue among stakeholder groups in the Mediterranean basin. The Commission formed a Task Force on Free Trade and the Environment in the Euro-Mediterranean Context to examine the impact of trade liberalization on the Mediterranean environment and to report to the Commission on its findings. A series of studies were subsequently commissioned for this purpose with support provided by the Blue Plan (see below). Studies and meetings conducted for this purpose since 1999 have drawn lessons from non-MEDA countries, discussed the environmental aspects of Euro-Mediterranean Partnership Agreements, highlighted potential challenges and opportunities associated with trade liberalization in the region, and provided qualitative and prospective analysis on the implications of free trade for the environment and key industries in several MEDA countries. The scenarios, finding and recommendations from this work are contributing to the preparation of the Mediterranean Strategy for Sustainable Development. Mediterranean Environmental Technical Assistance Program (METAP) METAP has provided technical assistance to 15 countries in the Mediterranean region since 1990 through a collaborative partnership between the European Community, the European Investment Bank, the United Nations Development Program, the World Bank and several bilateral donors, including the Finish Ministry of Foreign Affairs Development Cooperation and the Swiss Agency for Development and Cooperation. Through its coordinated capacity building program on legislation and policy implementation tools, METAP supports three activities on impact assessment in the Mediterranean region, as detailed below: The MedPolicies Initiative - which conducts strategic environmental assessments of the impact of environmental requirements on trade and competitiveness in Southern Mediterranean countries. Project activities focus on micro-economic policy analysis, consultation and capacity building to strengthen the capacity of public and private sector to make trade and environment policy decisions based sound economic analysis. Assessment methods are based on the application of a partial-equilibrium model (Larson Model), which estimates the impact of environmental compliance on output and trade for key export sectors in Southern Mediterranean economies. Assessment findings from over three dozen case studies and policy notes conducted at the national and sector levels have contributed to priority setting and decision-making by demonstrating that environmental conformity may have significant or minor impacts on exports depending on specific factors. The United Nations Economic and Social Commission for Western Asia (ESCWA) has implemented project activities since 2000. The project was conducted by the Harvard Institute for International Development (HIID) between 1997 to 1999.


The Cost of Environmental Degradation Program – which assesses the impact of existing environmental degradation trends on gross domestic product, health/quality of live and natural resources. The quantitative impact assessment methodology has been applied through the preparation of national studies in consultation with government counterparts in seven Middle East and North African countries. Training on impact assessment and environmental economic valuation methods are also components of the project, which is led by the World Bank. The Environmental Impact Assessment Institutional Strengthening Project – which works to strengthen capacity for conducting environmental impact assessment (EIA) in Southern Mediterranean Countries by improving their legal, institutional and procedural framework for EIA implementation. EIA analysis, training and networking for the project is coordinated by the Centre International des Technologies de l’Environnement de Tunis (CITET). Friends of the Earth Middle East This set of case studies cover the textile sector in Egypt, the phosphate industry in Jordan, and agriculture in the southeastern Mediterranean countries. Parallel studies included a review of lessons from other trade agreements, and a comparative law analysis to identify gaps in the countries’ environmental legislation. Environmental issues were the principal consideration, but some social factors were considered, including changes in rural employment, closing down of non-competitive industries, social services expenditure and possible health impacts. The comparative law analysis identified enforcement and effectiveness of legislation as important issues. Most of the policy measures recommended by the study call for further investigation, monitoring, and strengthened decision-making mechanisms. Suggested measures include:

• incorporate the environment into bilateral and regional association agreements • designate specific sustainability targets, with reasonable schedules and finances • establish an environmental coordination institution within the Euro-Med Partnership • undertake Sustainability Impact Assessments on the planned regional free trade zone • environmental screening of official Euro-Med finance • capacity building programmes to develop technical and professional capacity • incorporate policies to internalise environmental costs into MEDA funding • a system of national and regional sustainability indicators • incorporation of multiple stakeholders into the Euro-Med decision-making processes

The main aim of the studies was to contribute to a better understanding of potential impacts for the purposes of making policy recommendations, rather than to make firm forecasts. Impacts identified as being potentially significant require further investigation, or policy measures to ensure they do not arise. 3. Synthesis studies of the Mediterranean region Environment and Sustainable Development (PlanBleu 2001, 2003) The Barcelona declaration has in particular acknowledged that it is important to “reconcile economic development with the protection of the environment, integrate environmental concerns with the relevant aspects of economic policy and lessen the negative results which might arise from development at environmental level”57.

57 Plan Bleu “Free Trade and Environment in the Euro-Mediterranean context”, March 2001


For the Mediterranean area the integration of economy and environment is particularly relevant for two reasons: first, the development of tourism, high technology services and industry, and quality agriculture depend directly from it and largely determine the future of the region; secondly, natural resources (water, land, coastline...) are precious and very fragile, but also restrictive for development. The Euro-Mediterranean partnership has, therefore, an essential guiding role in allowing the creation of a regional space for sustainable development. In order to reach this objective, in 1996, it has been founded the Mediterranean Commission for Sustainable Development (MCSD): it is a consulting body intended as a forum for dialogue, discussion and proposal for defining regional sustainable development strategies. The MCSD has started working in 1998 focusing the attention on the potential impact of free trade on the environment, given the expected accelerating effect on the restructuring process for national economies, exerted by the set up of the Euro-MED FTA, and the related considerable social and environmental impact. It is therefore a priority to assess the possible types of impact and to identify the anticipating measures capable to avoid those effects that could undermine the goal of sustainable development. A first way of approaching this issue considers the effects of past experiences of regional integration on environment. The lessons from the older experiences of Regional Free Trade Agreements are numerous and can be very useful for the Euro-MED Area. The case of Greece, Spain and Portugal in the EU presents significant differences at the country level, when environment is taken into consideration. Greece has advantages and disadvantages. The advantages were represented by a still fairly use of chemical fertilisers and the option of taking advantage of EU agro-environmental programmes. However, the Athens region has been increasingly deteriorated by the marked intensification of economic activity and road infrastructure (followed by traffic growth and increase in air pollution) and by the expanding tourist pressures on the most sensitive coastlines. In Spain environmental problem have been connected above all with the deforestation of coasts due to the great expansion of tourist business. Secondly, the modernisation of agriculture has resulted in the over-exploitation of water resources, in the increased use of chemicals with their consequences in terms of aquifer pollution. Desertification has also increased following membership. In Portugal, on one hand the drop of producer prices and the following reduction in farming activities were beneficial for the environment for the decreased pressure on lands. On the other hand, however, increasing urbanisation took place accompanied by the growing problem of waste management and pollution. Industrial specialisation in the country based on an intensive use of natural resources poses serious pollution issues for watercourses and the risk of over utilization of resources (forests, non-metal minerals, paper and textiles). Membership certainly fostered the technological upgrading of the three countries and their compliance with EU standards. This progress has been very clear in Portugal and Spain, but much slower in Greece. The same trend has been observed with regard to the harmonisation of environmental standards. Portugal often turns out to be the first country to adopt European Environmental standards but it is not always able to enforce them. On the other hand convergence by Spain and Greece is behind schedule. From these experiences, it can be deduced, taking into account only environmental implications, that regional free trade agreements are almost always accompanied by: i) the creation of regional disparities that can have repercussions on the environment; ii) highly specific economic and environmental impacts according to the countries.


The major implication for the Euro-MED partnership is the necessary greater integration of environmental and social concerns in the current negotiations58. A second step in the study is represented by the creation of a conceptual framework made up of three dimensions, the economic dimension, the environmental dimension and the social dimension which interact, each with the others. The basic idea of the model is that free trade impacts (either positive or negative) on the environment, the society, and finally on the welfare are channelled through the economic system. The economic dimension is represented by a simplified model which includes two main levels: production and consumption. The impact of free trade on the economic system, and therefore on environment, can be analysed through its effects on macro-economic variables, on production and on consumption. Macroeconomic variables with environment repercussions are mainly the following: trade balance, as a result of changes in imports and exports; government budget (as a result of the elimination of custom duties and environmental taxation); the composition of imports and exports; comparative advantages, by determining the level of specialisation in a country’s production and trade. At production level, the possible effects of free trade may be summarised in four categories: scale effects (trade liberalisation generates increased economic activity, resulting in an increase in production and consumption as well as in the total demand for input, transport services and energy, all of which affect the environment), composition effects (trade liberalisation generates a change in the relative prices for imported and exported goods and services, therefore influencing the product specialisation of countries, and consequently the level and type of environmental impacts), technical effects (improved and cleaner technologies could be imported at lower prices; country’s companies could be more competitive in the international markets; change in the relative prices of production inputs); location effects (the relocation of production activities at national and international level in search of the areas with the highest comparative advantages). The scale, composition and technical effects will have repercussion on the environment, without however any possibility of anticipating whether those impacts will be positive or negative. Ex ante, it is only possible reasoning by scenarios. Trade liberalisation influences the consumption of goods and services through Direct effects (volume and composition of goods and services consumption) and Indirect effects (changes in the composition of goods produced). Generally speaking, an increase in consumption will result in a greater production of waste and pollution, while the change in the consumption of goods could o either way. The effects of free trade on the environment are analysed in relation to the goods and services that the environment system makes available to the economic system: supply of natural resources and raw materials; assimilation of waste and pollution produced by socio-economic activities at production, marketing and consumption levels; provision of natural direct amenities. The social dimension makes up the third component of the principle of sustainable development and is both the cause and the effect of economic development and of the level of environmental deterioration. Three social variables are identified as especially affected by free trade through either the economic and or the environmental systems: income distribution, employment levels and regional disparities. However, the analysis of this dimension was not the main goal of the studies carried out. 58 The report also analyses the case of Mexico and NAFTA, deriving the same policy implications for the Euro-MED area.


A series of case studies have been carried out under the direction of Blue Plan with the aim of shedding light, through retrospective, comparative and prospective research on economic, environmental, social and territorial impacts of trade liberalisation policies. Studies have focused on the possible environmental and social effects of free trade in the following spheres: agriculture, agrifood industry, textile industry, consumption patterns and consideration of environmental concerns in the agreements between the EU and MEDA countries. In total 17 studies have been carried out, 5 of which were at regional and international level and 12 at national level. The MEDA countries involved are: Morocco, Tunisia, Egypt, Israel, Palestinian Authority, Lebanon, Syria and Turkey. Variables and indicators considered in these studies are: Economic. Trade Balance: changes in import and exports, balance of payments; Government Budget: income from custom duties, production and input consumption subsidies; Trade: flows, specialisation, competitive advantages. Production: GDP, scale effects, composition effects (input, output), relocation, Foreign Direct Investment (FDI). Consumption: food, vehicles, packaging. Social Income Distribution: income levels and changes; Regional Disparities: qualitative comments only; Employment: unemployment rate Environmental Pollutant Emissions: in the atmosphere and in water. Energy consumption: quantity. Water Consumption: volume. Biodiversity: qualitative comments only At the regional level, even though no precise data nor information is available, the majority of experts who have analysed the relationship between macro-economic variables and the environment and especially the reduction of government revenues (due to the progressive elimination of import duties, direct consequence of trade liberalisation) warn against the potential negative repercussions on environmental spending in the MED (waste water treatment, enforcing compliance with standards, etc.). Intervention options to prevent and/or reduce the harmful impact of free trade in this context can be summarised by two measures: a) offsetting the reduction in public income by the set-up of a new tax system could, for example, include environmental taxes; obviously this solution would have a greater chance of success if free trade results in economic growth. Economic growth resulting from the association agreements is generally attributed to FDI increase. In the case of the MED, FDI remain fairly weak and very unevenly spread. b) accompanying free trade with environmental policy measures able to correct market failures and especially to incorporate the environmental costs and benefits in investment projects. It is predictable that the opening of MED markets and the dismantling of the preferential conditions made between the EU and certain MED (for example, multifibre agreement) will increase the competition and will result in changes in the composition of production which will adapt to the new market conditions. Indeed, the increase in competition will force MEDA countries to increase productivity and to differentiate products in relation to those from competing countries. Policy implications (Plan Bleu 2003) The political will to pursue a sustainable development in the MED which emerges from the principles of Barcelona declaration must find actual expression in the negotiation of the bilateral association agreements and in the common economic and financial, regulatory and institutional measures aimed at routing the MED development towards the stated goal. However, the institutional measures set up


until now to care of environment do not however appear adequate and consistent with the original principles. In 2003, PlanBleu 59 stressed the extreme relevance of the environment for the region economic development. Indeed, essential sectors of the economy, here more than elsewhere, depend on the using of natural resources and on the quality of the way of life. This is the case for tourism, agriculture, fishing, for the sectors that depend on the preservation of the quality of the coast (water, landscape), of water, of the land, of the stock of fish or fossil energy. However, the natural heritage is not always taken care of and it is used without moderation. Moreover the region is characterised by great disparities. The wealth and the populations of a country are concentrated more and more in limited areas such as in coastal areas or towns. This accentuates the pressures on the natural resources (artificial coasts, loss of agricultural land and of valuable natural habitats, pollution and degradation of ecosystems and coastal landscapes) and the difficulty to manage them. On the other hand, the rural areas, with a reduction in population and economy, face other types of problems related to sustainable development (poverty, difficulty of access to basic services, desertification, environmental degradation, forest fires, degradation of agrarian landscapes, and so on) but which have the same cause: the polarisation of development in specific areas. To the phenomenon of concentration on the coasts can be added that of urban development which has been very rapid in the Mediterranean. During the last thirty years about 84% of the population growth has been in cities: the urban population went up from 153 million to 273 million between 1970 and 2000. Macroeconomic Stability and Perspectives of growth (European Commission 2004) In 2003 the region’s60 growth rate increased to 3.5%, showing a clear increase respect to 2002 when GDP growth did not go further than 1.6%. Country differences have been wide in the year: Maghreb countries have accelerated by 6% in 2003 while the increase in economic activity in the Mashreq countries was more moderate, 2.8% in 2003. The regional inflation rate is expected to have decreased to 2.2% in 2003 mainly as a consequence of lower pressures in Israel (0.7% compared to 5.7% in the previous year). On the contrary, the fiscal deficit is expected to have widened further to close to 6% of GDP in 2003, after that, already in 2002, a number of MEDA countries faced difficulties in meeting their fiscal targets. The management of exchange rate regime has continued to play a vital part in the monetary policy framework of MEDA countries despite a general trend towards higher flexibility. As of December 2003 exchange rate regimes could be classified into three categories: soft pegs (Jordan, Morocco and Syria), exchange rate bands (Israel), managed floating exchange rates (Algeria, Tunisia, Egypt). Trade balance has worsened in the region from -2.9% of GDP in 2001 to -4% of GDP in 2002. Nevertheless, thanks to significant private remittances, positive balances of services and official transfers, the current account balances have continued to show a brighter picture compared to trade balance. The regional current account balance has deteriorated more modestly to 0.8% of GDP, compared to a surplus of 0.9% of GDP in 2001. Some progress in selected areas of structural reform could be noted in the Mediterranean region in the period 2002-2003. With regard to trade liberalization, particular progress could be observed in Morocco and Tunisia, while Lebanon advanced on negotiating the terms of its accession to the WTO, 59 Plan Bleu “Report on Environment and development in the Mediterranean” (sept. 2003) 60 European Commission ”Economic Review of EU Mediterranean Partners” (2004). Cyprus, Malta and Turkey are not considered by the European Commission in this Report.


expected to be concluded in 2004. The privatisation process yielded mixed results, however with a number of successful operations in particular in Jordan, Morocco and, more recently, in Israel. Some important reforms have been introduced also in the fiscal areas (VAT in Lebanon, public administration reform in Jordan) and in the labour market (changes for the better in Egypt and in Morocco through the adoption of a “United Labour Law” and the “Labour Code”). However, governance reform indicators reveal that the reform agenda in this area after progressing in the second half of the 1990’s has worsened since 2000. the aggregate reform index fell from around 0 in 2000 to -0.3 (on a scale ranging from -2.5 to +2.5) in 2002, as the worsening security situation, the slowdown in economic growth and various domestic factors reduced governments willingness to reform. 4. Modelling studies for Mediterranean trade Country CGE Models and their Application in Analysing the Consequences of Trade Liberalisation Egypt 1. Dessus Sebastian, Suwa-Eisenmann Akiko (1998), “Trade Integration with Europe, Export

Diversification and Economic Growth In Egypt”, OECD Development Centre Working Paper No. 135, June 1998. The authors find that a small welfare gain for Egypt of 0,49 percent of GDP rises to a gain of 5,24 percent of GDP with the incorporation of changes in productivity.

2. Hoekman Bernard, Denise Eby Konan (1998), “Deep Integration, Nondiscrimination, and Euro-

Mediterranean Free Trade”, presented at the conference “Regionalism in Europe: Geometries and Strategies After 2000”, Bonn November 6-8, 1998. The authors find that the loss in tariff revenues that will be incurred from the EMFTA outweighs any trade creation that will result. Large welfare gains are conditional upon the elimination of regulatory barriers and red tape. Tariff reduction alone would yield a small welfare loss for Egypt (0,14 percent) but if accompanied by an extension of the liberalisation process to agriculture and services, as well as changes in markets access and improved harmonisation of standards, the welfare gains rise to between 13,5 percent and 20,6 percent of GDP. If deep integration efforts are pursued for improving the business environment, the welfare gains may be substantial. Service liberalization substantially increases Egypt’s export position especially with the Middle East - North Africa region where export quantities triple. They also suggest that the additional impact of services liberalization may be significant.

3. Konan, Denise Eby and Keith E. Maskus, 1997, “A Computable General Equilibrium Analysis of

Egyptian Trade Liberalization Scenarios,” in Ahmad Galal and Bernard Hoekman (Eds), Regional Partners, Global Markets: Limits and Possibilities of the Euro-Mediterranean Agreements, London, Centre for Economic Policy Research in Europe (CEPR) and ECES, p. 156-177. The authors find that non-discriminatory tariff reform and reduction of administrative costs would provide significant welfare gains for the Egyptian economy. Simulation results show a rise of welfare of 1,78 – 1,93 percent of GDP and an appreciation of the exchange rate of from 6,34-6,86 percent. Considering the FTA with the EU, the greater access in the EU provides higher prices for Egyptian products. This will result in a reduction of the welfare gain (1,76-1,48 percent) and an increase of consumption tax (or corporate tax) to replace the tariff revenues. With consumption tax replacement, the PTA with the EU is simulated to reduce production labour real wages and real capital prices, while rising non-production labour wages. Instead, capital tax replacing tariff revenues would raise wages on both labour types considerably, while reducing returns to capital. A second source of potential welfare loss is the trade diversion effects because in the trade structure the EU accounts for less than 50 percent of Egyptian merchandise import and export. The authors suggest that Egypt would procure a sizeable gain in efficiency and welfare from simply reducing its administrative NTBs on imports and exports without an association agreement with the EU.


4. Maskus, Keith E. and Denise Eby Konan (1997a), “Trade Liberalization in Egypt,” Review of Development Economics, 1, p. 275-93.

5. Konan, Denise Eby and Keith E. Maskus (1997b), “Joint Trade Liberalization And Tax Reform In

A Small Open Economy: The Case Of Egypt”, Centre For International Economic Studies, University Of Adelaide. October 1997. The authors present a model suitable for analysing the impacts of reforms in the tax system, the trade-policy regime, or both taken together. They compute the welfare gains from various policy changes, along with impacts on the real exchange rate and on real factor prices, allowing tax rates to vary endogenously to satisfy a fixed real revenue target for the Egyptian government. Scenarios include removal or unification of the consumption and capital tax; tariff unification; a free-trade agreement with the European Union, and unilateral tariff elimination. Welfare effects depend critically on the reform undertaken and the type of replacement tax. The capital tax is highly distortionary, so that any policy change that would result in higher capital taxes significantly limits welfare gains or actually makes the economy worse off. The consumption tax is less distortionary, its use for revenue replacement provides the largest gains in most scenarios. While both policies are important, neither trade-policy reform nor tax reform dominates. As far as the FTA with the EU, the results show positive welfare gains, ranging between 0,29-0,32 percent of GDP, smaller than full trade liberalisation because the FTA results in some trade diversion and because it generates smaller increases in tariff revenue. The FTA tends to raise all factor prices.

Jordan 1. Hosoe N. (2001), “A General equilibrium analysis of Jordan’s trade liberalization”, Journal of

Policy Modelling, 23, p. 595-600. The author simulates the impacts of two trade policy scenarios for Jordan, the Uruguay Round implementation and the establishment of a free trade area with the EU, by using a model based on Devarajan et al. (1990). Simulation of the Uruguay Round shows that its implementation would lead to trade creation in imports and exports and would increase Jordan’s welfare by 0,28 percent. The EU-Jordan FTA scenario would further increase Jordan’s welfare by 0,16 percent, would increase the two-way trade between the EU and Jordan, but it would determine trade diversion favourable for EU imports.

2. Lucke Bernd, (2001), “Fiscal Impact of Trade Liberalization: The Case of Jordan”, FEMISE

Research Programme Final Report. The author focuses on fiscal effects of the EU-Jordanian Association Agreement, and discusses fiscal responses aiming at overcoming the loss in government revenue, such as simplifying and harmonising tax rates, and broadening the tax base.

3. Feraboli Omar, Beatriz Gaitan and Bernd Lucke (2003), “Trade Liberalisation and the Euro-Med

Partnership: A Dynamic Model for Jordan”, University of Hamburg, Institute for Growth und Fluctuation, October 2003. The authors compare two scenarios: full liberalisation and the preferential trade agreement with the EU. The main conclusion is that non-discriminatory import tariff reduction raises GDP and labour demand in the long-run more than a PTA with the EU does. Welfare effects of trade liberalisation are positive under all scenarios. FTA with the EU is more welfare-enhancing for Jordan than a process of broad liberalisation, although the differences between welfare increases under full liberalisation and under the FTA with the EU are extremely small. The fiscal measures adopted by the government in counteracting the fall in revenue after cutting import duties determine whether the broad liberalisation process is more welfare-enhancing for Jordan than the FTA with the EU.

4. Feraboli Omar (2003), “A Dynamic Analysis of Jordan’s Trade Liberalisation”, paper presented at

the 6th Annual Conference on Global Economic Analysis, June 12-14 2003, Scheveningen, The Hague, The Netherlands. The impact of discriminatory trade openness is assessed together with accompanying fiscal actions, such as the increase in the rates of the personal income tax and the harmonisation of the GST rate on domestic goods and imports. The results simulating a PTA with the EU are compared with the effects of non-discriminatory trade liberalisation.


Morocco 1. Cogneau D. and G. Tapinos (1995), “Libre Echange, Répartition du Revenu et Migrations au

Maroc”, Revue d’Economie de Développement, 1/1995.The authors focus on the issue of trade liberalization as an alternative to international migration between Morocco and Europe. They used a multisectoral dynamic CGE model of the Moroccan economy to assess the likely consequences of free trade on incomes and employment and also on the distribution among sectors and social categories. The main results show that the increase of indirect taxes and the devaluation of domestic currency accompanying the diminishing import duties from liberalization tend to reduce positive effects of better factor allocation. A free trade policy would only have a limited impact on national income, total employment and poverty. The authors suggest that agricultural and manufacturing exports must be boosted to get more significant impacts from free trade with the EU.

2. Rutstrom, E., Rutherford, T., and Tarr, D., (1997), “Morocco’s Free Trade Agreement with the

European Community”, Economic Modelling, Vol. 14, No. 9, p- 237-269, April. The authors find that the EU-Morocco free trade area (FTA) will increase Moroccan welfare by about 1,5 percent of its GDP, showing that trade diversion is not dominant. The gains increase to about 2,5 percent of GDP if Morocco adds trade liberalization with the rest of the world while adjustment costs are only slightly higher, partly reflecting the absence of trade diversion with global liberalization. Both production and employment grows in sectors like citrus, vegetables and phosphates because of better access to the European market. Conversely, employment in sectors such as cereals, meet, dairy products and sugar may shrink because of lower import prices from the EU.

3. Elbehri Aziz and Thomas Hertel (1999), “Economic integration, market structure and growth

dynamics: Implications for Morocco’s Free Trade Agreement with the European Union”, paper presented at the Second Annual Conference on Global Economic Analysis June 20-22, 1999, Denmark. The authors provide simulations results of the Moroccan PTA with the EU on all manufacturing imports under alternative assumptions on commodities and labour market structures, while maintaining fixed the existing protection with respect to the rest of the world. The PTA will results in GDP increase by 2 percent and a net welfare gain of 200 million USD.

4. Elbehri A. and T. Hertel (2003), “Economic Integration and Market Structure: Analysis of the EU-

Morocco FTA vs. Multilateral Liberalization”, Global Trade Analysis Project (GTAP), Purdue University. The authors evaluate the impacts of the Morocco-EU FTA on the macroeconomic and sectoral components. Their results show that the FTA may have adverse effects on the Moroccan economy due, among others, to deteriorating terms of trade and reduction of output in most profitable sectors. In contrast, simulations of the WTO Multilateral Liberalization displays more beneficial effects that led authors to positive conclusions regarding the advantages of trade liberalization under the provisions of the Doha Development Round.

5. El Mekki Akka Ait and Wallace E. Tyner (2003), “The Moroccan-American FTA. Effects on the

Agricultural and Food Sectors in Morocco”. The major conclusion is that Morocco gains much more from multilateral trade liberalization than from the FTA. Under multilateral liberalisation, Moroccan GDP increases 4,2 percent, and welfare increases by $2.7 billion. Trough the FTA with the USA, Morocco neither gains nor loses in aggregate from the agreement. There is a very small increase in real GDP (0,2 percent), and a very small decrease in welfare (-$36 million); indirectly, the EU too is benefiting from the new FTA, with an increase in welfare ($27 million). In the agricultural sector, the largest production impact is on red meat followed by wheat. These results are in accordance with prior expectations since both products are highly protected in Morocco at present. However, the changes are not huge with red meat falling 22 percent and wheat 8 percent. In terms of imports from the US, the largest changes are in wheat and red meat with wheat imports increasing $249 million and red meat $224 million. These changes account for over half the increase in US imports. Of course part of these increases are due to trade diverted from the EU and


ROW and not net additional imports. For Moroccan exports, the picture is different. The largest change is in wearing apparel, which also is in accordance with expectations. However, exports increase more to the EU than they do to the US, including wearing apparel. In fact, exports increase for all products to all three regions. This change is largely due to the reduced prices of export goods.

Tunisia 1. Rutherford, Thomas F., Elisabeth E. Rutstrom and David Tarr (1995), “The Free Trade Agreement

Between Tunisia and the European Union”, World Bank, Washington (DC), Unpublished Report. The authors show that the welfare gains arising from a reduction in tariffs only are low (1 percent of GDP) but could rise to 2.4 percent of GDP with multilateral trade liberalisation.

2. Decaluwé B. and M. Souissi (1996), «L'accord de libre échange entre la Tunisie et l'Union

Européenne: le cas du secteur agricole», étude non publiée faite pour le ministère de la coopération internationale et l'investissement extérieur de la Tunisie, Tunis.

3. Brown, Drusilla K., Alan V. Deardorff and Robert M. Stern (1997), “Some Economic Effects of the

Free Trade Agreement Between Tunisia and the European Union”, in Galal, Ahmed and Bernard Hoekman Eds., Regional Partners in Global Markets: Limits and Possibilities of the Euro-Med Agreements, London: Centre for Economic Policy Research in Europe (CEPR) and ECES, p. 71-97. With a model with imperfect competition, the authors show that the welfare gains range from between –0,2 percent to 3,3 percent of GDP depending on what is assumed about intersectoral capital mobility in Tunisia. According to the authors, the results suggest that Tunisia may not have much to gain economically from the FTA. Reducing its trade barriers multilaterally and reinforcing these actions with further liberalization of its foreign investment policies and maintenance of macroeconomic and political stability might in the end be the best path for Tunisia to follow.

4. Chatti, Rim (1999), FTA Agreement Between Tunisia and the EU: How Do IRTS and Monopolistic

Competition Matter, Paper Presented at the Conference: The Dynamics of New Regionalism in MENA: Integration, Euro-Med Partnership Agreements and After, Cairo, Egypt 6-7 February 1999.

5. Chemingui M.A and S. Dessus (1999), “La libération de l’agriculture tunisienne et l’Union

Européenne: une vue prospective”, OECD Development Centre Technical Paper No 144, Paris. The outcome is that in the absence of reciprocal concessions from the European Union, possibly in the form of a lifting of tariff quotas, Tunisia would have little incentive to reduce either its assistance to the agricultural sector or its protective barriers against outside pressure. Tunisian agriculture would in this case continue to show lacklustre performance, but the welfare of rural households would be more or less preserved. Conversely, increased access to the European market for export products for which Tunisia has a competitive edge would greatly facilitate the transition and help improve resource reallocation. Some of the gains made could then be redistributed to rural communities in order to offset marginal losses. By granting the same trade privileges to its other partners, Tunisia would however maximize its growth potential and reduce still further its losses in the agricultural sector. The European Union would lose in terms of outlets for its exports but would gain overall in terms of the economic development of Tunisia.

6. Chatti Rim (2000), “General Equilibrium Assessment Of Trade Liberalization Effects Under

Cournot Oligopoly Market Structures: The Case Of Tunisia”, ERF, Working Paper 2009. The author finds that trade liberalization induces welfare gains equal to 1 percent of 1990 GDP in the case of constant returns to scale and perfect competition and 0,9 percent in the case of increasing returns to scale, oligopolistic market structures and barriers to entry and exit Given the low share of fixed costs in total costs in the reference year, trade liberalization does not offer a strong opportunity to realize economies of scale. When the model allows firms to enter and exit, trade liberalization entails welfare losses equal to 0,4 percent of 1990 GDP. This is because fixed costs


are low and do not represent a barrier for firms attracted by the opportunity to realize positive profits New entrants prevent incumbent firms from reducing unit costs. Output per firm decreases on average by 10,9 percent and the number of firms expands on average by 27,9 percent

7. Chemingui Mohamed Albelbasset (2000), “European Mediterranean Partnership and Foreign

Direct Investments: A Dynamic CGE Model with Endogenous Growth Applied for Tunisia”, presented at the workshop on Foreign Direct Investment in the Arab World, March 2000, Kuwait. The author finds that the PTA will help in encouraging investment and improving the allocation of resources. The empirical analysis show that investment potential created as well as the growth of FDI inflows in Tunisia are conditioned by the existence of important capital productivity. Indeed Tunisia couldn’t expect important welfare gains if there is an absence of important sources of capital productivity.

8. Konan, Denise Eby and Keith E. Maskus, 2001, Quantifying the Impact of Services Liberalization

in a developing Country, September 2001. This paper considers how service liberalization differs from that of goods liberalization using an applied general equilibrium model of Tunisia’s economy. The authors find that goods trade liberalization reorients production towards manufacturing (especially in textile and electronics) in line with Tunisia’s benchmark comparative advantage. In contrast, the overall composition of production with broad service liberalization, including FDI measures, remains fairly stable, with only slight increases in agriculture and service provision and a small decrease in manufacturing. The wage bill increases by over three percent, so workers are indeed better off. This distribution of gains seems to be more egalitarian than those under the Tunisia –EU agreement, where gains are almost exclusively concentrated in the hands of workers. Fewer workers are required to change positions to accommodate service liberalization (3 percent relative to 6.6 percent under the Tunisia-EU agreement), implying less impact on frictional unemployment.

9. Chatti, Rim (2003), “An AGE Assessment of FTA Between Tunisia and the EU Under oligopolistic

market structures”, Review of Middle East Economics and Finance, Volume 1, Number 2, August 2003, p. 99-127. The author provides simulations results of the Tunisian preferential removal of tariff protection on all imports from EU under alternative assumptions on commodities and labour market structures, while maintaining fixed the existing protection with respect to the rest of the world. The author considers the following variables: import prices for 15 sectors; import quantities; Welfare change as measured by the equivalent variation as a percentage of 1990 GDP; Labour relocation as calculated as half the sum of the absolute value of the sectoral employment changes and expressed as the percentage of total workers that must relocate; Change of trade volume. As expected, trade creation is greater than trade diversion, since Europe is the most important trading partner of Tunisia. The author find that preferential trade liberalization in favour of EU increases Tunisian welfare by 0,8 percent of 1990 GDP, with CRTS and perfect competition. With oligopolistic market structures, the gains are smaller and equal to 0,7 percent with barriers to entry and exit and 0,6 percent with free entry and exit. First, liberalization reduces but does not eliminate firms’ market power, second there is little scope for realizing economies of scale, since the sectoral shares of fixed costs to total costs are low in the reference year.

10. Haykel Hadj Salem (2003) “Impacts of the Euro-Tunisian agreements of free exchange: evaluation

by a Computable General Equilibrium Model in 1996”, G.A.I.N.S., Law and Economics Faculty of Le Mans. The author compares the effects of the free total exchange and the effects of the free industrial exchange between Tunisia and the EU in the Tunisian economy. This problem was estimated trough a Computable General Equilibrium Model (CGEM). The first scenario concerns total commercial liberalization (for all the products (agricultural and industrial) and all services (traders and non-traders) and for all the partners), while the second scenario consists in a partial commercial liberalization (only for manufactured goods, for all the partners). In the light of the comparison of the simulations, the author suggests that a progressive commercial liberalization applied during a reasonable period remains an effective economic reform for Tunisia.


Turkey 1. Harrison, G., Rutherford, T. and Tarr, D. (1996), “The Economic Implications for Turkey of a

Customs Union with the European Union”, Policy Research Working Paper, The World Bank, 1599. The authors use a static CGE model to estimate the effects of the customs union. They find that the welfare gain for Turkey ranges from 0,15 percent of GDP with a reduction in tariffs, to between 1-1,5 percent of GDP when allowing for improved access to EU markets, exchange rate changes and harmonisation of standards. The strong gains for Turkey depend on its improved access to third country markets, accompanied by a fiscal worsening of the government’s position, if no replacement mechanism is adopted for the lost tariff revenues.

2. Mercenier, J., Yeldan, E., (1997), “ON turkey’s Trade Policy. Is a Customs Union with Europe

Enough?”, European Economic Review, Vol. 41, p. 871-880. The authors focus on the manufacturing industries in the Custom Union. They use an inter-temporal CGE model with imperfect competition and find a welfare gain of just less than 1 percent of GDP for the Turkish economy of forming a customs union with the EU. The authors also show that the customs union can only be welfare improving, if trade reform is pursued further and non-tariff barriers on European trade are removed.

3. Acar, M., (1999), “The Role of Agriculture in the EU-Turkey Customs Union”, paper presented at

the Middle East Technical University Conference, Ankara. The author uses an extended version of the standard GTAP model to estimate the role of agriculture in the customs union and finds that Turkey stands to benefit in terms of welfare from the integration of agriculture in the arrangement.

4. De Santis, R., (2000), “The Impact of a Customs Union with the EU on Turkey’s Welfare,

Employment and Income Distribution: An AGE Model with Alternative Labour Market Structures”, Journal of Economic integration, June, 15(2). The author employs a CGE model to explore the possible distribution effects of the customs union and finds that the overall impact on income inequality is generally small and relatively ambiguous.

5. Zahariadis Yiannis (2002), “Deep Integration in the EU-Turkey Customs Union: A Preliminary

Analysis based on the GTAP model”, Paper presented at the DESG Annual Conference in Development Economics, University of Nottingham, 18-20April 2002. The author modifies the standard model by introducing a number of new variables representing technical and standards regulatory barriers and deep integration. He finds that Turkey appears to gain from all tariff and deep integration related liberalizations with the EU. Measured as a change in equivalent variation the total welfare gain appears to be stronger under the simple customs union –around $625m- and weakest following the abolition of border costs-around $19m. Further regulatory liberalization through the adoption of EU standards and the possible abolition of certification barriers tends to enhance these gains by $231m and $415m respectively. As a percent of net factor income, welfare changes from tariff related liberalizations add up to around 0,58 percent in total –with 0,36 percent coming from the simple customs union and 0,22 percent coming from the completion of tariff obligations by 2001. Gains from deep integration related liberalizations are also non-negligible amounting around 0,38 percent in total. The overall gain for Turkey would be around 0,96 percent of net factor income. The trade balance deteriorates in most scenarios. Deep integration scenarios have much smaller contributions to the trade deficit, while a clear exception is the standardization scenario, which leads to a surplus boosting Turkish exports. The effects of the customs union on regional welfare are quite mixed. The Middle East tends to gain only from the Simple CU, while the North Africa gains only from the FTA in 2001. The MENA also appears to loose under the harmonization of standards scenario.

6. Francois Joseph (2003), “Accession of Turkey to the EU: Implications for the Transport Sector”,

Tinbergen Institute and CEPR, May 2003. The author provides simulations results of the Turkish preferential removal of tariff protection on the macroeconomic variables under alternative assumptions (full liberalisation, partial liberalisation, no liberalization) as well as the changes of


output by sector. The author considers 20 sectors, including agricultural products. The macroeconomic and sectoral effects of the CU are distinguished among: static effects, dynamic effects and long-run effect of full EU Membership. The author consider the following impact variables: Welfare (% of national income); Welfare (millions of dollars); Terms of Trade (%);Value of Exports (%);Unskilled worker wages (%);Skilled worker wages (%);Capital Stock (%);Value of GDP in dollars (%); Real exchange rate (%);GDP quantity index (%).As expected, welfare effect are positive. The author find that the CU with the EU increases Turkish GDP by 2,81 percent, welfare by 1.31 percent of 1997 GDP and export by 14,06 percent. Large differences emerge at the sectoral level.

7. Conforti Piero, Beatriz E. Velazquez (2004), “The Effects of Alternative Proposals for Agricultural

Export Subsidies in the Current WTO Round”, The Estey Centre Journal of International Law and Trade Policy, Volume 5 Number 1 2004, p.11-42. The authors find that that net importing countries would suffer from more expensive import bills, but benefits may arise for the Mediterranean region in terms of incentives to substitute imports with domestic production. This indirect effect may thus benefit these countries in the long term by lowering their dependence on food imports. In fact, it is interesting to note that cereal production increases in the Mediterranean countries, as an effect of higher market prices. Besides the trade balance will improve. Negative welfare effects are felt in some net food importing areas, such as the Mediterranean, due to both a less appropriate resource allocation and unfavourable terms of trade.

MEDA countries 1. Alessandri Piergiorgio (2000), European and Euro-Mediterranean agreements: some simulation

analysis on the effects on the EU trade Policy, CESPRI-Università L. Bocconi, Milano, WP n. 110. The integration generates on average a welfare gain for both the EU and its partners. The gains are not big, but they are equally distributed between the subscribing countries and between the primary factors owners.

2. Bayar Ali, Xinshen Diao and A. Erinc Yeldan (2000), “An Intertemporal, Multi-region General Equilibrium Model of Agricultural Trade Liberalization in the South Mediterranean NIC’s, Turkey, and the European Union”, Trade and Macroeconomics Division, International Food Policy Research Institute, Washington, TMD Discussion Paper No. 56, May 2000. The model results reveal that the expected positive outcomes from the current CU agreement between the EU and Turkey very much depend on whether the non-tariff barriers could be eliminated and a move towards a more competitive environment be sustained. The simulation results suggest that Turkish gains from bilateral trade liberalizations with the Middle East or expansion of the CU with the inclusion of the Transition Economies may be equally comparable from a pure resource efficiency viewpoint.

3. Bayar Ali (200X), “European Enlargement to the East and its Implications for the MENA Region”,

European Commission, Bruxelles. The author tests two scenarios of the enlargement: (1) All trade barriers between EU and CEECs are removed with the harmonisation of the CEECs’ protection to the EU-15 level; (2) The accession of CEECs is combined with the CAP reform. The author show that the largest increases in world trade volume arises in the cases of livestock products, beverages and tobacco, where the change in protection is greatest in the CEEC region. Trade increases also in clothing apparel, leather and textile sectors. As far as the regions, the largest increase in EU exports volume (0,7 percent) is generated under CAP reform, where there is a corresponding increase of imports owing to the reduction in agricultural protection. The overall impact on the MENA region is quite small, with the exception of Morocco. At sectoral level, the author shows the negative impact in the clothing and textile production in the MENA region. Apparel production declined by 4,9 percent in Turkey, 6,5 percent in Morocco and 3,9 percent in the rest of North Africa, while with the CAP reform the crops and livestock production strongly increase in the Middle East and North Africa. Welfare effects for the MENA region are negative (a total loss of 254 m$).


4. Augier Patricia and Michael Gasiorek (2001), “The welfare implications of trade liberalisation between the Southern Mediterranean and the EU”, School of European Studies, University of Sussex, November 2001. The authors find that all countries except for Jordan-Syria and Turkey gain from the reductions in tariffs. The gains are most pronounced for Tunisia (17.99%) and Morocco (13.18%) followed by Egypt (6.34%). A large proportion of the welfare gain derives from trade creation, and from the trade cost saving. As far as the terms of trade, for most of the economies there is a decline in the export terms of trade. This is a combination of several effects – declines in factor prices arising from the decline in production, reductions in average costs, and reductions in price-cost mark-ups. With regard to the import terms of trade import prices increase leading to a small welfare loss. This is the result of EU firms increasing their market share in the southern Mediterranean economies, giving them more market power than heretofore. For both the EU and the EuMed, there is a welfare gain, which largely derives from the expansion of manufacturing as given by the positive variety effect. Egypt, Morocco, Tunisia and Turkey all see a substantial proportion of the welfare gain arising from Food, Beverages and Tobacco (FBT), and to a slightly lesser extent in Textiles (Tex). These are also the industries experiencing large declines in production arising from cheaper imports.

5. Avisse Richard, Michel Fouquin (2001), Textile and Clothing Trade: comparing multilateral

agreement to regional FTAs, Paper prepared for the CEPII-IDB conference “Impacts of trade liberalisation agreements on Latin America and The Caribbean”, November 5-6, 2001, Washington. Preferential trade agreements have been put in place in the sixties between EU and Mediterranean countries and since 1989 between EU and the central European countries. In the case of textile and clothing industry it took the form of an allocation of quotas under Passive Processing Trade. The quotas system was designed as to control for the development of intra-European trade which, some people feared, could have been disruptive at the beginning of the process as East European prices were not market prices. Such PPT quotas, which were attributed to products made from European textiles, have favoured countries neighbouring the Union, as European importers were encouraged to work with nearby producers, which also has the advantage to reduce delivery schedules, and transport costs. The dismantling of the Multi-Fibre Arrangement by year 2005 and China’s forthcoming membership of WTO will alter profoundly international competition in textiles and clothing. Multilateral agreements reduce or even eliminate the basis for regional agreement. The authors test two scenarios of trade liberalisation: (1) Quotas suppression except for China, (2) Quotas suppression with China included. Than they analyse the potential for a pan-Euro-Mediterranean strategy. With full liberalisation in T&C, exports from Mediterranean countries have big gains both in textile (40 percent) and in Clothing (120 percent. Accordingly, the authors find that regional agreement have a positive effect on Mediterranean countries, but as they have small effects on global trade creation and therefore on global welfare, the dominant effect is trade diversion. The question is whether and how the CGE could correctly capture the trade liberalisation effect on trade creation.

6. Vaittinen Risto (2001), “Agricultural trade liberalisation in the millennium round - global effects

and specific implications for the EU”, Government Institute for Economic Research, paper presented at the 77th EAAE Seminar / NJF Seminar No. 325, August 17-18, 2001, Helsinki. The author simulates the effects of 36 percent cut in export subsidies and similar cuts at the level of effective boarder tariffs. The global effects of the EU agricultural trade liberalisation are rather modest. The estimates in term of GDP effects for Mediterranean countries are hardly noticeable (only 0,1 percent) while terms of trade deteriorate in the region. This deterioration improves the resource allocation with positive effects on export and import (1,9 and 1,6 percent respectively). Welfare measured by private consumption changes proportionally to the GDP at fixed prices. This is because liberalization of trade takes place in commodities where the MED region doesn’t have comparative advantage in production. A closer look at commodity specific results indicates that output in MED decline in most of sectors, with the exception of other crop products, natural resources, other meat products, dairy products and sugar products.


7. Augier Patricia and Michael Gasiorek (2002), “The EU and the Southern Mediterranean: The Impact of Rules of Origin”, EcoMod 2002, paper presented at the Conference, Policy Modelling, Brussels, July 4-6, 2002. The authors simulate the impact of the Association Agreements between the EU and Morocco, and Tunisia. The simulations report on the results with (without) Pan-European cumulation. The tariff reductions considered here are based on a 50% reduction in those tariffs, and hence should be seen as representing a point along the transition phase of a free trade area. A 50% reduction in tariffs by Morocco and Tunisia represents a substantial change given the high initial level of these tariffs. The results indicate that manufacturing production rises for Morocco (2,43 percent) and Tunisia (16,31 percent). The low growth in Morocco underlies the negative changes in some sectors (metals, machinery, electrical machinery) compensated by the positive growth in chemicals and textiles. For Tunisia the changes in production are more evenly distributed across sectors. With cumulation of Rules of Origin, the results indicate higher changes in manufacturing production for Morocco (10,70 percent) and Tunisia (37,18 percent).

8. Bayar Ali, Ghazi Ben-Ahmed And Raed Safadi (2003), “WTO Negotiations And The MENA

Region: A Preliminary Appraisal”, Department of Applied Economics, Free University of Brussels. The authors simulate the potential economic impacts of a new round of trade liberalization on the MENA region using an aggregated version of the MenaMod model. MENA would gain from multilateral trade liberalization about $ 1-2 billion in the short run and $ 10 billion in the long run. MENA’s share in total welfare would be 2-3 percent in the short-run and 5-6 percent in the long run. The gains are bigger if agriculture is included in the liberalization scheme. Real GDP would be higher by 0.3 percent in the short run and by 1.5 percent in the long run. Trade liberalization would also boost investment. In the long run, the capital accumulation would be higher by 1.5 percent annually. The impact on the real wages is also positive for skilled and unskilled workers. On the sectoral production, the authors observe that the largest impact would be on the textile and clothing products. In these sectors output would increase by about 20 percent with respect to the baseline. The effect on the plant fibres is also fairly big and can go up to 16 percent in the case of liberalization in agriculture. In this case many other agricultural products would increase except for oil seeds and raw sugar. Terms of trade effects are negative, which means that the MENA countries will have to export even more to buy the same quantity of imports. Fortunately, exports from MENA to the other regions would be higher by 7-8 percent annually.

9. Francois Joseph, Hans van Meijl and Frank van Tongeren (2003), “Trade Liberalization And

Developing Countries Under The Doha Round”, Centre for Economic Policy Research, London, Discussion Paper No. 4032, August 2003.The authors define three sets of scenarios. The first two are partial liberalization scenarios: a “linear 50%” reduction in agricultural and industrial tariffs and export subsidies, in OECD domestic support for agriculture, and in the tariff equivalent of services barriers. The second partial liberalization experiment is called the “Swiss formula” experiment, meaning the maximum tariff is reduced to 25%. The third scenario simply involves full elimination of all trade barriers. The authors find that the Mediterranean countries that are close to the EU and are usually expected to gain as well from liberalization in the heavily protected EU agricultural markets are not clear winners. The pattern for manufacturing liberalization is more consistent and generally negative, both in the initial static results and over the long-term. Instead, liberalisation in services will add positive welfare gains to the MEDA countries.


5. Case studies and sectoral reviews Options for the Mediterranean: Blue Plan/CIHEAM Symposium on free trade, agriculture and environment in the Euro-Mediterranean context. (Jacquet and Lerin, 2003) In order to look deeper on the possible impacts on agriculture, the Blue Plan and the CIHEAM organized a joint symposium. From the available studies, this forum debated the possible impacts of free trade on agriculture and on sustainable environment of the countries South of the Mediterranean. A Euro-Mediterranean free trade area comprising the 15 countries of the EU and 12 partners from the South and the East of the Mediterranean is gradually set up within the framework of the Euro-Mediterranean partnership (objective: 2010). The agricultural products are currently excluded but willingness to negotiate those is showing up open. The first studies on this topic of the Mediterranean Commission of Sustainable Development show that a Euro-Mediterranean free trade area would have important impacts on the sustainable development for certain sectors and regions in the East and in the South. In order to look deeper on the possible impacts on agriculture, the Blue Plan and the CIHEAM decided to organize a joint forum. From the available studies, this forum debated the possible impacts of free trade on agriculture and on sustainable environment of the Eastern European countries of those of the South of the Mediterranean. Several of the papers from the symposium are summarised below. Roux (2003) argues that the weaknesses of the Mediterranean agricultural sector comes primarily from the natural constraints of the region; added are demographic constraints and the lack of information on the agrarian structures as well as the problems related to rural underdevelopment. This text describes the basic agricultural productions of the region: livestock cereals, productions, fruits and vegetables as well as the dualities of the agrarian structures and territories. This description makes it possible to examine which are the problems related to current liberalization, in particular the probable effects on agriculture and on sustainable development. Scenarios have been proposed that would be desirable in order to mitigate negative effects of free trade on social differentiation, economic and territorial concentration and the degradation of the natural resources. The liberalization of the agricultural sector is much less advanced than that of the industrial sectors, primarily due to the agricultural protectionism of the European Union. This complicates the Euro-Mediterranean discussions related to agricultural questions and partly explains the little of success of the NORTH-SOUTH co-operation in this field. Cistulli (2003) examines constraints and opportunities in relation to free trade and the environment in the Mediterranean. The conference in Doha in 2001 was the opportunity to address negotiations on environmental problems for the first time and to launch a new series of negotiations on the liberalisation of trade in agricultural products. What socio-economic and environmental effects are expected in the southern and eastern Mediterranean (SEM) countries? The effects should in theory be positive but observation of other parts of the world in which the agricultural sectors were liberalised well before the SEM countries does not lead to such clear-cut conclusions, especially when the strictly non-productive functions of the agricultural sector are taken into account. This also shows that these effects depend closely on the initial capital (human, natural, physical and institutional) of countries and their stage of development. With regard to these conditions, the SEM countries form a heterogeneous group, but they all display fragility that justifies the application of public regulation policies capable of ensuring the sustainable development of the agricultural sector. The role of public policies is all the more important during this liberalisation process as the countries are called upon in 2003 to put


forward concrete proposals concerning the procedures to be set up to achieve the objective of the dismantling of all forms of protection. Michelini (2003) presents an assessment on the progress of the EU-Mediterranean association agreements in relation to agricultural trade between the North and the South of the Mediterranean, as well as an analysis of the evolution of liberalization. One might argue on the first point that the entry into force of the agreements of association is slow due to the ratifications procedures. Those were questioned at the last Euro-Mediterranean conference in Valencia. The liberalization of agricultural trade is centred on traditional trade and functions on the basis of preferential and reciprocal access. Algeria is the principal importer of agricultural products from European countries (approximately 30 percent), while Turkey is the principal exporter products towards Europe (47 percent). Concerning the progressive liberalization of agricultural trade, a balance between liberalization and market sensitivity is far from being reached. Mediterranean countries must continue their efforts of competitiveness. Free trade and the environment in the Euro-Mediterranean context: Lessons learned from Spain, Portugal, Greece and Poland (Kuik and Oosterhuis, 2000) The paper analyses the experiences of Greece, Portugal, Spain and Poland in becoming EU members, in relation to sustainable development. It provides lessons from the experiences of these four countries that are relevant to the creation of a free trade area between the EU and the Southern and Eastern Mediterranean Countries. Agricultural impacts of free trade between the EU and Tunisia (Ferjani, 1996) Another approach was the use of a stochastic sector model for Tunisia which aimed to analyse and quantify the forecasted effects on the agricultural sector following a free trade agreement between Tunisia and the European Union. To simulate the effect of the elimination of the commercial rules (quotas, customs rates), we chose a stochastic sector model in order to predict the behaviour of the various economic agents directly related to the sector. The objective function used is to maximize the producer’s and the consumer’s surplus as well as the net income from the external trade. The results of the model lead essentially to a relative increase in imports from the European Union, a relative increase of domestic consumption and in a reduction in cereals production (wheat and barley) and of other products such as milk and meat. Tunisian exports to the European Union would increase with detriment to domestic consumption. In the case of the olive oil, export would increase due to a possibility of reorientation of the foreign trade. Effects of the EMFTA on the Maghreb (Ait 1998) The Euro-Mediterranean free trade area, in which the non EU Mediterranean countries are invited to participate, is essentially an industrial free trade. This article wonders about the advantages that such a "partnership agreement". Can it bring growth and industrialization to southern countries and lead to the European Union wish as to reduce the development between gap between the North and the South? The article shows that under the global conditions which guide such an agreement, their might be doubts that the North African countries could benefit from an increased economic opening in Europe and that the free trade area is essentially an alternative to the current blocking mechanisms of the development process, in particular with regard to the industrial development.


Regional cooperation (Benhayoun 2001) This documents analyses the possible outcomes and economic perspectives of the Mediterranean region. These countries are not only related by proximity but they also interconnected by extensive historic and cultural roots. Hence, the establishment of a free trade zone will be directly linked to the social, political and cultural fabric of the Euro-Mediterranean project. Effects of the EMFTA on the agricultural sector in Morocco (Mourji 1995) This article proposes to analyse and to quantify the effects of a free trade agreement between Morocco and the European Union on the agricultural sector. The simulation is based on input-output tables and the model MOSAPE. The underlying assumptions are the higher export prices, lower import prices and growth of investments in certain sectors. After the discussion of the risks on the fluctuations in agricultural prices following a larger opening of the Moroccan economy, we tried to evaluate the consequences of a free trade agreement between Morocco and the European Union. In the majority of simulations carried out, the economic growth in Morocco benefits from the trade liberalization with Europe. Environmental effects of the EMFTA in the Palestinian Authority (al Hmaidi 2000) The paper considers the environmental aspects of cooperation agreements between the EU and the Palestinian Authority, and proposes mitigation measures. These relate primarily to institutional strengthening. Environmental effects of the EMFTA in Egypt (Sherif et al 2000) The paper examines the impacts of the EU/Egypt trade agreement on natural resources, pollution, the export of depletable resources, transport effects, solid waste load, energy demand and funds available for environmental upgrading. Recommendations are made regarding mitigation measures and the environmental aspects of future negotiations. Trade, employment and investment (Femise 2002, 2003) In the reports of 2002 and 2003, Femise has mainly stressed the importance of the following issues: Creating jobs is an absolute necessity An imperative requirement for MEDA countries is to satisfy the significant job needs on the fifteen coming years. In 2001, the 12 MEDA countries had a population of more than 240 million, or 3.9% of the global population. During the last years, MEDA countries have experienced a significant decrease in total population growth rate. They have started their demographic transition that should stabilise the region population within some twenty years. However, the main characteristic of MED population is still the immense number of young people: within 15 years more than 80 million individuals will need a job (presently, active population amounts to nearly 74 million people). MED are today in the early phase of demographic transition: this implies (according to ILO and UN forecasts) that 34 million new jobs, mostly before 2010, should be created to avoid a deterioration of the present situation. Despite decreasing fertility, female participation in the labour market is very low, even among women with a higher level of education: while the rate of illiterate women dropped by half between 1980 and 2001, the average participation of female workers only rose by 5.2 points. The expected increase in female participation to the labour marked will exert more pressures on the demand for job in the next years.


Migration A direct consequence of unemployment is migration. Nearly all the countries of the northern shore of the Mediterranean Basin become the host countries of millions of immigrants, and the public authorities and the experts debate the consequences of this phenomenon with a growing interest. It is becoming clear that Euro-Mediterranean integration requires the setting into place of a new migration policy, at the European level within the framework of the Partnership. International migration in the Mediterranean has a long history61. Regularly, for many reasons (economic, demographic, wars, violation of minority rights, environmental crises, development of communication, and so on) there have been flows of migrants between the southern and the Northern shore of Mediterranean. At present, in the four EU-MEDA countries (Spain, France, Italy and Greece) the foreigners of Mediterranean origin are between 2 and 10%of the total population (10% in Greece). For the emigrant countries (mainly the Palestinian Territories, Egypt, Turkey, Morocco, Lebanon and Syria) there are two main advantages from migration: first, migration helps to smooth the generation pyramid and, second, it is also an important source of income. But emigration has also the big disadvantage implying the loss of “human capital” that can be prejudicial to the homelands of these countries. Macroeconomic Stabilisation Second requirement for MEDA countries is macroeconomic stabilisation which has been set into place throughout the nineties (after the serious foreign debt crises linked to high budgetary and balance of payments deficits) and which has to be preserved notwithstanding state budgets will become increasingly burdened given the context of a higher demand for jobs, the persistence of pockets of poverty and the growing need for social coverage (especially for old people). Main results obtained thanks to the most rigorous macroeconomic management (except in Turkey and Lebanon) are: relatively low inflation rates since the mid nineties; acceptable budget deficit ratios, with a leap, however, at the end of the period in some countries (Egypt and Morocco); rigorous monetary policies promoted by anchorage mechanism related to the exchange rates, and based on a decreasing recourse to seigniorage in financing the state’s budget. However external account balances strongly depend on the transfer of the migrant workers’ remittances, tourism revenues and public id from the international community. The high volatility of remittances from the immigrants in Europe and tourism is source of extreme weakness of the external position. Furthermore, GDP growth is only slightly higher than active population growth, which is close to 3 per cent. Three main reasons for this slow GDP growth: insufficient capital accumulation, weak allocation of capital and slow technical progress. During the next years, MEDA countries should rethink their taxation system first of all to find resources to replace revenues from custom duties. Taxes on international trade still constitute an important share of the total budget resources of most of the MED: in 2002 it was a marginal share in Israel and Malta (about 1%), it wavered between 10% and 14% in Algeria, Egypt, Jordan, Morocco, Tunisia and Turkey and reached 28% in Lebanon (Source IMF and National Institutes). In the light of the commitments, and the agreements signed, MEDA countries must find a substitute for this still important tool in the formation of state revenues. 61 The same issue has been considered in extensively within PlanBleu (2003)


Another burden for MEDA countries is represented by the high public employment, and as a consequence of the public sector salaries: on average, civil public jobs amount to almost 17% of total employment, while the world average is 11%. Improving the dynamism of growth is crucial According to Femise, the imperative requirement to modify the growth regime entails:

o a greater accumulation of more “productive” capital (FDI decisive input) o a continuous upgrading of the labour force (human capital) by raising training levels

and through an adequate matching of training and jobs; o an increase of Total Factor Productivity/Technical Progress.

The Femise believes that the open door policy and liberalisation strategy adopted is the best since it directly affects the behaviour of the actors. As far as the role of the state is concerned, its action is necessary to create a number of externalities (especially the quality of public goods in such matters as education, research and training) but it is also constrained by and subjected to cyclical fluctuation and therefore cannot be the main engine of these evolutions. Implementation of reforms must be accelerated On the basis of a selection of the governance criteria (source UNDP, Human Development Indicator) in the MEDA countries, the following observations can be made:

o The situation is relatively good and comparable within the countries in matters of “law and public order” – an indicator that measures the impartiality and respect of judiciary systems – except in the case of Algeria.

o This is not the case for the indicators of the “rule of Law” and “efficiency of governments”: the score was mediocre in Algeria, Lebanon and Syria;

o Corrupt practices in the administration and the judiciary system seem to constitute a constraint to business in Algeria, Lebanon, Syria and to a lesser extent, Egypt. Tunisia and Morocco, as well as Jordan, have been spared this phenomenon;

Good governance must not only ensure the existence of property, but also the protection of property rights and the enforcement of the law (World Bank, 2002). Almost all the MEDA countries have introduced provisions for the recognition and protection of property rights in their legislation. However, the Femise points out that it is the application of these laws that seems to pose a problem. Though several reforms have been implemented in the nineties, still the business environment suffers as a result of administrative problems. The sectors of administration pointed out s the more restrictive by the private sector are the tax and the customs administration. For the last, Ghesquiere (1998) suggests that the introduction of a single document of the European Union, within the framework of the Partnership might be beneficial. Competition from the candidate countries (Femise 2003) The EU enlargement in May 200462, with the admission to the EU of 10 new members with 74.5 million inhabitants) might significantly modify the context of the Euro-Mediterranean Partnership which is, until now, based on separate bilateral Partnership Agreements between every Mediterranean Partner Country and the EU. The nature of relations with EU, which 62 The studies used for this issue are: Femise “Economic Transition Process and the implementation of the Euro-Mediterranean Partnership” (September 2001), Femise “The impact of EU enlargement on the Mediterranean Partners” (23/24 April 2003)


represents for MEDA countries as well as for Central and Eastern European Countries (CEECs) the primary market, is significantly weaker for the former. This is because the latter are gaining access to membership in the Community and will realize a “deep” integration with the EU15, and also due to the size of the structural funds allocated to CEECs in comparison with the MEDA funds (545 euros per capita per year for the Candidates vs. 14 euros per capita per year including EIB loans for MEDA countries). This report discusses a number of issues that determine the evaluation of the effects of the enlargement on the EU MED partners. In particular the following questions are addressed: (i) the respective macroeconomic environment of both groups of countries; (ii) the development of certain reform processes; (iii) trends of foreign direct investment and of trade in goods and services; (iv) the movement of people. At the macroeconomic level, both MED and CEECS have largely evolved towards a greater control over their equilibria. However, MED are weaker than CEECs from two points of view: trade imbalances and growth conditions. Trade imbalance is compensated in the MEDA countries by revenues that have become volatile: tourism and the remittances of emigrants in Europe, while in the CEECs this is paid by foreign investment inflows. Growth rates are almost the same in the two areas but the demographic dynamics is completely different. As a result, the growth conditions appear more favourable for the CEECs. When the two areas are compared according to the process of reform, the MED partners are presently at a disadvantage from several points of view. Firstly, constitutional reforms concerning the fundamental aspects of the political system were very modest and did not even take place in many cases. Secondly, although many reforms have been introduced in the market, their enforcement is still lagging. Thirdly, an observation concerning the different spheres must be made: (i) there are still numerous constraint to property rights, (ii) although the texts governing foreign investment are liberal on the whole, thee still are significant sectoral restrictions, (iii) a heavy bureaucracy and discretionary practices subsist in the application of the texts related to foreign investment, (iv) administrative weight is generally the rule, in relation to both customs and investment regulations. It seems however that currently these heavy administrative procedures and difficulties related to law enforcement are not more significant in the MED than in some of the CEECs. Fourthly, privatisation is much less developed in the MED than in the CEECs and is constrained in its impact by some characteristics. In the MED it is characterised by: (i)a low share of the manufacturing industries, (ii) a significant amount of partial or minority privatisation, (iii) the high average value of divestiture, (iv) a low share of foreign investment in the divestiture, (v) the lack of a delivery deadline to check the administrations responsible for the divestiture, (VI) the late preliminary restructuring of the portfolio of public enterprises , for which the role of the ministry in charge of privatisation must be preponderant. (iii) These differences have been described in the first part. (iv) The movement of people will be dealt with in the following of the Report. Opening of agricultural trade (Femise, November 2003) The agricultural issue was never discussed at a jointly level by EU and Mediterranean63. It was included in bilateral negotiations for partnership agreements, with certain reciprocal concessions (in some cases, ad hoc negotiations could have permitted more access to strategic product 63 Femise Report “The impact of agricultural liberalization in the context of the Euro-Mediterranean partnership” (November 2003)


markets – Tunisia, Morocco, Jordan – in other cases, negotiations permitted more progress because structures were less competitive – Algeria, Lebanon). Agricultural is still a crucial sector for MED economy, for its participation to GDP growth (for most of MED between 10 an 20% of GDP formation vs. 3% on average in Europe), for the number of employed in it (more than 20% vs. 4.3% in Europe). Agriculture in the MED offers big opportunities for the important comparative advantages existent in fruits, vegetables and fishing, but it also suffers of several constraints related mainly to the dependence on the rain, to the lack of supplementary irrigation capacities, to the absence of equipment and to inadequate technological skills (fertilisers, seeds, varieties, quality and sanitary control, etc.). Such weaknesses make MEDA countries be very dependent (these are their comparative disadvantages) on grain production, meat and milk, which allow significant self-consumption alimentation to rural populations. If only economic rationality was followed, the optimal solution would certainly be the liberalization of agricultural exchanges, which, however, has been slowed down due to social or societal reasons linked to adjustments implied by liberalization. Femise recommends proceeding in this direction progressively controlling adjustments in order to stabilise the rural world. This implies an effort to place southern agriculture at a level within the framework of a partnership conceived by the entire Euro-MED region. At present agricultural exchanges between the EU and the MED are characterised by an asymmetry. Indeed, Trade with the MED only amounts to a small fraction of EU agricultural trade. The EU absorbed 45.7% of the MED agricultural exports In 2001. Such exports amount to 2% of the EU countries’ imports (5.8% of the EU extra-community imports). This share has been stable since 1990 and it reflects the Partnership’s disregard of the agricultural problem. The agricultural balance regularly reflected a deficit over the last decade with both the world and the EU, the latter being the cause of the 17.5% deficit of 2001. The content of Euro-Mediterranean trade is focused on certain products. Based on the nomenclature that distinguishes 245 posts, it is possible to resume most of the trade into some fifteen products, including both exports and imports: the first fifteen posts imported by the entire MED amount in fact to 60.6% of all imports while the first fifteen exports posts amount to 64.1% of the total amount. Two observations are needed. First, these two lists of products are not duplicated. Only two posts are included in both (potatoes and non carded and non combed cotton). Second, the two exports structures (MED, EU) appear to be equally concentrated on some fifteen products (in CTCI 4 numbers). Moreover, considering each Mediterranean country alone, the concentration is clearly higher (5 products amount to 90% of the exports). Therefore, the MEDA countries, for the highly concentrated structure of production and trade, are extremely exposed to external events such as climatic hazards and the emergence of new competitors. In the framework of their partnership with the EU this problem is even more accentuated for essentially two reasons: if the access to EU market is blocked to a small number of sectors, it can be as if their complete agricultural trade is blocked. The extremely different situations that characterise MEDA countries make difficult the negotiations in a regional context. That’s explains the initial choice of a bilateral EU/MED negotiation in agricultural matters.


Blue Plan case studies (PlanBleu 2001) Tunisia: Mahjoub A. (2000) has identified the activities with the greatest potential for development: wear products, leather goods and shoes, electrical appliances, and to a lesser extent, vegetables oils and fats. However, the author stresses that these opportunities can be taken advantage of if the market liberalisation is accompanied by an active policy for supporting sectoral restructuring. This appears all the more necessary given that the dismantling import duties imply an increase of competition. Lebanon: Atallah et al. (2000) show that trade liberalisation represents a good opportunity for export growth in certain sectors like canned fruit (notably, jams) and chemical fertilisers. As in the case of Tunisia, dismantling customs barriers will imply a greater competition of imported goods. Turkey: Yontem (2000) shows that the effects of trade liberalisation on the textile sector seem to have produced positive economic effects. The most likely repercussions of free trade and increased exports according to the studies carried out are pressures on the coastline, pressures on water resources, pollution, and energy consumption. To these one must add the risks of internal relocation towards areas with the greatest comparative advantages and the disparities between small and large companies in the compliance with the environmental standards. The opening of MED markets can also have positive effects, especially as regards the possibility of importing intermediate goods as well as cleaner and cheaper technologies. Tunisia: Mahjoub A. (2000) stresses the risks of increased pressure on the coastline, which are already very high (almost 90% of the industries is concentrated in these areas) the pressures on water resources, and on the intensity of pollution. In particular, the index of industrial concentration on the coastline (which is accompanied by a similar concentration of employment) is high for production with the highest expansion potential. Water consumption is especially large in those sectors in which Tunisia presents comparative advantage, especially agri-food industries and textiles (together, these sectors consume 64% of industrial consumption), which, on the other hand, have the least impact on water and air pollution. Lebanon: Atallah et al. (2000) estimate that if the export potential for jams were reached, water consumption would increase significantly. In addition, the application of the environmental code is not complied with in the Lebanon because of inadequate responsibility and resources made available to the Environment Ministry. Turkey: Yontem (2000) stresses that the textile industries geared to export will very rapidly introduce production processes that are more compatible with the environment because they must comply with standards in the destination countries, but industries turned towards the internal market are less motivated partly because the domestic market is less concerned with environmental issues but also because of the high costs involved in compliance. The risk of pollution is therefore very high. All studies carried out stress that overall consumption in the MED will increase in the future partly due to the increase of population and partly following economic growth and free trade. Moreover, consumption patterns in MEDA countries are rapidly growing towards the model of Northern countries (increased meat and milk product consumption, and reducing consumption of vegetables and cereals; increased consumption of packaging). Free trade may intensify further these consumption patterns. New consumer habits, trade intensification, increased mobility of people will contribute to growth in transport that seems to increase at a higher speed than production and incomes. The increase in number of cars will obviously raise several environmental issues: quantity of pollutant emissions into the air and traffic congestion in urban areas.


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