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A Chance to Promote the EuroMed Region Post-Covid-19

BLOG - 22 June 2020

The Covid-19 crisis has driven a discussion around the need to diversify European supply chains. Given that the EU is reliant on China and wider Asia for much of its production, arguments abound for increasing the resilience of these supply chains by increasing their diversity. Specifically, diluting the impact of potential future problems in Asia by broadening and deepening the EU’s commercial relationships with other regions.

One natural pathway might be to look south, towards the Southern Mediterranean and North Africa. There is a long-term, strategic interest for the EU in building the economic capacity in this region. Economic development, spurred by developing increased regional trade, would be of clear benefit to these countries, which suffer from high levels of unemployment and weaker physical and social infrastructure. In addition, there is a geopolitical dimension that advocates for stronger EU involvement in this region. A more stable and prosperous economic environment would, gradually, lead to an improved security environment. Given the role of the Sahel as a base for terrorist networks, compounded with this region’s position as a key immigration route to Europe, the longer-term benefits are clear. Deeper economic ties should improve inter-regional relations as a whole.

The EU already has a trading framework in place with this region, via association agreements or free trade agreements with the block of "EuroMed" countries.

The EU already has a trading framework in place with this region, via association agreements or free trade agreements with the block of "EuroMed" countries, which includes Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestinian National Autority and Tunisia. In 2018, trade with these countries accounted for 4.4% of the EU’s total trade with its exterior and the EU was, by a long distance, these countries’ most important trading partner. There is thus an institutional framework in place to enable trade, as well as real business being done.

While the rationale for deepening economic relations is compelling and there is a foundation of commercial ties to build on,significant drawbacks remain. The EuroMed countries, more specifically, the North African nations, may trade a lot with the EU, but they do very little trade with each other. In fact, from a trading perspective, these countries could well be islands. There are few distributed value chains that span across the region and, when the EU interacts with them, the transactions are effectively bilateral. This is in stark contrast to the situation in Asia, where the export boom has been supported by trade within the region, with China acting as a local hub. Regional free trade agreements, such as ASEAN, have been successful at boosting inter-regional value chains.

The lack of integration in regional trade in North Africa is caused by several factors. Trade costs are high, due to tariff and non-tariff barriers and high transportation costs. North African economies also lack complementarity, with countries such as Libya and Algeria being largely reliant on revenues from oil and gas, while Egypt, Morocco and Tunisia are more dependent on agriculture and tourism. The region suffers from significant political instability which doesn’t favour cross-border trade. Libya is in the midst of a civil war, while countries such as Algeria are notable as being unpredictable markets for foreign investors. There are also latent hostilities between countries, such as Morocco and Algeria, where the land border has been closed since 1994. In addition, the North African countries also have scope for domestic reforms, to improve their competitiveness and in areas such as the rule of law and enforceability of contracts, which would increase their overall attractiveness at the international level.

The region thus faces multiple challenges in its economic development, which in turn provokes the question of how the EU can best support the process. As a first step, it could start by encouraging more regional dialogue through its existing EuroMed forum. The forum explicitly aims to improve cross-regional links and includes thematic programmes working across including civil society, economic development, climate change and transport. However, the forum could benefit from a political boost and increased resources, with more engagement at a senior level.

One of the challenges to date has been that this region is often largely viewed through the prism of security. The security situation in Libya, having degraded into a form of proxy war between Egypt, the Gulf countries, Turkey, Russia and others, has absorbed the efforts and political capital of many EU leaders. This in turn may have embedded the logic that meaningful cooperation with the region cannot begin until Libya is more stable.

Likewise, the experience following the Arab Spring, when many in the EU initially welcomed the overturn of long-time, dictatorial regimes, but which revealed a more complex and turbulent political dynamic, may have cooled enthusiasm for further engagement. Nonetheless, there is a particular need for high-level political engagement with this region because, perhaps unlike countries to the EU’s east, none of the EuroMed countries would ever anticipate becoming EU Member States. This means alternative inducements are needed to encourage cooperation.

The EU began negotiations with Tunisia and Morocco on a Deep and Comprehensive Free Trade Area.

Perhaps in recognition of the need for an alternative offer to the region, the EU began negotiations with Tunisia and Morocco on a Deep and Comprehensive Free Trade Area, which as well as reducing tariffs and non-tariff barriers, would also include some alignment of regulations and standards. However, progress in the negotiations has stalled, with the last round taking place in 2014. The approach with Tunisia and Morocco also highlights another challenge. Engagement either mirrors the trading relationship by being between the EU block to one North African country, or it is a bilateral conversation between one EU Member State and one North African country. This inspires more competition than cooperation, which is another argument for bolstering region-to-region dialogue via the EuroMed forum.

The EU could also engage with regional organizations and, potentially, use its investment tools, to invest in regional infrastructure projects. One such tool, the European Investment Bank, holds investments in dedicated infrastructure funds that operate in the region, such as InfraMed, although the sums are relatively small. Likewise, the European Fund for Sustainable Development (EFSD) includes an African Investment Platform that seeks to invest in cross-regional investment projects. A near-term risk, however, is that while Covid-19 may have identified the need for further EU investment in its near-region, it may also end up drawing funds away from much-needed infrastructure projects. An EU support package unveiled in April to help African countries manage the economic and social consequences of Covid-19 included EUR 1.19 bn of funds for North African neighbourhood countries – but this wasn’t new money, but rather money redirected from other programmes, including the EFSD. Supporting these countries through the pandemic is the right thing to do, but in the medium term the EU needs to follow up by reaffirming its other investment commitments to the region.

There are thus several areas where the EU can work, including revitalising its bilateral and regional trade talks, revitalising regional fora such as EuroMed and maintaining a flow of investment into critical infrastructure projects. It could use its existing bilateral trading relationships to promote internal reforms that improved competitiveness. In all of these fields, progress will inevitably be slow, requiring a long-term commitment from the EU. The end goal, however, would be to offer options for increased diversification and improved relations.

 

Copyright : AFP

 

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