1. EUROPEAN COMMISSION DIRECTORATE GENERAL ECONOMIC AND FINANCIAL AFFAIRS The EU-MED trade of goods under the influence of the Barcelona Process Arno Bäcker CNR – Institute of Mediterranean Societies International Conference: Bridging the gap: the role of trade and FDI in the Mediterranean Napoli, 8-9 June 2006

2. Disclaimer The opinions expressed here are those of the speaker and do not necessarily reflect those of the European Commission.

3. Barcelona Declaration (1995) o oBuilding on long standing (trade) relations between EU and MED countries and preferential treatment of MED products, particularly since the end-1970s o oEuro-Mediterranean FTA is a core objective … o o… and seen as key instrument to increase growth and improve living conditions o oGradual realisation through bilateral Association Agreements (AA) and, in addition, free trade agreements between the MED partners o oAAs have prompted progressive asymmetric tariff dismantling in industrial trade, and agricultural preferences for the MED o oENP offers a “stake in the internal market” o oWhere do we stand?

4. Framework developments   Nov. 2005 Barcelona meeting: 5-year roadmap for tariff dismantling, market access, trade-related policies   Oct. 2005 “Pan-Euro MED Protocol of Origin” adopted by Egypt, Israel and Morocco   Approximation of standards, technical regulations and conformity assessments for industrial products   March 2005 Marrakech meeting launched negotiations on services and investment (including right of establish- ment) based on AAs and GATS Art. V (without ALG, SYR) -> July Brx -> text mid -2007   Negotiations have already started with some countries on a progressive and asymmetrical agricultural liberalisation “with a possible selected number of exceptions”.   Negotiations on an efficient dispute settlement mechanism. -> July Brx -> bilateral protocols by end of 2007

5. Questions 1. 1.Implementation progress 2. 2.Reduction of tariff and non-tariff barriers 3. 3.Actual trade creation 4. 4.[Is tariff reduction sufficient for expected welfare improvements?]

6. ad 1) EU-Mediterranean cooperation

7. ad 2) Lags of import-tariff reductions

9. ad 3) Trade between EU and MED countries Source: European Commission (data for 2004).

10. Trade openness

11. Trade between EU and MED countries Based on EUR values

12. Trade between EU and MED countries

15. Source: European Commission (Mio EUR).

17. Issues   No direct measure of aggregate EU-MED tariff reduction -> measure trade creation   Trade data “polluted” by other factors   Methods to isolate the EU-MED FTA effect   Gravity models T vs T’=T’(Y,Y*,P,P*,D,Ś)   Export/import functions, e.g. M=M(Y,e,Ś)

18. Determine AA impact   Import function M=M(Y, e, …)   AA dummy variable   other dummy variables to control for conflicts (ALG, ISR, …)   N=5 (ALG, ISR, JOR, MOR, TUN)   T=13 (1991-2003)   Data: Eurostat COMEXT, IMF

19. Model I

20. Conclusions (1)   EU-MED bilateral trade liberalisation until today has mainly concerned industrial goods.   The EU opened its markets for these products already at the end of the 1970s. Most MED countries have started liberalising imports from the EU only recently.   Conclusion after accounting for other factors: the tariff reduction prompted by the AAs has already increased MED imports from the EU significantly. This is also a catalyst for MED exports and the technology transfer.   Nevertheless, the overall picture of (EU-) MED trade is unsatisfying. Trade volume is probably to low to make sufficient welfare progress within a satisfactory time horizon. This is due to low regional integration, slow liberalisation and structural problems…

21. Conclusions (2)   … EU-MED trade liberalisation is incomplete (in particular services trade). However, since the beginning of 2006 complementary measures are being discussed or entering into force.   Regional trade liberalisation is progressing only slowly and hampered by political conflict. It is also held back by transport and other transaction costs in the MED countries. ~> Agadir FTA, productive infrastructure investment and trade facilitation   The MED countries need to strengthen the private sector, business and investment climate (competitiveness!). This is also necessary to prepare for the “stake in the Internal Market”. (~> European Commission, DG ECFIN (ed.), Occasional Papers No. 17 and 25)   The European Neighbourhood Policy helps to support the necessary reform process, for instance with guidance through ENP Action Plans.