Likely costs of Euro-Med free trade area
Times of Malta, 10 October 2005
Likely costs of Euro-Med free trade area
Vanya Walker-Leigh in Malaga, Spain
The proposed Euro-Mediterranean Free Trade Area (EMFTA), due to be established in 2010, might only generate slight net gains in regional economic welfare, but significant social and environmental costs in the Arab nations and Turkey, as well as extensive dislocations in south European agriculture.
These are the key provisional findings of the Sustainability Impact Assessment (SIA) of the Euro-Mediterranean Free Trade Area, presented at a regional civil society consultation here last week. To be completed by end 2006, the SIA is being conducted for the European Commission by Manchester University, leading a consortium including the UN Economic and Social Commission for West Asia.
However, the next EU Council is expected to approve a negotiating mandate for the Commission to launch trade liberalisation negotiations for Euro-Mediterranean agriculture, services and investment by the end of this year, to be concluded before 2007.
South Mediterranean states will reportedly be invited to agree to this timetable at the forthcoming Tenth Anniversary Euro-Mediterranean Partnership (EMP) summit in Barcelona on November 27-28. How and whether the SIA’s final conclusions can influence the proposed trade negotiations thus remains unclear.
European Green Party MEP David Hammerstein of Spain told the consultation here that the proposed EMFTA was emerging as a high-risk exercise.
Professor Sami Aoudi of Tunis University stated that the EMP had failed to spur the dynamic industrialisation of south countries, urging that the drive to free trade should be replaced by the goal of regional co-development.
The partnership had also failed to achieve the area of shared prosperity posited under the 1995 Barcelona Declaration, according to Professor Ivan Martin of Madrid’s Carlos III University. The 5:1 (five to one) annual per head income gap between EU and south Mediterranean states (except Israel) had slightly widened since 1995 while annual EU financial assistance per head to southern partners equalled €4, compared to €500 for the new EU accession states. Meanwhile, net per capita annual outflows from the south to the EU totalled €42, due to the negative EU/south Mediterranean balance of trade and external debt reimbursements.
Significant impacts in the south on non-competitive industries as well as on government revenues - due to the progressive abolition of customs duties - would start from 2008, arising from on-going trade liberalisation in industrial goods under the bilateral association agreements between the EU and each southern partner. Unsustainable social strains were a clear risk, he warned.
Presenting the SIA’s current findings, Dr Clive George of Manchester University stated that the EMFTA could generate a net gain in EU consumer welfare of 0.2 per cent of GDP for industrial products, with little difference between the short and long term, with an additional impact close to zero for agriculture, services and south-south trade liberalisation.
Larger economic gains might occur in the long term for services and to some extent for industrial products, but only resulting from appropriate investment decisions and related policies.
However, significant potential adverse social impacts in southern Europe were forecast from agricultural trade liberalisation, for rural areas growing crops similar to those in south Mediterranean states. Job losses would affect both local and migrant agricultural workers, exacerbating current migration-related problems. Less pressure on local water resources and biodiversity were unlikely to cancel out overall negative effects on the rural environment and its amenity value, Dr George warned.
In southern countries, net consumer welfare might increase by an average 0.8 per cent of GDP for industrial goods, with additional welfare gains from agriculture and services of about 0.5 per cent, and smaller gains from south-south liberalisation.
Longer term larger gains were possible but strongly dependent on domestic reforms and investment decisions, plus extensive policy measures additional to south-south trade liberalisation to promote regional economic integration.
While some beneficial social impacts were expected in the south others could be "significantly adverse unless effective mitigating action is taken", Dr George added. These included extensive job losses in industry, agriculture and services, related wage falls, impacts on social services due to declines in government revenues, greater vulnerability of poor households to world market prices for food, and widespread losses in rural women’s livelihoods, arising from the switch from traditional to commercial agriculture.
EMFTA-related environmental impacts could include strong pressures on water resources, soil fertility and biodiversity in existing high-stress areas, greater urban pollution due to an influx of rural migrants, higher air and coastal water pollution from increased international transport.
Dr George concluded that co-ordinated EU financial assistance and south government adjustment policies, as well as carefully modulated and phased trade liberalisation were essential to mitigate adverse impacts and enhance beneficial ones if EMFTA was to make a net positive contribution to regional sustainable development.
