The Barcelona Conference: More Effective Than Amman?

By Colin MacKinnon

The Amman summit has come and gone. Some 1,150 business persons—not counting the kings, princes, presidents, prime ministers, sheikhs and amirs—from 60 delegations attended the summit at the end of October, duly followed around by no fewer than 600 journalists.

The U.S.-orchestrated event was a fine political affair and accomplished what it was supposed to: provide another venue for Israelis and Arabs, one year after a similar jamboree in Casablanca, to deal with each other and make such dealing not just thinkable, but almost a matter of course. That is to say, insert Israel into the region.

But when it comes to real trade and investment, Amman had a curiously ineffectual feel at the end, like a bottle of soda without the fizz. The fact is, as a business get-together, Amman was a disappointment.

The Europeans are edgy about the lands to the south.

The summit's one significant accomplishment was a dubious agreement to create a regional development bank—dubious because the bank's usefulness is debatable and, useful or not, its future, particularly the question of who's going to capitalize it, remains dark. Britain, Germany and France are cool to it, as are the Gulf Arabs. The idea for the bank was hatched by the wizards of the Clinton administration and will be more a political tool, again with the purpose of inserting Israel into the region, than an economic institution.

There were few other happenings. Jordan was rewarded with a number of international loans for its earlier signing of a peace accord and then a trade deal with Israel. Israel and the Houston-based Enron Corporation announced an agreement to import liquified natural gas from Qatar, but in fact the deal had been done before Amman. There must have been private sessions where deals were done, too, but so far nothing spectacular has been announced.

That's about it from Amman.

A month later, though, and at the other end of the Mediterranean in Barcelona, another meeting took place, the first Euro-Mediterranean Conference. This one got no play in the U.S. press, but the agreement that came out of it, the Barcelona Declaration, should have much more economic impact than Amman.

If all goes well, the European Union and 12 Middle Eastern and North African states will negotiate a vast free-trade area for most goods and services. The agreement will encompass virtually the whole of Europe (from Finland south) and any of the countries of the Mediterranean, including the Palestinian Territories and Jordan, that want to sign on.

Why They Did It

The Europeans proposed the free-trade area because they are edgy about the lands to the south. For good reason. Unemployment is high and falling only very slowly in the EU, where 17 million people are out of work. Unemployment is rising fast in the Maghreb, however, where currently some 3.4 million people are jobless and where the labor force is growing at three or four percent a year. This is an explosive and very worrisome problem. If something isn't done, at the very least Maghrebi workers will want to push north in increasing numbers.

But immigration isn't the only worry. The Europeans also fear political instability in the south, the possibility of Islamist governments coming to power in North Africa and disrupting trade and the flow of gas and oil, and pushing even more people to emigrate. The answer, say the Europeans, is to get serious about making development work in the south.

The southerners, of course, have their own fears. For the man in the street in Algiers or Tunis, rising unemployment in the Maghreb is a lot scarier than it is for the Europeans. And the extreme asymmetry of the North African relationship with Europe is profoundly disturbing. One example: 70 percent of Maghrebi exports flow to the EU; 3 percent of EU exports go to the Maghreb.

While the EU has not been a success politically (Bosnia is an aching reminder of that), economically, with a population of 350 million people and a GDP of $7 trillion, the Union is a 900-pound gorilla. The idea of seeing an economically more open Europe is part of what motivates the southerners.

What Barcelona Entails

The Europeans pledged to negotiate the elimination of tariffs and quotas for most Middle Eastern goods and services (agriculture was off the table) and to increase official aid flows dramatically. The aid will be about $12 billion in loans and grants over the next five years, about one percent of local GDP, and about 50 percent more than previously envisioned. About half the funds will go to support free trade (that is, promote the private sector and trading infrastructure) and the other half will be used to alleviate poverty, develop rural areas, and protect the environment.

In return, the southerners and Middle Easterners will liberalize their economies and open them to investment: lowering tariffs, cutting subsidies, privatizing state-owned entities, and moving currencies toward full convertibility.

The mechanism to bring this about will be a series of individual free-trade pacts the EU will sign with North African and other countries. Tunisia, Israel and Morocco already have signed such agreements. The EU currently is negotiating others with Egypt, Jordan and Lebanon, and is holding exploratory talks with the Palestinian Authority. Syria is expected to open discussions on an association accord in the near future.

Aid will go to the countries that sign agreements, which is to say, aid flow will depend on open markets and domestic reforms. This is a clear departure from past practice.

In the classic days of foreign aid—the '60s and '70s—donor nations said in effect: to foster rapid growth in your country, we'll open our markets to your products, we'll allow you to keep tariff barriers high to protect your infant industries, and we'll send you development aid to make sure there's enough investment.

But by the '80s this way of doing things had come to be discredited. The old way tended to produce a strange two-level economy: on the one level, protected industries, many of them state-owned, produced expensive, low-quality goods which they had a hard time exporting. To counter that problem, countries often set up free industrial zones, with no tariff or other barriers, in which foreign firms would set up shop, import raw materials, process them, and export the finished products. Local labor of course got paid, though not much, and foreign exchange was earned, though the enterprises otherwise had little effect on the local economies.

Hence the newer approach the EU is trying, which is an attempt to create conditions where private investment can flourish. With higher levels of competition, the southerners will be able to penetrate markets other than the EU. That's the idea anyhow.

Now compare Amman and Barcelona, whose political agendas are so very different. Barcelona is a serious attempt to take into account the needs of the Mediterranean region and tackle the real obstacles to development in the south. The strategy may not work, but at least its framers have a credible and coherent approach in mind. Amman? Well, there's that bank...

Colin MacKinnon is chief editor of the Washington, DC-based Middle East Executive Reports.