On a visit to Beirut two winters ago, Edgar Pisani, a former president of the Institut du Monde Arabe and former European commissioner, called on the Lebanese to "rediscover" the Mediterranean. He was preaching to the converted: the nation of Michel Chiha [1] never lost sight of the Mediterranean. But now that the Europeans themselves have rediscovered the Mediterranean, the Lebanese have everything to gain from building a solid framework for Euro-Lebanese relations.
A proposed Lebanese-European Union (EU) Partnership (or association) Agreement has been under negotiation since December 1995.[2] European sources insist that a round of talks scheduled for June 21-26 will be the last. Lebanese negotiators, however, predict a final draft no sooner than fall. The Italian presidency of the Council of Europe is rushing to have an agreement initialed during its tenure, which ends in June. The Lebanese, however, will not be rushed by such considerations. There are many aspects of the agreement which should be studied further, in particular the schedule of tariff reductions which will have a dramatic impact on Lebanon's fiscal position.[3]
The Lebanese-EU agreement is part of an overall European strategy for the Mediterranean. This strategy aims to create a Euro-Mediterranean partnership in economic development, security matters, and social and cultural affairs. The EU realizes that most of the political and security problems it suffers from can be solved only through cooperation with southern Mediterranean countries. These problems include the threat of instability on Europe's southern flank, the loss of influence to the U.S., especially in the Middle East, the burden of illegal immigration, and drug and arms trafficking.[4] Similarly, the collapse of the Soviet Union demanded a new approach to Mediterranean security.
The new approach evolved through several documents: the New Mediterranean Policy (December 1990); the European Council's (EC) Lisbon declaration (June 1992); the EC Corfu decisions (July 1994); the endorsement of the European Commission's proposal for the establishment of a "Euro-Mediterranean Partnership" in Essen (December 1994); and, finally, the Cannes European summit's decision to build a Euro-Med area of "stability, security, and prosperity" (June 1995).[5] This Euro-Med area is to be built on the three pillars of a political and security partnership, an economic and financial partnership, and a social and human partnership. To translate them into reality - or to offset part of the structural adjustment costs which the partnership will impose on southern Mediterranean partners - the EU has allocated Ecu4.7bn ($5bn) in financial assistance to signatory states, and an equivalent amount in European Investment Bank (EIB) financing. These amounts, however, are derisory given the requirements of the Mediterranean countries and the EU's ambitious objectives.[6]
Three states have already signed a partnership agreement with the EU. Tunisia (June 1995), and Israel and Morocco (November 1995). Egypt, Jordan, and Lebanon are in the midst of negotiations. Syria, the Palestinian Authority, and Algeria are still deciding whether to begin such negotiations. All the existing agreements seek to establish a "free trade area" between the EU and the individual countries by 2010. But the "free trade area" is neither free nor does it cover all EU trade. It is meant to "achieve reciprocal free trade between the EU and Mediterranean countries in most manufactured goods; grant preferential and reciprocal access for agricultural products; establish conditions for gradual liberalization of trade in services and capital; and encourage the economic integration of Mediterranean countries."[7]
The format of these separate agreements is more or less similar. The EU agreements with Tunisia, Morocco, Israel, and Lebanon all contain the same subdivisions, entitled: Political Dialogue; Free Movement of Goods; Right of Establishment and Supply of Services; Payments, Capital, Competition, and Other Economic Provisions; Economic Cooperation; Social and Cultural Cooperation; and Financial Cooperation.
In spite of their similar format, the agreements differ in content. The most notable difference between the Lebanon draft agreement and the others concluded is that the Lebanese is much more specific on the services sector: it liberalizes trade in services, whereas the other three leave this up to the Association Council.
Lebanon stands to both gain and lose a great deal from the agreement. The major losses will be in industry which will face tougher EU competition. One study estimates that losses will total $840m annually, and will cost 50,000 jobs,[8] unless Lebanese exports increase drastically.
Lebanon stands to gain in other ways, however. First, the accord will improve the credibility of Lebanon's economic policies and encourage foreign direct investment in the country. This investment will provide the funds to divert resources from uncompetitive sectors to more competitive ones. The increase in foreign investment resulting from closer Lebanese-EU integration will lead to a higher growth rate in the economy.[9]
Second, Lebanon can benefit most from the agreement and attract high levels of foreign investment if it privatizes some of its publicly-held utilities and infrastructure. Privatization will provide foreign investors with projects in which to enter. EU financial and technical assistance should facilitate development of the state's regulatory and administrative capacities to oversee privatized businesses and ensure competition.
Third, Lebanese exports to the EU will be encouraged by a harmonization of regulatory and trade regimes relating to product standards, certification, mutual recognition agreements, customs clearance, and other administrative measures. These will lower the costs of trade. The agreement will also improve the security of access to EU markets. Yet to take advantage of these new opportunities, a private export-promotion agency has to be set up with EU assistance to help small Lebanese producers export to EU markets.
Fourth, the EU has made available significant aid and financing to help in a transitional period. This amount can be used to effect needed structural adjustments which are necessary with or without a EU accord. Originally, before the sum was reduced,[10] the EU decided to allocate Ecu5.5bn in assistance and an equivalent Ecu5.5bn in EIB funding. Of this sum, Ecu2.3bn was to support economic adjustment, and the bulk of this - Ecu1.4bn - was earmarked for private-sector business. Another Ecu2.6bn was allocated for social infrastructure, education, health, rural development, and environment. The remaining Ecu600m was to encourage "regional integration."
The greatest gain for Lebanon through an association, however, is that it will help develop the political momentum to implement administrative and economic reforms which Lebanon so badly needs. It is on this last item that efforts should be concentrated.
Notes
1. An influential Lebanese banker and thinker, whose "pensée méditerranéenne" was considered one of the leading ideological justifications behind the modern Lebanese political system, and Lebanon's relations with the outside world.
2. See "Absent at the Creation," Lebanon Report , No. 3, Fall 1995, pp. 36-37.
3. Almost half of the state's fiscal revenues come from custom duties, and about 60% of those duties are levied on European products which are covered by the proposed agreement. 25-30% of government revenues will disappear and will have to be compensated by a Value Added Tax (VAT).
4. On the background of the Euro-Med initiative, see Bichara Khader, Le Partenariat Euro-Méditerranéen, Les Cahiers du Monde Arabe, Centre d'Études et de Recherches sur le Monde Arabe Contemporain, No. 119-120, 1995.
5. These three key words are in the preamble of all signed and draft association agreements.
6. Khader, op. cit., p.33.
7. Bernard Hoekman and Simeon Djankov, Catching Up with Eastern Europe? The European Union's Mediterranean Free Trade Initiative, Working Paper 9612, Economic Research Forum, February 1996.
8. See the study by Iskandar Moukarbel which will be published by the Association des Banques Libanaises and excerpts of which were already published in the daily al-Nahar, May 15-17, 1996.
9. See Jeffrey Sachs and Andrew Warner, "Economic Reform and the Process of Global Integration," in W. Brainard and G. Perry, (eds.), Brookings Papers on Economic Activity, Vol. 1, 1995.
10. The EU has not specified the amount of the reduction. The breakdown in spending, however, will be similar to the original EU allocation specified below.