September 28, 2011 4:12 pm

The EU: The trouble with difficult neighbours

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Back in May, in the full blossom of the Arab spring, Catherine Ashton, the European Union’s foreign policy chief, put trade at the centre of the bloc’s offer to a nearby region whose citizens were yearning for greater freedom and prosperity after decades of stagnation.

Specifically, she promised lower tariffs and greater market access to countries that delivered good governance and democratic reforms. “The EU needs to rise to the historical challenges in our neighbourhood,” she declared.

While that sentiment was broadly applauded, some European trade specialists could not help but grimace.

To them, Lady Ashton’s proposed revision of the EU’s “neighbourhood policy” was just the latest in a long line of misguided attempts to rely on trade to shape policy in the region.

Before the new neighbourhood policy, the EU threw its weight behind the French-inspired Union for the Mediterranean, which was preceded by the 1995 Barcelona process, which followed a number of associations and free trade agreements.

“The EU has signed a lot of free trade agreements with these countries. But the problem is that many of the agreements themselves were not very good, and they were not designed to help those countries grow through exports,” says Fredrik Erixon, director of the European Centre for International Political Economy, a Brussels think-tank. “The ambition to try to do something on the trade side has been failing, and it’s been failing for a long time.”

Even diplomats who spent large parts of their careers creating those policies acknowledge that they have yielded few of the hoped-for benefits – a reality confirmed by the uprisings themselves.

Whether it was mismanagement or misconception, or a lack of support in the region, that history of failure is a reminder of the limits of trade in a broader development policy.

Unfortunately for the EU, the lure of trade to further broader policy goals is almost irresistible. While the bloc’s military power is waning, it boasts a 500m strong consumer market that is the envy of the exporting world. As Lady Ashton made clear, north Africa represents a particularly urgent case: The region sits on the bloc’s doorstep. If Europe fails to encourage prosperity and stability, then policymakers fear that the trickle of refugees that have taken to the Mediterranean Sea in recent months could soon become a flood.

Trade is all the more appealing to EU policymakers since they cannot wave the prospect of near-term membership before north African countries to nudge them toward reform, as they did in eastern Europe after the fall of communism.

But if trade concessions are alluring, they are often fraught with complications. A case in point is Pakistan. In the wake of last year’s floods, Lady Ashton called for a temporary suspension in a range of tariffs that would benefit Pakistani exporters.

The policy ran into resistance in Italy and France, where the textile industries were furious. With considerable UK support, Ms Ashton overcame their opposition – only to see the proposal run aground at the World Trade Organisation amid protest from Bangladesh, which did not want to see its EU preferences undercut.

European diplomats who have studied the past failures in north Africa cite a common misconception that lowering tariffs alone would be enough to promote development. This overlooks other vital preconditions – from a minimum level of good governance to property rights and a functioning legal system. Decent infrastructure and skilled workers would also help.

Another EU complaint is that past initiatives suffered because the parties across the table may not have been interested. Autocrats such as Egypt’s Hosni Mubarak and Tunisia’s Zine El Abidine Ben Ali may have had more to gain by keeping out foreign competition, so that a handful of domestic businesses with close links to the regimes could reap greater profits.

Still, there are areas where the EU could do more. The most obvious would be to reduce tariffs on agricultural goods. These are the areas where north African countries would have a distinct competitive advantage. Yet they have been largely excluded because of deep opposition from the southern EU members, including France, Spain and Italy, whose farmers have the most to lose.

In March, Karel de Gucht, Europe’s trade commissioner, suggested a “zero for zero” agreement on agricultural tariffs: The meat and grains that are the strength of European producers would have full access to north Africa, whose fruit and vegetables could come north. But the response has been predictable. “Right now, the idea has not fallen on fertile soil,” the commission official said with considerable understatement.

Efforts to open the EU’s services industries to north African countries are also complicated by the continent’s deep discontent over illegal immigration, which has become a big issue in national elections.

Member states are loath to give short-term visas to foreign workers, when they fear they might try to overstay them.

The trade barriers in the services sector have the added detriment of depriving businesses in north Africa of modern information technology and telecommunications infrastructure.

With trade prospects looking difficult, some European diplomats are putting their faith in investment agreements, instead. Their hope is that, by providing soft loans from the European Investment Bank and better legal protection, then the Nikes and Adidases of the world might one day be encouraged to invest in Tunisia instead of Vietnam.

But that idea supposes that the new governments that emerge in these countries will be welcoming to western multinationals – something that is hardly certain.

In the meantime, Mr Erixon worries that the debt crisis that has ravaged the continent for more than a year and pushed up unemployment may make it impossible for European governments to make the case that the long-term benefits of freer trade with their southern neighbour outweigh short-term costs.

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments