COMMISSION WORKING DOCUMENT Preparing for the Euro-Mediterranean Free Trade Area: Elements for Regional Industrial Co-operation 2002-2006

1. Objectives of this paper

This paper, further to summarising developments since 1996, puts the Málaga Ministerial Conference into context, summarises current industrial co-operation activities, and suggests activities in the years ahead with a view to helping the Mediterranean partner countries to adapt and modernise their industrial sectors so that they can maximise the benefits that will arise from the creation of the Free Trade Area.

The Commission is submitting these proposals for the consideration of the fourth Euro-Mediterranean Conference of Industry Ministers to be held in Málaga on 10 April 2002.

2. Developments 1996-2001

2.1. Ministerial Conferences

The Barcelona Process launched in November 1995 aims at establishing a close Euro-Mediterranean partnership in three main areas: political and security dialogue; economic and financial co-operation; and cultural, social and human relations and exchanges. The economic and financial chapter emphasises the fundamental role of industrial co-operation for creating an area of shared prosperity based on liberalisation of trade, bringing about economic transition and boosting investment.

Taking account of the political situation in the Middle East the Barcelona process is more necessary than ever to ensure that the region as a whole receives appropriate support for allowing economic integration to play its full role for political stability and peace.

The Euro-Mediterranean Partnership can make a key contribution to helping the Mediterranean partner countries address the related challenges. At the same time, a major adjustment effort is required if these countries and their business communities are to be in a position to take full advantage of the opportunities that will be created as a result of the Euro-Mediterranean Free Trade Area by 2010, both in terms of improved market access and in terms of enhanced South-South co-operation.

Three Conferences of the Industry Ministers of the 27 partners have taken place so far:

- The first was held in Brussels in May 1996. Ministers laid the foundations for regional industrial co-operation by agreeing general objectives including, in particular, the creation of an appropriate legal and administrative framework; the development of industrial zones; the setting up of, and provision of support to, specialised service centres; the promotion of SMEs; and the development of regional networks of economic operators. The Brussels declaration led to the creation of two working groups in 1997.

- The second Conference was held in Klagenfurt (Austria) in October 1998. It offered an opportunity for taking stock of progress in implementing activities agreed in the framework of the Working Groups and also underlined the importance of infrastructure and of investment promotion activities for fostering investment in the Mediterranean region.

- The third Conference took place in Limassol (Cyprus) in June 2000. It endorsed a detailed work programme centred around four main priorities: investment; innovation, technology and quality; instruments of the Euro-Mediterranean market; and development of SMEs. In organisational terms, the Conference provided for the merger of the previous two working groups into a single "Working Group on Euro-Mediterranean industrial co-operation".

2.2. Private sector political support

As early as 1996, the private sector engaged in political support to the process by way of Euro-Mediterranean industrial summits organised by national industrial federations.

- Those held in Marrakech in 1996 and in Athens in 1997 helped to prepare for the Klagenfurt Conference;

- The Summit held in Tunis in May 2000 served to launch the UNIMED network of EU and Mediterranean industry federations. Its conclusions were taken into account in Limassol.

- The Málaga Conference will have been preceded by the Industrial Summit in Istanbul on 1-2 March 2002.

In addition, efforts are currently under way for the creation of a regional Mediterranean industry federation, along the lines of the structures of UNICE.

2.3. Overview of current activities

Industrial co-operation activities since the Limassol Ministerial Conference have focussed on designing programmes in the four above-mentioned priority areas. In three of these areas, programmes are by now fully developed:

- The Investment Promotion Programme aims at creating a network of Investment Promotion Agencies and related measures, involving a budget of EUR 3.95 million;

- The Innovation/Technology/Quality (EURO-MED ITQ) Programme will help innovation and technological centres (ITCs) upgrade their working methods, effectiveness and technological capability, create a network of such centres in the Euro-Mediterranean region, as well as address a range of quality-related issues under a budget of EUR 15 million;

- The Euro-Mediterranean Market Mechanisms Programme (EURO-MED MARKET) is designed to foster exchanges of experiences, to identify best practices and to identify the necessary regulatory measures for the proper functioning of the Euro-Mediterranean Free Trade Area, based on the experience of the EU's internal market. Its budget will be EUR 9.9 million.

The implementation of these three programmes will start in 2002. In the coming years - up to 2005 - proper attention will have to be devoted to ensuring a smooth and efficient implementation of these programmes. When they near completion, consideration may be given to continuing or expanding the envisaged activities, based on an assessment of their results.

In addition, an earlier programme on Industrial Zones is nearing completion. It has met with very positive acceptance. In response to calls for further continuation an evaluation will be carried out with a view to assessing its results and deciding on a possible follow-up.

With regard to SME development, preparatory work is underway on activities that would aim at encouraging public administrations to devise policies with a view to improving the framework conditions in which SMEs from the Mediterranean region operate, while retaining some elements of direct financial assistance to intermediary organisations, building up on previous successful experiences where suitable.

Finally, a number of other activities, while not formally belonging to the framework of the Working Group on Euro-Mediterranean industrial co-operation, can make a positive contribution to the broader objectives pursued by regional industrial co-operation programmes. For example, the Commission has launched feasibility studies on Internet-based Investor's Guides, as well as into the promotion of commercial arbitration and other alternative dispute resolution techniques.

2.4. Achievements up until 2001

Over the last five to six years, EU-financed industrial co-operation and related activities have made a significant contribution to improving the ability of the Mediterranean partner countries and of their businesses to live up to the challenges of the Free Trade Area. While a lot remains to be done - hence the need for a further activities in this sector - a number of achievements can already be noted:

First, as far as regional programmes are concerned, the above mentioned programme on industrial zones seems - without prejudice to the results of the full scale evaluation that will be carried out - to have made a significant contribution to the partner countries' ability to help create and attract businesses, as well as to meet their needs. The guide of best practices that has been published as part of this programme bears witness to this effort. In addition, the study on "foreign direct investment in the Mediterranean countries", which was also carried out under the auspices of the Working Group on Euro-Mediterranean industrial co-operation, has helped refine the diagnosis for the weakness of FDI in the region and its analyses can be useful in helping design solutions to this problem.

A number of other regional MEDA programmes are also relevant, for example the venture capital facility managed by the EIB on behalf of the Commission or the various programmes aimed at reinforcing business representative organisations in the beneficiary countries.

The bilateral dimension of assistance must also be taken into consideration, as it is not always possible to address country-specific problems in the framework of a regional programme. Most of the Mediterranean partner countries have been benefiting from substantial bilateral assistance under the MEDA programme in areas which are directly relevant to the topics addressed by this Working Document. Such areas include private sector development, support to SME development, assistance to privatisation or industrial development, as well as policy areas directly relevant to improving individual countries' ability to compete in an enlarged market, for example quality and technical standards.

In order to enable a more thorough assessment of the impact of MEDA-funded support programmes - both regional and bilateral - in these areas, the Commission intends to present in future a document summarising the results of such assistance.

Lastly, the European Investment Bank's contribution must also be recalled. The EIB has been increasingly active in the Mediterranean region over the last few years, and this activity will be further reinforced in future. The bank will thus be able to grant a maximum of EUR 6 425 million in EU-guaranteed loans in the Mediterranean partner countries over the period that will end in 2007, in addition to which it was also authorised by the Council to lend a further EUR 1 000 million to operators in these countries without such a guarantee. This effort will have a significant positive effect on the business sectors of the partner countries, either directly (through loans for the upgrading of companies) or indirectly (by helping improve the overall infrastructure).

3. Opportunity of the Malaga Conference

The Málaga Ministerial Conference offers a crucial opportunity to provide fresh impetus to industrial co-operation activities under the Barcelona process. As the 2010 target will be rapidly approaching the coming years need to be fully used to carry out the bulk of the necessary substantial adjustment.

It is therefore important that the Conference endorse an ambitious but realistic work programme focussing on policy aspects as well as including specifically targeted technical assistance to match the needs of the partner countries, as the circumstances call for a qualitative step forward.

4. New orientations 2002-2006

4.1. Characteristics of regional measures

An updated approach towards industrial co-operation would aim at maximising the benefits of the regional approach.

Within the Euro-Mediterranean Partnership, regional co-operation is intended:

- to achieve efficiencies through a regional approach, which can act as a catalyst to reinforce the effects of bilateral co-operation;

- to tackle issues that have a trans-national dimension; and

- to intensify "South-South" co-operation (i.e. co-operation among the Mediterranean partners themselves starting, where appropriate, on a sub-regional basis).

It follows from these characteristics that, in the area of industrial co-operation, the direct beneficiaries of activities should be the public administration and those private sector organisations that can act as multipliers and intermediaries, even though the business communities will be the final beneficiaries of the improvement in framework conditions that will result from such activities. The objective of helping Mediterranean businesses take full advantage of the benefits of the Free Trade Area can best be achieved by focussing on initiatives that, while ensuring continuity and complementing already existing activities, seek to go beyond and directly influence the policy and regulatory framework in the partner countries. In this respect, lessons could usefully be drawn from the EU experience in improving framework conditions. Overlaps with existing regional or bilateral programmes or activities will need to be avoided.

As the situation in each Mediterranean partner country may vary it may be appropriate to implement relevant policy measures at the bilateral level.

In addition, there will be a need to consider, either in the design phase or when it comes to implementation, whether or not all Mediterranean partner countries would have to participate in every initiative. The well established practice of targeting sub-regional initiatives, at the level of implementation, through an approach based on a "cluster" of projects will provide in this regard the necessary flexibility

In this context and with the purpose of contributing to the programming of future activities in the framework of regional Euro-Mediterranean co-operation, the Commission proposes a number of new activities to be envisaged in four different areas. In each case, the launching of these activities would depend on their proper insertion in the regional programming documents, the availability of financial resources and the completion of the preparatory work concerning programme identification, feasibility and appraisal.

4.2. Specific proposals

4.2.1. Regulatory framework and standards

The EURO-MED MARKET and EURO-MED ITQ programmes already provide a fairly comprehensive basis for carrying out a number of activities in this field.

However, a number of complementary activities, in the framework of these programmes or in separate initiatives, could be undertaken to facilitate the establishment of the Euro-Mediterranean Free Trade Area and to reduce existing regulatory differences, both between the EU and the Mediterranean partner countries and among these countries.

A comprehensive package of measures in this field could focus on:

- More effective alignment with international and/or European standards;

- Clarifying the role to be played by standards in the regulatory system, such as along the lines of the EU "New Approach";

- Moving closer to the relevant standards organisations, aiming ultimately at some form of affiliate membership in the European Standards bodies. This would enable the relevant bodies in the Mediterranean partner countries to be involved in the shaping of European standards.

Whereas this is not strictly speaking requested under the respective Association Agreements, there is a strong case for the partner countries to follow the path of harmonisation with EU regulatory techniques and European standards. This would provide their exporters with improved access to the EU, as their main export market, and even beyond, as European standards are largely in line with international standards. In addition, co-ordinated activities by partner countries with a view to reducing regulatory differences should also help them enhance South-South trade, at the same time increasing the region's attractiveness to foreign investors thanks to the perspective of an enlarged market.

Efforts could usefully be focussed first on sectors where the partner countries have significant export interests and/or where specific difficulties have been noted. A dialogue between the EU and the partner countries would help identify priority sectors, either on a regional or, perhaps more appropriately, on an individual country basis, also taking into account past and present assistance in this sector from the EU or other donors.

For developing an operational programme in this field, concerted action would also be needed involving the policy-making level, the regulators and/or legislative action, the standardisation organisations and private sector stakeholders.

4.2.2. Creating a more favourable environment for innovation and the use of new technologies

The importance of innovation and the use of new technologies as a key factor in the development of enterprises are already fully recognised and have led to the EURO-MED-ITQ programme, which should make an important contribution to the upgrading of technological and innovation centres in the Mediterranean region.

As the implementation of the programme is only starting and will last about three years, it is too early to discuss its results and how they could be built upon. Work could however be undertaken without waiting for the completion of the programme on other dimensions that are relevant to the fulfilment of its broader objectives.

Attention could in particular be devoted to creating a more favourable legal and economic environment for innovation and the use of new technologies. A number of legal and institutional aspects (including the organisation of educational and vocational training systems, fiscal and accountancy rules, the framework for industry/university relations and the existence or not of tools to help match offers and demands of innovations or technologies, the organisation and development of financial institutions, pledge law, the degree of protection of intellectual property rights, etc.) can have a profound impact on enterprises' awareness of the importance of these factors, readiness and ability to incorporate them into their products and processes.

Programme development in this field would best start by listing the most relevant factors. An analysis of the existing situation with regard to all factors would then need to be carried out in each of the partner countries. As a third step, a comparison between the various Mediterranean partner countries and with EU Member States or countries from other parts of the world could be useful. In short, identification of best practices and, possibly, recommendations for change would result from this process. This work could draw on the experience obtained by the EU in compiling the "innovation scoreboard". Given the increasing importance of information and telecommunication technologies for businesses in all sectors, a specific focus could be given to access to such technologies.

National administrations in charge of innovation policy and technological development would be the prime actors in this context. However, the target audience should be broadened to incorporate business representative organisations via their relevant networks and also relevant networks of innovation and technological centres.

The provision of targeted technical assistance to public administrations and/or to relevant private sector bodies could also be considered. In this respect, the essential issue of access to innovation and technology by Mediterranean SMEs should in particular be tackled. To this effect, private sector representative organisations, as well as public administrations, could be targeted for assistance, with a view to enhancing their capability to deliver value-added services to enterprises in the region, building upon previous successful experiences. The provision of financial support to industrial innovation could be the focus of such action, given the existing demand from MEDA Partners countries in this respect.

The opportunity to launch pilot/demonstrative actions (including Technical Assistance) regarding the above topics at regional level possibly through a call for proposals should therefore also be considered.

In this context, new initiatives will be conceived in close coordination with the activities that may be launched with a view to fostering SME development, as mentioned above.

When identifying any new initiative in this field, careful consideration would however need to be taken in order to avoid any overlaps with existing activities.

4.2.3. Setting up a permanent private sector dialogue forum for providing advice to policy makers

Participation of the private sector in the policy-shaping process is a necessity and a positive experience in the EU relations with other parts of the world. For example, fora such as the Trans-Atlantic Business Dialogue (TABD) or the EU-Russia Round Table, although they do not play an official role, have nevertheless proved useful in providing the European Union and selected third countries with ideas on how to overcome specific problems in their bilateral economic relationships.

As far as the Mediterranean region is concerned, the EU-MED Industrial Summits have helped business in the EU and in the partner countries make its voice heard, and initiatives such as the creation of a Mediterranean Union of industry federations are a further welcome step in this direction.

However, there is a case for making such involvement more permanent and systematic, along the lines of the above-mentioned examples. This would mean setting up a permanent forum in which top government officials and top business leaders from the EU and the Mediterranean partner countries would discuss policy issues, based on joint recommendations from the business community on issues such as the framework conditions for business and investment, the development of infrastructure, the policy and financial instruments for supporting the establishment of the Free Trade Area, etc. The Forum could also be a natural meeting point for UNICE and its Mediterranean counterpart.

Recommendations could be prepared by the Forum either on a request from public authorities (for example from the Working Group on Euro-Mediterranean industrial co-operation) or on the own initiative of its members.

The difference between such a forum and the strengthening of existing industry representative structure lies in:

- the personal involvement of business leaders,

- the direct link with top government levels,

- the inherent trend to achieve joint business positions from both sides, and

- the political weight of such joint positions.

The process would need the active support of representative business organisations, in particular in as far as the selection of participating businessmen is concerned. The involvement of such organisations is necessary to ensure that selected business people are sufficiently representative, both from a geographic and from a sectoral standpoint, with an appropriate representation from SMEs.

The importance of selecting the right business people as members of the Forum cannot be underestimated, especially as far as the chairperson(s) is or are concerned. They would need both to enjoy broad support and to be ready to jointly drive the dialogue process, by committing themselves actively to its success and ensuring that work is being carried out at the technical level between the annual conferences.

Such a forum, if actually created, should not be viewed as an isolated initiative but only as a complement to the other components proposed as part of this strategy. It could draw on the experience and participants of the EU-MED Industry Summits, and its meetings should whenever possible be organised in conjunction with the Summits.

If this project could be announced by the forthcoming Industrial Summit in Istanbul in March 2002 this would offer the possibility of an official endorsement by the Málaga Ministerial Conference in April.

4.2.4. A virtual network of EU and MED administrations for helping manage information flows in the Free Trade Area

The progressive establishment of an EU-Mediterranean Free Trade Area is likely to create a need for more systematic exchanges of information in a number of policy areas. Depending on the way in which the FTA evolves, this could include areas such as data relating to the safety of or technical requirements to be met by certain products, customs information, etc.

In the internal EU context, such exchanges of information are indispensable and indeed often compulsory for the proper functioning of a number of Community policies. The EU has developed the IDA programme (Interchange of Data between Administrations) with a view to offering a fast and reliable infrastructure for such secure exchange of sensitive data between the Member States' administrations and the Commission.

If, in the medium term, such needs were to appear in the framework of the Euro-Mediterranean partnership, thought could be given to drawing on the experience accumulated in the framework of the IDA programme in order to adapt it to these needs. Alternative implementation means would also need to be studied during the project's preparation.

As a first step, consideration could perhaps be given to a demonstration project aimed at ensuring interconnectivity between the IT systems of the administrations in charge of industry policy and enterprise development in the Mediterranean partner countries and in the Member States in order to facilitate exchanges of information, provided that there was a proven need for such exchanges on a scale large enough to justify such a project. This aspect, among others, would need to be clarified by a feasibility study. If the results of such a project proved positive, thought could be given to extending it to other policy areas.

Careful consideration would also need to be given to projects to be funded under other programmes in order to avoid overlaps.

5. Conclusion

The proposals in this document are aimed at stepping up the contribution of industrial co-operation to the preparation for the Euro-Mediterranean Free Trade Area by 2010. In combination with the regional programmes already underway and with assistance provided in the framework of bilateral programmes, they should go a long way towards helping the Mediterranean partner countries put in place the right conditions for helping their businesses reap the full benefits of the Free Trade Area.