Regional Integration and Internal Reforms in the Mediterranean Area

The trade liberalisation agreements signed between the European Union and the southern Mediterranean countries carry risks as well as benefits. They reveal structural weaknesses in the partner countries, including continued rent seeking, market segmentation, a weak modern private sector and inadequate fiscal systems. In the short term, since the agreements only cover industrial goods and not agriculture or services, there is a risk of job losses in the domestic industrial sector due to competition from the EU. The authors of this study highlight the opportunities the agreements offer for supporting reforms to encourage industrial restructuring through financial transfers, providing incentives for producers to diversify, and securing new markets. Achieving the reforms, however, will require political will in the southern Mediterranean countries and complementary reforms in the European Union to open its markets further to include those sectors currently excluded from the agreements. Moreover, as demonstrated by the authors' detailed analysis of the Egyptian and Tunisian cases, a regional response to the challenges posed by the agreements is likely to bring more benefits than a purely national response.