SPEECH BY THE HON. JOSEF BONNICI, MINISTER FOR ECONOMIC SERVICES AT THE INTERNATIONAL CONFERENCE ON SECURITY AND PEACE IN THE MEDITERRANEAN IN THE 21ST CENTURY: CONTRIBUTION OF MALTA AND RUSSIA ? ECONOMIC ASPECTS OF SECURITY AND PEACE IN THE MEDITERRANEAN

It is a pleasure for me to participate in this conference on security and peace in the Mediterranean and my first wish is to congratulate the organisers. The chosen topic is certainly a very relevant one and of considerable concern, in particular to all those who live in the Mediterranean region. In my intervention, I will be focusing primarily on the economic aspects of the subject.

The Euro-Med partnership, launched by the European Union in Barcelona in 1995, is ultimately concerned with the development of a common area of peace and stability. The objective is not only improved relations between the Governments of the various countries that are involved in the process but also, and especially, closer cultural and social ties between the civil societies on both shores of the Mediterranean.

It should be readily apparent that the achievement of these goals must be built upon a parallel process to develop closer economic ties between the European Union and the Mediterranean countries that are represented within the Euro-Med partnership. In fact, the required objective is none less than the construction of a common ‘zone of shared prosperity'.

In view of its planned enlargement, by about 2010, the EU will have become by far the biggest single market and the world's most concentrated area of economic prosperity and internal stability. It will comprise essentially all of Europe, east and west, more than 90 per cent of the total European population. i.e. almost 500 million people, and have a combined GDP of some 12,000 billion USD, an almost unimaginable figure.

One question, immediately, becomes relevant. How will the non-member Mediterranean countries adapt to these profound geopolitical changes that will take place north of them in the next 12 years? How will they coexist with the future European giant? To what extent will they be drawn into its economic and political orbit? To what extent will they have to integrate with the European and consequently the world economy? These are questions of vital importance for both the EU and each of its Mediterranean neighbours.

This reflection suggests yet more questions. Do the Mediterranean countries still have a real alternative to joining the proposed Euro-Mediterranean free trade area? Could they try to stay in a sort of splendid isolation within their tiny national economies, surrounding themselves by high walls of protection and ignoring the profound technological and economic changes taking place around them?

It was the conviction that prosperity is best enhanced in a climate of competition and free trade, that induced the EU and its Mediterranean neighbours, five years ago in Barcelona, to envisage the setting up of a vast Euro Mediterranean free trade area. This free trade area will be a zone where goods and progressively also services would be traded free of any restrictions, as if within national borders. Deregulation and liberalisation are therefore very much the name of the game.

This objective was elaborated on in a comprehensive policy document, the Barcelona Declaration, in November 1995. The 27 foreign ministers of the signatory States, that is, all the fifteen current European Union member states and twelve Mediterranean countries, agreed to work towards establishing a Euro-Mediterranean free trade within 15 years, by about 2010.

It would appear logical to expect that free trade between the individual Mediterranean countries and the EU should open the way for free trade among the Mediterranean countries themselves. Intra-Mediterranean free trade should therefore follow as a logical corollary from Euro-Mediterranean free trade. However this is not a straightforward issue nor is it a foregone conclusion. The present absence of provisions for cumulation in rules of origin in the association agreements signed by the individual Mediterranean countries with the EU effectively hinders the emergence of certain types of intra-med trade.

The trade potential is insufficiently exploited because of high, sometimes even prohibitive trade barriers, every country attempting to protect its tiny manufacturing sector as well as its agriculture. And in fact, at the present time, Mediterranean countries do less than 10 per cent of their total trade among themselves.

In the Euro-Med economic context the principal vehicle for trade development has essentially taken the form of a ‘bilateral contract', called an Association Agreement, between the EU and each respective Mediterranean country. Through such agreements Mediterranean countries and the EU commit themselves to open their markets to each other's exports within a bilateral free trade area. The EU commits itself to bolster the adjustment process through financial assistance. If the EU is to start playing a more direct role in implementing Euro-Mediterranean initiatives it must bolster the financial and human resources available to this multilateral process. This contract between the EU and the specific Mediterranean partners should be perceived as an external catalyst that pushes the country in the appropriate direction to implement difficult social and political reforms. The overriding effort, however, must come from the country itself.

A few years after the launching of the Barcelona process it is apparent that Mediterranean countries are finding it difficult to cope with the necessary restructuring that needs to be carried out. The EU must therefore encourage and support consolidation of reform efforts in the region by mobilising a comprehensive package of economic incentives. Given that the Euro-Mediterranean process is a long-term process, the EU should share its experience in the fields of employability, entrepreneurship, adaptability, and equal opportunities with its Mediterranean partners. The EU should also lead by example and help Mediterranean countries contend with serious political and social issues such as migration.

EU free trade adjustment programmes must not only focus on the macroeconomic context within which this is occurring, but also on the microeconomic context, that is, the domestic dimension of the equation. If the Euro-Mediterranean partnership goal of creating a region of peace and prosperity is to be achieved and the process is to be a catalyst to economic and financial prosperity, then the EU should ensure that sufficient capital flows to the Mediterranean are available to sustain the restructuring that needs to take place.

When focusing on the issue of economic reform and the key challenges facing developing countries in the Mediterranean the issue of competitiveness is a dominant feature. Can the Mediterranean Partner countries ever reach a level of development from which they can effectively compete at an international level? In order to compete on a more level playing field the Mediterranean countries must immediately seek to reduce the element of risk quite often associated with investment in their region.

A concerted effort must also take place to promote the conditions that are conducive to nurturing a climate of growth. This includes securing a more effective transfer of technology and strengthening research and development programmes. Governments across the Mediterranean must seek to trigger and nurture a proactive corporate attitude amongst entrepreneurs in the region. Unless policymakers are able to engage the private sector as partners in the restructuring exercise they are carrying out, they will not be able to take full advantage of the opportunities that a deregulated economic environment will offer.

Policymakers in the region should also bear in mind what the costs of not taking the necessary reform actions will be in the years to come. Unless the Mediterranean is able to improve its economic track record by introducing the necessary measures to attract the attention of international investors, the latter are much more likely to be attracted to other developing regions. Both Central and Eastern Europe (CEFTA), and the southern cone of Latin America (Mercosur), have already demonstrated an ability to integrate with one another and are therefore better positioned to reap the benefits of globalisation.

A key question to ask is what will determine whether the Barcelona Process is ultimately a success or not? If economic prospects are to improve in the Mediterranean area, the Barcelona Process must provide a stable political and security environment by reducing existing tensions and establishing a co-operative zone of security. Economically, success will essentially be the capacity of the Mediterranean countries to generate higher rates of growth than they have achieved during the 80s and 90s. How can a higher growth rate in the Mediterranean area on a sustainable basis be best achieved?

By creating an attractive business environment that is conducive to domestic and foreign investment. The primary role of government should be to stabilize and guide relations with the EU as the partnership process evolves. As the scope for government action in the regulatory field continues to shrink to the benefit of the business community, government and the private sector should co-operate more closely as a general source of information and guidance on external business opportunities.

A more attractive business environment would consist of essentially four elements. These are freedom for business to operate without undue government restrictions or interference, full respect of the rule of law, full transparency of legislation, and free competition domestically and internationally. Free domestic and international competition is crucial. Without a functioning competitive system there will be neither economic efficiency nor incentive to higher performance.

A more propitious business environment constitutes the single most important factor to attract foreign direct investment (FDI). The Mediterranean has been doing poorly when it comes to FDI. Barely some $6 billion have been invested in 1998 in the 12 Mediterranean countries, of which almost one third in Israel and another 25 to 30 per cent in oil and gas exploration and distribution in countries such as Algeria, Egypt, Tunisia, and Syria. In comparison, the Eastern European accession countries have harvested four times as much FDI in each of the last two years ($25 billion).

What are the next steps that the Mediterranean needs to take? In analogy to the ‘accession partnerships' that define the measures to be taken in order to make each of the 13 accession countries eligible for membership, one might elaborate ‘'association partnerships' in view of defining and implementing comprehensive 5-year strategies of economic reforms for the non-member Mediterranean countries.

The individual ‘association partners' such as Tunisia, Morocco and Jordan would have to agree on the basic policy objectives to be achieved, the implementing measures and the time-frame. The EU could follow a triple role in such an exercise. It should allocate suitable levels of financial assistance for the implementation of the agreed policy framework, as is currently the case with the PHARE programme. It should direct the partner country to sources of information, technical assistance and other useful support available in Europe. It should also monitor the process very closely so as to become co-responsible for the success of the ‘association partnership'.

The creation of a free trade area is bound to boost trade. The increase of transparency and the removal of opaqueness in the economic sector will have a commercial multiplier effect in the region as domestic restructuring deals with issues such as public procurement, state aid, monopolies, norms and certification. However one must not succumb to any misplaced euphoria. The challenges to be met are imposing. Policymakers must therefore set realistic economic growth targets in order to avoid raising expectations too high.

Mediterranean countries have so far not adequately capitalised on the comparative advantages that they possess in a globalised world. They are close to a large trading bloc - the EU, and also located on a busy sea route - the Mediterranean. Both are natural advantages that should be harnessed to attract the technological revolution and international investment that will improve the economic growth rates. But before this can happen Mediterranean countries must eliminate artificial barriers that are prohibiting trade.

The security and prosperity of states today is connected to the global movement of goods, capital, information and people. Mediterranean states have yet to realise that keeping these channels of commerce and technology open can be as important as defending a border. Tapping into the information highway and also ensuring an ability to apply the information by improving education and research and development programmes is long overdue. Few Mediterranean countries can be classified as innovators in the world market place. A larger number can be classified as adopters of technology. But far too high a number of people in the Mediterranean remain cut off from the benefits of post-Cold War prosperity that include expanded access to health care and education.

Malta's geographic position, at the very centre of the Mediterranean Sea, makes it that much more imperative for us to seek improved Euro-Mediterranean cooperation. We want to participate in such cooperation and we also firmly believe that we can contribute positively towards its realisation.

Throughout the years, since Malta gained its independence in 1964, we have actively sought to develop and improve our relations with all the countries bordering the Mediterranean. This now places us in a position to prospect a very positive and active role for Malta, in striving to serve as a hub between the southern Mediterranean countries and the European mainland, in the north.

Following our last elections in 1998, Malta has reactivated its application to become a member of the European Union. This has been followed-up by a positive assessment, by the European Commission, of Malta's credentials for membership and the opening of formal membership negotiations in 1999. Malta aspires and is preparing itself to be part of the next enlargement of the European Union, whenever this takes place.

We firmly believe that Malta's application and its eventual membership of the European Union will greatly enhance Malta's potentially leading role within the desired Euro-Med development process. In particular, it will strengthen Malta's credentials as an ideal location for the prospected intensification of European investment in the Mediterranean region and as a principal facilitator of the expansion in Euro-Med cooperation, which we all desire.

This is our vision, but it is also our commitment towards which we are ready to allocate our energies and our resources.

Thank You