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Southern Mediterranean countries - Trading hopes for light industries

Global Arab Network - The Middle East Association

Sunday, 13 June 2010 19:47

Southern Mediterranean countries are pinning their hopes on light industries to generate economic growth and are looking to their more prosperous neighbours in Europe to help them. Susannah Tarbush reports

The European Union is by far the largest trading partner of the Med (defined in the Euro-Mediterranean process as the Southern Mediterranean states minus Turkey, and including Jordan and the Palestinian Territories). But the global recession hit trade in 2009. Two-way trade in 2008 had increased some 15 per cent to €146.8 billion, but in the first ten months of 2009 it fell by 21 per cent compared with the same period of 2008, due to recession and competition. Med exports fell 31 per cent and those of the EU 11.9 per cent, and the Med’s trade deficit with the EU more than trebled to €15.6 billion.

The coming into being of the Euro-Mediterranean Free Trade Area in 2010 coincides with efforts by Mediterranean industries to make up ground lost in 2009. Turkey, which is trying hard to become a member of the Free Trade Area, was also badly hit, with its industrial exports down an estimated 27 per cent in 2009. Textile exports dropped 20 per cent to $15.5 billion and those of the ready-to-wear sector by 15 per cent to $13.5 billion. The president of the Turkish Clothing Industrialists Association, Ahmed Nakkas, predicted it would take two years or longer for exports to rebound to 2008 levels.

Mediterranean industrial exporters face strong competition from low-cost producers, such as China and India. This is the case particularly in the textiles and clothing sector, which has to contend with the Chinese textile behemoth, unleashed by the ending, in 2004, of the Multi-Fibre Arrangement that had regulated the world textile trade for 30 years.

The Med states are also cultivating other markets. Morocco and Jordan have free-trade agreements (FTAs) with the US, and Egypt and Jordan have Qualifying Industrial Zones (QIZs) under which items from QIZs can be exported to the US duty- and quota-free as long as they include a specified proportion of Israeli input. These zones are politically sensitive, but they have helped boost exports, particularly those of textiles and clothing.

A start has also been made on enhancing integration between the Med states themselves, building on the Agadir Agreement signed in 2007 by Tunisia, Morocco, Jordan and Egypt. A condition of Turkey, which has had a customs union with the EU since 1996 and is a candidate EU member, becoming part of the Free Trade Area (FTA), is that it should reach individual FTAs with each Med state. Its agreement with Egypt has fuelled a surge in Turkish-Egyptian trade and in Turkish investment, especially in QIZs.

It will take time for the FTA to take full effect, as it is being built on existing bilateral Association Agreements the EU has with its Southern Mediterranean neighbours and these have transition periods of up to 12 years.

However, if the Area is to realise its full potential, then it is essential that not only tariffs but also non-tariff barriers (NTBs) to trade are reduced. The NTBs include a lack of standardisation in technical regulations, product safety, labelling, packaging and certification. There are also difficulties over customs regulations, rules of origin, and over counterfeiting and other violations of intellectual property rights.

Med textiles and clothing industrialists are keen to identify and adopt cutting-edge technology to improve performance and quality. One new area is that of technical textiles, and another promising niche is organic cotton clothing. The EU garment business increasingly emphasises fast fashion, which requires just-in-time ordering, and this gives Med producers close to the EU an edge over more distant Asian competitors. Morocco is a major supplier of clothing to Spanish fast fashion companies, such as Mango and the Inditex Group, parent of fashion labels Zara, Massimo Duti and Bershka.

A number of Med countries have established significant pharmaceutical industries, often in partnership with, or under licence to, international companies. The sector is poised for further robust growth due to increases in local consumption and exports. There are also opportunities in bio-medical technology.

Egypt is the largest Med producer and consumer of pharmaceuticals and a major exporter to markets in the Middle East, Asia and Africa. Jordan’s pharmaceutical industry has grown markedly, encouraged by Jordan’s improved protection for intellectual property rights, such as trademarks and patents, through its signing the Agreement on Trade-Related Aspects of Intellectual Property Rights. Jordan’s leading pharmaceutical company, Hikma Pharmaceuticals, is now a multinational listed on the London Stock Exchange.

Pharmaceuticals are also a bright spot in Palestinian industry. Ramallah-based Pharmacare, a joint venture with Grunethal of Germany, became the first Palestinian pharmaceutical company to export to the EU when it exported the painkiller Tramal to Germany in 2008. Pharmacare Europe is building a joint venture plant in EU member-state Malta, due to start production in mid-2010.

Palestinian agri-business prospects were boosted by the decision of the UK’s Department for Environment, Food and Rural Affairs in late 2009 to issue guidance over the labelling of products from the West Bank. The aim was to enable consumers to differentiate Palestinian produce from that of illegal Israeli settlements.

The agro-industries of some Med states have been hampered by difficulties in reaching agreement with the EU on the elimination of tariffs and quotas on sensitive items such as tomato paste, pasta, confectionery, baked goods and canned fish. In late 2009, the EU and Egypt signed an agreement on further liberalisation of agri-trade, and the EU and Morocco reached a draft agreement, but negotiations with Tunisia were less advanced. Such liberalisation initiatives are expected to increase European investment in Med food processing.

Egypt has had some success in developing flower exports to the EU, the world’s biggest market for flowers. The Dutch government’s Centre for the Promotion of Imports from Developing Countries helped a group of Egyptian flower farms set up an organisation, EgyptFlor, to export to the EU. Gaza also has had sizeable flower exports to the EU, before the blockade virtually destroyed this trade.

Syria has much potential in export-oriented industries, including agri-business. One hope of the Euromed Partnership, relaunched in 2008 as the Union of the Mediterranean, is that Syria will sign its Association Agreement during 2010, putting the last piece of the Euromed Free Trade Area in place.

Global Arab Network

Susannah Tarbush is a journalist and consultant based in London. This article is published in partnership with the Middle East Association, and was published by News desk Media in the Middle East Business Focus 2010 on behalf of the Middle East Association

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