DRAFT COPY – Full Study available on-line at http://www.mftz.org/mftz/report.htm

Over the past two decades, the world has witnessed a proliferation of regional trade arrangements. This work aims to explore experiences from some such agreements, as well as from other relevant economic liberalisation programmes, in order to better understand the issues at play in the context of the proposed Free Trade Zone (FTZ) called for under the Euro-Mediterranean Partnership.

In 1995, leaders of 27 governments, as well as the European Union, came together in official support of a joint policy initiative to increase the political, economic, and cultural ties between countries on both sides of the Mediterranean Sea. This ‘Euro-Mediterranean Partnership’, as it is called, includes Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco, the Palestinian Authority, Syria, Tunisia, and Turkey, as well as all 15 member states of the European Union. According to the Barcelona Declaration, the document signed by the Foreign Ministers of each partner country which officially initiated the Partnership in 1995, the Partnership’s main goals are:

1. A definition of a common area of peace and stability through a reinforcement of political dialogue and security.
2. A construction of a zone of "shared prosperity" and the gradual establishment of the region as a free trade zone, to be functional by the year 2010.
3. A rapprochement between peoples through a social, cultural and human partnership.

Based on the resources dedicated and official activities undertaken under the Euro-Med banner, the economic programme with its focus on creating a regional Euro-Med free trade zone is clearly the top priority among the three issue areas, and its implementation is likely to have significant impacts upon the other two, as well as on the social and environmental fabric of the region. The economic programme will effect the economies of the region in several ways, including through:

1. Bilateral association agreements between the EU and SMPs which have been negotiated or are being negotiated during the interim period until the establishment of the regional free trade agreement.
2. Structural adjustment programmes in the SMPs including introduction of value-added tax systems, investment protocols, harmonisation of standards, etc.

 

3. Possible changes in cumulative rules of origin which would allow for increased south-south cooperation in joint production of goods to be traded within the region.
4. Elimination customs duties on all manufactured goods traded within the region (in essence this means the opening up of the markets of the southern Mediterranean partners (SMPs), as the SMPs already have preferential (duty-free) access to the EU for most manufactured goods) by 2010.
5. Possible liberalisation of agriculture and services, which represent large shares of the economies of several of the SMPs (While not scheduled for inclusion in the free trade zone, these fields are likely to be liberalised to some extent within a regional trade arrangement. Some reductions of trade barriers in these areas are already being negotiated into bilateral EU-SMP association agreements.)

In addition to the tangible changes in economic policy, the Euro-Med Partnership has been allocating substantial sums for technical support for economic transition, infrastructure projects, and various political and social programmes. New investment flows are also expected due to a more solid and predictable region-wide financial framework.

While the southern Mediterranean region represents a relatively small share of the EU’s economy, the EU represents roughly half of the total trade of the MPCs, reachng nearly 70% in some cases. Thus, the Euro-Med’s trade programme could have a profound impact on the economies and the lifestyles of those living in the MPCs, with direct effects on production and consumption, as well as on institutional roles and capacities. Clearly these changes will have direct and indirect social and environmental impacts. Some of the most obvious social impacts, such as effects on unemployment and aggravation of poverty have begun to be investigated, and research bodies have begun to propose various measures for achieving a balance between economic development and social stability. The associated impacts of the Euro-Med Partnership on the environment and long-term sustainable development, however, have remained largely unaddressed.

This report seeks to be an initial investigation of some of the expected impacts. It is the hope of the author to contribute to a better understanding so that negative impacts can be mitigated to the greatest extent possible, and potentially positive aspects of the Euro-Med trade liberalisation can be better incorporated into the Euro-Med framework.

This study makes use of the following categorical distinctions in terms of environmental impacts of trade liberalisation:

1. Scale – changes in the amount of resources consumed and/or products or pollution produced;
2. Composition – shifts in terms of which economic sectors are active;
3. Technique – changes in production methods and technologies used;
4. Regulation – both regulatory attempts at addressing trade-environment issues, as well as the impact trade agreements can have on regulation itself;
5. Institutional Responses – which institutions are established and/or designated responsibility for addressing the trade-environment dynamic.

The study analyses experiences from other trade agreements according to the categories outlined above to see if and how they have affected these elements of sustainable regional development. Central to this concept is the need for countries to respect the carrying capacities of their natural physical environment. As most of the expected impacts are in the southern Mediterranean partner countries (MPCs), the study focuses primarily on these nations. Efforts were made to examine impacts at a sub-national level, as well, since severe local impacts may not necessarily effect national-level indicators.

Throughout the study reference is made primarily to two other FTZs which are of particular relevance to the case of the Euro-Med, the European Union and the North American Free Trade Agreement (NAFTA). While the EU is of obvious relevance in that it is itself one half of the Euro-Med Partnership, while NAFTA is the first major FTA to incorporate both industrialised and developing economies. There are, however, also several differences between the aforementioned FTAs and the Euro-Med FTZ which need to be kept in mind. The EU is much more than an FTA; it is a comprehensive political and economic regional integration. It also deals with nations of relatively high economic development. In the case of NAFTA, because it involves only one developing country the environmental issues possible methods of addressing these are more focused.

Other trade arrangements are referred to periodically when relevant. The Asian Pacific Economic Cooperation (APEC) policy forum is similar to the Euro-Med in that it is a broad policy forum of both developing and industrialised nations, however, since it is still too early to see any definitive tangible impacts, reference is made to APEC only in terms of regulatory and institutional measures.

Perhaps the primary issues at stake is how economic development, which the Euro-Med’s trade liberalisation proram is supposed to facilitate, impacts the environment. Several researchers have attempted to see if there tends to be a linear relationship whereby increased economic activity results in increased consumption of resources and increased pollution, or if, on the contrary, economic development leads to better technologies and demands for higher levels of protection thereby reducing environmental pressures. Such generalisations over-simplify the issues, however, as economic liberalisation is proposed as a remedy for environmental crises by several international institutions dealing with the region, the question is worth examining more closely.

Some seminal studies which examined the relationship between economic development and air pollution found that the output of pollutants per dollar equivalent produced tended to increase along with national income until a certain point, after which point it tended to decline. In the first studies, a level of annual Gross Domestic Product (GDP) per capita of roughly US$5,000 was found to be the watershed mark (Radetzski, 1991, cited in Bailey, 1993.). Thus, pollution levels, as plotted against per capita income, followed a sort of inverted "U" curve, sometimes called a Kuznets curve. Some studies of other types of pollution confirmed such a phenomenon.

This type of analysis, however, is open to several critiques. First, it only shows such inverse relationships for certain pollutants. Not all forms of pollution show a decline past a certain point of economic development. Second, some research shows that some pollution levels which do decline as income rises often level off at rates relatively close to the peak emissions rates. Third, studies have tended to concentrate on pollution levels, as opposed to resource

consumption, which is a crucial issue for many of the resource poor MPCs. Finally, the analyses generally do not consider carrying capacities, levels of ambient resource quality, or other concepts central to sustainability. In many developing countries, while the pollution as measured per unit of production has decreased, overall pollution loads have increased. Moreover, even if overall levels of pollutants eventually do decrease, the additional pollution emitted when emission levels are at their peak could exceed maximum sustainable rates. This could seriously disrupt the ecological systems, even lowering the original carrying capacity, as shown in Figure 1.

In the case of the Euro-Med, economic development in MPCs has tended to be accompanied by higher levels of resource consumption and increased pollution loads. Even for the specific situations for which an inverted U curve phenomenon might be expected, 9 of the 12 MPCs are well below the estimated "watershed" levels of US$5000-7000 GDP per capita, after which improvements are projected. In the case of Egypt, for instance, even assuming an optimistic scenario per capita income will only reach the US$5000 level in roughly 40 years. In sum, based on current trends, it can be expected that without additional mitigating policies, Euro-Med economic expansion, will tend to exacerbate environmental pressures in the majority of MPCs, not detract from them, at least in the short and medium term.

It is questionable how much more many MPCs can take in terms of pressures on natural resources, many of which are already facing critical threats. Several of the MPCs are already utilising over 100% of their renewable fresh water resources, for instance, and even more are facing serious problems of water quality. In addition, levels of air and water pollution already exceed international standards in many MPCs as will be discussed later

According to studies investigating the 1992 initiation of the European Union’s single market, the complete removal of trade barriers within Europe was likely to be the direct source of increases in transport, air pollution and domestic waste production (Task Force), The study estimated, for instance, that each 1.5% increase in economic growth would lead to 10-20% increase in air pollution emissions. The expected changes varied largely according to geographical location. Significantly, all southern countries, the lesser developed within the EU, were likely to see increased air pollution emissions. Empirical data covering the period in question shows that all four least developed EU countries (Greece, Ireland, Portugal, and Spain), increased CO₂ emissions, with overall emissions for the four rising 30% between 1990 and 1996.

In the case of NAFTA, the Clinton administration had promised that the agreement would ease environmental pressures on the US-Mexican border. Studies examining NAFTA’s first five years of implementation, however, have shown that while the relative share of the border regions in national production decreased, in absolute terms, it continued to grow at rates of up to 20% annually (Jenkins and Branch, 1996). In addition, while substantial sums were invested in pollution control at the factory level, many of the communities on both sides of the border witnessed increases in both water and air pollution. Thus, instead of an improvement in the environmental situation of the border regions due to a redistribution of production, the net effect of NAFTA, thus far, has simply been an increase in the areas’ total pollution loads.

Lorry transport was projected to increase seven-fold between 1995-2005 due to NAFTA (FoEI, 1999). Increases in production and transport of wastes and toxics resulting from NAFTA seems to be overwhelming the ability of the governments to effectively supervise their use and disposal. Hazardous waste crossing the US-Mexican border reportedly increased by 50% in 1996 alone and it is estimated that less than 1% of lorry traffic at border crossings are inspected (Global Trade Watch, 1998). Such minimal enforcement measures offer little

incentive to abide by environmental regulations. Indeed, reportedly the final disposal of one quarter of hazardous waste produced in maquiladoras is unaccounted for (ibid, 1998).

Based on economic development policies of the Euro-Med economic liberalisation programme, likely risks for MPCs include increases in:

1. Water consumption and pollution from industrial, agricultural and domestic sources
2. Air pollution from industrial and domestic sources, as well as transportation
3. Solid waste production from increases in industrial and domestic consumption
4. Loss of open lands, including water recharge zones and wildlife habitat, due to increased road construction, urbanisation, and industrial development
5. Resource extraction, including fuel and mineral mining and possibly also fishing
6. Marine pollution, pressures on coastal areas, especially in ports serving as sub-regional commercial hubs, and risk of accidents resulting from increased marine transport

In most cases, the burden brought about by the Euro-Med FTZ will be adding to already alarming trends. Water use in the Maghreb is projected to increase by a factor of seven over

the next 20 years (Pearce, 1996). A World Bank study on the Middle East and North Africa (MENA) region predicted a growth of 50% in industrial pollution and 60% in transport pollution for the region unless significant policy changes were taken (World Bank, 1995). Energy production in the MPCs is projected to increase 36% between 1999 and 2025, while consumption in these countries is to increase 124% during the same period, with fossil fuels as the primary energy source (MEDA Team-Information, 2000 ).

Discussions of increases in scale cannot be evaluated in isolation from questions of the ability of the affected nations to cope with predicted changes. As noted already, several of the MPCs already extract water beyond renewable rates. In addition, according to the World Bank, in MENA countries over 160 million lived in cities already exceeding World Health Organisation air pollution standards and only 20% of urban wastewater is treated (as compared to 60-70% in Europe) (World Bank, 1995). Moreover, most already face severe problems of lack of capacity both in terms of infrastructure and trained personnel, to treat solid and liquid wastes.

In order to avoid additional pressures, anticipatory policy measures and infrastructure will be necessary. Currently these are largely lacking. In Jordan, for instance, an over 50% reduction of customs duties on motor vehicles was implemented in 1999, despite no comprehensive strategic traffic management plan for the country – a situation criticised as likely to result in more traffic jams and higher air pollution.

Should the Euro-Med FTZ lead to removal of environmentally harmful subsidies (e.g. for fossil fuels, water, fertilisers, etc.) and to improved access to advanced environmental technologies (to be discussed below), some of the negative environmental impacts may be somewhat mitigated. Such outcomes are only likely, however, if the MPCs actively develop and implement national and regional strategies which promote sound environmental and economic policies, such as price internalisation and economic incentives for investment in environmentally desirable initiatives.

Free Trade Agreements can also lead to shifts in the location of production, which can also bring about population shifts as well. Analysis of the EU indicated that unification would accelerate trends of urbanisation, as people moved away from non-competitive rural livelihoods, thus threatening several valuable natural areas on the outskirts of cities. Empirical data confirm a trend in urbanisation for the EU, although at rates comparable to those of other industrialised nations. Similar population shifts were projected due to NAFTA, especially in Mexico. During NAFTA’s first 3½ years employment in maquiladoras along the US-Mexican border rose 50% (Seligman, 1997). This movement has put further pressures on areas already incapable of supplying basic resources to the population and coping with the population’s industrial and domestic pollution loads.

A Euro-Med FTZ is projected to exacerbate trends of urbanisation in MPCs, as well as possible increases in immigration from MPCs to urban centers in Europe (Handoussa and Reiffers, 1999). It is also likely to lead to increased pressures on the coastal areas, including on already overcrowded ports along the Mediterranean Sea, as the economies become increasingly oriented around exports to Europe. For many of the MPCs, these coastal areas are of unique ecological significance. In Algeria, for instance, 75% of the country’s renewable water resources are concentrated in the coastal strip which makes up only 6% of the total area (Kayamanidou, 1998) while in Jordan, the nation’s only port city is home to the world’s northern-most coral reefs. Thus, even small additional pressures can have severe consequences.

Aside from changes in the amount of production, trade liberalisation also affects what types of products are produced and consumed, and can lead to production shifts between sectors or even within sectors. In the case of energy production, for instance, the Euro-Med FTZ is expected to facilitate greater use by EU nations of natural gas from the southern Mediterranean, in place of more polluting coal and oil sources.

Trade agreements often encourage export-oriented economies in developing countries which previously focused on meeting their own needs. Transitions from cultivation of traditional food stuffs to that of export-oriented cash crops, for instance, generally involve more intensive use of machinery and of agricultural inputs, such as water, fertilisers, and pesticides. This has direct impacts upon water and soil quality, as well as physical health of the workers. In addition, because agricultural production in developing countries which is designated for Europe generally involves non-native crop species, there is also the danger of the inadvertent introduction of exotic pests which can seriously disrupt local ecosystems.

NAFTA has been found to have threatened the livelihood of Mexican producers of maize, a traditional staple crop there, as local producers cannot compete economically with cheap US imports. Thus, they are faced with the prospect of either changing crop types and cultivation techniques in favor of more intensive methods or abandoning their traditional livelihoods and seeking employment in other sectors (CEC, 1999). While the Euro-Med Partnership does not call for free trade in agricultural goods, it is important to note that such shifts in agricultural production are likely to take place to some degree in any event, as the overall economies of MPCs will become increasingly foreign trade focused.

In addition to shifts in economic production, it is also important to note that FTAs also affect consumption patterns among consumers. This is especially likely as the MPCs open their markets to European manufactured goods. As those who can afford to, adopt Western consumption habits, there is likely to be a corresponding rise in such environmental loads as packaging wastes and domestic water and electricity consumption due to increased use of products such as home appliances.

One of the most debated issues in trade-environment research is that of "pollution havens" – the relocation of polluting industries from countries with high environmental standards to those with lower environmental standards and/or poorer enforcement of standards. Some have even posited that countries may purposely keep standards low in order to attract such "dirty" investment. Much of the economic research undertaken on this topic comes to the conclusion that the economic benefits of low environmental regulation are insufficient to motivate industries to relocate or to attract new investment, as environmental control costs are generally minor for most industries. For certain polluting sectors, however, environmental costs may be high enough to influence location decisions (Ewing and Tarasofsky, 1997).

Empirical evidence is mixed. One study claims that at one time Ireland and Spain tried to offer themselves as pollution havens within Europe, but were unsuccessful (cited in Bailey, 1993). Industry growth in Mexico since NAFTA came into effect, however, suggest that concern over pollution haven formation may be justified, as there has been an overall increase in the share of "dirty industries," such as chemicals, metals, and minerals, in Mexican exports (Jenkins and Branch, 1996). While it is difficult to predict what will occur in the Euro-Med case, the serious gaps between partners in terms of levels of economic development and systems of environmental regulation and enforcement means that conditions for a migration of polluting industries do exist and MPCs could become a dumping ground for equipment being phased out in the EU.

While removal of trade barriers can cause shifts in production which are environmentally detrimental, it can also allow for taking advantage of economies of scale and other methods of more efficient use of resources. Opening the countries to competition was also found to be beneficial in terms of efficiency ratios. In the case of electricity production, both the formation of the European single market and NAFTA were thought to have improved overall power production efficiency by integrating electrical grids, allowing for production at the most efficient locations (Task force, 1989; CEC 1999). Opportunities for such efficiency improvements in utilities and other sectors almost certainly exist in the Euro-Med region as well.

One of the primary arguments supporting a win-win relationship between trade and environment is the prospect of facilitating technology transfer. In the case of the EU, the establishment of the common market has facilitated the transfer of technologies throughout member states. The EU mandate, however, meant that members countries were often forced to adopt relatively high standards which demanded use of advanced technologies. In the case of NAFTA, in a position paper released prior to the adoption of NAFTA, the White House promised that new investment would bring better, less-polluting technology (White House, 1992). To the knowledge of this author, however, no studies have been done to evaluate to what extent such processes have indeed occurred.

With trade liberalisation between industrialised and developing countries there are higher incentives for developing nations to implement environmental management plans, such as ISO 14000. Such a trend is already occurring in Europe and is getting underway in some of the MPCs as well. Since such certification schemes oblige businesses to seek sound environmental management throughout their production and supply chains, increased trade contacts between the EU and the MPCs could mean an increase in environmental management plans by MPC businesses with European partners.

Environmental technologies and environmental certification often involve real economic costs, however, and while many of the technologies or management systems pay for themselves over time, initial capital outlays are often necessary and thus present serious obstacles for small and medium sized enterprises (SMEs), who make up the overwhelming majority of producers in many MPCs. In addition, adoption of advanced environmental technologies remains unlikely as long as countries lack sufficiently high environmental standards and levels of enforcement.

A Euro-Med FTZ could facilitate technology transfer, however, such a scenario is not a given. Policies which focus on environmental technologies as a priority for customs and tax benefits for instance, would be needed. Programmes such as that of Euro-Mediterranean Energy Forum to promote renewable energies may be beginning to facilitate some transfer of

technology, and institutions such as Egypt’s Business and Technology Development Centres could also contribute if they focus more specifically on environmental technologies. Despite the potential, however, relatively little progress is actually being made in implementing such concepts in MPCs.

Other changes in technique, such as the expected shift from traditional to intensive agriculture, generally mean increased consumption of resources, higher pollution rates, drops in soil quality, and marginalisation of poorer farm workers. Spanish olive growing since its accession to the EU largely confirms this, as does a comparison between export-oriented Israeli olive production and traditional Palestinian olive cultivation (Bonazzi and Gomez y Paloma, 1998; FoEME, 1998).

Environmental regulation is often seen as a barrier to trade, whether because of outright bans on certain types of goods or production methods, technical restrictions, or costs involved which affect competitiveness. Conversely, free trade regulation, by emphasising competitiveness as an over-riding value, is also sometimes seen as undermining effective environmental regulation.

Although the original Treaty of Rome establishing the European Community in 1957 did not specifically mention environmental issues, their transboundary nature, their impact on trade, and mounting public concern, pushed them onto the Community agenda. The Single European Act of 1987 directly addresses environmental issues. Article 100a of the Act states that environmental protection is a legitimate priority within the mandate of the EU, and Article 230 commits to integrating environmental concerns into other policy areas.

Environmental concerns were neglected during the early stages of negotiation of NAFTA, however, public pressure forced the trade teams to incorporate environmental concerns. The preamble to NAFTA states that it is the intent of the agreement to, "Contribute to the harmonious development of world trade...in a manner consistent with environmental protection and conservation...; promote sustainable development...; [and] strengthen the development and enforcement of environmental laws and regulations. While this is a general and non-binding clause, inclusion of explicit environmental goals in the agreement’s preamble expresses the notion that NAFTA is intended to promote a specific type of development which includes social goals as well as purely economic ones.

Details regarding methods and instruments for dealing with environmental issues under NAFTA were included in a separate, parallel agreement – the North American Agreement on Environmental Cooperation (NAAEC). This marked the first time that the environment was seriously addressed in the context of a trade agreement, however, such a dual-track approach was criticised as going against commitments made to ‘mainstream’ environmental concerns into trade policy and is thought by many to have reduced the effectiveness of the environmental clauses.

The Asian Pacific Economic Cooperation (APEC) forum lists sustainable and equitable growth among its primary objectives. APEC Environment Ministers have produced both an ‘Environmental Vision Statement’ and a ‘Framework of Principles for Integrating Economy and Environment.’ Despite such symbolic steps, APEC suffers from a lack of political will among most partner nations to actively address the environment.

The Barcelona Declaration establishing the Euro-Mediterranean Partnership calls for "sustainable and balanced economic and social development." It also mentions such environmental goals as the need for conservation of fish stocks, sustainable management of water supplies, and promotion of "environmentally-friendly agriculture". The Euro-Med process does not specifically address actual causal links between its trade agenda and the environment, however.

At the core of the the Euro-Med’s economic programme are the bilateral association agreements between the EU and southern Mediterranean countries. The name "association agreement," as opposed to "trade agreement," implies that more than just trade issues are to be agreed upon, and thus, provides hope that sustainable development concerns could be incorporated. There is, however, little if any mention of environmental issues within the association agreements already concluded. Even in the association agreement between the EC and the PLO, which is exceptional in that it does list some such objectives, actual sustainable development targets and programmes for reaching such targets are noticeably lacking. This is in sharp contrast to the trade objectives which list specific tariff reduction rates and schedules for implementation.

Harmonisation of standards is central to facilitating trade. It also lies at the heart of questions over national sovereignty. According to decisions of the European Court of Justice, nations have the right to restrict trade for environmental purposes. In reality, in the EU, community-wide standards are often a compromise between environmentally progressive states and those lagging behind. According to one analyst, for EU members "with relatively weak environmental movements, the EC has been the single most important factor in improving their environmental quality" (Vogel, 1995). This upward harmonisation occurred because of the EU’s binding governmental structure and was aided by ‘structural funds’ which were made available for assisting development needs of the poorer EU members. This notwithstanding, there have been several examples when environmental regulation has been restricted following challenges by member states within the EU that it violated free trade, including regulation on food standards, fuel content, automotive design, and numerous others.

Officially, NAFTA discourages downward harmonization of environmental standards, stating that any harmonization should be implemented, "without reducing the level of protection of human, animal, or plant life or health." It also states that it is "inappropriate to encourage investment, by relaxing domestic health, safety, or environmental standards." (NAFTA, Articles 713 and 1114.2). NAFTA has been criticized, though, for what it does not address, e.g. provisions allowing for preferential treatment of environmental policies, such as subsidies for environmental conservation projects (Greenpeace, 1993). Actual evidence indicates that the overall level of Mexico’s environmental legislation has risen since NAFTA, as has the level of enforcement of these policies. Despite overall improvements, incidents of standards lowering

in probable deference to trade interests have occurred: Mexico repealed its requirement that environmental impact statements be prepared for highly polluting sectors such as petrochemicals and fertilizers and the US relaxed standards regulating food safety and farm workers’ exposure to toxic pesticides (Public Citizen, 1997b; Global Trade Watch. 1998).

NAFTA’s rules on investment protection have brought about serious challenges to national sovereignty to determine environmental policy, as companies claim that according to NAFTA governments must compensate companies for economic losses (including loss of future profits) due to changes in regulatory measures. One observer has commented that this amounts to a

complete contradiction of the internationally accepted "polluter pays principle," and that NAFTA’s investment protection regulation has resulted in a situation in which governments must "pay polluters not to pollute." (Seligman, 1997).

Given that the MPC economies are of relatively marginal importance overall to that of the EU, it is unlikely that a Euro-Med FTZ will result in downward harmonisation, but there is no political impetus pushing for upward harmonisation either. Moreover, many of MPCs already have basic environmental regulation in place, but lack proper monitoring and enforcement.

Several multilateral environmental agreements (MEAs) which address global environmental issues include trade measures, or measures which affect trade, such as the Basel Convention, which bans trade in hazardous waste between OECD and non-OECD countries. Such measures, environmentally beneficial, are open to challenge under free trade rules. The EU, as a supra-governmental organisation is itself a signatory to several MEAs, and thus, its member nations are obligated to uphold them. NAFTA has officially granted certain MEAs preferential status within the agreement, whereby obligations under the MEA take precedence over general trade rules. The Barcelona Declaration states that the Euro-Med Partnership should support the goals of Barcelona Convention and the Mediterranean Action Plan (MAP). Many of the most important protocols of the Barcelona Convention, have yet to be ratified, however, thus reducing the Convention’s effectiveness.

Realising the potential environmental implications of free trade policies, the European Commission itself commissioned a study of expected impacts soon after the signing of the Single European Act in 1987. After much public outcry, the governments of Canada and the USA both conducted their own studies of NAFTA prior to ratification of the agreement. Such studies were significant in determining the eventual institutional and policy responses taken to avoid or mitigate expected environmental consequences. For the Euro-Med Partnership, a limited number of studies, including the present report, have investigated some aspects of the environmental impacts of its trade programme, however, none have any status within official Euro-Med policy-making institutions. In 1999, the European Commission announced its intention to conduct a sustainability impact assessment of the Euro-Med FTZ, however, nearly a year later there has been no noticable progress in carrying this out.

Many economic liberalisation programmes, including that of the Euro-Med Partnership, involve structural adjustment programmes, which can have far-reaching effects on sustainable development. In so far as they force countries to open up to competition and reduce subsidies for sectors such as energy and water, they can lead to more efficient resource use. This would be important for the Mediterranean region, which has substantial energy subsidies and low energy efficiency rates. A World Bank study on the MENA region estimated that removal of the region’s US$25-26 billion in fossil fuel and electricity subsidies could reduce total air pollution by up to 20% (World Bank, 1995). Similarly, removal of subsidies for fertilisers and pesticides, both of which are heavily subsidised in several MPCs, could also pay environmental dividends. Under the Euro-Med sponsored SAPs reduction of subsidies are not guaranteed, although a trend in this direction is developing.

However, while SAPs generally improve productivity and efficiency ratios, they also tend to cause utilisation of marginal lands by subsistence farmers, reduce resource rents, reduce the governments’ capacity and/or willingness to address social and environmental issues due to budgetary pressures, and lead to an expansion and intensification of resource extractive industries (Reed, 1996). Moreover, SAPs also often have severe social impacts. For instance, under SAPs, women almost always tend to suffer more than men, the poor suffer due downward pressures on wages and upward pressures on prices, and large-scale unemployment is common. In several MPCs, such impacts have led to wide-spread, sometimes violent protest, as alternative policies to provide basic needs were not developed.

The loss of customs duties under a free trade agreement and its associated SAPs means additional budgetary pressures for governments. In the case of some of the MPCs, loss of customs duties under a Euro-Med FTZ will mean losses of 10-20% or more of overall government revenues. Under short-term budgetary crises, social and environmental budgets are often the first to be slashed. The Lebanese Ministry of the Environment, for instance, was threatened with closure in 1999 as a result of budget constraints. Thus, economic liberalisation under the Euro-Med Partnership, could well result in reduced governmental capacity to deal with environmental and social challenges exactly at a period when increased economic activity is likely aggravating the problems.

The EU allocated massive funds (over 200 billion ECU for 1989-1999) for structural adjustment of its southern members. Under the Euro-Med Partnership, only roughly 9% of total development aid (the MEDA programme) is dedicated to coping with structural

adjustment (MEDA Information Team, 1999) and despite the likelihood of negative environmental implications of the Euro-Med SAPs, environmental protection is not directly covered by structural adjustment funding.

Under the EU system, environmental issues are managed by Directorate General offices within the European Commission which is in charge of developing community-level policies. As such a system involves a political body with defined statutory and regulatory authorities, it is not a useful model for the Euro-Med case, in which trade occurs between independent sovereign states.

Under NAFTA and its environmental side agreement, several bodies were created to address expected environmental problems. These included the tri-national Commission for Environmental Cooperation (CEC), designed to serve as a contact point for public comment, offer advice to NAFTA authorities, and act as a dispute resolution forum. While well-intentioned, CEC suffers from quite limited authority, as it cannot demand changes in government policy or impose punitive measures for violations of environmental regulations. In order to address specific problems likely to arise along the US-Mexican border two additional bodies were established: the Border Environment Cooperation Commission (BECC) and the North American Development Bank (NADBank). The main task of the BECC is to work with local communities in order to coordinate the development of environmental infrastructure, while role of the NADBank is to offer funding for such projects (its performance is discussed in the following section).

In addressing environmental issues APEC has held a Sustainable Development Summit, as well as meetings of environmental ministers. In addition, it has set up various sectoral working groups, some of which have environmental issues as part of their permanent agenda. Critics claim however, that the environment lacks an institutional home within APEC, and that the working groups that do handle issues with environmental impacts lack expertise to adequately address these matters (Bello, and Bullard, 1997; Hunter, 1997).

The Euro-Med Partnership has set up several institutions which attempt to address environment-related issues. The highest level of activity is via ministerial meetings on the environment, water, energy and other relevant topics. The level of governmental interest in addressing the environment in the Euro-Med framework is questionable, however, given that during the more than four years of the Euro-Med process there has been only one meeting of Environmental Ministers, at which less than half of the countries were represented by their Ministers. In any case, these meetings tend to result in official statements which are rarely followed up in terms of concrete actions. The Euro-Med process also hosts high level working groups dealing with energy, water, and other relevant topics, which may be more reasonable fora in which to pursue genuine sustainable development goals. Their projects to expand energy, transportation and water networks, however, far outpace their achievements in promoting resource conservation.

The Euro-Med Partnership has produced a Small and Medium-Term Priority Environmental Action Programme (SMAP), managed by the EC’s DG for Environment, which aims to coordinate small to medium-scale environmental projects. While an important first step, SMAP suffers from a lack of secure resources and institutional backing, and has suffered long delays in actually granting support to projects.

In terms of specifically addressing concerns related to the development of the European market, the EU dedicated massive structural funds in order to assist less developed member nations with their accession into the Union. Such funds were crucial in helping nations upgrade regulation and facilities in order to meet EU standards, including environmental ones, however, analysis of overall structural fund policy determined that there was inadequate compliance with measures designed to mitigate adverse environmental impacts of fund projects, especially in the economic periphery which contained many of the EU’s unique wildlife areas (Task Force, 1989). Furthermore, because the funds were restricted to ‘development’ projects, conservation of important natural areas and other such projects did not qualify for funding.

NAFTA’s NADBank, utilizing initial investment by the US and Mexican governments to provide supplemental funding for environmental projects along the border, has failed to raise projected lending capital. Moreover, because it is a commercial lending institution, access to NADBank funds by poorer communities is limited. Several beneficial projects have begun receiving support of the CEC and NADBank, however, both institutions have been criticised for long delays in although several analysts have stated that NADBank funding is seriously inadequate to address actual pollution mitigation costs for the region (Seligman, 1993; Housman, 1994b).

According to some observers, within APEC, the environment is seen as an "aid" issue, and therefore has become a hostage to struggles between the US and Japan, which disagree over the role of aid within the forum, resulting in little economic support for environmental issues.

A programme entitled MEDA is the principal financial instrument of the Euro-Med Partnership. The programme, funded and managed by the European Commission, was responsible for 3.4 billion ECU worth of funds for the 1995-1999 period (European Commission, Unit IB/A.1, September 1997). The programme directs 90% of funding through bilateral channels, with 10% going for regional efforts. Its primary goals are:

1. supporting economic transition among the Mediterranean countries, in order "to prepare for the implementation of free trade through increasing competitiveness…",
2. alleviating "the short-term costs of economic transition," and
3. promoting regional cooperation.

While environmental projects could certainly fall under these objectives, there is no set minimum allocation for environmental issues, and while some environmental projects do benefit from MEDA funding, the programme lacks an overall integrated sustainable development strategy.

The European Investment Bank (EIB) acts as the other major funder of the Euro-Med partnership, charged with lending up to 4 billion Euro between 1995 and 1999, for investment projects in the 12 MPCs. In terms of the environment, the EIB offers environmental projects funding concessional terms, and has been a significant funder of projects such as water supply and treatment facilities in the Mediterranean region. The EIB has been harshly criticised, however, for being supporting many environmentally damaging projects, including those promoting road transport and fossil fuel energy use (See for example, CEE Bankwatch, 1999). The capacity of the EIB to undertake quality environmental assessment of projects it funds is seriously inadequate. It employs only one staff member to evaluate environmental impacts of over 300 projects per year.

Funds dedicated for the Euro-Med partnership are distributed among a large number of recipient countries, and only a small portion of these funds is for environmental purposes. Given the massive investments necessary for environmental protection in the MPCs – the World Bank estimated that US$55 billion would be necessary to install basic water and sanitation networks in the MENA region (World Bank, 1995) – Euro-Med funding is insufficient to mitigate the environmental damages it is likely to cause. Finally, as both the European Commission and the EIB are wholly European institutions, there is no southern

Mediterranean representation in the governance of Euro-Med finances. Such a lack of balance presents a picture of the Euro-Med process as more of a regional foreign policy programme of the European Union, rather than a true Partnership.

Civil society organisations have been crucial in placing the environment on the trade agenda both within the EU and NAFTA. Failure to consider such viewpoints was nearly fatal to NAFTA, and has contributed to the recent failures to pass the Multilateral Agreement on Investment (MAI) and the so-called "Millennium Round" of the World Trade Organisation.

The EU now offers significant financial support for several non-governmental organisations, including in social and environmental fields, and offers a semi-official status to an umbrella organisation for European environmental NGOs, the European Environmental Bureau (EEB). Under NAFTA, citizens can bring issues to the attention of the CEC. In addition, the CEC is advised on a permanent basis by a Joint Public Advisory Committee (JPAC) which includes staff from members of the public, such that public environmental concerns are given a permanent channel to communicate with and influence the NAFTA governing board. Although ASEAN offers the private sector an official channel for input through a Business Advisory Council, it lacks such opportunities for non-for-profits and other citizens organisations. Efforts by civil society groups to form a People’s Forum to communicate opinions to APEC ministerial meetings have had mixed success, as governments differ greatly as to what role civil society should have in APEC’s agenda.

Under the Euro-Med Partnership, official recognition of civil society’s role has been given for such issues as the environment, trade unions, and human rights and civil forums have been held on these topics in parallel to high level Euro-Med ministerial meetings. Official activities in terms of social and cultural interchange also exist. Despite this, there are still few if any permanent channels for civil society input into the Euro-Med decision-making process. In the field of the environment, an informal channel of communication has been organised between the European Commission’s DG for Environment and a group of environmental networks active in Europe and the Mediterranean region.

Civil society contact with the EIB is almost non-existent, as the EIB has relatively few field branches in MPCs and is largely closed to outside scrutiny. In addition, as EIB announces funding decisions only after they have already been approved, it prevents any opportunity for meaningful civil society input into its lending policies. Furthermore, because so much of the decision-making regarding the Euro-Med policies is located in northern Europe (Brussels, in the case of the EC and Luxembourg, in the case of the EIB) organisations based in MPCs – the areas most likely to be affected by the policies – suffer basic logistical difficulties in communicating their positions.

From preliminary examination of other trade agreements, it appears likely that the Euro-Med’s economic liberalisation programme will lead to increased resource consumption, intensification of agricultural production and increased industrial and domestic pollution in most of the MPCs, at least in the short and medium term. If this is the case, such additional environmental burdens will in many cases be beyond the technical and/or financial capacities of the MPCs, and in some cases, such as water consumption, will contribute to exploitation of resources in excess of the natural carrying capacity of the affected ecosystems.

• Anticipatory mitagation policies should be put in place prior to tariff reduction. This will include development of technical capacity, large-scale funding for infrastructure, and integrated cross-sector policy strategies.

• Potentially positive environmental impacts include increased technology transfer, increased efficiency due to removal of wasteful subsidies and opening markets to competition, and possible opening up of environmental markets. Such outcomes are not a given, however, and will demand a great deal of political will, something currently lacking in the present Euro-Med framework. In order to promote environmental technology transfer, environmental technologies should be made a priority for customs removal, policies including tax incentives and government subsidies should be put in place, and technical assistance programmes should be encouraged. Programmes to assist small businesses in accessing technology, implementing environmental management schemes, and exploiting ‘environmentally friendly markets’, should be incorporated into structural adjustment plans, and executed by centers for promotion of the private sector.
• The elimination of customs duties and structural adjustment programmes involved in the Euro-Med process may reduce the MPC governments’ capabilities to deal with mounting environmental problems. In addition, they are likely to lead dramatic social disruption. To combat such effects, governments could use the revenues saved from removal of environmentally damaging subsidies to support subsidies and/or other economic incentives which support environmentally desirable activities (e.g. solar energy, water conservation technology, etc.) or to issue financial support directly to those most in need.

• As strong institutions are vital for integrating environmental concerns into multilateral agendas, the Euro-Med should establish an environmental coordinating body with appropriate authority and financial backing to monitor and address sustainability issues.
• The Euro-Med needs to make a priority of promoting integration of environmental concerns within the trade agenda and within the various regional sector programmes. Attempts to deal with trade and environment through separate tracks make an artificial distinction between the two, and thus in other FTAs they have proven largely inefficient and inadequate.
• Prior environmental assessments of the Single European Act and of NAFTA led to incorporation of several preemptive policies and the creation of some useful institutions and programmes. Such assessments of the Euro-Med’s bilateral and regional trade programmes should be undertaken, especially with the support of official bodies who are empowered to implement research recommendations.

• Given the potential scale of the environmental problems facing the southern Mediterranean region and given that the Euro-Med trade programme will likely exacerbate many of these problems, current funding for sustainability measures seems inadequate and should be reviewed and increased.
• Civil society input has been essential in promoting a sustainable development agenda within other trade fora, and failure to consider such input has often frustrated trade and investment programmes. The Euro-Med Partnership should establish official channels for civil society contacts.