The Euro-Mediterranean agreement between the European Union and Lebanon

The EU-Lebanon Association Agreement was initialled on 10 January in Brussels by the two negotiators, Lebanese Minister of Economy and Trade Basil Fuleihan, and Ms Catherine Day, Deputy Director General for External Relations with the European Commission. Relations between the EU and Lebanon are already very close, and were formalised in 1978 through a Co-operation Agreement. The first moves towards an Association Agreement began in 1995. Negotiations intensified in late 2000 and throughout 2001 and were concluded in December, 2001.

Following the initialling, the Agreement will be signed by the two sides, which is expected to take place in the spring, and then ratified by the Lebanese Parliament, the European Parliament, and national Parliaments of the 15 EU Member States. Since this formal process will take some time both sides have agreed to conclude an Interim Agreement to allow for the immediate implementation of the trade provisions in the Associa ion Agreement .

Lebanon has an estimated population of 3.3 million and a GDP per capita of $5200. GDP annual growth was close to zero in 2000 and below 1% in 2001. The EU is Lebanon's main trading partner. Lebanon imports from the EU were valued at $ 3 billion in 2000, accounting for 44% of total imports. Exports to the EU reached $156 million, or 20% of total export.

Under the 1995-2000 MEDA I program, Lebanon received grant commitments totalling $166 million, and has received $80 million in grants Indicative funding for grants under MEDA II is around $75 million for the period 2002-2004.

Catherine Day was the Commission's Chief negotiator for EU negotiations with Lebanon and as played a leading role in preparing the Association agreement.

Euromed Special Feature asked her what the initialling of the Agreement meant for Lebanon, for the Middle East, and for the Mediterranean region as a whole.

Euromed Special Feature: What can be done to upgrade relations between Lebanon and the EU even before ratification and entry into force of the Agreement? The solution of an Interim Agreement has been chosen. When will it enter into force?

Catherine Day: Ratification usually takes quite a long time, but we are confident that Member States will do their utmost to speed up these procedures, also in the case of Lebanon. However, we are able to bring certain parts of the Agreement into force without waiting for ratification. Thus the trade parts of the agreement can be implemented more rapidly and we are pleased that Lebanon is interested to do that as a way of taking our co-operation forward. The Interim Agreement will not require a full new negotiation since it will simply separate the trade parts, which have already been agreed, out of the main Agreement and put them into force with immediate effect. It is our intention to sign the Interim Agreement at the same time as the main Agreement so that the Interim Agreement can enter into force immediately upon signature of the Agreement. The fact that we have concluded the negotiations and have agreed on the way forward for our partnership is already changing the atmosphere of our relationship and we will try to anticipate on this new, deeper relationship across a wide range of policy areas.

As Lebanon is very sensitive to events in the region, what can be achieved on the political side even without a comprehensive settlement in the Middle East? The present situation is very difficult as everyone knows.

It is true that current circumstances are very difficult, but that should be the reason for us all to redouble our efforts to try to promote the cause of peace and dialogue and negotiations in the Middle East. We attach a lot of importance to the unique nature of our Partnership where we have Israelis, Palestinians and all the other Partners sitting around the same table. Sometimes the discussions are difficult, but it is important in itself that we all meet together. We want to continue an all-inclusive political dialogue, but in some economic fields or other areas of co-operation it makes more sense to move ahead with a smaller group of Partners who are either willing or able to take on the increased demands of a closer relationship. For example we have been very positive in our reaction to and our support for the Agadir process, in which Morocco, Tunisia, Egypt and Jordan have decided to conclude a free-trade area agreement between themselves. And they have made clear that this is an open process and that as other countries conclude Association Agreements with the European Union they would be welcome to join the Agadir process. This is just one example of where progress can be made sub-regionally but always within the overall Barcelona framework.

Do you think the conclusion of the Association Agreement will speed up Lebanon's accession to the Arab-Mediterranean Free-Trade Area you just mentioned and to the WTO?

I think it will help because the kind of decisions and steps which Lebanon has decided to take to fulfil the obligations of an Association Agreement with the Union are also necessary if it wishes to conclude other agreements. But of course each of these processes is different, so it will be up to Lebanon and the other Partners in the Agadir Process to decide how they want to go down this road together. Similarly the WTO, in which the Union is an important member, has its own conditions for membership but in economic terms the kind of tariff dismantling, opening up of the economy, and the reform decisions which have to be taken in the context of the Association Agreement will all be very useful in helping Lebanon become a WTO member.

Can this Association Agreement have a stimulating effect on the Barcelona Process at large, on the Mashrak, and Syria in particular given the special ties between Lebanon and Syria?

Of course we hope so. Our objective is to have a full set of Association Agreements with all our Barcelona partners. It won't be complete until we have concluded with Syria. I think already this year the fact of seeing that other countries were making progress and deriving benefits from their Association Agreements has acted as an additional stimulus on both Algeria and Lebanon. So we hope there will be the same positive stimulatory effect on Syria too, because we want to be able to share the benefits of this process with all our partners.

To what extent do you think the conclusion of the negotiations and the initialling of the Agreement will add to the credibility of current economic reforms and so boost investors' confidence in the future of the Lebanese economy?

I think it will have a positive effect from a number of points of view. First of all I think investors look to see how serious governments are about reform. It's not enough to announce reforms, one has to follow them through and I think the Lebanese government has shown by taking difficult decisions that they are seriously committed to reform. I think it is also a signal of endorsement by the European Union of Lebanese reforms that we are prepared to sign an Agreement, and this positive signal will be picked up by investors. And I also think that the conclusion of the negotiations is not only important in the bilateral Lebanon-European Union context, but also opens up other possibilities of trade with other Partners in the region. Altogether, I think there will be a positive multiplier effect.

VAT is expected to be introduced in the country at about the same time as the initialling of the Association Agreement. May we see more than symbolic value in this, given Lebanon's debt problem? What about the new Economic and Budgetary Adjustment Plan announced by the Lebanese government? Will the Commission and the EU at large now be more ready to help with its implementation?

I would say that the introduction of VAT is highly symbolic in the sense that VAT is an efficient way of raising government revenue. It also introduces much greater transparency into an economy and I think both of these are important expressions of Lebanon's wish to move ahead with reform. VAT is of course the tax system which is practiced in the EU and to that extent it brings our systems closer together. This introduction has been necessary, in the context of trade liberalisation , for the government to replace the loss of tariff revenues with a more efficient and more objective tax raising mechanism. So for all of these reasons we welcome very much the introduction of VAT and we have been working very closely with the Lebanese government to share our technical expertise on how to do this. On the wider question of the economic program I think it's very important that Lebanon reaches agreement with the IMF. We are part of the international community, we are part of the IMF. We subscribe to the kind of budgetary discipline which it tries to help countries to have and I think that an early IMF agreement will be a very important precondition for any wider international assistance to Lebanon. In the meantime we of course have just completed the programming of our MEDA assistance for Lebanon for the next 3 years and we have identified a number of areas where we will be providing financial and technical assistance.

The promotion of social development is one of the EU's priorities set out in the Strategy Paper for Lebanon and in the National Indicative Programme. Are results to be expected only in the long term or do you think more visible results can be achieved in the short term?

Through our financial assistance we would like to make a lasting contribution to Lebanon's economic and social development but this doesn't mean that the benefits will only come in the long term. Working to change systems and introducing a framework in which people can have access to help and begin to take more charge of their own future already brings a new dynamism. We don't think of the MEDA programme as a quick fix programme. It supports sustained efforts for structural reform. We are only one of a number of providers of financial assistance and we try to be complementary to others, providing assistance with a specific European flavour. That is, we want to use MEDA assistance increasingly to support the objectives of the Association Agreement so that the rights and privileges which we are offering to Lebanon in the Agreement can open up possibilities which can be developed with our financial assistance. Priorities are decided in close co-operation with the government, after consultations with other international partners to try to make sure that between all of us we cover as many of the needs as possible with the available resources. We try to magnify the benefits of bringing our different instruments together, whether they be the trade concessions of the Association Agreement or financial assistance from MEDA, or the transfer of expertise and know-how to help the Lebanese government to shape its policies. The support we have provided on VAT is a good example: it has taken several years to prepare the legislation, to set up the system. But now it's ready to go into effect and it will have a very significant impact on Lebanon.

Another priority in programming papers for Lebanon is the environment. What specific contribution can the EU make, given its own experience in this area?

Protecting the environment is a challenge which all our populations identify with, so it's not just a mission for government but it is something that touches people directly. So it's an obvious priority for us. What we'd like to do is to work at different levels. We'd like to work with the government on developing Lebanon's own environmental policy framework because it is important first to get the policy framework right and to make the right decisions. And we feel we have a certain experience which we want to share with the Lebanese authorities. In addition to policy advice and capacity building, we also want to provide assistance for some physical investment in improving the environment. Now we are talking also with the European Investment Bank (EIB) about how we can combine grant funding from the MEDA Programme in the form of an interest subsidy with an EIB loan for better wastewater treatment facilities, for example. This could improve conditions of living for the people in the areas where these investments would take place, but would also help Lebanon develop its tourist industry, for example because tourists are increasingly demanding in terms of wanting clean water and a good environment in which to pass their holidays. This is an area where we again see a potential multiplier effect coming from EU financing.

Agriculture was one of the difficult areas in the negotiations. What can this Association Agreement bring Lebanon in this regard?

I think that the final agreement that we have reached is actually a very generous one as far as Lebanon is concerned. With some exceptions we are offering substantially free access for Lebanese agricultural products. So there are a lot of new market opportunities for producers in Lebanon. Even in the areas where we have retained quotas or where the tariffs will take time to come down we have completely catered for traditional trade with Lebanon. So it is a very generous agricultural package by the standards of any other agreement which we have negotiated, not only in the region but with other third countries. I think that the Lebanese agriculture sector is very well served by this Agreement.

Human rights have been defined as a priority within Strategic documents for Lebanon and they are also an important feature of all Euro-Mediterranean Association Agreements. In spite of recent improvements some areas give cause for concern. How can this particular Agreement help in this regard?

An Association Agreement is a particularly close form of agreement which the EU negotiates with certain privileged Partners where we feel that we have a common basis of shared values. So the importance we attach to human rights is an expression of wanting to share the same values. And therefore it is a very important part of our dialogue. But it has to be a dialogue between privileged partners where we are free and frank enough to be able to discuss the difficult issues as well as the easy ones. Again we do this from the point of view of wanting to support our partners' efforts to improve the human rights situation for all their populations. And we will engage in a political dialogue at ministerial level and at senior official level which will cover all issues including human rights, so it should become a regular part of our agenda. We should not only discuss human rights from time to time, but they should be just as much a part of our relationship as all the other issues of mutual interest.