Balancing relations: Maintaining trade with the EU while looking after national interests

Ties between Algeria and the EU are of key importance to both the North African republic and Europe. The EU is Algeria’s most important trading partner by a wide margin, and Algeria represents a crucial supplier of energy, in particular of natural gas, to the bloc. Highlighting the importance of these links, in November 2012, EU High Representative for Foreign Affairs Catherine Ashton described Algeria as a “strategic partner” upon her visit to the country. However, Algeria has managed its ties with the EU much less enthusiastically than neighbours such as Morocco, and progress on liberalising trade and upgrading relations has been comparatively slow. Even though an association agreement between the two that envisages the eventual application of a free trade zone has been in place for a decade, the government recently took the decision to postpone full implementation of the framework in light of opposition and scepticism at home. Algeria’s measured approach is further highlighted by the continued lack of an agreed action plan under the EU’s European Neighbourhood Policy (ENP), which its neighbours did not hesitate to contract early on.

TRADE RELATIONS: The EU is Algeria’s main commercial partner, accounting for half of Algeria’s trade (50.5% of imports and 49.5% of exports) in 2010, coming in ahead of the US at 16.5% and China at 5.8%. Fuels and mining products, mostly oil and gas, accounted for nearly all Algerian exports to the EU in 2011, at 98% of the total, reflecting the dominance of hydrocarbons among Algerian exports in general. Algeria accounted for 4.7% of all EU imports of such products in 2011, and it is the bloc’s third-largest supplier of natural gas (behind Russia and Norway), rendering it of key strategic importance. Southern Mediterranean countries Italy, Portugal and Spain purchase between 30% and 40% of their gas from the North African state. Algerian imports from the EU primarily consisted of machinery and transport equipment (35.1% of the total goods imported), agricultural products (20.4%), chemicals (13.3%), and iron and steel (11.9%). Total bilateral trade amounted to approximately €44.7bn in 2011 (up 30.7% from €36.6bn the previous year), with a trade balance of €10.33bn in favour of Algeria. Algeria was the bloc’s 14th-most-important trade partner in 2011, accounting for 1.4% of total EU trade, ranking 12th in terms of EU imports and 20th in terms of EU exports.

HISTORICAL OVERVIEW: In 2002 Algeria and the EU signed an association agreement that entered into force in 2005, and a roadmap that finalised the framework of the agreement was subsequently signed in 2008. The accord initially provided for a free trade zone for industrial goods to be put in place by 2017, with tariffs on some industrial goods having been removed straightaway, as well as for some liberalisation of agricultural trade.

HOLDING BACK: However, given Algeria’s sizeable hydrocarbons riches, it is not surprising that assistance levels are substantially lower and of far less comparative importance to Algeria than the aid given to some of its North African neighbours, like Morocco. EU aid commitments to Morocco under the ENP between 2011and 2013 stand at €580.5m, over three times the €172m granted to Algeria.

Furthermore, while the relationship is important for both parties, Algeria has tended to show more caution than some of its neighbouring countries when deepening relations with the EU or pursuing EU-backed initiatives. As argued in paper by the European Council on Foreign Relations in late 2011, Algeria has been slow to sign on to some major EU initiatives. For example, Algeria initially declined to adopt an action plan required to deepen ties under the ENP, which was launched in 2004. The country finally agreed to begin exploratory talks on doing so in December 2011, six years after Morocco had signed its own action plan with the bloc. Algeria also at first came out against joining the Union for the Mediterranean, a multilateral partnership organisation that seeks to promote cooperation and better regional integration among its 43 member countries, before later changing its mind.

In addition, Algeria has been unafraid to seek revisions of existing agreements to ensure its interests are protected. In August 2012 Algeria and the EU, following two years of discussions, announced an agreement to delay by three years the full implementation of the free trade zone envisaged under the association agreement. Under the revised agreement, tariffs on 82 products (including cars and electric motors) that were due to be removed in September 2012 will remain in place until 2016, while the full implementation of the zone will be delayed from the initially envisaged application date of 2017 to 2020. The Algerian authorities had first requested a delay in the zone’s implementation in 2010, arguing that this hold was necessary to protect some Algerian industries and allow them more time to prepare themselves. “Algerian small and medium-sized enterprises (SMEs) must improve their performance and operating standards if they are to be prepared for the opening of the market, of competition and free trade,” Mohammed Bennini, general manager of Algex, told OBG. The authorities also said that failing to delay would cost the government around €8.5bn in revenues. However, the August 2012 agreement also saw progress in trade liberalisation, by reinstating preferential tariffs for 36 EU products – primarily agricultural and agro-industrial goods – that Algeria had removed in 2010.

SCEPTICISM: The delay to the timetable for the implementation of the accord highlights the government’s sentiment that the country, in the wake of economic problems in the 1990s and under pressure from international institutions, had opened up the economy too quickly, including the signing of the association agreement.

Algerian exporters are also sceptical of the benefits to domestic industry under the contract’s current conditions. This is all the more a concern given that the country’s non-hydrocarbons industrial export capacity is limited, and that the accord does not substantially liberalise access to the EU markets for Algerian agricultural goods, which some regard as Algeria’s most promising non-hydrocarbons export opportunity. There is also concern that without a proper strategy, the association agreement will not work for Algeria. Ali Bey Nasri, president of the National Association of Algerian Exporters, believes that the accord has been negative overall for the country and that the EU had failed to provide Algeria with sufficient help to make it a successful arrangement for the North African nation. “We don’t need money, but we do need expertise, in particular as regards the very high level of EU, and above all French, expertise in agriculture,” Nasri told OBG.

GAUGING THE IMBALANCE: This scepticism comes against a backdrop of mixed results from similar trade accords between regional states and global economic powers. For instance, in March 2012 El Aid Mahsouusi, secretary-general of the Moroccan Ministry of Industry, Trade and New Technologies, said that the results of the kingdom’s free trade agreement with the US had to date been below expectations, and that Moroccan exports to the US remained weak. Critics of the accord point out that the US trade surplus with Morocco has grown enormously since the free trade agreement was implemented, from an average of $34m in the five years up to and including 2004 (the year the agreement was signed) to over $1bn by 2009, and reaching $1.85bn in 2011. US exports to the kingdom climbed from $498.3m in 2004 to $2.82bn in 2011, while imports from Morocco grew from $515m to $995.6m over the same period, suggesting that the accord disproportionately benefitted US exporters. The EU’s trade surplus with Morocco under their association accord has also widened in recent years, albeit less dramatically, from €4.28bn in 2007 to €6.48bn in 2011. Given Algeria’s goal of reducing imports, such figures help explain its caution over further trade liberalisation.

COMMENSURATE EXCHANGE: Nasri also points out that access to the EU agricultural market remains difficult. The EU is heavily protectionist in terms of trade in agriculture, but, as Nasri argues, such restrictions on Algerian agriculture seem overly stringent, considering the limited amount of agricultural products the North African country currently exports. “Such agreements should take into account the individual circumstances of each country,” Nasri said. He went on to highlight that phytosanitary monitoring requirements imposed on potential Algerian exports such as honey, meat and milk are difficult for local exporters to implement, and that the EU has not provided Algeria with sufficient aid to meet these requirements. “The EU should provide help while Algeria still has plenty of money to invest; otherwise, when the oil eventually runs out, the country will have nothing but young people to export.”