WAKE. Joanna Geneve. (August 27, 2014) This paper

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1 T TRADE AND HISTORY: COMMERCE BETWEEN THE EU AND ALGERIA IN THE WAKE OF CAMUS S CENTENNIAL Boston University School of Law Working Paper No (August 27, 2014) Daniela Caruso Boston University School of Law Joanna Geneve This paper can be downloaded without charge at: /scholarship/workingpapers/2014.html

2 DANIELA CARUSO AND JOANNA GENEVE TRADE AND HISTORY: COMMERCE BETWEEN THE EU AND ALGERIA IN THE WAKE OF CAMUS S CENTENNIAL * AUGUST 2014 Abstract - The recent centennial of Albert Camus s birth has had little resonance in EU legal scholarship. Yet Camus s work is a natural entry point into the EU s trade relations with the global south, and Algeria s case is a particularly salient one, given the oft-ignored fact that for five years the Algerian nation was a part of the European Economic Community. The onset of a free trade regime between the EU and the former colonies or territories of its member states is often touted as the culminating point in a line of constant progress, from dependency to autonomy and from asymmetry to parity. But a closer look at the experience of Algeria reveals that massive trade diversion resulted, in a not so distant past, from the very birth of the Common Market, and that current policies are not adequately redressing the effects of such lopsided arrangements. The point of these pages, linking the 1960s death of Algeria s wine exports to the country s ongoing struggle to diversify its economy, is not to provide generalizable lessons or overarching guidelines for the trade policies of developed nations. The goal is rather to invite particularized, textured inquiries into the meaning of free trade between the EU and each of its partners, taking into account the specific legacies of older patterns of commerce. Professor of Law, Boston University. J.D., Harvard Law School. * Thanks to Bill Davies, Thomas Dodman, Michelle Egan, Adam Gopnik, David Kennedy, Fernanda Nicola, Kalypso Nicolaïdis, and Vlad Perju for comments on an earlier version of this essay. Further helpful suggestions came from participants to the conferences Albert Camus and Algeria (November 25, 2013, Boston College Clough Center for the Study of Constitutional Democracy) and EU Law Stories: Comparative and Contextual Histories of European Jurisprudence (March 13, 2014, American University Washington College of Law). Thanks also to Kaitlin Raymond for helpful research assistance. Errors remain our own. 1

3 1. Introduction The recent centennial of Albert Camus s birth, marked by conferences in literature and history departments, has had little or no resonance in EU legal scholarship. Yet Camus s work is a natural entry point both into the history of European legal integration and into the EU s trade relations with the global south. As documented by his socio-political essays, Camus was deeply concerned with Algeria s economic conditions, and believed in the necessity of linking the country s productive life to overseas markets. 1 Today, Algeria is an active and important commercial partner of the EU, with ever fewer barriers in the way of products exchange. Many things have happened since Camus s time, but the question remains whether the EU s trade policies have been properly tailored to enable the social, political and economic emancipation of France s former territory. It is well known that the EU s signature policy, namely the abolition of custom duties between states, is now no longer confined to EU membership, but also deployed as a tool for peace and prosperity in external relations. This is the case not just with respect to other developed economies, but also, more and more frequently, vis-à-vis developing countries, as well as nations that used to be under the yoke of colonialism. The results of this policy as the case of Algeria aptly illustrates are mixed, and well worth exploring in detail given the high political stakes of the EU s external action. The strand of Camus s inquiry that looked at Europe to ameliorate living conditions in North Africa resonates loudly with us today. The goal of these pages, focused exclusively on commercial relations between the EU and Algeria, is not to provide generalizable lessons or overarching ethical guidelines for the trade policies of developed nations, but rather to invite particularized, textured inquiries into the meaning of free trade between the EU and each of its partners, taking into account the specific legacies of older patterns of commerce. The shift to a free trade regime with former colonies or territories is often touted as the culminating point in a line of constant progress, from dependency to autonomy and from asymmetry to parity. But what if a closer historical inquiry revealed a different trend one in which old bastions of thriving exchange got displaced, over time, by lopsided trade deals? What if trade diversion were not a footnote in a success story, but rather a frequent narrative line? What if progress took on chimeric qualities? Algeria is a case in point, and a particularly salient one, given the oft-ignored fact that for five years the Algerian nation was a part if not formally a member of the European Economic Community (EEC). 2 The history of commercial deals between Algeria and the EU complicates, in our view, the still triumphant narrative of free trade, and should be treasured as an important cautionary tale. This tale, as summarily told in these pages, begins in the early 20 th century, when Algeria grew to be the world s largest exporter of wine (Section 2); it continues with the 1960s collapse of this profitable business a collapse causally related to the onset of the EEC s internal wine market (Section 3); it delves into Algeria s ongoing struggle to diversify its economy (Sections 4 and 5) and observes that 1 ALBERT CAMUS, ALGERIAN CHRONICLES (Arthur Goldhammer trans., Belknap Press 2013) (1958). 2 Kalypso Nicolaïdis, Southern Barbarians? A post-colonial critique of EUniversalism, in ECHOES OF EMPIRE: MEMORY, IDENTITY AND COLONIAL LEGACIES 247, 250 (Kalypso Nicolaïdis, Berny Sèbe & Gabrielle Maas eds., 2014). 2

4 the current EU trade policy towards Algeria, while embracing the mantra of diversification, has so far failed to ameliorate current commercial patterns (Section 6). It then surveys the EU s other strategy of intervention in its southern neighbors, namely cooperation, and points at its possible shortcomings (Section 7). The essay concludes by connecting the death of Algerian wine making to more recent episodes, and highlights a pattern of discontinuity between lofty trade-and-cooperation goals and Algerian economic reality (Section 8). What emerges is a plea for additional empirical inquiry, in EU circles, on the repercussions of external trade policies, especially where massive trade diversion resulted, in a not so distant past, from the very birth of the Common Market. 2. Camus s Inquiry Over the course of his life, Camus developed and nurtured two parallel federalist projects: one for Algeria, which he imagined as a pluralist society in which French nationals would continue to enjoy political representation alongside Arabs, Berbers, and ethnic minorities; 3 and the other one for Europe, wherein in synch with communist intellectuals 4 Camus auspicated the peaceful rapprochement of France and Germany and a complete demise of nationalism, to be realized by means of economic union and shared political institutions. 5 Camus s first project foundered. The political deal he had envisaged for Algeria had despicable colonial features most notably the over-representation of French interests in Algerian democracy and grew less and less realistic over time. 6 As evidenced by his socio-political commentaries, by the 1950s Camus himself had become painfully disillusioned with his own recipe for Algerian government. 7 By contrast, the project of a peaceful, united Europe succeeded well beyond the limits of Camus s imagination. In March 1957, the French foreign Minister Christian Pineau himself a communist and a protagonist of French Resistance co-signed the Treaty of Rome, turning at least one of Camus s federalist dreams into reality. As a result of French membership, the Algerian nation became part of the EEC. The 1957 Treaty of Rome specified that Algeria, while not a member state in itself, would gain both rights and obligations related to the free movement of all Community goods, and would also partake in the Community regime for 3 Camus s federalist vision for Algeria has been harshly criticized as offensive and politically insensitive to the quest for independence of the Algerian people. See, e.g., AÏCHA KASSOUL & MOHAMED LAKHDAR MAOUGAL, THE ALGERIAN DESTINY OF ALBERT CAMUS 161 (2006) (defining Camus s federalism as manipulative and mad ). 4 Most notably with Altiero Spinelli, author of the Ventotene Manifesto and himself a committed Europeanist. See Bertrand Vayssière, Les origines italiennes du fédéralisme européen pendant la Seconde Guerre mondiale, 8 J. EUR. INTEG. 37 (2002). 5 In 1944 Camus co-authored the Lyon Déclaration du Comité français pour la fédération européenne (CFFE), which read in part: "Il est impossible de reconstruire une Europe prospère, démocratique et pacifique, sous la forme d un assemblage d États souverains, séparés par leurs frontières politiques et douanières "(emphasis added). 1 CAHIER DE LA FEDERATION EUROPEENNE (CFFE) 25, (1945). See also GREGOIRE ELDIN, L EUROPE DE ROBERT SCHUMAN 11 (2001). In March 1945, Camus participated (along with Spinelli) in the first conference of the European Federalist Movement in Paris. See ERNESTO ROSSI, ALTIERO SPINELLI & PIERO S. GRAGLIA, "EMPIRICO" E "PANTAGRUEL": PER UN' EUROPA DIVERSA: CARTEGGIO (Piero S. Graglia ed., 2012). 6 KASSOUL & LAKHDAR MAOUGAL, supra note 3, at See CAMUS, supra note 1, at 73. 3

5 agriculture. 8 Had he lived longer, Camus would have probably asked what a united Europe could do to rescue Algeria from economic and political dysfunction. Would the Community s free trade recipe the principled abolition of all frontières douanières provide an answer to this unspoken question? The Treaty mandated the abolition of all tariffs on imports and exports within the Community, but it granted the Member States twelve years to accomplish this goal. Algeria became independent in 1962, thereby exiting the Community before the abolition of all internal trade barriers. Algerian exports, therefore, never came to be fully liberalized onto the European market. Quite to the contrary, the creation of a Common Market in continental Europe had the effect of erecting new obstacles to Algerian products. Wine illustrates this point effectively. 3. Wine and Trade Diversion following European Integration Albert Camus, born in Algeria to a French wine-cellar worker, 9 must have been aware of the fact that Algeria s economy was heavily dependent on wine exports, and there was nothing more iconic to the project of European integration than trade in wine and liquor. 10 The fortunes of Algeria s wine industry would have certainly been within the range of his inquiry. The Pieds Noirs had developed a profitable wine-making sector, and by the late 1950s Algeria was the largest exporter of wine in the world. 11 The industry had taken off on Algerian soil in the 1870s, following an epidemic of phylloxera in France. Vine farmers had relocated en masse in Algeria, carrying with them sophisticated wine-making technologies most importantly refrigeration systems and taking advantage of native farmers as cheap labor. Imports from Algeria ensured adequate wine supply in France in times of scarcity. When production resumed abundant inside the Hexagon, wine producers from the Métropole began to lobby for protectionist measures against Algerian wine, and obtained a few regulatory concessions. 12 Algerian wine producers, however, continued to have a steady market share in France, where high taxes and tariffs kept Italian and Spanish wines away from consumers tables. France was the only importer of Algerian wine. There was no consumption of wine amongst Algerians, and for religious and political reasons the industry 8 Treaty Establishing the European Economic Community, Mar. 25, 1957, art. 227(2), 298 U.N.T.S. 11: With regard to Algeria and the French overseas departments, the general and particular provisions of this Treaty relating to: the free movement of goods; agriculture, save for Article 40(4); [ ] the institutions, Shall apply as soon as this Treaty enters into force. 9 OLIVIER TODD, ALBERT CAMUS: A LIFE 3 (Carroll & Graf 2000) (1997). 10 Gregory P. Lubkin, Is Europe's Glass Half-Full or Half-Empty? The Taxation of Alcohol and the Development of a European Identity (1996), 11 Giulia Meloni & Johan Swinnen, The Rise and Fall of the World s Largest Wine Exporter (and its Institutional Legacy), American Association of Wine Economists Working Paper No. 134 (Feb. 2013), 12 Such as the Statut Viticole and later the Code du Vin. See id. 4

6 had never been owned, materially as well as conceptually, by native Algerians. Wine was meant for export, and for France only. 13 The nationalization of the agricultural sector in Algeria, declared immediately after independence, led wine producers of French nationality to go back home, leaving behind an established industry. Algeria relied for a while on a 1964 French commitment to continue large purchases of Algerian wine part of a larger cooperation effort in the aftermath of independence but France, upon Italy s insistence, did not honor that deal. 14 The Algerian government also sought to maintain, at least de facto, a privileged trade regime with the Community. 15 Accordingly, in contrast to Morocco and Tunisia, Algeria refused to sign a 1969 cooperation agreement that would hurt its ability to export agricultural products to the EEC. 16 But things were inexorably changing. The abolition of intra-community trade barriers on alcoholic beverages had been crucial to the European integration project, and was now an obvious priority for both the Commission and the Court of Justice. 17 As soon as France lost its ability to erect protectionist barriers against other European wines (most notably Italian), imports from Algeria lost their competitive edge, 18 and as a result of the Common Agricultural Policy, they came to be treated as products of third countries. An EEC Regulation also determined that wine bottles produced on the Continent could not contain wine of non-eec origin. 19 The onset of European integration resulted in the complete demise of a once profitable industry. This episode, by now well documented, is a dramatic illustration of the trade diverting effects of regional integration. It is often the case that the enablement of free trade within a given region of the world upsets preexisting patterns of commerce in third countries. But Algeria was no third country when European integration began, and had counted on trade continuity after political independence. As time went on, it became increasingly clear that Algeria could no longer count on privileged commercial ties to Paris, due to the Métropole s new allegiances and obligations towards the Community s member states. With the 1976 Algeria-EEC Cooperation Agreement 20 a comprehensive bilateral treaty Algeria s economy suffered additional setbacks. With regard to goods, the Cooperation Agreement offered Algeria free access to the EEC market for most of its non-agricultural products, as well as some tariff concessions for its agricultural exports. At the same time, textiles and refined petroleum products from Algeria stopped benefiting from zero rate tariffs, and seasonal restrictions were imposed upon the import of agricultural products, with disastrous 13 See id. 14 Muriam Haleh Davis, Eurafrica and De Gaulle's Constantine Plan Algeria and the European Communities , European University Institute, July 30, 2013, 15 Issam Nedjiah, Les relations euro-algériennes de la coopération au partenariat, 10 DOMITIA 149, 150 (2008). 16 See id. at The role of Jean Monnet, a wine merchant, in the creation of the EEC is well known, and so are the early cases of the ECJ concerning the liberalization of trade in alcoholic beverages. 18 Davis, supra note Council Regulation 816/70, art. 26, 1970 OJ L 99/1 (EC). 20 Cooperation Agreement between the European Economic Community and the People's Democratic Republic of Algeria, 1978 OJ L263/2. 5

7 consequences for Algerian exports. 21 The Cooperation Agreement, in force by November 1978, was meant to activate channels for cooperation by way of a newly established Cooperation Council. This body, however, met for the first time only in By then, the accession of Greece, Spain, and Portugal had dealt an additional blow to Algeria s chance of selling its agricultural goods competitively to EEC customers. 23 Both the political economy of Algeria and its trade deals with the EU have significantly evolved in recent times, and the earlier setbacks of trade diversion must be now considered in light of the important trade and cooperation policies implemented by the EU in recent years. We turn now to such policies and to the reality they are meant to address. 4. Algeria s Economy Today: An Overview The huge risks and sacrifices that so many Algerian migrants undertake in Europe give us a sense of the misery they leave behind when they embark on their journey of hope. The nature of misery in contemporary Algeria is, however, not obvious. The 1990s saw violent unrest and brutal repression, but the country has been relatively stable for the past 10 years. 24 Terrorist attacks, mostly launched from neighboring countries Islamic extremists, periodically wreak havoc and slow down the pace of foreign investment, but they remain relatively self-contained and do not immediately impact the country s productive life. 25 The main propeller of migration remains poverty, and there is poverty aplenty on Algerian soil. 26 There is, however, a significant discrepancy between Camus s picture of a destitute Algeria and the relatively solid portrait that emerges from aggregate economic figures. Algeria is a middle-income country that has managed, since 2005, to refrain from external borrowing. According to a recent economic profile, Algeria has the 10th-largest reserves of natural gas in the world and is the sixth-largest gas exporter. It ranks 16th in oil reserves. Strong revenues from hydrocarbon exports have brought Algeria relative macroeconomic stability, with foreign currency reserves approaching 21 See European Institute for Research on Mediterranean and Euro-Arab Cooperation (MEDEA), EU-Algeria Relations, (last visited on August 20, 2014). 22 European Commission, MEMO/87/45, Apr. 24, 1987, 23 It appears that Algerian food exports, including cereal, had doubled in between 1976 and 1986, but then contracted again. See id. 24 See generally LUIS MARTINEZ & JOHN ENTELIS, THE ALGERIAN CIVIL WAR (2000); see also Eleanor Beardsley, Algeria s Black Decade Still Weighs Heavily, NPR, Apr. 25, 2011, Oxford Business Group, The Report: Emerging Algeria 2008 (Nov. 30, 2008). 25 See, e.g., William Maclean & Lamine Chikhi, Al Qaeda Claims Deadly Algiers Bombings, REUTERS, Apr. 11, 2007; Jenny Percival, Algeria Hit by two More Fatal Terror Bombings, THE GUARDIAN, Aug. 20, 2008; Algerian Gas Plant Siege: Military s Role Questioned, BBC NEWS, Sept. 12, 2013, At Least Five Tunisian Soldiers Killed in Militant Attack Near Algerian Border, REUTERS, July 17, See David N. Margolis, Egidio Luis Miotti, El Mouhoub Mouhoud and Joel Oudinet, To Have and Have Not: Migration, Remittances, Poverty and Inequality in Algeria, IZA Discussion Paper No (Nov. 2013); Vivienne Walt, With Limited Freedoms, Many Algerians Vote with Their Feet, TIMES MAGAZINE, Feb. 18, 2013; Algeria Profile, BBC NEWS, April 18,

8 $200 billion and a large budget stabilization fund available for tapping. In addition, Algeria's external debt is extremely low at about 2% of GDP. 27 Clearly, many things have changed in the past few decades. Camus s inability to conceive of Algeria as fully independent from French influence 28 was largely based on the writer s experience of the land as a hopelessly poor one. His memorable portrait of Kabylia in Algerian Chronicles has local villagers annihilated by hunger and entirely dependent on remittances from their émigré sons. 29 Given the dire state of agriculture, the dearth of food and the absence of alternative productive sectors, severing colonial ties would mean abandoning the country to arithmetically guaranteed starvation. At the time of his writing, Camus could not have anticipated the economic transformation of the country that began in the late 1950s with the discovery of oil (Edjelleh, Hassi Messaoud) and gas fields (Hassi R'Mel). Since then, the exploitation of hydrocarbons has indeed brought Algeria remarkable wealth. Kabylia, for instance, is today the seat of important refineries, conveniently located in proximity to the sea, and second only to the Algiers province in economic terms. 30 But large pockets of destitution, combined with lack of faith in the ruling class, continue to generate emigration fluxes. 31 Dire unemployment figures characterize, in particular, the southern provinces, even though these very areas are rich in oil and gas, 32 and Camus s portrait still feels tragically contemporary. The point is that the wealth generated by hydrocarbons comes with two significant drawbacks: first, it is either concentrated in the hands of the country s elite or siphoned off to foreign investors, with no immediate benefits for the Algerian poor; second, it is excessively dependent on world price fluctuation, and is therefore subject to sudden contractions. The country s economy continues to be plagued by lack of diversification (with hydrocarbons accounting for 95% of Algerian exports 33 ) and spatial disparity, i.e. abysmal poverty in rural areas and largely disappointing performance of privately owned business. Virtually all sectors of Algeria s economy, with the exception of oil and gas, still struggle to take off. The cause of such problems lies, from the perspective of developed countries, in the Algerian government s reluctance to liberalize. 34 Algeria s patterns of state intervention in the 27 Index Mundi, Algeria Economy Profile 2013, 28 CAMUS, supra note 1, at Id. at Algeria industry: Sonatrach OKs new oil refinery in Kabylia region, ECONOMIST INTELLIGENCE UNIT: COUNTRY VIEWSWIRE, June 14, Walt, supra note See Violence Hits Southern Algeria for Second Day, AL ARABIYA NEWS, Apr. 11, 2013, (reporting violent protests against government s failure to deliver subsidized housing in the town of Ourgla, in the same province where the important oil field of Hassi Messaoud is located). 33 Index Mundi, supra note 27 (noting that Hydrocarbons have long been the backbone of the economy, accounting for roughly 60% of budget revenues, 30% of GDP, and over 95% of export earnings ). 34 The following passage summarizes a commonplace condemnation of Algeria s policies: Algeria's economy remains dominated by the state, a legacy of the country's socialist post-independence development model. In recent years the Algerian Government has halted the privatization of state-owned industries and imposed restrictions on imports and foreign involvement in its economy.... Algeria has struggled to develop non-hydrocarbon industries because of heavy 7

9 economy, expansive fiscal policy, and relatively profligate public spending stand in stark contrast with current recipes for progress. 35 The World Bank s Doing Business report of 2013 ranks Algeria 152 nd out of 185 economies, indicating that the Algerian regulatory environment is not hospitable to business, and in particular to small and medium enterprises. 36 The Heritage Foundation is also (predictably) negative about Algeria s degree of economic freedom. 37 It is indeed common knowledge that the Algerian government keeps a tight grip on economic activity. 38 President Boumedienne s large project of nationalization in 1971 has since given way to a more liberal attitude towards private entrepreneurship, but a cautious and caged attitude towards foreign investment continues to characterize government policies. The Hydrocarbons Law of 2005 was meant to terminate Sonatrach s monopoly over all hydrocarbon-related activities, from exploration to transportation, and indeed it paved the way for new and transparent bidding processes for international investors. A governmental order of 2006, however, guaranteed a 51% Sonatrach share in all ventures, and introduced additional tax burdens for foreign investors. 39 Subsequent decrees added to the sense of a volte-face of the Algerian government among foreign investors. 40 The 51%/49% shareholding rule, ensuring that control over investment in Algeria stays national, proved particularly troubling to investors. 41 In the aftermath of this (counter) reform, Algeria s licensing rounds yielded an underwhelming number of bids. 42 regulation and an emphasis on state-driven growth.... A wave of economic protests in February and March 2011 prompted the Algerian Government to offer more than $23 billion in public grants and retroactive salary and benefit increases, moves which continue to weigh on public finances. Long-term economic challenges include diversifying the economy away from its reliance on hydrocarbon exports, bolstering the private sector, attracting foreign investment, and providing adequate jobs for younger Algerians. Id. 35 See The World Bank, Algeria Overview, (last updated Mar. 12, 2014): The development plan, or programme quinquenal, for the construction of housing and public facilities is expected to create up to 2 million new jobs. Algeria posted an estimated fiscal deficit of 4 percent of GDP in 2011, the third consecutive deficit in over a decade. It is expected to rise to 6 percent in 2012 because of heavy public spending. However, Algeria holds significant foreign exchange reserves estimated at US$193 billion (September 2012) to finance its deficit and expansionary fiscal policy. 36 The World Bank, Doing Business 2014, Economy Profile: Algeria, 37 The Heritage Foundation, 2014 Index of Economic Freedom, Algeria, 38 See, e.g., Tarik Benbahmed & Hervé Lohoues, Algeria: 2014, African Economic Outlook, Mohammed Akacem, Algeria: In Search of an Economic and Political Future, 2 Middle East Pol'y J., No. 2 (1993), 39 François Krotoff & Nicolas Bonnefoy, Hydrocarbons Legislation in Algeria: Back to Square One? (2006), 40 See Omar T. Mohammedi, International Trade and Investment in Algeria: An Overview, 18 MICH. ST. J. INT L L. 375, 386 (2010) ( quoting Jean-Michel Meyer, Investissement: l Algérie impose sa loi, JEUNE AFRIQUE, July 28, 2009, 41 See European Commission, MEMO/13/241, ENP Package Algeria, Mar. 20, 2013, 42 See U.S. Energy Information Administration, Country Analysis Brief: Algeria, July 24, 2014, See also Robert Palmer, Celine Bensoussan, Frederic Elbar & Samir Sayah, Algeria: The Algerian Hydrocarbons Regulations, MONDAQ, Oct. 5, 2009, 8

10 This concentration of power in governmental hands is also said to operate as an obstacle to Algeria s own private entrepreneurship. The African Development Bank, in a recent report, noted the Algerian government s insistence on pouring resources into state-owned industries. 43 This policy is radically at odds with Europe s liberalization mantra, both within the energy sector and across the board of economic activities. 44 One finds occasional nods to the fact that Algeria s timely reduction of foreign debt sheltered the country from the global financial turmoil of Much more common, however, is a general condemnation of Algeria s economic policies, both towards Foreign Direct Investment (FDI) and with regard to indigenous enterprises. 46 Against this background, has the EU managed to contribute to the economic recovery of the country to diversifying its economy, to restructuring its productive sectors, or to raising the standards of its rural life? The answer to this question is, at best, mixed. As observed, it is common, in Europe and elsewhere, to blame Algeria for its own troubles, but there is room for considering whether EU trade policies may be also tying Algeria to the status quo. 5. Trade in Goods and the Challenge of Diversification The website of the European Commission s Directorate General for Trade (DG Trade) informs the public that, as of 2014, Algeria no longer benefits from the EU s Generalized System of Preferences (GSP), because its Free Trade Agreement (FTA) with the EU is finally coming to fruition. 47 For countries like Algeria, whose citizens still hold vivid memories of colonial times, the ongoing transition from differential regimes to fully reciprocal FTAs could represent modernity, parity on the world scene, engagement with the industrialized world, and definitive emancipation. The graduation of Algeria from GSP status to free trade partner, hopefully soon to join the World Trade Organization (WTO), is in this perspective a step in the right direction. 48 There is much energy and dignity in such developments, and the tone of the DG Trade s announcement is accordingly upbeat. 49 Below the surface of such glib announcements lies an unsurprisingly complex reality. The free trade agreement is a section of a larger Association Agreement, which in 2005 replaced the 43 African Development Bank Group, People s Democratic Republic of Algeria: Dialogue Note , (2011) ( The reaction of the Algerian authorities, facing mixed results from the privatization of the productive sector, seems rather to go back to the support by the State of production activities. ). 44 Statement by IMF Managing Director Christine Lagarde at the Conclusion of her Visit to Algeria, Press Release No. 13/72, Mar. 13, 2013 (pleading for a new awakening of the private sector and [s]tructural reforms to enhance the business climate[.] ). 45 See, e.g., African Development Bank Group, supra note See, e.g., Telecoms in Algeria: A Lost Generation, THE ECONOMIST, Oct. 26, European Commission, Directorate General for Trade, Countries and Regions: Algeria, (last visited August 24, 2014). 48 World Trade Organization, Algeria resumes its WTO membership negotiations, Apr. 5, 2013, 49 Theoretical underpinnings for the EU s liberal trade aspirations were articulated by, among others, Béla A. Balassa, The Importance of Trade for Developing Countries, in NEW DIRECTIONS IN THE WORLD ECONOMY 3 (Béla A. Balassa ed., 1989). 9

11 earlier Cooperation Agreement of 1976 and laid the ground for the effacement of tariffs in EU- Algeria commerce. 50 Following the blueprint of the EU s (GSP), the Agreement provided for immediate non-reciprocal concessions: as soon as the Agreement became effective, the EU dropped down to zero the tariffs on most Algerian imports; 51 Algeria, by contrast, was allowed to keep in place temporary custom duties to protect national industries, and was given 12 years to phase them out. This lopsided arrangement was favorable to Algeria only in form. In substance, for several reasons, it was unlikely to stimulate imports. First, the EU grants free-trade privileges to an increasingly large number of countries, 52 and duty-free access to its market is now the baseline for most competitors certainly not a coveted prize for the few. Second, some exporting countries have negotiated better terms (i.e. duty-free access for a broader range of products) than Algeria could ever receive, because Algeria does not qualify as a vulnerable economy by EU standards. 53 Third, and most importantly, duty-free access only benefits those industries whose goods would be competitive in terms of both quality and price in the absence of trade barriers. Many of Algeria s products, however, are less than competitive, and are not likely to win the hearts and purses of EU consumers even if unencumbered by tariffs. As a result, the asymmetric trade concessions graciously granted by the EU have been less helpful than anticipated. The detailed data on EU-Algeria trade recently released by the DG Trade corroborate this sobering assessment. 54 Statistical figures track the trend of imports and exports from 2008 to 2012 well after the entry into force of the Association Agreement. Numbers and charts illustrate very clearly that the EU market is notably not flooded with any of the goods that either farmers or small and medium enterprises in Algeria are likely to produce. Empirical studies show that Algerian exports to the EU in all non-hydrocarbon sectors have not experienced any significant trade creation. 55 Imports into the EU from Algeria have grown significantly in the aggregate, but this 50 Euro-Mediterranean Agreement establishing an Association between the European Community and its Member States, of the one part, and the People's Democratic Republic of Algeria, of the other part, 2005 OJ L 265/2 (signed 22 April 2002; entry into force 1 September 2005) (hereinafter EU-Algeria Association Agreement ). As late as 2012, Algeria obtained a delay in the implementation of certain liberalizing measures contained in the agreement, which is now scheduled to be fully in force by Article 9 of the Association Agreement, in the Chapter on Industrial Products, states in clear terms that Products originating in Algeria shall be imported into the Community free of customs duties and charges having equivalent effect. See id. art Including, notably, the United States - see the ongoing Transatlantic Trade and Investment Partnership (TTIP) negotiations. 53 Algeria does not meet the vulnerability criteria that let other countries receive more favorable treatment (GSP+). Regulation (EU) No 978/2012 of the European Parliament and of the Council establishes eligibility criteria for special incentive arrangement for sustainable development and good governance (GSP+). See Regulation 978/2012, 2012 OJ L 303/1. 54 European Commission, DG Trade, Algeria: EU Bilateral Trade and Trade with the World, July 5, 2013 (hereinafter DG Trade: Algeria ). 55 See Mohamed Y. Haddoud, Keith Salmon, Paul Jones & Robert Newbery, The Impact of Regional Trade Agreements on North African Countries Foreign Trade and Economic Welfare,vidence from Algeria and the European Union Association Agreement, ( [T]rade creation occurred mainly in imports rather than exports.... [A]lthough the regional membership may create trade for North African countries, it may not be sufficient to overcome export issues[.] ) 10

12 growth is only due to a spike in imports of mineral products. 56 Trade in minerals, given the structure and ownership of Algerian natural resources, brings revenue either to the government or since the partial liberalization of the sector 57 to foreign investment, but not to middle-scale entrepreneurship. With the exception of animal hides and leather, Algeria is a net importer of all manufactured items, agricultural products, and textiles. Algerian textiles, in particular, are no longer to be found in the list of exports to the EU. 58 Textiles are an important part of Algeria s traditional economy, 59 and also a staple of small and medium enterprises, but the textile sector finds no reward or boost in the EU market. 60 In parallel, the incremental dismantlement of Algerian custom duties upon European goods has resulted in a significant boost to EU exports, which reduce consumption of local goods, and in a loss of custom revenues for the state. 61 For these reasons, in 2012 the Algerian government was given a longer time to implement the total phase-out, now postponed until In sum, the duty-free access to the EU market has not managed to alter the export patterns of Algeria. The EU s trade policy is not conducive to Algeria s economic diversification, and therefore does not assuage the country s dependence on energy exports. 6. Further trade challenges The asymmetric trade concessions contained in the Association Agreement were gracious enough in form as to oblige Algeria to open up to Europe in return. The downward pressure was not so much on Algerian custom duties, which were already scheduled to decrease in the near future, but rather on regulatory barriers to services and foreign investment. Algeria s obligations towards the EU, as spelled out in the Association Agreement, run parallel to the WTO course. EU service providers are entitled to Most Favored Nation status when they seek to establish a commercial presence in Algeria and, once established there, they can claim national treatment. 63 Algeria is expected to guarantee free movement of capital and to allow foreign 56 The value of imports of mineral products went from 20,080 million Euros in 2008 to 31,968 million Euros in DG Trade: Algeria, supra note Encyclopedia of the Nations, Algeria, (last visited Aug. 24, 2014) (hereinafter Encyclopedia ). 58 The value of Algerian textiles exported to the EU, expressed in millions of Euros, was 1 in and has been 0 since DG Trade: Algeria, supra note Encyclopedia, supra note Id. 61 Ulrika Lomas, Algeria delays implementation of FTA with EU, TAXNEWS, Sept. 4, 2012, (reporting that, according to Algerian trade minister Mustapha Benbada, the existing association agreement with the EU cost Algeria USD2.5m in lost customs duties between 2005 and 2009, while investments from the EU have not been as strong as initially anticipated. At the same time, Algerian imports from the EU have increased dramatically. ) 62 See id. 63 EU-Algeria Association Agreement, supra note 50, art. 32(a), (b) (Commercial Presence). 11

13 investors to liquidate and repatriate their profits. 64 The Agreement, in addition, demands that Algeria s state monopolies and public enterprises enjoying exclusive rights operate in nondiscriminatory fashion and do not disturb EU trade. 65 Intellectual property rights must be enforced in line with the highest international standards. 66 All of these obligations are expressed in mandatory terms, rather than in the softer language of long-term cooperation used in other articles of the Agreement. 67 While the Agreement has not yet been judicially enforced, the Court of Justice of the EU has issued several judgments involving association agreements of this type, making it clear that such precisely phrased obligations have teeth. 68 Overall, EU law seems to be designed to pressure Algeria into opening its markets to competition, reducing the scope of state-controlled economic initiatives, slimming down its administrative apparatus, and letting the private sector whether local or foreign take charge of yet untapped resources. In predominant neo-liberal discourse, the dynamics of increased competition are touted as bringing opportunities to all players. In the case of Algeria, however, the fluctuation of prices and the decreased predictability that come from market liberalization are harbingers of unprecedented challenges. The gas market is a case in point. 69 For reasons that, as discussed, are both internal and exogenous, Algeria s economy remains entirely dependent on its hydrocarbon reserves, and a loss of market share is a terrifying prospect for a country whose eggs are in one basket. The ongoing Europeanization of the energy market is bittersweet news for Algeria. 70 On one hand, the multiplication of oil and gas conduits financed by a variety of EU countries allows Algerian hydrocarbons to reach further than the south-west of the Continent. 71 On the other, Algeria finds itself in competition with other exporters, whose natural resources can now be more easily channeled to Europe. 72 Until recently, Algerian hydrocarbons enjoyed a notable market share, 73 but 64 Id. art Id. arts Id. art See, e.g., id. art. 46.1: The Parties shall set as their objective a reciprocal and gradual liberalisation of public procurement contracts. 68 See the early pronouncement in Case 87/75, Bresciani v. Amministrazione Italiana delle Finanze, [1976] ECR Towards the goal of dismantling state monopolies, the third energy package of the EU (in force since 2011) envisages the end of vertical integration, and demands that generation and distribution lines be owned by separate commercial entities. The packet stand in stark ideological contrast with Algeria s own energy strategy, which is still anchored to state ownership and bundled management of energy resources. It requires, as well, a thorough revision of old-fashioned deals between energy-producing countries and individual European governments. See MONICA WALOSZYK, LAW AND POLICY OF THE EUROPEAN GAS MARKET 1 (2014). 70 See id. at 7 (questioning the EU s excessive faith in competition - as opposed to regulation - in recent gas market reforms). 71 Matteo Cazzulani, Gas: L Algeria punta alla riscossa energetica, Jan. 25, 2013, (last visited Aug. 26, 2014) (noting, for instance, that Poland and Croatia are now interested in importing liquid gas from Algeria for the terminals of Krk and Swinoujscie). 72 For instance, the completion of the Trans-Adriatic Pipeline (TAP), a conduit bringing natural gas to Italian shores from Azerbaijan, would certainly to shake up the current equilibrium. See Domenico Palmiotti, Tap e Tempa Rossa: si stringono i tempi per due grandi progetti energetici in Puglia, ma i territori dicono no, IL SOLE 24 ORE, July 12, 2014 (documenting local opposition to the project). 73 Algeria is responsible for the largest supply of liquefied natural gas (LNG) to the EU. WALOSZYK, supra note 69, at

14 it is not clear that this advantage may last in the face of growing competition from the Caspian Basin and the Middle East. 74 The risks that stem from relying exclusively on the hydrocarbons sector have materialized dramatically in recent years. The extra revenue due to high energy prices in the early 2000s allowed the Algerian government to repay its foreign debt and increase its geopolitical importance. It also brought about an unprecedented wave of social expenditure. But the onset of the Euro crisis has recently contracted Europe s energy demand, and at the same time terrorist upheavals have made Algeria less appealing to foreign investors, prompting a significant recession in the country s economy. 75 The EU, of course, has both economic and security reasons to keep Algeria s economy afloat, and has therefore extended a helpful hand in the form of a Memorandum of Understanding on strategic energy partnership (July 7, 2013). 76 This draft agreement exemplifies the mode of relations that escapes the route of legal obligation and focuses instead on soft law and conditional monetary incentives. However, this agreement consolidates the narrow range of Algeria s productive activities. Its focus remains on oil and gas. It does mention the possibility of cooperation in renewable energy sectors, but a recent attempt to boost solar energy production in Algeria has not proven viable as a result of shrinking budgets in EU member states, and it is by no means clear that the new agreement could resurrect the solar energy project Cooperation and its Limits Ameliorating the economic conditions of the Maghreb 78 is a goal dear to the EU polity, for reasons that include energy security, fight against terrorism, humanitarian policies, and immigration control. In neoliberal fashion, the EU has traditionally deployed trade as a tide that would make all 74 Hakim Darbouche, Algeria s Natural Gas Market: Origins and Constraints of Export Strategy, in NATURAL GAS MARKETS IN THE MIDDLE EAST AND NORTH AFRICA (Bassam Fattouh and Jonathan Stern eds., 2011); Hakim Darbouche, Algeria s Shifting Gas Export Strategy: Between Policy and Market Constraints, Oxford Institute for Energy Studies Working Papers, No. NG 48 (Mar. 2011), 75 Algeria s oil and gas. Not so jolly, THE ECONOMIST, Feb. 9, 2013, Christopher Coats, Can Algerian Energy Buck Downward Trend With EU Help?, FORBES, July 30, 2013, 76 European Commission Press Release, President Barroso visits Algeria and signs a memorandum on energy, July 7, 2013, ec.europa.eu/commission_ /president/news/archives/2013/07/ _1_en.htm. 77 The project, known as Desertec Industrial Initiative, held much promise in 2005 but has recently imploded. The project envisaged large exports to Europe of solar energy gathered in Algerian deserted areas, with heavy European investment in solar technology. Desertec abandons Sahara solar power export dream, Euractiv, May 31, 2013, 78 The region of North-West Africa geographically known as Maghreb also includes Libya and Mauritania, but for economic and political reasons, only Morocco and Tunisia provide a relevant point of comparison towards an analysis of EU-Algeria relations. The expression Maghreb is used here to refer only to Morocco, Tunisia and Algeria, which have comparable instruments of trade vis-à-vis the EU. See generally MICHAEL J. WILLIS, POLITICS AND POWER IN THE MAGHREB: ALGERIA, TUNISIA AND MOROCCO FROM INDEPENDENCE TO THE ARAB SPRING (2012) (considering the experiences of Mauritania and Libya less homogeneous and comparable). 13

15 the boats rise along the shores of the Mediterranean and, as observed in the foregoing pages, it continues to do so. There exists, however, a solid counter-narrative, pointing at the perils of free trade between large, developed regions like the EU and less stable countries. 79 Based on empirical data as well as on theoretical investigations, this counter-narrative identifies all that may go wrong on the way to free trade between unevenly developed partners, from delayed industrialization to entrenchment of labor exploitation. With specific regard to the Maghreb region, several authors have questioned the EU s ability to generate any real economic diversification and enhanced employment opportunities by means of free trade. 80 The external policies of the EU towards the Maghreb seem to have internalized, to a certain extent, this critique. Trade-liberalizing measures are typically embedded in larger cooperation efforts, whereby the weaker socio-economic structures of the EU s trading partners receive substantial technical support. Algeria is no exception. Even though the country can now rely on massive petrol exports and is therefore relatively wealthy, the EU understands the peculiarities of its economic and political structures, and therefore supplements reciprocal free-trade provisions with mechanisms for financial and technical cooperation. This hotchpotch of interventions reflects the current state of ambivalence within the field of development theory. 81 Nestled into a network of Euro-Mediterranean deals, 82 in turn shaped by the broad goals of the European Neighborhood Policy (ENP), 83 cooperation initiatives are meant to pursue a series of law-and-development goals: promotion of the rule of law, access to justice and institutional capacity, fight against corruption, environmental management, sustainable development, job creation, promotion of human rights, democracy, and gender equality. Toward such goals, the EU promises to lend know-how, institutional expertise, and even money. 84 Help, however, comes with strings, and is conditioned upon the partner state s willingness to engage in meaningful structural reforms. According to the Association Agreement, the full-range implementation and funding of cooperation 79 MICHAEL TREBILCOCK, ROBERT HOWSE & ANTONIA ELIASON, THE REGULATION OF INTERNATIONAL TRADE (4th ed. 2013) (surveying the literature that qualifies the case for openness to international trade). 80 See, e.g., Fawaz Yusuf, A Structural Change Analysis of EU Moroccan Trade Liberalisation and Economic Development Between 1995 and 2010, 19 J. N. AFR. STUD. 413 (2014) (predicting, in the case of Morocco, that trade liberalization with the EU would inhibit Morocco's ability to diversify production and industrialise, and that it would encourage Morocco to specialise in producing and exporting agricultural products and light manufactures, both of which are unlikely to reap a substantial added economic value ); Diana Hunt, Employment Implications of the Euro Med Free Trade Agreements, 7 J. N. AFR. STUD. 71 (2002). 81 David Kennedy, The Rule of Law, Political Choices, and Development Common Sense, in THE NEW LAW AND ECONOMIC DEVELOPMENT: A CRITICAL APPRAISAL 95, 166 (David Trubek & Alvaro Santos eds., 2006) (noting that post-neoliberal development theory includ[es] a range of different inconsistent ideas and analytical maneuvers developed throughout the post-war period. In ideological terms, development expertise has something for everyone[.] ) 82 See, e.g., European Commission Press Release, IP/13/753, July 30, 2013, (outlining the new SPRING programme Support for Partnership, Reform and Inclusive Growth to support economic and political governance in Algeria ).. 83 The ENP was established in 2003 with the goal of spreading prosperity and stability in the EU s post-enlargement neighborhood. It was then differentiated into the Union for the Mediterranean (also known as the 2008 Barcelona Process ) and the Eastern Partnership (2009). See Richard G. Whitman and Stefan Wolff, Much Ado about Nothing? The European Neighborhood Policy in Context, in THE EUROPEAN NEIGHBORHOOD POLICY IN PERSPECTIVE: CONTEXT, IMPLEMENTATION AND IMPACT 3 (Richard G. Whitman & Stefan Wolff eds., 2010). 84 See ENP Package Algeria, supra note