COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 11.3.2003
COM(2003) 104 final

COMMUNICATION FROM THE COMMISSION

TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Wider Europe Neighbourhood: A New Framework for Relations with our Eastern
and Southern Neighbours
List of abbreviations

Acquis: Acquis communautaire (Community legislation)

CEES: EU/Russia Common European Economic Space initiative
CFSP: EU Common Foreign and Security Policy
EBRD: European Bank for Reconstruction and Development
EIB: European Investment Bank
ERA: European Research Area
ESDP: EU European Security and Defence Policy
EU: European Union
FEMIP: Facility for Euro-Mediterranean Investment and Partnership
FTA: Free Trade Agreement
GDP: Gross Domestic Product
IFIs: International Financial Institutions
ILO: International Labour Organisation
INTERREG: Community programme aiming to stimulate inter-regional
cooperation within the EU
JHA: Justice and Home Affairs
Meda: Community assistance programme for the Mediterranean countries
MFA: EU macro-financial assistance
NDEP: Northern Dimension Environmental Partnership
NIS: Newly Independent States (Armenia, Azerbaijan, Belarus,
Georgia, Turkmenistan, Kazakhstan, Kyrgyzstan, Moldova,
Tajikistan, Ukraine, Uzbekistan)
OSCE: Organisation for Security and Cooperation in Europe
PCA: Partnership and Cooperation Agreement
Phare: Community assistance programme for the Central European
candidate countries
PRINCE: Information Programme for European citizens
RTD: Research and Technological Development
Tacis: Community Technical Assistance programme for the
Commonwealth of Independent States
TENs: Trans-European Networks
UN: United Nations
WNIS: Western Newly Independent States (Ukraine, Moldova, Belarus)
WTO: World Trade Organisation

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1. WIDER EUROPE: ACCEPTING THE CHALLENGE

On 1 May 2004, the European Union will enter a new and historic phase. An enlarged
Union of 25 countries, with a combined population of more than 450 million and GDP
of almost 10000 billion, will fundamentally increase the political, geographic and
economic weight of the EU on the European continent. Enlargement will boost EU
growth and employment opportunities within a framework of shared values and
common respect for fundamental liberties. New patterns in the movement of people,
capital, goods and services will increase diversity in culture and traditions. Beyond
the EUs borders, enlargement will change the shape of the EUs political and
economic relations with other parts of the world.

Enlargement gives new impetus to the effort of drawing closer to the 385 million
inhabitants of the countries who will find themselves on the external land and sea
border, namely Russia, the Western NIS and the Southern Mediterranean1. The
accession of the new member states will strengthen the Unions interest in enhancing
relations with the new neighbours. Over the coming decade and beyond, the Unions
capacity to provide security, stability and sustainable development to its citizens will
no longer be distinguishable from its interest in close cooperation with the neighbours.

Interdependence political and economic with the Unions neighbourhood is

already a reality. The emergence of the euro as a significant international currency has
created new opportunities for intensified economic relations. Closer geographical
proximity means the enlarged EU and the new neighbourhood will have an equal
stake in furthering efforts to promote trans-national flows of trade and investment as
well as even more important shared interests in working together to tackle trans-
boundary threats - from terrorism to air-borne pollution. The neighbouring countries
are the EUs essential partners: to increase our mutual production, economic growth
and external trade, to create an enlarged area of political stability and functioning rule
of law, and to foster the mutual exchange of human capital, ideas, knowledge and
culture.

The EU has a duty, not only towards its citizens and those of the new member states,
but also towards its present and future neighbours to ensure continuing social
cohesion and economic dynamism. The EU must act to promote the regional and sub-
regional cooperation and integration that are preconditions for political stability,
economic development and the reduction of poverty and social divisions in our shared
environment.

For the EUs part, the whole range of the Unions policies (foreign, security, trade,
development, environment and others) will need to rise to meet this challenge. The
November 2002 General Affairs and External Relations Council launched the work,
noting in particular the situation of Ukraine, Moldova and Belarus new neighbours
on the Unions land border. The December 2002 Copenhagen European Council
confirmed that the Union should take the opportunity offered by enlargement to

1
Southern Mediterranean: Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestinian
Authority, Syria, Tunisia. Western Newly Independent States (WNIS): Ukraine, Moldova,
Belarus

3
enhance relations with its neighbours on the basis of shared values2. It repeated the
Unions determination to avoid drawing new dividing lines in Europe and to
promote stability and prosperity within and beyond the new borders of the
Union. It reaffirmed that enlargement will serve to strengthen relations with Russia,
and called for enhanced relations with Ukraine, Moldova, Belarus and the
Southern Mediterranean countries to be based on a long term approach
promoting reform, sustainable development and trade3. At the same time, the
Council reaffirmed the European perspective of the countries of the Western
Balkans in the Stabilisation and Association Process.

This Communication considers how to strengthen the framework for the Unions
relations with those neighbouring countries that do not currently have the perspective
of membership of the EU4. It does not, therefore, apply to the Unions relations with
the remaining candidate countries - Turkey, Romania and Bulgaria or the Western
Balkans. The Communication argues that enhanced interdependence both political
and economic can itself be a means to promote stability, security and sustainable
development both within and without the EU. The communication proposes that the
EU should aim to develop a zone of prosperity and a friendly neighbourhood a
ring of friends - with whom the EU enjoys close, peaceful and co-operative
relations.

In return for concrete progress demonstrating shared values and effective

implementation of political, economic and institutional reforms, including in aligning
legislation with the acquis, the EUs neighbourhood should benefit from the prospect
of closer economic integration with the EU. To this end, Russia, the countries of the
Western NIS and the Southern Mediterranean should be offered the prospect of
a stake in the EUs Internal Market and further integration and liberalisation to
promote the free movement of persons, goods, services and capital (four
freedoms).

2. NEIGHBOURHOOD DIFFERENT COUNTRIES, COMMON INTERESTS

The situations of Russia, the countries of the WNIS and the Southern Mediterranean
are very different judged by most standards. The course of the 20th century saw
dramatic changes in geography, politics and culture both on the European continent
and in the Mediterranean. These forces have not necessarily led to greater
convergence.

Differences are reflected in the variety and intensity of the Unions existing relations
with and among the countries of its new neighbourhood. While, for example, the
Unions relations with Belarus have progressed little since 1996, the development of
EU/Russia dialogue and cooperation on political and security issues, energy,

2
Notably democracy, respect for human rights and the rule of law, as set out within the EU in
the Charter of Fundamental Rights.
3
The European Parliament has also called for attention to be paid to the issues surrounding the
new neighbours, most recently in its 12 February 2003 report on relations between the EU and
Belarus.
4
Given their location, the Southern Caucasus therefore also fall outside the geographical scope
of this initiative for the time being.

4
environment and science and technology over the past few years has accelerated
rapidly. A new neighbourhood policy will only constitute one pillar of the overall
EU/Russia strategic partnership.

NEIGHBOURHOOD AND EU MEMBERSHIP

Article 49 of the Treaty on European Union stipulates that any European state may apply
to become a member of the European Union. Prospective candidates must meet the
criteria for membership: democracy, the rule of law, human rights, respect for minorities;
a functioning market economy, and the capacity to cope with competitive pressures; the
ability to take on the obligations of membership (meaning to apply effectively the EUs
rules and policies).

The incentive for reform created by the prospect of membership has proved to be strong
enlargement has unarguably been the Unions most successful foreign policy
instrument.

In some cases the issue of prospective membership has already been resolved. Accession
has been ruled out, for example, for the non-European Mediterranean partners. But other
cases remain open, such as those European countries who have clearly expressed their
wish to join the EU.

In reality, however, any decision on further EU expansion awaits a debate on the ultimate
geographic limits of the Union. This is a debate in which the current candidates must be
in a position to play a full role.

The aim of the new Neighbourhood Policy is therefore to provide a framework for the
development of a new relationship which would not, in the medium-term, include a
perspective of membership or a role in the Unions institutions. A response to the
practical issues posed by proximity and neighbourhood should be seen as separate from
the question of EU accession.

Regional trade and integration is a recognised objective of the EUs Mediterranean

policy, not least because of the positive effects on regional political and economic
stability that will result from the creation of a larger Mediterranean market. The EU
has Free Trade Agreements (FTAs) in place with the countries of the Southern
Mediterranean and the Barcelona process envisages that these should now be
expanded to include the services sector as well as the goods sector more fully.
Regional integration is also foreseen through the rapid negotiation and
implementation of FTAs between the Mediterranean partners, as well as with the
EUs customs union partner Turkey. While some Association Agreements with the
EU still need to be ratified5, the Mediterranean partners are already being encouraged
to approximate their legislation to that of the Internal Market.

In contrast to contractual relations with all the EUs other neighbouring countries, the
Partnership and Cooperation Agreements (PCAs) in force with Russia, Ukraine and
Moldova grant neither preferential treatment for trade, nor a timetable for regulatory
approximation.

5
Association agreements with Tunisia, Israel, Morocco, Palestinian Authority and Jordan have
entered into force. Those concluded with Egypt, Lebanon and Algeria await ratification. An
association agreement with Syria is under negotiation.

5
Given these different starting points and objectives it is clear that a new EU approach
cannot be a one-size-fits-all policy. Different stages of reform and economic
development also means that different rates of progress can be expected from the
neighbouring countries over the coming decade.

On the other hand, it is increasingly clear that the EU shares an important set of
mutual interests with each of its neighbours. All countries in the new neighbourhood
are confronted by the opportunities and challenges surrounding Proximity,
Prosperity and Poverty.

Proximity

Geographical proximity presents opportunities and challenges for both the EU and for
its neighbours. In the 1995 Barcelona Declaration, the EU and the Mediterranean
partners recognised that geographical proximity increased the value of developing a
comprehensive policy of close association, reflected in the negotiation of Association
Agreements with each country. In the Partnership and Cooperation Agreements in
effect with Russia, Ukraine and Moldova, the parties also agreed on the need to
establish a strong partnership, based on historic links and common values. Both types
of agreements were designed as instruments to help with the transition process,
notably through gradual rapprochement between the EU and the partner countries and
to create a wider area of cooperation.

More specifically, geographical proximity increases the importance of a set of issues

revolving around, but not limited to, the management of the new external border and
trans-boundary flows. The EU and the neighbours have a mutual interest in
cooperating, both bilaterally and regionally, to ensure that their migration policies,
customs procedures and frontier controls do not prevent or delay people or goods
from crossing borders for legitimate purposes. Infrastructure, efficient border
management and interconnected transport, energy and telecommunications networks
will become more vital to expanding mutual trade and investment. Cross-border
cultural links, not least between people of the same ethnic/cultural affinities, gain
additional importance in the context of proximity. Equally, threats to mutual security,
whether from the trans-border dimension of environmental and nuclear hazards,
communicable diseases, illegal immigration, trafficking, organised crime or terrorist
networks, will require joint approaches in order to be addressed comprehensively.

Prosperity and Poverty

A new EU approach to its neighbouring countries cannot be confined to the border

regions alone. If the EU is to work with its neighbourhood to create an area of shared
prosperity and stability, proximity policy must go hand-in-hand with action to tackle
the root causes of the political instability, economic vulnerability, institutional
deficiencies, conflict and poverty and social exclusion6.

6
As set out in the 10 November 2000 Council/Commission Statement on EU Development
Policy.

6
Most of the EUs Southern and Eastern neighbours have a nominal GDP per capita of
less than 20007. Poverty and social exclusion has increased sharply in Russia and the
WNIS over the past decade as a result of falling output and increased inequality in the
distribution of income. This has led to an increased risk of social and political
dislocation. In Russia, GDP is still a third lower than its level in 1989; Moldova
remains at below half of its former level of GDP. What is perhaps less known is that
the Mediterranean has also had a very poor rate of growth in GDP per capita. Egypt,
Israel and Tunisia are the only countries to have exceeded 2% growth since 1975,
while Algeria, for example, shows a small negative growth rate. Only sub-Saharan
Africa shows a worse overall growth rate than these two regions. Moldova is by far
the poorest neighbouring country (417 per capita8), Ukraine the next most poor
(855). Israel is the richest of the EUs neighbours (19578), with Lebanon (5284)
second richest, albeit at a considerably lower level of GDP, and Russia some way
behind both countries (2382). A cluster of countries Belarus, Egypt, Morocco,
West Bank/Gaza and Syria has achieved between three and four times the level of
Moldovan GDP per capita (1292 - 1663).

Despite the sluggish rate of economic growth, the Mediterranean region has long been
characterised by a low level of absolute poverty9. Relative poverty is, however, an
issue as nearly 30% of the population live on less than $2 a day and illiteracy rates
remain high. Only 0.6% of population use the internet and only 1.2% have access to a
computer10. In Russia and the WNIS, poverty rates have increased considerably since
1990. Russia has seen some reversal of this trend in recent years.

Democracy, pluralism, respect for human rights, civil liberties, the rule of law and
core labour standards are all essential prerequisites for political stability, as well as for
peaceful and sustained social and economic development. Nearly all countries of the
Mediterranean, the WNIS and Russia have a history of autocratic and non-democratic
governance and poor records in protecting human rights and freedom of the
individual. Generally, the countries of the WNIS and Russia have taken steps towards
establishing democracy and market institutions over the past 12 years. Yet political
reform in the majority of the countries of the Mediterranean has not progressed as
quickly as desired.

Trade and investment are vital to improving economic growth and employment.
Ensuring secure and sustainable energy supplies will call for additional, vast
investments in Russia, the WNIS and the Mediterranean. At the same time, economic
diversification towards labour-intensive, employment-creating industries and services
are urgently needed, not only in relatively resource-poor countries, such as Ukraine,
Moldova and Morocco, but also in energy-rich countries, such as Algeria and Russia.
Energy dominates imports from both regions, more so for trade with Russia than from
the WNIS and the Southern Mediterranean, where textiles and agricultural produce
represent a considerable share of imports from certain countries (Moldova, Morocco,
Tunisia). In 2001, a year with high oil prices, exports to the EU from Russia and the
WNIS, and the Southern Mediterranean amounted to approximately 60 billion for

7
See Annex for statistics on GDP, trade and investment, migration and assistance.
8
Nominal estimates for 2001, EBRD Transition Report update, 2002.
9
Individuals earning less than $1 per day, measured in purchasing power parity terms
10
UNDP Arab Human Development Report

7
each of the two regions, while imports from the EU were only just over half the
exports for both. To compare, in 2001 Hungarian imports and exports to the EU alone
totalled around 25 billion each way. The neighbouring countries all face weak levels
of foreign direct investment when compared with countries at similar levels of
development and relative to their needs. For example, per capita foreign investment in
Russia is less than one sixth of the level in Poland, in addition to which Russia has
seen an average annual domestic capital flight of $20 billion over the last 10 years.

PROMOTING REGIONAL AND INTRA-REGIONAL COOPERATION

The Euro-Mediterranean partnership offers a strong policy framework for the EUs
relations with Mediterranean countries. Since the Barcelona declaration was adopted in
1995 it has formed the basis for a continuing dialogue and cooperation in spite of the
political turmoil in the region.

As far as the bilateral dimension of EU relations is concerned, the basic framework is

similar for both groups of countries: Association Agreements or Partnership and
Cooperation agreements, including political dialogue, are accompanied by national
Meda/Tacis programmes and agreements on specific issues (readmission, fisheries etc.).
The most important difference is that, in the Mediterranean, an explicit regional
dimension encouraging the development of intra-regional initiatives and cooperation in a
broad range of sectors is included. This policy of promoting intra-regional cooperation
consists of three Chapters defined in the Barcelona Declaration supplementing the
bilateral framework: the Political and Security Chapter, Economic and Financial Chapter
and Social, Cultural and Human Chapter. Since 1995, seven meetings of the Foreign
Ministers of the 15+12 have taken place, together with 16 meetings of sectoral ministers.
These meetings have launched a number of joint cooperation initiatives, financed through
the Meda regional programme.

On the future Eastern external border, regional economic cooperation among the WNIS
is already quite strong, oriented around traditional flows of trade and investment to and
from Russia. However, encouragement for regional political cooperation and/or
economic integration has not so far formed a strong component of EU policy towards
Russia and the WNIS.

The Northern Dimension currently provides the only regional framework in which the
EU participates with its Eastern partners to address trans-national and cross-border
issues. But participation is restricted to Russia.

In the context of a new EU neighbourhood policy, further regional and sub-regional

cooperation and integration amongst the countries of the Southern Mediterranean will be
strongly encouraged. New initiatives to encourage regional cooperation between Russia
and the countries of the Western NIS might also be considered. These could draw upon
the Northern Dimension concept to take a broader and more inclusive approach to
dealing with neighbourhood issues.

Spreading the benefits of increased economic growth to all sectors of society requires
positive action to promote social inclusion via mutually reinforcing economic,
employment and social policies. Attention to areas including education, health,
training and housing is equally important. Increasing environmental and economic
efficiency should also proceed hand-in-hand. Serious environmental pollution and
deficiencies in managing nuclear and toxic waste affect public health and living
standards in many of the neighbouring countries and contribute to shortening life

8
expectancy in some. At the same time, the wasteful and inefficient use of natural
resources reduces present and, crucially, future prospects for economic growth.

A functioning legal system, implemented by strong regulatory authorities and

effective and independent judiciaries equipped with the powers to protect property
rights, are also required to maximise economic activity and production, and accelerate
economic growth.

The negative effects of conflict on economic and political development, especially

where sustained over a long period, cannot be over-estimated. These effects are not
only domestic so long as conflicts persist there is a danger of spill over. Conflict and
political division in the Mediterranean (Western Sahara, Palestine) over the past half
century has seriously retarded the development of the region. Unrecognised statelets
such as Transdniestria are a magnet for organised crime and can de-stabilise or throw
off course the process of state-building, political consolidation and sustainable
development.

The EU has a clear interest in ensuring that these common challenges are
addressed.

3. A NEW VISION AND A NEW OFFER

The EU can and should work to spread the benefits of enlargement for political and
economic stability in the neighbouring countries and to help reduce prosperity gaps
where they exist. This should be reflected in a clear vision for the development of
closer and more coherent relations with the Unions neighbours over the medium and
long term. The EU should act to reinforce and unite its existing neighbourhood policy
towards these regions around two overarching objectives for the next decade or
longer:

To work with the partners to reduce poverty and create an area of shared
prosperity and values based on deeper economic integration, intensified
political and cultural relations, enhanced cross-border cooperation and
shared responsibility for conflict prevention between the EU and its
neighbours.

To anchor the EUs offer of concrete benefits and preferential relations within
a differentiated framework which responds to progress made by the partner
countries in political and economic reform.

The establishment at pan-European level of an open and integrated market functioning

on the basis of compatible or harmonised rules and further liberalisation would bring
significant economic and other benefits to both the EU and the neighbourhood. A
political, regulatory and trading framework, which enhances economic stability and
institutionalises the rule of law, will increase our neighbours' attractiveness to
investors and reduce their vulnerability to external shocks. Further reciprocal market
access through preferential agreements covering goods and services will have the
greatest positive impact if accompanied by measures to facilitate economic activity.
Sustainable development requires a common understanding that the adoption of a
broader range of policies, including environmental protection, will support more rapid

9
economic growth. Research and scientific cooperation can catalyse technological
progress. The EU acquis offers a well established model on which to establish
functioning markets and common standards for industrial products, services,
transport, energy and telecommunications networks, environmental and consumer
protection, health, labour and minimum quality requirements. Enhanced and better
targeted EU development assistance could accompany reform, helping to build
administrative capacity and mitigate social adjustment costs.

In return for concrete progress demonstrating shared values and effective

implementation of political, economic and institutional reforms, including aligning
legislation with the acquis, the EUs neighbourhood should benefit from the prospect
of closer economic integration with the EU. Specifically, all the neighbouring
countries should be offered the prospect of a stake in the EUs Internal Market
and further integration and liberalisation to promote the free movement of
persons, goods, services and capital (four freedoms). If a country has reached this
level, it has come as close to the Union as it can be without being a member.11 The
EU therefore should stand ready to work in close partnership with the neighbouring
countries who wish to implement further reforms and assist in building their capacity
to align with and implement parts of the acquis communautaire.

The EUs approach could therefore be based on the following incentives:

o EXTENSION OF THE INTERNAL MARKET AND REGULATORY STRUCTURES:

Common rules and standards are vital to ensure that our neighbours can access and
reap the benefits of the enlarged EU internal market as well as to create a more stable
environment for economic activity. The EU acquis, which has established a common
market based on the free movement of goods, persons, services and capital, ensuring
competition and a level playing field based on shared norms and integrating health,
consumer and environmental protection, could serve as a model for countries
undertaking institutional and economic reform.

Both the Association and Partnership and Cooperation Agreements set, in broad
terms, an agenda for legislative and regulatory approximation, albeit without fixed
deadlines. For the WNIS, this agenda could be developed as currently explored in the
Common European Economic Space (CEES) initiative launched with Russia. The
CEES itself should be developed to set out a deeper and broader timetable for
legislative approximation between the EU and Russia. Participation in selected EU
activities and programmes, including aspects such as consumer protection, standards,
environmental and research bodies, could be opened to all neighbouring countries.
Efforts to support the further development of enterprise policy by the partner
countries should accompany regulatory approximation.

o PREFERENTIAL TRADING RELATIONS AND MARKET OPENING: Although

countries can benefit from approximating their economic rules and structures on those
of the EU before proceeding with trade liberalisation, more open trade is a key
component for market integration.

11
President Prodis speech to the Sixth ECSA-World Conference, Brussels, 5-6 December 2002

10
As provided for in the Barcelona process, the free trade agreements that are already in
place with the Mediterranean countries should cover more fully the goods and
services sectors. Creating a more integrated market requires that our partners also
conclude agreements of a similar depth among themselves, as well as with Turkey.
For Russia and the WNIS, Free Trade Areas are envisaged in the PCAs, but with no
timetable attached. Objectives and benchmarks could be developed. The sequencing
of economic rapprochement is important to ensure that liberalisation really helps
development. For Moldova which does not currently possess the competitive strength
or administrative capacity to take on the reciprocal obligations of an FTA yet, the EU
is ready to consider developing new initiatives to grant better market access, in line
with WTO obligations.

o PERSPECTIVES FOR LAWFUL MIGRATION AND MOVEMENT OF PERSONS: The

EU and the partner countries have a common interest in ensuring the new external
border is not a barrier to trade, social and cultural interchange or regional cooperation.
The impact of ageing and demographic decline, globalisation and specialisation
means the EU and its neighbours can profit from putting in place mechanisms that
allow workers to move from one territory to another where skills are needed most
although the free movement of people and labour remains the long-term objective.
Significant additional opportunities for cultural and technical interchange could be
facilitated by a long-stay visa policy on the part of the EU member states.

An efficient and user-friendly system for small border traffic is an essential part of
any regional development policy. The EU is currently looking at ways of facilitating
the crossing of external borders for bona fide third-country nationals living in the
border areas that have legitimate and valid grounds for regularly crossing the border
and do not pose any security threat. The EU could also consider the possibilities for
facilitating the movement of citizens of neighbouring countries participating in EU
programmes and activities. EU member states should also consider using the
possibilities for granting visa-free access to holders of diplomatic and service
passports. Beyond this, provided the necessary conditions are in place, the EU should
be open to examine wider application of visa free regimes. The EU should develop a
common approach to ensure the integration of third country nationals, with special
emphasis on citizens of the neighbouring countries lawfully resident in the Union. The
EU should assist in reinforcing the neighbouring countries efforts to combat illegal
migration and to establish efficient mechanisms for returns, especially illegal transit
migration. Concluding readmission agreement with all the neighbours, starting with
Morocco, Russia, Algeria, Ukraine, Belarus and Moldova, will be an essential
element in joint efforts to curb illegal migration.

o INTENSIFIED COOPERATION TO PREVENT AND COMBAT COMMON SECURITY

THREATS: Cooperation, joint work and assistance to combat security threats such as
terrorism and trans-national organised crime, customs and taxation fraud, nuclear and
environmental hazards and communicable diseases should be prioritised.

Both domestic measures and intensified bilateral and multilateral action are
indispensable to fight organised crime. Particular attention should be paid to drugs
trafficking, trafficking in human beings, smuggling of migrants, fraud, counterfeiting,
money laundering and corruption. The EU should explore the possibilities for
working ever more closely with the neighbouring countries on judicial and police
cooperation and the development of mutual legal assistance. The approach taken in

11
the EU/Russia Action Plan against organised crime and the Justice and Home Affairs
(JHA) Action Plan for Ukraine, which includes a scoreboard, could be developed for
other neighbouring countries. The EU should capitalise on the cooperation initiated in
the Mediterranean to introduce reforms to the judicial system, improve police training
and other cooperation in the fight against organised crime. The fight against terrorism
is a potential area for closer cooperation. The new neighbours should also be assisted
in the implementation of all the relevant international instruments in this field, notably
those developed in the UN. EU political focus and assistance must continue to support
efforts to take forward nuclear clean-up in north west Russia and follow-up to the
closure of the Chernobyl Nuclear Power Plant. Efforts to combat trans-boundary
pollution - air, sea, water or land - should be modelled on the collaborative approach
taken by the Northern Dimension Environmental Partnership (NDEP) and the
Danube-Black Sea Task Force.

o GREATER EU POLITICAL INVOLVEMENT IN CONFLICT PREVENTION AND

CRISIS MANAGEMENT: Shared values, strong democratic institutions and a common
understanding of the need to institutionalise respect for human rights will open the
way for closer and more open dialogue on the Unions Common Foreign and Security
Policy (CFSP) and the development of the European Security and Defence Policy
(ESDP). A shared neighbourhood implies burden-sharing and joint responsibility for
addressing the threats to stability created by conflict and insecurity.

The EU should take a more active role to facilitate settlement of the disputes over
Palestine, the Western Sahara and Transdniestria (in support of the efforts of the
OSCE and other mediators). Greater EU involvement in crisis management in
response to specific regional threats would be a tangible demonstration of the EUs
willingness to assume a greater share of the burden of conflict resolution in the
neighbouring countries. Once settlement has been reached, EU civil and crisis
management capabilities could also be engaged in post-conflict internal security
arrangements. Additional sources of funding for post-conflict reconstruction and
development would be required.

o GREATER EFFORTS TO PROMOTE HUMAN RIGHTS, FURTHER CULTURAL

COOPERATION AND ENHANCE MUTUAL UNDERSTANDING: Shared values and mutual
understanding provide the foundations for, inter alia, deeper political relations,
enhanced cooperation on justice and security issues, environmental improvement and
governance. The importance of dialogue between civilisations and the free exchange
of ideas between cultures, religions, traditions and human links cannot be over-
emphasised. The EU should contribute to the development of a flourishing civil
society to promote basic liberties such as freedom of expression and association. The
EU also needs to make a greater effort to create a positive image in the neighbourhood
and act to combat stereotypes which affect perceptions of the neighbouring countries
within the EU.

EU programmes and activities in research, education, culture and bilateral visitor

programmes should be expanded. Exchange programmes between youth and
universities, the creation of European studies courses and the opening of new Euro-
information centres, people-to-people activities, including professional
exchange/visit programmes, activities in the field of media, training and journalists
exchanges merit close consideration. Ideas circulated by the new member states
should be looked upon favourably. Exchanges on a regional level regarding

12
governance and human rights training issues have proven beneficial and should be
explored further. In the Mediterranean, work could take place under the auspices of
the Euro-Mediterranean Foundation. Attention should be given to strengthening EU
information policy in Russia and the WNIS in cooperation with the member states.
Twinning opportunities between local government and civil society organisations and
judicial cooperation should be fully utilised. A PRINCE information campaign to
make the European public aware of the benefits and challenges of the wider Europe
framework will be launched.

o INTEGRATION INTO TRANSPORT, ENERGY AND TELECOMMUNICATIONS

NETWORKS AND THE EUROPEAN RESEARCH AREA: Full integration into EU markets
and society requires compatible and interconnected infrastructure and networks as
well as harmonised regulatory environments. EU policies such as Trans-European
Networks (TENs), Galileo and other research activities should draw up strategies for
the Eastern and Southern neighbours.

The Meda regional programme is producing blueprints for infrastructure

interconnection and regulatory approximation and harmonisation in transport, energy
and telecommunications (Trans-Euro-Mediterranean Networks). These blueprints
should be implemented with loans and risk capital from the EIB through the Facility
for Euro-Mediterranean Investment and Partnership (FEMIP) as well as the other
International Financial Institutions (IFIs). The EU should encourage and support
telecommunications markets in the neighbouring countries, improving the availability
of Internet access for business and private use and encouraging the growth of
knowledge-based economies. As set out in the 6th Framework programme for
Research and Technological Development (RTD), the EU should take forward the
opening of the European Research Area (ERA) to integrate the scientific communities
of the neighbouring countries, exploit scientific results, stimulate innovation and
develop human resources and research capacities.

o NEW INSTRUMENTS FOR INVESTMENT PROMOTION AND PROTECTION: A

stronger and more stable climate for domestic and foreign investment is critical to
reducing the wealth gap that exists between the EU and its neighbours. Foreign
investment can encourage reform and improved governance at the same time as
contributing to the transfer of know-how and management techniques and the training
of local personnel.

Future agreements concluded with our neighbours could include reciprocal provisions
granting companies national treatment for their operations as well to strengthen the
overall framework to protect investment. The EU should continue to assist the fight
against corruption, strengthening of the rule of law and the independence of the
judiciary. The EU should help to enhance business-to-business dialogue initiatives,
involving EU and the neighbours companies. The EU-Russia Industrialists Round
Table process and the Business Summits with the Mediterranean countries have been
useful instruments for entrepreneurs to develop practical suggestions on how to
improve the investment and business climate in the neighbouring countries. Regional
bodies representing entrepreneurs and EU business associations in the neighbouring
countries are valuable partners in this area.

13
o SUPPORT FOR INTEGRATION INTO THE GLOBAL TRADING SYSTEM: WTO
Membership is an integral part of a positive economic agenda and expanding trade
and investment links.

The EU should support a high rhythm of WTO negotiations with the applicant
countries - Russia, Ukraine, Algeria, Lebanon and Syria and continue to offer
assistance to prepare for accession on acceptable terms as soon as possible. The Tacis
and Meda programmes could provide further trade-related technical assistance and
training for customs cooperation and trade facilitation, intellectual property rights,
regulation of the service sector and the approximation and implementation of Internal
Market legislation.

o ENHANCED ASSISTANCE, BETTER TAILORED TO NEEDS: Proximity calls for

further efforts to encourage cross-border and trans-national cooperation and
development, both locally and regionally. This includes the strengthening of all forms
of economic, legal and social cooperation across the borders, especially between
regional and local authorities and within civil society. The EU should work with the
neighbours to facilitate common management of migration flows and border transit
and to address trans-border organised crime, including illicit trafficking, as well as
corruption, fraud, environmental, nuclear issues and communicable diseases. The
EU's cooperation instruments must be sufficiently flexible to address the entire range
of needs.

For Russia and the WNIS, constraints on coordination between the existing EU
instruments create obstacles to cross-border and sub-regional activities. Taking into
account the constraints that may arise in the short-term, the Commission will consider
the possibility of creating a new Neighbourhood Instrument which builds on the
positive experiences of promoting cross-border cooperation within the Phare, Tacis
and INTERREG programmes12. This instrument will focus on trans-border issues,
promoting regional and sub-regional cooperation and sustainable development on the
Eastern border. For the Mediterranean, consideration should be given to whether such
a unified proximity instrument could also apply to shorter sea crossings (between the
enlarged EU and a number of Barcelona partner countries). The EU should
accompany progress made in reforms with enhanced assistance to mitigate the impact
of adjustment on the poor and vulnerable. The WNIS should benefit from more direct
grant aid and budget support for tackling poverty, social and economic inequality and
exclusion to achieve greater social cohesion. Criteria for eligibility for EU exceptional
macro-financial assistance (MFA) should be clarified. The need for a MFA
framework regulation could be re-assessed.

o NEW SOURCES OF FINANCE: EU technical and grant assistance is not the only
means for promoting reform or catalysing private investment. The IFIs have a key
role to play in reducing poverty, helping to mitigate the social consequences of
transition, assisting accelerated reform and increased investment as well as developing
infrastructure and the private sector.

12
Although outside the geographical scope of this paper, similar considerations apply to cross
border aspects of the CARDs programme in the Western Balkans.

14
Community financial instruments and the EIB should continue to support
infrastructure investment in the Mediterranean. FEMIP or, subject to Council review,
a possible Euro-Med bank, are means of providing additional support for private
sector development in the region. For Russia and the WNIS, community, EBRD and
EIB supported initiatives should be further developed. While the central role played
by the EBRD should continue to be supported, the EU could also consider the
progressive and targeted increase of EIB lending to Russia, and its extension to
Ukraine, Moldova and, eventually, Belarus. The EU should ensure the IFIs take
adequate account of the importance of spending on education, health and social safety
net provisions in their policies towards the neighbouring countries.

4. A DIFFERENTIATED, PROGRESSIVE, AND BENCHMARKED APPROACH

The long term goal of the initiatives set out in Chapter 3 is to move towards an
arrangement whereby the Unions relations with the neighbouring countries ultimately
resemble the close political and economic links currently enjoyed with the European
Economic Area. This implies the partners taking on considerably deeper and broader
obligations, specifically when it comes to aligning with Community legislation.
However, the new neighbourhood policy should not override the existing framework
for EU relations with Russia and the countries of the Western NIS, and the Southern
Mediterranean. Instead, it would supplement and build on existing policies and
arrangements.

BELARUS

EU-Belarus relations stalled in 1996-7 as a consequence of serious setbacks in the

development of democracy and human rights in Belarus, in particular the replacement of
the democratically elected parliament with a national assembly nominated by the
President in violation of the 1994 constitution.

The GAC reacted in 1997 by freezing conclusion of the PCA, signed in 1995, and
restricting ministerial level contacts and the scope of EU assistance to Belarus.

Despite repeated approaches by the EU, OSCE and Council of Europe since 1997,
Belarus has applied a constant policy of deviation from its commitments to the Council
of Europe and OSCE. Confrontation with the OSCE over its representation in Minsk led
to a decision of 14 member states to impose a visa ban on government representatives in
November 2002.

The EU faces a choice in Belarus: either to leave things to drift a policy for which the
people of Belarus may pay dear and one which prevents the EU from pursuing increased
cooperation on issues of mutual interest - or to engage, and risk sending a signal of
support for policies which do not conform to EU values.

In the run-up to the parliamentary elections in 2004, the EU should aim to engage
Belarus in a measurable, step-by-step process focused on creating the conditions for free
and fair elections and, once achieved, the integration of Belarus into the neighbourhood
policy, without compromising the EUs commitment to common and democratic values.

As noted above, the neighbouring countries do not start from the same point in their
relations with the EU. Some partners already have FTAs with differing degrees of
scope and depth; others have begun the process of developing a strategic partnership

15
with the EU, with economic integration with the EU as one aspect of this. While the
EU should aim to ensure a more coherent approach, offering the same opportunities
across the wider neighbourhood, and asking in return the same standards of behaviour
from each of our neighbours, differentiation between countries would remain the
basis for the new neighbourhood policy.

The overall goal will be to work with partner countries to foster the political and
economic reform process, promote closer economic integration and sustainable
development and provide political support and assistance. The EU should start from
the premise that the institutions of state need to be capable of delivering full transition
to comply with international political, legal and human rights standards and
obligations. Partners will start from variable, in some cases limited, capacity to
undertake rapid reform and comprehensive transition. They will need to show a strong
commitment to building up their administrative, institutional and legal capacity. There
is therefore no alternative to a step-by-step approach. The extension of the benefits set
out in Chapter 3, including increased financial assistance, should be conducted so as
to encourage and reward reform reforms which existing EU policies and incentives
have so far not managed to elicit in all cases. Engagement should therefore be
introduced progressively, and be conditional on meeting agreed targets for
reform. New benefits should only be offered to reflect the progress made by the
partner countries in political and economic reform. In the absence of progress,
partners will not be offered these opportunities.

This communication proposes that the principles of differentiation and progressivity

should be established by means of country and/or regional Action Plans. These
should be political documents drawing together existing and future work in the full
range of the EUs relations with its neighbours, in order to set out clearly the over-
arching strategic policy targets and benchmarks by which progress can be judged over
several years. They should be concise, complemented where necessary by more
detailed plans for sector-specific cooperation.

The setting of clear and public objectives and benchmarks spelling out the actions
the EU expects of its partners is a means to ensure a consistent and credible approach
between countries. Benchmarks also offer greater predictability and certainty for the
partner countries than traditional conditionality. Political and economic benchmarks
could be used to evaluate progress in key areas of reform and against agreed targets.
Beyond the regulatory and administrative aspects directly linked to market
integration, key benchmarks should include the ratification and implementation of
international commitments which demonstrate respect for shared values, in particular
the values codified in the UN Human Rights Declaration, the OSCE and Council of
Europe standards. Wherever possible, these benchmarks should be developed in close
cooperation with the partner countries themselves, in order to ensure national
ownership and commitment.

International organisations, notably the OSCE and the Council of Europe, the
International Labour Organisation (ILO) and the IFIs, can assist with establishing
benchmarks. These organisations should also be engaged in the process of supporting
related reforms.

Action Plans and accompanying benchmarks should be established by the Council,

based on proposals from the Commission, wherever possible with prior discussion

16
with the partner countries concerned. The Action Plans, once agreed, will supersede
common strategies to become the Unions main policy document for relations with
these countries over the medium term.

When it comes to the institutional and contractual arrangements of the Association

Agreements and Partnership and Cooperation Agreements, the full implementation
and exploitation of the provisions contained in the existing Agreements remains a
necessary precondition for any new development.

LIBYA

The EU has no contractual relations with Libya.

In April 1999, following the suspension of UN sanctions, Libya acquired observer status
in the Barcelona Process and was invited to become a full member as soon as the UN
Security Council sanctions have been definitively lifted and once Libya has accepted the
full Barcelona 'acquis'.

The EU has suspended sanctions against Libya and lifted restrictions on diplomatic and
consular personnel and visas; the embargo on arms exports remains in place.

Although Libya has not so far accepted the Barcelona acquis, in particular because of
disagreement over the position of Israel and the Palestinian Authority, it regularly
observes in Foreign Ministers and Senior Official's meetings.

The EU should therefore give consideration to how it could incorporate Libya into the
neighbourhood policy. In order to send a coherent message, further engagement needs to
be pursued within a conditional framework and a clear understanding of the benefits of
making progress towards cooperation based on respect for shared values.

Thereafter, the EU will examine the scope for new Neighbourhood Agreements to
build on existing contractual relations.. These would supplement existing contractual
relations where the EU and the neighbouring country have moved beyond the existing
framework, taking on new entitlements and obligations. If, however, the
Neighbourhood Agreements contain provisions going beyond those of the Euro-
Mediterranean Association Agreements, similar arrangements could be offered, on
equivalent terms, to the Mediterranean partners.

5. NEXT STEPS

A three step process could be envisaged for developing and implementing the Action
Plans for each country:

I. Dialogue in the existing frameworks (Association and Partnership and

Cooperation Agreements) jointly analysing the achievements and failures of
reform hitherto. The Association and Cooperation Committees should be
mandated to prepare this work.

II. A document would then be drawn up by the Commission and the Member
States, to be agreed in association with each country, setting out common
objectives and benchmarks and a timetable for their achievement. This action
plan should be given a political endorsement by the EU and the partner(s)

17
 involved, if appropriate at the level of the Association and Cooperation
Councils.

III. An annual review of progress in implementing the Action Plan, integrated

into the existing institutional cooperation framework with the partner
countries, would be a concrete demonstration of enhanced EU political
interest and provide governments with the opportunity to receive credit from
the EU for their political and economic reform efforts.

The financial implications of the new Neighbourhood Policy should be reflected in

the Commission's future budgetary proposals. The Commission will consider
proposals for a new Neighbourhood Instrument focussing on ensuring the smooth
functioning and secure management of the future Eastern and Mediterranean borders,
promoting sustainable economic and social development of the bordering regions and
pursuing regional and trans-national cooperation. The Commission will consider how
objectives and benchmarks could help regarding regulatory approximation, further
market opening and preferential trade relations with Russia, Ukraine and Moldova in
line with the commitments and obligations in the PCAs. Where justified by progress
made against the Action Plans, the Commission will also put forward initiatives to:

extend existing Community policies, programmes and instruments to neighbouring

countries not already benefiting from them.

implement a progressive and targeted extension of the EIBs external mandate to

Russia and the WNIS, in close collaboration with the EBRD and the other relevant
IFIs.

evaluate FEMIP and consider its possible incorporation into an EIB majority
owned Euro-Med Bank.

The contribution of the new member states will be fundamental to the development of
the new neighbourhood policy.

18
ANNEX: Tables and Charts

Table 1: Basic economic indicators

Population GDP Overall Overall Imports from Exports to FDI
per capita Imports Exports the EU the EU
in million in EUR EUR million EUR million EUR million EUR million EUR million
Israel 6.4 19 578 36721 32 032 15 557 8 544 3 397
Algeria 30.7 1 974 12882 21 788 8 234 14 473 1 335
Egypt 65.3 1 663 14063 4 614 4 191 1 453 569
Libya 5.4 1776(1) 4867 12 548 3 247 10 331 - 112
Morocco 29.2 1 296 12192 7 945 6 302 5 562 2 966
Tunisia 9.7 2 301 10622 7 379 7 563 5 892 543
Jordan 5.2 1 901 5344 2 553 1 535 98 189(2)
Lebanon 3.6 5 284 7072 1 030 3 366 274 278(2)
Occ. Palest. Terr. 3.0 1591(1) 3339(1) 653(1) 31(3) 6(3) 57(2)
Syria 17.1 1 292 6970 6 121 2 287 3 747 229(2)
Belarus 10.0 1 352 8966 8 286 1 387 917 189
Moldova 4.3 417(1) 998 636 278 136 167
Russian Fed. 144.8 2 382 41006 91 864 16 597 35 703 2 835
Ukraine 49.1 855 18665 16 139 5 437 3 316 862
Source: WDI 2002 (World Bank), IMF (GDP per capita), IMF (trade data), EIU, UNCTAD/DITE for FDI data. Data refers to 2001.
(1)
2000 data
(2)
estimates
(3)
Inversion of data reported by EU

Chart 1: GDP per capita in % of EU

120

EU = 100
100

79.7
80

60

40

19.1
20
7.8 7.3 9.9 8.3 8.3
5.6 6.4 4.8 5.7 3.4
n.a. 1.8
0
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Source: WDI 2002, Worldbank, Commission staff calculation

19
 Chart 2: Total FDI flows
5.5
USD bilion
4.5 Average 1997-2001

3.5
Average 1999-2002

2.5

1.5

0.5

-0.5
a

ia

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Source: UNCTAD, DITE

Chart 3: Share of World Foreign Investment Inflows

(Average 1998-2001)
New EU Member
States & Candidates Latin America Israel
EFTA 3.4% 11.4% 0.5%
2.6% Algeria
Asia (ASEM)
11.2% 0.1%
Egypt
EU 0.2%
17.9%
Morocco
MED 0.2%
1.1% Tunisia
Rest of the World* 0.1%
17.9%
Jordan
0.03%
Lebanon
Russia
USA 0.04%
0.4%
33.9%
Moldova Belarus Palestinian A.
0.02% Ukraine 0.03% 0.01%
Syria
0.1%
0.03%

20
 Chart 4: Share of World Inward Foreign Investment Stock (2001)

New EU Member
States & Candidates Latin America
EFTA Israel
2.7% 11.0%
2.4% 0.5%

Asia (ASEM) Algeria

EU
15.2% 0.1%
17.7%
Egypt
0.4%

MED Morocco
1.5% 0.2%
Tunisia
Rest of the World*
0.2%
22.9%
Jordan
0.03%
USA Lebanon
Russia
25.9% 0.03%
0.4%
Moldova Ukraine Belarus Syria Palestinian A.
0.01% 0.1% 0.03% 0.04% 0.01%

Chart 5: Trade integration with the EU

100
imports/exports conducted with the EU as % of total
90 82.3 79.8
80 Imports Exports
70.0
70 66.4
61.2
60
50
38.9
40
31.5 20.5
26.7 26.6 21.4
30
11.1
20
10 3.8
0.0
0
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Source: DOTS (IMF)

21
 Chart 6: Exports to EU-15
EUR billions
70 Russia

60 BY+MD+UK

50 DZ+EG+IL+JO+LB+LY+MA+PS+SY+TN

40

30

20

10

0
1995 1996 1997 1998 1999 2000 2001 2002

Source: Eurostat, COMEXT

Chart 7: Imports from EU-15

EUR billions
70
Russia

60 BY+MD+UK

50 DZ+EG+IL+JO+LB+LY+MA+PS+SY+TN

40

30

20

10

0
1995 1996 1997 1998 1999 2000 2001 2002

Source: Eurostat, COMEXT

22
 Table 2: Population - Growth rates
Population Population growth rates
1990 1995 2000 2001 2001 Avg. 1995 -2000
in million in million in million in million in % in %
Israel 4.7 5.5 6.3 6.4 2.4 2.5
Algeria 25.0 28.1 30.3 30.7 1.5 1.5
Egypt 51.9 57.5 64.0 65.3 2.1 2.1
Libya n.a. 4.8 5.3 5.4 2.3 2.2
Morocco 24.2 26.4 28.7 29.2 1.6 1.7
Tunisia 8.2 9.0 9.6 9.7 1.4 1.3
Jordan 3.5 4.3 5.0 5.2 3.0 3.2
Lebanon 2.6 3.2 3.5 3.6 1.7 2.0
Occ. Palest. Terr. n.a. n.a. 3.0 3.0 0.0 n.a.
Syria 12.1 14.2 16.6 17.1 3.1 3.2
Belarus n.a. 10.3 10.0 10.0 0.0 -0.5
Moldova n.a. 4.3 4.3 4.3 0.0 0.0
Russian Fed. n.a. 148.3 145.4 144.8 -0.4 -0.4
Ukraine n.a. 51.5 49.3 49.1 -0.4 -0.8
Source: IMF, EBRD, EIU, World Bank

Chart 8: Immigration of South. Mediterranean, Western NIS, and

Russian nationals to the EU-15 as percentages of all non-EU
immigrants, 2000*

Western NIS
Russia (RU)
(BY+MD+UA)
3.2%
2.2%
Southern
Mediterranean
(DZ+EG+IL+JO
+LB+LY+MA+P
S+SY+TN)
8.4%

Other non-EU
immigrants
86.2% Total non-EU
immigrants
= 1,490,891**

*Source: Eurostat. 1999 data: B, D, F, I. 1998 data: EL

**Includes non-EU immigrants into IRL but nationality-specific details for Eastern and Southern countries are not available.

23
Chart 9: Immigration of Southern Mediterranean, Western NIS, and
Russian nationals to the Acceding countries as percentages of all non-
national immigrants, 1999*

Russia (RU)
8.0% Western NIS
(BY+MD+UA)
15.0%

Southern
Mediterranean
(DZ+EG+IL+JO
+LB+LY+MA+P
Other non- S+SY+TN)
national Total non-national
1.9%
immigrants immigrants
75.1% = 41,007**

* Source: Eurostat. No data available for PL. 2001 data: SK

** Includes non-national immigrants into MT but nationality-specific details for Eastern and Southern countries are not available

Chart 10: Southern Mediterranean, Western NIS, and Russian

nationals as percentages of all non-EU nationals in the EU-15, 2001*

Western NIS
Russia (RU) (BY+MD+UA)
1.5% 1.0%

Southern
Mediterranean
(DZ+EG+IL+JO
+LB+LY+MA+P
S+SY+TN)
Other non-EU 17.0%
nationals 80.6%

Total non-EU nationals

= 13,032,387**

* Source: Eurostat. 2000 data: B, I, A, P, S, UK. 1999 data: F. 1998 data: EL

** Includes non-EU nationals in A and IRL but nationality-specific details for Eastern and Southern countries are not available

24
 ASSISTANCE

Community assistance to Russia, Western NIS and Southern Mediterranean countries 1995-2002 (commitments, millions)
Algeria WB/ Egypt Jordan Lebanon Morocco Syria Tunisia Russia Ukraine Moldova Belarus Total S. Total
Med Russia/
Gaza WNIS

Bilateral 304.2 307.7 + 776.7 381 194 1,038.6 181 685.9 912.3 498.1 62.7 17 3869.12 1490.1
Aid 95-02 151.11
+151.1

Meda 974.53 1052.24

Regional &
Tacis cross- (CBC:
border 228.9,
programme 96-03)

MFA/Food 1125 2 453 50/15.5 30 124 558/15.

Security +10 5
Programme

Fuel gap (97-01) 115

1
B7-420B for 2000-2002
2
Meda, part B of the budget (B7-410B)
3
Meda, parts A and B of the budget (B7410A and B7-410B). This does not include monies committed to the United Nations Relief and Works Agency for Palestinian
Refugees in the Near East (UNWRA) for Palestinian refugees in Jordan, Lebanon, Syria and West Bank/Gaza
4
Estimates based on Russia and Ukraine receiving a proportionate (50% and 25% respectively) share of the overall budget for the Tacis Regional Programme
5
Amount allocated via UNRWA, WFP and ACAD

25