136
Diop
been mixed. Reforms are very advanced in telecommunications and air transport, which are among the most open and dynamic sectors in the country. In contrast, fewer restrictions to entry and competition could improve performance in banking, ports, maritime transport, and professional services. This chapter examines how regulatory convergence with the European Union through the European Neighborhood Policy (ENP) framework can help Morocco further liberalize, upgrade, and modernize its backbone service sectors. The ENP is a new EU initiative that offers EU neighbors the prospect of moving beyond their existing relationship to forge a deeper degree of integration, including a stake in the internal market and the possibility of participating progressively in key aspects of EU policies and programs. It can constitute a powerful incentive for reforms.1 The European Union is Morocco’s largest economic partner, absorbing close to three-quarters of Morocco’s exports and providing 63 percent of FDI flowing to Morocco. Morocco is already participating in EU production networks in textiles and clothing and increasingly in mechanical and electrical engineering. Much of the potential for deepening integration with the European Union lies in services and agriculture. Both Morocco and the European Union have signaled their readiness to deepen integration in services. The question is how Morocco can make its regulations gradually compatible with those of the European Union to reduce cross-country and cross-jurisdiction differences that impede participation in the EU internal market. The ENP offers Morocco the opportunity to lock-in reforms and effectively integrate some of its markets into the European Union’s by helping anchor regulatory reforms. In the medium term, Morocco could achieve regulatory convergence in air transport, road transport, and energy. Regulatory convergence in banking and telecommunications can be envisaged only in the long term. In professional services, such convergence can occur only with some EU member countries, given the heterogeneity of regulations within the European Union. However, even in sectors and areas in which immediate convergence would not be the most appropriate strategy in the short to medium term, Morocco can benefit from twinning partnerships with EU member states to improve the quality of its institutions, in particular its supervisory and regulatory bodies.