| Deep Integration, Nondiscrimination, and Euro-Mediterranean Free Trade (2000) | |||||||||||||||||
Abstract | |||||||||||||||||
| this paper we investigate the potential importance of deep integration in the context of trade agreements the EU has concluded with Mediterranean countries. We consider the case of Egypt for illustrative purposes. The government is far advanced in negotiations with the European Union (EU) to establish a bilateral free trade agreement (FTA), and in 1997 agreement was reached in the Arab League to establish a FTA over a 10 year period starting in 1998. Neither of these agreements does much to pursue a deep integration agenda, although the EU FTA has the potential to do so. In this paper we quantify the magnitude of the opportunity costs of not doing so, taking into account that unilateral elimination of some regulatory barriers on a nondiscriminatory basis may not be feasible, and that Mediterranean countries may be able to improve market access opportunities in the EU if the agenda is "deepened". Given Egypt's diversified trading patterns, a shallow PTA with the EU (limited to elimination of Egyptian tariffs) will lead to a small welfare decline. This reflects the fact that Egypt already has duty-free access to the EU for manufactures the loss in tariff revenues that will be incurred outweighs any trade creation that will result. Large welfare gains from a EU FTA are conditional upon the elimination of regulatory barriers and red tape. If deep integration efforts are pursued that deliver such an improvement in the business environment, the welfare gains may be substantial, from 4 percent to upwards of 20 percent growth in real GNP. The variance in these impact results indicates that it is important to have a good sense of how large the regulatory costs are, whether elimination of regulatory barriers can be applied on a 3 nondiscriminatory basis, and whether the barrier... | |||||||||||||||||
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