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Morocco's free trade agreement with the European community : a quantitative assessment

Author

Listed:
  • Rutherford, Thomas F.
  • Rutstrom, E.E.
  • Tarr, David

Abstract

Morocco is interested in developing a reciprocal free trade agreement with the European Community (EC), although it already enjoys free access to EC markets in industrial products and is not obligated to give EC exporters reciprocal access. But Moroccan agricultural exports are impeded by agricultural protection in the European Community. A free trade agreement would require that Morocco lower its moderately high tariffs against its most important trading partner. Tariff reductions against the European Community but not against the rest of the world may provide benefits provided the trade diversion costs of preferential tariff reduction do not dominate. The authors apply a 39 sector general equilibrium model of the Moroccan economy which includes the sectors most likely to be affected by such an agreement. They investigate the economic effects of the prospective free trade agreement as well as five other trade liberalization scenarios for Morocco. Some of their most important findings are: The welfare benefits to Morocco from a free trade agreement with the European Community would be about 1.5 percent GDP. Such substantial welfare gains partly reflect the benefits of reducing dispersion in the tariff regime. Welfare benefits of about 2.5 percent of GDP would accrue from liberalizing trade with the rest of the world - with only slightly higher adjustment costs. Liberalizing trade with the world would provide greater benefits because it would eliminate the trade diversion costs associated with discriminatory trade liberalization. (Although the fact that significant benefits would accrue from discriminatory liberalization against imports from either the European Community or the rest of the world indicates that trade diversion is not dominant.) As a result of improved access to the European Community, employment and output in the vegetable and citrus fruit sectors would expand. But the phosphate sector stands to gain most from the free trade agreement because liberalization wouldinduce a depreciation in the real exchange rate. Morocco's cereal, meat, dairy, and sugar sectors would loose more in terms of employment, because of significantly lower import prices from the European Community. The nontraded goods sector would also contract slightly. The value added tax would have to be increased to compensate for the loss in tariff revenues, on which Morocco depends. Estimates are provided as ranges, with probability assessments, because of the element of uncertainty.

Suggested Citation

  • Rutherford, Thomas F. & Rutstrom, E.E. & Tarr, David, 1993. "Morocco's free trade agreement with the European community : a quantitative assessment," Policy Research Working Paper Series 1173, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1173
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    Citations

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    Cited by:

    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. Bakoup, Ferdinand*Tarr, David, 1998. "How integration into the Central African Economic and Monetary Community affects Cameroon's economy: general equilibrium estimates," Policy Research Working Paper Series 1872, The World Bank.
    3. Fraser, Iain & Waschik, Robert, 2013. "The Double Dividend hypothesis in a CGE model: Specific factors and the carbon base," Energy Economics, Elsevier, vol. 39(C), pages 283-295.
    4. Chahir Zaki, 2010. "Towards an Explicit Modeling of Trade Facilitation in CGE Models: Evidence from Egypt," Working Papers 515, Economic Research Forum, revised 04 Jan 2010.
    5. Waschik, Robert & Fraser, Iain, 2007. "A computable general equilibrium analysis of export taxes in the Australian wool industry," Economic Modelling, Elsevier, vol. 24(4), pages 712-736, July.
    6. Iain Fraser & Robert Waschik, 2010. "The Double Dividend Hypothesis in a CGE Model: Specific Factors and Variable Labour Supply," Working Papers 2010.02, School of Economics, La Trobe University.
    7. Lofgren, Hans, 1999. "Trade reform and the poor in Morocco: a rural-urban general equilibrium analysis of reduced protection," TMD discussion papers 38, International Food Policy Research Institute (IFPRI).
    8. Lofgren, Hans & El-Said, Moataz & Robinson, Sherman, 1999. "Trade liberalization and complementary domestic policies: a rural-urban general equilibrium analysis of Morocco," TMD discussion papers 41, International Food Policy Research Institute (IFPRI).
    9. Achy, Lahcen & Hassani, Aicha, 2005. "The Impact of Liberalizing International Trade of Banking Services in Morocco," MPRA Paper 8674, University Library of Munich, Germany, revised 2007.
    10. Jesper Jensen & David Tarr, 2014. "Deep Trade Policy Options for Armenia: The Importance of Trade Facilitation, Services and Standards Liberalization," World Scientific Book Chapters,in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 19, pages 453-508 World Scientific Publishing Co. Pte. Ltd..
    11. Rutherford, Thomas & Tarr, David, 2008. "Regional household and poverty effects of Russia's accession to the world trade organization," Policy Research Working Paper Series 4570, The World Bank.
    12. DeRosa, Dean A., 1997. "Agricultural trade and rural development in the Middle East and North Africa: recent developments and prospects," Policy Research Working Paper Series 1732, The World Bank.
    13. Rana HENDY & Chahir ZAKI, 2009. "Rethinking the Redistribution Effects of Trade Liberalization in Egypt : A Microsimulation Analysis," Working Papers 2009-23, Center for Research in Economics and Statistics.
    14. Glenn W Harrison & Thomas F Rutherford & David G Tarr, 1997. "Opciones de Política Comercial para Chile: Una Evaluación Cuantitativa," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 34(102), pages 101-137.
    15. Mustafa Babiker, "undated". "Impacts of Public Policy on Poverty in Arab Countries:Review of the CGE Literature," API-Working Paper Series 0403, Arab Planning Institute - Kuwait, Information Center.
    16. C J Krizan, 1997. "An Applied General Equilibrium Model Of Moroccan Trade Liberalization Featuring External Economies," Working Papers 97-16, Center for Economic Studies, U.S. Census Bureau.
    17. Franco Zallio, 2000. "Deep Integration, EURO-MED Free Trade and the WTO 2000 Negotiations," Working Papers 2014, Economic Research Forum, revised 05 Nov 2000.
    18. Hillberry, Russell & Hummels, David, 2013. "Trade Elasticity Parameters for a Computable General Equilibrium Model," Handbook of Computable General Equilibrium Modeling, Elsevier.
    19. Bruno Venditto, 2004. "The Euromediterranean Free Trade Area: A New Form Of Regional Cooperation?," Development and Comp Systems 0408005, EconWPA.
    20. Hoekman, Bernard & Djankov, Simeon, 1997. "Effective protection and investment incentives in Egypt and Jordan during the transition to free trade With Europe," World Development, Elsevier, vol. 25(2), pages 281-291, February.
    21. Hoekman, Bernard, 1995. "The World Trade Organization, the European Union, and the Arab World : trade policy priorities and pitfalls," Policy Research Working Paper Series 1513, The World Bank.
    22. Bernard Hoekman & Denise Eby Konan, 1998. "Deep Integration, Regionalism and Nondiscrimination," Working Papers 199804, University of Hawaii at Manoa, Department of Economics.
    23. Thomas F. Rutherford & E. Elisabet Rutstrom & David Tarr, 2014. "Morocco's free trade agreement with the EU: A quantitative assessment," World Scientific Book Chapters,in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 17, pages 405-437 World Scientific Publishing Co. Pte. Ltd..

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