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Catching up with Eastern Europe? The European Union's Mediterranean free trade initiative

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  • Hoekman, Bernard
  • Djankov, Simeon

Abstract

Many countries in the Middle East and North Africa that are considering liberalizing, privatizing, and deregulating markets face difficult policy issues. Gradual, piecemeal reform efforts have had limited success. The option of a Euro-Mediterranean Agreement (EMA) offers a new opportunity to implement structural reform. Two questions can be posed: (1) Why pursue regional integration? and (2) Is an EMA sufficient? Justifications for regional integration include the following: The EMA may offer a stronger mechanism for locking in economic reform than does the World Trade Organization (WTO), while the preferential nature of an EMA might help overcome domestic resistance to liberalization. Harmonization of regulatory regimes and administrative requirements could facilitate trade. Market access could be more secure if countries agreed not to impose contingent protection, such as antidumping actions. Transfers from the European Union to partner countries (financial or technical assistance) would help offset lost tariff revenue and the costs of trade diversion. The EMA signed between Tunisia and the European Union does not go significantly beyond existing multilateral (WTO) disciplines. The long 12-year transition path may reduce incentives to initiate rapid restructuring and may create problems in implementing future tariff reductions. While the EMA option gives the Mediterranean countries a unique opportunity to pursue far-reaching trade liberalization credibly and gradually, the economic benefits will be limited if trade liberalization is restricted to manufactured products. Service markets and foreign investment must also be liberalized to ensure a supply response and create new employment opportunities. Equally important are factors that cannot be"imported"through an agreement with the European Union: efficient public institutions, domestic competition, investment in education, high rates of private savings and investments, a stable economy, and openness to the world economy. The greater the extent to which the EMA-based preferential liberalization is extended to non-European countries, the greater the benefits for participating Mediterranean countries.

Suggested Citation

  • Hoekman, Bernard & Djankov, Simeon, 1996. "Catching up with Eastern Europe? The European Union's Mediterranean free trade initiative," Policy Research Working Paper Series 1562, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1562
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    References listed on IDEAS

    as
    1. Hoekman, Bernard, 1995. "The WTO, the EU and the Arab World: Trade Policy Priorities and Pitfalls," CEPR Discussion Papers 1226, C.E.P.R. Discussion Papers.
    2. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    3. Dani Rodrik, 1992. "The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will it Last?," NBER Working Papers 3947, National Bureau of Economic Research, Inc.
    4. Hoekman, Bernard & Leidy, Michael P, 1993. "Holes and Loopholes in Integration Agreements: History and Prospects," CEPR Discussion Papers 748, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Konan, Denise Eby & Maskus, Keith E., 2006. "Quantifying the impact of services liberalization in a developing country," Journal of Development Economics, Elsevier, vol. 81(1), pages 142-162, October.
    2. Yener Kandogan, 2005. "Trade Creation and Diversion Effects of Europe???s Regional Liberalization Agreements," William Davidson Institute Working Papers Series wp746, William Davidson Institute at the University of Michigan.
    3. Alessandrini, Sergio & Resmini, Laura, 2000. "FDI in the Mediterranean Region: a Comparison with CEE Experience," MPRA Paper 26103, University Library of Munich, Germany.
    4. Hoekman, Bernard & Subramanian, Arvind, 1996. "Egypt and the Uruguay Round," Policy Research Working Paper Series 1597, The World Bank.
    5. Iván Martín, 2004. "La inversión extranjera directa en los países del Maghreb en el marco de la Asociación Euromediterránea: ¿el eslabón perdido?," International Trade 0405001, University Library of Munich, Germany.

    More about this item

    Keywords

    Economic Theory&Research; Environmental Economics&Policies; Trade Policy; Payment Systems&Infrastructure; Rules of Origin; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Economic Theory&Research; Trade and Regional Integration; Environmental Economics&Policies; Trade Policy;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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