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Deep integration, nondiscrimination, and Euro-Mediterranean free trade

  • Hoekman, Bernard
  • Konan, Denise Eby

"Deep integration"--explicit government actions to reduce the market-segmenting effect of domestic regulatory policies through coordination and cooperation--is becoming a major dimension of some regional integration agreements, led by the European Union. Health and safety regulations, competition laws, licensing and certification regimes, and administrative procedures such as customs clearance can affect trade (in ways analogous to non-tariff barriers) even though their underlying intent may not be to discriminate against foreign suppliers of goods and services. Whether preferential trade agreements (PTAs) can be justified in a multilateral trading system depends on the extent to which formal intergovernmental agreements are technically necessary to achieve the deep integration needed to make markets more contestable. The more need for formal cooperation, the stronger the case for regional integration. Whether PTAs are justified regionally also depends on whether efforts to reduce market segmentation are applied on a nondiscriminatory basis. If innovations to reduce transaction or market access costs extend to both members and nonmembers of a PTA, regionalism as an instrument of trade and investment becomes more attractive. Using a standard competitive general equilibrium model of the Egyptian economy, the authors find that the static welfare impact of a"deep"free trade agreement is far greater than the impact that can be expected from a classic"shallow"agreement. Under some scenarios, welfare may increase by more than 10 percent of GDP, compared with close to zero under a shallow agreement. Given Egypt's highly diversified trading patterns, a shallow PTA with the European Union could be merely diversionary, leading to a small decline in welfare. Egypt already has duty-free access to the European Union for manufactures, so the loss in tariff revenues incurred would outweigh any new trade created. Large gains in welfare from the PTA are conditional on eliminating regulatory barriers and red tape-in which case welfare gains may be substantial: 4 to 20 percent growth in real GNP.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2130.

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Date of creation: 31 May 1999
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Handle: RePEc:wbk:wbrwps:2130
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  1. 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.
  2. Maskus, Keith E & Konan, Denise Eby, 1997. "Trade Liberalization in Egypt," Review of Development Economics, Wiley Blackwell, vol. 1(3), pages 275-93, October.
  3. Robinson, Sherman & Gehlhar, Clemen G., 1995. "Land, water, and agriculture in Egypt: the economywide impact of policy reform," TMD discussion papers 1, International Food Policy Research Institute (IFPRI).
  4. de Melo, Jaime & Robinson, Sherman, 1989. "Product differentiation and the treatment of foreign trade in computable general equilibrium models of small economies," Journal of International Economics, Elsevier, vol. 27(1-2), pages 47-67, August.
  5. Denise Eby Konan & Keith E Maskus, 1997. "A Computable General Equilibrium Analysis of Egyptian Trade Liberalization Scenarios," Working Papers 199701, University of Hawaii at Manoa, Department of Economics.
  6. Konan, Denise Eby & Maskus, Keith E., 2000. "Joint trade liberalization and tax reform in a small open economy: the case of Egypt," Journal of Development Economics, Elsevier, vol. 61(2), pages 365-392, April.
  7. Schiff, Maurice, 1997. "Small is Beautiful: Preferential Trade Agreements and the Impact of Country Size, Market Share, and Smuggling," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 359-387.
  8. Denise Eby Konan & Keith Maskus, 1997. "Is Small Beautiful? Trade Shares and Trade Creation with Differentiated Products," Working Papers 199706, University of Hawaii at Manoa, Department of Economics.
  9. Harrison, Glenn W. & Jones, Richard & Kimbell, Larry J. & Wigle, Randal, 1993. "How robust is applied general equilibrium analysis?," Journal of Policy Modeling, Elsevier, vol. 15(1), pages 99-115, February.
  10. Schiff, Maurice, 1996. "Small is beautiful : preferential trade agreements and the impact of country size, market share, efficiency, and trade policy," Policy Research Working Paper Series 1668, The World Bank.
  11. Bernard Hoekman & Denise Konan & Keith Maskus, 1998. "An Egypt-U.S. Free Trade Agreement: Economic Incentives and Effects," Working Papers 199802, University of Hawaii at Manoa, Department of Economics.
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