An Economywide Perspective on EuroMediterranean Trade Agreements, with a Focus on Morocco and Tunisi

1
An Economy-wide Perspective on Euro-Mediterranean
Trade Agreements, with a Focus on Morocco and
Tunisia

• Marijke Kuiper
• International Trade and Development, Public
  Issues Division
• Agricultural Economics Research Institute (LEI)
• The Hague

2
Objectives

• Analyze impact EuroMed on Mediterranean and
  Northern EU member states
• EU as a whole has political/security interest
  (lt5 of total trade and dominated by oil)
• Different agricultural interests of Mediterranean
  and Northern EU member states
• Focus on different impact on agricultural
  production in Mediterranean and Northern EU

3
Objectives

• Assess interactions EuroMed and domestic policies
  in partner countries
• EU is main trading partner (gt50 of exports and
  imports)
• Tariff revenues important part government budget
• Economic growth is lagging
• High unemployment young population
• Focus on income and employment effects in Morocco
  and Tunisia

4
Model choice

• Use an economy-wide analysis
• Link between agriculture and rest of the economy
  is important for employment
• Looking beyond agriculture to broader EU interest
  impact current agreements may aid negotiations
• Analysis is based on GTAP
• Economy-wide perspective (but limited sector
  detail)
• International trade model capable of analyzing
  preferential trade agreements
• Detailed tariff data available for scenarios (6
  digit)

5
Main model features

• Regions
• 2 partner countries Morocco and Tunisia
• 3 EU regions Mediterranean, Northern/Accession
• Other Rest of North Africa, Middle East, USA,
  ROW
• Sector aggregation based on
• Differences in tariff reductions across sectors
• Employment (in base year)
• Model closure (focus on unemployment)
• Unemployment of unskilled labor in Morocco and
  Tunisia (all scenarios)
• Tariff revenues replaced by consumption tax (some
  scenarios)

6
Baseline/reference point for scenarios

• Base year is 2001 (GTAP Version 6)
• The baseline captures
• EU enlargement
• WTO accession China
• Implementation remaining URAA commitments
• Preferences (including EBA)
• MFA quota phase out
• EU MTR CAP reform (Luxembourg agreement)
• Possible Doha commitments not accounted for

7
EuroMed agreements are asymmetric

• Agriculture
• Protocols make few concessions, but overall no
  significant steps (diverging EU interests)
• Agriculture not included in EuroMed scenario
• Manufacturing
• EU eliminates all tariffs but practically none
  are remaining after unilateral liberalization of
  the 1970s
• Partner countries face detailed schemes to
  eliminate high current protection
• EuroMed unilateral removal of tariffs on
  manufactured goods by partner countries, granting
  EU preferential access

8
Tariffs levied on imports by Morocco
9
Tariffs levied on imports by Tunisia
10
Scenarios
Full liberalization of trade with EU
EuroMed agreements
FL_yes
FL_no
EA_yes
EA_no
Sectors liberalized
?
?
Only manufacturing
?
?

All sectors
No replacement
?
?
Tariff replacement
?
?
Consumption tax
11
Income effects ( of base GDP)
12
Impact on unskilled employment ( change)
13
Price of land ( change)
14
Cereal production ( change)
15
Vegetable oil production ( change)
16
Conclusions (1)

• Impact on Morocco and Tunisia
• Impact depends on tariff replacement
• With no tariff replacement significant growth of
  income, employment and factor prices
• Replacing tariffs results in an opposite finding,
  significant reduction of income, employment and
  factor prices
• Including agriculture in the agreements
• Has limited benefits for Morocco and strong
  benefits for Tunisia
• Benefits of Tunisia driven by unrealistic
  increase in olive oil production
• EuroMed could contribute to employment and growth
  if combined with domestic reform

17
Conclusions (2)

• Impact on Northern and Mediterranean EU
• Small relative size of partner countries result
  in insignificant income effects and very limited
  production effects
• Including agriculture in agreements
• Raises cereal production (in both EU regions)
• Reduces olive oil production in Mediterranean
  with 7, driven by a unrealistic 844 increase in
  Tunisian production
• Mediterranean EU has net gains in all scenarios
  and could thus compensate losers
• Impacts on EU regions are insignificant (but
  positive) in all scenarios

18
Conclusions (3)

• Overall we find strong potential benefits for
  Morocco and Tunisia and very limited impacts on
  EU regions
• With impacts depending on domestic policies in
  partner countries, efforts should focus on
  supporting domestic reform to avoid the negative
  impacts on income and employment that threaten
  the aims of the EuroMed agreements