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The Cost of non-MaghreAchieving the Gains fro

Economic Integratio

Mohammed Hedi Bchir, Hakim Ben Hammou

Nassim Oulmane and Mustapha Sadni Ja

ATPCWork in Progress

No. 44

November 2006

African Trade Policy Cent

ATPC

onomic Commission for Africa

ATPC is a project of the Economic Commission for Africawith nancial support of the Canada Fund for Africa

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ATPCWork in Progress

Economic Commission for Africa

The Cost of non-Maghreb:

Achieving the Gains from

Economic Integration

Mohammed Hedi Bchir, Hakim Ben Hammouda,

Nassim Oulmane and Mustapha Sadni Jallab

*Te authors are sta members o the UN Economic Commission or Arica. Tis paper should be attributed to

the authors. It is not meant to represent the position or opinions o the United Nations or its Members, nor theocial position o any UN sta member. Emails or the Authors: [email protected], [email protected],[email protected], [email protected]. Corresponding author: Mustapha Sadni Jallab, rade, Financeand Economic Development Division, United Nations Economic Commission or Arica, P.O. Box 3005, Addis

Ababa, Ethiopia, Phone: 251-115-44-52-12; Fax: 251-115-51-30-38, e-mail: [email protected].

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APC is a project o the Economic Commission or Arica with nancial support o the Canada Fund or Arica

Tis publication was produced with the support o the United Nations Development Programme (UNDP).

Material rom this publication may be reely quoted or reprinted. Acknowledgement is requested, together with a copy opublication Te views expressed are those o its authors and do not necessarily refect those o the United Nations.

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Abstract

Te purpose o this paper is to estimate the impact o the integration o Maghreb countries into aree trade area on the main macroeconomic aggregates. By using the MIRAGE model and MacMapdatabase, we tested dierent scenarios to estimate the gains or the potential losses o various plans otrade integration (Free trade area or the Maghreb countries, Custom Union between Maghreb countries,Maghreban Common Market). Our study suggests that the overall gains rom liberalizing trade in goods(and removing various regulatory non-tari barriers in the process) could reach at least USD 350 million.

Te increase in revenue through increases in production and wages would positively aect welare levelsor Maghreb consumers. Te dynamic gains rom liberalizing trade in goods can outstrip the static gains,

with productivity improvements as the main driver. Our analysis shows that the creation o a commonmarket is probably the most interesting and ecient option or the Maghreb countries.

JEL CLASSIFICAION:

F13 - Commercial Policy; Protection; Promotion; rade Negotiations

F17 - rade Forecasting and Simulation

C68 - Computable General Equilibrium Models

KEY WORDS: Free rade Area, Maghreb, and CGE Model.

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Table of Contents

I. Introduction ................................................................................................................................. 1

II. State o the protection and intra-Maghreb trade ......................................................................... 3

III owards deeper regional integration in the Maghreb region .......................................................... 9

IV Te results o the simulations ..................................................................................................... 15

V. Conclusion ................................................................................................................................. 32

Reerences .......................................................................................................................................... 34

Annexes .............................................................................................................................................. 37

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I. Introduction

One o the paradoxes o the past ew years lies in the coexistence o two dynamics: 1. Te signature o thenal Act o Marrakech and the creation o the World rade Organization (WO); and 2. Te return oregional agreements as the instrument o trade expansion.

Tis apparently dichotomous situation is well perceived by WO Members which, in the Memorandum oUnderstanding on the interpretation o Article 24 o the General Agreement on aris and rade (GA,1949) report on the increasing number o customs unions and ree trade areas and the contribution thesehave made to the expansion o world trade.

Te Arab Maghreb Union (AMU) was established by the reaty o Marrakech signed in February 1989

between Algeria, Libya, Morocco, Mauritania and unisia. Te AMU aims to organize an economicallyintegrated space in the Maghreb region and to set up common policies in all domains.

However, the AMU has not yet realized theirs planned objective o commercial integration. Te reaty oMarrakech had planned or the completion o the ollowing stages beore unication in the year 2000:

A ree trade area (beore the end o 1992), allowing or the nearly unlimited circulation o goods; A customs union (beore the end o 1995); and A common market (beore 2000).

During this period, the countries o the Maghreb were active in both multilateral liberalization at the

WO, and in bilateral agreements with non-Maghreb commercial partners. Tereore, the questiono the necessity o intensiying regional integration becomes increasingly relevant. It is not a questiono avouring regional integration against participation in the multilateral trading system. Rather, theinterdependence between these two imperatives should be taken into account. Regional integrationcan complement the multilateral system, playing an essential role in improving the internationalcompetitiveness o the North Arica region, diversiying exports and reducing o external vulnerability.

Te countries o this region are aware o the benets o more open economies. Tey have established Association Agreements with the European Union and have concluded trading agreements amongthemselves. But at present, these agreements are not being ully exploited. Bilateral trade among the three

central Maghreb countries accounts or a tiny raction (less than 2 percent) o each countrys total tradeand remains well below their potential. Teir ragmented markets also serve as an incentive or Europeanand other oreign investors to relocate their operations to Europe to benet rom economies o scale andto export to each country under the separate bilateral trade agreements with Europe.

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Te economies o Algeria, Morocco and unisia share many eatures. Agriculture is important in all thcountries; the state dominates the economy to varying degrees; and external trade regimes generally remquite restrictive, despite more open trade with the European Union. Te greatest structural dieren

between the three lies in the act that Algeria is predominantly a hydrocarbon-exporting country, whMorocco and unisia enjoy more diversied economies.

Te slow progress in opening the Maghreb economies to multilateral trade and investment is a kobstacle to achieving higher growth rates and reducing high unemployment. Te markets o the Maghcountries are relatively small and ragmented, and their best chance or development lies in opennand integration. In practice, restrictive trade regimes and cumbersome investment regulations hdiscouraged domestic private investment and attracted only limited amounts o oreign direct investmoutside the oil sector. Troughout the region, economic growth has remained below its potential, whunemployment is still much too high, and poverty remains pervasive.

Te region has considerable potential to expand trade and investment links with the rest o the woralthough this has yet to be realized. During the 1990s, while world trade grew at almost 8 percent, MidEast and North Arican (MENA) trade grew at only 3 percent. Over the same period, the region attraca negligible share o oreign direct investment. Quantitative analyses suggest that non-oil exports are othird, and manuacturing sector imports are three-quarters the level that would otherwise be expecgiven the regions location and income. Similarly, the potential to increase oreign direct investmenour to ve times higher than actual infows recorded during the 1990s. Tis suggests that there are maconstraints on the economies that need to be addressed.

Te purpose o this paper is to estimate the impact o integration o Maghreb countries into a ree tr

area on the main macroeconomic aggregates. Tis article includes ve sections. Ater an introductsection, the second section presents the state o trade between the Maghreb countries as well as intMaghreb tari protection. Te third section explores the model used and presents the various tesscenarios. Te ourth section presents the eects o the various scenarios o liberalization on the No

Arican economies as well as the main economic impacts. Te last section concludes this paper.

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II. State of the protection and intra-Maghreb trade

II.1 Weaknesses o intra-Maghreb trade

Regional integration agreements (RIAs) have prolierated in the MENA region in recent years, withAlgeria, Egypt, Israel, Jordan, Lebanon, Morocco, the Palestinian Authority, Syria and unisia havingsigned bilateral integration agreements with the EU and Jordan and Morocco having signed a ree tradeagreement with the United States. Arab countries have entered into the Pan-Arab Free rade Agreement(PAFA), ollowing numerous attempts to oster intra-regional integration in recent decades. PAFA,

which counts 21 countries as signatories, replaced the 1982 Agreement or the Facilitation and Promotiono Intra-Arab rade. Other recent examples o plurilateral agreements include the AMU, as discussedabove, and the Unied Economic Agreement between the Countries o the GCC (UEA-GCC), signed

in 2001 by Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Te two most substantive types o integration agreements are those between individual MENA countriesand the EU (Euro-Med agreements), and the intra-regional pan-Arab agreements. From the experienceo these agreements, we can conclude the ollowing:

Te Euro-Med agreements have not increased the trade share o the southern Mediterranean partnercountries in EU markets. Reasons or this include a narrow scope and coverage due to restrictions ontrade in agriculture, services, and labour; the lack o harmonization o standards; and the stringentrules o origin or some manuactured goods that have high export potential, such as textiles andclothing.

Intra-regional agreements have not stimulated pan-Arab trade. Tey have been limited in theireectiveness by restrictions similar to those in the current Euro-Med agreements. rade integrationhas also been minimal because the region has economies with similar production and exportstructures and thus ewer opportunities or trade with each other.

Within the MENA, levels o regional trade remain small despite several bilateral agreements. In 2001,intra-regional trade concerned less than 6 percent o total trade1. With the weakness o intra-regional tradein mind, oreign ministers rom Morocco, unisia, Egypt and Jordan concluded detailed discussions onthe creation o a ree trade area in Agadir on 8 May, 2001 to establish, according to a common statement,a strong economic space in the prospect o the terms o year 2010 connected to the institution o an

Euro-Mediterranean ree trade area.

1 See Oulmane and Ripoll-Bresson (2002).

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oil prices, the growth o imports and exports has been sluggish in the Arab countries which is consistentwith their low overall economic growth rates.

One reason or the low level o intra-Maghreb trade could lie in the act that the region includeseconomies with similar production and export structures and thus with low potential or trade. radecomplementarity among countries can be measured quantitatively by indexes that refect the extent to

which goods exported by one country are imported by another.

Fawzy (2003) reports that such complementarity indexes show low values or Maghreb countries relativeto other groupings, such as the European Community and NAFA. Te small size o the Maghrebeconomies could account or low levels o trade within the region. Tis is undoubtedly part o theexplanation, but quantitative studies suggest that even when size is controlled, the level o intra-regionaltrade below potential. Tis suggests that the various integration eorts in the region have not overcomeother barriers to intra-regional trade, including high tari rates and non-tari barriers, high transaction

costs, and the dominance o the public sector in Maghreb economies. As noted earlier, the cost ocompliance with non-tari-related measures in various Maghreb countries can be as high as 10 percento the value o the items imported. Furthermore, the private sector, which oten plays a leading role inintegration eorts, is likely to be less eective in the MENA region due to the dominance o the publicsector. For example, MENA countries have the lowest ratios o private xed investment to total xedinvestment compared with the three other trade blocs mentioned above, and the lowest ratios o FDI toGDP.

o summarize: the Maghreb countries are not well integrated either on an international or a regionalbasis. Although some evidence suggests that there is undertrading at the regional level as compared to

some benchmarks such as the gravity model, the lack o regional integration is a refection o the lack oglobalization (Achy, 2006). Across a broad variety o indicators, trade in goods and services, capital fows,and to a lesser extent labour fows, the Maghreb countries are relatively less integrated than countries withsimilar levels o development and per capita income.

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able 2: otal Arab External rade

Country Total Arab External Trade of World Trade (%) Total Intra-Arab Trade of Total External Trade (

Year 2000 2001 2002 1999 2000 2001Algeria .57 .6 .59 .87 2 2.7

Egypt . 0.86 .26 5.95 6.58 5.62

Libya 0.86 0.79 0.75 .56 .5 .5

Mauritania 0.06 0.06 0.07 0. 0.2 0.2

Morocco .05 0.92 .06 . .2 5.29

Tunisia 0.75 0.8 0.8 .8 .87 .88

Sudan 0.6 0.9 0.2 .75 .5 .66

Source: Published WO data

II.2 Intra-Maghreb protection

As can be seen in table 3, intra-Maghreb protection remains relatively high. Protection levels remain higor agricultural products than or manuacturing since the Euro-Mediterranean ree trade area contributo a decrease in manuacturing taris. A comparative analysis o the protection levels o Maghreb countshows that between these countries, we can identiy at least two models o protection.

Te rst model, the unisian model, is characterized by high protection levels in agriculture whcompared with manuacturing. unisia has high protection rates towards cereals and vegetables, as was weak technological products coming rom Morocco. It applies particularly higher taris or the res

the Maghreb, notably or oil (114.5 percent), vegetables (66.9 percent) and the cereal agriculture (4percent). Concerning the rest o North Arica, the protection towards the rest o the Maghreb is relativless high, especially towards Morocco. Te highest average applied tari concerns the textile and clothindustry rom unisia.

Te second model, the Moroccan model, is characterized by more pronounced protection manuacturing. Morocco applies rates exceeding 20 percent on average or agriculture, natural resourcagro-industry, and textile and clothing products coming rom unisia. Rates are also relatively high in manuacturing sectors and high technology industries. Moroccan protection exceeds 20 percent towathe rest o North Arica in cereals, textiles and clothing and the middle technology industries.

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Tis dichotomy could easily be explained by the structure o each economy. Both models are driven bythe comparative advantage and political needs o each o the Maghreb economies to protect their mostsensitive sectors.

able 3. Initial bilateral tarif protection between Maghreb countries andEuropean Union

Applied tariffs by: TUNISIA MOROCCO RNA

On exports from: EU25 MOR RNA EU25 RNA TUN EU25 MOR RNA TUN

Agricultural sectors

Paddy rice 27.00 .50 96.66 9. .9 5.66

Wheat 88.20 29. .25

Cereal grains nec 59.68 .20 2.0 5.7 9.5 5.9 6.50 5.

Vegetables. Fruit. Nuts 20.9 66.77 80.5 .88 2. 2.96 22.6 5.69 20.06 2.2

Other agricultural products 0.5 0.0 9.88 .26 8.0 20.90 5.58 2.79 5.88 0.0

Plant-based bers 0.00 0.00 0.00 .25 .2 .8 .69 .06

Crops nec 5.07 7.0 .0 20.2 7.2 .0 5.95 . 6.89 2.89

Animal 5.70 2.0 20.9 57.96 .6 .79 2.9 2.80 5.77 6.7

Fishing 9.08 2.50 22.8 8. .60 2.85 2.70 6.02 7.22 9.7

Agro food industries

Meat 98.0 2.8 52.06 8.5 5.75 59.55 0.27 .78 29.0 29.92

Vegetable oils and fats 2.0 . .56 5.6 .5 .67 7. 2.89 2.25 .

Dairy products 6.27 66.08 65.06 69. .6 9.85 .0 5.28 22.72 5.2

Processed rice 26.98 .0 55.8 77.2 5.00 .8 5.62 7.0

Sugar 7.86 0.00 0.07 6.5 8.70 20.9 5.9 7.95 .8 5.20

Food products nec 57.56 7.9 0.27 0.5 2.88 26.75 2.0 5.0 22.2 .80

Beverages and tobacco 8.8 8.60 2.0 2.68 .52 8.9 26. 0.9 2.96 27.8

Non Agro food industries

Coal. Oil. Gas. Minerals

nec.79 0.2 5.8 7.79 0.69 2.6 .82 .2 .9 8.8

Textiles .5 7.82 9.5 2.2 . 9.9 2.7 5.80 .6 22.8

Wearing apparel 2. 2.50 25.0 9.8 20.90 25.00 29.66 2.27 25.6 2.8

Leather products 5.5 8.07 2.0 9.70 .6 20.72 2.75 7.07 .2 .6

Paper products. Publishing 7.2 .22 5.22 2. 20.27 2. 7.07 2.92 5.5 7.25

Petroleum. Coal products .96 .6 . 26.00 0.9 5. .79 . 7.69 8.8

Chemical. Rubber. Plastic

prods5. .5 2.6 8.27 8.7 0.69 . .2 .65 0.0

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Applied tariffs by: TUNISIA MOROCCO RNA

On exports from: EU25 MOR RNA EU25 RNA TUN EU25 MOR RNA TU

Metals 0.9 2.6 6.98 9. 6.6 8. 7.7 . 0.5 .9

Motor vehicles and parts 0.8 .25 .86 25.65 0.8 5.09 7. 6.0 20.88 2.

Transport equipment nec .2 6.28 0.0 0.88 .65 .8 7.7 .5 .8 6.

Electronic equipment 5.59 9.96 5.65 0.22 .5 .66 .87 2.6 2.8 .

Other industrial products 7.29 .8 .20 9. 9.6 .7 2. 5.85 2. .2

Sources: Authors rom MacMAP

Globally, countries rom the Maghreb apply strong protections between them in cereals, agriculture aoil (in the case o unisia). Intra-Maghreb industrial protection is especially present in the textile a

clothing industries, medium technology industries, and, to a lesser extent, the agro-industry.

Tis disappointing report calls regularly to the economic operators as well as to the policy -makers o region. In contrast to the AMU, the European Common Market, launched by the reaty o Rome1958, included the establishment o a ree trade zone between European countries. Tis agreement ha double objective:

o increase economic prosperity; and o contribute to a stronger union between countries.

However, the incapacity o the European Common Market to reach excepted results resulted in

establishment o the European Community in themed-1980s to more completely and eectively addrthe objective o trade liberalization under the ramework o an internal market. Formulated in the amEU Commission White Book o June 1985, and registered in the reaty by the Single European Act1986, the internal market:

Consists in creating a space without internal borders in which the ree circulation o goods, persoservices and capital is assured; and

Includes a modication o the legislative ramework to acilitate the integration process.

Failure to realize the objectives o the Common Market came at a considerable economic cost. Tis cowhich is traditionally called the cost o non-Europe, was the object o a very detailed study by

Commission (the Cecchini report) presented in March 1988. Te authors o the study estimated loss to be around 4.25 percent, and could reach 6.5 percent o the Communitys GDP.

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III Towards deeper regional integration in the Maghreb

region

III.1 Rationale or a General Equilibrium Methodology

rade policy analysis largely involves analyzing implications o trade policy instruments on the productionstructure in economies at the national and global level. rade policy instruments such as taris andquotas have direct and indirect eects on the relative price o commodities produced in a given country.

As the mix o goods and services produced change, the demand or actors o production also change.Consequently, in any given economy, it is dicult to conceive a situation where the change in tradepolicy would aect only one sector. Due to the orward and backward linkages and their related strengths

existing in a particular economy, the result is always one in which the relative mix o sectoral outputschange. Tis, by extension, aects the relative mix o the dierent actors o production in the dierentsectors.

Te country-level eects on output mix and demands or actors o production can, in the context ointernational trade, be extended to the global economy. Changes in relative prices o outputs and inputsresulting in a given countrys change in trade policy are transmitted to the industries and input marketso other economies that the country trades with. Tereore, or trade policy analysis to be meaninguland or robust results to be produced, the interactions that prevail among dierent sectors as a resulto a change in a given or group o countries trade policy instruments must be taken into account. Tegeneral equilibrium methodology provides an analytical ramework that allows these inter- and intra-sectoral changes in output mix, and by extension the demand or dierent actors o production, to becaptured.

Kehoe and Kehoe (1994) succinctly capture the purpose o general equilibrium models. Generalequilibrium models are abstractions that are complex enough to capture the essential eatures othe economy, yet simple enough to be tractable. Tese models are more popular than their partialequilibrium counterparts as they stress the interactions among dierent sectors. However, they are notperect, especially the static models. Tey ail to take account o the dynamic eects that accompanychanges taking place in a given economy as a result o policy change. Te MIRAGE model alls intothis class o general equilibrium models. MIRAGE is a multi-region computable general equilibrium

(CGE) model designed or comparative-static analysis o trade policy issues (Adams et al. 1997). It canbe used to capture eects on output mix, actor usage, trade eects and resultant welare distributionbetween countries as a result o changing trade policies at the country, bilateral, regional and multilaterallevels. Since the MIRAGE model emphasises resource reallocation across economic sectors, it is a good

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instrument or identiying the winning and losing countries and sectors resulting rom policy chaninvolving the trade aspects o FAs.

III.2. Overview o the MIRAGE modelTis section provides a short description o the MIRAGE model, which was constructed to assess impact o globalization on individual regions in the global economy. Te model is a relatively standneo-classical model o economic activity and is based on the latest release o the GAP data set, versi6.0. It is designed or analyzing dynamic scenarios, which are solved as a sequence o static equilibr

with the periods being linked by dynamic variables (population and labour growth, capital accumulatiand productivity). Policy scenarios are compared to a baseline, or business-as-usual, scenario.

Te ollowing section briefy describes the dimensions o the model and its main eatures2. Te mapprom the GAP regional and sectoral denitions to the corresponding aggregations dened or

MIRAGE model used in this study is provided in Annex 2.

Te table below provides a complete description o the three essential dimensions o the MIRAGmodel. Due to the existence o a fexible aggregation acility, the regional and sectoral denitions o model are easy to modiy. Te aggregation dened in Annex 2 describes the scope o the MIRAGE moor the current study.

able 4: Dimension o MIRAGE ModelIndex Description

I

r

t

Sectors (see Annex 1 for MIRAGE model dimensions)

Regions (see Annex 1 for MIRAGE model dimensions)

Time (currently 2001, 2004, 2007, 2010, 2013)

In what ollows, we briefy introduce the main characteristics o the model including the modellingdemand, supply, capital, markets clearing and macroeconomic closure, and dynamics.

Demand. Te demand side is modelled in each region through a representative agent, whose utilunction is intra-temporal, with a xed share o regional income allocated to savings and the rest beiused to purchase nal consumption.3 Below this rst-tier Cobb-Douglas unction, consumption trao across sectors is represented through a LES-CES unction. Each sectoral sub-utility unction i

nesting o CES unctions, comparable to the standard nested Armington Dixit-Stiglitz unction (e.g. Harrison et al., 1997), with two exceptions: First, domestic products are assumed to benet romspecic status or consumers, making them less substitutable to oreign products than oreign produ

2 Te complete and detailed technical specication o MIRAGE model can be ound in Bchir et al (2002)3 Te structure o the demand unction is shown in Appendix 6.

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between each other; Second, products originating in developing countries and in developed countries areassumed to belong to dierent quality ranges4.

Supply. Production makes use o ve actors: capital; skilled labour; unskilled labour; land; and naturalresources. Te rst three are generic actors; the last two are specic actors. Te production unctionassumes perect complementarity between value added and intermediate consumption. Te sectoralcomposition o the intermediate consumption aggregate stems rom a CES unction. For each sector oorigin, the nesting is the same as or nal consumption, meaning that the sector bundle has the samestructure or nal and intermediate consumption. Te structure o value-added is intended to take intoaccount the well-documented skill-capital relative complementarity. Tese two actors are thus bundledseparately with a lower elasticity o substitution (0.6), while a higher substitutability (elasticity 1.1) isassumed between this bundle and other actors. Constant returns to scale and perect competition areassumed to hold in agricultural sectors.

Capital, markets clearing and macroeconomic closure. Te capital good is the same whatever the usesector, and capital is assumed to be perectly mobile across sectors within each region. At the regional-

wide level, capital stock is assumed to be constant in the core simulations o this paper. Natural resourcesare also perectly immobile and may not be accumulated. Both types o labour (skilled and unskilled), as

well as land, are assumed to be perectly mobile across sectors, while production actors are assumed tobe ully employed. As or macroeconomic closure, the current balance is assumed to be exogenous (andequal to its initial value in real terms), while real exchange rates are endogenous.

Dynamics. In a typical recursive dynamic ramework, the time path o the model is solved as a sequenceo static equilibria in each year. In other words, the solution in any given year is not a unction o

orward-looking variables, though it may be an explicit unction o past variables, though known andthereore exogenous. While there are drawbacks in the recursive dynamic ramework, particularly inthe modelling o savings and investment behaviour, its one key advantage is that it is much easier to setup and solve. (Van der Mensbrugghe, 1998) Tere are several backward linkages linking one period toanother, covering population growth, productivity increases and capital accumulation. Most o theselinkages can be resolved outside o the modelling ramework, or in other words, in between solutionperiods. One exception is the capital accumulation unction. Beore running any policy simulations ina dynamic ramework, it is oten necessary to dene a reerence, or business as usual (BaU) scenario.Te BaU scenario makes some assumptions about a broad range o dynamic variables populationand labour supply growth rates, the growth rate o actor productivity, and other exogenous variables.

I all productivity variables, including population growth rates, are pre-determined, the growth rate oreal GDP is endogenous. However, the path trend in real GDP growth may be unrealistic, or at least

4 Tis is motivated by the act that, ollowing Abd-El-Rahman (1991), several empirical works have shown that, even at the most detailedlevel o classication (Combined Nomenclature, 10 digits, including more than 10,000 products), unit values dierences are able to revealquality dierences (see e.g. Har and al. 1997, Fontagn and al., 1998; Greenaway and orstensson, 2000).

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inconsistent with the assumed trend rom other studies or prospective outlooks. One way to resolve tdilemma is to make the growth o real GDP exogenous in the reerence scenario, and to allow some otvariable to pick up the slack. In subsequent simulations, i.e. in simulations with policy shocks, the grow

rate o capital and labour productivity are exogenous, and it is the growth o real GDP and the capilabour ratio which are endogenous.

III.3 Te various scenarios tested

We tested dierent scenarios to estimate the gains or the potential losses o various plans o trintegration.

Economic Integration: Some Guidelines rom Teory

Jacob Viners ground-breaking work on customs unions and related orms o trade integration identi

two sets o orces resulting rom increased integration: trade creation and trade diversion. rade creatoccurs when consumers and producers have access to wider markets and a larger variety and/or betquality o products ashioned according to the comparative advantage o each country or countries abeneting rom lower production costs and/or higher quality goods. Tese are the gains rom trarade diversion occurs when, as a result o customs union or trade integration, imports are diverrom lower-cost producers (rom the rest o the world) toward the higher-cost products and servicespartner country or countries. Te countries, viewed jointly, lose i the costs resulting rom trade diversoutweigh the benets rom trade creation. Tis can be urther rened to include the quality o goods. Targument o the gains rom trade applies ialltrade barriers are removed. Gains may not apply i paror discriminatory reductions in trade barriers are eected.

Recent literature has examined dynamic aspects o Regional Economic Integration (REI) and blendednew theoretical trade aspects including the potential benets rom economies o scale and scope, as was imperect competition. REI and cooperation can be a tool or overcoming disadvantages o the smsize o the economies making up a Regional Integration Agreement (RIA). With a larger market sirms can invest and benet rom economies o scale leading to lower costs and allowing or increaproduct diversication and better product quality.

Furthermore, the removal o trade barriers generates more competition and breaks down monopoor quasi-monopolistic industrial organization structures. REI may also be the means to overcome disadvantages o size and border eects by pooling, integrating, and networking inrastructure. RIAs,particular, can be creators oregional public goodsthat improve trade related logistics, lowering the cand segregation o trade in goods and services as well as the overall costs o doing business.

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Tree scenarios were tested in this study

Scenario 1 Free trade area or the Maghreb countries

Te rst scenario estimates the eects o an abolition o tari barriers through the implementation o aree trade area between the Maghreb countries.

Scenario 2 Custom Union between Maghreb countries

Te second scenario examines the implementation o a common external tari. In addition to creating aree trade area, Maghreb countries would have to adopt a common external tari and ace the same tarisrom their global partners. Te common external tari is dened in this study at the HS6 level and withthe entire partner contained in the MacMAP database. Tis is dened as the minimum tari applied andaced by the two Maghreb countries that were already WO members in 2001 (Morocco and unisia)

and by Egypt, which is part o the GAP database aggregate Rest o North Arica (RNA) but is notpart o the Maghreb.

Scenario 3 Maghreban Common Market

Tis scenario integrates a common market in the sense o Smith and Venables (1991)5, in addition to acommon external tari. Te hypothesis behind this is that the implementation o a common market ismore than a custom union, in the sense that its creation compels rms, which are in imperect competition,to have the same mark-up in all the regions o the common market. Tis scenario adds to Scenario 2the hypothesis that rom 2008 all rms (both Maghreb and non-Maghreb) competing in sectors withimperect competition will adopt the same mark-up in the three Maghreb countries. Te expectationsrom this scenario are that sectors with high returns to scale will better exploit the market size.

III.4 Sectoral and geographical aggregation

Te MIRAGE model is used in conjunction with the MacMap database6. Te base year or this versionis 2001 and the version identies 87 regions, 57 sectors and 5 actors o production.

Tere are 57 sectors or each individual or composite region (country or aggregate o countries), whichhave data in the overall MIRAGE database. Not all countries are treated individually in MIRAGE, howeverthe database encompasses each o the economies worldwide in order to ensure overall macroeconomic

consistency. Tese are either treated individually or orm part o a regional composite. Unortunately, ewArican countries are individually disaggregated in the database; most Arican countries are treated as part

5 o assess the impact o the European common market creation in 1992. Bchir and al. (2003) made the same hypothesis to assess the 2005European enlargement.

6 Bout (2002) provide a more detailed explanation.

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o a regional aggregate. For North Arica however, Morocco and unisia are treated individually, whthe Rest o North Arica aggregate comprises Algeria, Egypt and Libya7. In this paper, we consithis aggregate to be a proxy or the rest o the Maghreb. As it represents a limitation, the results

this aggregate have to be interpreted cautiously. Te act that Algeria, Egypt and Libya are in the samaggregate implies that little impact is expected rom the integration o the region. Including these thcountries in the same aggregate additionally implies that they are considered to be totally integrated, wull actor mobility. Tis may result in the aggregate RNA seriously under-estimating the integratpotential eect on Algeria and Libya.

Bilateral trade data are an important component o the MIRAGE database, since they transmit trapolicy and growth-related shocks rom one country to another. Bilateral trade is also very relevantthe terms o trade. Global bilateral trade data are drawn rom United Nations COMRADE databacomplemented by inormation on dierent countries global trade or with aggregate bilateral trstatistics such as those o IMF, FAO and the World Bank.

Another main component is the protection data set, which can be both explicit and implicit. Tey explicit in the sense that tari revenues or export revenues can be drawn rom them, and implicit in tbilateral trade data are available at market rates as well as at the global rates. Te MacMaps databprovides or each importing country and each producer (by tari line) a means o determining vevalorem equivalents corresponding to the ve instruments contained in the database, namely, ad valorcustoms duties, specic taris, prohibitions, tari quotas and antidumping laws.

For the present study, 87 regions have been aggregated into 10 subregions (including Arican countriand 33 sectors have been identied. Te sectoral and regional aggregations are posted in the annexes

this paper.

7 Unortunately Mauritania is aggregated within the Rest o Sub Sahara.

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IV The results of the simulations

IV- 1 Te efects o a ree trade area between Maghreb countries.

o assess the impact o the creation o a ree trade area between the Maghreb countries, intra-zone tarisare removed in the year 2008. First, this choc impacts the bilateral trade fows. able 5 shows that thecreation o such a ree trade zone signicantly and positively aects intra-Maghreb trade. Exports romunisia to Morocco increase by 150 percent, while exports rom unisia to the Rest o North Aricaincrease by 124 percent. Exports rom Morocco to unisia increase by 136 percent, and by 54 percentand to the Rest o North Arica. Te Rest o North Arica composite region increases its exports toMorocco by 30 percent, and to unisia by 93 percent.

Te intensication o intra-Maghreb trade is accompanied by trade diversion rom other areas o the world.Tird-country partners, especially developing country partners, suer rom a loss in competitiveness inthe Maghreb countries and lose a signicant part o their market share in this region. Sub-Saharan

Arican countries and China are the most aected regions. For example, Sub-Saharan Arican countrieslose more than 7 percent o their exports to unisia. Te European Union, which is the most importanttrading partner in the region, loses between 0.23 percent and 0.87 percent o its exports. Tese variationsare certainly weak, but they have a signicant eect due to the large volume o European exports toMaghreb countries.

able 5: Variation in bilateral trade (rom 2008 to 2015, Scenario FA)

Importer

2008 2010 2012 2015

Exporters MOR RNA TUN MOR RNA TUN MOR RNA TUN MOR RNA TUN

TUN .27 7.6 0.00 7.58 2.68 0.00 9.8 2.56 0.00 50.5 2.75 0.00

MOR 0.00 50.25 5.2 0.00 5.5 5. 0.00 52.59 5.72 0.00 5.22 6.

RNA 0.56 7. 9.22 0.77 72.65 92.56 0.88 7.90 9.29 0.92 70.70 9.86

EU25 -0.29 -0.72 -0.48 -0.28 -0.79 -0.45 -0.26 -0.83 -0.47 -0.23 -0.87 -0.52

USA -0.08 -0.27 0.95 -0.03 -0.29 . 0.0 -0.31 .68 0.06 -0.32 .8

Japan -0.37 -0.60 .22 -0.35 -0.62 .9 -0.33 -0.63 .62 -0.29 -0.62 .68

ROWDEV -0.34 -0.48 0. -0.29 -0.53 0.7 -0.25 -0.57 0.85 -0.19 -0.61 0.9

SSAHAF -0.21 -0.12 -7.68 -0.19 -0.19 -7.43 -0.17 -0.21 -7.45 -0.14 -0.22 -7.75

China -0.21 -0.52 -0.43 -0.16 -0.53 0.02 -0.10 -0.53 0. -0.03 -0.53 0.57ROWDNG -0.38 -0.83 -2.31 -0.38 -0.92 -2.11 -0.37 -0.96 -2.02 -0.35 -1.00 -1.97

Source: Authors computations rom MIRAGE model and MACMAP

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Te creation o a Maghreb ree trade area and the intensication o intra-Maghreb trade positively athe trade balance o the three regions (table 6). In 2015, unisia would improve its trade balance by U116 million, Morocco by USD 15 million and the Rest o North Arica by USD 80 million.

able 6: Variation in the trade balance in millions o USD by region.(Scenario FA)

Region 2008 2010 2012 2015

TUN 6.6 80. 95.0 6.2

MOR 6. 8.8 . 5.

RNA 2. 2.9 58.8 80.2

EU25 -39.2 -56.8 -72.9 -95.5

USA -4.4 -12.6 -18.1 -24.8

Japan -10.4 -12.1 -13.7 -16.2

ROWDEV -17.2 -21.9 -26.5 -33.5

SSAHAF -1.4 -1.4 -1.5 -1.8

China -2.1 -2.0 -2.2 -2.5

ROWDNG -19.6 -25.2 -30.2 -37.4


Te ree trade area among the Maghreb countries leads to a new geographic division o production. can be deduced rom table 7, a decrease in production in the majority o sectors is accompanied bparallel increase in production in the same sector in other Maghreb countries. Broadly speaking, un

will specialize in agro-ood products and some highly value-added industries (Chemical. Rubber. PlaprodsandMotor vehicles and parts), Morocco will increase its production in some agricultural produ(Cereal grains nec, Crops nec and animals), and in textile wearing apparel, leather products and indust

with low added value. Te specialization o RNA will be an intermediate case with no major variatbetween sectors.

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able 7: Variation o the sectoral value Added (Scenario FA)

MOROCCO RNA TUNISIA

2008 2010 2012 2015 2008 2010 2012 2015 2008 2010 2012 2015Agricultural sectors

Paddy rice -3.17 -4.32 -5.08 -5.77 -0.14 -0.16 -0.17 -0.20 .2 .5 . .9

Wheat -0.07 -0.11 -0.13 -0.15 -0.16 -0.16 -0.16 -0.15 0.62 0.0 -0.18 -0.19

Cereal grains nec 0.0 0.0 0.0 0.0 -0.12 -0.12 -0.11 -0.11 .75 . .2 .

Vegetables. Fruit. Nuts -0.31 -0.34 -0.35 -0.34 0.2 0.5 0.7 0.20 -1.16 -1.42 -1.59 -1.77

Other agricultural

products0.8 0.60 0.78 0.97 .22 . .5 .67 -31.01 -33.36 -35.61 -38.60

Plant-based bers -0.05 -0.07 -0.08 -0.09 -0.12 -0.11 -0.11 -0.11 -0.36 -0.82 -1.04 -1.13

Crops nec 0.6 0.8 0.92 .02 0. 0.6 0.58 0.7 -0.91 -1.92 -2.62 -3.30

Animal 0.0 0.0 0.0 0.0 -0.04 -0.03 -0.02 -0.01 0.70 0.60 0.5 0.8

Fishing -0.03 -0.03 -0.04 -0.04 -0.01 0.00 0.00 0.0 0.8 0.7 0.90 .02


Meat -3.19 -4.03 -4.71 -5.44 -0.07 -0.06 -0.05 -0.03 .20 .7 .2 .0

Vegetable oils and fats -0.36 -0.38 -0.38 -0.36 -0.52 -0.50 -0.45 -0.38 7.08 2.75 25. 0.

Dairy products 0.2 0.7 0. 0.09 -0.64 -0.65 -0.63 -0.62 9.7 2.08 2. 2.9

Processed rice -0.94 -0.95 -0.93 -0.92 .50 .97 2. 2.05 .57 .79 5.0 5.95

Sugar 0.00 0.00 0.0 0.02 0.02 0.0 0.0 0.0 .85 2.2 2. 2.6

Food products nec 0.9 0.9 0.8 0.8 -0.07 -0.06 -0.05 -0.04 7. 9.8 0.8 .6

Beverages and tobacco 0.2 0.50 0.6 0.80 -0.09 -0.09 -0.08 -0.08 0.67 0.8 0.89 0.98


Coal, Oil, Gas, Minerals

nec-0.12 -0.23 -0.34 -0.48 -0.03 -0.06 -0.07 -0.08 -1.06 -1.97 -2.56 -3.02

Textiles . 6.08 7. 7.95 -0.22 -0.18 -0.18 -0.19 2.09 2. 2.57 2.9

Wearing apparel -0.10 0.08 0.28 0.5 0.02 0.06 0.09 0. -1.01 -1.67 -2.16 -2.63

Leather products 0.56 0.8 0.99 .9 -0.05 -0.06 -0.06 -0.06 -1.37 -3.18 -4.60 -6.12

Paper products.

Publishing0.9 0.9 0.6 0. -0.11 -0.18 -0.23 -0.30 5. 8.06 9.6 0.98

Petroleum. Coal

products-0.02 -0.03 -0.04 -0.04 0.0 0.0 0.0 0.0 0. 0.6 0. 0.6

Chemical. Rubber.

Plastic prods-0.41 -0.60 -0.74 -0.89 -0.16 -0.28 -0.39 -0.51 .75 8.0 0.6 2.0

Metals -0.08 -0.15 -0.20 -0.25 0.66 0.89 .00 .0 5.99 7.9 8.87 9.5

Motor vehicles and parts 0.26 0.2 0. 0. -0.27 -0.32 -0.34 -0.33 5. 7. 8.69 9.7

Transport equipment

nec0.79 0.90 0.9 0.95 -0.04 -0.01 0.0 0.02 -0.90 -1.62 -2.01 -2.20

Electronic equipment -0.16 -0.27 -0.36 -0.46 -0.06 -0.06 -0.04 -0.02 -0.09 -0.33 -0.40 -0.30

Other industrial products -0.05 -0.10 -0.13 -0.18 -0.09 -0.07 -0.04 0.0 2.0 2.6 2.66 2.90


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Te improvement o the trade balance and the better allocation o resources between regions positivaect GDP o each o the Maghreb countries (table 8). unisia, the country that registers the highimprovement in its trade balance, sees the highest increase in GDP (2.5 points in 2015), while the R

o North Arica composite region registers the lowest improvement in GDP (0.2 points in 2015).Te eects o the ree trade area on other regions are negative but not signicant due to the small weio the Maghreb economies.

able 8: Variation o GDP (in volume) by region (Scenario FA)

Region 2008 2010 2012 2015

TUN .870 2.2 2.90 2.55

MOR 0.95 0.7 0. 0.5

RNA 0.85 0.88 0.92 0.98

EU25 -0.002 -0.003 -0.003 -0.003

USA -0.003 -0.003 -0.003 -0.003

Japan -0.001 -0.002 -0.002 -0.002

ROWDEV -0.001 -0.002 -0.002 -0.002

China -0.002 -0.002 -0.002 -0.002

SSAHAF -0.002 -0.002 -0.002 -0.002

ROWDNG -0.002 -0.002 -0.003 -0.003


International trade theories conrm that North-South ree trade agreements, which may have positimpacts on the GDP o southern regions, negatively aects intensive, skilled work industries, athereore the wages o skilled workers. However, a Maghreb ree trade agreement, which is a South-Soagreement, would improve the growth and wages o both skilled and unskilled workers (table 9).

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IV 2 Te efect o the creation o a Custom Union between Maghreb countries

When creating a customs union, Maghreb countries will have to adopt a common tari policy and

the same tari levels rom partners rom the rest o the world. Te common tari is dened in this stuat the HS6 level and with all partners contained in the MacMAP database. It is dened as the minimtari applied and aced by the three countries that were already WO members in 2001 (Morocco aunisia in the Maghreb, and Egypt in the Rest o North Arica composite).

Te creation o a customs union does not improve market access by Maghreb countries. Indeed, asMaghreb countries benet rom almost the same preerence on third regions and especially rom Eurothe common tari that they will ace will result rom these same preerences and will be equal to wthey now ace (see tables 11 and 12 or the example o unisia).

Te most important eect o the creation o a customs union is the reduction o taris applied

Maghreb countries to exports rom third regions. Tis would contribute to the decrease o the thregion partners heterogeneity (able 12.) Tis last point may be important as it could limit the eeo trade diversion.

A decrease in taris would aect bilateral trade between Maghreb countries and their other trade partn(either rom the Maghreb or third regions). unisia, which is urthest along in the Euro-Mediterraneprocess, benets rom the creation o a common external tari in order to slightly decrease the preerenaccess given by the EU on industrial products. Tis allows the unisian economy to diversiy its suppland limit trade diversions. able 13 shows that unisian imports rom the USA and to Japan will increrespectively by 23 percent and 33 percent by 2015, when its imports rom the European Union w

increase by only 1.5 percent.

Meanwhile, Morocco and RNA will see their imports rom Europe increase dramatically due to implementation o the unisian tari applies to Europe when the Customs Union is established.

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able 11. arif aced by unisia with and without a customs union

EU25 Japan SSAHAF USA

Sectors

Common

faced

Tariffs

Initial

faced

Tariff

Common

faced

Tariffs

Initial

faced

Tariff

Common

faced

Tariffs

Initial

faced

Tariff

Common

faced

Tariffs

Initial

faced

Tariff


Paddy rice 0.00 0.00 0.00 0.00 5.0 5.7 2.06 2.6

Wheat

Cereal grains nec 2.55 2.55 27.6 27.6 . . 0.0 0.0

Vegetables. Fruit. Nuts 2.56 .85 .56 .56 7.88 9.77 9.20 9.20

Other agricultural products 0.06 0.06 0.2 0.2 .72 .72 0.7 0.7

Plant-based bers 0.00 0.00 0.00 0.00 8.9 .08 0.0 0.0

Crops nec .72 .75 0.08 0.08 .8 .8 0.8 0.8

Animal 0.0 0.0 8.6 8.6 .6 .82 0.02 0.02

Fishing 0.00 0.00 .5 .5 2.70 2.70 0. 0.


Meat 5.2 5.2 2.02 2.02 .9 .9 7.8 7.8

Vegetable oils and fats 67.86 7.9 0.0 0.0 0. .09 0.02 0.02

Dairy products 5.92 5.92 9.99 9.99 0.50 0.50 5.20 5.20

Processed rice .27 92. 9.9 9.9 .9 .9 .62 .62

Sugar 88.0 88.0 8.60 8.60 5.75 5.75 25.5 25.5

Food products nec .2 .5 9.09 9.09 28.22 .0 .9 .9

Beverages and tobacco .58 .58 5.60 5.60 27.28 27.8 8.75 8.75


Coal, Oil, Gas, Minerals nec 0.00 0.00 0. 0. .67 .7 0.00 0.00

Textiles 0.00 0.00 7.72 7.72 8.6 20.02 .07 .07

Wearing apparel 0.00 0.00 8.90 8.90 2.97 25.9 0. 0.

Leather products 0.00 0.00 8.85 8.85 9.28 .27 9.22 9.22

Paper products. Publishing .97 .97

Petroleum. Coal products 0.00 0.00 .5 .5 5.22 6.06 0.8 0.8


prods0.00 0.00 0.02 0.02 5. 5.95 0.6 0.6

Metals 0.00 0.00 0.00 0.00 .5 6.6 0.86 0.86

Motor vehicles and parts 0.00 0.00 0.00 0.00 7.8 8.0 0. 0.

Transport equipment nec 0.00 0.00 0.00 0.00 .9 .92 .5 .5

Electronic equipment 0.00 0.00 0.00 0.00 7.29 8. 0.0 0.0

Other industrial products 0.00 0.00 0.02 0.02 .6 7.25 0.08 0.08

Sources: Authors computations rom MacMAP

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able 12. arifs applied by unisia, with and without a Maghreb customs union

EU25 Japan SSAHAF USA

Initial

appliedtariff

Common

appliedtariff

Initial

appliedtariff

Common

appliedtariff

Initial

appliedtariff

Common

appliedtariff

Initial

appliedtariff

Comm

applietariff


Paddy rice 27.00 5.00 27.00 5.00 26.92 .97 27.00 5.00

Wheat 88.20 .00 89.0 .00 89.9 .00 88.00 .00

Cereal grains nec 59.68 .00 2.77 .8 .8 0.2 .70 0.

Vegetables. Fruit. Nuts 20.9 8.67 .90 25.78 .70 2.69 .52 22.92

Other agricultural products 0.5 .7 .2 5.89 2.8 .2 6.6 .29

Plant-based bers 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Crops nec 5.07 9.80 9.67 .90 22. 2.8 0.6 2.

Animal 5.70 6. .2 6. 2. 6.0 6.79 5.52

Fishing 9.08 6.0 .79 8.97 2. .6 0.9 6.79


Meat 98.0 2.89 7.0 8.5 79.20 .0 70.52 22.5

Vegetable oils and fats 2.0 5.78 5.82 5.5 55.2 9.9 20.8 5.2

Dairy products 6.27 8.8 5.95 2.6 69.7 .0 5.09 .2

Processed rice 26.98 5.00 27.00 5.00 2.55 5.00 26.9 5.00

Sugar 7.86 7.5 8.95 8.7 2.7 .5 20.68 7.5

Food products nec 57.56 9.56 9.2 6.6 5.9 7.27 59.77 8.22

Beverages and tobacco 8.8 .6 6.58 8.00 5.7 5.06 5.6 2.57Non Agro food industries

Coal, Oil, Gas, Minerals nec .79 .25 20.87 .5 9.76 .08 9.55 .58

Textiles .5 .99 0. 22.5 20.6 0.82 29.7 2.7

Wearing apparel 2. 8.9 .59 29.8 2. 27.2 2.2 27.6

Leather products 5.5 .9 5. 6. 7.5 20.7 8.6 7.8

Paper products. Publishing 7.2 2.2 .26 .78 25.26 .2 27.86 2.22

Petroleum. Coal products .96 .96 .2 7.7 .96 0.7 7.78 6.69


prods5. .7 2. 0.2 26.58 2.6 2. 9.86

Metals 0.9 7.0 2.29 .87 26.60 9.8 27.00 2.00Motor vehicles and parts 0.8 5.79 2.96 7.57 7.8 5.89 2.8 7.7

Transport equipment nec .2 0.5 2.06 2.09 .82 .0 5.62 0.

Electronic equipment 5.59 0.5 20.2 .56 2.58 .7 7.0 2.60

Other industrial products 7.29 .2 6.5 5.55 2.2 9.59 8.76 5.92

Sources: Authors computations rom MacMAP

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able 13: Variation o Maghreb imports (Customs Union Scenario)

Importer

MOROCCO RNA TUNISIA

exporter 2008 2010 2012 2015 2008 2010 2012 2015 2008 2010 2012 2015TUN -12.33 69.85 7.5 72.8 7.9 90.09 92.65 9. 0.00 0.00 0.00 0.00

MOR 0.00 0.00 0.00 0.00 5.9 9.2 0.0 6.20 8. 5.5 5.5 6.

RNA -29.74 -9.45 -8.84 -8.04 25.68 57.67 56.7 55.8 2.56 66.55 68.7 69.7

EU25 22.08 25. 27.9 0.87 7. 7.9 7.88 8. 0.56 0.86 .2 .5

USA 8. 0.20 .60 .07 -4.01 -4.08 -3.93 -3.75 22. 2.67 2.8 2.67

Japan . 5.22 6.2 7. -2.37 -1.59 -0.80 -0.05 .70 . .5 .

ROWDEV 26.72 0.79 .98 7. -2.94 -2.62 -2.14 -1.62 5. 6.2 6. 6.7

SSAHAF 2.05 26.0 28.02 0.8 -3.91 -3.69 -3.25 -2.68 . 2.5 2.07 .6

China -6.79 -5.12 -3.71 -1.98 -2.39 -2.43 -1.92 -1.20 65.06 60.09 59.08 57.9

ROWDNG 26.99 29.06 0. .72 -3.04 -3.52 -3.39 -3.26 .99 5.20 5.80 6.27


Te evolution o intra-Maghreb trade does not greatly dier rom the ree trade area presented in scenario1. able 14 shows that unisian exports to Morocco increase by 72 percent and 94 percent to RNA.Morocco sees its exports to both unisia and RNA increase by 116 percent. RNA sees increases in itsinternal trade o 57 percent and in its exports to unisia o 69 percent.

Compared to a simple FA, the customs union produces an increase in exports rom the Maghrebto third regions. Morocco is the most important beneciary with exports to Europe increasing by 41percent, exports to Japan increasing by 10 percent, and exports to the USA up by 12 percent.

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Te new structure o production is presented in table 16, which clearly indicates that there is a specializationeect between the three Maghreb countries. Value added or Morocco increases in some agricultural andagro ood sectors (Other agricultural products20 percent, Meat65 percent) and some labour intensiveindustries such as textiles (320 percent) and Wearing apparel(155 percent). On the other hand, RNAsees sharp decreases in its capital-intensive industries due to competition rom unisia and the developedcountries in its domestic markets. able 16 shows that the level o production rom RNA in sectors suchas Electronic equipmentdecreases by 21 percent and by 45 percent inMotor vehicles and parts

able 16: Variation o the value added. (Customs Union Scenario)

MOROCCO RNA TUNISIA

2008 2010 2012 2015 2008 2010 2012 2015 2008 2010 2012 2015


Paddy rice -37.81 -44.89 -50.65 -57.54 5.67 8.07 9.87 .5 .5 9.7 50.55 9.90

Wheat -20.34 -24.89 -28.15 -31.25 -0.03 -0.13 -0.17 -0.22 -50.91 -55.90 -59.25 -63.02

Cereal grains nec -4.00 -4.73 -5.10 -5.32 -1.43 -1.61 -1.66 -1.68 -6.97 -8.03 -9.25 -10.11

Vegetables. Fruit.

Nuts

.27 0.56 0. 0. -0.35 -0.35 -0.35 -0.34 -7.94 -9.63 -10.87 -12.12

Other agricultural

products

5.65 .6 5.98 20.72 0. .08 .22 .7 -18.79 -27.32 -29.63 -32.73

Plant-based bers 0.77 0. 0.6 0.0 .29 .6 .57 .65 7.29 6.2 6.0 6.02

Crops nec -0.60 -2.73 -4.27 -6.01 -4.78 -5.90 -6.69 -7.25 -11.84 -17.06 -21.04 -25.60

Animal -1.54 -1.85 -1.99 -2.07 -0.61 -0.68 -0.70 -0.69 -4.47 -5.71 -6.48 -7.11

Fishing 0.9 0.7 0.67 0.6 -0.39 -0.49 -0.51 -0.51 -0.11 -0.28 -0.40 -0.59


Meat 69.97 58.88 6.0 28.6 -0.97 -1.12 -1.14 -1.14 -2.55 -3.07 -3.37 -3.48

Vegetable oils and

fats

-8.98 -10.78 -11.69 -12.62 -8.98 -10.80 -11.43 -11.65 .9 92.0 22.96 28.65

Dairy products -36.28 -38.96 -41.56 -44.54 .72 . . .0 -8.53 2.22 2.5 2.27

Processed rice -71.60 -71.39 -71.14 -71.05 7.58 22.95 2.56 22.92 50. 89.89 05.97 7.6

Sugar -2.62 -2.91 -3.11 -3.31 -0.56 -0.56 -0.56 -0.57 -0.29 -0.08 -0.16 -0.22

Food products nec .82 .2 .59 2.90 -1.39 -1.45 -1.43 -1.40 -0.04 .5 2. 0.

Beverages and

tobacco

7.7 .5 6.89 20.88 -0.90 -1.03 -1.05 -1.04 -0.55 -0.34 -0.36 -0.37


Coal, Oil, Gas, Miner.

nec

-4.22 -7.70 -10.48 -13.80 0.69 .7 .99 2. -0.32 -1.67 -2.45 -3.16

Textiles 6.00 72.98 92.85 .20 .6 5.00 5.8 6.2 8.25 .0 .29 6.09

Wearing apparel 27.28 .5 56.02 68.6 .20 5.7 5.99 7.5 .95 .98 .8 6.

Leather products -4.55 -6.88 -8.73 -10.48 0.2 0.6 0.2 0.2 .66 7.26 9.8 2.

Paper products.

Publishing

-6.75 -7.76 -8.47 -9.01 0. 0. 0.8 0.29 .0 6. 8. 0.29

Petroleum. Coal

products

2.9 .96 .0 .62 .0 .80 2.2 2.2 . . 0.90 0.56

Chemical. Rubber.

Plastic prods

2.5 0.97 -0.06 -1.44 -1.66 -2.11 -2.31 -2.42 5.0 0.7 .8 5.55

Metals -3.73 -5.56 -6.70 -7.75 -0.86 -0.72 -0.80 -0.87 0.6 .8 5.05 5.28Motor vehicles and

parts

-9.29 -12.32 -14.32 -15.96 -18.34 -22.49 -24.83 -26.10 0.6 0.9 0.8 0.67

Transport equipment

nec

5.06 .80 2.09 0.5 5.08 5.79 5.50 .9 .05 -0.01 -0.46 -0.78

Electronic equipment .52 .00 0.2 8.70 -7.32 -9.75 -11.01 -11.90 -2.66 -5.71 -7.84 -10.16

Other industrial

products

.9 0.78 -0.21 -1.43 -4.08 -5.28 -5.64 -5.66 .25 6.62 7.2 7.7


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Tis new specialization scheme leads to a signicant increase in the GDP o Morocco and unisia (percent or unisia and 6.2 percent or Morocco). RNA is the only region that registers a decreaseGDP due to reductions in the production in some capital-intensive industries characterized by a h

rate o return to scale. We will see in the third scenario that a deeper integration (common market) whave a signicant eect on these sectors or RNA. Compared to the FA scenario, unisia and Mororealize a signicant improvement in GDP gain: 7.8 percent o GDP gain in the case o the customs uncompared to 2.5 percent in the case o the FA or unisia, and 6.24 percent o GDP gains in the casethe customs union compared to 2.5 percent in the case o the FA or Morocco. RNA is the only loin this case.

able 17: Variation o GDP (in volume) by region (Customs Union Scenario)

Region 2008 2010 2012 2015

TUN 5.9 7.5 7.65 7.8

MOR .5 5.50 5.88 6.2

RNA -0.48 -0.37 -0.32 -0.27

EU25 0.05 0.05 0.05 0.05

USA 0.02 0.02 0.02 0.0

Japan 0.0 0.0 0.0 0.0

ROWDEV 0.0 0.00 0.00 0.00

SSAHAF 0.02 0.0 0.0 0.0

China 0.00 0.00 0.0 0.0

ROWDNG 0.00 0.00 -0.01 -0.01


Te reorganization o production aects actor prices and the wages o skilled and unskilled workeable 18 shows that contrary to the rst scenario, the customs union does not lead to an increase in

wages actor in all Maghreb countries. unisia, which will specialize in skilled intensive sectors, will aclarger increase in the wages o skilled workers than in its unskilled labour orce. On the other hand, RN

will see the wages o the two categories o workers decrease by nearly1 percent.

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able 18: Dynamic variation o real wages (Customs Union Scenario)

Unskilled real wages Skilled real wages

Region 2008 2010 2012 2015 2008 2010 2012 2015

TUN -0.191 0.5 0.68 0.77 2.5 2.758 2.900 2.96

MOR -0.070 0.50 0.88 .28 .26 .596 .72 .808

RNA -1.196 -1.167 -1.133 -1.067 -0.715 -0.788 -0.801 -0.780

EU25 0.0 0.08 0.0 0.05 0.02 0.029 0.0 0.07

USA 0.00 0.00 0.00 0.00 0.00 0.000 -0.001 -0.001

Japan -0.002 -0.002 -0.002 -0.002 -0.001 -0.002 -0.002 -0.002

ROWDEV 0.002 0.002 0.002 0.002 -0.002 -0.002 -0.002 -0.002

SSAHAF 0.009 0.009 0.00 0.0 0.00 0.00 0.00 0.00

China -0.007 -0.008 -0.008 -0.008 -0.003 -0.001 0.00 0.002

ROWDNG -0.002 -0.005 -0.006 -0.007 -0.010 -0.011 -0.012 -0.013


Te welare variation that results rom this scenario diers between the Maghreb countries. able 19 showsthat unisia maintains welare gains that are slightly above those in the rst scenario (USD 271.4 million

in the rst scenario and USD 354 million in the second scenario), while the Moroccan situation improvesremarkably (USD 230 million in this scenario compared to USD 32 million in the rst scenario). RNAwill undergo a loss in welare due to a decrease in workers wages. For RNA, a ree trade area is largelypreerable to a custom union as its welare passes rom a gain o USD 27 million to a welare loss o USD71 million. Tis is partially due to the adoption o the Common External ari (CE) which providesprotection designed or the Maghreban WO members, e.g. Morocco and unisia. Even i consumersin the RNA benet rom the new CE, it does not compensate or the decrease in real wages or skilledand unskilled workers.

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able 19: Welare equivalent variation (USD million) (Customs Union Scenario)

Region 2008 2010 2012 2015

TUN 89 260 295 5

MOR 9 9 85 20

RNA -589 -633 -666 -716

EU25 850 029 8 90

USA 78 80 90 09

Japan 8 0

ROWDEV 26 2 22 22

SSAHAF 5

China -10 -13 -15 -20

ROWDNG -29 -74 -102 -140


IV 3 - Te efect o the creation o a single Market between Maghreb countries

o model the eects o the creation o a common Maghreb market, we adopt the Smith and Venab(1991) and Bchir et al. (2003) hypothesis. While the rst paper aimed at assessing the impacts o

creation o the 1992 European Common Market, the second assesses the 2005 European enlargemeTese two papers suppose that the eects o the implementation o a common market are greater ththose or a customs union, in the sense that a common market compels rms which are in impercompetition to have the same mark-up in all the regions o the common market.

In this section, we add to the customs union scenario the hypothesis that rom 2008 all rms (boMaghreb and non Maghreb) competing in sectors with imperect competition will adopt the same maup in the three Maghreb countries.

When we take into account the unique mark-up hypothesis, the results lead to more accuspecialization. able 20 demonstrates that the variations o the sectoral value added are more pronoun

when compared to the case o a simple customs union. Firms benet more rom increasing return to sceects when they consider the Maghreb market as a whole rather than as unique domestic markets. Tresult is particularly important or RNA where high return to scale sectors suer more under a custounion scenario than under a common market. Even i these sectors continue to reduce their producti

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the act that the number o rms is decreasing means that the remaining rms are better exploitingreturns to scale.

Te new and more ecient allocation o resources results in a larger GDP gain or the Maghreb countries.As can be seen in table 21, unisia registers gains o more than 10 percent o GDP compared to the 7.8percent obtained in the customs union scenario and 2.5 percent in the FA scenario. Morocco registers aGDP gain o 8 percent compared to 6 percent in the customs union scenario and 0.4 percent in the FAscenario. Te RNA region registers a GDP gain o 1 percent while losing 0.27 percent in the customsunion scenario and seeing quasi-stagnation under an FA. One should keep in mind that these resultsor RNA are under-estimated because the RNA aggregate implies that Algeria, Egypt and Libya arecompletely integrated. One can expect higher results or these countries when a desagregation o RNA isavailable in the database.

able 20: Variation o the sectoral value Added (Common Market scenario)

MOROCCO RNA TUNISIA

2008 2010 2012 2015 2008 2010 2012 2015 2008 2010 2012 2015


Paddy rice -38.74 -45.66 -51.32 -58.10 2.25 .75 5.7 6.89 9.9 .29 5.9 5.6

Wheat -20.97 -25.31 -28.37 -31.10 -0.75 -0.65 -0.46 -0.22 -52.35 -57.17 -60.33 -63.84

Cereal grains nec -4.26 -4.72 -4.82 -4.71 -1.54 -1.56 -1.46 -1.31 -7.47 -8.50 -9.57 -10.15

Vegetables. Fruit. Nuts .2 0.9 0.98 .09 -0.20 -0.06 0.05 0.8 -8.20 -9.89 -11.01 -12.02

Other agricultural

products.78 9.2 .6 8.89 0.0 0.86 .5 .8 -19.39 -27.90 -30.19 -33.16

Plant-based bers 0.78 0.7 0.80 0.9 0.9 0.8 .2 . 6.07 .9 .8 5.0

Crops nec -1.46 -3.08 -4.12 -5.22 -6.62 -7.79 -8.49 -8.73 -13.87 -19.15 -23.11 -27.51

Animal -1.06 -1.19 -1.17 -1.05 -0.42 -0.38 -0.29 -0.17 -4.56 -5.67 -6.22 -6.48

Fishing .27 .6 .5 .7 0.07 0.5 0.2 0.0 0.07 0.06 0.08 0.0


Meat 09.57 06. 9.67 72. -1.03 -0.98 -0.83 -0.66 -1.88 -2.26 -2.38 -2.19

Vegetable oils and fats -5.00 -6.36 -7.05 -7.86 -9.73 -11.15 -11.41 -11.21 96.06 67.2 95.2 222.

Dairy products -33.80 -36.26 -38.73 -41.46 2.6 2.5 2.7 2.8 -5.26 6.9 6.62 6.2

Processed rice -71.94 -71.56 -71.14 -70.82 7. 2.59 .28 5.2 .7 79.79 95.69 08.8

Sugar -1.87 -1.90 -1.91 -1.90 -1.11 -0.93 -0.77 -0.58 0.57 .08 .20 .

Food products nec -0.60 -0.58 -0.57 -0.45 -0.99 -0.89 -0.76 -0.63 -2.27 0.2 -0.57 -1.87

Beverages and tobacco 6.89 .99 5.78 20. -0.76 -0.74 -0.63 -0.52 0.0 0. 0.57 0.70


Coal, Oil, Gas, Minerals

nec -6.03 -9.86 -12.70 -15.87 0.0 0. 0.89 .5 -1.09 -2.71 -3.44 -3.82

Textiles .0 68.76 89.0 09.0 0.89 .25 .59 2.5 5.75 7.28 8.95 .58

Wearing apparel 9.7 .6 5.0 58.55 2.68 .6 .2 5.59 2.22 .7 .82 2.96

Leather products -8.65 -11.68 -13.79 -15.47 -0.51 -0.31 -0.13 0.06 .8 7.7 .2 6.72

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MOROCCO RNA TUNISIA

2008 2010 2012 2015 2008 2010 2012 2015 2008 2010 2012 201

Paper products.

Publishing-5.16 -5.24 -5.42 -5.62 0.52 0.86 .0 .0 .0 0.8 . 5.9

Petroleum. Coalproducts

2.0 .8 .0 . 0.6 .02 .2 .50 0.98 .27 . .

Chemical. Rubber.

Plastic prods7. 7.06 6.2 .5 2.6 2. 2.26 .78 6.9 25.0 26.8 25.

Metals -3.26 -3.95 -4.32 -4.77 -0.69 -0.22 -0.16 -0.26 -0.29 .86 .96 5.5

Motor vehicles and parts -6.99 -8.64 -9.71 -10.72 -17.55 -21.35 -23.40 -24.48 -1.19 -1.31 -1.34 -0.9

Transport equipment nec 9.2 9.59 8.7 6.59 5.02 6.59 6.7 6. -0.90 -2.84 -3.52 -3.7

Electronic equipment 6.92 8.92 9.6 8.60 -1.95 -2.79 -3.43 -4.34 -0.12 -1.78 -2.82 -4.0

Other industrial products 6.8 7.8 7.00 5.72 0.7 0.2 0.09 -0.26 7.50 0.77 .85 2.2


able 21: Variation o GDP (in volume) by region (Common Market Scenario)

Region 2008 2010 2012 2015

TUN 8.57 9.95 0.7 0.7

MOR 6.02 7.276 7.656 8.09

RNA .9 .279 .225 .59

EU25 0.02 0.026 0.029 0.02

USA 0.005 0.009 0.0 0.02

Japan 0.005 0.006 0.006 0.006

ROWDEV 0.002 0.000 0.000 -0.001

SSAHAF 0.05 0.02 0.0 0.00China -0.002 0.000 0.00 0.00

ROWDNG 0.00 -0.004 -0.006 -0.009


As ar as the creation o a common market is concerned, the ecient allocation o actors resulting ro1) the new geographic division o work, and 2) the increasing return o scale have a positive eect actor prices, and mainly on wages. able 22 shows that in this scenario, all Maghreb countries ac

large increase in real wages or both categories.

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able 22: Variation o real wages (Common Market Scenario)

Unskilled real wages Skilled real wages

Region 2008 2010 2012 2015 2008 2010 2012 2015TUN 2.7 .06 .077 2.9 5.52 6.209 6.09 6.207

MOR 2.277 2.920 .280 .605 5.0 6.0 6.92 6.587

RNA 0.8 0.59 0.58 0.59 .625 .727 .750 .68

EU25 0.020 0.022 0.025 0.029 0.00 0.006 0.009 0.0

USA 0.000 -0.001 -0.001 -0.001 -0.002 -0.004 -0.004 -0.004

Japan -0.002 -0.002 -0.002 -0.002 -0.002 -0.002 -0.002 -0.002

ROWDEV 0.00 0.000 0.000 0.000 -0.005 -0.007 -0.007 -0.007

SSAHAF 0.005 0.005 0.006 0.007 -0.008 -0.008 -0.008 -0.008

China -0.008 -0.009 -0.009 -0.009 -0.007 -0.005 -0.003 -0.002

ROWDNG -0.003 -0.006 -0.007 -0.009 -0.014 -0.017 -0.018 -0.019


Finally, table 23 shows that all these developments positively aect the welare o Maghreb countries.In this scenario, unisia, Morocco and RNA ace welare gains that are much higher than the gainsregistered in the rst two scenarios.

able 23: Welare equivalent variation (USD million) (Common Market Scenario)

Region 2008 2010 2012 2015

TUN 876 057 60 09

MOR 05 25 95 605

RNA 26 6 582 7

EU25 807 05 0 702

USA 0 06 5 9

Japan -34 -32 -25 -18

ROWDNG -118 -183 -240 -323

SSAHAF -3 -3 -2 -2

China -56 -68 -76 -91

ROWDEV -2 -8 -7 -4


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V. Conclusion

Greater regional economic integration or the Maghreb countries would yield important benets creating a regional market o more than 140 million consumers (including Egypt), which is similarpopulation to many leading trading nations. Tis would bring eciency gains and make the region mattractive or oreign investors. And, most importantly, the complementary economic structures o Maghreb countries would create opportunities or mutually benecial trade within the region.

Te Maghreb region has the opportunity to be a trailblazer or the Middle East and North Arica,well as other developing countries. Few countries have achieved success without adopting an outworientation in their policies, and even ewer have achieved sustained growth without establishing strotrading and investment links with their neighbours. Te oregoing discussion essentially argues that R

aiming at deeper integration are likely to be more eective than the current versions o the Euro-Mand intra-regional agreements.

Deeper integration would entail much greater cooperation to harmonize policies and administratprocedures across a broad range o activities relating to customs operations; health and saety standarlicensing and certication; supervision o nancial services; and competition and anti-monoplegislation, while allowing or much greater openness to trade in services and to the reer fow o laboand capital.

Our study suggests that the overall gains rom liberalizing trade in goods (and removing various regulat

non-tari barriers in the process) could reach at least USD 350 million. Te increase in revenue throuincreases in production and wages positively aects welare levels or Maghreb consumers. Te dynamgains rom liberalizing trade in goods can outstrip the static gains, with productivity improvementsthe main driver. Estimating the dynamic benets involves considerable uncertainty, but our simulatiosuggest that they can be more than twice the static gains. Factors likely to enhance productivitytradable goods include:

Increased investment embodying new technologies, to expand capacity and take advantage o greaexport opportunities;

ranser o technology and management, which results rom greater openness; and Greater economies o scale rom the increase in production and access to larger markets.

Liberalizing services can enhance these productivity gains. For example, lower-cost telecommunicatioand networking services, ollowing the liberalization o the Inormation and Communicatechnologies (IC) sector, are likely to boost connectivity, computer penetration, and the use o ICbusiness applications.

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Our analysis shows that the creation o a common market is probably the best and most ecient optionor the Maghreb countries. Furthermore, these results show that the countries o the Maghreb have aneconomic interest in removing trade barriers which limit regional integration. Our analysis shows that

whatever the scenario chosen, it is more expensive and costly or Maghreb countries to maintain tradebarriers and restrictions between them.

Additionally, a ree trade area is more avourable to the diversication o the North Arican economies,while avouring a certain diversication among Maghreb countries and improving their welare. Tisenhances the argument or coupling the Euro-Med partnership agreement with a Maghreb ree trade areaand strengthening the supply side capacities o these countries.

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ANNEXES

Sectoral and regional aggregation

Tis paper ocuses on the impacts o dierent scenarios o bilateral and multilateral liberalization scenarioson North Arican economies. For this reason a relatively detailed sectoral desegregation is conducted.Indeed, rom the GAP 6, we have isolated all the sectors in order to cover at least 90 percent o exportsrom the North Arican region. Tis computation is based on the GAP 6 database. By this procedure

we have obtained 33 sectors presented in the ollowing table.

able 1: Sectoral aggregation.

Study sectors GTAP Sectors


Paddy rice Paddy rice

Wheat Wheat

Cereal grains nec Cereal grains nec

Vegetables. Fruit. Nuts Vegetables. Fruit. Nuts

Other agricultural productsOil seeds, Sugar cane. Sugar beet, Raw milk, Wool. Silk-worm

cocoons, Forestry

Plant-based bers Plant-based bersCrops nec Crops nec

Animal Cattle. Sheep. Goats. Horses, Animal products nec

Fishing Fishing


Meat Meat: cattle. Sheep. Goats. Horse, Meat products nec

Vegetable oils and fats Vegetable oils and fats

Dairy products Dairy products

Processed rice Processed rice

Sugar Sugar

Food products nec Food products nec

Beverages and tobacco Beverages and tobacco products

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Study sectors GTAP Sectors


Coal, Oil, Gas, Minerals nec Coal, Oil, Gas, Minerals nec

Textiles Textiles

Wearing apparel Wearing apparel

Leather products Leather products

Paper products. Publishing Paper products. Publishing

Petroleum. Coal products Petroleum. Coal products

Chemical. Rubber. Plastic prods Chemical. Rubber. Plastic prods

Metals Mineral products nec, Ferrous metals, Metal products, Metals nec

Motor vehicles and parts Motor vehicles and partsTransport equipment nec Transport equipment nec

Electronic equipment Electronic equipment

Other industrial products Wood products, Machinery and equipment nec, Manufactures nec

Having such important sectoral aggregation, we have opted or a relatively small regional desegregatiOnly the main partners o North Arican countries are isolated, while the rest o the world is divided ideveloped and developing regions.

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able 2: Regional aggregation.

Description GTAP

North AfricaMOR Morocco Morocco

TUN Tunisia Tunisia

RNA Rest of north Africa Rest of north Africa

Developed region

EU25 European Union EU25

USA USA USA

Japan Japan Japan

ROWDEV Rest of developed regions New Zealand, Hong Kong, Korea, Taiwan, Singapore,

Canada, Rest of FTAA, Switzerland, Rest of EFTA

Developing regionChina China

SSAHAF Sub Saharan Africa Botswana, South Africa, Rest of South African Customs

Union, Malawi, Mozambique, Tanzania, Zambia, Zimbabwe,

Rest of SADC, Madagascar, Uganda, Rest of Sub Saharan

Africa

ROWDNG Rest of developing regions Rest of Oceania, Rest of East Asia, Indonesia, Malaysia,

Philippines, Thailand, Vietnam, Rest of Southeast Asia,

Bangladesh, India, Sri Lanka, Rest of South Asia, Mexico,

Rest of North America, Colombia, Peru, Venezuela, Rest

of Andean Pact, Argentina, Brazil, Chile, Uruguay, Rest of

South America, Central America, Rest of the Caribbean,

Rest of Europe, Albania, Bulgaria, Croatia, Romania,Russian Federation, Rest of Former Soviet Union, Turkey,

Rest of Middle East

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