DP2095 | Deep Integration, Non-Discrimination and Euro-Mediterranean Free Trade

Publication Date

29/03/1999

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Abstract

Key questions in evaluating the justification for free trade agreements (FTAs) are whether formal international cooperation is necessary to promote greater contestability of markets through harmonization or recognition of regulatory regimes ("deep integration"), and whether any actions taken to reduce market segmentation are applied on a nondiscriminatory basis. This paper investigates the potential importance of deep integration in the context of trade agreements the EU has concluded with Mediterranean countries. Using a standard competitive general equilibrium model of the Egyptian economy, we find that the static welfare impact of a deep FTA is a multiple of what can be obtained from a classic "shallow" agreement; in some scenarios welfare may increase by more than 10 percent of GDP, compared to close to zero under a shallow agreement.