Final Report. Sustainability Impacts of the EuroMediterranean Free Trade Area (march 2006)

The SIA analyses the impacts of four components of a postulated EMFTA scenario, in comparison with a without EMFTA baseline scenario. These four components cover removal of tariff and nontariff barriers for industrial products, agriculture, services and southsouth trade liberalisation.The SIA examines both shortrun and longrun effectsThe assessment has reviewed some 80 CGE or alternative economic modelling studies of Mediterranean trade liberalisation, of which 38 model scenarios for industrial goods which are similar to the one adopted for the SIA (elimination of tariffs on industrial imports from the EU). These cover Egypt, Israel, Jordan, Morocco, Syria, Tunisia and Turkey.Computable General Equilibrium (CGE) models tend to assume that there will be full pass through of tariff changes to import and domestic prices. However, the MPCs are characterised by marketimperfections, such as monopolistic power by importers, price rigidities in domestic markets, and other government interventions. If these rigidities are large and sustained, the effects on consumer welfare could be lower than estimated by CGE models, because of lower changes in domestic prices.At the same time, the effects on domestic production would also be lower than estimated by the models.