DP1300 Catching Up With Eastern Europe? The European Union's Mediterranean Free Trade Initiative

Author(s): Simeon Djankov, Bernard Hoekman
Publication Date: November 1995
Keyword(s): Economic Adjustment, Restructuring, Trade Liberalization
JEL(s): F14, O12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1300

This paper discusses the potential role of a Euro-Mediterranean Agreement (EMA) in helping Middle East and North African governments implement structural economic reforms. The arguments for and against preferential liberalization are summarized, identifying a number of necessary conditions for an EMA to benefit a Mediterranean country. The recently negotiated EMA between Tunisia and the EU is evaluated, using these conditions as criteria. Some doubts are expressed whether an EMA, by itself, will be enough to help countries in the region 'catch up'. Significant supporting and complementary actions are likely to be needed. Key issues in this connection are the regulatory regimes applying to inward foreign direct investment (FDI) and the service sector; a reduction in tariffs applied to the rest of the world; and the imposition of hard budget constraints on state-owned enterprises. These aspects are not subject to disciplines under the EMA.