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THE IMPACT OF TRADE LIBERALIZATION 57


East would not register noticeable changes. The sectoral results suggest that the production of dairy and other food products in Morocco and Tunisia would increase slightly and Tunisia would increase its production of rice and other grains, but wheat production would suffer in both Morocco and Tunisia. A South–South agreement would increase Moroccan exports by 2.5 percent, but in Tunisia exports would increase by 8 percent. The agreement implies that there would be trade diversion for Morocco: imports of rice, wheat, fruits and vegetables, and meat from Europe would be partially replaced by imports from countries in the region. A North–South agreement would have a larger impact on exports, which would increase by more than 40 percent in Morocco and Tunisia. The welfare effects would also be larger, but although they would lead to gains of 1.3 percent in Tunisia, Morocco and the rest of North Africa would show a small decline in welfare of less than 1 percent. When these regional agreements are compared to multilateral full trade liberalization, the results indicate that the latter strategy would provide a more efficient outcome for south Mediterranean countries. All four regions would experience welfare gains, ranging from 0.4 percent in the rest of the Middle East to 2.3 percent in Tunisia. This would allow for a large reduction in domestic distortions and stimulate GDP growth, especially in Morocco, Tunisia, and the other coun- tries of the southern Mediterranean zone. The efficiency gains would offset the deterioration in the terms of trade linked to an augmentation of world agricultural prices, which would be detrimental to most of these countries. To test whether regional trade agreements represent desirable steps toward multilateral liberalization, Bouët (2006) built an index of structural congruence that measures the similarity of sectoral changes between two alternative scenarios. His results show that a South–South agreement would not move the economies toward a multilateral trade liberalization structure. For some sectors, it would direct the economies in the opposite direction. On the other hand, integration with the E.U. would be a better “first step” toward integration into the global economy. The superiority of the North–South trade alternative finds evidence in Dennis (2006a) in the context of GAFTA.7 The author compared the benefits from two integration scenarios: GAFTA and a combination of GAFTA-E.U. The MENA region includes Morocco, Tunisia, the rest of North Africa, and the rest of the Middle East. In the GAFTA simulation, all tariffs between the four MENA zones were set to zero. In the GAFTA-E.U. simulation, all tariffs between MENA zones were set to zero, all industrial tariffs between MENA zones and


7 For details of the GAFTA agreement, see Chapter 2.


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