Abstract
The Middle East and North Africa regions (MENA) 
Introduction
The integration of the Middle East and North Africa (MENA) region's economy into global economy through trade and investment flows is essential for the welfare, growth, and job creation prospects of the region. Triggered in part by the collapse of oil prices in the 1980's, the share of MENA in global trade has declined sharply from about 8% in 1981 to some 2.5% in recent years, thereby becoming one of the least integrated regions of the world (figure 1). This contrasts with the positive acceleration in the share of trade experienced by other regions. For instance, in 1985, MENA's share in world trade (4.7%) was higher than East Asia Pacific (4.2%), however, by 2003, East Asia Pacific's share in world exports was about four times higher than that of MENA.
The dismal trade performance points to a lost opportunity in benefiting from integration with the rest of the global economy. Based on a constant market share analysis, if MENA maintained its 1985 share in world exports (which was already relatively low), it would have received some US$2 trillion in extra export revenues over the 1986-2003 period, or an annual average of some US$110 billion in export revenues. Compared to current 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 MNA SSA SAS LAC EAP ECA export levels (US$166 billion in 2002) , the extra export proceeds would have made significant contributions to economic growth and job creation prospects in the region.
This study will focus on how liberalization of MENA's trade regime, within the context of the regional trade agreements, and trade facilitation reforms may help to revive MENA trade and thus contribute to welfare, economic growth and job creation prospects in the region.
Regional Trade Agreements in MENA
MENA countries are liberalizing their trade regime through various bilateral and regional preferential trade agreements. Indeed, this has evolved into a complicated web of overlapping trade agreements involving bilateral, sub-regional, and regional trading partners (figure 2).
At the regional level, the Greater Arab Free Trade Agreement (GAFTA) is the most comprehensive agreements, with regards country coverage, though a host of other subregional free trade agreements also exist (appendix 1). 2 In spite of efforts to promote intra-regional trade among MENA countries, intra-MENA trade remains low. Using a gravity model, Al-Atrash and Yousef (2000) estimate that overall intra-Arab trade should be 10-15 percent higher than what is observed. Miniesy, Nugent, and Yousef (2004) Results of studies attempting to quantify the impact of RTAs in the MENA region are mixed. Most studies have used computable general equilibrium (CGE) models. While few studies obtain negative welfare effects (Brown et al, 1997; Hoekman and Konan, 1999) , in general, the results of the majority of studies suggest that, the static efficiency gains from tariff liberalization lead to small but positive net welfare effects, however, welfare gains are more significant when non tariff barriers (deeper integration issues) are taken into account. For instance, under a GAFTA cum EMA tariff liberalization scenario in a CGE model, Konan (2003) , estimates the static welfare gains to Tunisia and Egypt to be about 3.03% and 0.01% of base income respectively. However, the removal of nontariff barriers imposing frictional costs on international trade transactions leads to a 7.71% and 2.74% increase in welfare for Tunisia and Egypt respectively. Similarly, Rutherford, Rutstrom and Tarr (2000) , using data for a "representative" Arab
Mediterranean Country in a CGE model, show that eliminating tariffs on all imports from the EU results in a 0.1% and 1.6% increase in welfare in the short-run and long-run respectively. However, when both tariff and non-tariff barriers are taken into account, including the harmonization of standards, and a more efficient trading environment, the welfare impact increases to 3.7% in the short-run and 4.7% in the long-run. Lastly, an earlier study on Egypt, using a CGE model, suggests that larger welfare gains from an FTA would result only from the elimination of regulatory barriers and red tape measures, and a shallow agreement would merely be trade diversionary and lead to a small welfare decline (Konan and Maskus 1997 Investment Climate Assessment for Algeria found that it takes some 11.7 days to clear goods through customs, and in some cases up to 44 days. In Syria, this average is around 15 days, with the typical firm having waited over 30 days for an imported shipment sometime in the year. Zarrouk (2003) shows that MENA companies spend some 95
person-days a year dealing with trade transactions and that trading costs, excluding customs duties and domestic taxes, average some 10.6% of the value of goods. These trading costs arose from (in descending order): customs clearance, public sector corruption, mandatory product standards and certification of conformity, transshipment regulation, and entry visa restrictions for business visits.
Furthermore, weaknesses in the provision of seamlessly integrated multimodal transportation system (air, maritime, rail and road) are observed to significantly add costs and delays to the trading environment. In the maritime subsector, these weaknesses have been attributed to regulations favoring national carriers; restrictions on private sector participation; and cumbersome administrative procedures. Road transportation, an important conduit for intra-regional trade, also faces significant challenges. Zarrouk (2000) reports some of the existing impediments in road transportation to include:
restrictions on driving foreign trucks on weekends, denial of visa to drivers, foreign trucks unloading in a country must return to country of origin without cargo; various fiscal charges and surcharges on road transport, and special permit requirements for refrigerated trucks. Devlin and Yee (2005) also highlight the fragmented nature of the trucking industry in some MENA countries. The importance of having an efficient transportation system is all the more important given global trends in sourcing, just-intime production, supply chain management, and outward processing trade. For instance, it is reported that Tunisia lost a new factory, by a German car part manufacturer, to
Eastern Europe due to logistic constraints (Muller-Jentsch, 2005) . Indeed, awareness of the importance of trade facilitation by some MENA countries has already led some trade facilitation reforms, albeit at varying speeds. This study adopts the Fox et al (2003) and OECD (2003) 
Data
The model used for this study draws data from the GTAP 6 Data base. Although this version of the GTAP database allows for 87 regions and 57 commodities, its coverage of MENA is rather limited. The database has separate data for Morocco and Tunisia, while the rest of MENA is aggregated into "the rest of North Africa" (RONAF), and "the rest of the Middle East" (ROMIDE). The current study uses a 13 region by 16 commodity aggregation, which captures all the MENA sub-regions, key trading partners and key commodities. Details of the aggregation are provided in appendix 3 table A1.
Trade (imports plus exports) is important for the various MENA sub-regions, with its
share of GDP ranging from 43% in the rest of North Africa to about 100% in Tunisia (figure 3). With regards trading partners, the EU is the most important one, accounting for up to 70% of Tunisia's trade. The "Rest of the Middle East" shows a somewhat more diversified structure in its direction of trade, with the EU accounting for less than 22% of exports as well as imports (further details in appendix3 tables A2 and A3).
Simulations:
Two types of simulations are performed. The first considers the impact of a MENA free trade area, similar to GAFTA, by abolishing all import tariffs existing between MENA countries. The second simulation considers the impact of a free trade area between MENA and the EU, by abolishing all import tariffs on non-agricultural goods and reducing all agricultural tariffs by 50%, thereby reflecting the lower degree of liberalization in agriculture under the EMAs. The second experiment thus encompasses the first. For both simulations, the counterfactual simulation with and without trade facilitation (TF) improvements is undertaken. The trade facilitation improvements were applied to all tradeables, except oil, gas and petroleum products. Hence, in total, four simulations are implemented:
• MENA free trade without trade facilitation (GAFTA)
• MENA-EU free trade without trade facilitation (GAFTAEU) • MENA free trade with trade facilitation (GAFTA+TF)
• MENA-EU free trade with trade facilitation(GAFTA-EU+TF)
Results and Discussion:

Non-Trade Facilitation FTA simulations
The welfare gains to MENA from implementing the free trade agreements are positive.
Under GAFTA, the total static welfare gains to MENA amounts to $913 million, a 0.1% boost to regional income. Under GAFTAEU, the static welfare gains to MENA increase to some $1.84 billion, a 0.21% boost to regional income. These results show that integration with the EU provides significantly greater welfare gains than only intra-MENA trade. This is mainly due to the much larger size of the EU market and the greater importance of EU trade compared with intra-regional trade.
The distribution of the welfare gains however reveal marked differences in gains to trade liberalization between the various MENA sub-regions. Under GAFTA, Tunisia gained the most with a 0.53% increase in welfare, followed by relatively less substantial gains to the Rest of the Middle East (0.13%), Morocco (0.05%) and the Rest of North Africa (0.05%) (figure 4). Under GAFTAEU, both Morocco (1.88%) and Tunisia (1.72%) gained the most followed by the rest of North Africa (0.18%). The differences in the results between each of the MENA sub-regions are in general proportional with the degree of trade expansion ( Figure A1 ). For instance, Morocco, which had the highest expansion in trade (exports and imports) under GAFTAEU, also recorded the highest welfare gains. Whereas "the rest of the Middle East", which had the least expansion in trade also had the least increase in welfare (0.11%). Furthermore, the EU accounts for at least 55% of trade with the other MENA sub-regions, other than the "the rest of the Middle East", thereby accounting for the higher welfare gains accruing to Morocco, Tunisia and "the rest of North Africa". It is important to recognize that ROMIDE includes a heterogenous group of countries e.g. Jordan, Iran and Saudi Arabia (dominant economy), hence the results for each country within the group are likely to vary greatly.
Based on the earlier results, it is reasonable to expect ROMIDE countries with a high share of trade with the EU will do much better than those that trade less with the ROMIDE.
As with welfare, real GDP rises in both simulations for all the MENA sub-regions, ranging from 0.02% to 0.21% under GAFTA, and 0.12% to 2.22% under GAFTAEU (figure 5). Similarly, Tunisia gains the most under GAFTA, and under GAFTAEU both Morocco (2.22%) and Tunisia (1.85%) gain the most. It is also important to recognize that the increase in GDP accrue from only the static gains to trade reforms, as the model does not take into account the dynamic gains, which could be even higher than the static gains. 7 Nonetheless, the increase points to an increase in economic activity, with concomitant favorable effects on factor markets. Not surprising, real wages (skilled and unskilled) increase in all MENA sub-regions in line with the GDP increase. For e.g.
under the GAFTA-EU FTA both Morocco and Tunisia experience real wage increases between 5% and 7% (figure 6); the increase is more modest (0.3% to 1%) under GAFTA (figure 7). The rise in real wages is consistent with the fact that most MENA countries have comparative advantage in labor intensive goods. Hence liberalization of the trade regime should encourage the production of more labor intensive products thus leading to a relatively higher demand for labor and a rise in real wages. Given that the model adopts a full employment closure, it is reasonable to expect that the higher real wages would translate to increased employment. Hence the employment effects from the GAFTAEU are likely to be significantly higher than from only GAFTA. Similarly, rents on capital also increase under both simulations thus pointing to the prospects of increased investment (foreign and domestic) and potential dynamic gains from trade; these gains are however not captured in this model, since it is a static model.
7 Romer, P. (1993) shows that the benefits of an open trade orientation could be potentially higher than the static gains. In his growth model, Romer shows that a greater variety of inputs does more for production than higher quantities from a limited range. Romer, P.M (1993) 

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