ABSTRACT
The downward adjustments of social welfare are the direct results of short-term (static) terms of trade effects. The initial impact of elimination of manufacturing import tariffs is a reduction in import costs and an overall deflation of the domestic price level in the MENA bloc. Thus, vis-à-vis the EU the real exchange rate, defined as the ratio of the domestic versus the EU consumer baskets, depreciates in all of the countries experiencing the tariff reduction (for an analytical exposition of this point, see Obstfeld and Rogoff 1996: chapter 4). Along with domestic prices, export prices are relatively adversely
affected in comparison with their import counterparts. The adverse terms of trade are of the order of 0.2 per cent in Morocco; 0.8 per cent in Turkey; 0.5 per cent in the ‘Rest of ME’; and 0.05 per cent in ‘Rest of North Africa’. Under the coordinated FTAs, the adverse movements of the regional terms of trade effects are smaller; hence, the welfare losses are adjusted downwards.
