Measuring the economic impact of an EU-GCC free trade agreement

Centre for European Policy Studies | Brussels | 2004 | 68 pp

Measuring the Economic Impact of an EU-GCC Free Trade Agreement

Dean A. DeRosa and David Kernohan

Summary

Economic growth rates in the Gulf region have languished in recent years and need to be raised
to accommodate the rapidly growing populations and social aspirations of the region. Using a
simple model of world trade, this report investigates the economic impacts of the new customs
union of the Gulf Cooperation Council (GCC) and the proposed free trade agreement (FTA)
between the GCC and European Union. The quantitative results suggest that the new customs
union and proposed EU-GCC free trade agreement both appreciably expand trade and improve
economic welfare in the GCC countries, with little significant economic impact on the EU. As
expected, the FTA results in larger GCC economic gains than the customs union because it
affords GCC consumers greater opportunity to enjoy imports at internationally competitive
prices. Although welfare gains under the proposed FTA closely approximate those under open
regionalism (concerted trade liberalisation on a most favoured nation basis), reducing the 5%
GCC common external tariff to about 3% as part of the FTA negotiations would not only ensure
near-maximum trade performance and welfare gains but also add further to the attractiveness of
the GCC countries as a location for foreign direct investment.

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source: CEPS