DP1882 An Egypt-United States Free Trade Agreement: Economic Incentives and Effects

Author(s): Bernard Hoekman , Denise Konan , Keith Maskus

Publication Date: May 1998

Keyword(s): Arab league , Egypt , Free Trade Agreements , US trade policy

JEL(s): F13

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP1882.asp

This paper explores the economic impact of a free trade agreement (FTA) between Egypt and the United States, assuming that Egypt implements both the recently agreed Arab League FTA and a Partnership Agreement with the European Union. An Egypt-United States agreement would improve Egypt’s economic welfare. Gains would be maximized if the agreement were to greatly reduce the prevalence of non-tariff barriers and ‘red tape’ costs, something that does not appear to be likely under the Arab and EU FTAs. If so, the modelling exercise suggests that both welfare and US exports to Egypt would rise significantly. Arab countries should not be concerned with an Egypt-United States agreement, as there are no major implications for exports to Egypt. The share of Egypt’s imports originating in the rest of the world declines significantly under the FTA scenarios, however. This is costly to both Egypt and to these trading partners. Such costs can be avoided if external trade barriers are lowered in conjunction with the implementation of the various FTAs.