Working Papers

An Egypt-US Free Trade Agreement: Economic Incentives and Effects

Publication Number: ECESWP25-E

March, 1998

Author : Bernard Hoekman, Denise Konan and Keith Maskus

Type : Working Papers

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-US 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 modeling exercise suggests that both welfare and U.S. exports to Egypt would rise significantly. Arab countries should not be concerned with an Egypt-U.S. agreement as there are no major implications for exports to Egypt. However, the share of Egypt’s imports originating in the rest of the world declines significantly under the FTA scenarios. This is costly to Egypt as well as these trading partners. Such costs can be avoided if external trade barriers are lowered in conjunction with the implementation of the various FTAs.