Employment implications of the Euro‐Med free trade agreements

Abstract

The free trade areas currently being established between the EU and individual economies of the southern and eastern Mediterranean (SEM) are expected to lead in the short run to production cut‐backs in SEM economies as well as welfare gains to consumers. The production cutbacks in turn imply loss of employment, at least in the short‐run, with negative welfare implications for those affected and, depending on the scale and duration of these, possible adverse implications for policy sustainability. The main purpose of this paper is to assemble and assess the available data on likely employment outcomes in the first two SEM economies to establish free trade agreements with the EU: Tunisia and Morocco. Elements of the CGE models which are the main source of employment impact predictions are questioned, focusing chiefly on sectoral definition and disaggregation; potential constraints on labour absorption within both the farm sector and the non‐farm informal sector ‐ two sectors which might otherwise be expected to cushion adverse employment effects ‐ are identified. The paper concludes that there is not only an urgent need to identify new export market niches for the SEM economies, but also to review the scope for labour absorption in different branches of agriculture and to monitor the employment effects of the free trade agreements as these are implemented.