Abstract
Abstract In this paper the authors develop an innovative 21 sector computable general equilibrium model of Armenia to assess the impact on Armenia of a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU, as well as further regional or multilateral trade policy commitments. They find that a DCFTA with the EU will likely result in substantial gains to Armenia, but they show that the gains derive from the deep aspects of the agreement. In order of importance, the sources of the gains are: (i) trade facilitation and reduction in border costs; (ii) services liberalization; and (iii) standards harmonization. A shallow agreement with the EU that focuses only on preferential tariff liberalization in goods will likely lead to small losses to Armenia primarily due to a loss of productivity from lost varieties of technologies from the Rest of the World region in manufactured products. Additional gains can be expected in the long run from an improvement in the investment climate. The authors estimate only small gains from a services agreement with the CIS countries, but significant gains from expanding services liberalization multilaterally.
Highlights
In this paper the authors develop an innovative 21 sector computable general equilibrium model of Armenia to assess the impact on Armenia of a Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union (EU), as well as further regional or multilateral trade policy commitments
As a component of the DCFTA, we evaluate the impact on Armenia of establishing a national quality infrastructure that would facilitate Armenian firms that wish to export to the EU to comply with EU voluntary standards, technical regulations in goods and meet EU sanitary and phyto-sanitary requirements. (We refer to this as standards harmonization in this paper, this subject is broader than standards on manufactured goods.) As we explain below, we do not recommend that Armenia adopt all EU SPS requirements as requirements for producing for the Armenia or Commonwealth of Independent States (CIS) markets; rather a case by case approach would be advisable based on an evaluation of the costs versus benefits
We evaluate the impact of deepening the CIS free trade agreement by adding preferential liberalization of services in the CIS; third, we evaluate combining a DCFTA with the EU with preferential liberalization of services with the CIS; fourth, in the scenario we call “unilateral,” we combine the impact of a DCFTA with the EU, preferential liberalization of services with the CIS, and unilateral liberalization of tariffs and services with the rest of the world; we add the impact of reducing geographically non-discriminatory services barriers in Armenia to the unilateral scenario
Summary
In this paper the authors develop an innovative 21 sector computable general equilibrium model of Armenia to assess the impact on Armenia of a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU, as well as further regional or multilateral trade policy commitments. The authors find that a DCFTA with the EU will likely result in substantial gains to Armenia, but they show that the gains derive from the deep aspects of the agreement. The sources of the gains are: (i) trade facilitation and reduction in border costs; (ii) services liberalization; and (iii) standards harmonization. A shallow agreement with the EU that focuses only on preferential tariff liberalization in goods will likely lead to small losses to Armenia primarily due to a loss of productivity from lost varieties of technologies from the Rest of the World region in manufactured products. Additional gains can be expected in the long run from an improvement in the investment climate. The authors estimate only small gains from a services agreement with the CIS countries, but significant gains from expanding services liberalization multilaterall
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