The Effects of Multilateral Trade Liberalization on Agriculture: The Case of the Gulf Cooperation Council (GCC) Countries

Abstract

This study assessed the trade and welfare impacts of agricultural trade liberalization within the context of both unilateral and WTO multilateral trade liberalization in the GCC countries. The analysis focused on the specific effects of the agricultural sector as well as on the economy-wide effects, which were reflected in the exchange rate, balance of payment and changes in economic welfare. The assessment was undertaken using the World Trade Simulation Model (WTSM) to solve for the equilibrium prices and values of trade. Results showed that under all the trade liberalization scenarios considered, the economic effects on the GCC region in terms of trade and economic welfare will be positive. However, multilateral trade liberalization covering all the goods offered the greatest benefit to the GCC economies. Also, the study showed that changes in economic welfare were much higher under liberalization process covering all the sectors rather than liberalization covering only the agricultural sector. The effects of multilateral trade liberalization on domestic prices will depend on the type of commodity, the world price change and the initial level of protection .