The Effects of Regional Trade Arrangements on Agri-Food Trade: An Application of the Gravity Modeling Approach to the Arab Gulf Cooperation Council (GCC) Countries

The objective of this paper is to assess the trade performance of the Gulf Cooperation Council (GCC) countries as a regional trade arrangement and estimate the trade potential of the GCC with countries or groups of countries with which a preferential trade agreement is signed or still in negotiation. The study uses disaggregated data and estimate gravity equations for total exports, total agri-food exports and seven agri-food commodities according to the SITC classification, covering the period 1994-2004. Results indicate that the GCC as a regional trade arrangement has actually promoted trade integration significantly between the member countries in agri-food products as opposed to total aggregate trade. Trade integration is highest in dairy products where GCC intra-trade is 10 times more than what would be predicted by the basic model, followed by meat, fish, and cereal products. The GCC intra-trade did not seem however to change significantly over the years and had probably reached its full potential during the 1993-1996 period. The newly created GCC Custom Union is therefore promising enhancing new opportunities of trade as it goes beyond the removal of tariffs to the elimination of non tariff barriers. Except with the Mashreq countries, trade of GCC with other regional groups and sub-groups is less than expected in all commodities suggesting that there is untapped trade potential which can be enhanced by negotiating a freer trade arrangement between these groups and the GCC region.