The first part of this chapter presents an overall analysis of the progress of trade integration since the 2021 Progress Report and introduces policy recommendations. The second part presents, individually, the indicators that support the analysis and recommendations:
• T1. Trade agreements covering goods and services
• T2. Trade facilitation indicators
• T3. Intra-regional trade in goods
• T4. Trade in value added (TiVA)
• T5. Trade and employment
• T6. Digital trade
International trade has long been recognised as a powerful driver of economic growth. The OECD Convention, signed in 1960, states that expanded world trade is crucial for economic development and better international economic relations. By enabling countries to specialise in goods and services in which they have a comparative advantage, trade can lead to more efficient resource allocation and increased overall productivity. Trade can also promote the diffusion of technology and knowledge, stimulating innovation and economic development. The economic literature has highlighted the positive impact of trade on economic growth, suggesting that trade can help developing countries catch up with developed ones and foster long-run economic prosperity. Also, the competition created by international trade can incentivise countries to develop better institutions, which can further boost economic performance.
However, while trade can bring overall benefits to an economy, it is important to recognise that the gains are not necessarily distributed equally. Consumers benefit from lower prices and a wider variety of goods, while firms exposed to foreign competition may become more productive and innovative – indeed, trade is a determinant of improvements in aggregate productivity. But in some sectors, trade can also lead to job losses and exacerbate existing inequalities. To address these distributional challenges, targeted policies are needed to ensure that trade costs are reduced and the gains from trade are shared more equitably. This can include a broad range of measures, from retraining programmes for workers who lose their jobs due to trade competition, to investments in infrastructure in regions affected by trade liberalisation, to social safety nets to protect vulnerable populations.
Monitoring trade integration in the UfM. The selected set of indicators, T1 to T6, provides an overview of the determinants of regional trade integration. These indicators encompass the effect of trade agreements on goods and services, the evolution of trade facilitation measures, the level of intra-regional trade in goods, the value added by each country in regional trade, the effects on employment and wages in export sectors by gender and industry, and digital trade.
Since the publication of the Progress Report 2021, global trade dynamics have undergone significant shifts, reinforcing long-term trends while also reflecting new complexities that shape the integration path of regions. The international trends, coupled with specific regional dynamics, point to developments in trade integration patterns within the UfM. Evidence indicates an increasing EU reorientation towards trade partners within the UfM for both merchandise trade and the integration of UfM-origin value added into EU exports, differently from previous observations in the 2021 Report.
In parallel to this, many non-EU UfM economies are continuing to build stronger trade and value chain links among them, confirming an ongoing pattern of closer economic ties between different UfM sub-regions. For example, economies in the Western Balkans, North Africa and Türkiye demonstrated consistent growth in their exports to other non-EU UfM partners. Additionally, several UfM economies are increasingly using inputs sourced from within the region in their exported products.
The COVID-19 pandemic significantly quickened the pace of digital trade adoption across the UfM economies, leading to a marked rise in the exchange of digitally delivered services. This includes growth in areas such as computer services, finance and diverse business activities, alongside an increasing emphasis on intellectual property trade.
Furthermore, the composition of the UfM's intra-regional merchandise trade continues to evolve, with evidence of a structural shift towards more technologically advanced industries. Intra-regional trade in machinery and chemicals, for example, has shown robust growth, suggesting greater UfM participation in higher value-added chains.
Trade in the UfM region, specifically cross-Mediterranean and Southern - Eastern Mediterranean exchanges, remains overwhelmingly regulated by agreements on goods. While traditional trade agreements have primarily focused on the exchange of goods, the modern global economy is increasingly driven by the exchange of services. From financial services and telecommunications to education and healthcare, services have become a vital engine of economic growth. In fact, if in 2023 global trade fell by 5%, services trade increased by 8% (UNCTAD, 2024[1]).
Trade in services is considered in regional frameworks, such as the Agadir Agreement, and in ongoing bilateral negotiations, e.g. EU-Morocco and EU-Tunisia. The EU Stabilisation and Association Agreements (SAAs) with Western Balkan countries reflect a comprehensive approach that goes beyond tariff reduction to facilitate services trade, promote regulatory cooperation, and address critical areas like institutional stability and economic policy alignment. Similarly, Türkiye has incorporated provisions for services trade in its bilateral agreements with key partners in the Western Balkans. This strategic shift reflects a growing understanding of the integral role services play in modern trade relations, aligning with global trends that emphasise the interconnectedness of goods and services trade.
Moreover, non-tariff measures (NTMs) exert a profound influence on international trade dynamics. These measures, encompassing a wide array of technical regulations, standards, customs procedures, and environmental requirements, can significantly impact market access, compliance costs and, ultimately, trade flows. Within the UfM, a notable development is the initiative to harmonise rules of origin for products within the pan-Euro-Mediterranean (PEM) area. This initiative, aimed at simplifying and streamlining trade procedures, has the potential to significantly boost regional trade by reducing administrative burdens and enhancing predictability for businesses.
An emerging challenge is represented by the increase of environmental and social sustainability requirements in trade relations. A clear example is the EU Carbon Border Adjustment Mechanism (CBAM), which aims to prevent the so-called “carbon leakage” (by aligning the carbon costs of foreign producers with those of EU producers) and to uphold the EU's ambitious climate objectives. While its objective is to deter the relocation of production to countries with less stringent environmental regulations, the CBAM may create obstacles for UfM partners that lack the technological or financial capacity to meet the required carbon emissions standards. This could lead to increased export costs and reduced competitiveness for those economies trying to access the EU market, potentially disrupting trade flows and hindering economic development.
Analysis of trade facilitation indicators (TFIs) reveals a positive trend across UfM sub-regions, with noticeable improvements in areas such as streamlining of border procedures, advance rulings and internal border agency co-operation, although with significant disparities. The EU, supported by advanced trade facilitation systems, consistently leads in most TFI categories, followed by Israel and Türkiye. The Western Balkans have demonstrated significant progress in areas such as documentary formalities, internal border agency cooperation, and advance rulings. North Africa has also made progress in internal border cooperation and advance rulings, while challenges remain in automation and external cooperation. The Levant sub-region, despite improvements, continues to lag in multiple indicators, highlighting the need for further reforms, particularly in information availability, documents, governance, and border agency cooperation.
Within the UfM, intra-regional trade flows indicate a general positive trend, with intra-UfM trade nearly doubling exports to the rest of the world in 2023. The EU plays a dominant role in intra-UfM trade, accounting for 94% of the region's internal exports in 2022. The EU has nevertheless seen a noticeable increase in its exports and imports share to and from UfM countries, particularly since 2020, pointing to factors like global efforts towards supply chain diversification and a growing corporate interest in nearshoring strategies to enhance resilience and reduce transit times, all amplified by the experiences of the COVID-19 pandemic.
Beyond the EU dynamics, a steady increase in intra-UfM trade over the past years is observed, and data suggest a reinforcement of the trend since the pandemic. The Western Balkans exhibit a consistent upward trajectory of their share of intra-UfM exports, indicating deepening trade integration with their UfM partners. This growth can be attributed to a combination of factors, including economic reforms, regional trade agreements, and the stabilisation of political and economic conditions in the region. Similarly, Türkiye’s and North Africa's export shares to non-EU UfM partners have shown moderate but steady growth. The Levant economies present the highest share of intra-UfM exports – albeit with some volatility in the past decade, likely reflecting the impact of regional instability and conflicts.
Also, the composition of trade reveals evolving sectoral trends. The UfM region is experiencing strong growth in export of machinery and chemicals, indicating a shift towards more advanced industries and suggesting that UfM countries are increasingly participating in higher value-added activities, contributing to improve competitiveness and upscaling of industrial production. Other sectors, such as textiles, show declining trends, highlighting the need for adaptation and innovation to remain competitive in the global marketplace.
The trade relationships of the UfM with other regions are also evolving. Over the past two decades, UfM imports from China have increased considerably. However, the COVID-19 pandemic revealed vulnerabilities in this relationship (particularly for the European Union, Israel and Türkiye), highlighting the need for diversified export markets and targeted support for sectors susceptible to external shocks. Despite this, China remains a crucial trading partner for all UfM sub-regions, with North Africa and the Levant emerging as rapidly growing markets for Chinese goods.
UfM and the broader MENA region. Trade with the Gulf Cooperation Council (GCC) countries presents a dynamic trend. The GCC is an important energy partner for the UfM, as evidenced by increasing imports despite price fluctuations. Energy exports from the GCC include crude oil and natural gas, particularly to Europe and North Africa. However, the relationship extends beyond hydrocarbons. UfM exports to the GCC, primarily manufactured goods, experienced robust growth until 2015, driven by rising demand in GCC markets. The sharp decline in oil prices in 2015 had a significant impact on GCC economies, leading to a subsequent drop in demand for UfM goods. Available data suggest a potential recovery in exports after 2022.
Trade with Sub-Saharan Africa has grown, particularly between 1996 and 2015, with UfM exports to the region nearly doubling, but this trend has slowed since 2015. While imports from Sub-Saharan Africa to the UfM have remained relatively stable, North Africa has emerged as a key player in trade with the region, showing significant increases in both exports and imports. This growing interdependence suggests potential for mutually beneficial partnerships between the two regions and highlights the benefits of further promoting trade facilitation, encouraging investment, and supporting the implementation of the African Continental Free Trade Area (AfCFTA).
An analysis of trade in value added reveals a gradual strengthening of regional value chains within the UfM, alongside a broader, though highly varied, integration into global production networks. The European Union is the central hub for this regional integration, with UfM countries' value-added contributions to EU exports more than doubling between 2005 and 2019. However, this relationship is evolving; while the EU increasingly uses UfM inputs, most UfM economies have reduced their reliance on EU components. Within the Mediterranean, Türkiye has emerged as the second most significant driver of regional integration, creating strong value-chain links with other partners. This trend extends to trade in services, where a growing interdependence is fostering deeper collaboration, again with the EU and Türkiye as key players.
The positive evolution does not, however, exclude different country-level performances. Morocco, Tunisia and Türkiye stand out for consistently increasing their use of UfM-sourced inputs, showcasing deepening regional ties, with the Türkiye-Morocco relationship being particularly strong. In contrast, other economies show weaker or declining regional integration. For instance, Egypt and Israel have significantly reduced the share of UfM value added in their exports, while Jordan also shows a weaker integration pattern.
The persistence of high unemployment rates, especially among women and youth in the eastern and southern Mediterranean, suggests an uneven distribution of the economic benefits from trade liberalisation.
Across the UfM, trends in trade-related employment vary significantly. The EU demonstrates stability in export-related employment shares across most sectors, suggesting a diversified export market. Conversely, Egypt shows a general downward trend, and Israel also experiences a decline in export-related employment, despite the continued importance of its service sector. Türkiye, however, shows a general increase in export-related jobs, driven primarily by growth in industry and services.
A persistent gender gap exists in export-related employment across all the analysed UfM economies. In the EU, men consistently hold a larger share of these jobs, particularly in industry and trade. Egypt shows a similar pattern, with a pronounced gender gap in agriculture, industry and trade. Israel also exhibits a clear gender divide, with women concentrated in service sectors and men dominating industry. In Türkiye, despite increased female participation in export-related jobs, a disparity remains, particularly in traditionally male-dominated sectors. This highlights the need for policies that promote gender equality and ensure that the benefits of trade are shared more equitably.
Digital trade is rapidly growing, making up about a quarter of all international trade and presenting the EU as a global leader in the sector. This growth is fuelled by factors like increased internet access and improved digital services. Furthermore, the COVID-19 pandemic accelerated the shift to online transactions, driving an increase in the import and export of digitally delivered trade across all the focused economies. Sectors driving this growth include computer services, finance, telecommunications, and a broad range of business activities.
Within the UfM region, the EU is a major player, with significant exports in business services, computer services, and intellectual property charges. While the Western Balkans sees growth in computer services, Türkiye's focus is on insurance and pension services. North Africa shows strong growth across sectors, particularly computer and business services, driven by rapid digitalisation. Israel's strength lies in its tech sector, with computer services dominating its digital exports. A notable trend across all subregions is the increasing importance of intellectual property rights and licensing, highlighting the growing trade in digital products like software and music.
While digital trade flourishes, the UfM region faces challenges due to limited trade agreements specifically addressing digital trade. This lack of harmonised regulations creates barriers and increases costs. Currently, only agreements between the EU and the Western Balkans, and a bilateral agreement between Türkiye and Serbia, incorporate digital trade provisions. The EU is gradually integrating digital trade chapters into its agreements, starting with Tunisia in the ongoing trade agreement negotiations, focusing on free data flow with strong privacy protections.
This report has identified key challenges and opportunities for trade within the UfM region. Aiming to promote greater economic integration and inclusive growth, the following policy recommendations focus on further advancing and harmonising trade agreements, improving trade facilitation, enhancing competitiveness, fostering integration in regional and global value chains, promoting inclusivity, and advancing digital trade.
To address the fragmented trade landscape in the Mediterranean, a focused effort towards harmonisation and deepening of agreements is necessary. This involves promoting a regional approach where countries collaborate to design comprehensive agreements covering goods, services, investment, and regulatory cooperation. Existing agreements such as the Pan-Arab Free Trade Area (PAFTA) and the Agadir Agreement need to be modernised by including provisions for services trade, address non-tariff barriers, and incorporate sustainable development goals. The EU can play a key role by pursuing deeper integration with Southern - Eastern Mediterranean partners, moving beyond a focus on goods to encompass services and regulatory convergence.
Strengthening the implementation and enforcement of existing agreements is equally important. This requires providing technical and financial assistance to countries with limited resources, enabling them to effectively implement and enforce trade agreements. Establishing robust monitoring and evaluation frameworks will help track progress and identify areas for improvement. Additionally, strengthening dispute resolution mechanisms will ensure compliance and address trade-related conflicts effectively.
Tackling non-tariff barriers is vital for fostering smoother trade flows. This can be achieved through enhanced regulatory cooperation, aiming for harmonisation or mutual recognition of standards where possible. Trade facilitation measures, such as simplifying and streamlining border processes, can significantly reduce trade costs. Improved transparency and information sharing on non-tariff measures will help businesses navigate regulatory requirements more easily. In cases such as CBAM implementation, emphasizing capacity building and technical transfer to the most lagged countries would contribute to the adjustment and minimise disruption to trade.
As the least performing areas of the region, in particular North African and Levant economies, prioritising the cooperation at external borders is crucial. This can be achieved through the implementation of interoperable digital platforms and data sharing systems, streamlining transit procedures, and promoting mutual recognition of standards and certifications. Such measures would reduce border delays, enhance security, and lower transaction costs for businesses, particularly in the Levant region, where external border co-operation lags.
Secondly, strengthening internal border co-operation within UfM economies is essential. This involves enhancing domestic inter-agency co-ordination, information exchange, and joint risk management strategies. Investing in training programmes for border officials and promoting the use of technology for efficient border management are also vital.
Finally, ensuring readily available, accessible and comprehensive trade-related information is paramount. This includes establishing online platforms with up-to-date regulations, procedures, and trade statistics, as well as actively engaging with the trade community to disseminate information and address concerns.
While data suggests a growing recognition of the potential benefits of regional co-operation, challenges persist, including trade imbalances caused by the need for further diversification of exports, particularly among the Southern and Eastern Mediterranean economies.
To enhance intra-UfM trade, a targeted policy approach focusing on key sectors could be beneficial in the short and medium terms and generate spillovers that could stimulate growth across less integrated sectors. The data highlights machinery, chemicals and transport equipment as areas exhibiting strong growth. Policies should prioritise fostering innovation and competitiveness in these sectors through initiatives such as research and development support, skills training and investment in related infrastructure. Furthermore, supporting the growth of small and medium-sized enterprises in these sectors can contribute to both economic growth and social development within the UfM.
Based on the evidence of increased use of regional components in the exports of UfM economies, the further development of regional value chains should be facilitated. To that end, encouraging economic diversification, innovation and technological upgrading to climb the value chain is crucial. In turn, this will foster complementarities and economic competitiveness across the region. For countries where production is still concentrated in basic manufacturing, the strategic shift towards higher-value-added activities made by Morocco, Tunisia and Türkiye can provide a successful model.
Furthermore, seizing the potential of the UfM's growing importance in the services sector, particularly through its increased contributions to the EU’s service exports requires dedicated support for the development of regional services value chains. This could also encourage the wider legislative and institutional cooperation needed for a truly integrated economic space. Policy makers should prioritise reducing barriers to services trade, encouraging investment, and promoting regulatory harmonisation to unleash the cross-border flow of services.
Investment in efficient and sustainable transport infrastructure and logistics systems is essential. This connectivity infrastructure is the physical backbone that will enable further growth of trade in goods and services. Developing multimodal corridors, improving logistics networks, and digitalising trade procedures are necessary actions to reduce trade costs and ensure the seamless movement of components and finished products (see Chapter 3).
Given the positive impact of existing trade agreements in promoting trade across the UfM region, there is a strong rationale for continuing the expansion of these agreements to benefit the region. However, to ensure that trade growth contributes more inclusively to labour market improvements, policy reforms are needed. One priority should be the reduction of barriers to women’s access to labour markets, including skills development. Another is tackling gender-biased segmentation across industries and occupations. Creating an enabling environment that opens up a broader array of sectors and job opportunities for women is essential for realising a more equitable distribution of trade benefits. This could be achieved by promoting policies that support women’s access to traditionally male-dominated sectors, as well as encouraging more inclusive hiring practices across industries.
Additionally, policies should target labour market adjustment costs for existing workers, especially women, to mitigate the challenges of adapting to shifts in export demand. Reducing these adjustment costs would not only support workers in seizing new employment opportunities but would also help to spread the benefits of trade agreements more widely within the labour market.
To effectively foster digital trade integration across the UfM, prioritising the development of comprehensive digital trade chapters within existing and future trade agreements is essential. Building upon the WTO E-commerce Agreement negotiations, the framework established in recent EU agreements, or other regional examples such as the Digital Economy Partnership Agreement (DEPA) between New Zealand, Singapore and Chile and the Digital Economy Agreement between Australia and Singapore, these chapters should address critical aspects such as cross-border data flows, consumer protection, and intellectual property rights. This would also enhance convergence in key areas that enable e-commerce, such as paperless trading, electronic contracts, electronic authentication and signatures, regulation of unsolicited commercial messages, online consumer protection, open government data, internet access, transparency, cybersecurity, and electronic transaction frameworks. Harmonising these regulations across the region will streamline the digital trade environment, reduce barriers to entry, and promote greater legal certainty for businesses engaged in e-commerce.
Trade flows within a region are influenced by a complex interplay of factors, including conditions like geographical distance, industrial capacity, economic diversification and consumer preferences. However, regulatory effects, particularly those shaped by trade agreements, play a pivotal role in shaping trade dynamics. During the 1990s and early 2000s (Figure 1.1), Euro-Mediterranean regional trade agreements (RTAs) focused on reducing tariffs on agricultural and manufactured goods (Figure 1.2). These agreements have influenced existing trade patterns and economic relations between countries in the region.
Today, trade agreements have become increasingly complex, and their impact extends far beyond tariff reduction. RTAs can influence countries' productive models and domestic policies in several areas. Better understanding of how these agreements shape regional trade integration can help policy makers identify potential challenges, and inform decisions aimed at promoting trade for sustainable development.
The trade regulatory landscape across the Mediterranean region can be broadly divided into three categories: the EU bilateral trade agreements with non-EU countries, Southern - Eastern Mediterranean regional agreements, and Türkiye’s network of bilateral agreements (Table 1.1). Each set reflects unique policy approaches, integration levels, and areas of focus, collectively shaping the web of trade relationships in the region.
Two main regional frameworks govern Southern – Eastern Mediterranean trade: PAFTA and the Agadir Agreement. PAFTA, established in 1998, is an agreement among Arab League countries aimed at fostering intra-regional trade by eliminating tariffs on goods. Its scope remains focused on tariff reduction, without addressing non-tariff barriers, services trade, or intellectual property. This relatively narrow mandate reflects a “first-generation” trade agreement approach, prioritising goods exchange over broader economic integration. Enforcement of PAFTA commitments has also been inconsistent, with members encountering challenges in fully eliminating tariffs and implementing trade facilitation measures (UNESCWA, 2019[2]).
In contrast, the Agadir Agreement, effective since 2007, represents the original objective of the signatory economies to implement a more ambitious regional integration framework. Signed by Egypt, Jordan, Morocco, and Tunisia, the Agadir Agreement not only intended to eliminate tariffs on goods but also promoted deeper economic cooperation by covering aspects like customs coordination, taxation harmonisation, and trade facilitation. The Agadir Agreement recognised the importance of services trade, laying the foundation for a more integrated regional economy that moves beyond goods trade alone.
However, despite their foundational importance, the implementation of both PAFTA and the Agadir Agreement has been slow. Progress has been largely restricted to partial tariff reductions on selected goods, while the more sophisticated provisions designed to foster deeper integration have seen little to no concrete development, especially concerning services trade under the Agadir Agreement. This profound gap between the agreements’ objectives and their ongoing implementation is a primary obstacle that prevents the region from unlocking its untapped potential for intra-regional trade, investment, and sustainable growth.
The EU trade policy in the Mediterranean region is characterised by a network of bilateral Association Agreements with Mediterranean countries. These agreements, which are integral to the European Neighbourhood Policy (ENP), primarily target tariff elimination on industrial goods, aiming to create a free trade area between the EU and its Mediterranean partners. Most of these agreements focus on goods, generally omitting trade in services and not extensively addressing areas such as investment or intellectual property, pointing to an EU approach of incremental economic integration with partners in the Mediterranean – an approach that prioritises stability and gradual liberalisation without the deeper commitments required in services trade and regulatory convergence.
The EU-Türkiye trade relationship deserves particular attention. Since the beginning of EU accession negotiations in 2005, Türkiye’s relationship with the EU has encompassed a wide range of policy areas beyond trade, with the aim of fostering institutional and regulatory alignment. As an EU candidate country and unlike the other UfM economies, Türkiye entered into a customs union with the EU in 1995. This customs union not only removes tariffs on industrial goods but also requires Türkiye to align its external tariffs with the EU common external tariff.
Over the past decade, the European Commission and the Government of Türkiye have explored modernising the EU-Türkiye Customs Union to broaden its scope to include services, agriculture, and public procurement, improve dispute resolution, and give Türkiye more input on EU trade policy. However, despite technical discussions, formal negotiations are currently stalled.
Besides its agreements with the EU, Türkiye has also signed numerous bilateral trade agreements with most UfM countries, excluding Algeria, Jordan, Lebanon and Mauritania. Although these agreements are related mainly to the liberalisation of trade in goods, they have recently also targeted services.
Trade in services is increasingly recognised as vital for economic growth and integration - especially in sectors like tourism, finance, and telecommunications, all of which are important in the Mediterranean region. In the UfM there are two examples of initiatives involving trade in services provisions. The EU has included provisions for services trade in its Stabilisation and Association Agreements (SAAs) with all the Western Balkan countries in the UfM, i.e. Albania, Bosnia and Herzegovina, North Macedonia, and Montenegro. These agreements not only cover trade in goods but also facilitate services trade, promote regulatory cooperation, and address areas like institutional stability and economic policy alignment. These agreements align with requirements in the EU accession path, promoting gradual regulatory convergence with EU standards for goods and services (e.g. Albania and Montenegro). However, a more recent initiative is the EU's Growth Plan for the Western Balkans, launched in late 2023. This plan aims to accelerate the region's socio-economic convergence with the EU by offering some benefits of membership before formal accession. It is built on four pillars: integrating the Western Balkans into parts of the EU's single market, deepening regional economic integration through a common regional market, accelerating fundamental reforms, and providing a new reform and growth facility for 2024-2027.
Similarly, Türkiye has recognised the importance of expanding its trade agreements to cover services. In 2021, Türkiye initiated an update of its existing bilateral agreements with key partners in the Western Balkans (including Bosnia and Herzegovina, Montenegro, and North Macedonia) to include provisions for services trade. This shift reflects Türkiye’s strategy to modernise its trade agreements and foster a more comprehensive economic integration with its partners, aligning with global trade policy trends that increasingly value services as integral to trade relations.
Non-tariff measures (NTMs) play a critical role in shaping international trade dynamics, particularly within regions like the UfM, as they influence market access and compliance costs, and therefore trade flows. NTMs encompass technical regulations, standards, customs procedures, and environmental requirements, each of which can affect the competitive positioning of goods in cross-border trade.
An important development in the UfM region concerns the attempt to harmonise the rules of origin for products set in trade agreements, which could help boost regional trade. On 25 August 2021, the EU Commission issued guidance on the transitional rules of origin in the pan-Euro-Mediterranean (PEM) area. The EU is currently revising 21 origin protocols in the PEM region by introducing an alternative set of non-tariff measures that will apply alongside the existing Regional Convention on Pan-Euro-Mediterranean preferential rules of origin. These amendments will be implemented bilaterally until the revised Convention is adopted. The new rules, aimed at improving and simplifying the PEM Convention, have been endorsed by most PEM Contracting Parties who wish to benefit from the changes before the revised Convention is finalised.
The EU Carbon Border Adjustment Mechanism (CBAM) is a regulatory measure with extensive implications for international trade relations. CBAM, anticipated to become fully effective by 2026, will impose a carbon price on specific imported goods based on their carbon intensity, thereby aligning these imports with the EU’s stringent climate objectives. The mechanism is designed to prevent “carbon leakage,” a phenomenon whereby production shifts to countries with less stringent environmental regulations, thus undermining efforts of global emissions reduction.
CBAM presents substantial challenges for the EU’s trading partners, particularly within the UfM, where many economies may lack the technological or financial capacity to conform to the required carbon emissions limitations. These countries could experience heightened export costs and diminished competitiveness within the EU market, potentially leading to decreased trade volumes and economic disruption.
In light of these challenges, CBAM underscores the necessity of cooperative frameworks and technical assistance to support EU trade partner countries in their transition towards low-carbon standards. Such measures are essential to prevent environmental policies from unintentionally exacerbating economic disparities within the UfM region, and to promote a more equitable adaptation process for all EU trade partners - which, in turn, can have their own climate change objectives and/or national climate action plans.
The Mediterranean trade landscape is marked by a variety of overlapping trade agreements that reflect different levels of ambition, from simple goods trade liberalisation to broader economic integration. The EU’s Association Agreements and Türkiye’s customs union with the EU underscore the northern shore’s role as an anchor for trade policy in the region, while agreements like PAFTA and the Agadir Agreement indicate ongoing efforts for integration among Mediterranean economies in the southern shore.
As Türkiye and the EU continue to deepen their trade partnerships, and as the Southern - Eastern Mediterranean seeks to expand trade in services and improve enforcement mechanisms, the region’s trade policy framework is likely to evolve towards a more interconnected economic space. However, the varying depth and scope of these agreements highlight the challenges of achieving a unified trade policy across the Mediterranean, underscoring the region’s complex and fragmented approach to economic integration.
UfM and the broader MENA region. Formal trade integration between the GCC member states and the countries within the UfM remains limited and occurs primarily through individual bilateral arrangements rather than comprehensive bloc-to-bloc agreements. Notably, the United Arab Emirates has recently advanced its trade liberalisation agenda by finalising Comprehensive Economic Partnership Agreements (CEPAs) with two UfM member countries: Türkiye, which entered into force in September 2023, and Morocco, whose terms were finalised in July 2024. Furthermore, in May 2025, the United Arab Emirates and the European Union (EU), a major component of the UfM, formally launched negotiations on a bilateral Free Trade Agreement (FTA). This bilateral approach runs parallel to the historical pursuit of a region-to-region Free Trade Agreement (FTA) between the GCC and the EU. Initiated formally following a 1989 Cooperation Agreement and intensifying after the GCC established its customs union in 2003, these comprehensive FTA negotiations ultimately stalled in 2008. Nevertheless, during the first EU-GCC Summit, which took place in October 2024, the EU and the GCC countries agreed to explore the possibility of relaunching negotiations on the region-to-region FTA.
RTAs in the UfM region reveal a fragmented landscape, with a variety of agreements at different levels of integration. This scenario necessitates a strategic shift to enable more efficient integration.
New-generation RTAs should prioritise a comprehensive approach, beyond tariff reductions for goods, encompassing services, investment, intellectual property, and regulatory harmonisation.
Streamlining customs procedures and harmonising technical standards helps to reduce trade costs and enhance competitiveness. This should involve support for capacity building, where needed, to ensure that deeper integration will lead to a fair distribution of benefits.
To align trade integration with the global climate emergency, sustainability considerations should be integrated into RTAs, promoting environmentally sound economic practices and contributing to global climate goals. In particular, UfM countries should work together to adapt to new mechanisms such as the EU’s CBAM, ensuring they remain competitive while contributing to the fight against climate change.
Finally, UfM members should commit to effective implementation and enforcement mechanisms to guarantee that commitments are upheld and the full potential of integration is realised.
This indicator captures the number and scope (e.g. goods and services) of regional trade agreements (RTAs) reported to the World Trade Organisation (WTO) by its members, alongside selected provisions. RTAs are reciprocal preferential trade agreements between two or more partners.
Source: WTO Regional Trade Agreements database
EPRS (2023), EU carbon border adjustment mechanism Implications for climate and competitiveness, European Parliamentary Research Service, https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/698889/EPRS_BRI(2022)698889_EN.pdf
Rodrik (2018), “What Do Trade Agreements Really Do?”, Journal of Economic Perspectives 23 (2):73-90, https://drodrik.scholar.harvard.edu/publications/what-do-trade-agreements-really-do.
UNCTAD (2021), A European Union Carbon Border Adjustment Mechanism: Implications for developing countries, UNCTAD https://unctad.org/system/files/official-document/osginf2021d2_en.pdf
UNESCWA (2019), Towards modernisation of the Pan-Arab Free Trade Area Agreement, United Nations Organization, Economic and Social Commission for Western Asia, https://www.unescwa.org/sites/www.unescwa.org/files/events/files/1901034.pdf.
WTO (2007), World Trade Report: Six Decades of Multilateral Cooperation, What Have we Learnt?, WTO, https://www.wto.org/english/res_e/publications_e/wtr07_e.htm.
Source: WTO, Regional Trade Agreements Information System (RTA-IS), Extracted on 12 March 2024.
Source: WTO, Regional Trade Agreements Information System (RTA-IS), OECD staff calculations.
* Algeria and the Palestinian Authority are also parties to the PAFTA. However, a formal notification by the parties to the WTO has not yet taken place. While the AfCFTA Agreement entered into force on 30 May 2019, its absence from the WTO RTA database is due to the procedural step of formal notification to the WTO not yet being completed by the AfCFTA members.
Source: WTO Regional Trade Agreements Database, and national sources.
The WTO Trade Facilitation Agreement, which entered into force in 2017, established multilateral rules aiming to address specific barriers in trade procedures. The agreement offers countries the opportunity to realise economic gains by enhancing the speed and efficiency of border processes.
The trade facilitation indicators (TFIs) assess the progress made by countries in implementing trade facilitation measures. These indicators measure the extent to which countries have adopted and enforced measures designed to streamline and simplify the technical and legal procedures for goods moving in and out of a country for international trade. Analysing performance across these indicators helps policy makers identify areas for improvement.
Consistent with positive trends registered in the 2021 Report, recent years have seen improvements in trade facilitation across virtually all UfM sub-regions (Figure 1.3). By 2024, the average trade facilitation performance registered noticeable improvement across UfM sub-regions, with the best performance in areas such as procedures, involvement of the trade community, governance and impartiality and fees and charges (Figure 1.4).
Overall, trade facilitation, as assessed by the TFI with values from 0 to 2 (best performance), measured highest in the EU, with significant performance observed in Türkiye and Israel (Table 1.2). In the Levant, despite robust improvement since 2017, further development is needed. In North Africa, trade facilitation has continued to improve, highlighting sustained efforts. The Western Balkans remain slightly below the UfM average on trade facilitation but experienced the largest improvement in the region, with a 26% increase since 2017 (Figure 1.5).
Category-Specific Performance
A-Information Availability: The EU and Israel led in information availability, showcasing high transparency and accessibility of trade-related information. The Western Balkans saw a 24% improvement since 2017, while Israel and North Africa also made substantial progress with 15% and 16% improvement, respectively. In contrast, the Levant exhibited the lowest measurable progress, indicating that reforms towards accessible and comprehensive trade information remain limited in this sub-region.
B-Involvement of the Trade Community: Türkiye, (1.88), the EU (1.78) and Israel (1.71) achieved high scores in 2024, reflecting active engagement with the trade community. The Western Balkans have improved by 25% since 2017, reaching a score of 1.46. North Africa saw a moderate advancement of 17% to achieve a score of 1.40 in 2024. The Levant lagged with a score of 1.21 and no recorded growth, indicating a need for greater engagement with trade stakeholders in this region.
C-Advance Rulings: This area saw significant enhancements, particularly for Israel (60%), reflecting efforts to increase regulatory predictability, with a 2024 score of 1.46. The EU (1.90) and Western Balkans (1.64) led in performance, with 6% and 12% improvement, respectively. Türkiye recorded 1.36 with a 15% increase. The Levant, despite a 17% growth, recorded the lowest score at 1.00, highlighting room for further improvement in this area. Despite initial gains, North African countries are the only region showing a decline since 2017. The 6% drop may indicate how the region struggles to translate initial commitments into tangible, sustainable improvements for the trade community.
D-Appeal Procedures: The Western Balkans and the Levant saw notable progress, with increases of 27% and 28%, respectively, reaching scores of 1.45 and 1.35 in 2024. Israel and the EU also performed well, while Türkiye recorded a slight decline of -7%, resulting in a score of 1.40. The Levant evolution indicates progress in providing accessible appeal mechanisms, though the other UfM subregions remain ahead.
E-Fees and Charges: Most UfM subregions performed strongly in this category. The EU led, followed by the Western Balkans (1.80) and Israel, which recorded a slight decline since 2017. Türkiye (1.69) and North Africa (1.63) saw moderate improvements, while the Levant (1.36) saw the strongest growth, reflecting efforts to reduce and simplify trade-related fees across the region.
F-Documents: Türkiye demonstrated exceptional improvements (67%), reaching 1.88, which is among the highest scores in this category. The Western Balkans also achieved significant progress (37%), reaching a score of 1.47 in 2024, indicating significant improvements in document formalities. The EU led with 1.90 with minimal advancement, while scores for Israel (1.63) and the Levant (0.88) improved 8% over the seven-year period.
G-Automation: Automation performance varied widely across the UfM. Israel led with a score of 2.00 and 24% growth, showcasing best-practice levels of customs digitalisation. The EU (1.77) and Türkiye (1.67) also performed strongly, with improvements of 2% and 11%, respectively. North Africa and the Western Balkans achieved moderate scores of 1.06 and 1.33, with growth of 24% and 32%, while the Levant, despite 18% growth, remains lower at 0.84, indicating ongoing challenges in this area.
H-Procedures: Procedures improved significantly in the Levant, with a 62% increase, achieving a score of 1.35 in 2024. The Western Balkans (1.48) and North Africa (1.18) showed moderate improvements of 26% and 24%, respectively. Israel (1.68) and Türkiye (1.65) scored well, while the EU (1.79) led overall, demonstrating consistent procedural efficiency across its member states.
I-Internal Border Agency Cooperation: The Western Balkans recorded the greatest improvement (79%) in internal border cooperation in 2024. Türkiye recorded the highest score (1.80), followed by the EU (1.75), indicating high levels of inter-agency coordination. North Africa (1.02) improved by 42%, although recording lower scores in comparison to subregional counterparts. The Levant (0.82) also recorded modest scores, highlighting variability in internal cooperation across the UfM, yet showcasing a 49% improvement since 2017.
J-External Border Agency Cooperation: External cooperation scores varied across regions. The EU led with a high score of 1.82 and a 9% improvement. The Western Balkans saw moderate improvement (12%) in reaching 0.66, while North Africa improved by 6% to achieve 0.84. Türkiye (1.09) witnessed 33% growth, showing efforts to enhance cross-border collaboration. The Levant and Israel demonstrated lower scores, with scores of 0.59 and 0.64, indicating room for improvement in inter-country cooperation.
K-Governance and Impartiality: The EU (1.99) and Türkiye (1.89) achieved the highest scores in governance and impartiality, reflecting strong systems for ensuring fair trade processes. The Western Balkans improved by 19% with a score of 1.52. North Africa saw a modest growth of 4%, reaching 1.42 in 2024. The Levant (0.87) remains the weakest performer in the region, highlighting governance and impartiality as a key area for improvement in the region, despite having experienced a 28% increase since 2017.
The analysis underscores the overall commitment of UfM countries to trade facilitation reforms. While progress is evident across UfM sub-regions, it is important to continue reforms to achieve uniform trade facilitation standards across the region.
The EU, Israel and Türkiye consistently lead in most categories, reflecting well-established trade facilitation systems. The Western Balkans demonstrate significant progress in specific areas such as document formalities (TFI F), internal border agency cooperation (TFI I), and automation (TFI G), while North Africa showed notable improvements in appeal procedures (TFI D) and internal border agency co-operation (TFI I), though challenges remain in automation (despite the positive improvement) and external cooperation (TFI J).
The Levant, while demonstrating improvements in procedures and internal border cooperation (TFI I), continues to score low across multiple indicators, particularly in border cooperation (both internal and external), automation (TFI G), and governance (TFI G).
Overall, border cooperation (both internal and external) and automation remain challenging across the UfM, with some sub-regions needing targeted support to bridge these gaps.
Looking at the broad MENA region, GCC countries outperform North African and Levant economies in trade facilitation (Box 1.1).
To address the disparities in trade facilitation across the UfM, a multi-pronged approach is required.
First, prioritise the cross-border harmonisation of customs procedures and documentation by implementing interoperable digital platforms and data sharing systems (such as single windows for trade), streamlining transit procedures, and promoting mutual recognition of standards and certifications.
Second, strengthen internal border cooperation within sub-regions, particularly in North Africa and the Levant. This involves enhancing domestic inter-agency coordination, information exchange, and joint risk management strategies. Invest in training programmes for border officials and promote the use of technology for efficient border management. Furthermore, improve governance and impartiality across the UfM, especially in the Levant, through capacity building initiatives focused on transparent regulatory frameworks, anti-corruption measures, and effective appeal mechanisms.
Finally, ensure readily available, accessible and comprehensive trade-related information. This includes establishing online platforms with up-to-date regulations, procedures, and trade statistics, as well as actively engaging with the trade community to disseminate information and address concerns.
Trade facilitation encompasses the entire range of border procedures, from the electronic exchange of shipment data to the simplification and harmonisation of trade documentation, as well as the right to appeal administrative decisions made by border agencies. The OECD indicators are directly linked to the substantive provisions outlined in the WTO Trade Facilitation Agreement.
Source: OECD Trade Facilitation Indicators
OECD (2025), “OECD Trade Facilitation Indicators: Monitoring Facilitation up to 2025”, OECD Publishing, Paris, https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/03/oecd-trade-facilitation-indicators_0a21eb4a/fd6f27dc-en.pdf
Sorescu, S. and C. Bollig (2022), “Trade facilitation reforms worldwide: State of play in 2022”, OECD Trade Policy Papers, No. 263, OECD Publishing, Paris, https://doi.org/10.1787/ce7af2ce-en.
0 to 2 (best performance)
0 to 2 (best performance), average, minimum and maximum value
Note: EU includes selected major economies: Germany, France, Italy, Spain, the Netherlands, Poland, and Sweden.
% of growth since 2017
GCC countries outperform North African and Levant economies in Trade Facilitation, but there is significant potential to converge towards EU partners. Over the past decade, the GCC countries have generally demonstrated positive progress, often leading within the MENA region. While the assumed overall advancement is positive, the latest data highlight that the nature and pace of this progress vary. For instance, Oman's leading average trade facilitation score within the GCC (1.7), notably driven by exceptional performance in Automation (1.9) and Governance and Impartiality (1.89), suggests a highly successful strategic focus on digitalization of trade processes. This indicates that targeted investments in specific trade facilitation pillars can yield significant results, positioning a country favourably.
The United Arab Emirates, while also strong in Automation (1.85), Fees and charges (also 1.85) and Procedures (1.7), have not uniformly addressed all aspects of trade facilitation. The considerably lower scores in External border agency co-operation (0.9) and Internal border agency co-operation (1.1) point to structural challenges. Similarly, Saudi Arabia's positive performance in Fees and charges (1.6) and Automation (1.6) show progress in reducing trade costs and modernizing procedures. However, the persistent weaknesses in both internal and external border agency co-operation (1 and 0.8, respectively) are critical. These areas, lagging substantially behind OECD standards, suggest that despite broader improvements since 2017, these specific collaborative mechanisms remain a key impediment to achieving seamless trade flows and higher overall efficiency. Addressing these is crucial for the GCC to leverage its economic scale more effectively in international trade.
Average
The analysis of intra-regional trade flows provides valuable insights into the dynamics of economic integration. High levels of intra-regional trade reflect robust cooperation, the removal or reduction of trade barriers, and harmonised trade policy frameworks. By capturing the volume and value of trade between countries, this indicator serves as a proxy for the economic interconnectedness and mutual reliance among member states of the UfM.
Furthermore, intra-regional trade can reflect the development of regional value chains and increased economic interdependence as countries specialise in different production segments – which can, in turn, increase regional competitiveness.
The UfM region remains a central global trading partner, contributing over 31% of the world’s merchandise exports and amounting to more than USD 7 trillion in goods in 2023. While the total value of exports from the region has tripled since 1996, its share of global exports is today below that of the early 2000s, when it peaked at 40% (Figure 1.7). This shift largely reflects the impact of the global financial crisis on the European economy, and the rise of emerging economies, especially China, increasing their share of global trade in goods.
For UfM member countries, the internal market remained the primary destination for trade in goods in 2023, accounting for 61% of the region’s exports (Figure 1.8). This is close to the share observed in the previous monitoring report. Indeed, the importance of the internal market has experienced small fluctuations since 2007, when it peaked at 63% of the UfM’s exports after having steadily increased since 1996, when it represented 56%. From the mid-1990s to the early 2000s there was a positive trend of integration within the UfM market. This coincided with a period of expansion in global trade and a wave of new regional trade agreements, which was spearheaded by EU agreements such as the European Neighbourhood Policy but also included initiatives like PAFTA and the Agadir Agreement signed just before the onset of the global financial crisis.
The 2007 financial crisis marked a turning point in the UfM's trade integration dynamics. In the five years following the crisis, trade with countries outside the UfM grew 25% faster than trade within the UfM, signalling increasing reliance on trade partners outside the region. This trend reversed after 2012, as European markets began to recover; intra-UfM trade has continued to grow since then.
By 2023, the resurgence in intra-UfM trade was evident, with UfM countries trading nearly twice as much with each other as they did with the rest of the world, totalling over USD 4.4 trillion (Figure 1.9). This development demonstrates a renewed focus on regional partnerships and strengthening economic ties within the UfM. Additionally, data show early evidence that the COVID-19 pandemic had a positive influence on integration, with the ratio of intra-extra exports experiencing robust growth in the years 2020, 2021 and 2022. This could be attributed to factors such as disrupted global supply chains and a renewed focus on regional partnerships following the pandemic.
As expected, the trade data analysed underscores the dominant role of the EU internal market in driving intra-regional trade within the UfM. In 2022, 94% of the region's internal exports, amounting to approximately USD 3.9 trillion, were attributed to trade within the EU common market. This highlights the profound impact of the EU's single market and customs union in fostering deep economic integration amongst its member states. It also raises attention about the role the EU can play in shaping trade integration amongst non-EU economies in the UfM region.
In 2023, trade with non-EU UfM countries represented 3.7% of EU countries total goods exports. Aligned with the general trends in the region, this share has steadily increased since the COVID-19 pandemic, after a historic low point in 2019. Notably, EU exports to other UfM countries were 6% higher in 2023 than 2019, amounting to USD 250 billion (Figure 1.10).
Exports from the EU to non-EU UfM countries include primarily manufactured goods, which consistently account for over 75% of the total trade. While trade in manufactured goods has remained stable over the last thirty years, the specific types of goods have changed. There has been a shift away from machinery towards greater diversification, including an increase in traded transport equipment, chemicals, and scientific and pharmaceutical products in 2023 (Figure 1.11).
Since 1996, the proportion of EU imports coming from non-EU countries in the UfM has noticeably increased. The trend has fluctuated, experiencing a dip around 2008 and the global financial crisis and again during the Eurozone crisis in the early 2010s. Since 2020, however, the EU has significantly increased imports from non-EU UfM economies.
The observed trends reflect the evolving dynamics of the EU-UfM trade relationship. The EU has long been a significant trading partner for the UfM countries, and the UfM region represents an important source of imports for the EU, particularly in sectors like energy, diverse manufactured products, machinery, transport equipment and agricultural products. While fuels and raw materials still represent one of the EU’s main imports from the non-EU countries in the UfM region, the share has significantly declined over the past decades. In 2023, fuels and minerals represented over 25% of the EU’s imports from UfM countries (as compared to almost 40% in 2005). This is the result of the increasing relevance of manufactured goods in EU imports from UfM countries, representing over 60% of the total imports in 2023.
Although the EU generally exports more to the UfM region than it imports, this difference is decreasing over time, e.g. USD 228 billion in imports vs USD 250 billion in exports in 2023. Political instability and low diversification across the North African and Levant partners have limited their capacity to export higher-value-added products to the EU and also posed challenges to the creation of regional value chains.
The EU continues to serve as the primary export market for the majority of UfM economies (Table 1.3). This is particularly evident in the Western Balkans, where 72% of total exports were destined for the EU in 2023. North Africa also demonstrates significant reliance on the EU market, with 48.6% of its exports directed there. Similarly, for Türkiye, exports to the EU account for 39% of total exports. Israel is less dependent on the EU for exports (27% of total exports), although the EU represents a crucial market. Notably, Levant economies display greater reliance on Israel, which absorbs 7.9% of their exports, compared to 6% for the EU common market.
Overall, the EU’s significance as an export destination for the other UfM economies has gradually declined since 2005, except for the Western Balkans (Table 1.4). While this reduction has been modest, it reflects the growing importance of alternative markets. Excluding exports to the EU, non-EU UfM countries exported in 2023 more than 80% of the remaining exports to economies outside the UfM (USD 2700 billion). Intra-UfM export ratios (excluding the EU) have also been increasing for most sub-regions since 1996. This positive trend received important momentum after the COVID-19 pandemic, suggesting some strengthening of regional trade networks, though disparities between sub-regions persist.
The Western Balkans: The share of exports for the Western Balkans demonstrates a consistent upward trajectory, starting at 4.08% in 2005 and peaking at 8.53% in 2023. The steady increase suggests deepening trade integration between this sub-region and its non-EU UfM trading partners. This improvement may be attributed to economic reforms in the Western Balkans, regional trade agreements, and the stabilisation of political and economic conditions post-2000s.
Israel’s share of exports remains relatively stable, hovering between 2.37% and 4.41% over the observed period. This relatively modest but stable pattern possibly relies on Israel’s specialisation in high-tech and other niche sectors that serve specific markets.
The Levant has experienced a variable export trajectory, with shares ranging from 7.9% in 2023 to a peak of 16.9% in 2013. A sharp rise occurred between 2006 and 2013, when exports increased from 8.97%, driven by expanding regional trade agreements and integration initiatives. However, the decline from 2013 onwards suggests disruptions, likely linked to regional instability, such as the Syrian civil war and associated economic challenges. By 2023, the export shares had fallen back to levels not seen since 2006 (7.9%), reflecting the lasting economic impacts of regional conflicts.
North Africa’s export share to the non-EU UfM follows a pattern of moderate growth and stabilisation, increasing from 5.6% in 2005 to 10% in 2023. The most significant growth is visible during 2009–2014, where the share rises from 8.3% to 10.1%, indicating strengthened economic integration likely driven by energy and raw materials trade. The maintenance of shares above 9% after 2014 suggests a stabilised trade relationship, supported by economic diversification and industrial reforms in countries like Morocco and Egypt. However, the region has not experienced the same rapid expansion seen in the Western Balkans, reflecting structural challenges.
Türkiye consistently maintains a high share of total exports, with a slight decline to 8.2% in 2023 after peaking at 9% in 2011. The increase in 2011 reflected Türkiye’s role as a regional manufacturing and logistics hub, but the gradual decline in share from 2011 onwards may indicate increasing competition or diversification of export destinations outside the UfM region. Still, Türkiye remains a key export partner, especially given its strategic position as a bridge between Europe, the Mediterranean, and Asia.
Since 2005, exports have intensified particularly within sub-regions, with notable improvements in bilateral trade between non-EU economies. This trend is especially pronounced in the Western Balkans and Levant sub-regions, where countries like Egypt are increasingly relying on Levant economies as key trade partners, while Türkiye continues to expand its presence across the Southern - Eastern Mediterranean. The Western Balkans and North Africa exhibit the most pronounced increases in export shares to non-EU UfM countries. On the other hand, the Levant economies show a marked decline in export shares after 2013. Israel and Türkiye maintain consistent shares, indicative of their established roles in specific sectors and sub-regions within the UfM.
Furthermore, the analysis of traded goods by category offers insights into the emergence of regional value chains in sectors like machinery, chemical industries and transport equipment. Key trends include:
Fuels and ores exports remain significant, but there are signs of diversification, driven in part by global shifts towards renewable energy.
Strong growth in exports of machinery and chemicals, indicating diversification to more advanced industries.
Decline is observed in textiles trade, while agriculture and transport equipment show moderate growth.
The analysis of Revealed Comparative Advantage (RCA) trends from 1996 to 2023 reveals a pattern of shifting specialisation within the UfM internal market (Table 1.5). Data highlight the specific products where Southern - Eastern Mediterranean partners have most consistently increased their competitive edge over time. While some economies have reinforced their advantage in primary commodities or basic manufactured goods, others have successfully experienced a growing competitive position in more complex, higher value-added sectors, suggesting a varied trajectory of industrial development across the region.
Morocco, North Macedonia, and Lebanon demonstrate a particularly promising evolution, gaining a stronger competitive advantage in higher-value-added products. In Morocco, the strengthening RCA in aircraft and spacecraft parts signals a successful and strategic push into a high-technology, capital-intensive industry. North Macedonia also shows a deepening specialisation up the value chain, with a growing competitive advantage in miscellaneous chemical products and furniture. Lebanon’s increasing RCA in processed food items, such as milling products and vegetable preparations, indicates a successful transition from basic agriculture to establishing a stronger competitive position in value-added food manufacturing within the UfM market.
Overall, these trends suggest that some sectors will have to adapt to regional and global trends and demands to remain competitive. This is particularly important for the SME sector, which is a major contributor to exports in the UfM (Box 1.3).
UfM and the broader MENA region. The trade relationship between the UfM and the GCC reveals evolving patterns. In 2023, UfM countries exported to GCC countries USD 116 billion and imported USD 121 billion (Figure 1.12). From 1996 to 2015, UfM exports to GCC countries had experienced a robust increase, with UfM manufactured goods leading the region’s exports to GCC markets. The sharp drop in oil prices in 2014-2015 impacted GCC economies and its effects can be seen in the significant drop in the demand of UfM goods, which reached a low point in 2021, with the GCC representing roughly 1.4% of the UfM total exports. Data suggest a potential upswing on exports after 2022. Several factors could influence future trade, including ongoing EU-UAE Free Trade Agreement (FTA) negotiations, the renewed efforts to resume the regional EU-GCC FTA negotiations, the Abraham Accords, and the socio-economic effects of ongoing regional conflicts. These developments warrant close attention as they will likely shape the future of trade integration between the UfM and the GCC.
As a region highly specialised in hydrocarbon exports, UfM imports from GCC countries behave differently. Data show an increasing trend, but experiencing important fluctuations seen in cycles of two to five years, strongly defined by the hydrocarbons global price variance. Nonetheless, data confirm the importance of GCC countries as a strategic energy partner for the UfM economies.
At the sub-regional level (Figure 1.12), the Levant economies exhibit the strongest trade relationship with the GCC, consistently accounting for a significant portion of both imports (14.33% in 2022) and exports (17.98% in 2022). North Africa, while showing growth in trade with the GCC, needs to focus on export diversification and value addition to enhance its integration and manage its growing trade deficit (imports at 10.56% vs. exports at 3.38% in 2022).
Türkiye's evolving trade balance with the GCC indicates a shifting dynamic that requires close monitoring to ensure sustained integration. Meanwhile, Israel's consistently low trade volumes with the GCC point to an untapped potential for integration.
The GCC's growing importance as a supplier to the UfM highlights the need for strategic partnerships and regional cooperation to leverage its resources and promote further integration. These trends underscore the importance of policy initiatives focused on promoting intra-regional trade within the UfM, attracting foreign direct investment, and fostering deeper economic ties with the GCC. This will not only enhance trade integration but also contribute to the broader economic development goals of the UfM region.
Establish a targeted policy approach: To enhance intra-UfM trade, a policy approach focusing on key sectors could generate positive spillover across other sectors. In particular, machinery, chemicals, and transport equipment exhibit strong growth and the potential for regional value chain development.
Foster competitiveness: UfM countries should address challenges to competitiveness in global trade. This would also enable sectors with competitive advantages in the regional market to continue to remain competitive. Policy initiatives could involve support to research and development, innovation, and skills training, and but also investment in connectivity infrastructure.
Intra-regional and external trade flows of goods track the volume of goods traded by UfM Member States both within the region and with external partners, including intra-MENA trade, MENA-EU trade, MENA-Western Balkans trade, and MENA-Africa trade.
Databases used include OECD International Trade and Balance of Payments (covering goods and services), UN Comtrade Database (only trade in goods), and UNCTAD Intra-trade and extra-trade (only merchandise trade).
AUC/OECD (2023), Africa's Development Dynamics 2023: Investing in Sustainable Development, AUC, Addis Ababa/OECD Publishing, Paris, https://doi.org/10.1787/3269532b-en.
European Commission (2024), The EU-GCC Dialogue on Economic Diversification Project, https://www.eeas.europa.eu/eeas/EUintheGCC_en
UNCTAD (2024), Rethinking development in the age of discontent, Trade and Development Report 2024, United Nations publication, Geneva), https://unctad.org/publication/trade-and-development-report-2024
WTO (2024), World Trade Report 2024 Trade and inclusiveness: How to make trade work for all, World Trade Organization, Geneva, https://www.wto.org/english/res_e/booksp_e/wtr24_e/wtr24_e.pdf
Exports in goods (USD million) left scale; UfM share in world exports (percentage), right scale
Source: UN Comtrade database, https://comtrade.un.org/
Exports in goods, USD million
Source: UN Comtrade database, https://comtrade.un.org/
USD million
Source: UN Comtrade database, https://comtrade.un.org/
% of total exports
Source: UN Comtrade database, https://comtrade.un.org/
% of total exports
Note: GCC refers to the Gulf Cooperation Council countries. S.S Africa refers to Sub-Saharan Africa
Source: UN Comtrade database, https://comtrade.un.org/
Exports (rows) to partner countries (columns)
Share of total exports per each product category, exports
Source: UN Comtrade database, https://comtrade.un.org/
Note: The ranking identifies the top three products per country with the strongest positive linear trend in Revealed Comparative Advantage (RCA) from 1996-2023. The RCA index was calculated for the intra-UfM market.
Source: UN Comtrade database, https://comtrade.un.org/
Share of total exports per destination
Source: UN Comtrade database, https://comtrade.un.org/
UfM economies' trade with China and Sub-Saharan Africa has significantly evolved over the decades, with varying dynamics.
In 2023 the UfM economies exported USD 82 billion and imported USD 75 billion from Sub-Saharan Africa economies (Figure 1.12). Analysis of the provided data suggests a positive integration trend between the UfM and the region from 1996 to 2015. This is evidenced by a twofold increase in the total share of exports from the UfM to Sub-Saharan Africa, rising from 0.7% in 1996 to 1.4% in 2015. This positive trend shifted after 2015, and today, the UfM exports share is 19% lower. Imports from Sub-Saharan Africa experienced a moderate expansion in the early 2000s but have remained relatively stable for the past decade, averaging around 1% of the UfM total imports. Fluctuations in imports from the region may be marked by the price variation of raw materials originating in the region.
Sub-regionally, North Africa has emerged as a key player, with its export share growing more than sixfold from 0.62% to 3.85% during the same period (Figure 1.13). This trend is mirrored in imports, with the total share of imports from Sub-Saharan Africa to the UfM increasing from 1.69% to 8.33%. North Africa leads this trend, with its import share rising from 0.95% to 1.39%.
These trends highlight a growing interdependence between North Africa and Sub-Saharan Africa, suggesting a potential for mutually beneficial partnerships and regional integration initiatives. Policy makers should focus on further strengthening these ties by promoting trade facilitation measures, encouraging investment flows, and supporting the implementation of the African Continental Free Trade Area (AfCFTA). Beyond North Africa, further research into the specific factors driving the observed fluctuations in certain sub-regions, such as the Levant, would provide valuable insights for tailoring policies to maximise the potential of this evolving trade relationship.
China's trade relationship with the UfM has experienced significant growth over the past two decades, as evidenced by the increasing share of Chinese imports in the UfM's total imports. In 1996, imports from China accounted for 1.9% of the UfM's total imports. By 2022, this figure had surged to 9.2%, marking a substantial increase in trade integration (Figure 1.14). The evolution of UfM exports to China shows an increase as well during the same period, albeit weaker, from 0.9% in 1996 to 3.4% in 2022. While a proper trend is still hard to identify, data suggest that the COVID-19 pandemic had a negative impact on the UfM’s exports to China, showing for 2022 a slight decline since the onset of the crisis in 2020. This contrasts with the evolution of Chinese imports share in the UfM, which continued increasing during the same period.
Examining sub-regional trends reveals further insights. The share of Chinese imports has consistently increased for all the UfM sub-regions analysed. While the EU historically represented one of the largest recipients of Chinese goods within the UfM in 1996, North Africa and the levant countries have emerged as a rapidly growing market, with Chinese imports accounting for 13% of its total imports in 2022. Israel and Türkiye also experienced a significant increase in the share of Chinese imports.
In the same period, China consistently increased its relevance as export market for virtually all the analysed UfM sub-regions, with Israel leading the trend, from 0.4% in 1996 to 6.3% in 2022. The sub-regions experiencing a decline in their export share to China after the COVID-19 pandemic were primarily the EU, Israel, and Türkiye, while Levant and North African economies exhibited a more fluctuating pattern. Fostering a resilient and balanced trade relationship with China will require a multifaceted approach that addresses both regional and sub-regional specificities.
Share of total imports by origin
Source: UN Comtrade database, https://comtrade.un.org/
Share of total exports per destination/origin of exports
Source: UN Comtrade database, https://comtrade.un.org/
Small and medium-sized enterprises (SMEs) represent the backbone of economies in the Union for the Mediterranean, supporting employment and economic growth through their involvement in both domestic and international trade.
Italy is a notable example, with over half of its total exports (53.1%) in 2024 originating from SMEs. Türkiye shows a similarly high export contribution from SMEs, with 57% of its total exports coming from businesses with fewer than 250 employees. In addition, Türkiye has the highest share of exports coming from micro-enterprises, which account for 18.5% of its total export value.
Spain and Bosnia and Herzegovina also exhibit substantial SME involvement in export, with SMEs accounting for 42.3% and 51.2% of total exports, respectively. Although larger enterprises still make up a significant portion of exports in these countries, SMEs remain an essential part of the export structure, contributing meaningfully to overall trade performance. In contrast, France and North Macedonia report relatively lower SME export contributions, 24.6% and 28.2%, respectively, suggesting a greater reliance on large enterprises to drive export performance in these economies.
In the focused economies, while large enterprises remain important contributors, SMEs' involvement in international trade is crucial for economic diversification and resilience. The varying levels of SME participation in exports across different countries reflect the diverse industrial structures within the UfM region and highlight the importance of policies that foster SME participation in global trade. These should include facilitating access to information on engaging in international trade, ensuring stable regulatory frameworks, and improving financial support to SMEs for export activities (e.g. export guarantees).
% of total exports
The OECD TiVA database provides comprehensive data on value added, both domestic and foreign, within the context of global value chains. It offers insights into the services content of exports, participation in global value chains (GVCs) through intermediate imports and domestic value added in partner exports, the global orientation of industrial activity, the origins of value added in final demand, bilateral trade relationships, and the domestic value-added content of imports.
The strategic value of TiVA indicators lies in their ability to reveal where value is created along a production chain. This allows a country to understand the crucial role imports play in its own export success, identify which domestic industries are most competitive, and recognise the significant (and often hidden) contribution of the services sector to its trade performance.
Essentially, TiVA provides detailed information that helps policy makers in the UfM make better decisions. By understanding where value is created and how goods and services flow between countries, they can support economic growth and cooperation in the region.
A general observation across the UfM countries is a fluctuating, but generally upward trend in the foreign value-added content of exports. This suggests increasing integration into GVCs, with a greater reliance on imported inputs in the production of exported goods. This trend aligns with the broader globalisation phenomenon of increased interconnectedness in production and trade.
However, the level of this integration varies significantly. As of 2020, the foreign value-added content of exports ranged from a low of 8.6% in Egypt to a high of 33.2% in Tunisia (Figure 1.16). This variance highlights the differing degrees of GVC participation and reliance on foreign inputs across the region.
The EU consistently exhibits the highest share of foreign value-added content in exports, reflecting its advanced economy and deep integration in global production networks. The trend shows a slight increase over the period, with the 2020 level at 16.3%, indicating a further intensification of GVC participation.
Morocco, Tunisia, and Egypt show a general upward trend in foreign value-added content, albeit with fluctuations. This indicates a growing reliance on imported inputs in their export-oriented sectors, such as textiles, automotive components, and electronics. Tunisia consistently shows the highest levels within this group, reaching 33.2% in 2020, suggesting a more integrated position in GVCs compared to Morocco (25.3%) and Egypt (8.6%).
In the eastern Mediterranean, Israel, Jordan, and Türkiye display a more mixed picture. Israel, with its strong technology sector, shows a declining trend, possibly indicating a shift towards higher domestic value-added creation in its exports, with the 2020 level at 16%. Jordan and Türkiye show fluctuating trends, with Jordan experiencing a notable increase in recent years, reaching 31.3% in 2020, while Türkiye remains relatively stable at 21.6%.
Regarding the broader MENA region, available data for GCC countries, in particular Saudi Arabia, indicate marginal integration into UfM value chains (Box 1.4).
The data on the origin of value added in EU exports reveals its crucial role as a production hub within the UfM. While the EU predominantly sources value added domestically, it also relies on a small but steadily growing contribution from its Mediterranean partners. This signifies a gradual integration of these economies into EU-led production networks. For instance, in 2005, the value-added originating from the UfM countries present in TiVA amounted to USD 8 billion in EU exports, but by 2019, this figure had more than doubled to USD 21.4 billion. This trend is driven by the EU's large market, advanced technology, and geographical proximity, making it an attractive destination for intermediate goods and a source of final products for the global market.
North African countries like Egypt, Morocco and Tunisia show a slow but steady increase in their contribution to EU exports, primarily in sectors basic manufacturing. Morocco, for example, saw its value-added contribution to EU exports rise from USD 676 million in 2005 to USD 1.9 billion in 2020. Meanwhile, Eastern Mediterranean partners, particularly Israel and Türkiye, exhibit a more dynamic integration pattern, reflecting their growing capacity to provide higher-value inputs, especially in technology and manufacturing. Israel's contribution, for instance, surged from USD 1.4 billion in 2005 to USD 4.1 billion in 2020 (Figure 1.17).
Although the overall contribution of UfM partners remains relatively modest compared to the EU's own value added, the upward trend signifies a strengthening of regional production networks. This integration can potentially lead to mutual benefits, including increased trade, investment, and knowledge transfer, fostering economic growth and development within the region.
While generally low, there is an overall steady increasing share of UfM-sourced value added in the exports of other UfM economies. This suggests a gradual intensification of regional value chains, with some economies more than others increasingly relying on inputs from their neighbours within the UfM zone (Figure 1.18).
The UfM economies’ contribution to other economies’ gross exports is in most cases well under 1%. Unsurprisingly, the EU plays a crucial role in the development of the regional value chains. European countries’ value added in the UfM economies’ gross exports ranges from 1.64% in Egypt to 11.63% in Morocco, highlighting the EU's position as a central node in the UfM trade network. It is important to note that, with the exception of Morocco, every other analysed economy has seen a decrease in the share of EU’s value added in their gross exports since 2005. This decrease is most pronounced in Egypt (-59%), Israel (-34%) and Jordan (-27%), while Tunisia has also experienced a 10% reduction. The sharp decline in the EU's value-added contribution to Egyptian exports can be attributed to several interconnected challenges. Among them, significant devaluations of the Egyptian pound likely inflated the cost of European components, incentivising a shift towards more affordable, often domestic, inputs. From a regulatory perspective, persistent non-tariff barriers – a problem amplified by the loss of the EU’s GSP tariffs from 2014 – may have also discouraged the seamless integration of EU goods into Egyptian production lines, further diminishing the EU's direct contribution to the final value of exports.
Beyond the EU, Türkiye is the second-biggest economy in the region in terms of added value to UfM partners’ gross exports. The country’s value added to UfM’s gross exports ranges from 0.34% in the EU to 24.48% in Morocco, showcasing the strongest integration among two economies in the whole region. Morocco and Tunisia show a positive integration between them as well with most UfM members. Since 2005, these countries, along with Türkiye, have consistently increased the proportion of their exports that incorporate components sourced from other UfM economies.
Egypt and Israel have experienced a different trend. Apart from Tunisia in the case of Egypt, and Morocco in the case of Israel, these two economies have seen a strong reduction of UfM value added in their final gross exports over the past decades, with reductions ranging from 20% to 70% since 2005. Jordan's integration of UfM-made products into its production is also weaker, but not to the same extent.
Trade in services plays a pivotal role in fostering regional integration, offering a foundation for not only economic collaboration but also wider legislative and institutional cooperation. Unlike goods, services such as finance, telecommunications, education, and tourism create networks of interdependence that transcend physical borders, enabling deeper and more dynamic connections among nations. This interdependence often necessitates highly harmonised legal frameworks and shared standards, fostering trust and collaboration beyond commerce. By facilitating the movement of ideas, expertise, and technology, trade in services can act as a catalyst for addressing shared challenges, such as digital governance, environmental regulations, and workforce mobility. Moreover, as service sectors often intertwine with public policy domains like healthcare and education, they encourage broader legislative dialogues, ultimately strengthening the foundations of regional integration and enhancing collective resilience. In the context of the Mediterranean, trade in services is not merely an economic tool but a mechanism for further promoting stability, cooperation, and shared prosperity.
Value added to services across analysed UfM economies amounted USD 14 billion in 2020 (up from USD 7 billion in 2005), despite having declined during the COVID-19 pandemic. In this analysis, the European Union consistently emerges as a cornerstone of the Mediterranean services value chain, with its value-added contributions representing the highest share across most partner countries (ranging from 0.4% in Egypt’s total exports to 2.3% in Morocco’s).
There are, however, disparities between the evolution of the EU’s contributions to other UfM economies and these economies’ contributions to the EU’s services gross exports (Figure 1.19). While the UfM’s share of value-added contributions to the EU’s services sector has increased significantly over time, with important growth from Israel (133% increase since 2005), Morocco (93%) and Türkiye (89%), there has been an opposite trend regarding the EU’s share of value added to the gross service exports of the region. While still the most relevant by a large margin, the EU’s share in the other analysed UfM economies has experienced significant reductions in Egypt (-76%), Jordan (-24%), Türkiye (-15%) and Israel (-9%). Only Morocco (11%) and Tunisia (2%) have further intensified the integration of EU’s service value-added to their exports in the past two decades.
The dynamics between the other UfM economies are generally more balanced and overall represent a positive increase in their respective services industries’ share of value added in the economies’ gross exports. There are of course important differences across the analysed economies in the 2005-2020 period (Figure 1.20).
Türkiye has confirmed its position as a key player in the Mediterranean services value chains, with contributions to other countries exports amounting over USD 3.6 billion and integrating in its own exports over USD 3.3 billion originating from other UfM partners, showing significant positive increases in both its contributions to regional partners and the integration of regional value-added in its gross exports.
Tunisia’s integration into Mediterranean value chains shows a dual trend, having increased the share of virtually all the analysed UfM economies’ service value added in its exports. However, the trend reverses when considering Tunisia's service industry contributions to other economies. Data shows important decreases in the share of gross exports for Morocco (-66%), Egypt (-38%) and the EU (-19%), with moderate reductions also in Jordan (-7%). The country only experiences a positive trend with Türkiye (37%) and Israel (21%).
Israel maintains its position as the third-largest economy in terms of value-added integrated and supplied within the region, with both flows amounting to approximately USD 3 billion. Morocco follows as the fourth-largest (with USD 1 billion). Both have experienced varied integration over the past two decades, developing particularly strong ties with the EU and Türkiye. This reinforces the role of these two markets as facilitators of regional value chains within the UfM services sector.
Egypt’s performance contrasts with that of its partners. The country has experienced the most significant drop, not only regarding the share of value-added contributions to its own exports, but also with respect to the total volume of trade. Unlike the other economies, the Egyptian economy has experienced an actual reduction of the real value-added since 2005, when it amounted over USD 500 billion, representing roughly half of that amount just before the COVID-19 pandemic.
Although the Western Balkans are not in the TiVA database, evidence suggests that the 2019 adoption of CEFTA's Additional Protocol 6 has facilitated trade in services. This protocol establishes a legal framework for cooperation and includes comprehensive commitments to liberalize trade, ensuring market access and national treatment for service suppliers (OECD, 2024[3]).
Promote economic diversification to accelerate the development of regional value chains, promoting economic competitiveness, complementarity, and interdependence across the UfM economies. This requires a shift towards higher-value-added activities, particularly in countries currently reliant on basic manufacturing. Policy action should focus on fostering innovation and technological upgrading in sectors with high growth potential.
Importantly, given the rising importance of services in the global economy, further support for the development of services regional value chains is needed. To capitalise, the potential services trade has to foster interdependence and promote wider legislative and institutional cooperation within the UfM. Policy action should aim to reduce barriers to services trade, encourage investment in service sectors, and promote regulatory harmonisation to facilitate the cross-border flow of services.
Finally, investment in efficient and sustainable transport infrastructure is vital to support regional value chains. This includes developing multimodal corridors, improving logistics networks, and digitalising trade procedures. Enhanced connectivity and reduced trade costs will facilitate the seamless movement of goods and services within the region, further strengthening regional value chains and promoting economic integration.
The OECD Trade in Value Added (TiVA) describes a statistical approach used to estimate the sources of value, by country and industry, added in producing goods and services for export (and import).
Source: https://www.oecd.org/en/topics/sub-issues/trade-in-value-added.html
TiVA is not yet available for Algeria, the Western Balkans, Lebanon, the Palestinian Authority and Mauritania.
Arezki, et al (2020), Trading Together: Reviving Middle East and North Africa Regional Integration in the Post-COVID, Era. Middle East and North Africa Economic Update, October 2020. Washington, DC: World Bank. http://hdl.handle.net/10986/34516
Bousnina, Rihab and Gabsi, Badr (2022), Global value chain participation, institutional quality and current account imbalances in the mena region, Working Paper No. 1556, The Economic Research Forum (ERF), Egypt. https://erf.org.eg/app/uploads/2022/08/1660913876_430_727893_1556.pdf
Share (%)
Source: OECD, Trade in Value Added (TiVA) database
USD million (left); Share (%) (right)
Source: OECD, Trade in Value Added (TiVA) database
Share
Source: OECD, Trade in Value Added (TiVA) database
USD million (left); Share (%) (right)
Source: OECD, Trade in Value Added (TiVA) database
Share
Source: OECD, Trade in Value Added (TiVA) database
The value-added contribution from selected UfM countries to Saudi Arabia's economy, primarily driven by the European Union, experienced a significant peak in 2008 before the global financial crisis (Figure 1.21). In 2008, the total value-added from these UfM countries reached its maximum for the period at nearly USD 6.5 billion, and their share exceeded 1.8%. Following a sharp decline in 2009, the total value fluctuated considerably in subsequent years, with notable peaks in 2011 and 2014 but generally remaining below the 2008 high and falling to below USD 2 billion in 2020, under the influence of the COVID-19 pandemic. The EU27's share, after its 2008 peak, also fluctuated but followed a generally declining trend, hovering between 1.1% and 1.2% for much of the 2010s before decreasing further towards 2020.
Meanwhile, the contribution share from the aggregated 'Rest of UfM selected countries' remained consistently marginal throughout the period, peaking around 0.25% in 2008 before declining to below 0.1% by 2020. Between 2015 and 2019, Saudi Arabia's energy sector maintained a relatively stable contribution to UfM's exports overall. While its importance increased modestly for Egypt, the EU, Jordan, and Morocco, it declined for Israel, Türkiye, and Tunisia. The COVID-19 pandemic triggered a significant decline in the value-added contribution of Saudi Arabia's energy-related mining and extractive sectors to the region's exports, plummeting from USD 7.3 billion in 2019 to USD 4 billion in 2020.
With regards to the integration of Saudi Arabia into UfM value chains, the analysis of the value-added contribution to the gross exports of selected UfM partners reveals significant variation but a general trend of declining importance over the 2005-2020 period (Figure 1.22). Historically, Saudi Arabia's value-added share was most significant in Jordan (not in the figure), peaking above 10% in 2006, and Morocco's exports, peaking above 2.5% in 2006 and again around 2.6% in 2013, but this share drastically decreased after 2014, falling below 0.7% by 2020. For Türkiye, the Saudi contribution peaked near 1.2% in 2013 after earlier fluctuations but saw a substantial decline, thereafter, ending below 0.4%. Egypt experienced a different trajectory, with the Saudi share peaking later around 1.0% in 2019 after a period of growth from 2016, before seeing a slight dip in 2020. In contrast, Saudi Arabia's value-added contribution to the exports of Israel and the European Union remained consistently low throughout the period, generally staying below 0.5% and often significantly lower (below 0.2% for the EU for most years after 2008).
Share (left axis); USD million (total value, right axis)
Note: Data for Rest of UfM selected countries cover Israel, Türkiye, Egypt Jordan, and Morocco.
Source: OECD, Trade in Value Added (TiVA) database
Share
Source: OECD, Trade in Value Added (TiVA) database
Globalisation and trade liberalisation can have a different impact on workers in UfM countries, depending on the activity sector and possibly also on their gender. The analysis of employment and wages in export sectors explores the links between trade and job creation and observes differences in impact on male and female workers. Understanding these dynamics can help in anticipating future trends, identifying potential skills gaps, and developing effective labour market policies that support both men and women in adapting to the evolving demands of the global economy.
Acknowledging that significant data gaps prevent immediate measurement, this new indicator serves primarily as a call to action for the region's governments and institutions to improve data collection and enable crucial future analysis of these effects.
Although the expansion of trade agreements in the UfM region has been accompanied by an increase in trade flows, this has not uniformly translated into improved labour market outcomes. While trade volumes have been rising, the region has continued to face persistently high unemployment rates, especially among women and youth in MENA countries, resulting from several rigidities not related to trade policies or trade flows.
Sectors benefiting from increased trade activity may experience job creation, while sectors unable to adapt to changes in the production and export patterns induced by trade demands may experience job losses.
In the EU, the share of domestic employment embodied in gross exports is stable compared to other economies (Figure 1.23). Most sectors maintain a relatively consistent level of employment tied to exports throughout the period observed, with ‘Industry (Mining, Manufacturing, Electricity, Gas, and Water)’ and ‘Business Services’ showing particular stability for both genders. Slight declines are observed in ‘Trade, Transport, and Accommodation & Food’ for both genders, and in ‘Business Services’ for male workers towards the end of the period. This overall stability could reflect a more established and diversified export market in the EU, less susceptible to significant fluctuations.
Data for Egypt reveal a general downward trend in the share of domestic employment tied to gross exports across most sectors since 2012. This could indicate a move towards more domestic consumption or a decrease in the demand for Egyptian exports. The most significant declines appear in ‘Trade, Transport, and Accommodation & Food’ for both genders, and ‘Business Services’. Sectors demonstrating greater resilience include ‘Industry’ for both genders, and ‘Agriculture, Forestry, and Fishing’ for men. The 'Information’, ‘Finance’, and ‘Business Services’ sector for female workers shows a notable increase in 2017 and 2018, suggesting potential growth in female employment within those specific industries.
Analysis of Israeli export-related employment from 2012 to 2020 reveals a general downward trend for both men and women, suggesting possible shifts in the nation's economy. Despite this, the service sector remains crucial, with ‘Business Services’ and ‘Trade, Transport, Accommodation & Food’ and ‘Real Estate’ being significant contributors. This highlights the continued importance of services for Israel's export economy.
Overall, Türkiye experienced a general increase in the proportion of jobs tied to exports across most sectors, with peaks occurring in 2019 and 2020. This growth is driven mainly by ‘Industry’, ‘Business Services’ and ‘Trade, Transport, Accommodation and Food’. These industries have consistently been the largest contributors to export-related employment, underscoring the relevance of services in generating trade-related employment.
Across selected UfM economies, gender disparity in export-linked employment persisted from 2012 to 2020, with men continuing to represent larger shares of export-related employment across most sectors. However, the distribution of men and women across different sectors varied by economy.
In the EU, gender disparities were most pronounced in the 'Industry (Mining, Manufacturing, Electricity, Gas, and Water)' and 'Trade, Transport, and Communication' sectors. However, disparities in 'Information, Finance, and Business Services' have diminished in recent years, highlighting the potential for greater gender balance in these sectors.
In Egypt, the 'Agriculture, Forestry, and Fishing', 'Industry (Mining, Manufacturing, Electricity, Gas, and Water),' and 'Trade, Transport, and Communication' sectors demonstrate the largest gender disparities. However, in 'Information, Finance, and Business Services', the gap has narrowed significantly in recent years, indicating increased female participation in roles related to finance and information services.
In Israel, a clear gender divide is evident, with females concentrated in service sectors like ‘Business Services’ and 'Information, Finance’ and ‘Real Estate'. Conversely, males dominate 'Industry', particularly 'Manufacturing', demonstrating traditional labour market divisions. Interestingly, 'Construction' plays a minimal role in export-related activities for both genders. Furthermore, female participation in 'Information & Communication' is growing, while male employment in 'Manufacturing' is declining, pointing towards potential shifts within these sectors.
In Türkiye, despite an overall increase in female participation in export-related jobs, the disparity between male and female employment remains evident. While some sectors, like 'Business', show a slight rise in female employment share around 2018, others, such as 'Manufacturing' and 'Trade, Transport, and Storage' show minimal progress in closing the gender gap. These results suggest that women in Türkiye are not accessing export-related opportunities at the same rate as men, particularly in traditionally male-dominated industries.
Addressing the persistent data gaps on how international trade directly affects employment and wages remains a challenge for policy makers. As multinational enterprises are the primary conduits for both trade and investment, the OECD FDI Qualities Indicators offer a promising analytical tool to bridge this gap by examining the concrete impact of foreign affiliates (Figure 1.23). The case of Tunisia illustrates this clearly, revealing that while trade-seeking FDI is a crucial source of employment and offers a wage premium for women, it also tends to concentrate female labour in lower-skilled positions with limited opportunities for career advancement.
Given the potential positive impact of existing trade agreements on promoting trade across the UfM region, there is a strong rationale for continuing to expand these agreements. However, ensuring that trade growth contributes to more inclusive labour markets requires targeted policy measures and strategies.
Reduce occupational gender segregation: One priority should be the reduction of gender-biased segmentation across industries and occupations. Creating an environment that opens up a broader array of sectors and job opportunities for women is essential for realising a more equitable distribution of trade benefits. This could be achieved by promoting policies that support women’s access to traditionally male-dominated sectors, as well as encouraging more inclusive hiring practices across industries.
Implementing targeted labour market policies: Policies should address adjustment costs for existing workers, especially women, to mitigate the challenges of shifting export demand. Reducing these costs would not only help workers access new employment opportunities but also ensure that the benefits of trade agreements are distributed more broadly across the labour market.
Improving the business environment: To fully harness the potential of trade for economic and social development, a deeper set of reforms is necessary. These reforms should focus on improving the business environment, reducing barriers to investment, lowering costs for firms to formalise, and enhancing the attractiveness of the private sector in comparison to the public sector. By addressing these structural barriers, the region can foster a labour market where wages and job security are better aligned with private sector opportunities, ultimately maximising the benefits of trade agreements for all workers in UfM region.
This indicator is based on the OECD’s Trade in Employment (TiM) database. Derived from the Inter-Country Input-Output (ICIO) database, this database provides detailed insights into employment by industry. Data align with output and value-added information in the TiVA database, covering all OECD, European Union, and G20 countries, along with ten additional economies. The TiM database also includes comparable indicators for labour compensation across all 76 TiVA countries.
Source: OECD, Trade in employment by workforce characteristics (TiMBC), 2023 edition (link)
OECD (2025), Trade and Gender Review of Latin America, OECD Publishing, Paris, https://doi.org/10.1787/c906a2f7-en
Stone, S., P. Sourdin and C. Legendre (2013), "Trade and Labour Market Adjustment", OECD Trade Policy Papers, No. 143, OECD Publishing, Paris, https://doi.org/10.1787/5k4c6spvddwj-en.
Beyond measuring the volume of capital inflows, understanding the quality and sustainable development impact of foreign direct investment (FDI) is crucial for host economies. The OECD FDI Qualities Indicators provide a framework to help governments assess how FDI contributes to better economic, social, and environmental outcomes. This evidence base helps policy makers design and implement policies to attract and retain investment that fosters inclusive and sustainable growth.
The FDI Qualities Indicators focus on the direct impact of multinational enterprises (MNEs) on key areas such as productivity and innovation, high-quality jobs and skills, gender equality, and decarbonisation. These indicators offer a powerful lens not only on investment but also on the role of international trade. MNEs are the primary conduits of both FDI and trade, integrating host economies into global value chains (GVCs). The wages they pay, the jobs they create, and the skills they develop are direct outcomes of a country's participation in international trade. Therefore, analysing the performance of foreign affiliates provides concrete evidence of how globalisation is affecting wages and employment on the ground.
The FDI Qualities Review of Tunisia highlights the strong and complex link between FDI, trade integration, and economic outcomes for women.
The operations of foreign affiliates are often concentrated in export-oriented sectors. The review reveals that FDI is a key engine for female employment in Tunisia’s manufacturing sector, which is heavily geared towards exports to European markets. Foreign affiliates in sectors such as textiles and apparel, automotive components, and electronics are among the largest formal employers of women in the country, confirming a direct role of trade-seeking FDI in creating jobs for women.
Regarding wages, the review finds that foreign-owned firms can contribute to narrowing the gender pay gap. While a gender wage gap persists across the Tunisian economy, women employed in foreign affiliates tend to earn a significant wage premium compared to their counterparts working in domestic firms. This premium reflects the higher productivity and integration into GVCs that often characterise MNEs.
However, the review also points to persistent challenges. A large share of female employment in foreign affiliates remains concentrated in lower-skilled, assembly-line positions, with limited opportunities for career advancement into technical or managerial roles. This occupational segregation suggests the presence of a "glass ceiling" that can limit the full economic empowerment potential of FDI. This underscores the need for policies that not only attract FDI but also actively promote skills development, career progression for women, and investment in higher-value-added activities, thereby maximising the benefits of trade and investment for inclusive growth.
Source: OECD (2024), FDI Qualities Review of Tunisia, OECD Publishing, Paris, and the OECD FDI Qualities Indicators framework.
Percentage of employment
Source: OECD, Trade in employment by workforce characteristics (TiMBC) 2023 edition
The rapid expansion of digital trade has reshaped global commerce, influencing both traditional and emerging sectors, and the UfM region is no exception. As digital technologies drive new forms of cross-border interactions, mainly trade in services and e-commerce, grasping the scope and scale of digital trade within this region is essential for policy makers seeking to develop effective trade policies and respond to current challenges and opportunities.
The importance of digital trade is evident in both international and regional policy frameworks, such as the ongoing WTO E-commerce Agreement negotiations, the critical discussions surrounding the WTO Moratorium on Customs Duties on Electronic Transmissions, and digital provisions included in numerous trade agreements. Monitoring and assessing digital trade flows allows policy makers to evaluate the benefits these frameworks bring to the region and identify areas where integration can be strengthened, fostering economic connectivity and resilience.
Nonetheless, it is important to note that measuring digital trade is a work in progress (IMF, 2023[4]). Moreover, the absence of partner-disaggregated digital trade flows data in complicates efforts to provide a strong analysis. This data would offer critical support for this assessment, providing a foundation for quantifying digitally delivered services and better understanding digital trade's role in economic development.
Digital trade has become a cornerstone of the global economy, accounting for approximately 25% of all international trade (OECD, 2023[5]). The European Union has emerged as a world leader in both exports and imports of digitally deliverable services. For the UfM region, digital trade is particularly significant due to its potential to bridge economic disparities and foster regional integration, promoting innovation and enhancing competitiveness. The E-commerce Agreement currently under negotiation at the WTO offers a valuable framework for facilitating digital trade in the Euro-Mediterranean region. Alongside these negotiations, the long-standing WTO Moratorium on Customs Duties on Electronic Transmissions is a critical element of the global digital trade landscape. This moratorium, which prevents countries from imposing customs duties on electronic transmissions, is a subject of ongoing international debate, particularly concerning its potential fiscal implications (tariff revenue) and its impact on digital industrialization strategies for developing and least advanced economies within the UfM. While proponents argue it fosters digital trade and innovation, concerns exist about its effect on policy space and revenue for emerging digital economies. By establishing clear rules and reducing barriers to cross-border electronic transactions, this agreement can help level the playing field, encourage investment, and create opportunities for businesses and consumers alike.
The UfM countries have experienced a significant expansion in digitally delivered trade flows over the past decade, reflecting the increasing digitalisation of their economies. This expansion has been supported by strengthened digital services, upgraded infrastructure, and an increasing number of internet users across the UfM region.
The COVID-19 pandemic further accelerated digital adoption, especially in less-digitized sectors. For example, a significant portion of digital import and export activities in the UfM countries is driven by services categorized under “Other business activities”. This broad category encompasses a wide range of services, highlighting how digitalization in production and trade is impacting nearly all business activities. Today, cross-border digitally delivered services are the fastest-growing segment of global trade (WTO, 2023).
Moreover, the COVID-19 pandemic amplified a pre-existing trend toward digital trade in international markets, transforming business-to-consumer sales trade (WTO, 2023). In fact, the pandemic spurred a sharp rise in online retail sales and expanded the reach of digital marketplaces (OECD, 2023a; UNCTAD, 2022). The positive trend toward digitally delivered trade is particularly evident in UfM country data, which indicated significant growth beginning in 2019.
Digitally delivered export has experienced a broadly upward trend in UfM economies, with only two exceptions. In Lebanon, digitally delivered flows experienced a marked contraction around 2019-2020, primarily due to a significant decline in financial services, while in Algeria, digitally delivered remained largely stagnant, suggesting limited sectoral advancement (Figure 1.24).
Overall, the primary drivers of digitally delivered exports within the UfM region include computer, financial and telecommunications services. “Other business activities”, which encompass a range of activities from research and development to recreational services, also contributed significantly (Figure 1.25).
In the Western Balkans sub-region, strong growth in digitally delivered trade exports has been driven by an expansion in computer services, reflecting both sectoral growth and a rising demand for digital solutions. Meanwhile, the information and communication technology (ICT) sector has emerged as a key driver of economic growth across the Western Balkans, with ICT-sector exports reaching nearly 90% of EU levels (OECD, 2025[6]).
In Türkiye, as measured by TurkStat (Box 1.7), export flows are notably concentrated in insurance and pension services, which account for a substantial share of the country’s total digital trade flows.
Digitally delivered trade exports from North African economies have doubled over the past decade, spurred by robust growth across sectors, particularly in computer and business services. These economies are rapidly digitalizing, experiencing a substantial increase of internet users year after year. In Egypt, for example, the number rose sharply from 57% in 2019 to 72% in 2022, highlighting the deepening integration of digital technologies into both daily life and economic activity.
In Israel, the high concentration of digital service exports in computer services highlights the tech sector's significant role in the country’s economy.
The EU accounted for approximately 38% of global digitally delivered in 2023, with digital service exports primarily driven by other business services and computer services. Notably, exports of digital financial services and intellectual property charges also make up a substantial share of the total.
An upward trajectory is also evident for digital services imports across most UfM countries (Figure 1.26). This trend is broadly observed across the region, with exceptions in Egypt and Lebanon, where digital trade imports saw a significant decline post-2019.
In the Western Balkan economies, imports of digitally delivered trade have risen in recent years, driven mainly by “other business activities” and computer services.
In North Africa and the Levant, digital services imports are driven primarily by sectors such as insurance, pension services, and other business activities.
The EU showed an upward trend across nearly all import sectors, with a particularly large share in other business activities and computer services.
Over the period analysed, Türkiye has seen an increase in imports of intellectual property-related charges and computer services, with pension services also representing a significant share of total imports.
Notably, data from all subregions (Figure 1.27) indicates a growing share of digital sector imports related to the ownership and transfer of use rights for digital products, classified as “charges for the use of intellectual property.” This trend underscores the increasing significance of trading rights associated with digital products such as music, software, and films (WTO, 2023). Furthermore, the trade of proprietary rights and licensing arrangements plays a crucial role in knowledge transfer and innovation-driven economic development.
Digital trade between countries is significantly influenced by trade provisions and agreements, which establish the regulatory frameworks that facilitate cross-border data flows, digital services, and e-commerce. Among UfM countries, however, trade agreements with specific digital trade provisions remain limited (IMF, n.d.[7]). The absence of harmonized digital regulations has led to fragmented regulatory landscapes, heightening compliance costs and creating barriers that hinder digital trade potential across the region. In this regard, efforts are ongoing at the international level to enhance the framework governing electronic commerce (Box 1.6). However, currently, the only UfM agreements incorporating digital trade provisions are those between the European Union and the Western Balkans, along with the bilateral agreement between Türkiye and Serbia.
Notably, the EU has only recently initiated the inclusion of dedicated digital trade chapters in its trade agreements. One example is the digital trade chapter under negotiation in the EU-Tunisia agreement, which aims to establish norms on the free flow of data, coupled with rigorous data privacy protections. These developments indicate the EU's gradual yet increasingly structured approach to integrating digital trade provisions within its regional agreements, aligning with its commitment to data privacy and secure cross-border data flows.
Moreover, since 2022 the EU has begun establishing stand-alone "digital partnerships", such as those with Japan, South Korea, and Singapore, which may serve as models for broader cooperation on digital issues. This digital partnership model represents an innovative approach to digital trade that differs from the commitments typically included in traditional EU trade agreements. It addresses a wide spectrum of critical digital issues (such as privacy, cybersecurity, and data governance) while also incorporating specific provisions for digital trade, including paperless transactions, electronic invoicing, digital identities, and online consumer protection (Jacques Delors Institute, 2023).
In parallel, other countries have also started negotiating digital economy agreements. Notably, the Digital Economy Partnership Agreement (DEPA) between New Zealand, Singapore and Chile and the Digital Economy Agreement between Australia and Singapore.
In general, as digital trade gains importance – in terms of both economic impact and associated security considerations – there is growing anticipation that dedicated digital chapters will become more common in trade agreements, reflecting a commitment to developing a cross-country level playing field in the digital domain. In addition, as recently demonstrated by an OECD study, digital trade chapters in trade agreements can double their impact on trade exchanges, with data protection, consumer protection, source code, and cybersecurity potentially delivering the largest gains.
Prioritise the development of comprehensive digital trade chapters in trade agreements. Building upon the WTO's E-commerce Agreement negotiations and on the framework established in recent EU agreements, these chapters should address critical aspects such as cross-border data flows, consumer protection, and intellectual property rights.
Harmonise regulations across the UfM: Harmonising digital regulations across the region will streamline the digital trade environment, reduce barriers to entry, and promote greater legal certainty for businesses engaged in e-commerce.
In line with the OECD definition of e-commerce (OECD, 2011), digitally ordered trade is the international sale or purchase of a good or service, conducted over computer networks by methods specifically designed for the purpose of receiving or placing orders. Digitally delivered trade is defined as all international trade transactions that are delivered remotely over computer networks.
The WTO “Digitally delivered services” trade dataset contains WTO estimates on services traded through computer networks, such as the Internet, apps, emails, voice and video calls, and digital intermediation platforms.
Source: WTO Digitally delivered services trade data set, https://www.wto.org/english/res_e/statis_e/gstdh_digital_services_e.htm
IMF, OECD, UNCTAD, World Bank and WTO (2023), Digital trade for development, Geneva, https://www.wto.org/english/res_e/publications_e/dtd2023_e.htm
OECD (2023), Going Digital Toolkit, Paris, OECD. https://goingdigital.oecd.org/
In 2024, World Trade Organization (WTO) members reached a historic agreement on the first-ever global framework governing electronic commerce. The process towards the agreement started at the 11th Ministerial Conference in 2017, where 71 WTO members launched exploratory work on e-commerce trade negotiations, with 76 members formally agreeing to start these talks in 2019. By June 2024, 91 WTO members, representing over 90% of global trade, were engaged in the initiative, which remains open to all WTO members. The negotiated E-commerce Agreement establishes essential ground rules for digital trade, promoting seamless transactions across borders through provisions on electronic signatures and invoicing, while strengthening consumer protections. It also aims to foster a reliable and cost-effective international digital trade landscape through coordinated efforts on cybersecurity – and, critically, it prohibits customs duties on electronic transmissions. By including targeted measures to support developing countries, the agreement also strives to widen participation in digital trade, reflecting the WTO’s commitment to fostering an equitable and inclusive global digital economy.
It should be noted that the EU’s approach to the negotiation of the e-commerce agreement was deeply linked to its efforts on data protection. Indeed, the EU seeks to permit data flows only when they are aligned with the high data protection standards set by its General Data Protection Regulation (GDPR). This was evident in its proposal for the WTO rules on electronic commerce, where the EU advances a distinctive approach that emphasizes the protection of privacy as a fundamental right. This model reflects the EU’s commitment to upholding robust privacy standards in digital trade, ensuring that cross-border data exchanges do not compromise individual privacy protections.
USD million
Source: Digitally delivered services trade dataset, Word Trade Organisation (WTO).
Sectors as share of the total value, USD million
Source: Digitally delivered services trade dataset, Word Trade Organisation (WTO).
Total, USD million
Source: Digitally delivered services trade dataset, Word Trade Organisation (WTO).
Sectors as share of the total value, USD million
Source: Digitally delivered services trade dataset, Word Trade Organisation (WTO).
In Türkiye, official statistics on international trade in goods, produced jointly by TurkStat and the Ministry of Trade, rely on administrative records and cover both the general and special trade systems. These statistics do not specify the share of merchandise trade digitally ordered. To meet the growing demand for timely data on digital trade, a pilot study was initiated to estimate digitally ordered trade in goods, as defined in the OECD Handbook on Measuring Digital Trade.
The methodology for measuring digitally ordered trade draws upon three primary data sources.
Customs declarations. These were revised to include a question explicitly identifying digitally ordered transactions. Additional quality checks address inaccuracies, such as the misclassification of non-digital trade involving aerospace products and live animals. These steps ensure a higher standard of accuracy in the collected data.
Electronic trade customs declarations (ETCDs). Introduced in 2012, ETCDs facilitate the rapid processing of trade transactions at the micro-level, particularly for exports and imports under specific value and weight thresholds. Enhanced legal and IT infrastructure has improved the availability and reliability of ETCD data, which includes origin, destination, value, and product classifications.
Postal services. For this source, efforts are underway to harmonise import and export declaration processes with ETCD standards. While postal-related data compilation is still in development, these efforts aim to improve the capture of digitally ordered trade through this channel.
Initial findings from the pilot study, focusing on ETCD data, indicate that the monthly average value of digitally ordered exports in Türkiye is approximately USD 110 million, representing 0.58 % of total exports. These transactions account for 41 % of total export transactions, with an average transaction value of USD 78. For imports, the monthly average value of digitally ordered goods is USD 16 million, accounting for 0.07 percent of total imports. These transactions represent 21.3 % of total import transactions, with an average transaction value of USD 55.
Source: OECD, Handbook on Measuring Digital Trade, 2023
[4] IMF (2023), Handbook on Measuring Digital Trade.
[7] IMF (n.d.), Regional Trade Agreements Database.
[6] OECD (2025), Economic Convergence Scoreboard for the Western Balkans 2025, OECD Publishing, Paris, https://doi.org/10.1787/bc0babf3-en.
[3] OECD (2024), Western Balkans Competitiveness Outlook 2024: Regional Profile, Competitiveness and Private Sector Development, OECD Publishing, Paris, https://doi.org/10.1787/170b0e53-en.
[5] OECD (2023), Key Issues in Digital Trade Review: OECD Global Forum on Trade 2023 “Making Digital Trade Work for All”.
[1] UNCTAD (2024), Global Trade Update (March 2024), https://unctad.org/publication/global-trade-update-march-2024.
[2] UNESCWA (2019), Towards modernisation of the Pan-Arab Free Trade Area Agreement, https://archive.unescwa.org/sites/www.unescwa.org/files/events/files/1901034.pdf.
