Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN)

EU-ACP economic partnership agreements: Empirical evidence for Sub-Saharan Africa
January 2010

Acknowledgements: FANRPAN acknowledges the ACP-EU Trade as the source of this document:

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Until 2007 the European Union (EU) granted non-reciprocial trade preferences to African, Caribbean and Pacifc (ACP) countries. This policy did not comply with the WTO principle of most-favoured treatment and was only temporarily covered by a WTO waiver which expired in December 2007. Under Cotonou the principle of reciprocity was introduced implying that developing countries had to honour trade concessions given by developed trading partners. Hence, in order to avoid distortions of EU-ACP trade (especially between the EU and the ACP non-LDCs) new trade agreements, so called Economic Partnership Agreements (EPAs), were negotiated with a target date of January 2008.

The EPAs between the EU and ACP countries are a new approach to promote trade and to achieve more general development goals at the same time. At the core of the EPAs are regional trade agreements between the EU and each of the six regional ACPs. The EPAs intend to support ACP regional integration to create larger regional markets and foster their integration into world markets. While the previous trade preferences for ACP countries were determined unilaterally by the EU, the EPAs are jointly designed in negotiations between the EU and the ACP countries. ACP countries are requested to open to some extent their markets to EU products in return for their access to EU markets. The long-term goal is quasi duty-free and quota-free market access on both sides and simpliŻed rules of origin in the EU. However, the ACP countries have to open their markets to a smaller extent than the EU does (on average 80 percent within 15 years).

Moreover, EPAs give incentives to ACP countries to increase regional trade and cooperation - to replace the previous arrangements that favoured a hub-and-spoke structure discouraging interaction with neighbours. Understandably, some countries are unwilling to cooperate on issues where they might lose. The EU as a third party can provide incentives to strengthen a regional resolve to enforce cooperation, and help to overcome such differences. Experience shows however, that (north-south) trade liberalization alone does not always promote economic development. EPAs could take a broader approach and try to improve coherence between trade and development. Besides trade of goods the EPAs also include trade in services as well as trade related issues such as investment, public procurement and competition law. While the agreements on trade of goods and services are about mutual, however asymmetric, trade liberalization, the trade related issues follow another objective. They aim to support regional integration by common regional regulation, harmonization and implementation, helping to improve political and economic stability and creating a better business and investment climate. The EU may thus have to subordinate its commercial interests to the development needs of the ACP countries.

In this paper we estimate the potential welfare e®ects of a trade agreement between the EU and ACP countries for nine African countries: Botswana, Cameroon, C^ote d'Ivoire, Ghana, Kenya, Mozambique, Namibia, Tanzania, and Uganda. The empirical framework is based on Milner et al. (2005) - yet with an extended set of countries. The contributions to the existent literature on this Żeld are twofold: First, instead of rather arbitrarily choosing elasticities of import demand, we estimate bilateral elasticities between the EU and Sub-Saharan Africa and between the nine African countries and the EU from highly disaggregated data. Second, instead of simulating general scenarios like full, medium or low liberalization, we apply the actual tariff reduction rates recently negotiated between the EU and the African countries to estimate the agreement's welfare effects of trade liberalization for the African countries.

Section 2 briefly recalls the current state of the EPA negotiations. Section 3 describes the theoretical framework. Section 4 presents the empirical results before we conclude.

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