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| A New Glance at the EPA Negotiations |
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3rd
Quarter 2007 |
The Economic Partnership Agreements (EPAs) that are to replace the Cotonou agreement by the beginning of 2008, raise an important challenge for the African, the Caribbean and the Pacific countries (ACP) that are among the most vulnerable countries in the global trading system. These negotiations started in September 2002, between the EU and 77 ACP countries1, are organised into six regional rounds: West Africa, Central Africa, Eastern and Southern Africa, the Southern African Development Community (SADC), Caribbean, Pacific. In the previous framework of the Lomé Convention, the EU granted unilateral preferences to the ACP countries, discriminating since 1975 the other developing countries. A change was required to comply with WTO rules. The Cotonou agreement in 2000 paved the way to a new trade regime based on reciprocal preferences. In 2001 the WTO gave the EU until January 1st, 2008 to make such deals with ACP countries.
The negotiations on EPAs define a new stage in the policy of the EU towards developing countries which is fully compatible with the WTO trading rules, in the sense of Article XXIV GATT. However many concerns arise among ACP countries. Firstly, ACP countries dread that giving preferential access to EU products would put at risk their producers in numerous sectors. Secondly, they also fear a sizeable loss of tariff revenue that would hurt their public budgets. Thirdly, they claim that the calendar is extremely tight given the numerous modalities still to be precisely determined and agreed on:
1/ the scope and pace of liberalisation,
2/ the choice of sensitive products excluded from liberalisation,
3/ the connection between regional integration and the ACP-EU liberalization,
4/ the attendant policies.
To answer these questions and provide a quantitative assessment of the trade consequences of the EPAs, the CEPII has developed in 2006 a partial equilibrium trade model, covering 64 regions (of which 61 ACP countries and the EU) and 5,113 products. Indeed, the high degree of concentration of the ACP trade structure and the need for dealing with exclusions at the product level reduce sharply the interest of using a CGE analysis. Moreover, the lack of robust and detailed domestic data for most ACP countries forbids using this tool in most of the cases.
After a first study focused on agriculture 2, the CEPII is currently enlarging the scope of the analysis to cover all goods. Indeed, although agriculture is a key issue for many ACP countries regarding both export opportunities and protection of fragile farms, tariff revenues are essentially generated by manufactured imports. The developed partial equilibrium model combined with the use of the MAcMapV2 database for tariffs and a specific trade dataset based on BACI and Comext sources has allowed tackling several issues.
To illustrate this approach, let us have a glance at exports. The only relevant way to measure the advantages of the EPA is to estimate the cost of a non-EPA, knowing that the status quo is impossible. This can be done by simulating a switch from the Cotonou regime to the Generalized System of Preferences (including the Everything But Arms initiative for LDCs). The map below illustrates the export loss on the European market: Cote d’Ivoire, Ghana, Cameroon, Kenya, Namibia and Zimbabwe would be severely affected, were EPAs not signed.
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Map
Consequences of losing Cotonou preferences: Changes in ACP exports to the EU
(in %)
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Considering this background, the gains in terms of access to the EU market associated with the EPAs are sizeable for the African countries just mentioned: Cameroon (+19%), Kenya and Cote d'Ivoire (+16%), Ghana (+9%), etc.
Adopting such a WTO-compatible approach to the preferential trade agreements between the EU and the ACP, with 20% of ACP imports exempted from any liberalisation, would allow ACP regions to keep up to 45% of the tariff revenue they initially levied on EU exports. Tariff revenues raised on their other imports would also be reduced as a consequence of a trade diversion effect. All in all, the final impact on public budgets will depend firstly on the share of tariff revenues in public revenues, that varies a lot across ACP countries, secondly on the capacity to levy VAT on domestic sales, and thirdly on their ability to improve the monitoring at the border and increase tax collection efficiency.
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1/South Africa has already signed a bilateral trade agreement with the EU in 2004 and is an ACP country, she is excluded from the EPA process
2/That has benefited from the financial support of the FARM foundation
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| FONTAGNE, L., LABORDE, D. & MITARITONNA, C. (2007), Etude de l'impact des APE et de l'intégration régionale sur les pays ACP, CEPII-CIREM-FARM Report. |
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