EPA Review Annex Documents - DFID

evenues, one of the main sources of domestic tax revenues in developing countries, will be
lost as a result of liberalising trade with the EU. In addition, domestic inefficient sectors may
have to close down as the result of increased competition, reducing employment in these
sectors. On the other hand, significant supply constraints need to be removed in order to
expand exports. If Cotonou and GSP/EBA preferences were not enough to expand export
diversification in ACP countries, it is not clear that additional preferences to GSP countries
and improvements in rules of origin could by themselves have an additional positive impact
on exports.
The different costs of EPAs are summarised in Milner (2006). He establishes the needs of
finance for all ACP countries in four areas: tax revenue loss, employment destruction,
assistance required for increasing domestic competitiveness and assistance required for
export diversification. Milner (2006) estimates a total assistance required of €9.145 billion;
around €3 billion to compensate for revenue loss, €2.4 billion for export diversification, €1.5
billion for employment adjustment and finally, €2.3 billion for improving domestic skills and
firm productivity. While the accuracy of these figures is difficult to determine, any real figure
close to these estimates would imply the existence of a large aid financing gap. It would
require 4.5 years of full disbursement of the EU AfT funds only for ACP countries on EPAs to
finance these needs.
Another important element to stress is the fact that much of the discussion around
development finance has been done at the macro level. However, two important issues
seem to be missing from the debate. First, the EPA may provide for some countries specific
export and economic opportunities. Duty free quota free access and better rules of origin
may create new export opportunities, and, therefore, concrete assistance programmes
should be formulated. In addition, other trade-related issues imply that assistance is required
to take full opportunity on these areas such as trade in services or SPS. Investments in
regulation or infrastructure for certification are crucial to take advantage of these
opportunities. Therefore, there is a strong rationale to link at the micro level development
finance with concrete opportunities arising from the EPAs, and that go beyond trade in
goods.
A second and more important factor is how financing needs and priorities are formulated.
The main question is whether the more important element is extra funds or better capacity to
design priorities? While the discussion on more finance seems logical, its effectiveness
clearly depends on the capacity of ACP countries to formulate focused priorities. While the
EDF funds depend on NIP and RIP that should reflect countries priorities and their
ownership, it is unclear the success so far in designing programmes of assistance. This
issue appeared during the EPA negotiations, with blatant examples where existing EU funds
could not be disbursed due to a lack of concrete programmes. While most of the EPA
discussion has focused on additional funds and instruments for disbursement, little attention
is paid on addressing the issue of priority formulation and programme design.
6. The EDF and Other Development Finance Instruments
Since the 9 th EDF the EU has expanded considerably its commitment for AfT. This is
reflected on the pledges to mobilise €2 billion per year and is translated on the sectoral
composition of the 10 th EDF as seen in the previous table. Despite this improvement, other
sectors absorb most of the planned funds arising from the NICs and more funds will be
required to meet ACP needs. It is important to point out however, that by the time that ACP
countries that have signed EPAs will be implementing tariff reductions to EU goods, the
relevant EDF could be the 12 th or 13 th . As a result, regarding adjustment needs, there is still
time to increase development finance commitments to compensate when most costs will
occur.
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