EPA Review Annex Documents - DFID

Survey of the Empirical Evidence on the Impact of
EPAs on ACP countries
1. Introduction
One of the aims of the EPA initiative was to move bilateral relations between the EU and the
ACP countries towards a WTO compatible agreement. In this respect, the EPAs are to
operate under article XXIV of the GATT which grants derogation from the MFN principle for
reciprocal preferences where ‘substantially all trade’ is liberalised in a ‘reasonable amount of
time’. 76 Failure to sign the EPAs will result in trade relations between the EU and ACP
countries reverting to the enabling clause which allows for the extension of non-reciprocal
preferences for developing and least developed countries (LDCs). 77 Any cost/benefit
analysis of the EPA process is to be assessed against the possibility of receiving these
unilateral preferences. Irrespective of the final outcome, the change in preferences is likely
to have important impacts on ACP economies. 78
In this section we review the effects of the EPAs on ACP countries by way of an extensive
literature review. We are primarily concerned with providing a detailed survey of the
empirical estimates of the welfare effects of the EPAs. To this end, in section one, we
present a brief description of the economics of preferential liberalisation where we
distinguish between traditional shallow integration effects and deep integration effects. We
then move to a discussion of the methodologies used in assessing the impact of preferential
liberalisation where we consider the implications of choosing one methodology over the
other. In the second section we present the results of past studies by EPA regions so that
we can then move, in section three, to a short discussion on deep integration issues. Section
4 concludes.
2. The Economics of Preferential Liberalisation
a. Shallow and Deep Integration
Commonly, the effects of preferential liberalisation are divided into two. The first looks at the
directly allocated efficiency impact of removing tariff barriers to trade on a preferential basis
and is known as the shallow integration effect. The second involves the removal of other
behind the border measures and is known as the deep integration effect. The distinction is
important both on a conceptual basis and on a quantitative basis. Whilst shallow integration
effects, despite their ambiguity, can easily be calculated since their identification by Viner
(1950). They represent a small fraction of the potential gains/losses that can be derived from
deeper integration.
Viner’s ambiguity assumes that any process of preferential liberalisation is likely to have both
welfare enhancing and welfare reducing effects. Liberalising trade with respect to a partner
is likely to induce the replacement of domestic production with more efficient imports (trade
76
Substantially all trade is understood as being 80% of bilateral trade and the reasonable amount of
time tends to be around 12 years.
77
In the EU these fall under the scope of the Generalised System of Preferences (GSP) where
preferences vary in their degree of concessions and fall into three main categories. The first is the
standard GSP regime which provides enhanced duty free access and tariff concessions to developing
countries. The second is the GSP+ which is an extension of the GSP regime but provides more
favourable concessions. The last is the more generous EBA initiative which grants duty free access
into the EU for 99% of tariff lines for all LDCs.
78
Less so for the LDCs who already have near full duty free access to the EU and who will incur the
cost of tariff revenue loss as a result of the reciprocal EPAs.
31