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coverage. One common caveat in these techniques is that they are unable to model dynamic effects of preferential liberalisation. Even though there is a nascent econometric literature on firm productivity pioneered by Melitz (2003), the lack of data provides an important obstacle in applying these models to ACP countries. In addition, the lack of a unifying technique analysing the effects of preferential liberalisation on FDI flows means that these effects are often ignored (although some treatment can be done in CGE models). Adding to this, the lack of bilateral service trade data makes the task of estimating the effects of preferential liberalisation on service flows an arduous one. In Table 1 we present the strengths and weaknesses of each method used to assess preferential liberalisation whilst in the remainder of this literature review we look at the empirical studies which have evaluated the impact of the EPAs using one or a combination of the above exposed techniques. Here we focus primarily on the results obtained and on the assumptions underlying these. Table 1 Strengths and Weaknesses of methods used to analyse preferential liberalisation Strengths Weaknesses Computable General Equilibrium (simulation) Partial Equilibrium (simulation) Comparative Static Gravity Models (econometric) - Captures cross-sector and cross country linkages that result from changes in preferences. - Can capture second round effects. - Provides insights into adjustment mechanisms (be these through exchange rates or market clearing conditions). - Can be used to loosely analyse services and investment. - Can be used at high levels of disaggregation hence capturing product specific effects. - Data is readily available - Can be used to look at shallow and deep integration issues. - Is useful in identifying sectors that are likely to suffer most from preferential liberalisation. - is readily implementable.. - Can identify trade creation and trade diversion. - Uses real trade flow data to assess the effects of an agreement ex-post 35 - Level of aggregation. - Data does not singularly identify many ACP countries and in GTAP last version is benchmarked at 2004. - Strong assumptions are likely to drive results (market clearing and full utilisation of resources). - Analysis tends to be static and cannot capture dynamic impact of trade liberalisation. - No economy wide or international linkages. - Does not consider scale effects. - Ignores adjustment costs and price transmission mechanisms. - Does not provide quantitative results. - Is generally undertaken at a very aggregate level. - Tends to be used for ex-post analysis.
3. Impact of the EPAs by Region One can broadly identify the elements that are likely to drive the results of the empirical estimations. These can be summarised as follows: • The higher the initial tariffs, the greater the scope for trade creation, trade diversion and fiscal losses. • The higher the percentage of trade with the EU, the more likely trade creation is to predominate over trade diversion. • The greater the amount of multilateral liberalisation; the lower the magnitude of trade diversion effect but the higher the fiscal loss. • The higher the preference margin received from unilateral preferences (GSP, GSP+ or EBA) the lower the static benefit from the EPAs. Hence the countries that are likely to benefit most from the EPAs are those that trade heavily with the EU, that have high levels of domestic protection, and that are eligible for GSP preferences only. In this respect, and a priority, the effects should be more pronounced for African countries rather than for the Caribbean or Pacific groupings. In the Sub-Saharan (SSA) region, studies concur that the EPAs will be net trade creating, however they note that negative fiscal effects due to loss of tariff revenue could be a challenge requiring action from SSA governments. ECA (2005), using a CGE model, predict that the impact of full liberalisation will add 3.4% to SSA GDP and will increase imports by 18% and exports by just over 8%. However, these values will only be reached if all bilateral barriers are fully liberalised. In the event that SSA barriers fall to the level of current EU barriers, the region is set to see little impact on GDP (fall of 0.013%). The yardstick for these measures is the preference situation under Cotonou, hence these values are to be viewed with some scepticism. Furthermore full liberalisation will be unlikely as article XXIV allows for some flexibility under the ‘substantially all trade’ principle where ACP countries are likely to retain import duties on 20% of tariff lines. The impact of the EPAs on the Caribbean and the Pacific regions, on the other hand, is likely to be negative but small in magnitude due to the distance and the little importance of the EU in either’s export or import markets. In these regions there is justified concern that the EPAs will result in trade diversion as imports come to be switched from more efficient partners to the EU as a result of the preferences granted (trade diversion). In terms of the overall effect of the EPAs on ACP countries, Fontagne et al (2008) estimate an increase of 10% in exports to the EU and 17% in imports from the EU (by 2020). The growing export sectors would include vegetal production; livestock and textile whereas growth in imports would occur in textiles and in light and heavy manufactures. These estimates take as base scenario the replacement of Cotonou preferences with enabling clause access into the EU. The regions that are most likely to suffer from this switch are COMESA, CARIFORUM and the PACIFIC according to Fontagne et al (2008). Perez (2005), using a CGE model, estimates that the effects of losing Cotonou would decrease real GDP by 0.01% in the SSA region, with the impact being highest for the pacific region (-0.09% loss of GDP) followed by SADC (-0.07%) and then the CARIFORUM region (-0.01%). The estimates of the effects of losing Cotonou preferences are useful in that they provide a prima facie cost of not engaging in the EPA process. The main caveat in the empirical investigations treating the impact of the EPAs is that they tend to consider models where factors of production are re-allocated without cost across sectors as a result of trade liberalisation. This implies that there are no perceptible adjustment costs to the economy. This is, however, far from reality and as previously stated there is likely to be important re-structuring which can result in increased unemployment and 36
Page 1 and 2: EPA Review Annex Documents by Insti
Page 3 and 4: Part Three: EPAs as Instruments for
Page 5 and 6: Part One: Literature Review 4
Page 7 and 8: countries demanded more precision a
Page 9 and 10: essential and fundamental of EPA (h
Page 11 and 12: EPA group. However, after phase II
Page 13 and 14: Disagreements also existed on other
Page 15 and 16: ules of origin as a basis for negot
Page 17 and 18: would not meet WTO provisions. Even
Page 19 and 20: is only just about to conclude an i
Page 21 and 22: The EC took almost nine months to a
Page 23 and 24: Caribbean The CARIFORUM EPA was the
Page 25 and 26: services, CARIFORUM countries commi
Page 27 and 28: 2006. Moreover, PACP countries cons
Page 29 and 30: Table 3 Main Problems and Divergenc
Page 31 and 32: 4. Final comments The EPA’s negot
Page 33 and 34: creation) but can also lead to impo
Page 35: preferences and hence are likely to
Page 39 and 40: Cape Verde (loss of 4.1% of GDP) an
Page 41 and 42: SSA ECOWAS CEMAC COMESA EAC Table 2
Page 43 and 44: Perez (2005) CGE, 2001 base year 80
Page 45 and 46: Whilst most studies appear to agree
Page 47 and 48: 7. Annex Literature Countries Metho
Page 49 and 50: Hinkle and Schiff (2004) "Economic
Page 51 and 52: Milner, Morressey and McKay (2008)
Page 53 and 54: Karingi et al (2005) “Assessment
Page 55 and 56: Greenaway and Milner (2003) "a grim
Page 57 and 58: Perez, R (2005) “ Are the Economi
Page 59 and 60: Case Studies Lessons 1. Introductio
Page 61 and 62: trade relation and negotiation matt
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Page 65 and 66: • EPA team The EPA negotiating te
Page 67 and 68: - State Secretariat of Environment
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Page 71 and 72: spent for these impact assessment s
Page 73 and 74: Other opportunity costs Another imp
Page 75 and 76: Since domestic constituencies tend
Page 77 and 78: Table 11 Negotiating Meetings and R
Page 79 and 80: • An estimated $214,000 in travel
Page 81 and 82: The main expectation of the process
Page 83 and 84: Commission was forced to take up th
Page 85 and 86: Therefore, while negotiators could
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System Improvement & Human Resource
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Ethiopia - List of RNF meetings Amo
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Nigeria Cost of EPA negotiation-rel
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Dominican Republic Distribution of
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1. Overview of existing resources f
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The FTRD that was responsible for b
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The support of the NDTPF and the ex
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dedicated sessions during the year
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Mauritius, Seychelles, and Madagasc
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3. Quantification of costs of count
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Ethiopia took a clear stance from t
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4. Perspectives on EPA negotiations
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5. Qns: Had you had more resources,
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) Basic knowledge on Cotonou Agreem
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Council of ESA Ministers Committee
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System Improvement & Human Resource
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List of RNF meetings 118 ANNEX VII
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EPA Review Study Nigeria December,
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contains the quantification of cost
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which appear to have crowded out ac
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Table 3 Resource Detail of Intra-Af
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Table 5 Capacity Building Programme
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Table 7 Cost of EPA Negotiation-Rel
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ADDRESSING THE LABOUR MARKET EFFECT
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Table 9 Annual Cost of Nigeria Trad
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Though the current negotiating stru
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• The simultaneous application of
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understand the changing environment
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7. Summary of Findings and Main Les
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opportunity cost could be quite sub
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• There is adequate technical adv
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5. Appendices Appendix Table 1 Rang
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EPA Review Study Dominican Republic
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c. Technical Level At a regional le
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2) From the ministers of trade of C
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The fact that the DR had previously
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- State Secretariat of Foreign Rela
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Table 1 Distribution of the Main Tr
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Figure 2 CARIFORUM Dimensions Diffe
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with the EU, in order to present a
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Table 4 Average Monthly Salaries EP
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In additional there were eight meet
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Per Diem Rate (US$) 500 A- Total of
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5. Perspectives of EPA negotiations
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usiness and political levels repres
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expectation of increases in exports
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8. Annexes Interviews Name Institut
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MAY o 05-06: WTO TWG on NAMA, Barba
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o 05-06: Joint Meeting of the Prime
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o 10-13: 12 th Meeting of CARIFORUM
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Trinidad & Tobago, 11-15 mayo 2007
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Reviewing services negotiations in
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Table 2 MMain differeences in serrv
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3. Services coverage in the CARIFOR
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In this exercise, it is important t
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196 ANNEX Provisions of the agreeme
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Tariff and Non-tariff barriers in E
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products could be extended until ye
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extended to the original partner. F
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than the rate applied on the proces
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RoO and the EPAs 1. Introduction Ru
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Table 1 Similarity of EAC countries
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that value added in ACP countries o
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The EU has yet to deliver a simple
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arrangements, are constrained by pr
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and non-oil exporting countries wit
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Common Market for Eastern and South
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to be seen. The Ethiopia case study
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fact that countries either export o
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development assistance in the EPA.
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References Bilal, S. and Stevens, C
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SPS Issues in EPA Negotiations 1. B
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The SPS committee provides an oppor
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of equivalence. Clearly, the Econom
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In the case of Ghana, where there i
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which relevant entities within thei
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Specific provisions While the final
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‘.....In addition, the Parties sh
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imparted to EPA signatories. In pra
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of the EC Party when these products
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So what have the EPA negotiations a
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Region/Country Year Total 2002 2003
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EAC CARIFORUM PACP Region/Country Y
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EAC CARIFORUM PACP Region/Country N
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EAS SADC EAC Country/Region Mycotox
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Country/Region West Africa CEMAC Co
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Development Finance and EPAs 1. Int
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evenues, one of the main sources of
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References Braun-Munzinger, C. ( 20
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