EPA Review Annex Documents - DFID

Whilst most studies appear to agree on the overall direction of the effects of signing the
EPAs, the estimates vary significantly. These reflect differences across techniques used and
across counterfactual scenarios. This complicates comparisons across the empirical
literature. However, one crucial shortcoming in the empirical literature is the lack of treatment
of the impact of removing behind the border measures (deep integration).
4. The Dynamic Effects of Trade Liberalisation and Deep Integration
The empirical literature above reviewed focuses on the quantification of traditional allocative
gains from trade liberalisation. However, there is reason to believe that these do not capture
the full gains that can be derived from trade liberalisation (see Burfisher et al (2004) for an
extensive discussion). Allocated efficiency gains can result in dynamic changes in the
economy through technology transfer, learning by doing and increased investment
efficiency. These can have productivity enhancing effects which can ultimately translate into
increased economic growth. These dynamic effects are much harder to grasp empirically
and are hence often left out of empirical investigations. The shortcoming is both theoretical
and due to lack of available and reliable data sources. The nascent literature on firm level
productivity effects (Melitz 2003) demands very detailed data on firm activity and suggests
an important link between trade and productivity.
In addition, there is rising consensus on the importance of deep integration in enhancing the
beneficial effects of simple preferential liberalisation (Burfisher et al 2004). This catch-all
term captures the effects of removing behind the border measures which are hard to
quantify. A ‘deep’ trade agreement would include provisions such as competition policy;
intellectual property rights; sanitary and phytosanitary issues; certification procedures and
minimum standards; government procurement; dispute settlement and services trade.
However, the lasting impact of these is not yet properly understood. Furthermore, there is
little evidence of the EPAs taking on a credible commitment to deeper integration. However,
the agreements are laced with important pathways that foresee enhanced cooperation on
SPS issues and dispute settlement. These can enhance market contestability and hence
play a role in promoting competition which can result in important gains for countries
concerned.
The empirical literature also lacks in its treatment of investment and services. This is
generally justified by data constraints, but theory suggests that the process of preferential
liberalisation could be linked with changes in investment patterns. Where services are
concerned, there is a growing literature on the effects of preferential trade agreements and
bilateral service flows. Shingal (2009) shows that a 10% increase in bilateral merchandise
flows can raise service trade by 1.7%, even when there is no explicit service component of a
trade agreement. Hence despite the lack of formal agreements on services in the EPAs (with
the exception of some mode 4 services in the CARIFORUM EPA) there are still possible
links between increased bilateral merchandise trade and service trade.
5. Conclusions
The empirical literature treating the effects of the EPAs on ACP countries tends to focus on
the static allocative efficiency gains derived from preferential trade liberalisation. In this
respect, the literature shows that the African regions largely stand to gain from higher trade
creation, but at the costs of important losses in government revenue accruing to reduced
customs takings. The Pacific and Caribbean regions on the other hand should suffer more
trade diversion and will also incur significant loss of customs takings through diverted
imports.
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