Economic Partnership Agreements: Accompanying Measures Are Needed by Agence Française de Développement

Agence Française de Développement

Working Paper

January 2007

Economic Partnership Agreements: Accompanying Measures Are Needed

Anna LIPCHITZ, AFD, Research Department (lipchitza@afd.fr)

ISSN 1954-3131

Département de la Recherche

Agence Française de Développement 5 rue Roland Barthes 75012 Paris - France Direction de la Stratégie www.afd.fr Département de la Recherche

Table of contents SUMMARY

INTRODUCTION

EU-ACP Trade Relations in Constant Evolution

1.2

Preferences Have Not Had the Hoped-for Positive Effects

1.4

A New Concept of Trade and Development

1.1 1.3

Economic Partnerships Expanded Over Time

The Legal Constraint of the WTO

EPAs: Unequal Trade Partners

2.1

ACP Countries Are 31 Times Less Wealthy than the European Union

2.3

ACP Countries Have Stronger Customs Duty Protections than the European Union

The Theoretical Impacts of Economic Partnership Agreements

3.2

Methodological Precautions: On the Art of Modelling Liberalisations Such as EPAs

2.2

3.1

ACP Countries’ Strong Trade Dependency on the European Union

Modifications in Trade Flows Following a Bilateral Free Trade Agreement

The Case of Sub-Saharan Africa: Large Adjustments, Given the Initial Asymmetry

4.2

4.3

Immediate Losses of $2.9 Billion in Fiscal Revenue for Africa

The Aggregated Effects: Real Increases in Welfare if Regional Integration Is Effective

Beneficial Effects Are Conditional on Accompanying Policies

5.2

Impacts Depend on the Strength of Regional Integration

CONCLUSION

Appendix 1. Division of Africa and Overlap of Regional Agreements

Appendix 2. Comparison of the European Union’s GSP-LDC, GSP and Cotonou Regimes

4.1

5.1

5.3

$3.3 Billion in Trade Creation for $0.8 Billion in Trade Diversion

The Lessons from the Euromed Partnership: An Adjustment Fund to Encourage Productive Sector Upgrading

Impacts Depend on African Negotiators Seizing Margins for Manoeuvre

Appendix 3. Ad Valorem Tariffs (%) Applied by African Countries on Imports from the

22 26

European Union

ACRONYMS

BIBLIOGRAPHY

Economic Partnership Agreements: Accompanying Measures Are Needed

List of tables 1.

Countries Relatively Less Wealthy than the European Union

ACP Countries’ Imports in 2005

The Weight of Customs Duties in National Revenue

The Impacts of EPA Scenarios on Sub-Saharan Africa

The Customs Tariffs of Sub-Saharan Africa and the European Union

Trade Creation and Diversion Following an EPA, in millions of dollars

Customs Tariffs on Intra-African Trade

ACP Countries’ Exports in 2005

List of figures 1.

Structure of European Union Exports to ACP Countries (%)

Structure of European Union Imports from ACP Countries

Impacts of the Establishment of WAEMU’s CET on Intra-Regional Trade

Modelling a Regional Agreement

Economic Partnership Agreements: Accompanying Measures Are Needed

SUMMARY

The Cotonou agreements announce the end of preferential

of investments, generated by securing a large market,

on reciprocity, between the European Union and six regions

strengthening would also improve negotiation capabilities.

agreements by envisaging a renewed partnership, based

of Africa, the Caribbean and Pacific (ACP). These econo-

mic partnership agreements (EPAs) are better able to meet

the new challenges of globalisation and the legal require-

ments of the World Trade Organisation. Furthermore, because they meet a legitimate legal and economic need,

would bring about improvements in welfare. Regional However, trade liberalisation in the EPA framework carries

numerous risks: in addition to discrimination vis-à-vis the

rest of the world, fiscal losses, trade diversion and deindustrialisation could harm ACP economies.

General equilibrium models make it possible to evaluate the

their alternatives seem only temporary. The EPA support

impact of EPAs. Given the initial asymmetry (the European

opening could be offset by the financial aid proposed.

welfare would be negligible for the European Union and

component is therefore vital; the additional expenses of

The European Union and ACP countries are very unequal

partners when it comes to both wealth (ACP countries are

31 times less wealthy) and trade dependency. The

Union has already lowered its customs duties), changes in slightly negative for sub-Saharan Africa. Full reciprocity

(ACP countries’ customs duties would be equivalent to the

European Union’s customs duties) would be costly for sub-

European Union is still of primordial importance for ACP

Saharan Africa; welfare would fall 0.27%. The full free trade

gest exporter for ACP countries), but this trade is marginal

the trade balance would worsen considerably (-$1.8 billion).

countries’ trade (it is the largest importer and second lar-

scenario would be less harmful for African economies but

for the European Union (approximately 3%). The EC mar-

Thus, before Africa opens to European products, a delay is

ACP countries’ markets are more protected: their customs

economies to diversify. Nevertheless, gains would certainly

ket has low tariff barriers (approximately 4%), whereas the

duties, which vary according to sector and to country, amount to 20%. These customs duties make up on average 25% of African governments’ revenues. Lowering these

duties could bring about adjustments that would be all the more severe for those countries for which the European

Union is an important trade partner and for which customs

duties are still an important component in state revenues, as is the case in sub-Saharan Africa.

Theoretically, by forming a free trade zone between each of the six regions and the European Union, the partner coun-

necessary to strengthen intra-African trade and encourage

be captured by the non-LDC ACP countries that did not previously have free access to European markets. These

impact assessments should therefore be fine-tuned by country studies, using partial equilibrium models that allow

more detailed breakdowns. In addition, these results are obtained from static models (they do not take into account

gains in productivity) and with the assumption of pure and

perfect competition. The growth of exports from emerging

countries is ignored, yet it would limit the market shares of

exporters. Similarly, the monetary aspect is not addressed,

tries would optimise trade creation within the zone. Thanks

although exchange rates are a factor explaining product

businesses would specialise and merge, prices would be

Simply lowering customs duties on trade between the

to economies of scale and access to less expensive inputs, pulled down to the great benefit of consumers and inputconsuming businesses. The increased competition and flow

competitiveness.

European Union and ACP countries will not significantly improve ACP countries’ export shares and welfare. Political

Economic Partnership Agreements: Accompanying Measures Are Needed

SUMMARY

constraints, obstacles related to administrative malfunc-

rage diversification, and begin the fiscal transition.

ties, and the constraints of standards and criteria of origin

trade capabilities could be included in the EPA context. These

tions, market and government failings, productive capabiliwill remain. Thus, EPAs can be an opportunity to build true

regional markets among ACP countries, as long as liberali-

sation does not focus exclusively on trade. Significant financial aid must accompany the process of opening: aid would

make it possible to improve productive capabilities, encou-

ÂŠ AFD Working paper 36

Programmes to upgrade ACP economies and strengthen programmes will have to be coordinated with the actions of

other donors. They could evolve towards commodity chain

logics (both upstream and downstream): full commodity chain

mastery would make it possible to meet standards requirements, which weigh more and more heavily on world trade.

Economic Partnership Agreements: Accompanying Measures Are Needed

INTRODUCTION

The Cotonou Agreement was signed on 23 June 2000, for

creation, EPAs should strengthen competition and facilitate

member-states, and 77 ACP countries. It provides for the

investment. Ultimately, consumers should have access to

a 20-year period, between the European Union (EU), its negotiation of economic partnership agreements (EPAs), or

free trade zones, between the European Union and six

regional blocks. The negotiation of these agreements is mandatory to bring Lomé-type preferential agreements into compliance with World Trade Organisation rules. These

EPA negotiations are to be the subject of a midterm assess-

ment at the end of 2006/early 2007.

By strengthening regional integration and creating a free

trade zone, these agreements should allow the signing coun-

tries to better allocate their resources. In addition to trade

technological dissemination. They should also encourage

less expensive and more varied products, and companies

should have access to inexpensive inputs. The negative

impacts of EPAs would be of several types, and not limited to

fiscal losses due to tariff cuts; trade flow diversion encoura-

ging deindustrialisation could also intensify these losses.

After describing the evolution of European Union–ACP rela-

tions, this study presents a panorama of trade between the

European Union and ACP countries. It then discusses the

impacts of EPAs, thereby justifying the adjustment policies

proposed in the last section.

Economic Partnership Agreements: Accompanying Measures Are Needed

1. 1.1

EU-ACP Trade Relations in Constant Evolution Economic Partnerships Expanded Over Time

The idea of cooperation was present even during the first stages of building Europe. The Schuman Declaration of 9

May 1950 highlights the importance of African develop-

ment, which appears in the declaration as one of Europe’s major objectives. The Treaty of Rome in 1957 established

ferences were viewed. In addition to sustaining aid flows,

trade preferences were granted, but these preferences were henceforth discriminatory and non-reciprocal: the EEC

granted very favourable market access conditions to ACP

countries, which were not obliged to grant equivalent

the European Development Fund (EDF), at first focused on

concessions to European exporters. These agreements had

African countries. These countries negotiated the continua-

against the most favoured nation clause. They coexisted

mic, cultural and political cooperation. In 1963, the Yaoundé

continuing the United Kingdom’s previous trade agree-

overseas territories and then, after their independence, on

tion of their preferential relations in the framework of econo-

to obtain special authorisation within GATT, as they went

with special protocols on beef, bananas, sugar and rum,

Convention formalised this partnership. Signed by the

ments. Under these protocols, the EU was obliged to pur-

countries, it contained trade provisions and a trade aid

ments also established mechanisms for drops in their export

arrangements of the pre-independence period: they were

MIN (second Lomé Convention) for drops in revenue from

city. Yaoundé II was signed in 1969: it increased the EDF,

ced by the EFD which paid advances to ACP countries.

European Economic Community (EEC) and 18 African

dimension. However, this Convention repeated the trade

non-discriminatory trade agreements based on recipro-

and increased the list of beneficiaries to include Kenya,

chase specific quantities at high prices. The Lomé agreerevenues: STABEX (first Lomé Convention), and then SYSthe sale of mineral products. These two systems were finan-

Finally, the Lomé Convention added a political dimension

Tanzania and Uganda. In 1973, the United Kingdom’s entry

when it made the provision of aid conditional on the respect

Yaoundé Conventions. The Caribbean and Pacific coun-

of gender issues.

into Europe brought English-speaking countries into the tries also joined the ACP group.

The Lomé Convention, signed in 1975 between 46 ACP countries and the EEC, marked a change in how trade pre-

1.2

of human rights, good governance, and acknowledgement The Lomé Convention was renewed in 1980, 1985 and

1990, and was progressively extended to the 77 ACP countries. It was replaced by the Cotonou Agreement in 2000.

Preferences Have Not Had the Hoped-for Positive Effects

The effectiveness of tariff preferences in creating trade is

In addition, these preferences have encouraged product

tries, and especially LDCs, have not resulted in significant

world prices for these few commodities. In 1982, five pro-

not evident. The preferences granted to developing coun-

trade flows. These countries’ share of world and European trade has fallen continuously. Their world market share

dropped from 6% in 1980 to 2% in 2002, and has now sta-

bilised at 3% of the European market, even though EU imports from ACP countries are growing: from €22 billion in 1990 to €36 billion in 2005.

specialisation, making countries vulnerable to the volatile

ducts from 37 ACP countries made up 90% of exports to Europe. In 2002, only two countries had successfully diversified their exports and thus lowered their vulnerability in the face of volatile world prices.

Thus, preferences have not allowed the economies of ACP countries to take off (with a few exceptions such as

Economic Partnership Agreements: Accompanying Measures Are Needed

1. EU-ACP Trade Relations in Constant Evolution

Mauritius in the textile/clothing sector), as they generally

More generally, mechanisms to attenuate export revenue

culties to satisfy the required quality and traceability criteria,

as STABEX and SYSMIN, have not been enough to prevent

gross domestic product in sub-Saharan Africa only grew by

These arguments and the expiration of the Lomé

face difficulties exporting: the countries face technical diffi-

as well as their insufficient export potential. The per capita 1

0.4% on average from 1960 to 1992, compared to 2.3% for all developing countries (DCs).

Finally, and above all, preferential margins have dwindled. 2

losses and revenue losses due to world market prices, such a new worsening of the terms of African trade.

Convention in February 2000 led the European Union to

reflect on another mode of cooperation with ACP countries.

A 1996 green paper on the future of European Union/ACP

The efforts towards multilateral liberalisation and the exten-

relations discussed these reflections3. Beyond these econo-

margins.

legitimacy vis-à-vis the WTO.

sive multiplication of bilateral agreements reduce these

1.3

mic arguments, these agreements also raise a problem of

The Legal Constraint of the WTO

The most favoured nation principle (which figures in Article

I of GATT) opposes the granting of trade preferences. The

received special authorisations granted on the consen-

sus of WTO members (the last was obtained with difficul-

“enabling clause”, which serves as the legal basis for the

ty at the Doha conference and covers the period from 1

bypass this constraint by allowing more favourable treat-

cial authorisation might not be renewed: the preferences

generalised system of preferences, makes it possible to ment for developing countries. It forbids, however, all dis-

March 2000 to 31 December 2007). However, this spe-

granted to ACP countries for bananas, tuna and sugar

crimination between developing countries that is not

are sharply criticised by non-ACP developing countries.

Thus, preferential regimes that target only ACP countries

adopted the objective of moving from the preferences

based on objective criteria.

The European Union and ACP countries have therefore

can not take advantage of the provisions of the enabling

regime (which is by nature non-reciprocal) to a network

example, which is defined on economic criteria. For this

EPAs) between the European Union and six regional

clause, unlike those that target the LDC category, for reason, the Lomé Convention regime has, from the start,

1.4

of free trade zones (economic partnership agreements or blocks.

A New Concept of Trade and Development

The new ACP-EC agreement, signed on 23 June 2000 in

cally, as free trade will only be complete for ACP countries

(March 2000 – February 2020). The Cotonou Agreement

ACP countries will reciprocally open their markets to each

Cotonou (Benin), was reached for a duration of 20 years

is an overall agreement with the aim of combating poverty. New economic and trade partnerships, evoked in paragra-

ph XXXVII of the Cotonou convention, should be signed on

31 December 2007 at the end of a preparatory period.

These EPAs are reciprocal trade agreements: ultimately, it is indeed a free trade zone that will be formed. But this free

trade will progressively enter into force in 2008 asymmetri-

in 2020. The European Union has opened its markets, and

1 In this study, sub-Saharan Africa covers the African continent, with the exception of South Africa, which signed a bilateral agreement with the European Union (TDCA), and of the North African countries that signed the Euro-Mediterranean Agreement.

The preferential margin per product unit exported to any given importing country is the difference between the most favoured nation (MFN) customs duty valid for all countries and the preferential customs duty for the product.

Cf. COM(96) 570.

Economic Partnership Agreements: Accompanying Measures Are Needed

1. EU-ACP Trade Relations in Constant Evolution

other within six regional blocks and then they will open their

markets to European products. These six regions are:

West Africa : 4

Structured

around

the

Economic

Numerous regional arrangements overlap. Some mem-

bers are part of COMESA, other countries are part of

tional difficulties. Already endowed with a free trade

the ESA customs union, and other part of SADC. South

zone and a customs union via the West African

Africa, which does not need to negotiate an EPA,

is to expand it to seven other countries in the regional

agreement with the European Union (the Trade,

Economic and Monetary Union (WAEMU), the objective

weighs heavily in the zone. It has signed a free trade

block. This region is characterised by strong heteroge-

Development and Cooperation Agreement, TDCA). The

neity (LDCs coexist alongside wealthy Nigeria), which

SACU members (Botswana, Lesotho, Namibia and

indicates a potential for numerous conflicts of interest.

Central Africa5: These countries have mineral and oil

resources but have diversified little and remain little

developed. Negotiations are delicate because of the

Swaziland) that do not have barriers to trade with South

Africa are concerned de facto by this agreement.

Caribbean8: The negotiations are structured around the

Caribbean Community and Common Market (CARI-

COM) and the Dominican Republic. CARICOM has

lack of clarity when it comes to regional integration. The

established a common external tariff. However, diffe-

EU’s regional partners are the Central African Economic

and Monetary Community (CEMAC) and São Tomé e

rences in customs duties remain among the countries.

Democratic Republic of Congo. CEMAC, the economic

rency (the Organisation of Eastern Caribbean States).

In addition, six islands have established a common cur-

Príncipe, a group that has been joined by the

and monetary union, has a common external tariff, but there are still numerous obstacles: rules of origin and

red islands, has Australia and New Zealand as its priPacific Island Countries Trade Agreement (PICTA); the

intra-regional trade is weak (only 5% of trade). Indeed,

Pacific Agreement on Closer Economic Relations

infrastructures are insufficient to meet the challenge of

(PACER), with Australia and New Zealand; and the

regional integration: road infrastructures are among the

least dense worldwide. The lack of a free trade agree-

Pacific9: This region, primarily made up of widely scattemary partners. Numerous trade agreements exist: the

the common external tariff are not applied correctly; and

agreement with the United States.

ment between CEMAC and São Tomé e Príncipe and

All these EPAs aim to be more than simple trade agree-

the risk of complicating the EPA negotiations, all the

the late entry of the Democratic Republic of Congo run

more so as the zone’s negotiation capabilities are limi

SADC members. The other SADC members, which are not LDCs, have opted for the East Africa EPA.

Community of West African States (ECOWAS) and

Mauritania, this regional block raises the fewest institu-

SADC and Southern Africa7: This region contains seven

ments:

East Africa (ESA)6: This region is characterised by both

casting) and Singapore subjects (investment, competition, trade facilitation, and government contracts).

the strong overlap of preferential regimes and the entanDivision of Africa and Overlap of Regional Agreements).

tariff issues for agriculture and industry, as well as non-

tariff issues for services (excluding culture and broad-

ted.

glement of regional organisations (cf. Appendix 1.

By the scope of the agreements: EPAs must address

These countries belong to the Common Market for

Benin*, Burkina Faso*, Cape Verde*, Côte d’Ivoire, Gambia*, Ghana, Guinea*, GuineaBissau*, Liberia*, Mali*, Mauritania*, Niger*, Nigeria*, Senegal*, Sierra Leone*, Togo*. LDCs are followed by asterisks.

me a customs union in 2008), the East African

Eastern and Southern Africa (COMESA, which will beco-

Community (ESA, in force since 1 January 2005 and

which should be extended to Rwanda and Burundi), and the Southern African Development Community (SADC,

which shall become a free trade zone in 2008, and then

a customs union in 2010 and a common market in 2015). © AFD Working paper 36

5 Cameroon, the Central African Republic*, Chad*, the Democratic Republic of Congo*, the Republic of Congo, Gabon, Equatorial Guinea, São Tomé e Príncipe*.

Burundi*, Comoros*, Djibouti*, Eritrea*, Ethiopia*, Kenya, Madagascar*, Malawi*, Mauritius, Rwanda*, Seychelles, Sudan*, Uganda*, Zambia*, Zimbabwe.

7 Angola*,

Botswana, Lesotho*, Mozambique*, Namibia, Swaziland, Tanzania*.

Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti*, Jamaica, Montserrat, Saint Christopher and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Surinam, Trinidad and Tobago. 8

Cook Islands, Micronesia, Fiji, Kiribati*, Marshall Islands, Nauru, Niue, Palau, Papua-New Guinea, Samoa*, Salomon, Tonga, Tuvalu*, Vanuatu*.

Economic Partnership Agreements: Accompanying Measures Are Needed

1. EU-ACP Trade Relations in Constant Evolution

By the aim of regional economic integration: This is a

prerequisite among ACP countries of the same zone, at

a time when economists are convinced of the validity of

regional integration as it can make markets more attrac

tive for investors.

Finally, because they are accompanied by financial aid to offset the additional expenses that trade opening and

Non-LDCs have access to a different preferential regi-

me: the generalised system of preferences (GSP). The

GSP preferential regime concerns a large number of countries but few products, and its preferential margin is

small (cf. Appendix 2). Since 1998, additional tariff cuts have also been applied to certain developing countries

in the framework of the GSP’s special encouragement

economic restructuring imply. The amount of this aid

regimes (GSP+). These programmes are applied to

cribed above, is therefore accompanied by a “develop-

environmental protection and bans on child or forced

remains to be determined. The trade component, des-

ment” component.

EPA negotiations will be launched with the ACP countries

that feel they are ready to undertake them. If an EPA is not

signed, the situation is different for LDCs and non-LDCs:

countries that comply with international agreements on

labour. Special regimes are also granted to countries

that conduct anti-drug campaigns (GSP “drugs”, twelve Andean and Central American countries and Pakistan).

The European Union has signed an “Everything But

The Cotonou agreements announce the end of preferential

tries (LDCs). This initiative is non-discriminatory becau-

on reciprocity. These agreements are better able to meet

according to UNCTAD’s objective criteria. This agree-

constraints of the World Trade Organisation. They are

Arms” Initiative (EBA) for the 49 least developed coun-

se it is available to all countries considered to be LDCs

ment gives them access to nil and quota-free customs

duties on all products (except the arms trade), with res-

trictions on sugar, bananas and rice during a transitional

period until 2009.

agreements by envisaging a renewed partnership, based

the new challenges of globalisation and the legal

accompanied by financial aid to offset the additional

expenses of opening. Before discussing the economic

changes that such agreements could bring about, let us draw a panorama of the two partners.

Economic Partnership Agreements: Accompanying Measures Are Needed

2. 2.1

EPAs: Unequal Trade Partners ACP Countries Are 31 Times Less Wealthy than the European Union

Table 1.

Countries Relatively Less Wealthy than the European Union 2005 GNP (billion dollars)

% of the EU’s GNP

162

1.22

Eastern and Southern Africa (ESA)

0.56

Caribbean

European Union

West Africa + Mauritania

Central Africa CEMAC + STP

SADC + Southern Africa Pacific

All ACP

13,300 40

66 9

425

100

Ratio to the European Union’s GNP 1

0.30

0.54

178

306

11/15

185

2,057

1/16

593

37/76

1,414

3.20

Source: World Bank (2005), World Development Indicators, author’s calculations.

0/25

13/16

200

0.07

28,760

Number of LDCs/Total Number of Countries

627

330

0.50

Per Capita GNP ) (dollars/inhabitant

439

835

1,000

4/8

4/7

4/14

The combined gross national product of the ACP countries

GNP; the gross national product of the largest and most

member countries comes to $13,300 billion—a ratio of 1

capita wealth is, on average, nearly fifty times less than it

comes to $425 billion, and that of the 25 European Union to 31. The gross national product of the smallest region

(the Pacific) represents 0.07% of the European Union’s

2.2

populous region, West Africa, reaches only 1.22%. Per

is in the European Union, with disparities among ACP

countries.

ACP Countries’ Strong Trade Dependency on the European Union

When it comes to trade, the overall balance is tipped in

second largest exporter (after the United States). The arri-

ACP countries amounted to €36 billion in 2005, whereas

future.

favour of ACP countries: European Union-25 imports from

ACP imports from European countries amounted to €30.5

billion. However, trade with ACP countries makes only 3%

of the European Union’s trade (2.9% of EU exports, and

val of emerging countries will modify these rankings in the Figure 1. Structure of European Union Exports to ACP Countries (%)

3.1% of EU imports). The European Union’s exports to ACP countries are diverse, with the largest category being equipment (26%).

Inversely, 29% of ACP exports are destined for the

European Union and 24% of ACP imports come from the

European Union. Their exports are less diversified: the European Union imports mostly commodities (energy and agricultural products).

In 2005, the European Union was still the ACP countries’ principal trade partner: it was the largest importer and

[[NB remplacer le virgule indicateur de décimal par un point en anglais dans le graphique]] Source: European Commission (2006), Fiche pays ACP commerce des produits entre l’Union européenne et les ACP.

Economic Partnership Agreements: Accompanying Measures Are Needed

2. EPAs: Unequal Trade Partners

Disaggregated data show that Central Africa is heavily

Figure 2. Structure of European Union Imports from ACP Countries

dependant on the European Union: 74.1% of its imports

come from the European Union and 51.7% of its exports are destined for the European Union. The Caribbean and

the Pacific are less dependant. Southern Africa exports primarily towards the European Union (69.1%). These data date from 2005, but hint at growth by Chinese exporters.

[[NB remplacer le virgule indicateur de décimal par un point en anglais dans le graphique]]

Source: European Union (2006).

Table 2.

ACP Countries’ Imports in 2005

EU -> ACP Trade

Billion Euros West Africa + Mauritania

13,482

Central Africa CEMAC + STP

3,420

Share of EU Exports Share of EU Exports to ACP Countries to ACP Countries in Total EU Exports in Total ACP Imports 1.26%

0.32%

35.1%

74.1%

ACP Countries’ Principal Imports medicines and machines

medicines and machines

Principal Trade Partners European Union

European Union

Eastern and Southern Africa

5,334

0.50%

27.9%

medicines and machines

European Union,

SADC + Southern Africa

3,134

0.29%

32.7%

machines

European Union

Caribbean

4,681

Pacific

568

TOTAL

30,619

0.44%

0.05% 2.86%

18.3%

20.8%

motors

24.4%

South Africa

United States

Australia, New Zealand

Source: European Commission (2006), Fiche pays ACP commerce des produits entre l’Union européenne et les ACP, author’s calculations.

Table 3.

ACP Countries’ Exports in 2005

ACP -> EU Trade

West Africa + Mauritania

Billion Euros EU Totals 13,764

Share of Imports from the ACP Zone in Total EU Imports 1.2%

Share of Exports to the EU in Total ACP Exports

ACP Countries’ Principal Exports

33.2%

oil (Nigeria)

Central Africa CEMAC + STP

5,393

0.5%

51.7%

oil

Eastern and Southern Africa

4,400

0.4%

34.2%

sugar, cut flowers

SADC + Southern Africa

Caribbean Pacific

TOTAL

7,455

3,823

1,245

36,080

0.6%

0.3%

0.1%

3.1%

69.1%

23.8%

27.7%

29.0%

Principal Trade Partners United States,

European Union United States,

European Union EU, China

oil (Angola)

European Union,

banana

United States

United States Australia,

New Zealand

Source: European Commission (2006), Fiche pays ACP commerce des produits entre l’Union européenne et les ACP, author’s calculations.

Economic Partnership Agreements: Accompanying Measures Are Needed

2. EPAs: Unequal Trade Partners

2.3

ACP Countries Have Stronger Customs Duty Protections than the European Union

ACP countries are more protective of their markets than the

European Union. ACP countries protect their markets with customs duties of 20%. The European Union still applies

on converted products (agrifood products, textiles and

industrial products). If sub-Saharan African customs duties

were brought into line with European Union customs duties

customs duties of 4.2% on imports from ACP countries,

(which is what tariff reciprocity implies), tariff dismantling in

(beef, rice, vegetables, wines and certain products contai-

“remantling” would take place for the African livestock and

concentrated in certain products. Without these products ning meat and milk), customs duties fall to 0.5% and apply,

above all, to imports from non-LDC ACP countries. The

LDCs fall under the preferential “Everything But Arms” regi-

industry, energy and cotton would be strong. However, tariff

processed agrifood sectors.

These results can also be broken down by country. For example, customs duties in Botswana, Zimbabwe, Malawi

me.

and Mozambique are higher. See Appendix 3, Ad Valorem

provides a comparison of the customs tariffs applied to

European Union, for more detail.

These results can be broken down by sector: Appendix 4 Sub-Saharan Africa and those applied to the European

Union. While certain sectors are highly protected in the

European Union (sugar, cereals, processed agrifood products, etc.), sub-Saharan Africa has higher customs duties

Table 4.

Tariffs (%) Applied by African Countries on Imports from the These customs duties are important elements in the national

revenue of ACP countries. They make up, on average, 25%

of African governments’ revenues. Indeed, customs duties are

easier to collect than domestic taxes such as VAT.

The Customs Tariffs of Sub-Saharan Africa and the European Union Tariffs Applied to SSA by the EU

Tariffs Applied to the EU by SSA

41.6

10.5

0.0

9.6

Cereals

Vegetables Oil Seeds Sugar

Cotton

Other Crops

14.5 251.4

17.1

3.1

16.1

-80.7

6.3

9.9

0.0

3.6

Fishing

12.0

9.3

0.0

13.1

10.9

16.4

Other Natural Resources

Processed Agrifood Products

Textiles

Clothing

Low-Technology Industries

Medium-Technology Industries Heavy Industry

-15.2

-100.0

16,660.0

36.6

Energy

296.2

1.5

Livestock

Animal Products

SSA Application of Reciprocity (% of change)

0.0

39.4

12.1

2.6

2.1

1.4

11.7 9.5

23.9

-100.0 212.8

-36.4 29.0

-100.0

6.9

-33.5

29.6

-59.1

15.4

-86.4

23.5 15.8

-88.9 -91.1

Source: United Nations Economic Commission for Africa (2005), Effets des accords de partenariat économique entre l’UE et l’Afrique sur l’économie et le bienêtre. From GTPA V.5.4.

Economic Partnership Agreements: Accompanying Measures Are Needed

2. EPAs: Unequal Trade Partners

Table 5.

Country

The Weight of Customs Duties in National Revenue

Most Recent Data Available

Fiji

1996

Vanuatu

1999

Papua New Guinea

Pacific

2002

Caribbean

Bahamas

2003

Belize

1997

Jamaica

2003

Barbados

Dominican Republic

Côte d’Ivoire Senegal

2003

Sierra Leone Democratic Republic of Congo Republic of Congo Burundi

Ethiopia Kenya

Madagascar Mauritius

Seychelles Sudan

Uganda Zambia

Zimbabwe

2002

West Africa (ECOWAS)

Central Africa (CEMAC)

28 27 6

1999

2000

1999

2002 2003

1999

2002

1999 1997

Namibia

2002

13 Southern Africa (SADC)

2003 2000

Source: Hertel T.W. and Winters L.A. (2006), Poverty and the WTO: Impacts of the Doha Development Agenda.

Eastern and Southern Africa (ESA)

1996

Swaziland

2002

Botswana Lesotho

2002

2001

Economic Partnership Agreements: Accompanying Measures Are Needed

20 12 39 25 50

2. EPAs: Unequal Trade Partners

Tariff dismantling will, therefore, have different impacts

depending on the country. However, the relative shares of

customs duties will drop for all countries, but their reduction will be less painful than it would have been in 1970.

The European Union and ACP countries are very unequal

partners when it comes to both wealth (ACP countries are

31 times less wealthy) and trade dependency. The

European Union is still of primordial importance for ACP

ket has low tariff barriers (approximately 4%), whereas the

ACP countries’ markets are more protected: their customs

duties, which vary according to sector and to country, amount to 20%. These customs duties make up, on ave-

rage, 25% of African governments’ revenues. Lowering

customs tariff could, therefore, bring about adjustments.

These adjustments will be all the more severe for those

countries for which the European Union is an important

trade partner and for which customs duties remain a large

countries’ trade (it is the largest importer and second lar-

component of state revenues, such as the countries of

for the European Union (approximately 3%). The EC mar-

impacts.

gest exporter for ACP countries), but this trade is marginal

sub-Saharan Africa. Let us attempt to model these

Economic Partnership Agreements: Accompanying Measures Are Needed

The Theoretical Impacts of Economic Partnership Agreements

3.1

Modifications in Trade Flows Following a Bilateral Free Trade Agreement

Let us model the impacts of EPAs between the European

After implementing the EPA, imports from the European

city, we shall assume perfect competition and perfect sub-

the world, given the suppression of customs duties. H now

Union and functional regional bodies. For reasons of simpli-

Union become less expensive than those from the rest of

stitutability between domestic and imported products. When

imports OM3: the European Union’s exports have replaced

ther country, there is, theoretically, better allocation of pro-

scale, three phenomena can be mentioned:

a country signs a bilateral free trade agreement with anoductive resources, and therefore better expression of com-

parative advantages (Viner, 1950). This results in a fall of

those of P and of the rest of the world. On the aggregated

suppression of the customs duty on European merchan-

input-purchasing businesses.

dise only. This is possible because customs tariffs bet-

Take H and P, two African countries signing an EPA with the

ween H and P are reduced to zero, unlike the customs

European Union. We have:

DH: country H’s demand for imports

This trade diversion has a negative impact on state bud-

PROW is the price offered by the rest of the world, and ROW

tariffs applied to merchandise from the rest of the world.

SP: country P’s export supply Pt

getary revenues. There is also a drop in welfare for

is the price of imports from the rest of the world

consumers (without this agreement, consumers would

(PROW plus the customs duty t: PtROW = PROW* (1+t)

have been able to take advantage of less expensive

PEU is the price offered by the European Union.

imports from the rest of the world), and a drop in welfa-

P’s export supply is considered to be minimal in relation to

re for producers in the rest of the world. The trade diver-

the export capacity of the European Union and the rest of

sion effect can be illustrated by the loss of customs

the world (H and P are small countries). Thus, the

revenues b, representing the loss of revenue from cus-

European Union’s and the rest of the world’s supply curves

toms duties, if the most competitive producer had been

are perfectly elastic.

Figure 3. Modelling a Regional Agreement

replace imports from the rest of the world in M1M2, as they have become more competitive because of the

domestic prices, which is beneficial for consumers and

Trade diversion: Imports from the European Union

chosen (as would be the case in a multilateral free trade

situation).

Trade creation: Imports from the European Union

replace less competitive imports from P in OM1. Trade creation is shown by the area d+c.

Trade expansion: As imports from the European Union

cost less than those from the rest of the world, country H buys more (M2M3). This growth in consumption is

shown in the area e.

The variation of aggregated welfare, following the signatu-

re of an EPA agreement, can therefore be expressed as:

(c+d+e)-b. Source: Roza V. (2006), Adjusting to the Effects of the ACP-EU Economic Partnership Agreements: The Application of Special and Differential Treatment.

However, while this framework is ideal to calculate the varia-

tions in surplus for consumers, it does not take into account

those of local producers. While surplus can increase for

Economic Partnership Agreements: Accompanying Measures Are Needed

3. The Theoretical Impacts of Economic Partnership Agreements

European Union producers, surplus can fall for country P pro-

are, the more an EPA will be a source of trade creation

case, the consumers’ gain from the surplus must be balan-

Indeed, this situation is closest to a situation of multilateral

ducers if the new trade replaces local production. In this

ced against the domestic producers’ losses, and jobs are

and the less it will be a source of trade diversion. liberalisation in which comparative advantages play their

lost, at least in the short term. In theory, producers enter ano-

role fully without being biased by customs duties. European

tages. In reality, producers’ reconversion to other sectors

from the rest of the world to a lesser extent. WTO progress,

ther production sector, in line with their comparative advan-

seems more difficult, in part because of the weak productive

imports would, therefore, replace more competitive imports

which should allow overall reduction in customs duties,

fabric and in part because of the technological advancement

would therefore have positive impacts on EPAs.

ring of African productive sectors trickier.

and P are (the more horizontal these curves are), the lar-

of developed and emerging countries, making the restructu-

The more elastic the supply and demand of countries H

Finally, trade creation, even if it expresses the European

ger c, d and e will be, whereas b will be fixed; and accordin-

a diversion of intra-regional trade. EPAs could lead to

se. This means that the larger a place in the world market

Union’s comparative advantage over H’s partner, results in

regional suppliers being replaced by European suppliers

after tariff dismantling. This would go against strengthening

regional integration and would create greater dependency on imports from the European Union. However, this eviction

of African producers could result from foreign, nonEuropean, competition.

Thus, several theoretical conclusions can be reached: The

effects of an EPA, therefore, depend on the European

gly, the variation in total welfare due to the EPA will increathe countries signing the agreement have, the more beneficial an EPA will be and the less intra- or extra-regional

trade diversion it will generate. The nature of the products traded also influences this factor: agricultural products have

rigid supply and demand, and are therefore little elastic in

regard to price; on the one hand, supply cannot be increa-

sed instantly, and, on the other hand, even with attractive

prices, consumption is limited once consumers are satia-

Union’s capacity to supply inexpensive imports: the

ted. Given the fact that ACP countries’ supply focuses in

the rest of the world will be diverted because of the esta-

an EPA will be all the more beneficial if ACP countries

more competitive the European Union is, the less trade with

blishment of an EPA. The amount of European Union-ACP trade prior to the entry into force of an EPA is a good indicator.

The stronger European Union-ACP trade is before an

EPA is signed, the more beneficial the EPA will be. One can therefore expect stronger results for Central African countries than for Caribbean countries. Tables 2 and 3

show that the first group of countries has more trade with the European Union.

The lower the customs duties for the rest of the world

majority on commodities, agricultural or not, the effects of export manufactured products or services, which are characterised by a less rigid offer. Thus, the more structural

constraints on supply are lifted in ACP countries, and the more the countries have diversified, the more beneficial an EPA will be.

Finally, producer surplus variations should be taken into

account. General and partial equilibrium models make it

possible to calculate variations in welfare for consumers, the state, and producers. We shall use such models to

assess the impacts of EPAs.

Economic Partnership Agreements: Accompanying Measures Are Needed

3. The Theoretical Impacts of Economic Partnership Agreements

3.2

Methodological Precautions: On the Art of Modelling Liberalisations Such as EPAs

To calculate variations in welfare, the use of an equilibrium

model (as the United Nations Economic Commission does

with the Global Trade Analysis Project, GTAP) is relevant

Few studies have been conducted on the Caribbean and

the Pacific. As the Caribbean trades primarily with the

United States, emerging Latin American countries and Asia,

because resource reallocations are taken into account. It is,

the potential for trade diversion is considerable. A study

losers and winners. However, it takes into account the

created than would be diverted) if they were accompanied

therefore, particularly well suited to distinguishing between

diversity of countries with difficulty, and is limited by data

problems. Indeed, data problems are considerable for ACP countries: the data, when they exist, are often faulty. It is

shows that EPAs would be beneficial (more trade would be

by a 50% tariff cut for countries outside the EPA (Cali et al., 2006). For the Pacific region, it would seem that the trade creation effect would be stronger than the trade diversion

particularly difficult to study intra-regional trade, given the

effect. In the rest of this study, attention will be focused on

problem has long limited analyses for such countries.

models.

systems have made it possible to increase the robustness

Theoretically, by forming a free trade zone, the partner

scope of informal trade and non-tariff barriers. This data Nevertheless, improvements in models and their statistical

of simulations.

Partial equilibrium models (Busse et al., Tekere et al., etc.),

which use fewer data, make it possible to obtain specific

sub-Saharan Africa, for which we have the results of

countries would optimise trade creation within the zone. Thanks to economies of scale and access to less expensive inputs, businesses would specialise and merge, prices

results for a given region or sector. This second category of

would be pulled down to the great benefit of consumers and

nomic framework. These two types of models often opera-

and flow of investments, generated by the securing of a

model, however, does not generate a complete macroecote on constant employment and on statistics of mediocre

quality; empirical studies are thus necessary to determine

the restructuring of productive sectors pushed aside by European competition. The simultaneous use of three types

input-consuming businesses. The increased competition

large market, would increase welfare. However, EPAs would cause losses in fiscal revenues and job losses for

producers placed into competition. Finally, the actions of

players could divert the gains from such agreements:

of studies (partial and general equilibrium models, and

European exporters could take advantage of this drop in

impacts of trade agreements.

2004). These impacts are theoretical. In reality, other

modality by modality , it remains difficult to model the trade

the weakness of the productive fabric and institutions, non-

empirical studies) is therefore necessary to assess the However, until the EPA negotiations are precisely defined, 10

agreement. The overlap of zones also makes modelling

complicated, as does the diversity of trade agreements (free trade agreement with South Africa, EBA, etc.).

customs tariffs to increase their margins (Hinkle et al.,

aspects limit the effects of simple tariff reduction, such as

tariff barriers, competition from other developed and emerging countries, etc.

Finally, the scenarios do not completely integrate the flexi-

bilities allowed by the negotiations, overestimating results.

Inversely, the models used are static, which tends to under-

estimate the impact of the accumulation of capital and

advances in productivity allowed by the importation of tech-

nologies. The dynamism of emerging countries is not integrated in these models, limiting in reality the potential gains

of exporters. The results of these models need, therefore, to be interpreted with caution.

ÂŠ AFD Working paper 36

10 For example: the exact geographic outlines of the regional negotiation entities, the percentage of tariff lines liberalised, the timeline for liberalisation, etc.

Economic Partnership Agreements: Accompanying Measures Are Needed

4. The Case of Sub-Saharan Africa: Large Adjustments, Given the Initial Asymmetry 4.1

$3.3 Billion in Trade Creation for $0.8 Billion in Trade Diversion

The United Nations Economic Commission for Africa

includes trade expansion) equal to four times trade diver-

Saharan African countries using a static general equilibrium

the welfare of African consumers who would have access to

(UNECA) studied the consequences of EPAs on submodel (GTAP version 6) with the assumption of pure and

perfect competition. To our knowledge, few alternatives,

from general equilibrium models, exist. Nevertheless, other studies complement this study. Based on partial equilibrium

models or empirical studies, they study the socio-economic

sion. The European Union would intensify its imports, for lower prices. Trade diversion (the products of the rest of the

world diverted by European products that are less effective but access the market as a result of tariff cuts) would

remain low. Intra-regional diversion would be low; imports

from the European Union would mainly replace imports

impacts on regions or countries more precisely. This study

from the rest of the world, not intra-regional imports. These

integrating trade preferences and specific duties. The

dynamism of emerging countries could limit exporters’

is based on Comtrade trade data and MacMaps tariff data, signing of an EPA with full reciprocity (African customs

duties brought into line with European customs duties)

would make possible trade creation between the ACP regions and the European Union (here, trade creation

Table 6.

Trade Creation and Diversion Following an EPA, in millions of dollars

West Africa + Mauritania

Central Africa CEMAC + STP Eastern and Southern Africa

SADC + Southern Africa TOTAL

UNECA 1,504

608

Creation

Busse UNECA 608

-361

-88

results were obtained from a static model: in reality, the gains.

These results are positive, in part because the European Union was an important trade partner for these countries before the EPA was signed.

Diversion

Busse -370

Intra-Regional Diversion UNECA -31

-2

Trade Unit Diverted by Trade Unit Created 0.24

0.14

910

-243

-14

0.27

3,294

-770

-48

0.23

272

-78

-1

0.29

Source: United Nations Economic Commission for Africa (2005), Effets des accords de partenariat économique entre l’UE et l’Afrique sur l’économie et le bienêtre. Busse, M., et al. (2004), The Impact of ACP/EU Economic Partnership Agreements on ECOWAS Countries: An Empirical Analysis of the Trade and Budget Effects. N.B.: Data for the Democratic Republic of Congo are not available for a simulation such as this.

In West Africa and Mauritania, tariff dismantlement would

diversion would be from the regional community itself.

European Union. In theory, this trade would benefit African

than would be diverted. For example, the study by Busse et

allow €1,504 million in trade to be created in favour of the consumers because European producers and exporters,

more efficient than African producers, would replace the lat-

ter. This reasoning ignores the consequences on the labour

market and thereby on the evolution of consumers’ incomes. On the other hand, there would also be a net trade flow

diversion of more than €360 million. One tenth of this trade

Other studies confirm that more trade would be created al. However, on the disaggregated level, the results are more varied: some countries could face large trade creation effects resulting from a large tariff cut and/or a strong

dependency on the European Union (Kenya, Mauritius,

Nigeria, Côte d’Ivoire, Cameroon, Angola and Tanzania, for example).

Economic Partnership Agreements: Accompanying Measures Are Needed

4. The Case of Sub-Saharan Africa: Large Adjustments, Given the Initial Asymmetry

4.2

Immediate Losses of $2.9 Billion in Fiscal Revenue for Africa

The use of customs duties allows states to fill their coffers.

revenue (from the fall in customs duties) because of reci-

budgetary capacities and consequently on their capacity to

Their reduction would, therefore, have an impact on states’

set up public policies to attain the Millennium Goals. The

procity:

$2.9 billion for Africa as a whole. Fiscal revenue losses

would vary according to the country and the region.

According to this same study, losses would reach $980 million for West Africa; these results are similar to those found

by Busse et al., 2004. Losses of 20% for Cape Verde and

of 22% for Gambia could be recorded. Without a support

ducts with nil customs duties instead of products from

the rest of the world, as these products are subject to

United Nations Economic Commission projects, using a

partial equilibrium model, governmental revenue losses of

Trade diversion: ACP countries importing European procustoms duties.

VAT on imports, if it exists: Based on the value of

Income and corporation taxes: These could be affected,

imports plus customs duties, VAT would also be redu-

ced if customs duties are lowered.

given the closing of businesses placed in direct compe-

tition with businesses in the European Union.

policy, these losses represent 4.1% and 3.5% of the gross

Nevertheless, non-tariff barriers caused by administrative

2003, highlights fiscal losses of approximately 37% for

EPAs could make it possible to launch fiscal reforms that

domestic product of these countries. Similarly, Tekere et al.,

Tanzania and 24% for Namibia.

Other phenomena can amplify the direct loss of customs

red tape in ACP countries are strong in these countries;

would be beneficial to intra- and extra-EU trade by genera-

ting a simplification of customs procedures.

4.3 The Aggregated Effects: Real Increases in Welfare if Regional Integration Is Effective To calculate the variations in total welfare, the effects on

gration without reciprocity. This scenario gives

aggregated using a general equilibrium model from the for-

their production capacities, without applying immediate

African countries a necessary period of time to upgrade

consumers, producers and the government have been mer United Nations Economic Commission. Neither intra-

regional trade diversion nor the impact on employment can be calculated, which overestimates the results. Inversely,

reciprocity to the preferences granted by the EU.

The third consists of sub-Saharan Africa applying the

principle of reciprocity to the preferential tariffs of the

the model is static and does not take into account changes

European Union: WTO-compliant EPAs without a free

importing technological improvements.

countries. The tariffs applied by sub-Saharan Africa are

in the structure of the economy, such as, for example,

The United Nations Economic Commission modelled the

impact of three scenarios on sub-Saharan Africa as a block:

The first deals with the free trade zone between the

European Union and sub-Saharan Africa. In this sce-

the same as those applied by the European Union; table 4 describes the customs duties practiced by African

countries in this case.

These three scenarios are compared to a control scenario

nario, all tariff barriers to trade between the European

that takes into account the expansion of the European

directions.

thing, the Uruguay Round Agreement, and China’s entry

Union and sub-Saharan Africa are eliminated, in both

trade zone between the European Union and African

The second deals with strengthening regional inte-

Union, the application of the Agreement on textiles and clointo the WTO. The results are summarised in Table 7.

Economic Partnership Agreements: Accompanying Measures Are Needed

4. The Case of Sub-Saharan Africa: Large Adjustments, Given the Initial Asymmetry

Table 7.

The Impacts of EPA Scenarios on Sub-Saharan Africa

Welfare in Volume (%)

Free Trade Scenario -0.2%

Welfare (million dollars)

-584

Terms of Trade (%)

Trade Balance (million dollars)

Strengthened Regional Integration Scenario 0%

270

Reciprocity Scenario -0.27% -1,629

0.14%

0.34%

-1.04%

European Union Exports to Africa +$17.6 billion

Intra-Regional Trade = $2.4 million

European Union Exports to Africa: +$14.6 billion

-1,841

-491

African Exports

to the European Union

to the European Union:

+$5.5 billion

+$2.4 billion

Source: EPA and Africa, UNECA, forthcoming.

Given the initial asymmetry (European countries have alrea-

-1,373

nario would bring about a specialisation in commodities but

dy opened their markets), the results for the European Union

a loss in industrial sectors, launching a deindustrialisation

control scenario), whereas variations in welfare would be

industry by 8.2%, and heavy industry by 8.8%. Africa’s spe-

would be negligible or very slightly positive (+0.02% over the

small but negative for Africa, except in the case of stronger

process. Industrial production would fall by 2.9%; light cialisation in agricultural production would make it even

integration. In the case of free trade, European Union exports

more vulnerable to fluctuations in agricultural prices.

rest of the world and intra-European markets. African exports

In conclusion, given the initial asymmetry (the European

would increase by 17.6% and do so to the detriment of the

would only increase by €5.5 billion. All in all, African countries’

Union has already lowered its customs duties), changes in

trade balance would worsen by €1.8 billion and welfare would

welfare would be small for the European Union and larger for

SADC could benefit more from EPAs, given that these coun-

African countries would become equivalent to the customs

qualify for the EBA regime. The results would be worse in the

Saharan Africa; welfare would fall by 0.27%. The free trade

in this scenario than they would with full liberalisation, African

trade balance would still worsen considerably (-$1.8 billion).

fall by 0.2%. These results vary by zone and by country: the

tries are not among the least developed countries; they do not

case of reciprocity. Even though the tariff cuts would be less

countries would increase their exports by only €2.4 billion.

sub-Saharan Africa. Full reciprocity (the customs duties of

duties of the European Union) would be costly for sub-

scenario would be less harmful for African economies but the

A conclusion can thus be drawn: before opening Africa to

Welfare for Africa would fall by 0.27%, or €1.6 billion, becau-

European products, a delay is needed to strengthen intra-

In the case of strengthened regional integration, welfare would

Nevertheless, the gains will certainly be captured by the non-

se of the worsening of the terms of trade.

stabilise. The trade balance would show a slight deficit (-$491

million), but intra-regional trade would increase by $2.4 million.

African trade and encourage economies to diversify.

LDC ACP countries that did not previously have free access to European markets. These impact studies need to be com-

By relying on a sector-by-sector breakdown, this study

pleted with country studies. For these studies, it seems more

diversification of production in sectors with higher added

lable data. In addition, these results come from static models,

shows that strengthened integration would bring about a value. Textile/clothing would serve as a solid basis for

industrialisation and diversification. These scenarios are nevertheless static and do not take into account China’s

export potential, which will limit the expansion of the texti-

le/clothing sector in Africa. Inversely, the full reciprocity sce© AFD Working paper 36

appropriate to use partial equilibrium models given the avai-

and do not take into account the growth in exports from emer-

ging countries (China, India, Brazil, South Africa, etc.) that will limit the market shares of exporters. Similarly, they are

based on the assumptions of pure and perfect competition

and no changes in monetary conditions.

Economic Partnership Agreements: Accompanying Measures Are Needed

Beneficial Effects Are Conditional on Accompanying Policies

5.1 The Lessons from the Euromed Partnership: An Adjustment Fund to Encourage Productive Sector Upgrading Lessons can be drawn from other free trade zones: the

actors, its inclusion in a vaster economic approach, and its

Euro-Mediterranean partnership between the European

decisive steering by the state are factors that explain the

(Morocco, Algeria, Tunisia, Turkey, Lebanon, Jordan and

The ACP

Union and the countries around the Mediterranean Egypt) can be instructive. The European market has been

opening to the Southern and Eastern Mediterranean coun-

tries (SEMCs) since the mid-1970s. Industrial free trade is

success of such programmes. countries

already

have

the

European

Development Fund (EDF) available. The 9th EDF (20002007) amounts to €15.2 billion. The European Commission has committed to funding the EDF with €22.7 billion for the

hoped-for by 2010. European markets are open,

2008-2013 period. These funds should be sufficiently gran-

liberalisation, much more timid and uncertain, should pro-

they could serve to launch:

Mediterranean markets will open progressively. Agricultural

gressively be accomplished through preferential and reci-

procal access among the parties. Of course, these coun-

ted. In addition to the establishment of social safety nets,

Fiscal reforms. In order to offset fiscal losses, a VAT with a large base (imports and consumption) could be

established. Impact studies must be conducted before-

tries are more developed than ACP countries, but the prin-

hand. If this VAT is to be one of the solutions to soften

cipal of free trade is the same, regional integration is very

the shock due to the fiscal transition, it will have to be

poor (5%), and SEMCs’ dependency on European markets

levied without exception so as to reduce administrative

is high, whereas the European Union’s dependency on these markets is low.

costs. The economic growth generated by the establish-

1995, an adjustment fund for industry (MEDA) was created.

losses by expanding the tax basis.

ment of a free trade zone could partially offset revenue

On decision of the European Council in Cannes in June

Destined to offset losses of income, the programmes finan-

ced take the form of private sector development support

Upgrading programmes in ACP countries. These pro-

grammes provide support to companies and public poli-

(upgrading programmes), support for the economic transi-

cies. Built on the observation that the largest and most

support for structural adjustment programmes. The benefi-

the very heart of companies, they aim to accompany

tion, aid for sustainable socio-economic development, and

ciaries of MEDA programme financing are states, regions, local authorities, public organisations, and non-governmen-

immediate gains in competitiveness are to be sought at public policies in favour of productive sectors that will be

exposed to competition from foreign enterprises. The AFD

tal organisations from countries in the European Union and

could encourage these programmes in the form of loans

intangible. Nevertheless, other conditions must be present

Senegalese government by helping set up this system, by

SEMCs. The investments covered are both tangible and

for the upgrading programmes to have the hoped-for results. The AFD’s Notes and Documents no. 18,

“Enterprise Upgrading Programme: Tunisia, Morocco,

or grants. Thus, in Senegal, the AFD is assisting the

providing the necessary financing (nearly €12 million) to

upgrade approximately sixty companies, making it pos-

sible to show, in addition to an economic impact, a

Senegal”, assesses the business upgrading programmes

demonstration effect. Finally, the AFD supports making

were a success, whereas in Morocco the results are more

financially by helping channel Senegal’s domestic means

for these three countries. In Tunisia, these programmes

mixed. The appropriation of the programme by national

the upgrading scheme sustainable legally, technically, and

and additional means from other donors and WAEMU.

Economic Partnership Agreements: Accompanying Measures Are Needed

5. Beneficial Effects Are Conditional on Accompanying Policies

Finally, the European Union’s trade aid, raised to €2 bil-

through better knowledge of the impact of EPAs and of

lion in 2010, could be mobilised to accompany EPAs. In

the flexibility allowed by the negotiations. In this specific

capacity-building—the Programme de Renforcement

accompanying business upgrading in partnership with the

this direction, the AFD has a window devoted to export des Capacités Commerciales (PRCC, trade capacity-

framework, fiscal reforms would be envisaged, thereby

private sector. The project’s direct beneficiaries would be

building programme), managed jointly by the AFD and the

the Ministry of Trade and the technical ministries concer-

of various components (training, consultation, studies)

trade support institutions.

Training courses would build negotiation capacities

ties—must be coherent with the actions of other donors.

French Ministry of the Economy. The PRCC could consist

providing the keys to reflection evoked in this document.

5.2

These programmes—upgrading or building trade capaci-

Impacts Depend on the Strength of Regional Integration

Encourage Intra-Regional Trade by Lowering IntraRegional Customs Duties…

Customs tariffs on intra-regional trade remain high in

Table 8.

ned, private operators such as private businesses, and

Africa, as can be seen in Table 8. Botswana is the most

protectionist, whereas Mozambique appears to be little

protectionist.

Customs Tariffs on Intra-African Trade

(horizontal = exporter; vertical = importer) Botswana (BOT)

remaining SACU (XSC)

Malawi (MWI)

BOT

XSC

0.0

22.2

4.3

16.9

9.8

0.3

11.5

4.1

6.5

0.8

Zambia (ZMB)

24.2

13.9

23.6

7.6

18.3

14.2

Zimbabwe (ZWE)

TZA

18.7

20.8

20.2

MOZ

0.0

Mozambique (MOZ) Tanzania (TZA)

MWI

15.8

17.3

12.5 16.5

6.2

5.7 7.6

5.7

remaining Southern Africa (XSF) 22.0

16.9

19.0

6.5

remaining SSA (XSS)

15.2

18.2

5.9

Uganda (UGA) Average Tariff

20.6

20.2

17.4

16.7 12.8

18.4 12.6

5.8 5.4

ZMB

4.4

10.1

10.6

10.3

0.0

10.2

15.1

12.6

6.9

13.5

XSF

UGA

XSS

15.4

12.3

14.3

11.6

24.6

4.7

17.2

11.1

12.2

10.9

20.8

0.5

11.8

11.9

17.7

9.9

13.0 20.5

1.9

10.1 14.9

13.5

12.2 9.8

16.9

9.7

7.7

6.2

18.2

9.4

13.8

11.9

13.2

12.4

21.1

17.9

11.1

9.5

13.0

12.9

7.8

15.3

10.8

11.1

9.1

17.5

ZWE

12.4 12.5

11.3

12.5

4.3

15.3

19.4

12.4

Source: United Nations Economic Commission for Africa (2005), Effets des accords de partenariat économique entre l’UE et l’Afrique sur l’économie et le bienêtre. Forthcoming from GTPA V.5.4.

BOT: Botswana; XSC: remaining SACU; MWI: Malawi; TZA: Tanzania; ZMB: Zambia; ZWR: Zimbabwe; XSF: remaining Southern Africa; UGA: Uganda; XSS: remaining sub-Saharan Africa. Interpretation guide: Botswana levies a customs tariff of 20.2% on products from Tanzania.

Economic Partnership Agreements: Accompanying Measures Are Needed

5. Beneficial Effects Are Conditional on Accompanying Policies

Greater integration will increase the beneficial effects of

tempered by the increase in total trade and by an analysis

EPAs. The construction of real regional entities could be

of prices over the period. Following the devaluation of the

free trade zones. According to the United Nations Economic

tedly less for the goods traded in the regional market than

done by strengthening economic unions and creating true

CFA franc, merchandise prices soared, but did so undoub-

Commission, the elimination of barriers to intra-African

for goods traded with countries outside the Union. One can

billion and would be a prerequisite for EPAs to succeed.

regional trade out of total trade to mean, in reality, a grea-

trade would provide a gain in welfare of approximately $1.2 Without this, intra-African trade diversion would be too high. However, the reduction of intra-regional customs duties will not be enough to generate a true vitalisation of regional

trade flows, as the establishment of a common external tariff within WAEMU shows.

Learn the Lessons from the Establishment of WAEMU’s

therefore consider a preservation of the share, in value, of ter increase in the volumes traded on the regional market

than on the world market. The establishment of WAEMU vitalised intra-regional trade but the impact was not as posi-

tive as expected: intra-regional trade within WAEMU remains limited, between 16% and 25% depending on the country. In comparison, trade within the European Union

Common External Tariff

represents between 65% and 70% of total trade.

within WAEMU. For a majority of countries, the establish-

Whether vitalising trade extra-WAEMU trade with prefe-

Starting in 1996, agricultural products circulated freely

ment of the common external tariff meant a heterogeneous tariff cut across all products.

Figure 4. Impacts of the Establishment of WAEMU’s CET on Intra-Regional Trade

Lessen Non-Tariff Obstacles to Trade

rences or vitalising intra-WAEMU trade with the establishment of its CET, tariff cuts have not, as yet, allowed these

countries to significantly increase their market shares.

Among the decisive factors for trade, in addition to customs

duties and production capacities, one can also point out11 general political and economic factors: exchange rate

variations and conflicts in Africa influence the competitiveness of African economies. Furthermore, the trade policies

of large neighbouring countries (Nigeria or the Democratic

Republic of Congo) can have negative influences on intraregional trade.

Source: IRAM (2006), Accords de partenariat économique et dynamique des flux commerciaux régionaux, le cas de la CEDEAO.

Obstacles linked to administrative malfunctions also

hinder trade, often out of poor knowledge, a lack of rigour, or opportunistic behaviours. For example, VAT is levied randomly: it may be levied despite an exemption decreed by

Intra-regional trade has increased since 1996, but diffe-

the government or, on the contrary, levied twice because of

Mali’s and Burkina Faso’s shares of regional trade have

behaviours can take the concrete forms of under-declaring

rences can be seen among the countries:

fallen;

Senegal and Côte d’Ivoire already had low intra-regio-

insufficient compensation mechanisms. Opportunistic

values or under-taxation (beneficial for importers), or of road harassments. Acknowledged as one of the principle

nal trade and the establishment of WAEMU’s CET did

obstacle to trade, road harassments slow trade fluidity and

the other countries—that is to say, primarily the coun-

agreements facilitating intra-regional trade. The transporta-

not allow this type of trade to develop;

tries that had established regional trade relations amounting to 10% to 25% of their total trade prior to the

entry into force of the CET—integrated themselves more strongly within the trade inside the Union.

worsen the quality of products, even in the presence of tion of perishable goods exposes traders to extortion. All these levies are lost income for operators, to which must be

Cf. IRAM, 2006.

Economic Partnership Agreements: Accompanying Measures Are Needed

5. Beneficial Effects Are Conditional on Accompanying Policies

added the transaction costs linked to time lost during stops,

to the economy of little-developed countries that do not

uncertainty, and waiting time.

have the means to master the entire process for a given

bypass regional agreements and take the form of customs

of origin most suited to EPAs is underway12.

Government failings can also be seen: certain provisions

clearances. These are gains for operators but losses for the

state. Another example is the linked import practice that

obscures the competitiveness of importers: within WAEMU,

product. Reflection on the options and implications of rules

Finally, market failings exist as well. They explain the evolution of intra-regional trade. For agricultural products, sea-

sons determine the intensity of trade flows. The lack of cre-

replacing the temporary import tax with VAT levied on a

dit and transportation markets also generates compensa-

ly resulted in levying the VAT on imported products only,

food product imports fluctuate with meteorological condi-

wide base, including imported and local products, ultimateand then in importers being obliged to purchase local pro-

ducts in exchange for their imports. Customs duty quotas can also be established: only part of imports is subject to all

duties and taxes. Finally, industry negotiations allow

imports to be controlled: a temporary import tax can be

tion or barter strategies. Under unchanged trade conditions, tions (drought, etc.) that can limit local production. Finally,

quality differences can explain buyers’ behaviours indepen-

dently of a given product’s price advantage.

Faced with these failings, the road remaining to be travel-

levied when local producers’ margins are too low, taking

led to achieve a virtuous free trade zone within regional

Technical and administrative obstacles to trade are also in

improve their economic environment. They contribute to

into account large import flows.

place: the abusive placing of conditions, including the res-

blocks is long. Nevertheless, EPAs could force countries to

cleaning up economic and financial practices, making a rise

pect of standards or rules of origin criteria. WTO mem-

in world direct investment flows possible. These foreign

measures in the framework of agreements on sanitary and

2004 (or $18 billion) for Africa, 59% of which was concen-

bers must signal environmental and consumer protection

phytosanitary (SPS) measures and on technical barriers to trade (TBTs). Different measures exist, including for

example, technical measures (technical regulations, ins-

pection prior to transport, specific customs formalities, obli-

investment flows (FDI) are very low: approximately 3% in

trated in Nigeria, Angola and South Africa. Yet, these flows

would be a non-negligible boon for the development of these countries.

gation to return used products, obligation to recycle). Out of some 5,500 products traded in all sectors, only 1,171 pro-

ducts are not subject to any protective measures limiting

their trade (Fontagné et al., 2005). Products subject to at

least one environmental or sanitary import barrier, in at

least one importing country, represent 88% of the value of world merchandise trade.

Rules of origin make it possible to determine which products can utilise the preferential regime granted by a trade agreement (GSP, ACP, etc.). To originate from a given country, a product must be “entirely obtained” (agricultural

products, for example), or “sufficiently transformed” (tariff code change or incorporation of added value deemed suffi-

cient). The Cotonou Agreement considers the ACP coun-

tries as one territory and establishes a full cumulation regi-

me. The rule of origin is satisfied if all the cumulated work,

done successively in several ACP countries, amounts to sufficient transformation. This type of cumulation is suited

12 Cf. Préférences commerciales et règles d’origine : Perspectives des APE pour l’Afrique de l’Ouest et centrale, Olivier Cadot, Jaime de Melo, forthcoming.

Economic Partnership Agreements: Accompanying Measures Are Needed

5. Beneficial Effects Are Conditional on Accompanying Policies

5.3

Impacts Depend on African Negotiators Seizing Margins for Manoeuvre

There are margins for manoeuvre in the EPA negotiations

The United Nations Economic Commission has shown,

impacts of EPAs.

90% liberalisation with 80% liberalisation of ACP imports

that could allow ACP countries to attenuate the negative For example, by judiciously defining sensitive products,

ACP countries could minimise fiscal revenue losses and

through three scenarios (total liberalisation on both sides;

and full liberalisation by the European Union; and 80% libe-

ralisation with 60% liberalisation by ACP countries and

preserve emerging sectors for which initial protection is

100% liberalisation by the European Union), that asymme-

tegy). Uganda could retain three quarters of its fiscal reve-

scenario generates gains of 0.04% of GDP, compared to

necessary (this requires the countries to have a trade stra-

nue by keeping 20% of its volumes subject to customs

duties, Ethiopia could retain half (Bilal et al., forthcoming).

This reasoning assumes that the European Union keep no

margin for manoeuvre, all products would need to be libe-

ralised. This would be a step forward compared to the EBA

regime, which concerns only LDCs.

However, defining sensitive products for entire regions

raises great difficulties, especially when the zone is hetero-

geneous. How will national lists be harmonised into a regio-

nal list? It is unthinkable that the list of sensitive products will remain definitive for a regional entity given the trade

diversions that this could generate. In addition, an uncertainty remains: is the percentage of excluded products in volume or in tariff lines? The second possibility is more

advantageous for non-diversified exporting countries.

Appendix F of the Hong Kong Declaration (“Special and Differential Treatment, LDC Agreement-specific Proposals”)

tric liberalisation is beneficial to ACP countries: the third

losses of 0.20% for the first scenario and 0.11% for the second. In the first scenario, ACP exports would increase

by €3 billion and the terms of trade would improve by 1.2%.

Fiscal losses would be reduced to 0.5% of the GDP of ACP countries.

The Cotonou agreements also leave open the possibility of a 10- to 12-year transitional period in compliance with the GATT agreements. It would then be a matter of adjusting

the negotiation phases to the progress in regional integration, making possible an increase in supply capacities,

export diversification, and the establishment of compensatory fiscal policies. An extension could be envisaged based on this progress.

In fact, the international community could authorise more

asymmetric opening and longer transitional periods.

Paragraph XXIX of the Doha Declaration13 subjects regional

agreements to WTO principles. The preceding paragraph

postulates that markets be opened by percentage of tariff

mentions the need to consider the needs of developing and

are negotiated in volume, such as South Africa, and even if

in Paragraph XXVIII of Appendix D of the Hong Kong

lines, and not by volume. Even if other trade agreements the WTO seems to stall, it would seem that liberalisation is

more likely to concern a percentage of tariff lines than of

least developed countries14. This consideration is restated

Declaration.

volumes.

More generally, ACP countries could demand a revision of

Article XXIV of GATT, which would authorise a more widely asymmetric liberalisation in favour of countries defined by objective criteria.

Indeed, for EPAs to be accepted by the WTO, the largest

part of trade in the partnership must be liberalised (Article

XXIV of GATT). There is no specific agreement on this point, but it is generally admitted that liberalisation should

extend to 90% of trade. This leaves open the possibility of

excluding 10%, on average, in sensitive products to form a free trade zone.

13 “We also agree to negotiations aimed at clarifying and improving disciplines and procedures

under the existing WTO provisions applying to regional trade agreements. The negotiations shall take into account the developmental aspects of regional trade agreements.”

14 “In the light of experience and of the increasing application of these instruments by members, we agree to negotiations aimed at clarifying and improving disciplines under the Agreements on Implementation of Article VI of the GATT 1994 and on Subsidies and Countervailing Measures, while preserving the basic concepts, principles and effectiveness of these Agreements and their instruments and objectives, and taking into account the needs of developing and least-developed participants.”

Economic Partnership Agreements: Accompanying Measures Are Needed

5. Beneficial Effects Are Conditional on Accompanying Policies

Finally, according to the previous section, while the benefits

of EPAs will be felt essentially over the long term, fiscal

benefits should afterwards make it possible to absorb fiscal

losses. Use of these clauses must be concomitant with the

losses could endanger the budgetary balance of countries

establishment of social safety nets within each country for

used. Article XIX of GATT authorises imports to be restric-

The renewal of Doha negotiations is also a real stake for

in the short term. Temporary safeguard clauses could be

those who lose from free trade.

ted in the case of severe harm to the viability of a sector.

ACP countries. The gains from EPAs would be greater if

restriction in the case that the payment balance is upset fol-

as economic theory has shown. In addition, with the WTO,

extend throughout the adjustment period, as the long-term

be possible.

This article is completed by Article XII which authorises this

lowing liberalisation. This restriction possibility should

ÂŠ AFD Working paper 36

customs duties towards the rest of the world were lowered,

recourse before the dispute settlement body would again

Economic Partnership Agreements: Accompanying Measures Are Needed

CONCLUSION

Because the Cotonou agreements no longer fit the econo-

mic and legal context, the establishment of a new partner-

the economic and financial environment, thereby encoura-

ging investment flows. However, the consequences of

ship between the European Union and the ACP countries

tariff dismantling could weaken certain productive sectors

meet this imperative. General equilibrium models offer a

necessary. Significant financial aid must accompany the

seems unavoidable. Economic partnership agreements

in Africa and make the provisions of social safety nets

framework for reflection to evaluate their impacts. Despite

process of opening: this aid would make it possible to

established based on strong assumptions, in particular

grammes aimed at training and preparing actors for the

this, they represent only a partial view of reality; they are

unchanged monetary conditions, constant employment, and pure and perfect competition.

EPAs can be an opportunity for African countries, because they will serve as an impetus for regional integration, which has stalled across the continent. They contribute to improving the quality of institutions, and more generally

ÂŠ AFD Working paper 36

finance upgrading and trade capacity-building pronew economic context. These programmes should evolve

towards commodity chain approaches that would make it possible to master productive commodity chains in their

totality. In addition to improving intrinsic competitiveness,

this mastery will make it possible to meet the increasingly

strong demands of international trade, especially in terms

of standards.

Economic Partnership Agreements: Accompanying Measures Are Needed

Appendix 1. Division of Africa and Overlap of Regional Agreements

AFRICA

N.B.: The ACP countries that are LDCs are in italics. Non-LDC ACP countries are underlined. The Southern African Development Community (SADC) is made up of Botswana, Lesotho, Namibia and Swaziland (all four of which are members of the Southern African Customs Union (SACU), along with South Africa), as well as Angola, Mozambique and Tanzania.

ÂŠ AFD Working paper 36

Economic Partnership Agreements: Accompanying Measures Are Needed

Appendix 1. Division of Africa and Overlap of Regional Agreements

Regional Integration in Africa

CEEAC (Economic Community of Central African States): Angola, Burundi, Cameroon, Central African Republic, Chad,

Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda, São Tomé e Príncipe. Headquarters: Libreville.

CEMAC (Central African Economic and Monetary Community): Cameroon, Central African Republic, Chad, Congo, Equatorial

Guinea, Gabon. Headquarters: Bangui.

CILSS (Comité permanent inter-états de lutte contre la sécheresse dans le Sahel): Burkina Faso, Cape Verde, Chad, Gambia,

Guinea-Bissau, Mali, Mauritania, Niger, Senegal. Headquarters: Ouagadougou.

COMESA (Common Market for Eastern and Southern Africa): Angola, Burundi, Comoros, Democratic Republic of Congo,

Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland,

Tanzania, Uganda, Zambia, Zimbabwe. Headquarters: Lusaka.

EAC (East African Community): Kenya, Tanzania, Uganda. Headquarters: Arusha. ECOWAS (Economic Community of West African States): Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, Gambia, Ghana,

Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo. ECOWAS’s primary objective is the creation of a West African market and a monetary union. This organisation has also provided itself with an armed force, Ecomog, created in April 1990, to end the civil war in Liberia.

IOR-ARC (Indian Ocean Rim–Association for Regional Cooperation): Kenya, Madagascar, Mauritius, Mozambique,

Seychelles, South Africa, Tanzania. Headquarters: Port-Louis.

SACU (Southern African Customs Union): Botswana, Lesotho, Namibia, South Africa, Swaziland. Headquarters: Pretoria. SADC (Southern African Development Community): Angola, Botswana, Burundi, Democratic Republic of Congo, Lesotho,

Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe.

Headquarters: Gaborone.

SIN-SAD (Community of Sahelian-Saharan States): Burkina Faso, Chad, Libya, Mali, Niger, Sudan. WAEMU (West African Economic and Monetary Union): Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger,

Senegal, Togo. Headquarters: Ouagadougou. This organisation, created in 1994, aims to unify national economic arenas.

Attached to it are the Central Bank of West African States (BCEAO, Dakar) and the West African Development Bank ( (WADB, Lomé).

Economic Partnership Agreements: Accompanying Measures Are Needed

Appendix 2. Comparison of the European Union’s GSP-LDC, GSP and Cotonou Regimes

Field of Application

GSP-LDC (“EBA”)

GSP

COTONOU

Legal Regime

All LDCs

* WTO Enabling Clause * Regulation 2501/2001 of the (renewed without changes in the new regulation)

All DCs

Tariff Provisions

* free access for industrial products

* preferential duties for industrial

* free access for industrial products

exclusions)

except for 280 6-figure tariff lines

* free access for agricultural products, except bananas (free access in 2006)

and sugar and rice (free access in 2009)

* WTO Enabling Clause * Regulation 2501/2001 of the (replaced Council of 10 December 2001 on 1 July 2005 by the GSP+, then on 1 January 2006 for the general regime) and agricultural products (with sectoral * interests of DC exporters not always

77 ACP countries

* Exemption from the General Council for tariff aspects (base art. IX GATT) until 31 December 2007) * Cotonou Agreements and implementation regulations * free access for agricultural products

well taken into account

* scaling in function of the preferential market share (“lion’s share”)

Rules of Origin

The products must be entirely obtained or “sufficiently” transformed in the preference-receiving LDC

The products must be entirely obtained or “sufficiently” transformed in the preference-receiving DC

Cumulation Rules

Bilateral cumulation between

Bilateral cumulation between the

the beneficiary LDC only and the European Union

beneficiary DC only and the European Union

The products must be entirely obtained or “sufficiently” transformed in the preference-receiving ACP country Total cumulation between the ACP zone and the European Union

The ensemble of ACP countries is seen as one territory.

1 – The rules of origin aim to ensure that only those products truly extracted, produced or manufactured in the preference-

receiving exporting countries are allowed to receive preferential tariff treatment in the framework of the generalised system of preferences (GSP) or an exceptional regime. The products exported by a preference-receiving country can be classified in two

groups. The product is either “entirely obtained” (that is to say raised, cultivated, extracted or harvested), or the product is manufactured, entirely or partially, from imported materials or components. In the second case, the product must undergo “suf-

ficient” transformation to benefit from the preferences.

2 – The cumulation rules add flexibility to the sufficient transformation rule. They allow greater utilisation, in a beneficiary

country, of materials or components imported from other countries by bypassing the obligation for sufficient transformation. In bilateral cumulation, only products from the EU and the beneficiary country bypass the sufficient transformation rule. In total

cumulation, products from the EU, any ACP country—and, under certain conditions, other countries—bypass the sufficient transformation rule.

Economic Partnership Agreements: Accompanying Measures Are Needed

Appendix 3. Ad Valorem Tariffs (%) Applied by African Countries on Imports from the European Union

BOT

XSC

MWI

MOZ

33.0

18.8

0.0

7.6

Cereals

25.8

38.8

24.9

Oil Seeds

38.2

29.6

Vegetables Sugar

Cotton

Other Crops

Livestock

25.6 17.1

34.0

9.2

13.0

25.6 0.2

TZA

18.9

12.9

27.2

32.3

30.5

21.3

Light Industry

25.5

12.1

24.5

0.0

BOT

0.0

4.1

0.1 5.2

8.2

4.9 0.0

63.7

12.8

63.7

8.7 0.1

7.8

12.9 13.4

4.9

UGA

0.5

2.4

XSS

11.1

27.4

18.4

15.0

0.0

14.9

5.2

9.8

3.5

16.6

1.0

15.0

18.2

22.9

10.1

13.0

21.9

23.5

12.4

21.8

26.8

15.9

20.9

0.0

13.3

8.5

0.0

5.0

3.0

6.8

0.0

1.4

4.1

Average (excluding trade and services) 28.0

XSC

MWI

MOZ

TZA

ZMB

ZWE

XSF

UGA

XSS

20.7

24.6

11.0

18.3

8.8

12.0

12.7

22.7

12.8

(including trade and services)

17.5

20.8

9.3

15.5

9.1

10.6

11.5

19.2

11.2

Industry

Trade

Services

Average

67.1 23.9

0.0

23.7

71.4

7.2

0.0

Source: Aggregation of the version 5 GTAP database.

17.4

0.0

7.8

30.1

6.4

2.5

Agro-Industry

0.3

5.6

0.0

7.3

0.1

15.8

13.3 39.5

28.7

11.1

2.5

9.8

2.5

Natural Resources

XSF

12.4

42.3 37.3

ZWE

17.5

17.1

9.2

ZMB

2.5

9.8

0.0

17.1

0.0

16.5 10.8

Economic Partnership Agreements: Accompanying Measures Are Needed

42.9 14.9

29.6

27.3

11.4

13.8

7.6

14.7

ACRONYMS

ACP: Africa, Caribbean and Pacific

AFD: Agence Française de Développement

CARICOM: Caribbean Community and Common Market

CEMAC: Central African Economic and Monetary Community CET: Common External Tariff

CILSS: Comité permanent inter-états de lutte contre la sécheresse dans le Sahel (Permanent Interstate Committee for Drought Control in the Sahel)

COMESA: Common Market for Eastern and Southern Africa DC: developing country

EAC: East African Community

EBA: Everything But Arms Initiative

ECCAS: Economic Community of Central African States

ECOWAS: Economic Community of West African States

EDF: European Development Fund

EPA: Economic Partnership Agreement

EU: European Union

GATT: General Agreement on Tariffs and Trade GSP: Generalised System of Preferences

IOR-ARC: Indian Ocean Rim–Association for Regional Cooperation

LDC: Least Developed Country

MEDA: Adjustment Fund for Industry in Mediterranean Third Countries

PACER: Pacific Agreement on Closer Economic Relations PICTA: Pacific Island Countries Trade Agreement

PRCC: Programme de renforcement des capacités commerciales (trade capacity-building programme)

SACU: Southern African Customs Union

SADC: Southern African Development Community

SEMC: Southern and Eastern Mediterranean Countries

TDCA: Trade, Development and Cooperation Agreement

UNECA: United Nations Economic Commission for Africa

VAT: Value Added Tax

WAEMU: West African Economic and Monetary Union

WTO: World Trade Organisation

Economic Partnership Agreements: Accompanying Measures Are Needed

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Economic Partnership Agreements: Accompanying Measures Are Needed

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