EPA and the issue of regional EPA and the issue of regional - - PowerPoint PPT Presentation

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EPA and the issue of regional EPA and the issue of regional integration in Africa integration in Africa

GIOVANNI VALENSISI Regional Integration and Trade Division – UNECA Regional Integration and Trade Division – UNECA Regional multi-stakeholder dialogue “The EPA, regional sectorial policies & development in West Africa: Threat or opportunity” Dakar 27-28 October 2014

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• Negotiating Configuration → 5 African blocks (plus Euro-Med)
• Timing → Consolida5on on African RECs into FTA & CU is
• ngoing, but at uneven pace
• Differences between LDCs and non-LDCs
• Structural asymmetries in trade relationships:

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

Key Features of EPAs Affecting Africa’s Regional Integration

• Structural asymmetries in trade relationships:
• 1. Rela5ve importance of bilateral trade rela5ons → EU

accounted for 40% of ECOWAS exp., ECOWAS for < 1% of EU

• exp. (2009-2012)
• 2. Composi5on/concentra5on → ECOWAS exp. to EU consists

for 72% of fuels, 4% manufactures; EU exports to ECOWAS for 31% of fuels, & 52% manufactures (2009-2012)

• 3. Market access → ECOWAS already having good mkt access to

EU, but EU facing relatively high protection in ECOWAS

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ECOWAS REC members negotiated EPAs as a single block 5-bands CET in place by 1st January 2015

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

COMESA REC members negotiated EPAs within ESA, but also Central Africa, EAC, SADC Euromed 3-bands CET agreed, but no yet clear when its structure January 2015 EPAs officially approved by Heads of States in July 2014 yet clear when its structure will be in place Buy time on EPAs, through interim-EPAs

EPAs risk creating additional obstacles to the consolidation of RECs into CU, esp. in case of overlapping REC memberships

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Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

• Computable General Equilibrium model used here to analyze

expected impacts from EPAs:

CGE models have some limitations but are the sole tools capable of

capturing multiple interactions within the world economy

CGE is complementary to partial eq. analysis

Empirical analysis

• MIRAGE CGE model used (dynamic, multi-country, multi-sector)
• Key data inputs come from:

Global Trade Analysis Project (GTAP) database Market Access Map-HS6 database (updated to reflect latest

evolutions: EU-28 embers, EBA, AGOA, progress in regional integration…)

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Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

• Baseline:

COMESA & ECOWAS CET assumed to be in place by 1 January 2015 ESA is assumed to be a FTA by 1 January 2015

• EPA Scenario:

EU to grant immediately 100% DFQF on its imports from ECOWAS & ESA

ECOWAS to grant progressively not less than 75% DFQF on its imports from

Baseline, Scenario and Comparison

ECOWAS to grant progressively not less than 75% DFQF on its imports from

the EU according to its liberalization schedule

ESA countries to grant progressively not less than 80% DFQF on imports

from the EU by 2035 (sensitive products are selected taking into account: (i) tariff; (ii) trade; and (iii) tariff reduction; (Jean, Laborde and Martin; 2008))

• Comparisons:

Results are obtained by comparison between the scenario and the baseline

in the year 2040 (to leave sufficient time for the model to adjust)

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Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

30.0 40.0 50.0 60.0

Average tariff faced by EU (28) on its exports to ECOWAS

0.0 10.0 20.0 P addy and proc es s ed ric e C ereals and c rops V egetable fruit and nuts P lant-bas ed fibers Liv es toc k M ilk and dairy produc ts S ugar M eat produc ts O ther food produc ts M ining C rude and refined oil O ther energy F is hing W ood produc ts C hem ic al rubber and plas tic produc ts T ex tile apparel and leather produc ts N on-m etalic m inerals Iron and s teel O ther m etal produc ts M otor v ehic le and trans port equipm ent E lec tronic and m ac hinery equipm ent O ther m anufac ture

Before CET After CET 2020 2025 2030 2035

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Main regions’ total exports following implementation of EU-ESA and EU- ECOWAS EPAs – 2040 – % and USD billion

% USD bn ECOWAS 2.9 10.6 ESA 1.3 1.4 Rest of Africa 0.0

• 0.5

European Union (28) 0.4 17.8 United States 0.0

• 0.6

Rest of the World 0.0

• 2.0

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

EU-ECOWAS & EU-ESA EPAs – Total exports

• Both the EU and African EPA signatory countries would expand their total exports

under EPAs

• ECOWAS gains the most in % terms, but EU gains the most in absolute terms
• Export gains for African countries are concentrated in non-LDCs, and in few sectors
• EU would expand its exports to Africa in a wide range of sectors, including to some

extent at the expenses of third countries (→ trade diversion)

Source: authors’ calculations based on the MIRAGE model

Rest of the World 0.0

• 2.0

TOTAL 0.1 26.7

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Changes in ECOWAS and selected ECOWAS countries’ exports to the EU following implementation of ESA-EU and ECOWAS-EU EPAs – By sectors – 2040 – % and USD bn

% USD bn % USD bn % USD bn % USD bn Paddy and processed rice 4256.7 1.9 10.7 0.0 3535.3 0.3 4846.9 1.6 Cereals and crops

• 4.5
• 0.6
• 0.9

0.0

• 3.0
• 0.1
• 9.2
• 0.5

Vegetable, fruit and nuts 23.3 0.2 60.5 0.2 2.1 0.0

• 0.3

0.0 Plant-based fibers

• 0.1

0.0

• 0.7

0.0

• 2.0

0.0

• 5.2

0.0 Livestock

• 4.7

0.0

• 1.9

0.0

• 3.0

0.0

• 12.0

0.0 Milk and dairy products 5385.4 0.8 12762.6 0.8 31738.7 0.0 Sugar 11.3 0.0 1445.5 0.0 Meat products 3103.7 5.4 2010.2 0.2 9439.6 0.9 8073.5 4.3 Other food products 2.3 0.1 2.4 0.0 0.4 0.0 7.2 0.0 Agriculture and food 44.5 7.8 9.9 0.4 42.3 1.8 95.7 5.6 Key winners from ECOWAS Cote d'Ivoire Ghana Nigeria ECOWAS

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

EU-ECOWAS & EU-ESA EPAs – ECOWAS-EU bilateral trade

Source: authors’ calculations based on the MIRAGE model

Agriculture and food 44.5 7.8 9.9 0.4 42.3 1.8 95.7 5.6 Mining 0.5 0.0 0.8 0.0 0.6 0.0 1.1 0.0 Crude and refined oil 2.1 0.3 5.6 0.0 15.7 0.0 1.8 0.2 Other energy 4.5 0.5 24.8 0.0 23.4 0.0 1.8 0.2 Mining and energy 2.9 0.8 6.5 0.0 17.2 0.1 1.8 0.4 Fishing 0.7 0.0

• 0.1

0.0 0.4 0.0

• 2.4

0.0 Wood products 2.5 0.0 4.3 0.0 0.4 0.0

• 5.2

0.0 Chemical, rubber and plastic products 3.7 0.2 5.0 0.0 1.5 0.0 5.5 0.0 Textile, wearing apparel and leather products

• 6.3
• 0.3

8.3 0.0

• 4.3

0.0

• 7.8
• 0.3

Non-metalic minerals 4.1 0.0 7.1 0.0 3.2 0.0 3.0 0.0 Iron and steel 3.2 0.0 16.5 0.0 1.3 0.0 2.4 0.0 Other metal products 4.0 0.1 7.2 0.0

• 0.9

0.0 3.5 0.0 Motor vehicle and transport equipment 3.4 0.1 7.8 0.0 8.3 0.0 0.7 0.0 Electronic and machinery equipment 6.9 0.2 8.9 0.1 0.2 0.0 2.0 0.0 Other manufacture

• 0.3

0.0 3.8 0.0 0.5 0.0

• 4.1

0.0 Industry 1.5 0.3 6.6 0.3 0.1 0.0

• 3.5
• 0.3

Transport services 2.4 0.1 2.6 0.0

• 0.7

0.0 3.8 0.0 Other services 0.1 0.0 2.3 0.0

• 2.0

0.0

• 5.7

0.0 Services 0.9 0.1 2.4 0.0

• 1.5

0.0

• 0.4

0.0

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• Following implementation of ESA/ECOWAS-EU EPAs, intra-African trade is

reduced by USD 3 billion and can be decomposed as follow:

USD bn Intra-ECOWAS trade

• 1.2

ECOWAS exports to ESA 0.0 ECOWAS exports to Rest of Africa 0.5 Intra-ESA trade

• 0.1

ESA exports to ECOWAS

• 0.1

ESA exports to Rest of Africa

• 0.4

Intra-Rest of Africa trade 0.0 Rest of Africa export to ECOWAS

• 2.1

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

• African countries, esp. in ECOWAS, would tend to substitute imports sourced from the

continent with EU-origina5ng imports (→ remember the tariff structure)

• Industrial products account for 2/3 of the reduction in intra-African trade (notably

electronic & machinery equipment, chemicals, and textiles); the remaining is mostly fuels

• The net effect on real income depends on the combina5on of ↑ exp, ↑ imp, ↓ tariff

revenues; except a few African non-LDCs, most countries would suffer modest declines

Rest of Africa export to ECOWAS

• 2.1

Rest of Africa export to ESA 0.4 Intra-African trade

• 3.0

Source: authors’ calculations based on the MIRAGE model

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Main regions’ total exports following implementation of EU-ESA and EU- ECOWAS EPAs, alone and combined with CFTA – 2040 – % and USD billion

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

% USD bln % USD bln ECOWAS 2.90 10.60 5.60 20.40 ESA 1.30 1.40 6.00 6.60 Rest of Africa 0.00

• 0.50

9.60 119.90 EU (28) 0.40 17.80 0.10 6.00 US 0.00

• 0.60
• 0.10
• 2.90

Rest of World 0.00

• 2.00
• 0.10
• 14.70

EU-ECOWAS & EU-ESA EPAs EU-ECOWAS & EU-ESA EPAs + CFTA

• If a CFTA is already in place when EPAs are fully implemented, Africa’s exports

would increase greatly; bilateral trade with EU would not increase as much as before, but intra-Africa trade would be boosted by nearly 10%

• EU would gain but less than before (NB. In our scenario African blocks other

than ESA and ECOWAS do not implement EPAs → Interest of EU to have the max nr of African countries to sign EPAs)

• The net effect would be trade creating, even though third countries would see

their exports decreasing further, due to greater trade diversion

Source: authors’ calculations based on the MIRAGE model

Rest of World 0.00

• 2.00
• 0.10
• 14.70

TOTAL 0.10 26.70 0.50 135.30

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• Following implementation of ESA-EU and ECOWAS-EU EPAs with CFTA in place,

intra-African trade is increased by USD 160 billion and can be decomposed as follow:

Key findings – EPAs in the context of African CFTA

USD bn Intra-ECOWAS trade

• 2.0

ECOWAS exports to ESA 0.1 ECOWAS exports to Rest of Africa 20.2 Intra-ESA trade

• 0.3

ESA exports to ECOWAS 0.8 ESA exports to Rest of Africa 2.8

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

• If trade within ECOWAS countries and within ESA countries due to trade diversion towards

both the EU (thanks to EPAs) and other African countries (including that ECOWAS and ESA trade more between each other; thanks to CFTA), the net effect from the CFTA reform on top of EPAs positive leading to substantial trade creation

• A CFTA would boost the rest of Africa’s exports towards all African destinations

Source: authors’ calculations based on the MIRAGE model

ESA exports to Rest of Africa 2.8 Intra-Rest of Africa trade 119.2 Rest of Africa export to ECOWAS 10.6 Rest of Africa export to ESA 8.4 Intra-African trade 159.9

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Main regions’ total exports following implementation of EU-ESA and EU-ECOWAS EPAs (alone, combined with CFTA, and combined with CFTA +TF) – 2040 – % and USD billion

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

% USD bln % USD bln % USD bln ECOWAS 2.90 10.60 5.60 20.40 22.50 81.70 ESA 1.30 1.40 6.00 6.60 26.50 29.50 Rest of Africa 0.00

• 0.50

9.60 119.90 29.80 371.80 EU (28) 0.40 17.80 0.10 6.00 12.40 549.60 US 0.00

• 0.60
• 0.10
• 2.90

13.50 446.10 EU-ECOWAS & EU-ESA EPAs EU-ECOWAS & EU-ESA EPAs + CFTA + TF 1/2 EU-ECOWAS & EU-ESA EPAs + CFTA

• If EPAs are combined with both CFTA and Trade facilitation (bilateral trade cost

halved worldwide), all trade relations would be boosted

• The effect of TF would more than offset the potential trade diversion, as well

as real income losses

• Intra-African trade would benefit greatly from CFTA + TF ½, increasing the most

in percentage terms

Source: authors’ calculations based on the MIRAGE model

Rest of World 0.00

• 2.00
• 0.10
• 14.70

16.30 3,059.70 TOTAL 0.10 26.70 0.50 135.30 16.10 4,538.30

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• Following implementation ESA-EU and ECOWAS-EU EPAs when CFTA in place

with reduction by half of trade costs worldwide, intra-African trade is increased by nearly USD 315 billion and can be decomposed as follow:

Key findings – EPAs in the context of African CFTA and reduction of trade costs

USD bn Intra-ECOWAS trade 14.6 ECOWAS exports to ESA 0.2 ECOWAS exports to Rest of Africa 20.1 Intra-ESA trade 1.8

Institutional challenges Introduction Impact on CFTA & BIAT Conclusions

• Adding trade facilitation measures aiming at reducing by half trade costs worldwide on top
• f a CFTA and EPAs reforms would double intra-African trade gains (with largest increase in

intra-Rest of Africa trade)

Source: authors’ calculations based on the MIRAGE model

Intra-ESA trade 1.8 ESA exports to ECOWAS 2.8 ESA exports to Rest of Africa 7.5 Intra-Rest of Africa trade 230.6 Rest of Africa export to ECOWAS 17.1 Rest of Africa export to ESA 19.1 Intra-African trade 313.8

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• The initial trade and tariff structure translates into asymmetric trade and

income gains, following EPAs in ESA & ECOWAS.

• Only ECOWAS/ESA non-LDCs benefit from export boost, and only in a few

(mainly agricultural) sectors; conversely, EU-28 witnesses larger and more balanced gains.

• Intra-African trade contracts in favour of imports from EU (esp. in ECOWAS).

Conclusions

Methodology Introduction Preliminary results Conclusions

• If EPAs in ESA & ECOWAS are implemented when CFTA is already in place

the negative effects of EPAs:

1. ECOWAS/ESA non-LDCs & EU continue to gain in bilateral trade 2. Exports from other African countries increase sharply 3. The increase of intra-African trade mainly in industrial products

• If EPAs in ECOWAS/ESA are combined with CFTA + TF ½ gains are enhanced
• ffsetting real income losses in Africa, & trade diversion on third parties.

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• Coordinate EPAs finalization across negotiating blocks and RECs, to

minimize obstacles to regional integration

• Use the finalization of EPAs to ensure that the most favorable

provisions in any block would be extended to the others (ex SADC RoO).

• Utilise transition period to appropriately sequence liberalization with

What to do at this stage?

Methodology Introduction Preliminary results Conclusions

• Utilise transition period to appropriately sequence liberalization with

EU & regional integration, notably with the CFTA

• Preserve and harness hard-fought policy space, carefully considering

whether to commit to WTO+ provisions (ex. IPR)

• Leverage trade facilitation to effectively integrate the regional market

(in line with AUC Action Plan for BIAT)

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Thank you for your attention!

http://www.uneca.org/our-work/regional- integration-and-trade