Consequences of Economic Partnership Agreements between East and Southern African Countries and the EU for Inter- and Intra-regional Integration

Abstract

The European Union is currently negotiating Economic Partnership Agreements (EPAs) with six African, Caribbean and Pacific country groupings, aiming at establishing mutual free trade. This paper empirically assesses the impact of the EPAs on trade flows and government revenues for 22 East and Southern African countries and discusses implications for intra-regional integration. The results indicate that while moderate trade effects can be expected, relatively large budget effects are likely to occur in a number of these countries, exposing them to considerable structural and financial adjustment requirements. In addition, EPAs would strengthen the need to consolidate overlapping intra-regional integration schemes.

Keywords:

• Economic partnership agreement
• EU
• ACP countries
• East and Southern Africa

Acknowledgements

The findings, interpretations and conclusions expressed in the paper are entirely those of the authors and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The authors would like to thank two anonymous referees for helpful comments and suggestions and Franziska Jerosch and Silke Neuhaus for their research assistance.

Notes

¹COMESA has currently 20 members in total.

²Even though it is called SADC Group, it does not represent all SADC member countries. There are six SADC member countries that will negotiate under ESA Group (Democratic Republic of Congo, Malawi, Mauritius, Seychelles, Zambia and Zimbabwe). For simplicity, we use the term ‘East and Southern Africa’ for all 23 countries in the region that intend to negotiate regional EPAs.

³Percentages are based on averages for the period 1999 to 2003 (ITC 2005).

⁴Likewise, averages for 1999–2003 (OECD, 2005).

⁵Many of the trade liberalisation measures that took place during the 1990s were implemented as part of the conditionalities inserted in Structural Adjustment Programs imposed by the Bretton Woods institutions.

⁶Note that these figures refer to import-weighted tariff rates, which differ from simple averages. For that reason, SACU customs union members have different (import-weighted) tariff rates.

⁷Only Botswana, Malawi, Mozambique, Tanzania, Uganda, Zambia and Zimbabwe are included in the most recent 6.0 database of the Global Trade Analysis Project (GTAP).

⁸See the Appendix for data sources for all variables.

⁹See Sawyer & Sprinkle (1999) for a survey of trade elasticities. More recent estimates can be found in Kee et al. (2004), Hertel et al. (2003) and Gallaway et al. (2003). For Comoros, we have used ϵ=−0.7 and σ=−2.0 for total imports, since no disaggregated data could be obtained.

¹⁰We have computed a single collection efficiency ratio for Botswana, Lesotho, Namibia and Swaziland, since all of them are members of the SACU customs union, sharing customs duties according to an agreement with South Africa and a specific formula. See Kirk & Stern (2005) for details.

¹¹Studies that have investigated the impact of trade liberalisation in Africa in the past, using import-weighted tariff rates, are likely to have arrived at biased estimates if collection ratios and tariff rates differ significantly. For example, none of the studies surveyed in the introduction has corrected for the discrepancies between the two rates.

¹²Liberalisation of 90% of trade flows is generally considered to comply with WTO regulations under Art. 24 which provides that Regional Trade Agreements should liberalise ‘substantially all trade between the parties’.

¹³See equations (7) and (8).

¹⁴Comoros had to be excluded from the computation of the most affected products, as disaggregated tariff and trade were not available. Thus, the sample drops to 21 countries.

¹⁵Similar to the trade effects, our estimated budget effects are lower in comparison to those reported in previous studies that also use partial equilibrium models. The discrepancy can partly be explained by the fact that other studies have not corrected for inefficiencies in import duty collections.

¹⁶While this would reduce or eliminate trade diversion effects and ‘pricing to market’ behaviour by European exporters, tariff revenue would further decline (Hinkle & Schiff, 2004).

¹⁷To complicate things further, SACU is currently in the process of negotiating a free trade agreement with the United States, its second largest trading partner.