EPAs, Trade and Development

Paul Brenton
Trade Department
World Bank
 Key Issues
 The new global economy presents challenges and opportunities
for ACP countries

 To realize the opportunities, ACP has to reverse past trends

toward declining world market shares of goods and service

 ACP countries can use EPAs to leverage global competitiveness

and sustained export growth … if they seize the opportunity to
forge a pro-reform negotiating strategy
The global context

Developing countries share of world trade will rise as global

integration intensifies…
Exports from developing and developed countries, 2005-2030
US$2001 trln.
30
$27 trln

25
High-income
countries
20

15

10 Developing
countries
45%
5

32%
0
22%
1980 2005 2030

Source: World Bank simulations with Linkage model.

 The global context

Growth will raise incomes and reduce absolute poverty

 Average incomes are likely to double
 …and sharp reductions in dire absolute poverty
 But if current trends persist, Africa will host most of the worlds poor
1,400 Millions of people

1,200 28%
Other
Sub-Saharan 20%
1,000
Africa

800
12%
600 South Asia
8%

400
East Asia
200

0
1990 2003 2015 2030
The Trade Problem for Africa: the example of ESA

Global market share has fallen for the last 25 years

Average ESA countries’ share of world merchandise exports (% of
US current dollars)

0.04%

0.04%

0.03%

0.03%

0.02%

0.02%
Average ESA Countries’ share in world
0.01%
merchandise exports
0.01%

0.00%
0

82

84

88

90

94

96

00

02

4
8

0
8

9
19

19

19

19

19

19

20

20
19

19

19

19

20
Source: Bank staff calculations, based on data from IMF World Economic Outlook, Ethiopia and Eritrea counted as one country
The Trade Problem for Africa: the example of ESA

In comparison, 16 fast growing economies gained market

share…
Average share of world merchandise exports (% of US$ current)

Average HP 16 ESA
0.04%
1.2%
0.04%
Average HP 16
1.0% 0.03%

0.8% 0.03%

0.02%
0.6%
0.02%
0.4% Average ESA
0.01%
0.2%
0.01%

0.0% 0.00%

Source: Bank staff calculations, based on data from IMF World Economic Outlook, Ethiopia and Eritrea counted as one country
The Trade Problem for Africa: the example of ESA

Performance in services trade has been equally disappointing

Average ESA countries’ share of world services exports (% of US
current dollars)
0.04%

0.03%

0.03% Average ESA Countries’ Share in world

service exports
0.02%

0.02%

0.01%

0.01%

0.00%
0

82

84

88

90

94

96

00

02

4
8

0
8

9
19

19

19

19

19

19

20

20
19

19

19

19

20
Source: Bank staff calculations, based on data from World Economic Outlook, Ethiopia and Eritrea counted as one country.
The Trade Problem for Africa: the example of ESA

... Whilst fast growers have used trade in services to drive

growth
Exports of service as share of world services trade
(% of US current dollars)
0.9% 0.04%

0.8%
0.03%
Average for HP 16
0.7%
0.03%
0.6%

0.5% 0.02%

0.4% 0.02%
Average for ESA
0.3%
0.01%
0.2%
0.01%
0.1%

0.0% 0.00%

Source: Banks staff calculations, based on data from World Economic Outlook, Ethiopia and Eritrea counted as one
country
The Trade Problem for Africa: the example of ESA

The EU will decline in importance as a destination for exports

50% Destination of ESA and SADC exports (in percent)

45% ESA SADC
40%
2004
35%
30%
2030
25%
20%
15%
10%
5%
0%
Asia EU Americas Asia EU Americas

ESA SADC
Reform is necessary in ACP countries to attain global competitiveness

Countries everywhere are adopting reforms to take advantage of

new global opportunities
Successful programs have had five key characteristics…

 Trade and tax reforms to encourage exports and allow access to key
inputs at world prices
 Openness to FDI, especially in services
 Sound macroeconomic and supportive business climate
 Sustained investments in education and skill enhancement
 Support to firms and labour to move resources out of inefficient sectors
into efficient ones
Reform is necessary in ACP countries to attain global competitiveness

Ways ACP countries could use EPAs to promote growth……

 To leverage national and regional reforms
 Tariffs, transportation, and border barriers
 Tax structures
 Services
 Investment climate
 To leverage changes in EU policies
 Rules of origin
 Other market access issues (eg standards)
 Offensive interests in “rules agenda”

Let’s elaborate on the national and regional objectives…

Use EPAs to phase down high MFN tariffs,
NTBs and transport barriers
Because high border barriers: undermine competitiveness, risk trade
diversion, and impede intra-African trade…

NAFTA

AFTA

1 Pacific

2 SADC

3 CARCOM

4 ESA

5 ECOWAS

6 CEMAC

0 5 10 15 20
Average MFN weighted tariffs

Note: EPA Tariffs are import-weighted at the country level, then weighted by GDP at EPA averages
Source: UN TRAINS, accessed through WITS
Use EPAs to reduce trade costs

Days through ports to warehouse

OECD

East Asia

Latin Am

MNA

ECA

South As.

SS Africa

0 5 10 15 20 25 30

Source: World Bank, Doing Business 2006

Use EPAs to improve regional investment climate and lower
costs of backbone services

Liberalize transport, telecoms, and other trade-related

services

Regional regulatory frameworks – e.g., power, air

transport

Regional infrastructure investments

From objectives … to a pro-development agreement
An illustration…

 A Program of phased variable geometry for MFN tariffs consistent with

regional development programs, e.g.:
 Phase 1 & 2: Eliminate all internal barriers in CU/FTA
 Phase 1-2: Bring down MFN peak tariffs to average to promote intra-
African and other efficient trade
 Phase 2-3: Bring down average MFN average levels to East Asian
levels
 Phase 3: Allow EU duty free access to EPA markets
 Less restrictive rules of origin (choice of satisfying either a 10% value-
added requirement or change of tariff heading)
 A program of trade facilitation measures – to reduce costs of trading, with
special attention to lowering transit costs of land-locked countries
 A program of technical and financial assistance for trade facilitation, SPS,
and supply side measures (e.g., infrastructure)
 From objectives … to a pro-development agreement
An illustration…
 A program of gradual but purposeful reforms of tax administration and
intra-regional tax policy to harmonise tax structures
 A program of services liberalization on MFN basis that supports regional
development…
 Phase 1: Open services where markets discipline sellers (e.g,
retailing, professional services)
 Phase 2 & 3: Open services where regulations are required (e.g,
telecoms, finance, electricity, transport)
 Make no concessions on investment, competition and IPR beyond what is
in EU- Mexico or EU-S. Africa arrangements. Disciplines can entail
significant risks, but disciplines in existing EU-led free trade agreements
have been mild.
 A program, however small, of temporary movement of persons
In conclusion…
 ACP countries are confronting the challenge of moving from preference
dependence to being more dynamic exporters in a competitive global
environment
 Need to create incentives to move private resources into internationally
competitive activities – and release those now bottled up in low
productivity sectors…
 …and up-grade essential service industries, including introducing new
competition and efficient regulation …
 …together with safety nets to support workers (not jobs) and measures
that provide training and education to all
 If EPAs can be designed to support such an agenda then they will be
effective tools toward competitiveness, integration into the global
economy, growth and development
 Further Reading and References

Global Economic Prospects, 2007

Managing the Next Wave of Globalization

Paul Brenton “Preferences for Africa: How Much are They Worth?” in Trade,
Doha, and Development: A Window into the Issues R. Newfarmer (ed.) World
Bank: Washington
Hinke, L.. M. Hoppe, and R. Newfarmer 2005 “Beyond Cotonou: Economic
Partnership Agreements in Trade , Doha, and Development: A Window into the
Issues R. Newfarmer (ed) Washington: World Bank.
World Bank, Global Economic Prospects, 2005: Trade Regionalism and
Development Wasington: World Bank, 2004.