Epsilon Archive for Student Projects

Abstract

European Union (EU) is the major trading partner for Africa, Caribbean and Pacific (ACP) countries. The trade relationship between the two regions has been based on the non-reciprocal trade preference granted by EU through series of Lome conventions. However the non-reciprocal preference did not conform to the WTO article which necessitated a new negotiation called Economic Partnership Agreement based on reciprocity. The purpose of this study is to evaluate the economic implications of EPA and the alternative general preference scheme considering tariff preference offsetting impact of rules of Origin. The result show that EPA increase imports and exports disproportionately deteriorating of balance of trade for all ACP regions. Imports from EU increase by the range of 12% in Pacific to 52% in Central Africa and the corresponding revenue loss lie between 2.3% and 48%. As result of the increased completion from import, industrial value added decrease from 4.5% in SADC to 12.2% Central Africa. However, deep intra- regional integration helps to buffer the deindustrialization effect. Under the alternative scenario, imports decreases more than exports leading to trade surplus. The trade restricting effect of the rules of origin, which is measured by the reduction of ACP export to EU, ranges from 5% to 11%. Overall the results suggested that EPA tend to leave most ACP regions better off than the alternative option in terms of real GDP growth and welfare. Trade creation dominates trade diversion except for Central Africa, West Africa and the rest of non-ACP region under EPA. The sensitivity analysis indicate that the improvement of welfare is robust for EU, SADC and West Africa at 75% level of confidence with EPA and the welfare deterioration tend to be robust under the alternative scenarios for most ACP groups.