Economic and Welfare Impacts of the EU-Africa Economic Partnership Agreements

This study tries to quantify the concerns that have been raised often on adjustment costs likely to be faced by African countries and makes recommendations of how the EPAs could be made to work in Africa’s favour. The study addresses the following questions. First, how are African countries likely to gain or lose from a bilateral trade liberalisation between Africa and the EU as governed by the EPAs reciprocity principle? Second, what sectors in Africa are most likely to lose and what sectors gain from the EPAs? Third, what are the welfare implications for the African countries from the EPAs? Fourth, how will the formation of EPAs affect trade expansion through trade creation and trade diversion effects? Fifth, what are the potential fiscal implications of the EPAs? Lastly, what are the implications of the EPAs on regional integration? A key finding of the study is that full reciprocity will be very costly for Africa in terms of revenue losses, adjustment costs associated with de-industrialisation and its undermining effect of regional integration. Of major concern was this finding that even though the full reciprocity principle appears to be trade expanding globally (singularly in favour of EU), it will pose serious implications for deepening of regional integration in Africa. The benefits from regional integration efforts in Africa achieved so far are likely to be stymied by the EPAs since a significant portion of the trade gained by the EU will be due to trade diversion not only from the rest of the world but also from within the EPA groupings themselves that are configured around existing RECs. In deed, unless there are clear mitigating measures, the EPAs could seriously undermine the gains that have been achieved so far in the integration process of the continent. Only if there was focus on deepening African integration with a view to enhancing intra-African trade will the EPAs provide positive results. Nevertheless, unrestricted market access for Africa, which deals effectively with barriers associated with sensitive European products, was found to hold huge gains for the continent from the EPAs. In deed, even with full reciprocity, a free trade area that does not exclude sectors of export interest to Africa in the EU market and one that deals with non-tariff barriers promises positive results for African countries. The overarching conclusion from the study is that sequencing of EPAs will be critical to their success. The study recommends that the EPAs should first focus on deepening intra-African trade. This should be given sufficient lead-time to allow the African countries build the requisite competitiveness and should be accompanied with significant developmental programmes to complement the enlarged African market with increased supply and diversified capacities. Eventually, tariff dismantlement by the African countries towards full reciprocity should then be implemented in phases, hand-in-hand with unrestricted market access for the African exports into the EU market. Properly sequenced EPAs implementations would eventually offer annual welfare gains to SSA countries.