TABLE OF CONTENTS
Title
page
i
Certification
ii
Dedication
iii
Acknowledgment
iv
Table of
contents
v
List of
tables
vii
List of figures
viii
Abstract
ix
CHAPTER ONE:
INTRODUCTION
1
1.1 Background of the
Study
1
1.2 Problem
Statement
5
1.3 Objectives of the
Study
7
1.4 Study
Hypotheses
7
1.5 Justification of the
Study
7
1.6 Limitations of the
Study
8
CHAPTER TWO: LITERATURE
REVIEW
9
2.1 The Status of Economic
Partnership Agreements (EPAs) Negotiations 9
2.2 Trade Effects (Creation or
Diversion)
10
2.3 Revenue
Effects
13
2.4 Welfare Effects
14
2.5 ECOWAS Regional Block
and Trade
Policies
16
2.6 Importance of International
Agricultural
Trade
18
2.7 Empirical
Literature
19
2.8 Theoretical
Framework
22
2.8.1 Heckscher–Ohlin theorem
(HO)
23
2.9 Analytical
Framework
24
2.9.1 Smart Model for Partial Equilibrium
Simulation Analysis 27
CHAPTER THREE: RESEARCH
METHODOLOGY
32
3.1 The Study Area
32
3.2 Sampling Procedure
33
3.3 Data Collection
33
3.4 Data
Analysis
34
3.4.1 Model Specification for Objective
2
34
3.4.2 Model Specification for Objective
3
36
3.4.3 Model Specification for Objective 4
37
CHAPTER FOUR: RESULTS AND
DISCUSSION
38
4.1 Patterns of Imports of
Sample of small and large economies of ECOWAS Countries (the Gambia and
Nigeria).
39
4.2: Potential trade effect of EPAs
between ECOWAS (the Gambia and Nigeria) and EU on Agricultural products.
41
4.3: Potential Revenue Effect of EPAs
between ECOWAS (The Gambia and Nigeria) and the EU
44
4.4: Potential Welfare Effect of EPAs
between ECOWAS (The Gambia andNigeria) and the
EU
46
4.5 Agricultural Sensitive
Products for the Selected Small and Large ECOWAS Economies (the Gambia and
Nigeria).
48
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS
50
5.1
Summary
50
5.2
Conclusion
51
5.3
Recommendations
53
5.4 Contributions to
Knowledge
53
5.5 Areas for Future
Research
54
REFERENCES
55
APPENDIX
62
LIST OF TABLES
4.1: Patterns of Agricultural Imports
of the
Gambia
39
4.2: Patterns of Agricultural Imports
of
Nigeria
40
4.3: Potential trade effect of EPAs
between ECOWAS (the Gambia and Nigeria) and EU on Agricultural Products
42
4.4: Potential Revenue Effect of EPAs
between ECOWAS (The Gambia and Nigeria) and the
EU
45
4.5: Potential Welfare Effect of EPAs
between ECOWAS (The Gambia and Nigeria) and the EU on Agricultural
Products
47
LIST OF FIGURES
1.1: Intra-ECOWAS trade (as % of total
exports and imports) (Extracted from ITC (Trade map),
2014)
4
1.2: ECOWAS trade with other regions
(Extracted from ITC (Trade map),
2014)
4
2.1: Diagram showing effects of trade
creation (Author`s design, 2014) 11
2.2: Diagram showing effects of trade
diversion (Author`s design 2014) 13
2.3: illustrating the impact of
reciprocity in an
EPA
26
4.1: Potential Trade Effects of the
Gambia on EPAs with EU on Agricultural Products using 2010 as base line
(Author`s design from SMART,
2014)
43
4.2: Potential Trade Effects of Nigeria
on EPAs with EU on Agricultural Products (Author`s design from SMART,
2014)
44
4.3: Potential Revenue Effects of EPAs
between ECOWAS (The Gambia and Nigeria) and the EU on Agricultural products
(Author`s design from SMART,
2014)
46
4.4: Potential Welfare Effect of EPAs
between ECOWAS (The Gambia and Nigeria) and the EU on Agricultural Products
(Author`s design from SMART,
2014)
48
ABSTRACT
Smart Simulation Partial Equilibrium Methodology was employed in
this study to determine Effects of Economic Partnership Agreements on
Agricultural trade between small and large ECOWAS economies and the EU.
Specifically, the study looked at the patterns of imports of sample of two
ECOWAS countries the Gambia and Nigeria; the potential trade effects on the
selected countries embarking on free trade under economic partnership agreement
scenario; the potential revenue effects on the selected countries under the
same platform; the potential welfare effects on the selected countries under
the same platform; the sensitive products based on source and volume of import
criteria. WITS provided access to international trade and protection related
data and offered built-in-analytical tools for the study. Results of the
analysis on patterns of import of the selected ECOWAS countries showed that the
Gambia’s highest ($62158.328 million) proportion of imports came from ROW,
followed by imports from the EU ($ 13071.561 million) and least ($1372.053
million) imports from ECOWAS region. However, it was observed that the highest
($28493.34 million) product group imported by the Gambia was product group 10
(cereals) at 45.840% from ROW. The results on patterns of agricultural imports
of Nigeria showed that Nigeria’s highest ($1817981.912 million) imports on
agricultural products came from ROW; followed by imports from EU ($982718.781
million) and least ($45635.089 million) imports from ECOWAS region. It was
further observed that product group 10(cereals) was the highest
($699,878.321million) product group Nigeria imports which came from ROW at
38.50%. Result on Potential Trade Effect of EPAs between economies of ECOWAS
countries studied and the EU, showed that the EU beneficiary countries (ECOWAS)
were seen to gain $35926.855 million in “Trade Creation” and $15081.5191
million in “Trade Diversion”, while Total Trade Effect amounts to $20845.0309
million in Product groups studied as obtained from SMART Simulation Partial
Equilibrium 2014. Result on Potential Revenue Effect of the two sample ECOWAS
countries going into EPAs, showed total likely revenue losses (-$17223.665
million) for the two sampled countries on the product groups
studied, with Nigeria recording higher ( -$16666.638 million) loss and Gambia
recording least ( -$557.027). Result on Potential welfare effect of EPAs
between the economies of ECOWAS countries studied and EU showed likely welfare
gain ($2326.905 million) for the consumers in all the agricultural products
studied. With Nigeria recording higher welfare gain ($2238.793million) than the
Gambia ($88.112 million) in all the product groups studied. Result on sensitive
products based on source and volume import criteria, showed that product group
3, 4 and 15 were identified to contain the potential sensitive products for the
ECOWAS countries studied and should be exempted from EPAs as identified by the
study. Base on the findings of this study, the following recommendations were
made: The trade effect showed that ECOWAS countries are likely to record
greater trade creation effect than trade diversion effect in favour ECOWAS
countries. The on-going Economic partnership Agreements (EPAs) negotiations
between ECOWAS and the EU need to be concluded and implemented based on this
ground but measures should be taken to guide the infant industries to protect
them from fazing off from production due to cheaper goods flooding ECOWAS
markets from EU market.There is need for fiscal reforms to replace EPAs induced
tariff revenue losses. The fiscal reforms should entail shifting revenue from
trade to non-trade tax sources and improving the efficiency of fiscal revenue
collecting policies. Examples of non-tariff instruments that may assume greater
importance in revenue generation include value-added tax (VAT) and excise taxes
charged on imports from the EU. If ECOWAS countries can adapt this
measure, EPAs should be signed since the lost revenue can be reclaimed via
these means. Agricultural product groups 3, 4 and 15 should be the likely
sensitive products for the ECOWAS countries and should be exempted from EPAs as
identified in this study.
CHAPTER ONE
INTRODUCTION
1. BACKGROUND
OF THE STUDY
The Economic Partnership Agreements (EPAs) betweenEconomic
Community of West African States (ECOWAS) and the European Union (EU) are aimed
at promoting trade between the two groupings. The expectations are that through
trade deepened integration, development in addition to sustainable growth and
poverty reduction would evolve in ECOWAS sub region. The EPAs are set out to
help West African countries integrate and as well into the world economy and
share in the opportunities offered within and outside the sub-region by
globalization. Also, it hopes to provide scope for wide-ranging trade
co-operation on areas such that services, and standards acting as drivers of
change to kick-start reform and help to strengthen rule of law in the economic
field, thereby attracting foreign direct investment (FDI), to help create a
“virtuous circle” of growth (ECOWAS Statistical
Bulletin,2013).
However, with the exception of about 15 Caribbean states
that signed a regional economic partnership agreement (EPA), negotiations with
all the other countries have continued. To preserve their access to the EU
market after 2007, about 20 countries concluded interim trade agreements. This
light version of the original EPAs has not put an end to the negotiations as
some of these countries would like to see the terms of the trade agreement
revised, or their scope extended, and concluded at regional levels, to preserve
their regional integration process (ECDPM, 2012). In this regards, one wonders
how Ivory Coast and Ghana each could have a bilateral free trade agreement with
the EU. This is because opening their domestic market to European products,
while their West African partners, with whom they form a customs union, keep
protecting their market from the EU would, very logical lead to EU goods
flooding the whole regional markets via these two countries, rendering the West
African customs union and further integration process totally ineffective. This
scenario which seems to be unique to West Africa is the same in several other
African regions (Stevens, 2006).
Recently, Europe threatened to withdraw the special trade
preferences by 2014 to countries not showing commitment to proceed with their
interim EPA. Europe’s objective hopefully is to press for the conclusion of
broader trade deals at regional level that would replace these awkward and
controversial interim EPAs. In an apparently generous move, the European
parliament’s trade committee called on decision-makers to extend this deadline
to 2016. The identification of regionally traded products in a bid to
sustaining them through joint and diversified action plan by the region is very
necessary in aiding the negotiations through listing of products where trade
exist among ECOWAS for which the EU are suppliers. These should be exempted
from tariff removal (McKay, Milner & Morrissey, 2005).
EPAs date back to the signing of Cotonou Agreements in 2000 and
are “tailor-made” to suit specific regional circumstances. In 2002 when the EU
opened free trade negotiation with 78 African, Caribbean and Pacific
countries, it promised to go beyond conventional free-trade agreements,
focusing on ECOWAS among other ACP countries’ development and taking into
account their socio-economic circumstances included co-operation and assistance
to aid ECOWAS implement the Agreements. The opening up of the EU markets fully
and immediately (unilaterally by the EU since 1st January 2008), and allowing
ECOWAS 15 to 25 years to open up to EU imports while providing protection for
the sensitive 20% of imports are also major aspects of EPAs ( Busse &
Grossman ,2007).
However, Chris, Morrissey and Evious (2008) stated that the introduction of
reciprocity under an EPA will tend to threaten intra-regional trade in ECOWAS
region for a number of reasons. There is a direct displacement threat to the
traded products existing among regional suppliers by the elimination of the
external tariff protection vis-a-vis European exporters. There is also an
indirect threat associated with the displacement of domestic production by
European exporters in domestic markets, which may thereby reduce regional
production capacity and future prospects for intra-regional exporting. These
threats to ECOWAS regional trade development can be offset in a number of ways.
Most obviously, as negotiations allow for the exclusion of sensitive products
and for phased introduction of the tariff reductions, ECOWAS regions in general
may benefit by treating products traded within the region as sensitive for
EPAs, hence avoiding or postponing any reductions on tariffs on imports from
the EU. If EPAs promote increased ECOWAS exports to the EU there is potential
to benefit from spill-over (Onogwu, & Arene, 2013).
The results reported and discussed in many studies are based on
a number of ex ante studies of the trade effects of EPAs on
various ACP groupings or countries undertaken by the authors thus: – McKay,
Milner and Morrissey (2005) analyzed the welfare impacts on the East African
Community (EAC);Greenaway and Milner (2006) covered CARICOM and Milner,
Morrissey and Zgovu (2008) considered aspects of impact and adjustment costs
for the EAC and. Morrissey and Zgovu (2011) focused on agriculture and total
respective imports for a large sample of ECOWAS countries to compare the
welfare effects of a full liberalization with a scenario that excluded products
traded intra-regionally. These studies measured the regional trade displacement
effects of the liberalization of tariffs on imports from the EU given their
areas of study.
By far, one of the studies closer to this research intention was
the study by Busse, et al (2004). Though their study was on’ agricultural
products it was silent over trade classification and product details. Again,
their study was silent at product sections levels hence on the listing of
products traded among ECOWAS member nations within the region for which EU are
suppliers (sensitive products) requiring sustenance. This can be used as a
strong bargaining factor in EPAs between ECOWAS and the EU. Besides, other
authors have not, however, explored in many details the associated trade,
tariff revenue and welfare effects of EPAs on neither intra-ECOWAS trade,
nor have they explicitly considered the source and volume of imports of traded
products as a measure for sensitive products listing and criterion in designing
a reduction of adverse intra-ECOWAS trade development effects. This
proposalaims at filling these gaps.