EPAs, Trade and Development Paul Brenton Trade Department World Bank

EPAs, Trade and EPAs, Trade and DevelopmentDevelopment

Paul BrentonTrade DepartmentWorld Bank

Key Issues

The new global economy presents challenges and The new global economy presents challenges and opportunities for ACP countriesopportunities for ACP countries

To realize the opportunities, ACP has to reverse past trends To realize the opportunities, ACP has to reverse past trends toward declining world market shares of goods and servicetoward declining world market shares of goods and service

ACP countries can use EPAs to leverage global ACP countries can use EPAs to leverage global competitiveness and sustained export growth … if they seize competitiveness and sustained export growth … if they seize the opportunity to forge a pro-reform negotiating strategythe opportunity to forge a pro-reform negotiating strategy

Developing countries share of world trade will rise as Developing countries share of world trade will rise as global integration intensifies…global integration intensifies…

0

5

10

15

20

25

30

1980 2005 2030

US$2001 trln.

Source: World Bank simulations with Linkage model.Source: World Bank simulations with Linkage model.

Exports from developing and developed countries, 2005-2030Exports from developing and developed countries, 2005-2030

Developing countries

High-income countries

$27 trln

32%

45%

22%

The global contextThe global context

Growth will raise incomes and reduce absolute povertyGrowth will raise incomes and reduce absolute poverty Average incomes are likely to doubleAverage incomes are likely to double

……and sharp reductions in dire absolute poverty and sharp reductions in dire absolute poverty

But if current trends persist, Africa will host most of the worlds poorBut if current trends persist, Africa will host most of the worlds poor

0

200

400

600

800

1,000

1,200

1,400

1990 2003 2015 2030

East AsiaEast Asia

South AsiaSouth Asia

Sub-Saharan Sub-Saharan AfricaAfrica

OtherOther28%28%

20%20%

8%8%

12%12%

Millions of peopleMillions of people

The global contextThe global context

0.00%

0.01%

0.01%

0.02%

0.02%

0.03%

0.03%

0.04%

0.04%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Source: Bank staff calculations, based on data from IMF World Economic Outlook, Ethiopia and Eritrea counted as one country

Global market share has fallen for the last 25 yearsGlobal market share has fallen for the last 25 yearsAverage ESA countries’ share of world merchandise Average ESA countries’ share of world merchandise

exports (% of US current dollars)exports (% of US current dollars)

Average ESA Countries’ share in Average ESA Countries’ share in world world

merchandise exports merchandise exports

The Trade Problem for Africa: the example The Trade Problem for Africa: the example of ESAof ESA

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

0.00%

0.01%

0.01%

0.02%

0.02%

0.03%

0.03%

0.04%

0.04%

In comparison, 16 fast growing economies gained market In comparison, 16 fast growing economies gained market share…share…

Average ESAAverage ESA

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

Average HP 16Average HP 16

Average HP Average HP 1616

ESAESA

Source: Bank staff calculations, based on data from IMF World Economic Outlook, Ethiopia and Eritrea counted as one country


0.00%

0.01%

0.01%

0.02%

0.02%

0.03%

0.03%

0.04%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Source: Bank staff calculations, based on data from World Economic Outlook, Ethiopia and Eritrea counted as one country.

Average ESA Countries’ Share in Average ESA Countries’ Share in world world

service exportsservice exports

Performance in services trade has been equally disappointing Performance in services trade has been equally disappointing

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


0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

0.00%

0.01%

0.01%

0.02%

0.02%

0.03%

0.03%

0.04%

Source: Banks staff calculations, based on data from World Economic Outlook, Ethiopia and Eritrea counted as one country

Average for HP 16 Average for HP 16

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

Exports of service as share of world services Exports of service as share of world services tradetrade (% of US current dollars) (% of US current dollars)

Average for ESAAverage for ESA


The EU will decline in importance as a destination for exports The EU will decline in importance as a destination for exports

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Asia EU Americas Asia EU Americas

ESA SADC

2030

2004

Destination of ESA and SADC exports (in percent)

SADCESA


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

Countries everywhere are adopting reforms to take Countries everywhere are adopting reforms to take advantage of new global opportunitiesadvantage of new global opportunities

Successful Successful programs have had five key characteristics…programs have had five key characteristics…

Reform is necessary in ACP countries to attain global Reform is necessary in ACP countries to attain global competitivenesscompetitiveness

Ways ACP countries could use EPAs to promote growth……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…

Reform is necessary in ACP countries to attain global Reform is necessary in ACP countries to attain global competitivenesscompetitiveness

Use EPAs to phase down high MFN tariffs, Use EPAs to phase down high MFN tariffs, NTBs and transport barriersNTBs and transport barriers

0 5 10 15 20

6 CEMAC

5 ECOWAS

4 ESA

3 CARCOM

2 SADC

1 Pacific

AFTA

NAFTA

Note: EPA Tariffs are import-weighted at the country level, then weighted by GDP at EPA averagesSource: UN TRAINS, accessed through WITS

Average MFN weighted tariffs

Because high border barriers: undermine Because high border barriers: undermine competitiveness, risk trade diversion, and impede competitiveness, risk trade diversion, and impede intra-African trade…intra-African trade…

0 5 10 15 20 25 30

SS Africa

South As.

ECA

MNA

Latin Am

East Asia

OECD

Source: World Bank, Doing Business 2006

Days through ports to warehouse

Use EPAs to reduce trade costsUse EPAs to reduce trade costs

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

Liberalize transport, telecoms, and other trade-related services

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

Regional infrastructure investments

A Program of phased variable geometry for MFN tariffs consistent A Program of phased variable geometry for MFN tariffs consistent with regional development programs, e.g.:with regional development programs, e.g.: Phase 1 & 2: Eliminate all Phase 1 & 2: Eliminate all internal barriersinternal barriers in CU/FTA in CU/FTA Phase 1-2: Bring down MFN Phase 1-2: Bring down MFN peak tariffspeak tariffs to average to promote to average to promote

intra-African and other efficient trade intra-African and other efficient trade Phase 2-3: Bring down Phase 2-3: Bring down averageaverage MFN average levels to East Asian MFN average levels to East Asian

levelslevels Phase 3: Allow EU duty free access to EPA markets Phase 3: Allow EU duty free access to EPA markets

Less restrictive rules of origin (choice of satisfying either a 10% Less restrictive rules of origin (choice of satisfying either a 10% value-added requirement or change of tariff heading)value-added requirement or change of tariff heading)

A program of trade facilitation measures – to reduce costs of trading, A program of trade facilitation measures – to reduce costs of trading, with special attention to lowering transit costs of land-locked with special attention to lowering transit costs of land-locked countriescountries

A program of technical and financial assistance for trade facilitation, A program of technical and financial assistance for trade facilitation, SPS, and supply side measures (e.g., infrastructure)SPS, and supply side measures (e.g., infrastructure)

From objectives … to a pro-development agreementFrom objectives … to a pro-development agreement

An illustration…An illustration…

A program of gradual but purposeful reforms of tax administration A program of gradual but purposeful reforms of tax administration and intra-regional tax policy to harmonise tax structures and intra-regional tax policy to harmonise tax structures

A program of services liberalization on MFN basis that supports A program of services liberalization on MFN basis that supports regional development… regional development…

Phase 1: Open services where markets discipline sellers (e.g, Phase 1: Open services where markets discipline sellers (e.g, retailing, professional services)retailing, professional services)

Phase 2 & 3: Open services where regulations are required (e.g, Phase 2 & 3: Open services where regulations are required (e.g, telecoms, finance, electricity, transport) telecoms, finance, electricity, transport)

Make no concessions on investment, competition and IPR beyond Make no concessions on investment, competition and IPR beyond what is in EU- Mexico or EU-S. Africa arrangements. Disciplines can what is in EU- Mexico or EU-S. Africa arrangements. Disciplines can entail significant risks, but disciplines in existing EU-led free trade entail significant risks, but disciplines in existing EU-led free trade agreements have been mild. agreements have been mild.

A program, however small, of temporary movement of personsA program, however small, of temporary movement of persons

From objectives … to a pro-development agreementFrom objectives … to a pro-development agreementAn illustration…An illustration…

In conclusion… In conclusion… ACP countries are confronting the challenge of moving from ACP countries are confronting the challenge of moving from

preference dependence to being more dynamic exporters in a preference dependence to being more dynamic exporters in a competitive global environmentcompetitive global environment

Need to create incentives to move private resources into Need to create incentives to move private resources into internationally competitive activities – and release those now bottled internationally competitive activities – and release those now bottled up in low productivity sectors…up in low productivity sectors…

……and up-grade essential service industries, including introducing and up-grade essential service industries, including introducing new competition and efficient regulation … new competition and efficient regulation …

……together with safety nets to support workers (not jobs) and together with safety nets to support workers (not jobs) and measures that provide training and education to allmeasures that provide training and education to all

If EPAs can be designed to support such an agenda then they will be If EPAs can be designed to support such an agenda then they will be effective tools toward competitiveness, integration into the global effective tools toward competitiveness, integration into the global economy, growth and developmenteconomy, growth and development

Paul Brenton “Preferences for Africa: How Much are They Paul Brenton “Preferences for Africa: How Much are They Worth?” in Worth?” in Trade, Doha, and Development: A Window into Trade, Doha, and Development: A Window into the Issues the Issues R. Newfarmer (ed.) World Bank: Washington R. Newfarmer (ed.) World Bank: Washington

Hinke, L.. M. Hoppe, and R. Newfarmer 2005 “Beyond Hinke, L.. M. Hoppe, and R. Newfarmer 2005 “Beyond Cotonou: Economic Partnership Agreements in Cotonou: Economic Partnership Agreements in Trade , Doha, Trade , Doha, and Development: A Window into the Issues and Development: A Window into the Issues R. Newfarmer R. Newfarmer (ed) Washington: World Bank.(ed) Washington: World Bank.

World Bank, World Bank, Global Economic Prospects, 2005: Trade Global Economic Prospects, 2005: Trade Regionalism and Development Wasington: World Bank, Regionalism and Development Wasington: World Bank, 2004. 2004.

Further Reading and ReferencesFurther Reading and References

Global Economic Prospects, 2007Global Economic Prospects, 2007Managing the Next Wave of Managing the Next Wave of

GlobalizationGlobalization

Documents

EPAs, Trade and Development Paul Brenton Trade Department World Bank