Trade Liberalisation and Fiscal Adjustment: The Case of EPAs in Africa

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    The African, Caribbean and Pacific (ACP) states have spent the last ten years engaged in negotiating the  Economic Partnership Agreements (EPAs) with the European Union (EU) – with various degree of progress across regions.

    EPAs represent a fundamental shift in the trading relations between the two parties, from a non-reciprocal preferential trading regime to one requiring reciprocity in liberalisation, albeit with a certain degree in asymmetry in commitments, in line with rules of the World Trade Organisations. 

    Concern over EPAs has focused on the argument that the agreements were likely to have significant negative effects on government revenues, given the large share of government revenues historically collected on trade taxes, and therefore on social expenditures geared towards the achievement of the Millennium Development Goals (MDGs).

    Key Purpose of ECDPM Study 

    The aim of this paper is to explore the fiscal consequences of EPAs and what might be done to address them in light of the difficulties frequently faced in raising domestic tax revenues in ACP countries.

    This study provides a comprehensive and comparative overview of the possible fiscal impact of EPA across the whole of Africa, highlighting key factors that influence the likely loss of revenues due to trade liberalisation in the context of EPAs and identifying possible remedies/support options that may be considered by both developed and developing countries alike.

    Key Findings of ECDPM

    • The fiscal impact of an EPA depends on the implications of the agreement for trade and production and in particular, the degree to which domestic production is import competing or import reliant.
    • We then identify a group of countries likely to face a “high” estimated fiscal impact. It includes 15 countries, most of which are in Central or West Africa. A further twelve countries, mainly located in Eastern and Southern Africa, are estimated to incur a “modest impact”, while seven countries (Zambia, Swaziland, Nigeria, Namibia, Lesotho, Botswana and Malawi) have been estimated to incur a relatively “low” impact.
    • As these results have to be taken with great caution, given the methodological limitations this comparison entail, the paper presents further a broad rule of thumb to estimate the fiscal impacts
    • Overall, our analysis points to a variety of likely experiences that suggest that ultimately the impact of EPAs on ACP/African economies remains best assessed on a case-by-case basis.

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