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EPAs, Trade and Development Paul Brenton Trade Department World Bank.

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1 EPAs, Trade and Development Paul Brenton Trade Department World Bank

2 Key Issues The new global economy presents challenges and opportunities for ACP countries The new global economy presents challenges and opportunities for ACP countries To realize the opportunities, ACP has to reverse past trends toward declining world market shares of goods and service To realize the opportunities, ACP has to reverse past trends toward declining world market shares of goods and service ACP countries can use EPAs to leverage global competitiveness and sustained export growth … if they seize the opportunity to forge a pro-reform negotiating strategy ACP countries can use EPAs to leverage global competitiveness and sustained export growth … if they seize the opportunity to forge a pro-reform negotiating strategy

3 Developing countries share of world trade will rise as global integration intensifies… US$2001 trln. Source: World Bank simulations with Linkage model. Exports from developing and developed countries, Developing countries High-income countries $27 trln 32% 45% 22% The global context

4 US$2001 trln Source: World Bank simulations with Linkage model. GDP of high-income and developing countries (market exchange rates) Developing countries High-income countries $72 trln 23% 31% …and the share of developing countries in global output will rise… 16% The global context

5 Chinas surge – and that of other developing countries – represents more opportunity than threat Imports in USD billions Source: WITS, Bank staff calculations Exporting requires importing, and Chinas imports are rising rapidly Exporting requires importing, and Chinas imports are rising rapidly The global context

6 But Chinas surge – and that of other developing countries – represents more opportunity than threat Exporting requires importing Exporting requires importing Surging growth means rising wages Surging growth means rising wages Internationally comparable average wage rates, indexed, 1998=100 The global context

7 Growth will raise incomes and reduce absolute poverty Average incomes are likely to double Average 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 poor But if current trends persist, Africa will host most of the worlds poor East Asia South Asia Sub-Saharan Africa Other 28% 20% 8% 12% Millions of people The global context

8 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 years Average ESA countries share of world merchandise exports (% of US current dollars) Average ESA Countries share in world merchandise exports The Trade Problem for Africa: the example of ESA

9 In comparison, 16 fast growing economies gained market share… Average ESA Average share of world merchandise exports (% of US$ current) Average HP 16 ESA Source: Bank staff calculations, based on data from IMF World Economic Outlook, Ethiopia and Eritrea counted as one country The Trade Problem for Africa: the example of ESA

10 Source: Bank staff calculations, based on data from World Economic Outlook, Ethiopia and Eritrea counted as one country. Average ESA Countries Share in world service exports Performance in services trade has been equally disappointing Average ESA countries share of world services exports (% of US current dollars) Average ESA countries share of world services exports (% of US current dollars) The Trade Problem for Africa: the example of ESA

11 Source: Banks staff calculations, based on data from World Economic Outlook, Ethiopia and Eritrea counted as one country Average for HP Whilst fast growers have used trade in services to drive growth Exports of service as share of world services trade (% of US current dollars) Average for ESA The Trade Problem for Africa: the example of ESA

12 The EU will decline in importance as a destination for exports SADC ESA The Trade Problem for Africa: the example of ESA

13 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 advantage of new global opportunities Successful programs have had five key characteristics… Successful programs have had five key characteristics… Reform is necessary in ACP countries to attain global competitiveness

14 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 Lets elaborate on the national and regional objectives… Reform is necessary in ACP countries to attain global competitiveness

15 Use EPAs to phase down high MFN tariffs, NTBs and transport barriers Note: EPA Tariffs are import-weighted at the country level, then weighted by GDP at EPA averages Source: UN TRAINS, accessed through WITS Average MFN weighted tariffs Because high border barriers: undermine competitiveness, risk trade diversion, and impede intra-African trade…

16 Source: World Bank, Doing Business 2006 Days through ports to warehouse Use EPAs to reduce trade costs

17 Use EPAs to leverage reforms in tax policy: Challenge: Fiscal revenues could fall 2-20% if all tariffs removed on EU imports Part of the broader development challenge is to move away from reliance on tariffs as a source of revenue – need to increase tax base, improve revenue collection

18 Use EPAs to improve regional investment climate and lower costs of backbone services Liberalize transport, telecoms, and other trade- related services Regional regulatory frameworks – e.g., power, air transport Regional infrastructure investments

19 A Program of phased variable geometry for MFN tariffs consistent with regional development programs, e.g.: A Program of phased variable geometry for MFN tariffs consistent with regional development programs, e.g.: Phase 1 & 2: Eliminate all internal barriers in CU/FTA Phase 1 & 2: Eliminate all internal barriers in CU/FTA Phase 1-2: Bring down MFN peak tariffs to average to promote intra-African and other efficient trade Phase 1-2: Bring down MFN peak tariffs to average to promote intra-African and other efficient trade Phase 2-3: Bring down average MFN average levels to East Asian levels Phase 2-3: Bring down average MFN average levels to East Asian levels 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% value-added requirement or change of tariff heading) Less restrictive rules of origin (choice of satisfying either a 10% value-added requirement or change of tariff heading) A program of trade facilitation measures – to reduce costs of trading, with special attention to lowering transit costs of land-locked countries A program of trade facilitation measures – to reduce costs of trading, with special attention to lowering transit costs of land-locked countries A program of technical and financial assistance for trade facilitation, SPS, and supply side measures (e.g., infrastructure) A program of technical and financial assistance for trade facilitation, SPS, and supply side measures (e.g., infrastructure) From objectives … to a pro-development agreement An illustration…

20 A program of gradual but purposeful reforms of tax administration and intra-regional tax policy to harmonise tax structures A program of gradual but purposeful reforms of tax administration and intra-regional tax policy to harmonise tax structures A program of services liberalization on MFN basis that supports regional development… A program of services liberalization on MFN basis that supports regional development… Phase 1: Open services where markets discipline sellers (e.g, retailing, professional services) Phase 1: Open services where markets discipline sellers (e.g, retailing, professional services) Phase 2 & 3: Open services where regulations are required (e.g, telecoms, finance, electricity, transport) Phase 2 & 3: Open services where regulations are required (e.g, telecoms, finance, electricity, transport) Make no concessions on investment, competition and IPR beyond what is in EU- Mexico or EU-S. Africa arrangements. Disciplines can entail significant risks, but disciplines in existing EU-led free trade agreements have been mild. Make no concessions on investment, competition and IPR beyond what is in EU- Mexico or EU-S. Africa arrangements. Disciplines can entail significant risks, but disciplines in existing EU-led free trade agreements have been mild. A program, however small, of temporary movement of persons A program, however small, of temporary movement of persons From objectives … to a pro-development agreement An illustration…

21 In conclusion… ACP countries are confronting the challenge of moving from preference dependence to being more dynamic exporters in a competitive global environment ACP countries are confronting the challenge of moving from preference dependence to being more dynamic exporters in a competitive global environment Need to create incentives to move private resources into internationally competitive activities – and release those now bottled up in low productivity sectors… Need to create incentives to move private resources into internationally competitive activities – and release those now bottled up in low productivity sectors… …and up-grade essential service industries, including introducing new competition and efficient regulation … …and up-grade essential service industries, including introducing new competition and efficient regulation … …together with safety nets to support workers (not jobs) and measures that provide training and education to all …together with safety nets to support workers (not jobs) and measures that provide training and education to all If EPAs can be designed to support such an agenda then they will be effective tools toward competitiveness, integration into the global economy, growth and development If EPAs can be designed to support such an agenda then they will be effective tools toward competitiveness, integration into the global economy, growth and development

22 Paul Brenton Preferences for Africa: How Much are They Worth? in Trade, Doha, and Development: A Window into the Issues R. Newfarmer (ed.) World Bank: Washington Hinke, L.. M. Hoppe, and R. Newfarmer 2005 Beyond Cotonou: Economic Partnership Agreements in Trade, Doha, and Development: A Window into the Issues R. Newfarmer (ed) Washington: World Bank. World Bank, Global Economic Prospects, 2005: Trade Regionalism and Development Wasington: World Bank, Further Reading and References Global Economic Prospects, 2007 Managing the Next Wave of Globalization


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