1. Multilateralism, Regionalism and Economic Partnership Agreements (EPAs) Multilateralism, Regionalism and Economic Partnership Agreements (EPAs) March, 2006 Richard Newfarmer World Bank

2. Regional trade agreements (RTAs) are proliferating, but their effects in creating trade depend on design. Regional trade agreements (RTAs) are proliferating, but their effects in creating trade depend on design. Regional trade agreements can complement -- but not substitute for – multilateral openings. Regional trade agreements can complement -- but not substitute for – multilateral openings. For Africa, EPAs are potentially the most important regional agreement, but to realize benefits countries will need clear strategy. For Africa, EPAs are potentially the most important regional agreement, but to realize benefits countries will need clear strategy. Regionalism v. Multilateralism: Key Messages

3. South- South European Union US South- South European Union Percent of World Trade Covered Number of RTAs US Regional Trade Agreements are proliferating…

4. Estimated exponential impact on trade Intra-regional trade Note: The bars show the magnitude of the dummy variables capturing respectively the extent to which intraregional trade, overall imports and overall exports differ from the “normal” levels predicted by the gravity model on the basis of economic size, proximity and relevant institutional and historical variables, such as a common language. For members: Do RTAs create trade?

5. Estimated exponential impact on trade Intra-regional trade Overall exports Overall imports Note: The bars show the magnitude of the dummy variables capturing respectively the extent to which intraregional trade, overall imports and overall exports differ from the “normal” levels predicted by the gravity model on the basis of economic size, proximity and relevant institutional and historical variables, such as a common language. For members: Do RTAs create trade? …. Not automatically

6. Agreements with high external tariffs risk trade diversion Note: Tariffs are import-weighted at the country level to arrive at PTA averages Source: UN TRAINS, accessed through WITS Average weighted tariffs

7. Algeria Libya Morocco Mauritania Tunisia AMU Ghana Nigeria Cape Verde Gambia ECOWAS Benin Niger Togo Burkina Faso Cote d’Ivoire Conseil de L’Entente Guinea-Bissau Mali Senegal WAEMU Liberia Sierra Leaone Guinea Mano River Union CLISS Cameroon Central African Rep. Gabon Equat. Guinea Rep.Congo Chad Sao Tomé & Principe ECCAS CEMAC Angola Burundi* Rwanda* Egypt DR Congo Djibouti Ethiopia Eritrea Sudan Kenya* Uganda* Somalia Tanzania* EAC South Africa Botswana Lesotho Namibia* Swaziland* Mozambique SACU Malawi* Zambia* Zimbabwe* Mauritius* Syechelles* Comoros* Madagascar* Reunion IOC *CBI SADC COMESA Nile River Basin IGAD AMU: Arab Maghreb Union CBI: Cross Border Initiative CEMAC: Economic & Monetary Community of Central Africa CILSS: Permanent Interstate Committee on Drought Control in the Sahel COMESA: Common Market for Eastern and Southern Africa EAC: East African Cooperation ECOWAS: Economic Community of Western African Studies IGAD: Inter-Governmental Authority for Government IOC: Indian Ocean Commission SACU: Southern African Customs Union SADC: Southern African Development Community WAEMU: West African Economic & Monetary Union Overlapping African agreements…

8. Design Design  Low external tariff barriers  Nonrestrictive rules of origin  Wide coverage with few exclusions  Liberalization of services  Facilitating trade at borders  Appropriate rules Implementation: Avoiding paper agreements Implementation: Avoiding paper agreements Design and implementation are crucial to achieving objectives ….Open regionalism

9. RTAs are not a substitute for multilateral liberalization… Export opportunities in the world market are several times larger than regional markets in Africa Export opportunities in the world market are several times larger than regional markets in Africa South-south trade is growing rapidly and Africa has interest in gaining access to markets in S. Asia, E. Asia and in other regions South-south trade is growing rapidly and Africa has interest in gaining access to markets in S. Asia, E. Asia and in other regions In negotiations, Africa by itself cannot move the EU or US in key agricultural markets, but alliances with other trading partners offer some – if limited -- possibility In negotiations, Africa by itself cannot move the EU or US in key agricultural markets, but alliances with other trading partners offer some – if limited -- possibility

10. Africa gains more from a multilateral agreement than from a world divided into trading blocs Change in real income in 2015 from baseline scenario (percent) Note: Separate represents the gains when each block is formed in the absence of the other two. BLOC3 represents the gains when all three regional PTAs are implemented simultaneously. Multilateral EU + EPAs (w/ other RTAs) EU + EPAs

11. EPAs: Positive results require a strategy Consider the risks of a “bad” EPA  Agreements could end up providing little new access to EU and governments may not use opportunity to adopt reforms … because EU negotiators focus excessively on their own demands rather than development … because SSA negotiators sign agreements without coming to consensus on their internal reforms  Aid could be insufficient to provide to elicit supply response.  Result: hub and spoke trade relations, with negligible stimulus to regional integration possible income losses stemming from revenue losses without compensating internal and external trade gains if services not MFN, entrenchment of monopolistic service providers, either from the EU or state owned companies

12. Use EPAs to deepen regional integration Reduce policy barriers to intra-regional trade Accelerate implementation of existing liberalization agreements Reduce administrative delays at border crossings Source: World Bank, Doing Business 2006 Days through ports to warehouse

13. Use EPAs to deepen regional integration Reduce policy barriers to intra-regional trade Accelerate implementation of existing liberalization agreements Reduce administrative delays at border crossings Promote regional infrastructure investments and regulatory frameworks – e.g., power, air transport

14. Use EPAs to phase down high MFN tariffs 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 tariffs: undermine competitivenes, risk trade diversion, and impede intra-African trade…

15. Use EPA to motivate convergence of external tariff Average tariffs Nigeria30.0 Sierra Leone14.9 Ghana13.1 The Gambia12.7 UEMOA (Benin, Burkina Faso, Cote d'Ivoire, Guinea- Bissau, Mali, Niger, Senegal, Togo)12.0 Guinea6.5 Mauritania (non affiliated)10.9 Consider the case of ECOWAS

16. East Asia has led in global integration East Asia has led in global integration …and in regional integration …and in regional integration Despite having few RTAs Despite having few RTAs But relying on low MFN trade barriers But relying on low MFN trade barriers MNA SAS SSA LAC ECA EAP Average external tariffs East Asia has used MFN to integrate regionally

17. 1. Propose program of phased variable geometry for MFN CET consistent with regional development programs, e.g.:  Phase 1 & 2: Eliminate internal barriers in CU/FTA  Phase 1-2: Bring down MFN peak tariffs to average to promote intra-African and other efficient trade  Phase 2-3: Bring down MFN average levels to East Asian levels  Phase 3: Enact EU preferences 2. Propose less restrictive rules of origin (e.g., SSA-wide) 3. Propose trade facilitation measures to reduce costs 4. Request program of technical and financial assistance for trade facilitation, SPSS, and supply side measures (e.g., infrastructure) 5. Formulate and propose program of services liberalization in own regional interest on MFN basis Elements of a negotiating strategy … An illustration…

18. Unilateral measures: improving investment climate, transportation links, and trade-related institutions and trade policy to drive competitiveness Unilateral measures: improving investment climate, transportation links, and trade-related institutions and trade policy to drive competitiveness Multilateral measures: Use alliances with broad coalitions to leverage access to all foreign markets Multilateral measures: Use alliances with broad coalitions to leverage access to all foreign markets Regional measures: Use EPAs to deepen existing regional integration programs Regional measures: Use EPAs to deepen existing regional integration programs Conclusion: Promoting development requires a coherent trade strategy integrating three components…

19. References and further reading available at www.worldbank.org/trade Hinkle, L., M. Hoppe, and R. Newfarmer “Beyond Cotonou: Strategies for Economic Partnership Agreements” in Richard Newfarmer (ed.) Trade, Development and Doha World Bank: 2005 Hinkle, L., M. Hoppe, and R. Newfarmer “Beyond Cotonou: Strategies for Economic Partnership Agreements” in Richard Newfarmer (ed.) Trade, Development and Doha World Bank: 2005 Newfarmer, R. “Regional Trade Agreements: Promises and Pitfalls” in in Richard Newfarmer (ed.) Trade, Development and Doha World Bank: 2005 Newfarmer, R. “Regional Trade Agreements: Promises and Pitfalls” in in Richard Newfarmer (ed.) Trade, Development and Doha World Bank: 2005 Schiff, M. and L. Winters Regionalism and Development World Bank: 2003 Schiff, M. and L. Winters Regionalism and Development World Bank: 2003 World Bank, Global Economic Prospects 2005: Trade, Regionalism and Development World Bank, 2004. World Bank, Global Economic Prospects 2005: Trade, Regionalism and Development World Bank, 2004.

20. Multilateralism, Regionalism and EPAs Multilateralism, Regionalism and EPAs March, 2006 Richard Newfarmer World Bank