Presentation on theme: "EPAs, Trade and Development"— Presentation transcript:
1 EPAs, Trade and Development Paul BrentonTrade DepartmentWorld Bank
2 Key IssuesThe new global economy presents challenges and opportunities for ACP countriesTo realize the opportunities, ACP has to reverse past trends toward declining world market shares of goods and serviceACP 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 The global contextDeveloping countries share of world trade will rise as global integration intensifies…Exports from developing and developed countries,US$2001 trln.$27 trlnHigh-income countriesIf our scenario materializes, the next wave will lead to an unprecidented increase in trade in goods and services.In earlier periods, the main drivers of globalization have been falling transport costs, falling communications costs, and falling barriers to trade.The next wave will be driven by China and India’s unreserved embrace of globalization as a development engine, growing trade in services (made possible because of recent advances in communication.), and accelerated diffusion of technology. In 1998, only 10% of the world’s 180 m users of the internet were in developing countries; today there are 900 m users and 300 m are in develeoping countries– and all have access to the latest technology and infomation.Developing countries45%32%22%Source: World Bank simulations with Linkage model.
4 …and the share of developing countries in global output will rise… The global context…and the share of developing countries in global output will rise…GDP of high-income and developing countries (market exchange rates)US$2001 trln$72 trlnHigh-income countriesIn terms of purchasing power, developing countries already account for 47%. By 2030, they could account for as much as 60 percent of the global economy.Developing countries31%23%16%Source: World Bank simulations with Linkage model.
5 The global contextChina’s surge – and that of other developing countries – represents more opportunity than threatExporting requires importing, and China’s imports are rising rapidlyImports in USD billionsSource: WITS, Bank staff calculations
6 The global contextBut China’s surge – and that of other developing countries – represents more opportunity than threatExporting requires importingSurging growth means rising wagesInternationally comparable average wage rates, indexed, 1998=100
7 Growth will raise incomes and reduce absolute poverty The global contextGrowth will raise incomes and reduce absolute povertyAverage incomes are likely to double…and sharp reductions in dire absolute povertyBut if current trends persist, Africa will host most of the worlds poorMillions of people28%Other20%Sub-Saharan Africa12%South AsiaThe scenario would be good news for the the world’s poor. Growth, if it transpires as we think it could, would reduces the ranks of the absolute poor by 450 m. despite population growth.8%East Asia
8 Global market share has fallen for the last 25 years The Trade Problem for Africa: the example of ESAGlobal market share has fallen for the last 25 yearsAverage ESA countries’ share of world merchandise exports (% of US current dollars)Average ESA Countries’ share in worldmerchandise exportsSource: Bank staff calculations, based on data from IMF World Economic Outlook, Ethiopia and Eritrea counted as one country
9 In comparison, 16 fast growing economies gained market share… The Trade Problem for Africa: the example of ESAIn comparison, 16 fast growing economies gained market share…Average share of world merchandise exports (% of US$ current)Average HP 16ESAAverage HP 16Average ESASource: Bank staff calculations, based on data from IMF World Economic Outlook, Ethiopia and Eritrea counted as one country
10 Performance in services trade has been equally disappointing The Trade Problem for Africa: the example of ESAPerformance in services trade has been equally disappointingAverage ESA countries’ share of world services exports (% of US current dollars)Average ESA Countries’ Share in worldservice exportsSource: Bank staff calculations, based on data from World Economic Outlook, Ethiopia and Eritrea counted as one country.
11 ... Whilst fast growers have used trade in services to drive growth The Trade Problem for Africa: the example of ESA... Whilst fast growers have used trade in services to drive growthExports of service as share of world services trade (% of US current dollars)Average for HP 16Average for ESASource: Banks staff calculations, based on data from World Economic Outlook, Ethiopia and Eritrea counted as one country
12 The EU will decline in importance as a destination for exports The Trade Problem for Africa: the example of ESAThe EU will decline in importance as a destination for exportsESASADC
13 Reform is necessary in ACP countries to attain global competitiveness Countries everywhere are adopting reforms to take advantage of new global opportunitiesSuccessful programs have had five key characteristics…Trade and tax reforms to encourage exports and allow access to key inputs at world pricesOpenness to FDI, especially in servicesSound macroeconomic and supportive business climateSustained investments in education and skill enhancementSupport to firms and labour to move resources out of inefficient sectors into efficient ones
14 Ways ACP countries could use EPAs to promote growth…… Reform is necessary in ACP countries to attain global competitivenessWays ACP countries could use EPAs to promote growth……To leverage national and regional reformsTariffs, transportation, and border barriersTax structuresServicesInvestment climateTo leverage changes in EU policiesRules of originOther market access issues (eg standards)Offensive interests in “rules agenda”Let’s elaborate on the national and regional objectives…
15 Use EPAs to phase down high MFN tariffs, NTBs and transport barriers Because high border barriers: undermine competitiveness, risk trade diversion, and impede intra-African trade…NAFTA and the Asia Free Trade Area have low tariffs, and many analyses show that trade creation has far outweighed diversion and stimulated trade gains.Some of the EPA regions have high tariffs. But these mask consideration dispersion at the country level. At risk of over generalization, I would argue that the problem with Africa’s trade regime is the proliferation of high tariff peaks and the high tariffs is a handful of countries, for example Nigeria and Sierra Leone. Some country-groups are not so far above East Asia’s average of about 10%One of the most powerful tools to spur intra-African trade is to make it a regional priority to bringing down MFN tariffs toward the average of the lowest tariff countries as an early step in the liberalization process. This would also reduce the cost of preferences granted later to EU firms as part of any EPA.Average MFN weighted tariffsNote: EPA Tariffs are import-weighted at the country level, then weighted by GDP at EPA averagesSource: UN TRAINS, accessed through WITS
16 Use EPAs to reduce trade costs Days through ports to warehouseTime is money. One extra day in customs or ports or in transport essentially adds almost 1% to the cost of landed goods, driving down the competitiveness of the economy (Hummels, 1999).Source: World Bank, Doing Business 2006
17 Use EPAs to leverage reforms in tax policy: Challenge:Fiscal revenues could fall 2-20% if all tariffs removed on EU importsPart 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 servicesRegional regulatory frameworks – e.g., power, air transportRegional infrastructure investments
19 From objectives … to a pro-development agreement An illustration…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/FTAPhase 1-2: Bring down MFN peak tariffs to average to promote intra-African and other efficient tradePhase 2-3: Bring down average MFN average levels to East Asian levelsPhase 3: Allow EU duty free access to EPA marketsLess 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 countriesA program of technical and financial assistance for trade facilitation, SPS, and supply side measures (e.g., infrastructure)
20 From objectives … to a pro-development agreement An illustration…A program of gradual but purposeful reforms of tax administration and intra-regional tax policy to harmonise tax structuresA 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 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.A program, however small, of temporary movement of persons
21 In conclusion…ACP countries are confronting the challenge of moving from preference dependence to being more dynamic exporters in a competitive global environmentNeed 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 ……together with safety nets to support workers (not jobs) and measures that provide training and education to allIf EPAs can be designed to support such an agenda then they will be effective tools toward competitiveness, integration into the global economy, growth and developmentDefinition of RTALiberalizing effect modest from a global perspective, though important for some participants
22 Further Reading and References Global Economic Prospects, 2007Managing the Next Wave of GlobalizationPaul Brenton “Preferences for Africa: How Much are They Worth?” in Trade, Doha, and Development: A Window into the Issues R. Newfarmer (ed.) World Bank: WashingtonHinke, L.. M. Hoppe, and R. Newfarmer “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, 2004.