The future of the ACP countries

The record to date of trade and development cooperation between the European Union and the ACP countries has been rather disappointing. Evidently, neither the non-reciprocal trade preferences granted to the ACP countries nor the support for development projects have led to much progress in terms of economic and social development. Can the implementation of the EU's present reform proposals be expected to safeguard the future of the Lome system and of the ACP countries in the new millenium?     

Are Trade Preferences more Effective than Aid in Supporting Exports? Evidence from the ‘Everything But Arms’ Preference Scheme

This study examines the effect of the ‘Everything But Arms’ (EBA) trade preferences regime on exports from the African, Caribbean and Pacific countries (ACP) to the European Union (EU). With this aim, an augmented gravity model is estimated for exports from the 79 ACP countries to the EU‐15 for the time period of 1995—2013 using panel data techniques. The results are used to quantify the effect of the eligibility for EBA preferences on the export performance of the ACP least developed countries (LDCs) and to relate it to the impact of official development assistance on exports. In addition to their separate effects, the combined impact of EBA and aid flows is examined. The main results do not provide evidence for an additional positive effect of the EBA agreement on the export performance of the ACP LDCs. However, receiving aid shows a significant and positive effect on exports from EBA‐eligible ACP countries to the EU‐15, supporting an EU development strategy that includes both sorts of assistance, aid and trade preferences.     

EU Trade Preferences and Export Diversification

Since at least the 1960s, the European Union (EU) has offered various kinds of non‐reciprocal trade preferences for developing countries. Originally, these trade preferences had at least two policy goals: (i) to increase export volumes for developing countries and thereby boost their export earnings and (ii) to facilitate export diversification. While extensive research has confirmed that the first of these goals is typically met, the second goal seems to have been largely forgotten by researchers as well as in policy circles. The aim of this paper was therefore to analyse the impact of the EU's non‐reciprocal trade preferences for developing countries on export diversification. Our estimation results suggest that some trade preference programmes, such as the Generalised Scheme of Preferences (GSP), lead to increasing ranges of export products. By contrast, preferences offered to Mediterranean countries typically have no significant effects, and African, Caribbean and Pacific (ACP) preferences actually have negative effects towards the end of our time period, suggesting that ACP countries may respond to preferences by specialising into fewer goods.     

Preference Utilisation and Tariff Reduction in EU Imports from ACP Countries

Despite the long relationship between the European Union and the African, Caribbean and Pacific (ACP) countries aimed at encouraging their exports while stimulating growth and investment, the ACP states still face difficulties in integrating into the world economy. This paper examines the non‐least developed ACP countries preferential trade with the EU using data on EU member states’ imports eligible for preferences under the Cotonou agreement for the period 2001 at the 8‐digit level. Using data on tariffs and preferential quota applicable on each 8‐digit product for the year 2001 ad‐valorem tariff rates were calculated. The paper also investigates the existence of a threshold in the offered duty reduction under which traders have no incentives to ask for preferences since the costs of obtaining these exceeds their benefits. Our results showed that the higher the value of preferences offered, the higher the probability that preferences are requested. Using endogenous threshold estimation techniques we also provided evidence that there exists a minimum value of preferences needed for traders to request preferences. More specifically, if the difference between preferential and third country tariff rates are lower than 4 per cent, there are no incentives for traders to request preferences since the costs of obtaining the preferences are expected to be higher than the benefits from obtaining the preferences. Our results additionally indicate that country specificities also play an important role in the decision whether requesting preferences or not and how much to import.     

Africa's marginalisation in world trade

Since 1975 the Lomé Conventions have granted trade preferences to African exports to the European Union, Africa's main trading partner. The liberalisation of trade foreseen by the Uruguay Round means that these preferences will disappear, leading to net reductions in African exports. What lessons should the countries of Africa draw from this?     

Foreign aid and trade reform: Evidence from ACP-EU data

Beside traditional motives of giving – namely, altruism and donors’ self-interest, foreign aid also serves to encourage poor countries to liberalize trade. In this paper, I use recent foreign aid data from 15 European donors to 45 African, Caribbean and Pacific countries (ACP) to assess the importance of each motive. Although all the motives are important, their relative importance varies from one sub-group of donors to another. In particular, big donors such as France, Germany and the United Kingdom seem to weight more their commercial interests than other European donors; besides, recipient needs appear to be less important. Contrary to other European donors, international cooperation, measured by the correlation in the votes at the United Nations General Assemblies influences their decision to allocate aid to ACP recipients. This last finding probably reflects their relatively high political power in international fora. Finally, I introduce a dummy variable for economic partnership agreement (EPA) and find that donors do not give to support trade liberalization per se. However, large donors give more aid to ACP exporters of raw materials that engage in the EPA. This result implies that foreign aid is a device to secure access to raw materials.     

Preference Erosion – The Case of Everything But Arms and Sugar

While the European Union's Everything But Arms (EBA) agreement has granted unlimited preferential access to the European market for the least developed countries (LDCs) since 2001, the sugar sector has been exempted for the first years. Only from 2009 on, the LDCs were entitled to export an unlimited amount of sugar to the EU, receiving the intervention price. The expected increase in sugar imports led the EU to substantially reduce the intervention price, besides other measures. This caused a disadvantage for countries which had been granted preferential access to the European market already: the African, Caribbean, and Pacific (ACP) countries. Our paper quantifies this erosion of preferences, employing a gravity framework. In terms of methodology we are addressing two fundamental problems well known in the gravity literature. The occurrence of excess zeros in the dependent variable of such disaggregated data is tackled with the employment of the scale‐independent negative binomial quasi generalised pseudo maximum likelihood estimator. The problem of identification is addressed by modelling the policy change with the continuous preference margin instead of using dummy variables. We find that preference erosion did occur. The ACP countries were indeed negatively affected by the consequences following the introduction of the EBA.     

Emerging Powers in WTO Negotiations: The Domestic Sources of Trade Policy Preferences

In the current round of multilateral trade liberalization, emerging powers such as Brazil and India created the G-20 coalition and refused to accept further tariff rate reductions for industrial products before the United States and the European Union made reciprocal concessions in agriculture. This article examines how and why Brazil and India have taken a more offensive and proactive position at the World Trade Organization (WTO). Following Putnam's two-level games approach, I focus on domestic factors and specifically on interest groups to explain actors' policy preferences in WTO negotiations. From a theoretical perspective, the case studies Brazil and India lend credit to the literature discussing the impact of powerful, sector-specific interest groups on governments' trade policy preferences. From an empirical perspective, the findings show how these two countries translated these demands into government positions and influenced WTO outcomes as agenda-setters and coalition builders.     

After Lomé IV: ACP-EU trade preferences in the 21st century

The ACP countries and the EU recognise that the present non-reciprocal and discriminatory Lomé preferences must be replaced with WTO compatible arrangements. This means that the agreements conform either to the free trade area provisions of Article XXIV or to the GSP. This article sets out the key elements of ACP preferences and examines the potential advantages and disadvantages for various groups of ACP countries of possible forms of free trade areas and a ‘Lomé-equivalent’ GSP.     

On the European Responsibility in the Agricultural Multilateral Trade Negotiations: Modelling the Impacts of the Common Agricultural Policy

The present round of multilateral trade negotiations is still deadlocked over agricultural trade. The European Union (EU) is urged by its trading partners to open its agricultural markets. Economic evaluations of trade liberalisation scenarios unanimously conclude that a substantial opening of agricultural markets is required for a successful (welfare‐improving) Doha Round. In this paper, we perform new evaluations to identify precisely the contributions of the European farm policy and to examine the robustness of these evaluations in the representation of this complex policy. Using the same specifications as in major previous studies, our first simulations show that the EU has a major responsibility in delivering significant gains to the developing countries. On the other hand, when we conduct the same experiments with a more relevant calibration and modelling of the European farm policy instruments, the gains that these developing countries may reap from the EU liberalisation are considerably reduced. Accordingly the current charge against the EU is simply inopportune.     

Beyond Border Barriers: The Liberalisation of Services Trade in Tunisia and Egypt

Tunisia and Egypt have both recently undertaken significant steps toward trade reform. They have committed to a partnership agreement with the European Union. Both countries have also joined the WTO and are participating in Doha Round discussions on the liberalisation of non‐tariff barriers on both goods and services trade. These developments provide an interesting context within which to investigate not only the changes in welfare associated with reforms affecting the trade in goods, but also the impacts of services liberalisation. Using open‐economy computable general equilibrium models for both Tunisia and Egypt, this paper explores the reasons why structural differences in these two economies imply different opportunities and challenges with trade reform and services liberalisation. The gains from eliminating barriers at the border for goods trade are significantly greater for Tunisia than Egypt. Both countries, however, gain substantially from liberalisation of foreign direct investment in services. Furthermore, economic growth is more evenly distributed across sectors than with liberalisation of trade in goods alone. In addition to reporting on the impact of alternative policies on income, output, employment and trade, sector‐level effects are also considered.     

Monopolistic competition: CES redux?

We study the competitive and reallocation effects of trade opening in monopolistic competition. To this purpose, we generalize the Melitz (2003) setup with heterogeneous firms and fixed and variable trade costs beyond the CES to the case of additively separable utility functions. We find that extensive margin (Melitz-type selection) effects are robust to relaxing the CES assumption. Intensive margin effects (market share reallocations across inframarginal firms) and competitive (markup) effects are instead fragile. An important implication is that measured productivity gains from trade opening are no longer ensured with non-CES preferences. We discuss our results in the light of alternative setups featuring non-additive preferences, strategic interaction and consumers' preference for an ideal variety.     

Economic Partnership Agreements between African-Caribbean-Pacific countries and the European Union: revisiting contested issues

Abstract

Efforts to conclude Economic Partnership Agreements between African-Caribbean-Pacific countries and European Union drag on. The former prefers the Agreements as cooperation agreements, promoting development, whereas the latter prefers them strictly as trade regimes. Contested issues include the Agreements’ scope and replacement of non-reciprocity of preferences with reciprocity of preferences. Africans doubted the relevance of the reciprocity principle to development but now succumb to pressures, signing the Agreements. This paper debates current developments in the Agreements, hoping that cautiousness prevails in making commitments. It suggests an alternation of trade benefits between the Agreement partners, based on economic outlooks.     

Rethinking Trade Preferences: How Africa Can Diversify its Exports

This paper argues that the contribution of trade preferences to economic development needs to be reappraised in light of the growth of globalised trade in manufactures. Trade preferences may be able to act as a catalyst for manufacturing exports, leading to rapid growth in exports and employment. To do so, preferences need to be designed to be consistent with international trade in fragmented ‘tasks’ (as opposed to complete products) and need to be open to countries with sufficient levels of complementary inputs such as skills and infrastructure. Recent experience with the African Growth and Opportunities Act shows that, in the right conditions, Sub‐Saharan African countries have had large manufacturing export supply response to trade preferences.     

EU State Aid Policy and the Politics of External Trade Relations

European Union (EU) state aid policy has an oft-overlooked but politically-charged external dimension that is most clearly witnessed in the linkage with external trade relations. The article seeks to illuminate the issues and potential problems raised by this state aid-trade linkage. When this linkage is made, the EU engages in an array of complex international interactions through which it may pursue two politically-contentious procedures: countervailing duties or dispute settlement. The article argues that an understanding of the EU’s role in these complex interactions must take into account the Union’s institutional landscape and the competing preferences of different private interests. When deciding to impose countervailing duties against foreign state aids (subsidies), private interests play a significant role in initiating investigations and can use their access to EU institutions to encourage the imposition of such measures. While a variety of factors help to explain why the EU prefers pursuing countervailing duties, the Union also actively uses the World Trade Organization’s formal dispute settlement mechanism. Under this alternative, private interests again play an important role, pursuing varying strategies depending on their preferences. The most important determinant of a firm’s preference to pursue countervailing duties or the dispute settlement mechanism appears to be the extent to which the firm is concerned with restoring competition in their home market or with restoring competition in multiple/global markets.     

Sweet and Sour Changes in Trade Regimes

Sugar is an important export for a number of developing countries, especially in the African, Caribbean and Pacific regions. In many of these countries, preferential access to the EU market has been a key factor to develop their sugar sectors. The recent and proposed changes to the international sugar trade regimes, particularly in the EU, are threatening this preferential access. We study the possible implications of such changes on ACP countries’ sugar production and exports by using a spatial price equilibrium model specifically developed for the sugar market. The results suggest that the effects of these changes are likely to vary according to the prevailing level of world sugar market price and according to whether ACP countries are current exporters to the EU.     

Reform of the EU Sugar Market

After years of negotiations, the European Union finally reformed its sugar market in November 2005. Unilateral trade concessions, ongoing WTO negotiations and internal pressures were pushing the EU for a change. The following short article highlights some of the key features of the reform and the implications for EU member countries, world sugar markets and countries that currently enjoy preferential access to the EU market.      

Institutional Prerequisites of Economic Partnership Agreements

At the end of 2007 the WTO waiver granted for the non-reciprocal EU/ACP trade preferences will phase out. New economic partnership agreements are currently under negotiation, but whether the ACP countries will be able to benefit from them depends to a large extent on the institutional setting in those countries. The following article takes the example of the Economic Community of West African States to examine the situation more closely.     

Does Aid for Trade Enhance Export Performance? Investigating the Infrastructure Channel

There are few empirical studies assessing the effectiveness of aid for trade as regards trade performance. Furthermore, existing work does not test which are the channels through which aid for trade has an impact on trade performance. We address this question using a two‐step empirical analysis. Relying on an export performance model, we first test whether institutions and infrastructure, our two potential channels of transmission, are significant determinants of export performance. Second, we test the impact of aid for trade sectoral flows on the previously detected determinants of export performance. We show, as part of the first step, that the infrastructure channel is a highly significant determinant of export performance, whereas the institutional channel turns out to have a limited positive impact on developing countries’ export performance. Furthermore, we show, from the second step, that aid for infrastructure, once instrumented, has a strong and positive impact on the infrastructure level. As a result, we find that a ten per cent increase in aid for infrastructure commitments per capita in developing countries leads to an average 2.34 per cent increase in the exports over GDP ratio. It is also equivalent to a 2.71 per cent reduction in tariff and nontariff barriers. These results highlight the high potential impact of aid for trade on developing countries’ export performance throughout the infrastructure channel.     

Economic Implications of WTO Negotiations on Non‐agricultural Market Access

The economic implications of current WTO negotiations are likely to be far reaching. The World Bank and UNCTAD estimate annual global gains in agriculture and non‐agricultural products (including fish) of about $70−150 billion each under various scenarios and technical assumptions. Liberalising trade in services could be even more important, especially if agreement were reached to facilitate the temporary movement of labour (Mode 4 under the General Agreement on Trade in Services, GATS). Some qualifications, however, are in order. First, gains are likely to be spread unevenly across countries and across sectors; and, second, short‐term adjustment costs might precede long‐term gains. Much depends on how ambitious liberalisation is and on policies to facilitate adjustment. This paper examines the Doha mandate in non‐agricultural market access (NAMA) and the current state of the WTO negotiations, in particular some key proposals being considered at the December 2005 Ministerial Meeting in Hong Kong. We analyse various scenarios and their implications for trade, welfare, output, employment, revenues and preferences, as well as the distributional effects across countries and sectors. We note possible adjustment problems related to balance of payments and structural adjustment, as well as revenue and preference losses. These suggest the need for ‘aid for trade’ to help developing countries realise gains possible from WTO negotiations.