Presentation Busse Geneva

Impact of the ACP/EU EPAs on ECOWAS Countries

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The Impact of ACP/EU Economic Partnership Agreements on ECOWAS Countries:

An Empirical Analysis of the Trade and Budget Effects

Matthias BusseHWWA - Hamburg Institute of International Economics


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Structure of Presentation

1. Key Economic Indicators and EU-ECOWAS Trade

2. Data and Methodology

3. Empirical Results

4. Conclusions and Policy Implications


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15 ECOWAS Members: Benin Ghana NigerBurkina Faso Guinea Nigeria Cape Verde Guinea-Bissau SenegalCote d’Ivoire Liberia Sierra LeoneGambia Mali Togo

(Mauritania left ECOWAS in 1999, but will take part in negotiations)

1. Key Economic Indicators and EU-ECOWAS Trade

Cote d’Ivoire, Ghana and Nigeria are non-LDCs, all other ECOWAS countries are LDCs


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Main focus of empirical analysis:

(1) Estimation of overall trade and budget effects in ECOWAS countries(2) Identification of most affected products in ECOWAS countries

Focus on impact on ECOWAS countries, as aggregated effects for EU will be extremely small

(EU exports to ECOWAS appr. 0.5 % of total EU exports)


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Population GNI per capitaCountry (mill.) (US$)

Benin 6.4 380Burkina Faso 11.5 220Cape Verde 0.5 1,340Côte d'Ivoire 16.4 630Gambia 1.3 320Ghana 19.7 290Guinea 7.6 410Guinea-Bissau 1.2 160Liberia 3.2 140Mali 11.1 230Mauritania 2.8 360Niger 11.2 180Nigeria 129.9 290Senegal 9.8 490Sierra Leone 5.1 140Togo 4.7 270

Table 1: Population and Income, 2001


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Table 2: Government Revenue Indicators, 2001

Government deficit/surplus Customs revenue(incl. grants) (excl. grants) % of gov. rev.

Country % of GDP % of GDP % of GDP (excl. grants)

Benin -1.5 -4.2 2.5 18.1Burkina Faso -4.0 -11.3 1.5 12.0Cape Verde -5.2 -11.0 5.1 24.8Côte d'Ivoire 0.9 0.3 1.4 8.2Gambia -6.3 -9.8 5.4 33.7Ghana -10.1 -14.6 2.7 15.5Guinea -4.4 -7.8 1.1 9.4Guinea-Bissau -11.7 -26.2 1.7 8.5Liberia - - - -Mali -5.1 -9.5 1.8 10.7Mauritania -1.8 -5.7 2.4 12.8Niger -2.4 -7.1 1.1 12.3Nigeria -1.5 -1.5 2.3 4.7Senegal -2.0 -3.9 3.2 17.8Sierra Leone -11.4 -18.6 - -Togo -2.1 -2.6 2.4 17.1Average -4.6 -8.9 2.5 14.7


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Table 3: Trade and Tariff Indicators, 2001Imports from the EU Tariff rate Tariff rate% of % of total imports EU imports

Country GDP total imports % %

Benin 11.3 44.4 12.6 12.6Burkina Faso 9.9 44.6 11.0 10.5Cape Verde 31.2 74.3 15.4 15.8Côte d'Ivoire 11.1 57.4 10.7 10.0Gambia 36.4 61.8 11.8 11.8Ghana 25.1 43.1 16.2 18.8Guinea 9.8 49.0 6.0 6.3Guinea-Bissau 18.2 59.7 14.2 15.3Liberia - - - -Mali 13.8 36.3 10.6 9.6Mauritania 17.7 47.5 8.7 8.5Niger 4.8 28.9 12.9 12.0Nigeria 6.8 47.9 20.0 19.5Senegal 19.3 51.8 9.4 10.4Sierra Leone - - - -Togo 12.1 43.0 10.9 10.2Average 16.3 49.3 12.0 12.0


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Fig. 1: Structure of ECOWAS Imports, 2001

EU-1547%

10 EU Acc. Countries

1%

Intra-ECOWAS13%

Rest of Africa5%

North America9%

Asia19%

ROW6%


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Fig. 2: Structure of EU-ECOWAS Trade, 2001

Agriculture & Food

16%

Raw Materials

6%

Manufact.78%

Agriculture & Food

79%

Raw Materials

11%

Manufact.10%

EU Exports to ECOWAS (11.1 bill US$)

EU Imports from ECOWAS (10.4 US$)


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Fig. 3: ECOWAS Imports From the EU, 2001

France33%

United Kingdom

16%Germany

14%

Belgium9%

Italy9%

Netherlands7%

Rest of EU12%


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2. Data and Methodology

• Data available for ECOWAS countries: extremely poor! (quantity + quality)

• Data for CGE model not available

Domestic production data not available or not reliable

Relying on suitable partial equilibrium model

For some countries, such as Liberia and Sierra Leone, not even tariff and (meaningful) trade data are available


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Partial Equilibrium Model: Verdoorn (1960)

• Domestic production not incorporated, model focuses on imports from different sources

• Key assumptions: Product differentiation between supplying countries

(“Armington assumption”), goods are assumed to be imperfect substitutes in use

No exchange rate or income effects due to changing trade flows

Infinite supply elasticities


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Import demand function:

Model of Verdoorn, cont’d.

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1121 PPQQ )1(

Q1, Q2: imports (EU, non-EU)

P1, P2: import prices (EU, non-

EU)

: import demand elasticity

1 , 2: import shares

(1=Q1/(Q1+Q2) and 1+2=1)

Elasticity of substitution of preferred for non-preferred imports

2

1

2

1

P

P

Q

Q )2(

: elasticity of substitution


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Differentiation of (2), using (1) and definitions of 1 and 2 (dP2=0)


1

111

1

1

P1

P σ )α(1ξ α

Q

δQ )3(

If the tariff (t) is only eliminated on EU imports and supply elasticities

are infinite

t+1

t=

P

P )4(

1

1

Change in EU imports, due to preferential tariff elimination:


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Using (4) and substituting 2 for 1:


t1

t ξ)σ (αξ

Q

δQ )5( 2

1

1

Separating (5) into trade creation (TC) and trade diversion (TD):

t1

t ξ QTC )6( 1

t1

t ξ)-(σαQTD )7( 2 1


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Finally, the change in import duties (ID):

2 1 1 tTD tQID )8( t1: Tariff for EU imports

t2: Tariff for non-EU imports


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• Computation at 4-digit level of the Harmonized System (HS): 1,241 products at this level of aggregation (agriculture,

raw materials, manufactured goods, but no services)

• Base year 2001, except Ghana and Nigeria (2000)

• Data for Gambia at aggregated level (total imports) only

Methodology, cont’d.

• Focus on final stage of tariff elimination

• Data sources: TRAINS and COMTRADE for tariff and trade data and IMF for customs revenue


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Table 4: Assumed Values for the Elasticities, 4-digit Level

Import Demand Elasticity Elasticity of SubstitutionProduct Low Mid High Low Mid High

scenario scenario

Agriculture 0.4 0.7 1.0 1.0 2.0 3.0

Raw materials 0.6 0.9 1.2 2.0 3.5 6.0

Manufacturing 0.8 1.1 1.4 1.8 3.0 4.0

Table 5: Assumed Values for the Elasticities, Total Imports, Gambia

Import Demand Elasticity Elasticity of SubstitutionProduct Low Mid High Low Mid High

scenario scenario

Total Imports0.5 0.7 0.9 1.3 2.0 2.5


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Table 6: Efficiency of Import Duty Collections, 2001

Country Collection ratio (%)

Import-weighted tariff rate (%)

Collection efficiency(%)

Benin 9.7 12.6 76.5Burkina Faso 6.8 11.0 61.3Cape Verde 12.1 15.4 78.7Côte d'Ivoire 7.4 10.7 68.8Gambia 9.2 11.8 78.3Ghana1 4.7 16.2 29.1Guinea 5.4 6.0 89.9Guinea-Bissau 5.4 14.2 38.2Mali 4.6 10.6 43.7Mauritania 6.4 8.7 73.3Niger 6.9 12.9 53.4Nigeria1 15.9 20.0 79.7Senegal 8.5 9.4 90.0Togo 8.4 10.9 77.0

Average 8.0 12.2 67.0

12000


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3. Empirical Results


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Table 7: Trade Effects of EPA on ECOWAS Countries, 2001

Trade creation Trade diversion Total trade effect

CountryScenariosetting mill. US$

% ofpreferredimports mill. US$

% of non-preferredimports mill. US$

% ofpreferredimports

Benin Low 13.8 5.2% 5.6 1.7% 19.4 7.2%Mid 20.4 7.6% 10.7 3.2% 31.1 11.6%High 27.0 10.1% 15.5 4.6% 42.6 15.9%

Burkina Faso Low 9.9 4.0% 5.1 1.7% 15.0 6.1%Mid 14.1 5.7% 9.8 3.2% 23.9 9.7%High 18.3 7.4% 14.4 4.7% 32.8 13.3%

Cape Verde Low 11.5 6.3% 2.4 3.7% 13.8 7.5%Mid 16.9 9.2% 4.5 7.1% 21.5 11.7%High 22.3 12.2% 6.5 10.2% 28.8 15.7%

Côte d’Ivoire Low 48.4 4.2% 13.1 1.5% 61.5 5.3%Mid 69.3 6.0% 25.3 2.9% 94.7 8.2%High 90.3 7.8% 35.9 4.2% 126.2 10.9%

Gambia Low 5.9 4.1% 3.6 4.1% 9.5 6.7%Mid 8.2 5.8% 5.8 6.6% 14.0 9.9%High 10.6 7.4% 7.2 8.2% 17.7 12.5%

Ghana1 Low 31.6 2.5% 21.2 1.3% 52.9 4.2%Mid 45.8 3.7% 40.2 2.4% 85.9 6.9%High 59.9 4.8% 59.2 3.6% 119.1 9.5%

Guinea Low 9.8 3.3% 5.2 1.7% 15.0 5.1%Mid 14.3 4.9% 10.0 3.3% 24.3 8.3%High 18.8 6.4% 15.6 5.1% 34.4 11.7%

Note: 12000


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Table 7 (cont’d.): Trade Effects of EPA on ECOWAS Countries, 2001Trade creation Trade diversion Total trade effect


% ofpreferredimports mill. US$

% of non-preferredimports mill. US$

% ofpreferredimports

Guinea-Bissau Low 1.1 3.0% 0.1 0.5% 1.2 3.4%Mid 1.6 4.5% 0.3 1.1% 1.9 5.2%High 2.2 6.0% 0.4 1.5% 2.5 7.0%

Mali Low 9.3 2.5% 4.3 0.7% 13.6 3.7%Mid 13.3 3.6% 8.3 1.3% 21.6 5.9%High 17.4 4.7% 11.8 1.8% 29.1 7.9%

Mauritania Low 6.9 3.9% 2.8 1.5% 9.7 5.5%Mid 9.8 5.5% 5.4 2.8% 15.2 8.6%High 12.7 7.2% 7.9 4.0% 20.6 11.6%

Niger Low 3.0 3.2% 1.8 0.8% 4.8 5.1%Mid 4.6 4.9% 3.5 1.5% 8.1 8.6%High 6.1 6.5% 5.3 2.3% 11.4 12.1%

Nigeria1 Low 244.5 8.8% 118.6 3.9% 363.1 13.1%Mid 348.3 12.5% 229.1 7.6% 577.4 20.8%High 452.1 16.3% 327.6 10.8% 779.7 28.0%

Senegal Low 49.2 5.5% 16.3 2.0% 65.6 7.3%Mid 71.2 8.0% 31.4 3.8% 102.7 11.5%High 93.2 10.4% 45.7 5.5% 138.9 15.5%

Togo Low 6.9 4.5% 3.4 1.7% 10.3 6.8%Mid 10.1 6.6% 6.5 3.2% 16.6 10.9%High 13.2 8.7% 10.1 5.0% 23.3 15.3%

12000


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Table 8: Decline in Import Duties in ECOWAS Countries, 2001

Decline in import duties


% of total importduties

% of totalgovernment

revenue2% of GDP

Benin Low 26.7 46.0% 8.3% 1.13%Mid 27.6 47.4% 8.6% 1.16%High 28.3 48.7% 8.8% 1.19%

Burkina Faso Low 16.8 45.0% 5.4% 0.68%Mid 17.5 46.8% 5.6% 0.71%High 18.2 48.5% 5.8% 0.73%

Cape Verde Low 23.5 78.0% 19.4% 3.99%Mid 24.0 79.9% 19.8% 4.09%High 24.5 81.5% 20.2% 4.17%

Côte d’Ivoire Low 81.2 54.4% 4.5% 0.78%Mid 82.9 55.5% 4.6% 0.80%High 84.3 56.5% 4.6% 0.81%

Gambia Low 13.5 63.8% 21.5% 3.47%Mid 13.8 65.0% 21.9% 3.54%High 14.0 65.8% 22.1% 3.58%

Ghana1 Low 80.3 58.7% 9.1% 1.61%Mid 90.8 66.4% 10.3% 1.82%High 102.4 74.9% 11.6% 2.06%

Guinea Low 16.3 50.6% 4.8% 0.55%Mid 16.7 51.6% 4.9% 0.56%High 17.0 52.7% 5.0% 0.57%

12000. 2excl. grants.


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Table 8 (continued): Decline in Import Duties in ECOWAS Countries, 2001

Decline in import duties


% of total importduties

% of totalgovernment

revenue2% of GDP

Guinea-Bissau Low 2.14 65.2% 5.5% 1.08%Mid 2.16 65.8% 5.6% 1.09%High 2.18 66.3% 5.6% 1.09%

Mali Low 16.0 34.3% 3.7% 0.60%Mid 16.6 35.6% 3.8% 0.63%High 17.1 36.7% 3.9% 0.65%

Mauritania Low 11.4 47.8% 6.1% 1.13%Mid 11.8 49.3% 6.3% 1.17%High 12.1 50.5% 6.5% 1.20%

Niger Low 6.3 28.3% 3.5% 0.32%Mid 6.6 29.6% 3.6% 0.34%High 6.9 30.8% 3.8% 0.35%

Nigeria1 Low 460.1 49.7% 2.4% 1.12%Mid 487.8 52.7% 2.5% 1.19%High 512.8 55.4% 2.6% 1.25%

Senegal Low 85.8 58.6% 10.4% 1.85%Mid 87.9 60.0% 10.7% 1.89%High 89.7 61.3% 10.9% 1.93%

Togo Low 12.5 41.8% 7.2% 0.99%Mid 12.9 43.2% 7.4% 1.02%High 13.3 44.6% 7.6% 1.06%

12000. 2excl. grants.


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Table 9: Combined Tariff, Trade and Government Revenue Indicators, 2001

Imports from the EU Import-weighted Import duties in % Import dutyin % of tariff rate of total government collection efficiency

Country total imports EU imports (%) revenue ratio in %Benin 44.4 12.6 18.1 76.5Burkina Faso 44.6 10.5 12.0 61.3Cape Verde 74.3 15.8 24.8 78.7Côte d'Ivoire 57.4 10.0 8.2 68.8Gambia 61.8 11.8 33.7 78.3Ghana 43.1 18.8 15.5 29.1Guinea 49.0 6.3 9.4 89.9Guinea-Bissau 59.7 15.3 8.5 38.2Mali 36.3 9.6 10.7 43.7Mauritania 47.5 8.5 12.8 73.3Niger 28.9 12.0 12.3 53.4Nigeria 47.9 19.5 4.7 79.7Senegal 51.8 10.4 17.8 90.0Togo 43.0 10.2 17.1 77.0

Average 49.3 12.0 14.7 67.0


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Most Affected Products, Budget Effects, 2001

• Motor cars, vehicles, for transport of people (HS No. 8703)

• Petroleum oils (2710)

• Milk and cream (0402)

• Cane or beat sugar (1701)


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Most Affected Products, Trade Effects, 2001

• Sugars and sugar confectionery (17)

• Essential oils and resinoids (33)

• Soap and organic surface-active agents (34)

• Cotton (52)

• Carpets (57)

• Fabrics (60)

• Cars, trucks, motorbikes (87)

• Furniture, bedding, mattress (94)

• Toys, games and sports requisites (95)

• Fabrics (HS No. 60)

• Apparel and clothing (61 and 62)

• Other textile articles (63)

• Footwear (64)


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4. Conclusions and Policy Implications

• Overall, moderate trade effects at aggregated level, but considerable effects for limited number of products at disaggregated level

• Domestic producers who compete with EU imports might face a decline in their business, local consumers and firms who purchase machinery or intermediate goods for production might benefit

• Significant decline in customs revenue (government revenue) in some West African countries


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Limitations of the Study

Partial equilibrium approach excludes various important effects of economic integration, for example: inter-sectoral linkages

income effects

economies of scale

These further effects might enhance GDP growth rates in West African countries higher GDP implies higher imports (increase in trade) and

higher import duties (from non-EU imports)


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Limitations of the Study, cont’d.

Important assumption in the model: perfect competition

• Might not be appropriate for small countries, such as Gambia or Guinea-Bissau

• If European exporters have significant market power and are “pricing to market”, there might be

a transfer of rents from African governments (customs revenue) to European exporters (higher export prices),

no trade creation or diversion effects, and consumers (producers) in Africa do not benefit


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Policy Implications

• Need for comprehensive adjustment of institutions and policies in West Africa Government effectiveness (e.g. quality of bureaucracy, credibility

of government policy) Rule of law Control of corruption Effective competition policy

• Do EPAs support (further) regional integration in Africa?

• Can ECOWAS countries agree on a regional EPA with the EU (diverging interests LDCs/non-LDCs)?

• Alternative sources for government revenue, if EPAs come into force? (effective VAT? EU offer to compensate lost tariff revenue?)


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