Economic Partnership Agreements and Regional Integration among ACP Countries

Abstract

New initiatives are needed to increase the effectiveness of the trade policy instruments the EU uses in its policy of development cooperation with the ACP countries. Merely giving non-reciprocal preferences has not worked very well. The main reason for this failure is that non-reciprocal preferences have not improved supply conditions in developing countries. FTAs in the shape of EPAs can give a new impetus to production and trade. For this strategy to succeed, the ACP and EU should avoid trade diversion and deflection and create as much trade as possible. This requires MFN liberalisation together with regional integration. This paper shows that EPAs could have important benefits for ACP economies by creating competitive market conditions, leading to dynamic welfare effects and by reinforcing economic reforms.

The success or failure of the new approach depends on a number of factors that have been analysed in this paper. This paper argues that the expectation underlying the Cotonou Agreement that effective negotiating partners in the shape of ACP RIAs will develop in the short term will not come true, with the exception of the Caribbean region. In the Pacific region, no ACP RIA is in the making. In SSA, regional integration suffers from overlapping membership, lack of commitment and small or negative economic effects. As a result, the EU will have to use EPAs as an instrument to stimulate viable RIAs among ACP countries in SSA. This puts a number of responsibilities on the EU in order to create successful EPAs. For the full benefits of regional free trade to arise, deep integration is necessary. Harmonisation of competition policy, of regulations with respect to product norms and standards is called for. Second, substantial funds will have to be provided by the EU for social safety nets, for capacity building in order to improve the implementation of public functions that are required if markets are to function for the benefit of the citizens at large and for retraining. In order to make EPAs successful, the market access for sensitive ACP export products should be improved. Third, the EU will have to be willing to act as the hegemon in EPAs, sanctioning infringements on obligations and supporting ACP countries that have run into externally caused difficulties threatening their participation in EPAs. If EPAs are to work as commitment mechanisms that effectively lock in ACP policy reforms, ACP countries should run the risk of losing substantial benefits if they do not meet their obligations, and feel secure that they will be supported in case of external shocks. As the negotiations on EPAs have not started at the moment of writing, there is no certainty about the willingness of the EU to take up this role. However, given the trends in sanctioning human rights violations, in supporting regional integration among developing countries, the relative size of the EDF and given the high stake the EU has set on EPAs, the new role that the EU will have to play to make EPAs successful, is not completely unrealistic.