Speakers:

Dr San Bilal, Programme Coordinator, ACP-EU Economic & Trade Cooperation, European Centre for Development Policy Management (ECDPM)

Dr Christopher Stevens, Research Fellow & Group Coordinator, International Economic Development Group (IEDG), ODI

Massimiliano Calì, Research Officer, IEDG, ODI

Chair:

H.E. Ambassador Edwin Laurent, Commonwealth Secretariat

Dr Chris Stevens started by saying that there had been very little progress on EPAs over the course of 10 years but that there would need to be progress this year given the expiration of the Contonou's trade regime at the end of 2007. A list of products to be liberalised will need to be created for each country that in turn will need to be debated both in ACP countries and in the EU Council in the coming months. These details will be crucial to advancing the discussion on the likely impacts of EPAs, and are important to complete in a timely manner because ACP bargaining power will decline after 2007.

There are two justifications for EPAs: on the one hand, there is a problem with the legality of the agreement in the WTO. On the other, EU officials often claim that EPAs are development agreements that will allow for major gains for ACP countries. The first is a real constraint, but there are relatively easy ways of getting around it. The second is 'softer' In the sense that they do not commit the EU to agree EPAs which are constructed in such a way so as to ensure that they achieve goals that have not been achieved under Cotonou. If they do include such commitments, then the development aspect of EPAs would be their strongest feature. If they do not, then the best outcome would be an accord that achieved the requirements for an FTA with as little fuss as possible

ODI has produced 3 briefing papers on EPAs for a project elaborated in conjunction with EPDM on the status quo and will be watching closely the negotiations through ongoing work in the coming six months. This technical work will result in a further three briefing papers which will either address the impact of agreements or will propose what the alternative is to EPAs if no agreement has been reached.

Massimiliano Calì provided an overview of the work ODI had done on evaluating quantitative models about the effect of EPAs. The purpose of the models is to take available information about the likely content of the agreements and to see what their economic effects (gains and losses) are. However, they are limited by the fact that they are static (e.g. do not take into account competitive or FDI effects), assume that tariff cuts are directly translated into price reductions (overlooking price mechanisms and rent capture), because data is missing for ACP countries to complete the models and because the details of EPAs are not known (so for example goods that may be excluded in final agreements are included). All of the models exclude the adjustment costs from implementation of EPAs.

Nonetheless, ODI evaluated 9 models which looked at the impact of EPAs on regional groupings. All but two were partial rather than general equilibrium models and therefore only capture direct welfare impacts. The potential impacts are: trade creation - when EU producers are the most efficient and EPAs encourage ACP countries to import from them; trade diversion - when ACP countries import from the EU because of tariff reductions but European producers are not the most efficient; and loss of tariff revenue.

The results showed that the impact of EPAs on goods trade is likely to be smaller than multilateral liberalisation, but that the impact is likely to be the greatest, and positive in sub-Saharan Africa. More minor effects are expected in the Caribbean and Pacific because their trade is with other partners (the US and Australia). There are potentially large tariff revenue losses across countries. Calì also said that there were potentially large effects for services, which were not included.

Dr San Bilal started his presentation by saying that we don't know much about EPAs because first, not much has happened, and second, what little does happen is usually kept confidential by negotiators. In an overview of the negotiations he said that all ACP level negotiations were held from 2002-03, which then led to regional negotiations until the present. At first these were one way discussions about the degree to which regions were integrated. Then discussions on some side agreements began, but most difficult discussions will not be had until the end- progress has been very slow.

He then highlighted how complex and contested the regional groupings were - with some Africans moving between groups and Caribbean countries having different priorities (e.g. Dominican Republic which is not a member of Caricom). The current state of play is that the EU has not shown any legal text, but a table of contents has been produced. Some groups (e.g. Ecowas) have rejected discussion of legal texts until a better understanding of substance has been agreed. Different regions also have different preferences on whether 'Singapore issues' should be included in EPAs, with SADC providing the strongest no. Bilal also mentioned the potential for large countries to drop out and spoil negotiations, and said that tensions will increase as discussions develop.

Ambassador Laurent introduced two questions for discussion. First, he asked whether the failure to date on negotiations had to do with the negotiation process or whether the initial idea of EPAs was flawed - Stevens later answered that the two were not mutually exclusive. He also questioned the conclusions that Africa would make net welfare gains from EPAs, to which Calì later answered that welfare gains may indeed come about as the EU is already the cheapest source for many African imports and current low tariff barriers on EU imports imply that the risk of trade diversion following an EPA may be limited.

Questions from the floor included:

• What is the value added for EPAs? Relatively little that could not be achieved in other settings, except to act as templates for other free trade agreements.
• Whether the speakers had utilised sustainability impact assessments conducted by DG Trade and ACP countries? Consensus was that these documents were not particularly helpful and were not being extensively utilised, except to inform the more quantitative studies and models.
• Whether EPAs were likely to be decided by regional groups or bilaterally? Stevens thought almost assuredly bilaterally given the level of detail that would be necessary to complete the agreements.