Are the Economic Partnership Agreements a First-best Optimum for the African Caribbean Pacific Countries?

Abstract

The 77 countries of the African, Caribbean and Pacific (ACP) group 2 have been negotiating free-trade agreements with the European Union (EU) since 2002. The Economic Partnership Agreements (EPAs) will replace the non-reciprocal preferences the EU currently grants to the ACP group with a reciprocal preferential scheme that conforms to World Trade Organization (WTO) rules. This article estimates the effects of the EPAs on the ACP economies, and compares them with the potential impact induced by the alternatives to the EPAs. Based on an original methodology, mixing general equilibrium analysis and disaggregated tariff calculations, the article highlights the significant costs induced by the EPAs, even under the hypothesis of a high asymmetry between the commitments of the ACP and European countries. It shows that switching from the Cotonou preferences to the Generalized System of Preferences (GSP) and the ‘‘Everything But Arms’’ initiative would be less costly for most ACP countries than adopting the EPAs. Furthermore, it investigates the ‘‘GSP+’’ option, whereby the current GSP is extended to better cover sensitive products for ACP economies. It demonstrates that a marginally extended GSP would indeed be the optimum choice for ACP countries.