Duty-Free and Quota-Free Market Accesses for Ethiopia: An Analysis of AGOA and EBA Generalize System of Preference Initiatives

Abstract

The export sector is considered as one of the key drivers for economic growth and transformation of Ethiopia. Despite the potential capacity to diversify export and policy reforms, Ethiopia has been facing a growing trade deficit with total imports steadily increasing while the export sector performance is stagnated .To curb this situation, the country is generally committed to regional integration and works to accede to WTO and has continued with AfCFTA negotiations. Ethiopia is also the beneficiary of AGOA and EBA Duty Free Quota Free market access in US and EU markets. There have been some attempts, in the empirical literature, to examine the effect of the DFQF preference schemes on SSA's export performance. These studies have usually relied on country level export data and mainly conducted macro panel analysis for SSA. However, to the best of our knowledge, none of the study has provided an empirical back up to the firm level micro panel analysis, particularly based on Ethiopia’s firms. This study tries to fill this gap in the literature by exploring empirically whether the Ethiopia’s firms have really enjoyed higher export performance since the adoption of the DFQF market access. The descriptive analysis shows that Ethiopian export to US both under AGOA preferential scheme and no programmed claimed has been increasing. Commodity wise, Ethiopia is the AGOA beneficiary with the largest volume of exports to the United States in the Apparel and Footwear subsectors. Sesame is the most important agricultural commodity exported to US under AGOA followed by Niger Seeds. The country’s export to EU under EBA has rapidly increased over the past decades .Utilization rate is very divergent across the exportable products and over time. Ethiopia largely benefits from the EBA scheme in exports of horticulture, textiles, Apparel and Clothing Accessories. Following floriculture the largest product groups traded under EBA are Article of Apparel and Clothing Accessories and made up textile articles. For the econometric analysis panel econometric analysis with Fixed Effects Estimation technique is used as a method of analysis. The estimation result revealed that EU and US DFQF scheme has, on average, exerted a positive impact on firms export performance. But the magnitude of its effect is very minimal which is mainly driven by a low utilization rate. With regard to the sector specific effect of AGOA & EBA arrangements, the result indicated that the export performance of textile, clothing, apparel, footwear sectors under AGOA-EBA exceed the remaining export sectors tremendously. Overall these findings suggest that the composition of export and the utilization rate of Ethiopia under EBA and AGOA schemes are relatively low. The country exhibited less diversified portfolios at the product and sector level which limits the utilization rate. Moreover, the schemes are effectively utilized by the foreign owned companies while the share of local firms is meagre. DOI : 10.7176/JESD/10-15-04 Publication date : August 31 st 2019