Effects of Economic Partnership Agreements on Agricultural Trade Between Small and Large Ecowas Economies and the EU

Abstract Smart Simulation Partial Equilibrium Methodology was employed in this study to determine Effects of Economic Partnership Agreements on Agricultural trade between small and large ECOWAS economies and the EU. Specifically, the study looked at the patterns of imports of sample of two ECOWAS countries the Gambia and Nigeria; the potential trade effects on the selected countries embarking on free trade under economic partnership agreement scenario; the potential revenue effects on the selected countries under the same platform; the potential welfare effects on the selected countries under the same platform; the sensitive products based on source and volume of import criteria. WITS provided access to international trade and protection related data and offered builtin-analytical tools for the study. Results of the analysis on patterns of import of the selected ECOWAS countries showed that the Gambia’s highest ($62158.328 million) proportion of imports came from ROW, followed by imports from the EU ($ 13071.561 million) and least ($1372.053 million) imports from ECOWAS region. However, it was observed that the highest ($28493.34 million) product group imported by the Gambia was product group 10 (cereals) at 45.840% from ROW. The results on patterns of agricultural imports of Nigeria showed that Nigeria’s highest ($1817981.912 million) imports on agricultural products came from ROW; followed by imports from EU ($982718.781 million) and least ($45635.089 million) imports from ECOWAS region. It was further observed that product group 10(cereals) was the highest ($699,878.321million) product group Nigeria imports which came from ROW at 38.50%. Result on Potential Trade Effect of EPAs between economies of ECOWAS countries studied and the EU, showed that the EU beneficiary countries (ECOWAS) were seen to gain $35926.855 million in “Trade Creation” and $15081.5191 million in “Trade Diversion”, while Total Trade Effect amounts to $20845.0309 million in Product groups studied as obtained from SMART Simulation Partial Equilibrium 2014. Result on Potential Revenue Effect of the two sample ECOWAS countries going into EPAs, showed total likely revenue losses (-$17223.665 million) for the two sampled countries on the product groups studied, with Nigeria recording higher ( -$16666.638 million) loss and Gambia recording least ( -$557.027). Result on Potential welfare effect of EPAs between the economies of ECOWAS countries studied and EU showed likely welfare gain ($2326.905 million) for the consumers in all the agricultural products studied. With Nigeria recording higher welfare gain ($2238.793million) than the Gambia ($88.112 million) in all the product groups studied. Result on sensitive products based on source and volume import criteria, showed that product group 3, 4 and 15 were identified to contain the potential sensitive products for the ECOWAS countries studied and should be exempted from EPAs as identified by the study. Base on the findings of this study, the following recommendations were made: The trade effect showed that ECOWAS countries are likely to record greater trade creation effect than trade diversion effect in favour ECOWAS countries. The on-going Economic partnership Agreements (EPAs) negotiations between ECOWAS and the EU need to be concluded and implemented based on this ground but measures should be taken to guide the infant industries to protect them from fazing off from production due to cheaper goods flooding ECOWAS markets from EU market.There is need for fiscal reforms to replace EPAs induced tariff revenue losses. The fiscal reforms should entail shifting revenue from trade to non-trade tax sources and improving the efficiency of fiscal revenue collecting policies. Examples of non-tariff instruments that may assume greater importance in revenue generation include value-added tax (VAT) and excise taxes charged on imports from the EU. If ECOWAS countries can adapt this measure, EPAs should be signed since the lost revenue can be reclaimed via these means. Agricultural product groups 3, 4 and 15 should be the likely sensitive products for the ECOWAS countries and should be exempted from EPAs as identified in this study.

TABLE OF CONTENTS

Title page i

Certification ii

Dedication iii

Acknowledgment iv

Table of contents v

List of tables vii

List of figures viii

Abstract ix

CHAPTER ONE: INTRODUCTION 1

1.1 Background of the Study 1

1.2 Problem Statement 5

1.3 Objectives of the Study 7

1.4 Study Hypotheses 7

1.5 Justification of the Study 7

1.6 Limitations of the Study 8

CHAPTER TWO: LITERATURE REVIEW 9

2.1 The Status of Economic Partnership Agreements (EPAs) Negotiations 9

2.2 Trade Effects (Creation or Diversion) 10

2.3 Revenue Effects 13

2.4 Welfare Effects 14

2.5 ECOWAS Regional Block and Trade Policies 16

2.6 Importance of International Agricultural Trade 18

2.7 Empirical Literature 19

2.8 Theoretical Framework 22

2.8.1 Heckscher–Ohlin theorem (HO) 23

2.9 Analytical Framework 24

2.9.1 Smart Model for Partial Equilibrium Simulation Analysis 27

CHAPTER THREE: RESEARCH METHODOLOGY 32

3.1 The Study Area 32

3.2 Sampling Procedure 33

vi

3.3 Data Collection 33

3.4 Data Analysis 34

3.4.1 Model Specification for Objective 2 34

3.4.2 Model Specification for Objective 3 36

3.4.3 Model Specification for Objective 4 37

CHAPTER FOUR: RESULTS AND DISCUSSION 38

4.1 Patterns of Imports of Sample of small and large economies of

ECOWAS Countries (the Gambia and Nigeria). 39

4.2: Potential trade effect of EPAs between ECOWAS (the Gambia and

Nigeria) and EU on Agricultural products. 41

4.3: Potential Revenue Effect of EPAs between ECOWAS (The Gambia and

Nigeria) and the EU 44

4.4: Potential Welfare Effect of EPAs between ECOWAS (The Gambia and

 Nigeria) and the EU 46

4.5 Agricultural Sensitive Products for the Selected Small and Large

 ECOWAS Economies (the Gambia and Nigeria). 48

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND POLICY

 IMPLICATIONS 50

5.1 Summary 50

5.2 Conclusion 51

5.3 Recommendations 53

5.4 Contributions to Knowledge 53

5.5 Areas for Future Research 54

REFERENCES 55

APPENDIX