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Trade Agreements: To Sign or not to Sign?

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Wednesday, 03 May 2017

Trade Agreements: To Sign or not to Sign?

For too long, neoliberal ideas have dominated issues in development economics, and it is easy to see why. When richer countries put their success down to increased trade openness and capital mobility, it is understandable that developing countries would want a taste too. The most famous argument for this line of thinking is that as countries move goods more easily between each other, it encourages the flow of ideas and innovation. The question of how regional trade can promote development in Nigeria is an important one. Over time, regional trade blocs have cropped up across Africa – a response to the argument that Africa's underdevelopment is due to low intraregional trade. However, have these trade agreements been successful? While the East African Community (EAC) can be lauded for its remarkable achievements, the average businessman still has to pay a tariff rate of 8.7% to sell his goods in Africa (compared to 2.5% overseas). The root of the problem may be the broad and shallow agreements (mostly deals focused on border measures) African trade blocs usually commit to. It is then not surprising that Nigeria has not signed off on the Economic Partnership Agreement (EPA), but we should understand why.As a customs union, ECOWAS is responsible for improving trade opportunities amongst its member countries. However, this is hard to do when its members are mostly export rivals. West African countries are mainly commodity exporters so are less likely to demand goods from each other. So, to boost trade flows, it makes sense that the EPA proposed by European Union nations seems appealing. For starters, it should improve access to EU goods that are different from what our regional neighbours exports. Besides, the EPA will lower tariffs on EU goods, which translates into lower prices for consumers. This would be better for example, than it being cheaper to get Ghanian cocoa into Nigeria. To directly reap the benefits of signing the EPA however, the type of goods brought in from European countries must contribute to improving production processes. For example, it is expected that the agreement will eliminate tariffs progressively so that equipment and other input items are cheaper for local businesses.

Source: Stears