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Thursday, 19 August 2010

Fiscal impact of the Economic Partnership Agreement in West Africa

Will trade liberalisation bear an adjustment cost for ACP countries? If so, how much and who will pay for it? What are the strategies for reducing or even eliminating these costs? These are all sensitive questions facing ACP and European negotiators in the context of the negotiations of the Economic Partnership Agreements (EPAs).

Qualitatively and quantitatively defining the “net fiscal impact” of an EPA: a complex undertaking

In West Africa - one of the most important regions in demographic and economic terms among the ACP - European and African negotiators decided to inform their discussions with a regional Computable General Equilibrium model led by a joint committee. Indeed, answering the above questions required a common tool to quantify certain key issues in the negotiation, especially the notion of net fiscal impact. The loss of customs revenues has been a major concern for West Africa’s governments, which are faced with tense budgetary situations and economies with an extensive informal sector, presenting a challenge for replacing border taxes with a domestic tax system. The EU committed itself to accompany and support the ACP partners during the liberalisation phase in order to protect against the negative effects resulting from trade reform, which is why it is necessary to assess and determine the forms of this support. Nonetheless, three important points must be borne in mind. First, this is an unprecedented commitment. While the EU has negotiated numerous free trade agreements, until the EPAs it has not committed to pay the adjustment costs of its partners.[i] Second, the very concept of “net fiscal impact” is new, and must be defined before any quantification can be undertaken. Finally, one should note the originality of the approach, which revolves around the notion of partnership between the EU and ECOWAS, as the parameters and hypotheses of the model have been determined jointly by the two parties, in order to avoid politicising the exercise.

Source: Trade Negotiations Insights