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GTAP Resource #2037

"Assessing the consequences of the Economic Partnership Agreement on the Ethiopian economy"
by Ben Hammouda, Hakim, Stephen Karingi, Ben Idrissa Ouedraogo, Nassim Oulmane and Mustapha Sadni Jallab

Ethiopia is currently engaged in trade negotiations with the European Union (EU) through the framework of the African Caribbean and Pacific (ACP) countries – (EU) relations. These negotiations may lead to an Economic Partnership Agreement (EPA) with the EU by January 2008, which will be the new cooperative framework based on partnership, cooperation, trade and political dialogue between the EU and the ACP countries. After the implementation of the free-trade agreement (FTA), which may last more than ten years after 2008, ACP countries will have to reciprocate on their tariffs on exports from the EU, as a counterpart of the duty free access their exports will enjoy in European markets. The primary aim of this cooperation is to contribute to the development of a trade regime that promotes sustainable development and the integration of ACP countries such as Ethiopia into the world economy. While many benefits are expected from these EPAs, many challenges need to be clarified, analyzed and taken into account during the preparation of negotiating position by each REC and each country.
This study provides an in-depth analytical work aimed at assessing the impact of the EPA on Ethiopia’s economy in order to ensure maximum benefits from the ongoing EPA negotiations with the EU. Further, this study endeavors to quantify economic and social impacts of the trade liberalization aspects proposed by the EPA for Ethiopia. More precisely, this study will provide on the one hand a quantitative assessment of the likely implications of the EPA. On the other hand, since Ethiopia envisages entering the Free Trade Area of the Common Market for Eastern and Southern Africa (COMESA), this study contributes to the analysis of the implications of Ethiopia’s participation to this regional integration scheme.
This study is technically supported by trade simulations utilizing the WITS/SMART model developed by the World Bank and the United Nations Conference on Trade and Development. In this regard, four different scenarios are tested to assess the total effect of the EPAs on the Ethiopian economy, as well as the likely aftermath of a partial liberalization:
· A general scenario, based on full liberalization of all the imports from the EU to Ethiopia.
· A scenario limited to the liberalization of the agricultural imports from the EU.
· An industrial scenario, assessing the impact of free trade limited to industrial goods.
· A general scenario, based on full liberalization of all the imports from the EU and from the COMESA countries to Ethiopia.
The results presented indicate that a free trade area would reinforce the linkages between Ethiopia and European countries, especially with traditional partners such as Italy, with implications for the regional integration arrangements that Ethiopia is currently involved in. There will be significant trade diversion away from other African countries currently trading with Ethiopia. The diversion will occur in the low-technology sectors, which are potentially good foundations for deepened regional integration based on trade in industrial goods. The results further indicate some important implications with respect to Ethiopia’s industrialization strategy. The liberalization of industrial sectors result in more trade effects, particularly negative trade diversion, compared to the results from agricultural liberalization. The loss in revenue, which is a strong feature in general liberalization, is at the sectoral level, more pronounced in the industrial liberalization. The economic structure of Ethiopia, which supports self-reliance in food from the agriculture sector, underpins the limited losses in agriculture as compared to the industrial sector. Clearly, instead of opening the doors to economic diversification, the EPA could lead Ethiopia to deepen its comparative advantages in agricultural products.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Date: 2005
Created: Ouedraogo, B. (5/1/2006)
Updated: Ouedraogo, B. (5/1/2006)
Visits: 3,518
No keywords have been specified.

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