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Can Ghana afford not to sign the EPA when ECOWAS signs?

Apr 16, 2014, 10:06 AM

If there is any theory in economics that has proven to be very robust, it is that free trade (not autarky) is welfare-improving and the best antidote to under-development and poverty.

Certainly, the EPA cannot guarantee mutual and equitable benefits between the EU and its ECOWAS trading partners, but it will surely contribute to a better world from which ECOWAS also gains.

Under the EPA, their will be reciprocal preferential market access. The EU grants a 100% tariff-free and quota-free market access fully and immediately to ECOWAS and, in return, ECOWAS grants a 70% tariff-free and quota-free preferential access to imports from the EU.

Thus the EU allows some protection for the sensitive 30% of imports from EU. This implies that we can impose tariffs and quota on agricultural and simple manufacturing goods, in which ECOWAS members have a comparative advantage. Thus, we can still protect our local industries that are engaged in the production of these sensitive goods.

Two main arguments have been put across by civil society organizations, trade unions and other stakeholders. First, they argue extensively that EPA would be deleterious to already precarious and dying manufacturing sector of ECOWAS countries, because they will be out-competed by their counterpart producers in EU.

This argument is one-sided, simply because there is a possibility of the EPA improving the productivity of the ECOWAS’ manufacturing firms, as they will import inputs ( both capital and intermediate goods) tariff-free from the EU, and this would substantially lower their production costs to make them more competitive both in the domestic and global markets.

Additionally, if we analyze the structure of trade between ECOWAS and EU, anecdotal evidence indicates our manufacturing sector do not directly compete with their counterparts in Europe. So there exists no such local producers that ECOWAS members will want to protect.

The threat for our local industries is from China, not EU. Trade volume currently between only Ghana and China, for example, has reached an annual average estimate of over $5 billion.

Data on product disaggregation for bilateral trade between ECOWAS and EU clearly shows that the EU is not the threat. Moreover, the major products ECOWAS imports from the EU are what the region needs to rather revive its dwindling manufacturing sector.

The second argument put across vociferously is the loss of revenue to governments as result of import duties. This is so as many of ECOWAS members depend to a large extent on import duties raised from their ports and harbours.

Notwithstanding, in assessing the EPA, there is the need to adopt a holistic approach. Some agents within the economy will lose, whiles others will benefit, but the net welfare effect should be positive, as consumers gain by paying relatively lower prices from the competition; producers gain from economies of scale from the enlarged market for products they have comparative advantage in, compared to the loss in revenue for the government.

On whether any individual member countries can isolate themselves from the majority decision by ECOWAS, when they sign the full EPA, it will be very bad for ECOWAS and any individual country that will opt out from the regional position.

In the case of ECOWAS, it will undermine the effort to strengthen the regional bloc and undermine the commitment of individual member states.

For the individual country, she will encounter enormous challenges, as this will strain her relationship with all the 27 EU member countries culminating in a cut in development assistance.

Considering that the majority of ECOWAS member countries depend heavily on development aid and budgetary support from the EU, this would throw the governments’ budget out of control.

Similarly, the country will suffer total trade collapse with the EU and the rest of the world, and will not even realize the revenue from the tariffs they were protecting. Other member states that sign the EPA could be used as a conduit to transit goods to that country as ECOWAS has stricter rules of origin and border control.

Ghana must go along with the decision of ECOWAS when they sign EPA. To overcome the immediate impact of signing the EPA on the economy, Ghana should focus on improving the productivity of local firms in their core competent products, so that we can compete favorably in the domestic and ECOWAS regional markets and using these markets as a training ground to launch unto the global market.

Guest editorial - adapted from an opinion piece written by Sylvanus Kwaku Afesorgbor a trade and development economist at the Centre for Trade andDevelopment (CETAD) www.cetadghana.comSource: GhanaWeb

“I do detest everything which is not perfectly mutual”.

Lord Byron