Institute of Development Studies

Can the Economic Partnership Agreements become a useful tool for Export Diversification?

Xavier Cirera - 25 November 2009

Economic Partnership Agreements (EPAs) were intended to create a free trade area between the EU and the Group of African, Caribbean and Pacific (ACP) countries. This was in response to criticism that the EU's preferential trade agreements go against World Trade Organisation rules. The German Marshall Fund has published Updating the EPAs to match today's global challenges, a new e-book which aims to provide creative stimulus to the negotiation process first started in 2002 - of which I am a contributing author.

Since formal EPA negotiations began the world has changed significantly. New global challenges - financial crisis, food crisis and climate change - are making economic growth and poverty reduction even more challenging tasks than a decade ago. But these are some of the challenges that the EPAs could help solve and while negotiations are ongoing there still an opportunity to shape the agreements and include new elements that could help to make ACP economies more resilient.

Considering the long implementation period for interim agreements, it is unlikely that the EPAs can have any impact in the short-run. However, it is important that they include provisions that help create more resilient economies in the medium and long-run.

The importance of diversifying exports

Export diversification is a key trade-policy objective for building resilience. Diversification will make countries less vulnerable to shocks, enabling more sustainable growth and development. Some climate change mitigation policies, such as border carbon taxes or standards, discriminate towards ‘green' products, creating new trade opportunities and increasing the need to diversify away from high-carbon emission products. In addition, adaptation policies require diversification away from commodities most vulnerable to climate change shocks.

The export diversification record from previous EU preferential trade agreements is very disappointing. There is little evidence that existing agreements have helped to expand the variety of exports from ACP countries. Indeed, with a few exceptions, most export growth has occurred in products that already existed. The new proposals for EPA agreements acknowledge this problem and assume that the inclusion of other trade-related issues such as investment, services or government procurement will help ACP countries expand their export base.

Nevertheless, in my view, these new trade-related elements are not enough to foster diversification. More specific measures geared towards the discovery of new export activities are required. Key among these measures are:

1. more flexible Rules of Origin allowing for cumulation with more countries (not only EPAs),
2. selective liberalisation of trade services that offer finance for the productive and trade sectors, complemented with specific development finance programmes for trade in new activities and,
3. linking and integrating newly created export opportunities under the EPAs, with specific development finance programmes for new exports.

Xavier Cirera is a Fellow in the Globalisation Team at IDS.
This article is based on the chapter ‘Can the Economic Partnership Agreements (EPAs) Become a Useful Tool for Export Diversification?' in Updating Economic Partnership Agreements to Today's Global Challenges: essays on the future of economic partnership agreements. Edited by Emily Jones and Darlan F. Martí

Image: Andy Johnstone/ Panos