Trade-Development Nexus in EU-ACP Relationship - A quantitative study on EU-ACP EPA

Abstract

This paper aims to investigate the impact of Economic Partnership Agreement (EPA)between European Union and its partners in Africa, Caribbean Sea and Pacific Ocean(ACP). EPA is one of the derivatives of Cotonou Agreement, signed in 2000, establishing a new trade and development regime that is going to bind both parties until its expiration in 2020. First of all I look into the history of Special and Differential Treatment offered for the developing countries in Bretton-Woods system. While nondiscrimination and reciprocity were advocated as the most important principles of GATT and the subsequent WTO system, a differentiated treatment for countries with development needs existed in parallel with such principles Then this special trade scheme will be analyzed in more specific context, between European countries and their former countries grouped as ACP countries. The trade-development regime established under Lomé Convention and Cotonou Agreement stipulated the non-reciprocity in the trade between Europe and ACP groups. However the need for WTO conformity and frustration from the lagging trade performance of ACP countries led to the rupture from existing trade regime. I will look in depth the policy options that are available to these ACP countries. In the next section the analysis of EPAs economic impact is analyzed in two dimensions

its impact on trade volume and extra debt burden. Through regression analysis using gravity model and trade-debt equation, it is demonstrated that EPA has positive effect on trade volume but also a short-term negative impact on debt burden. From these analysis I conclude that trade liberalization has multifaceted impact on national economy of developing countries. It increases trade volume of a country yet can have a detrimental impact on countries debt burden. As debt sustainability of developing countries became a major issue in development, despite recent acceptance of EPA by numerous ACP, it is important to balance these gains and loss so that trade can be a true engine of economic development in ACP countries.