The effects of EPAs between EU and sub-saharan Africa on sub Saharan region and agricultural sector

Ongoing negotiation at the framework of Economic Partnership Agreements with the Sub-Saharan Africa's most important trading partner European Union has some effects on sub-Saharan economy and the region's main economic activity the agricultural sector. This is the subject of our thesis. There are many different studies describing the Sub-Saharan Africa's (SAA) agricultural underdevelopment and backwardness of the region. However, we encountered that the topics revolves around two ways in the literature. One of them is the basis of institutional economics which is based on health problems faced by early settlers in the Africa region. According to this stream of thinking, Europeans has shaped colonial strategies according to factors affecting life such as health conditions faced by settlers. The second stream of thinking is geographical position in the climate African continent has. This is due to the geographical location of the area and this is seen as why Africa is underdeveloped. Sub-Saharan African countries are among the countries most dependent on trade. As Africa is very dependent on global trade, African economies are more vulnerable to changing trade structures and economic crises. In addition, African countries are among the poorest countries in the world in mind, as they are dependent to high rates of foreign trade for imports and public revenue, this is why African countries more sensitive to shocks. Another important issue is that public revenues are significantly dependent on tariff revenues. Tariff revenues derived from foreign trade income in SSA is large part of the public income. Common problem in all poor countries is narrow tax base and variety of public revenue because of many reasons. At this type of countries as tariff revenues will consist of very large part of the budget, replacing tariff incomes with other taxes is very difficult to succeed. xvi After summarizing the structural problems in Africa, most of the countries are in the early stages of development and most of the people live in rural areas and this people are employed in agriculture, if we're talking about such a continent, Agriculture has a vital role for the process of structural transformation and engine role for growth (Thorbecke, 2009, p.2). İn this context, agriculture has a vital role in Africa. Agriculture in Africa generates around 65% of employment and constitutes 25% percent to 30% of the income and athe same time, export of agricultural products accupy more than half of income. The number of people living below $ 1 a day poverty level, constitute 40% of the region's poorest segment of the SAA an this 70% of poor people employed in the agricultural sector. So, reduction of poverty is directly linked with agriculture sector. Therefore, agriculture has a vital role to play because almost all of the poor employed in agriculture sector. However, despite the fact that agriculture is an important economic activity, Africa's agricultural exports in 2009 has fallen to 3% and shows a downward trend in African agricultural exports by 2008. This rate was at 9% in the 1960s and fell to 2% today. This decline achieved despite one sided trade agreements lıke Lomé in the period after independence. To reverse this situation, Economic Partnership Agreements (EPA) was developed by EU and based on the principle of reciprocity by replacing unilateral preferential trade agreements. European Union (EU) launched a new process under the name 'Economic Partnership Agreements' to achieve the goals of developmental goals and not to lose historic ties in the region that such countries USA and Chine has managed to increse economic relations. Thanks to this new agreements between SAA and EU has symmetrical trade prefereneces (reciprocity). Between 2000 and 2008 is transition process from Lomé-type privileged trade to EPA and in the process in the framework of the Cotonou Agreement negotiations was lunched between the EU and six ACP regions. Up to December 2007, 35 from 75 ACP countries was signed interim EPA and the rest consist of three groups. First, the 29 LDCs carry on unilateral preferential trade status under the EBA initiative. Secondly, South Africa already has a free trade agreement with the EU (TDCA). And finally, the Pacific region and three developing countries in Africa fell to GSP.xvii On the other hand, alternative view says multilateral agreements lıke EPA must be in second stage to succeed regioanl integration. This view of regional integration argue that intra-regional trade and regionalization is more beneficial way for African development process. Most of Africa produce a narrow range of agricultural products such as tropical agricultural merchandises. İf African production change its direction to domestic markets, vast market potential will occur behalf of the African farmers. African farmers has the biggest market potential in the domestic market and regional markets especially for food crops (Rosegrant, Paisner, Meijer and Witcover, 2001, p.12). In our study, we analyzed potential economic and welfare effects of these agreements at the scope of EPA and regional integration which is strong alternative to EPA to success development goals in Africa. Separately, after partial equilibrium effects of these agreements, We analyzed the topic in the case of South African Development Community (SADC) through computable general equilibrium analysis to see imports and exports difference after and before EPA. We simulated expected results with the removal of tariffs as a result of EPA with SSA countries by using WITS. Partial equilibrium analysis make it possible to see of the economic indicators are as follows: First, the expansion of bilateral trade with the EU, which means the trade creation effect; second, trade diversion effect of the four sub-regions in Africa; and the third, with the removal of tariffs, tariff revenue impact; finally the welfare effect which will result from the increase in consumption. İndividually each country will be effected as a result the economic impact of tariff reductions at the end of the negotiations between the EU and each of the four EPA regions in Africa. This effects were analyzed using partial equilibrium model. İn partial equilibrium analyses the most obvious economic impact is trade creation and welfare effects thanks to trade expansion. EU experience trade expansion and welfare increase. However, on the other hand the negative impact of this trade creation diverse effect on other regions trade which call trade diversion. After all, the principle of reciprocity while it has an expansionary effect on trade has significant negative effects on regional integration in Africa. Another issue is the loss of tariff revenue When Africa reduce tariffs on Africa's main trading partner EU. As this tariff xviii revenues constitutes a significant portion of public revenue, this will reveal new problem Africa to finance developmental needs in Africa. On the other hand we have encountered once again in our SADC computable general equilibrium analyses is most powerful economies in a economic integrations are tend to increase the welfare more than other less powerful countries. The country highest increase in the welfare is South Africa in the SADC region. Except SADC eastern countries, all countries in this region increased imports more than exports under the assumption EPA which means the removal of tariffs. However, other alternative regional integration Which means intra-regional trade increased is a situation representing increase in exports more than imports in all countries in the region. The data used for this general equilibrium analyses was obtained from Global Trade Analyses Project (GTAP) database 7. version from the base year 2004. Model used in the analyses is GLOBE model which is appropriate for multi-country and multi-sectoral analysis. Through this model is possible to analyses multi-country and multi-sector general equilibrium analyses which is based on effects of new prices occur with a change of tariffs at the global level. As a result, Africa Economic Partnership Agreements will establish bilateral free trade between European Union leading to deprive tariff income which constitute of African countries' income and new problems will occur in financing developmental needs. At the other hands, this agreements will damage intra-regional integration movement. It seems like increasing consumer welfare, a large part of African people provides their livelihoods from agriculture, consequently cheap EU agricultural and food goods will damage to income of this group of people and increasing welfare will lose its meaning