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

Economists often say that put your money at where your mouth is. Concerning the EPA, the proposed reciprocal trade agreement between the European Union (EU) and ECOWAS, of course we cannot deny the fact that the EU will certainly be putting their money where its mouth is. However, we must understand that trade between EU and ECOWAS is very relevant for global trade, and for that matter we cannot afford to derail this by creating a stalemate because of the argument of who will benefit the most from the EPA.

If there is any theory in economics that has been proven to be very robust and consistent theoretically and empirically then it should be the theory that free trade (not autarky) is welfare-improving and the best antidote to under-development and poverty. This is not to say that, all partners are going to derive a mutual and equitable benefit from it because surely, it would also create both winners and losers concomitantly. Thus, EPA cannot guarantee mutual and equitable benefits between the EU and its ECOWAS trading partners but this will contribute to a freer world ECOWAS also gain from it.

The EPA seek to create reciprocal preferential market access that is mutual, in that, EU grants a 100% tariff-free and quota-free market access fully and immediately to ECOWAS and in return ECOWAS grants an 80% tariff-free and quota-free preferential access to imports from the EU. By this agreement, the EPA is still less than a full reciprocal agreement because it allows some protection for the sensitive 20% 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 in, thus they 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 (Ghana) because they will be out-competed by their counterpart producers in EU. Although, this argument is very salient, it 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 cost 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 has reached an annual average estimate of over $5 Billion. Providing details on product disaggregation for bilateral trade between ECOWAS and EU, the Figure 1 below explicitly delineates that EU is not the threat. 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 in revenue to government as result of import duties. This is very correct as many of ECOWAS members substantially depend to a large extent on import duties raised from their Ports and Harbors.

This notwithstanding, in assessing the EPA, there is the need to adopt a more holistic approach. Some agents within the economy will lose and whiles other 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 compare to the loss in revenue for the government.

For the case of whether any individual member countries can isolate themselves from the majority decision by ECOWAS when they sign the full EPA. It will be very deleterious 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 here relationship with all the 27 EU member countries culminating in cut of development assistance. Considering that 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 (ROW) 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.

For Ghana, the options are limited especially considering the current economic challenges the economy is facing. Also, for the fact that Nigeria has become the largest economy in Africa, put Ghana as a second best for foreign direct investments to West Africa region. Without any iota of doubt, ECOWAS must sign the EPA because if ECOWAS chooses not to sign the EPA, EU can retaliate by imposing proportionate tariffs and quotas on ECOWAS member countries. Ghana must go along with the decision of ECOWAS when they sign EPA in order not to exacerbate the economic situation into a full blown economic crisis. 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.

Sylvanus Kwaku Afesorgbor

(Trade and Development Economist)

Centre for Trade and Development (CETAD)

www.cetadghana.com