Empirical Analysis of Sector-level Trade and Welfare Effects of Reciprocity under an Economic Partnership Agreement with the EU

Abstract

Earlier EPA impact studies have mostly been concerned with highly aggregated results and focussed on selected agriculture commodities for various reasons. This study presents six-digit HS trade, tariff revenue and net welfare effects of Malawi and Tanzania reciprocating EU’s preferential duty-free treatment under an EU-ACP Economic Partnership Agreement (EPA). A partial equilibrium model is applied to the most recent trade and elasticities data computed by the World Bank to measure the effects under full and less than full reciprocity. Our findings show that there will be welfare-enhancing consumption and trade creation effects but these will be swamped by strong welfare-lowering trade diversion and tariff revenue losses leading to non-negligible net welfare losses. Further, the overall increase in imports from the EU will pose a real threat to domestic and regional import-competing production, and thus undermine intra-regional trade.