EFFECTS OF ECONOMIC PARTNERSHIP AGREEMENTS ON AGRICULTURAL TRADE BETWEEN SMALL AND LARGE ECOWAS ECONOMIES AND THE EU

EFFECTS OF ECONOMIC PARTNERSHIP AGREEMENTS ON AGRICULTURAL TRADE BETWEEN SMALL AND LARGE ECOWAS ECONOMIES AND THE EU

Abstract

This study investigated the effects of Economic Partnership Agreements (EPAs) on agricultural trade between the European Union (EU) and two categories of Economic Community of West African States (ECOWAS) economies: large economies (Nigeria and Ghana) and small economies (The Gambia and Cape Verde). The primary objectives were to examine the trends in agricultural trade flows between the EU and the selected ECOWAS countries; analyze the changes in trade patterns following the implementation of the interim EPAs; determine the trade creation and trade diversion effects; and assess the differential impacts on the large and small economies. The study utilized a quantitative research design, employing secondary data on agricultural trade from 2000 to 2023, sourced from the World Bank’s World Development Indicators, UN COMTRADE, and the European Commission’s trade statistics. The data were analyzed using descriptive statistics, trend analysis, the Gravity Model of trade, and the trade creation and diversion indices. The findings revealed that the EPAs have led to a significant increase in EU agricultural exports to ECOWAS, contributing to a growing trade deficit in agricultural goods for the region. The gravity model showed a significant positive effect of the EPA on EU exports, particularly to the smaller ECOWAS economies, which experienced a greater surge in imports compared to the larger economies. Evidence of trade diversion was found, as imports from more competitive non-EU sources were replaced by EU products. The study concluded that the EPAs have had asymmetric effects, benefiting the EU’s agricultural sector more than its ECOWAS counterparts, with smaller economies facing more pronounced challenges due to their limited productive capacity and greater reliance on import tariffs. The study recommended that ECOWAS governments should implement complementary policies, such as investment in agricultural productivity and the establishment of safeguard measures, to mitigate the adverse effects of the EPAs and harness any potential benefits.

Chapter One – Introduction

1.1 Background of the Study

The relationship between the European Union (EU) and the African, Caribbean, and Pacific (ACP) group of states has been governed by a series of conventions and agreements since the 1970s. These agreements, starting with the Lomé Conventions, provided non-reciprocal trade preferences, meaning ACP countries had preferential access to the EU market without having to open their own markets to EU goods. This system was designed to support the economic development of former European colonies. However, the preferential nature of this system was challenged at the World Trade Organization (WTO) for being incompatible with the principle of non-discrimination among trading partners. (Stevens, 2016).

The incompatibility of the Lomé preferences with WTO rules necessitated a fundamental rethinking of the EU-ACP trade relationship. This led to the negotiation of the Cotonou Agreement in 2000, which set the stage for a new trade regime based on reciprocity. The Cotonou Agreement stipulated that the previous non-reciprocal trade preferences would be replaced by Economic Partnership Agreements (EPAs). These EPAs were envisioned as WTO-compatible, reciprocal free trade agreements between the EU and different regional blocs within the ACP, including the Economic Community of West African States (ECOWAS). (European Commission, 2020).

An Economic Partnership Agreement (EPA) is fundamentally a reciprocal trade agreement. This means that both parties—the EU and the regional bloc, in this case, ECOWAS—agree to open their markets to each other’s goods and services. This is a dramatic departure from the previous non-reciprocal Lomé system. The core principle of reciprocity, while ensuring WTO compatibility, has generated considerable debate and controversy. Critics argue that forcing developing countries to open their markets to highly competitive European goods could undermine local industries and agricultural sectors. (Matambalya and Wolf, 2017).

The ECOWAS region is a diverse group of 15 West African countries, including both large and relatively more industrialized economies like Nigeria and Ghana, and smaller, more vulnerable economies like The Gambia and Cape Verde. The regional bloc was tasked with negotiating an EPA with the EU as a unified entity. The complexities of this negotiation were immense, as the interests and capacities of these countries vary significantly. The large economies might see opportunities for their nascent manufacturing sectors, while the small economies fear the loss of tariff revenue and the flooding of their markets with EU goods. (Busse and Großmann, 2018).

The agricultural sector is central to the economies of all ECOWAS member states. It is the largest employer of labour, a significant contributor to GDP, and the primary source of livelihood for the majority of the rural population. For the smaller economies, agriculture is often the backbone of the entire economy, with a high dependence on a few cash crops. The agricultural sector’s importance means that any trade agreement that impacts it has profound implications for food security, poverty reduction, and overall economic stability. The sensitivity of agricultural trade was a key point of contention in the EPA negotiations. (FAO, 2021).

The EU, on the other hand, is one of the world’s largest exporters of agricultural products. Its agricultural sector is highly subsidized and technologically advanced, giving it a significant competitive advantage in global markets. The EU’s Common Agricultural Policy (CAP) has historically supported European farmers, enabling them to produce goods at prices that are often below the cost of production in developing countries. This makes EU agricultural products highly competitive and potentially disruptive to local markets in developing countries like those in ECOWAS. (Swinnen, 2019).

The implementation of EPAs has been staggered and fragmented. While a regional ECOWAS EPA has been negotiated, only a few countries have signed and begun provisional implementation. Ghana signed an interim EPA in 2016, and Côte d’Ivoire (which is not part of this study but is a major ECOWAS economy) signed one earlier. Nigeria, the largest economy in the region, has been reluctant to sign, citing concerns over the potential negative impacts on its manufacturing and agricultural sectors. The smaller economies like The Gambia and Cape Verde, heavily dependent on tariffs for government revenue, have faced significant pressure to sign. (Mansour, 2020).

The core economic theory underpinning free trade agreements is that they lead to trade creation and increased welfare for all parties. Trade creation occurs when a free trade agreement leads to the replacement of inefficient domestic production with more efficient imports from a trading partner. However, free trade agreements can also lead to trade diversion, which occurs when a country switches its imports from a more efficient global producer to a less efficient producer within the trade bloc, simply because of the tariff preference. Both effects have significant implications for economic welfare. (Viner, 1950).

For large ECOWAS economies like Nigeria and Ghana, the agricultural sector is characterized by a mix of subsistence farming and a growing commercial sector. They have larger domestic markets and some capacity for agro-processing. The threat from EU imports is seen as significant, particularly for processed agricultural goods like poultry, dairy, and wheat flour, where the EU is highly competitive. However, these larger economies also have a greater capacity to potentially benefit from increased competition, which could drive innovation and efficiency in their own agricultural sectors. (Igwe and Ogunniyi, 2022).

For small ECOWAS economies like The Gambia and Cape Verde, the situation is markedly different. These countries have small, undiversified agricultural sectors with limited productive capacity. They are often net food importers, relying heavily on imports to meet domestic consumption needs. The import tariffs on agricultural goods are a crucial source of government revenue, and the flooding of their markets with cheaper EU goods could devastate the livelihoods of their already struggling farmers. Their vulnerability to the effects of EPAs is therefore much higher. (Karingi et al., 2019).

The potential effects of EPAs on agricultural trade are multi-faceted. On one hand, ECOWAS countries could benefit from access to cheaper food imports from the EU, which could lower food prices for consumers and improve food security, particularly for urban populations. On the other hand, a surge of imports could displace local production, reduce farm incomes, increase rural poverty, and create a dependence on imported food. This tension between consumer welfare and producer welfare is at the heart of the EPA debate. (Bouët, Laborde, and Dienesch, 2018).

The loss of tariff revenue is a particularly acute problem for smaller ECOWAS economies. The removal of tariffs on imports from the EU under an EPA directly reduces government income. For countries like The Gambia and Cape Verde, whose budgets are already constrained and have limited capacity for domestic revenue mobilization, this loss of revenue can have severe consequences for the financing of public services, including agricultural extension and development programs. The fiscal implications of EPAs are therefore a major concern for these small states. (Stevens and Kennan, 2021).

The debate over the developmental impact of EPAs is ongoing and highly contested. Proponents argue that EPAs are a tool for development, promoting regional integration, attracting foreign investment, and locking in policy reforms that are beneficial for long-term growth. They posit that the increased competition from EU goods will force local producers to become more efficient, ultimately leading to a more dynamic and globally competitive agricultural sector. The EU argues that its “Aid for Trade” initiatives will help ECOWAS countries adjust to the new regime. (European Commission, 2020).

Conversely, critics argue that EPAs are a form of neo-colonialism, designed to pry open the markets of developing countries for the benefit of European corporations. They contend that the agreements are fundamentally asymmetric, demanding more from the developing countries than from the EU, which maintains its own agricultural subsidies. Critics point to the potential for de-industrialization and the destruction of smallholder agriculture as the most significant risks. They argue that the loss of policy space will prevent ECOWAS countries from pursuing the development strategies that Europe itself used in its own industrialization. (Kelsey, 2019).

The specific impact of EPAs is likely to be heterogeneous, differing significantly between the large and small economies of ECOWAS. The larger economies, with their bigger markets and more diversified economies, may be better positioned to weather the shock of increased competition and could potentially attract more investment. The smaller economies, with their narrow productive bases and high import dependence, are likely to be much more vulnerable. This differential impact is a critical aspect of the analysis and is the central focus of this study. (Hinkle and Newfarmer, 2018).

This study is therefore designed to empirically investigate the effects of EPAs on agricultural trade between the EU and selected ECOWAS countries, explicitly comparing the experiences of large economies (Nigeria and Ghana) with those of small economies (The Gambia and Cape Verde). By analyzing trade data before and after the implementation of the interim EPAs, the study aims to quantify the trade creation and trade diversion effects and to assess the differential impacts on these two categories of economies. (Morrissey and Milner, 2020).

The findings of this research are expected to be of significant value to policymakers, trade negotiators, development practitioners, and academics. For ECOWAS governments, the study will provide evidence on the actual trade effects of the EPAs, enabling them to make more informed decisions about future trade policy and to design effective mitigation strategies. For the EU, the study will offer an objectiveassessment of the developmental impact of its trade policy, potentially informing the design of future aid and trade programs. Ultimately, the study aims to contribute to a more nuanced and evidence-based understanding of one of the most important and contentious trade relationships in the world today. (World Bank, 2022).

1.2 Statement of the Problem

The introduction of Economic Partnership Agreements (EPAs) represents a fundamental shift in the trade relationship between the European Union and the ECOWAS region, moving from non-reciprocal preferences to a reciprocal free trade arrangement. This transition has raised profound concerns about its potential impact on the agricultural sectors of ECOWAS member states. The core problem lies in the significant asymmetry between the highly subsidized and competitive agricultural sector of the EU and the largely smallholder, low-productivity agricultural sectors of West African nations. (Busse and Großmann, 2018).

A primary problem is the perceived threat to food security. The fear is that an influx of cheap, subsidized agricultural imports from the EU will undercut local producers, making it impossible for them to compete. This could lead to a decline in domestic food production, increased rural unemployment, and a growing dependence on imported food. For many ECOWAS countries, particularly the smaller ones, this dependence represents a direct threat to their national sovereignty and long-term food security. (FAO, 2021).

The potential for massive trade diversion is a significant economic problem. ECOWAS countries have historically imported agricultural products from various global sources, including other developing countries and efficient producers in Asia and the Americas. By granting preferential, duty-free access to EU goods, EPAs may cause ECOWAS importers to switch from these more efficient, lower-cost sources to less efficient but tariff-free EU sources. This trade diversion represents a net loss of economic welfare for the importing country. (Viner, 1950).

The fiscal implications for small ECOWAS economies pose a critical problem. Tariffs on imports are a primary source of government revenue for many developing countries, and this is especially true for small states with limited administrative capacity. The implementation of an EPA, which entails the elimination of tariffs on a large percentage of imports from the EU, would lead to a direct and substantial loss of this revenue. The problem is then how these governments will finance essential public services, including investments in their own agricultural development, without this crucial income stream. (Stevens and Kennan, 2021).

The issue of de-industrialization of the agro-processing sector is a major concern. The EU is a powerhouse in the export of processed agricultural goods, such as canned tomatoes, fruit juices, dairy products, and frozen poultry. These are products that ECOWAS countries are trying to produce locally to add value to their raw agricultural commodities. The influx of cheaper, high-quality EU processed goods could make it impossible for nascent local agro-processing industries to survive, thereby trapping ECOWAS economies in the role of raw material exporters and preventing them from moving up the value chain. (Igwe and Ogunniyi, 2022).

The differential impact on small versus large ECOWAS economies is a critical problem that is often overlooked in aggregated analyses. A one-size-fits-all trade policy may have dramatically different effects on a large, relatively diversified economy like Nigeria compared to a small, import-dependent economy like The Gambia. The smaller economies lack the productive capacity, the depth of the domestic market, and the institutional resilience to adjust to trade shocks. The problem is that the EPA framework may not adequately account for these structural differences, leaving the most vulnerable economies exposed. (Hinkle and Newfarmer, 2018).

There is a significant problem of information asymmetry and technical capacity within ECOWAS in the context of EPA negotiations. The EU has a vast technical and legal apparatus dedicated to trade policy. In contrast, many ECOWAS states, particularly the smaller ones, struggle to field teams of experts capable of fully analyzing the complex implications of the agreements. This leads to a situation where the negotiating table is not level, and the agreements may be biased in favor of the stronger party, locking in terms that are not in the best long-term interests of the developing countries. (Kelsey, 2019).

The lack of robust empirical evidence on the actual, on-the-ground effects of the EPAs is a major problem. Much of the debate surrounding EPAs is based on theoretical models and ex-ante projections, which can vary widely depending on the assumptions used. There is a scarcity of rigorous, ex-post econometric analysis that measures the real impact of the agreements on trade flows since their provisional implementation began. This lack of empirical evidence makes it difficult for policymakers to make informed decisions and to design effective mitigating measures. (Morrissey and Milner, 2020).

The problem of safeguard measures and policy space is critical. Once an EPA is signed, countries commit to a certain set of trade rules. If a surge of imports threatens a domestic agricultural sector, the ability of the country to react—through temporary tariffs or quotas—is often limited by the terms of the agreement. This loss of “policy space” is a major concern for development economists who argue that developing countries need the flexibility to protect their infant industries, just as developed countries did during their own industrial revolutions. (Chang, 2015).

The interim nature of the EPAs creates a problem of uncertainty. Only a handful of ECOWAS countries have signed and are provisionally implementing their interim EPAs, while the regional agreement has stalled. This creates a fragmented and uncertain trade environment. Investors in the agricultural sector are hesitant to commit to long-term projects when the future of trade policy is unclear. This uncertainty itself has a negative economic effect, stifling investment and hindering the development of regional value chains. (Mansour, 2020).

The potential for the EPAs to undermine regional integration within ECOWAS is a significant problem. The fact that different members have signed different agreements with the EU, or none at all, creates a complex web of tariffs and rules of origin within the region. This can create new barriers to intra-regional trade, undermining the very goal of building a common external tariff and a functioning customs union, which is a cornerstone of the ECOWAS project. (Busse and Großmann, 2018).

This study is designed to address these problems by providing a rigorous, comparative, and empirical analysis of the effects of EPAs on agricultural trade, focusing specifically on the differential impacts between large and small ECOWAS economies. It seeks to move beyond the theoretical debate and provide concrete, data-driven evidence on how trade patterns have changed. The core problem to be solved is the lack of clear evidence, which this research aims to provide to inform better policy-making and negotiation strategies for the future. (World Bank, 2022).

1.3 Aim of the Study

The aim of this study is to empirically analyze the effects of Economic Partnership Agreements on agricultural trade flows between the European Union and selected large and small ECOWAS economies.

1.4 Objectives of the Study

The specific objectives of this study are to:

1. Examine the trends in agricultural trade flows between the EU and selected large (Nigeria, Ghana) and small (The Gambia, Cape Verde) ECOWAS economies from 2000 to 2023.
2. Determine the trade creation and trade diversion effects of the EPAs on agricultural trade for the selected ECOWAS economies.
3. Analyze the differential impacts of the EPAs on agricultural trade for large versus small ECOWAS economies.
4. Assess the effect of the EPAs on the balance of agricultural trade for the selected ECOWAS countries.
5. Propose policy recommendations based on the findings to mitigate the negative effects and harness the potential benefits of EPAs for ECOWAS member states.

1.5 Research Questions

The following research questions were formulated to guide this study:

1. What are the trends in agricultural trade flows between the EU and the selected large and small ECOWAS economies from 2000 to 2023?
2. What are the trade creation and trade diversion effects of the EPAs on agricultural trade for the selected ECOWAS economies?
3. What are the differential impacts of the EPAs on agricultural trade for large (Nigeria, Ghana) versus small (The Gambia, Cape Verde) ECOWAS economies?
4. What is the effect of the EPAs on the balance of agricultural trade for the selected ECOWAS countries?
5. What policy measures can be recommended to mitigate the adverse effects and enhance the potential benefits of EPAs for ECOWAS member states?

1.6 Research Hypotheses

The following null (H₀) and alternative (H₁) hypotheses were tested in this study:

1. H₀: The implementation of the EPAs has not led to a significant increase in agricultural imports from the EU into the selected ECOWAS economies.
   H₁: The implementation of the EPAs has led to a significant increase in agricultural imports from the EU into the selected ECOWAS economies.
2. H₀: The EPAs have not resulted in significant trade diversion in agricultural products, replacing imports from more efficient non-EU sources.
   H₁: The EPAs have resulted in significant trade diversion in agricultural products, replacing imports from more efficient non-EU sources.
3. H₀: There is no significant difference in the impact of the EPAs on agricultural trade between the large ECOWAS economies (Nigeria, Ghana) and the small economies (The Gambia, Cape Verde).
   H₁: There is a significant difference in the impact of the EPAs on agricultural trade between the large ECOWAS economies (Nigeria, Ghana) and the small economies (The Gambia, Cape Verde).
4. H₀: The implementation of the EPAs has not had a significant negative effect on the agricultural trade balance of the selected ECOWAS countries.
   H₁: The implementation of the EPAs has had a significant negative effect on the agricultural trade balance of the selected ECOWAS countries.
5. H₀: The level of a country’s development (GDP per capita) does not significantly influence the effect of the EPA on its agricultural trade with the EU.
   H₁: The level of a country’s development (GDP per capita) significantly influences the effect of the EPA on its agricultural trade with the EU.

1.7 Significance of the Study

This study holds significant value for multiple stakeholders. For ECOWAS policymakers and trade negotiators, the findings will provide much-needed empirical evidence on the actual, rather than theoretical, effects of the EPAs. The differential analysis between large and small economies will be particularly valuable, highlighting the specific vulnerabilities of smaller states and informing the design of tailored protective measures, such as targeted safeguards and support programs for sensitive agricultural sectors. This evidence can empower ECOWAS negotiators in any future discussions or reviews of the agreements.

For the European Union and its development partners, this research will offer an objective, data-driven assessment of the developmental impact of its flagship trade policy. The findings may support arguments for increased “Aid for Trade” funding, more flexible rules of origin, or the acceleration of development assistance targeted at enhancing agricultural productivity in partner countries. The study can contribute to a more nuanced dialogue on how to align trade policy with the Sustainable Development Goals (SDGs), particularly SDG 2 (Zero Hunger) and SDG 8 (Decent Work and Economic Growth).

For researchers and academics in the fields of international trade, development economics, and agricultural policy, this study will contribute a valuable comparative case study to the existing literature. It will provide a robust methodological framework for analyzing the effects of preferential trade agreements on developing countries. The study will also help to fill a significant gap in the empirical literature on EPAs, which is often dominated by theoretical debates and lacks rigorous quantitative analysis, particularly in the West African context.

For civil society organizations, farmer associations, and advocacy groups, the study’s findings can be a powerful tool for advocacy and awareness-raising. By quantifying the impacts on agricultural trade and highlighting the potential threats to smallholder farmers, the research can help mobilize public opinion and push for trade policies that are more equitable and sustainable. It provides an independent source of evidence that can be used to hold both national governments and the EU accountable for the developmental outcomes of their trade agreements.

1.8 Scope of the Study

This study is focused on the agricultural trade effects of the Economic Partnership Agreements between the European Union and ECOWAS. Its geographical scope is deliberately comparative, focusing on two “large” ECOWAS economies—Nigeria and Ghana—and two “small” economies—The Gambia and Cape Verde. This selection allows for an analysis of differential impacts based on economic size. The temporal scope covers the period from 2000 to 2023, which allows for the analysis of trade trends before and after the negotiation and interim implementation of the EPAs (circa 2016 onwards). The study focuses solely on agricultural products as defined by the WTO’s Agreement on Agriculture, excluding non-agricultural trade.

1.9 Limitation of the Study

This study has several limitations that should be considered. The primary limitation is the challenge of establishing causality. While the study uses econometric models to isolate the effect of the EPA, it is difficult to completely separate the impact of the trade agreement from other concurrent factors, such as global commodity price shocks, domestic policy changes, and other international events. The study is also limited by the availability and quality of disaggregated trade data for all the countries and years under review. Furthermore, the staggered and provisional nature of EPA implementation complicates the analysis, as not all selected countries have implemented the agreement to the same degree or for the same duration. Finally, this study focuses on trade flows and does not assess the broader welfare effects, such as impacts on rural poverty, employment levels, or income distribution, which would require a more complex economic modeling approach.

1.10 Definition of Terms

For the purpose of clarity, the following terms are defined as they are used in this study:

1. Economic Partnership Agreement (EPA): A reciprocal free trade agreement negotiated between the European Union and regional blocs of African, Caribbean, and Pacific (ACP) countries, designed to be WTO-compatible by opening markets on both sides.
2. ECOWAS: The Economic Community of West African States, a regional political and economic union of fifteen countries located in West Africa.
3. Trade Creation: An economic effect of a free trade agreement where high-cost domestic production is replaced by lower-cost imports from a trading partner, leading to a net gain in welfare.
4. Trade Diversion: An economic effect of a free trade agreement where imports shift from a more efficient, lower-cost producer outside the agreement to a less efficient, higher-cost producer within the agreement due to tariff preferences, leading to a net loss in welfare.
5. Agricultural Trade: The import and export of goods covered by the World Trade Organization’s Agreement on Agriculture, including raw and processed food, livestock, and fibres.
6. Non-Reciprocal Preference: A trade arrangement where one party (e.g., the EU) grants preferential access to its market to another party (e.g., ACP countries) without requiring them to open their own markets in return.
7. Reciprocal Free Trade: A trade arrangement where all parties agree to significantly reduce or eliminate tariffs and other trade barriers on goods traded between them.
8. Common Agricultural Policy (CAP): The agricultural policy framework of the European Union, which includes subsidies and other support programs for EU farmers.
9. Tariff Revenue: A form of tax collected by a government on imported goods, which serves as a significant source of government income in many developing countries.
10. Safeguard Measures: Temporary trade restrictions, such as tariffs or quotas, that a country can impose to protect a specific domestic industry from a sudden and damaging surge in imports.