Adjusting Liberalization due to Trade, Revenue, and Welfare Effects: An Economic Partnership Agreement Scenario between Cape Verde and the EU

Abstract: The paper identifies intra and extra-regional import trade in 1868 HS 6-digits products by Cape Verde at the single country and 13 trade classification section levels, from the EU, the ECOWAS sub-region, and the ROW. Sensitive products enumeration was based on "Cape Verde's imports of products from the different trade classification (TDC) sections- from ECOWAS, the EU and the rest of the world (ROW), of which ECOWAS member nations were suppliers at the single country level". It investigates the likely trade, revenue and welfare consequences of Cape Verde of embarking on free trade under economic partnership agreements (EPAs) with the EU, using the partial equilibrium analysis and suggesting how EPAs can facilitate intra-regional trade. Cape Verde and indeed most other ECOWAS member nations would likely benefit from EPAs by adjusting to and treating all products of trade classification sections currently imported from the region as sensitive for EPAs, hence postponing any reductions or removal of tariffs on imports of such products from the EU. This measure would likely deepen regional integration and sustain markets and traded products within the regional markets. The EU could therefore support measures that enhance the productivity and competitiveness of domestic producers to ensure improved supply-side capacity. Cape Verde entering into such agreements should consider liberalization of products of the trade classification sections that are not produced and marketed among members of the region. Liberalizing substantially across all products of all trade classification sections, even considering 20% as sensitive products across board would have adverse trade, revenue and welfare impacts. Policies should be geared towards careful adjusting to liberalization patterns and reforms that would sustain regional markets and reallocate resources from contracting to expanding products of various trade classification sections. This will go a long way to improving, sustaining and deepening regional integration through trade on TDC sections 01-13 products.