• EPA

EPA

Ugandan exports to the European Union (EU) are eligible for duty-free access. Thus, the main impact of an economic partnership agreement (EPA) between Uganda and the EU will be to require liberalisation of EU exporters’ access to the Ugandan market. However, there are fears this could threaten the incomes of poor people through lower prices for agricultural commodities and loss of government revenue. This paper examines these fears quantitatively. It also analysing the poverty impact of the trade provisions of a potential EPA between the EU and the East African Community (EAC) of which Uganda is a member. The paper identifies three main channels via which trade liberalisation reform might translate into poverty impacts:

• the consumption
• the enterprise
• the government channel

The agricultural and food processing sectors comprise 59% of total Ugandan exports. This indicates a strong dependency on the agriculture sector in general. In addition, the coffee sector appears to be the driver of the export growth. This sector profits strongly from reduced import prices of its intermediary inputs, as well as from cheaper unskilled labour released from the other sectors.

Revenue from import tariffs accounts for a large share of total government revenue in Uganda. Manufacturing and petroleum and chemicals imports provide the bulk of import tariff revenue. The loss of tariff revenue requires the government to introduce compensatory measures. Such measures might have direct effects on individual welfare. Moreover, liberalisation is expected to impact domestic prices strongly in these sectors.

Concerning labour, most income for the poorest deciles comes from unskilled labour. And since there will be direct price effects on incomes from crop farming, trade liberalisation impacts on the agricultural sector are likely to affect largely the poorer population.

The paper concludes that the agreement with the EU will have only a minor impact on the Ugandan economy. It shows that such an agreement does not induce large deindustrialisation effects, and that the economic adjustment costs for Uganda are quite low. The paper addresses some more preliminary findings:

• the EU has a relatively low share in Ugandan imports
• EU imports appear to be complementary to Uganda’s domestic production rather than competing
• the macroeconomic impacts of an EPA are minor but positive
• the poverty gap tends to increase everywhere if an EPA is signed
• the poverty headcount will fall for the rural but rise for the urban population
• whether the very small poverty effects are positive or not depends on the selection of sensitive products in the EPA

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