EU and other ACP countries. To obtain preferences, apparel producers had to use local, EU or ACP fabrics. They could not use fabrics from the main fabric-producing countries in Asia and still qualify for EU preferences—a binding restriction, since few countries in Africa have competitive fabric industries.

Until the recent EPA agreements, the EU rules did not allow producers in low-income African countries the flexibility they currently have had under AGOA to source fabrics globally. It is worth remembering that the EU granted preferences to African countries for apparel subject to these strict rules of origin for more than 20 years under the Lome and then Cotonou agreements. However, these strict rules did little to encourage the development of an efficient fabric industry in Africa, the main justification for their imposition,<sup>10</sup> and are likely to have severely constrained the impact of preferences in stimulating the clothing industry.<sup>11</sup> This is because a competitive and thriving clothing sector is the most important driver for a local textile industry. By limiting the ability of the clothing firms in Africa to source inputs globally, EU rules undermined the competitiveness of the sector and additionally compromised opportunities for the emergence of efficient textile firms. At the same time, the lack of regional infrastructure and market size for textile products have hindered the exploitation of economies of scale and scope in competitively producing high quality textiles and specialized textile products. An important aspect of the interim agreements that have been signed is that these rules for clothing have been relaxed to allow for a single transformation requirement similar to that under AGOA.

# **3. Opportunities and Challenges in the Changing Global Economy**

The negotiation of EPAs is taking place in a rapidly changing world economy. EPAs will be successful if they leverage the reforms and supporting aid for trade that are essential if African countries are to exploit the opportunities that are available to them in the global market whilst effectively addressing the challenges that come from an increasingly competitive global economy. Opening domestic markets to EU firms driven by the perceived need to lock-in access to the EU for preference dependent exports will not be a recipe for success. This section briefly discusses the emerging opportunities for ACP countries in the world economy, with a focus on Africa. It highlights the growing importance of East Asia in the global economy and the surge in trade in services that has accompanied declining telecommunications costs.

# **_3.1 The rising importance of developing countries in the global economy_**

The pace of global integration is likely to intensify and will be powered increasingly by developing countries. World Bank (2006) suggests that the size of the global economy will rise from $35 trillion in 2005 to $72 trillion (at constant market exchange rates and prices) in 2030, an average annual increase of more than 3 percent—2.5 percent for high-income countries and 4.2 percent for developing countries. Developing countries, once considered the periphery of the global economy, will become main drivers. The share of developing

> 10 See Brenton (2006) for a discussion of why restrictive rules of origin are inappropriate as a development tool and are more likely to reflect protectionist interests in the preference granting country. 11 See Brenton and Ozden (2005) for a more detailed analysis of the impact of the EBA and AGOA on apparel exports from African LDCs and the role of the rules of origin.

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