integration. Well-designed EPAs offer an opportunity to harness the power of trade negotiations to further internal regional development and spur integration into the global economy as well as improving access to the EU market and leveraging aid for trade to support reform programs. In contrast, a poorly designed EPA could undermine regional integration and seriously hinder development (Stevens (2005)). As each negotiating region consists of countries with different economic interests and political conditions, the challenge for the EU and African countries will be to structure EPAs in a way that offers mechanisms and incentives to strengthen the process of regional integration.<sup>15</sup> Box 1 suggests and summarizes key elements of a pro-development EPA. The interim agreements do make some progress in guaranteeing duty and quota free access to the EU and in reducing the restrictiveness of the EU’s rules of origin. However, if prodevelopment EPAs are to be achieved in 2008 there will have to be substantial progress in the other key areas outlines in the box. The following sections briefly elaborate on how EPAs can support reform in the three areas that are crucial for global competitiveness.

# **_5.1 The incentive regime_**

Reducing the dispersion and then the level of tariffs will be a critical element of a competitiveness strategy in many of African countries in terms of reducing the impact of distortions in the structure of incentives. Lower external tariffs are necessary to avoid potentially damaging trade diversion from the removal of tariffs against EU suppliers in an EPA. Trade liberalization in the EPA regions should be a staged process with intra regional barriers removed first to ensure effectively functioning free trade areas. Then peak external tariffs should be capped at the regional level, in a coordinated manner, to remove the largest distortions in the trade regime. In the same coordinated manner, but not necessarily under a CET, the average of external tariffs should be lowered to pursue global competitiveness and integration into global market. Such a strategy was an important feature of the development of the fast growing countries of the past 20 years. Lower tariffs allow domestic firms access to needed inputs at closer to world market prices and reduce bias against exports and the bottling up of resources into low productivity activities. Only subsequently, should tariffs against imports from the EU be removed. It is essential that preferences for EU suppliers are only implemented after the reduction of MFN tariffs since lack of competition among EU suppliers in small African markets could lead to unchanged prices and simply to a transfer of revenue from the customs authority in the African country to EU suppliers.

# **_5.2 Lowering the costs of backbone services and trading_**

Trade-related services throughout Africa are less efficient than in other regions. In SubSaharan Africa, 52 percent of firms report unreliable electricity supply as a constraint. This compares to 42 percent in South Asia and 24 percent in East Asia and Latin America (World Development Report 2005) The Diagnostic Trade Integration Studies undertaken under the Integrated Framework<sup>16</sup> for most countries in Africa, highlight that electricity,

> 15 How this should best be done in the agreements, is still an open issue. The CARIFORIM-EC EPA makes reference to coordination in most chapters of the text but CARIFORUM reserves their right to sovereignty of related decisions, showing the reluctance of these ACP countries to commit to a predetermined pace of regional integration.

> 16 www.integratedframework.org

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