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Trade Sustainability Impact
Assessments (TSIAs) in support of
negotiations of DCFTAs between the
EU and Egypt and Jordan
Public Meeting
Ecorys Nederland B.V.
Paul Wymenga, Nora Plaisier,
Corine Besseling, Erik Merkus
Brussels, 18 September 2014
1. Introduction
2. Results of the CGE modelling
3. Additional quantitative and qualitative analyses
◦ Social (incl. human rights)
◦ Environmental
4. In-depth sectoral analyses
5. Stakeholder consultations
6. Policy recommendations
7. Questions and contact information
Agenda of the Public Meeting
1. Introduction
0. Inception phase◦ Model specifications
◦ Preliminary screening on key sustainability issues
1. Overall analysis of the sustainability impacts◦ Scenario analysis and CGE modelling
◦ Additional quantitative and qualitative analyses
– Social, environmental, human rights
◦ Screening and scoping analysis
2. Sectorial Trade SIA analysis (present stage)◦ In-depth analysis of selected sectors and horizontal issues
◦ Causal Chain Analysis
◦ Literature review and interviews
3. Policy recommendations and flanking measures (present stage)◦ Causal Chain Analysis
◦ Final Report
Trade SIA approach (phases and methodologies)
Consultation
and
dissemination
(throughout
all phases)
1. Introduction
• Liberalisation of trade:
Tariff liberalisation
Services non-tariff liberalisation
Reduction of other non-tariff measures (NTMs)
• NTM reduction through regulatory approximation, mainly in following
fields:
Sanitary and Phytosanitary measures (SPS)
Technical Barriers to Trade (TBT)
Intellectual Property Rights (IPRs)
Competition
Trade Facilitation (customs)
Investment Protection
Public Procurement
What does a Deep and Comprehensive Free Trade Agreement entail?
1. Introduction
Computable General Equilibrium (CGE) modeling
• CGE takes into account all economic linkages
• CGE compares the situation with and without DCFTA
• The results from the CGE model are obtained in multiple levels of
detail:
› Macro-economic results
› Sector-specific results
› Short-run
› Long-run
› Effects on 3rd countries
How do we estimate effects of a DCFTA?
Methodology Phase 1 – overall analysis
Assumptions
Trade liberalization
TariffsGoods
NTMsServices
NTMsSpillovers
2. Results of the CGE Modelling
2. Results of the CGE modelling
Macro-economic effects of the DCFTA in the short run and long run:
Overall impacts at macro level for Egypt
Short run Long run
Variable/Country EU28 Egypt EU28 Egypt
National Income, million € 595.5 2343.1 511.8 3374.3
GDP, % change 0.0 1.2 0.0 1.8
Consumer prices, % change 0.0 -1.4 0.0 2.7
Wages, less skilled, % change 0.0 1.9 0.0 -2.0
Wages, medium skilled, % change 0.0 4.8 0.0 3.2
Wages, high skilled, % change 0.0 0.1 0.0 0.1
Terms of trade, % change 0.0 0.2 0.0 -1.0
Total imports, % change 0.1 7.7 0.1 24.7
Total exports, % change 0.1 8.3 0.1 26.7
2. Results of the CGE modelling
The largest effects are due to reductions in Goods NTMs.
Overall impacts at macro level for Egypt
-2000 -1000 0 1000 2000 3000 4000
EU 28 short run
EU 28 long run
Egypt, short run
Egypt, long run
National Income effect, Million €
Tariffs
NTMs for Goods
NTMs for Services
Spillovers
2. Results of the CGE modelling
Macro-economic effects in the short run and long run:
Overall impacts at macro level for Jordan
Short run Long Run
Variable/Country EU28 Jordan EU28 Jordan
National Income, million € 93.1 283.2 178.7 442.3
GDP, % change 0.0 1.3 0.0 2.1
Consumer prices, % change 0.0 -0.7 0.0 -0.5
Wages, less skilled, % change 0.0 1.7 0.0 2.4
Wages, medium skilled, % change 0.0 2.5 0.0 2.9
Wages, more skilled, % change 0.0 2.4 0.0 2.8
Terms of trade, % change 0.0 0.4 0.0 0.2
Total imports, % change 0.0 3.7 0.0 4.8
Total exports, % change 0.0 4.4 0.0 5.3
2. Results of the CGE modelling
The largest (long run) effects are due to reductions in Goods
NTMs.
Overall impacts at macro level for Jordan
-100 0 100 200 300 400 500
EU 28, Short-run
EU 28, long-run
Jordan, Short-run
Jordan, long-run
National Income effect, Million €
Tariffs
NTMs for Goods
Spillovers
2. Results of the CGE modelling
Impact on sectoral value added and employment
- Competititive sectors
- Growth in output & employment
- Non competitive sectors- Decline in output, employment
2. Results of the CGE modelling
The five most expanding sectors:
Expected impacts on value added in Egypt
Short run Long run Share in
total VA
Other machinery and equipment 0.8 376.2 0.7%
Air transport 24.6 41.9 0.5%
Utilities 0.6 6.2 1.2%
Recreational, personal services 4.7 4.7 2.2%
Other manufactures 0.0 1.9 0.1%
2. Results of the CGE modelling
The five most contracting sectors:
Expected impacts on value added in Egypt
Short run Long run Share in
total VA
Beverages and tobacco -7.8 -30.4 2.4%
Other processed foods -7.9 -11.7 2.7%
Textiles -0.4 -11.2 3.7%
Fabricated metal products -1.1 -10.7 1.4%
Vegetable oils and fats 2.2 -9.9 0.0%
2. Results of the CGE modelling
The five most expanding sectors:
Expected impacts on value added in Jordan
Short run Long run Share in
total VA
Other manufactures 2.19 50.67 0.1%
Chemicals, rubber, plastics 0.79 4.35 10.5%
Motor vehicles, transport eq 1.04 2.90 0.2%
Electrical machinery 0.62 2.33 0.6%
Metals 0.75 1.68 1.7%
2. Results of the CGE modelling
The five most contracting sectors:
Expected impacts on value added in Jordan
Short run Long run Share in
total VA
Beverages and tobacco -17.87 -33.47 0.8%
Leather -0.99 -5.72 0.2%
Grains and crops -1.27 -5.68 0.5%
Non-metallic mineral products -2.17 -5.03 0.9%
Other processed foods -1.30 -4.04 2.2%
3. Additional qualitative and quantitative analyses
◦ Social (incl. human rights)
◦ Environmental
3. Additional quantitative and qualitative analyses
DCFTA impacts on poverty and inequality:
Social analysis – quantitative analysis Egypt
Indicator Short run impact Long run impact
Poverty rate Decreases from 25.7 to 24%.
Also relative poverty slightly
decreases with 0.1 %-points
Increases to 27%, mostly driven by
expenditure effect. Also relative
poverty increases with 0.2 %-points.
Poverty
depth
Decreases with 0.3 %-points. Increases with 0.6 %-points, so the
poor will become poorer.
Dispersion Negligible (decile dispersion ratio
goes down with 0.1 %-points).
Negligible (decile dispersion ratio
same as baseline).
Gini Slight increase from 31.0 to 31.7 Slight decrease to 30.9
Richest vs.
poorest
No strong effect on inequality. No strong effect on inequality, as
disposable income for both rich and
poor decreases.
3. Additional quantitative and qualitative analyses
Social analysis – qualitative analysis Egypt
.
Job creation Rights at
work
Social
dialogue
DCFTA impact on Decent Work Agenda
Social
protection
Gender
equality
3. Additional quantitative and qualitative analyses
Social analysis Egypt (qualitative)
SR: employment . LR: medium and high skilled , low skilled workers , additional effects of FDI
Formal employment probably increases.
Workers from agriculture and food should move to industry, transport and services.
Skill adaptation of the moving workers has to be facilitated.
Job creation
3. Additional quantitative and qualitative analyses
Social analysis Egypt (qualitative)
Certain sectors will need to comply with EU production regulations that affect working conditions.
Pressure from EU based business partners to improve labour standards.
In contracting sectors, there may be some pressure on labourstandards.
Rights at work
3. Additional quantitative and qualitative analyses
Social analysis Egypt (qualitative)
Higher living standards lead to more demand for social security.
Effect depends on the change in informal sector.
Social protection
3. Additional quantitative and qualitative analyses
Social analysis Egypt (qualitative)
Could be a small positive impact because of higher demand for social dialogue.
Social dialogue is influenced by many factors not related to the DCFTA.
Social dialogue
3. Additional quantitative and qualitative analyses
Social analysis Egypt (qualitative)
Indirect impacts, because of increase in living standards and change in attitude towards equality.
Shifts in employment opportunities affect weakest groups of the workforce (women).
Gender equality
3. Additional quantitative and qualitative analyses
DCFTA impacts on poverty and inequality:
Social analysis – quantitative analysis Jordan
Indicator Short run impact Long run impact
Poverty rate Decreases from 11.9% to 11.0%.
Also relative poverty decreases
with 0.6 %-points.
Decreases to 11.2%. Also relative
poverty decreases with 0.5 %-
points.
Poverty
depth
Goes down with 1 %-point. Goes down with 0.8 %-point
compared to baseline. So poor
become less poor.
Dispersion Decile dispersion rate decreases
from 12.7 to 12.3.
Decile dispersion rate decreases
from 12.7 to 12.4.
Gini No change No change
Richest vs.
poorest
Difference in income groups
caused by DCFTA is in favour of
lowest income groups.
Same as short run effect.
3. Additional quantitative and qualitative analyses
Social analysis – qualitative analysis Jordan
.
Job creation Rights at
work
Social
dialogue
DCFTA impact on Decent Work Agenda
Social
protection
Gender
equality
3. Additional quantitative and qualitative analyses
Social analysis Jordan (qualitative)
Employment goes up (both in SR and LR).
Impact on informal economy difficult to predict.
Inter-sector movement of workers (3% total): from agriculture and food to other sectors (e.g. industry, transport and services).
Skill adaptation of the moving workers has to be facilitated.
Job creation
3. Additional quantitative and qualitative analyses
Social analysis Jordan (qualitative)
Certain sectors will need to comply with EU regulations that affect working conditions.
Pressure from EU based business partners to improve labour standards.
Rights at work
3. Additional quantitative and qualitative analyses
Social analysis Jordan (qualitative)
Higher living standards lead to more demand for social security.
Effect depends on the change in informal sector and the facilitation thereof.
Social protection
3. Additional quantitative and qualitative analyses
Social analysis Jordan (qualitative)
Could be a small positive impact because of higher demand for social dialogue.
Social dialogue is influenced by many factors not related to the DCFTA.
Social dialogue
3. Additional quantitative and qualitative analyses
Social analysis Jordan (qualitative)
Indirect impacts, because of increase in living standards and change in attitude towards equality.
Shifts in employment opportunities affect weakest groups of the workforce (women).
Gender equality
3. Additional quantitative and qualitative analyses
• The DCFTA will mainly affect economic and social rights, and not
cultural, civil or political rights.
• The net effect is difficult to predict.
• HR of vulnerable groups could be at risk, because of the increase
in poverty and reduction in disposable income.
• Rights that could be negatively affected:
– Right to adequate standard of living;
– Right to health;
– Right to education.
• In some sectors, pressure on labour standards is expected to
increase.
• Negative effects can be mitigated by flanking measures.
Human rights analysis Egypt
3. Additional quantitative and qualitative analyses
• The DCFTA will mainly affect economic and social rights, and not
cultural, civil or political rights.
• The net effect is expected to be positive, as the DCFTA will
reduce poverty and increase disposable incomes for a large
majority of the population.
• In some sectors, pressure on labour standards is expected to
increase.
• Potential negative effects can be mitigated by flanking measures.
Human rights analysis Jordan
3. Additional quantitative and qualitative analyses
Change in emissions of classical pollutants due to DCFTA
Environmental analysis Egypt (quantitative)
0%
1%
2%
3%
4%
5%
6%
7%
Scale
Composition
Total
Short run Long run
3. Additional quantitative and qualitative analyses
Change in water use due to DCFTA (in mln m3)
Environmental analysis Egypt (quantitative)
-3.000
-2.500
-2.000
-1.500
-1.000
-500
0
500
1.000
1.500
Scale
Composition
Total
Short run Long run
3. Additional quantitative and qualitative analyses
Environmental analysis Egypt (qualitative)
Water WasteClimate
change
DCFTA impact on environmental indicators
Ecosystems
&
biodiversity
Greening
the
economy
3. Additional quantitative and qualitative analyses
Environmental analysis Egypt (qualitative)
Positive effect on water scarcity due to decline in agriculture.
Therefore also less water pollution from pesticides and fertilizers.
Increase in water transport affects marine environment.
Water
3. Additional quantitative and qualitative analyses
Environmental analysis Egypt (qualitative)
Municipal solid waste increases due to increase in GDP.
In the long run, less hazardous waste.
Waste
Environmental impacts from the DCFTA
Environmental analysis Egypt (qualitative)
Intensity of land use is expected to decrease.
Net effect ambiguous because of increased in air pollution, a short-run increase in water scarcity and vulnerability to desertification, and short-run increase in water pollution.
Recreational services will increase.
Ecosystems &
biodiversity
3. Additional quantitative and qualitative analyses
Environmental analysis Egypt (qualitative)
Short run: increase of CO2 emissions by 0.58 percent (995 thousand tonnes, EUR 19 million).
In the long-run, CO2 emissions will increase by 1.02 percent (2065 thousand tonnes, EUR 41 million).
Climate change
3. Additional quantitative and qualitative analyses
Environmental analysis Egypt (qualitative)
Internal reorganisation of economic activities.
More demand for green products.
Greening the
economy
3. Additional quantitative and qualitative analyses
Change in emissions of classical pollutants due to DCFTA
Environmental analysis Jordan (quantitative)
-1,5%
-1,0%
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5% Scale
Composition
Total
Short run Long run
3. Additional quantitative and qualitative analyses
Change in water use due to DCFTA (in mln m3)
Environmental analysis Jordan (quantitative)
-40
-30
-20
-10
0
10
20
30
Scale
Composition
Total
Short run Long run
3. Additional quantitative and qualitative analyses
Environmental analysis Jordan (qualitative)
Water WasteClimate
change
DCFTA impact on environmental indicators
Ecosystems
&
biodiversity
Greening
the
economy
3. Additional quantitative and qualitative analyses
Environmental analysis Jordan (qualitative)
Positive effect on water scarcity due to decline in agriculture (shift in economic structure)
Effect on water pollution is unclear
Positive: decline agriculture
But also growth in industry, municipal waste
Water
3. Additional quantitative and qualitative analyses
Environmental analysis Jordan (qualitative)
Municipal solid waste increases due to increase in GDP
Increased production of hazardous waste
Final effect depended on regulations and waste management
Waste
3. Additional quantitative and qualitative analyses
Environmental analysis Jordan (qualitative)
Intensity of land use is expected to increase in the long run.
Decreased pressure on forests (decrease in wood and paper production)
Ecosystems &
biodiversity
3. Additional quantitative and qualitative analyses
Environmental analysis Jordan (qualitative)
In the long-run, CO2 emissions will increase
- 1.4 percent
- 275 thousand tonnes
- EUR 5.5 million (rough estimate)
Climate change
3. Additional quantitative and qualitative analyses
Environmental analysis Jordan (qualitative)
Mixed effects due to shifts in economic activity from agriculture to industry
- Increased air pollution
- Decreased water use
Possible inner industry improvements incl. meeting EU regulations and consumer demandsfor “greener” industrial and agricultural
Effects of possible flanking measures and EU-Jordanian cooperation
Greening the
economy
4. In-depth sector analyses
4. In-depth sectoral analyses
Four specific sectors or cross-cutting issues per country were
selected in the Screening & Scoping exercise for more in-depth
analysis.
Selection criteria:
1. Economic importance;
2. The expected economic impact of the DCFTA on sectors /
issues;
3. The social and environmental impacts of the DCFTA on
sectors / issues;
4. Stakeholder issues of special importance;
5. The reality of the negotiations and the issues that are of
specific importance to the actual negotiations.
Method for selection of sectors or horizontal issues
4. In-depth sectoral analyses
The following sectors were selected and analysed for Egypt:
• Vegetables, fruit and nuts;
• Textiles;
• Other machinery and equipment;
• Business and ICT.
The following sectors and horizontal issues were selected and
analysed for Jordan:
• Pharmaceuticals;
• Financial services;
• Telecommunications;
• Water and energy.
5. Stakeholder consultations
5. Stakeholder consultations
Electronic consultation
Public meetings EU
Local workshops
Online SME survey
Personal interviews
• Websites
• Facebook and Twitter
• Newsletters (2 sent out)
• 18 March 2014
• 18 September 2014 (today)
• Cairo (22 May 2014)
• Amman (11 June 2014)
• Disseminated by DG ENTR
• Closed on 1 August 2014
• Continuously, for example with
Ministries, private sector,
NGOs.
6. Policy recommendations
6. Policy recommendations
Recommendations for the economic pillar
Policy measure Potential to address
Within DCFTA Outside DCFTA
Allow for phasing in of regulatory approximation and remaining tariff reductions at sector level, especially for those sectors where the economic impact will be high.
√
Facilitation of technical assistance and capacity building in the regulatory approximation process, based on a needs assessment.
√ √
Provide internationalisation support to SMEs. √
Support to enhance productivity of business. √
Stimulate improvements in the business climate. √ √
6. Policy recommendations
Recommendations for the social pillar
Policy measure Potential to address
Within DCFTA Outside DCFTA
Support education and training programmes to allow easier updating and upgrading of human capital, with a clear link to labour market requirements, and promote life-long learning and skills transformation.
√
Support flexibility of the labour market - easing reallocation between sectors while ensuring that workers’ rights are respected in law and practice.
√
Further develop social protection system, with attention for reaching those most in need and those most likely to be negatively affected by the DCFTA.
√
Prevent risks of pressures to lower the labour standards due to rising international competition, e.g. through effective implementation of relevant ILO conventions, and by approximating domestic legislation to the EU acquis in the area of labour.
√ √
Effective implementation of HR treaties, with a focus on vulnerable groups (e.g. children, women, minorities, disabled, etc.).
√ √
Consider creating monitoring mechanisms of the social (including human rights) impact of the DCFTA (and more broadly EU-Egypt relations in these areas).
√ √
Promotion of civil society involvement. √ √
6. Policy recommendations
Recommendations for the environmental pillar
Policy measure Potential to address
Within DCFTA Outside DCFTA
Maintain / further improve incentives to improve efficient use of energy and water.
√
Create incentives for environmentally friendly production, including with respect to air pollution.
√ √
Improve waste collection and waste management systems. √
Consider creating mechanisms for monitoring of environmental (and social) impact of the DCFTA (and more broadly EU-Egypt relations).
√
6. Policy recommendations
Recommendations for the economic pillar
Policy measure Potential to address
Within DCFTA Outside DCFTA
Allow for phasing in of remaining tariff reductions at sector level, especially for those sectors where the economic impact will be high.
√
Facilitation of technical assistance and capacity building in the regulatory approximation process, based on a needs assessment.
√ √
Raise awareness among SMEs in particular on the DCFTA and the opportunities it may provide; provide internationalisation support to SMEs.
√ √
Stimulate improvements in the business climate. √ √
6. Policy recommendations
Recommendations for the social pillar
Policy measure Potential to addressWithin DCFTA Outside DCFTA
Support education and training programmes to allow easier updating and upgrading of human capital, with a clear link to labour market requirements, and promote life-long learning.
√
Support flexibility of the labour market - easing reallocation between sectors while ensuring that workers’ rights are respected in law and practice.
√
Further promote formalisation of employment in all sectors and develop social protection system, with attention for reaching those most in need and those most likely to be negatively affected by the DCFTA.
√
Prevent risks of pressures to lower the labour standards due to rising international competition, e.g. through effective implementation of relevant ILO conventions, and by approximating domestic legislation to the EU acquis in the area of labour.
√ √
Effective implementation of HR treaties, with a focus on vulnerable groups (e.g. children, women, minorities, disabled, etc.).
√ √
Create monitoring mechanisms of the social (including human rights) impact of the DCFTA (and more broadly EU-Jordan relations in these areas).
√ √
Promotion of civil society involvement. √ √
6. Policy recommendations
Recommendations for the environmental pillar
Policy measure Potential to address
Within DCFTA Outside DCFTA
Maintain / further improve incentives to improve efficient use of energy and water.
√
Create incentives for environmentally friendly production, including with respect to air pollution.
√ √
Improve waste collection and waste management systems. √
Consider creating mechanisms for monitoring of environmental (and social) impact of the DCFTA (and more broadly EU-Jordan relations).
√
7. Questions and contact information
Contact us through:
W: www.trade-sia.com/egypt
www.trade-sia.com/jordan
E: tsiaegypt@ecorys.com
tsiajordan@ecorys.com
T: +31 10 453 87 81 (Egypt)
+31 10 453 87 48 (Jordan)
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