Services Trade Liberalization between the European Union and Africa Caribbean and Pacific Countries: A Dynamic Approach

That the services sectors affect employment and welfare especially through their strong links to other sectors in the economy is firmly unarguable. Globally, the services sectors directly employ 70% of the unskilled labour and about 85% of skilled labour. Services produce 24% and 32%, respectively, of intermediate goods used in the key sectors of agriculture and manufacturing. In both developed and developing countries, many services such as communication, insurance, and transport remain, however, highly protected. In the trade negotiation between ACP and the EU countries under the Economic Partnership Agreement (EPA), the liberalization of the trade in services is stalled by numerous issues stemming mainly from fears of losing tax revenues and employment. Fear arises because of trade negotiators? uncertainties over the sectoral impacts and overall welfare and employment effects when trade liberalization in the goods markets is accompanied by trade in the services markets. The purpose of this paper is to contribute to filling the knowledge gap and estimate the welfare and employment effects of the liberalization of services trade between ACP and EU countries. Of primary importance is the timing of the liberalization of the service sector with respect to the liberalization of the goods sectors, especially for the impacts on and implications for employment and welfare. This paper uses a dynamic general equilibrium model (GDyn) and takes into account the differences in labour productivity trend among trading blocks and regions. The simulation includes varying the rates of productivity growth and technological progress and the timing and the rates of tariff cuts in the services sectors to examine the extent of welfare and employment effects. The findings are intended to provide policy implications especially to increase welfare and employment for countries for the ACP and EU trade.