Trade Sustainability Impact Assessment (TSIA) in support of negotiations of DCFTAs between the EU and respectively Georgia and MoldovaAd hoc civil society meeting

Brussels, 14 September 2012

Ecorys – CASE consortium

Presentation on draft Final Report

Trade Sustainability Impact Assessment (TSIA) in support of negotiations

of DCFTAs between the EU and respectively Georgia

and Moldova

By:

Wojciech Paczynski, Koen Berden, Nora Plaisier

Agenda

1. TSIA study: goals and methodology

2. Main economic impact

3. Main social impact

4. Main environmental impact

5. Example of case study- Moldova SPS

6. Policy recommendations

Main aim of the TSIA

• Policy tool European Commission DG Trade – conducted by independent consultants.

• Standard overall TSIA methodology for all EU FTA negotiations conducted.

Main aimassessing potential economic, social and environmental

impacts of the DCFTA

• Used as supporting evidence to negotiation teams of both EU and Georgia/Moldova.

• Basis for policy recommendations and flanking measures.

Background of the Trade SIA

Background of the Trade SIA

TSIA methodology consists of 4 main phases:

Phase 2: Sectoral analysis – present stage of study

• Scenario analysis and CGE modelling• Additional quantitative and qualitative analyses social / HR / environmental• Screening and scoping analysis

Phase 0: Inception

Phase 1: Overall analysis of the sustainability impacts

• In-depth analysis of selected sectors and horizontal issues• Causal Chain Analysis (CCA)• Literature review, Partial Equilibrium modelling, consultations, interviews

Phase 3: Policy recommendations / flanking measures– present stage of study

• Final report

Consultation and dissemination (throughout all phases)

Summary: economic impact- Georgia/Moldova

Variable/Country EU Georgia EU Moldova

National Income, Million € -47.0 291.9 240.0 142.4GDP, % change 0.0 4.3 0.0 5.4Consumer prices, % change 0.0 -0.6 0.0 -1.3Wages, less skilled % change 0.0 3.6 0.0 4.8Wages, more skilled % change 0.0 3.6 0.0 4.8Terms of Trade, % change 0.0 -0.6 0.0 0.1Total Imports, % change 0.0 7.5 0.0 7.7Total Exports, % change 0.0 12.4 0.0 16.2

Positive macro economic results for Georgia and Moldova driven by NTM reductions

Summary: sectoral effects - Georgia/Moldova

Sectoral effects for Georgia:

• Sectors expected to expand most: Chemicals, other machinery and equipment, primary metals, vegetable oils and fats

• Sectors expected to contract most: Livestock and meat products, other processed foods, electronics & computers, and other manufacturing

Sectoral effects for Moldova:

• Sector expected to expand most: sugar, other crops, textiles and clothing, and air transport.

• Sectors expected to contract most: Livestock and meat products, motor vehicles, electronics and computers and other manufacturing.

2. Summary: social impact (similar for MD & GE)

• Employment effect as main driver – likely positive overall impact

• Employment reallocations between sectors – serious challenge

• (Slight) income inequality enhancing effect of DCFTA (but chances for some improvement e.g. in gender equality )

• Poorest groups – lowest chances for gains

• Labour rights – combination of effects: overall positive (weak) impact more likely

• Human right impacts mainly via employment effects & changing societal preferences / norms – no strong impacts

2. Summary: environmental impact

• DCFTA should continue to provide similar encouragement / pressure on GE/MD to promote environmental policy agenda as ATP and GSP+

• Weak positive impact on encouragement for implementation of international environmental agreements in GE & MD

• Airborne emissions:

• ~3% increase in GE (costs ~EUR 20 million)

• <3% increase in MD (costs ~EUR 15 million)

3. In-depth analysis: sectors and issues of particularinterest• Identification based on a set of criteria:

In GE: vegetables, fruits and nuts & chemicals, rubber and plastic

In MD: grains and crops & textiles and clothing & SPS

Results: • Varying between sectors and issues• Add / modify insights from CGE: could be seen as models of

analysis for other issues that may emerge in negotiations• Allow for formulation of sector-specific recommendations

3. GE: vegetables, fruits and nuts [impact]

• Different expected impact for nuts & fruits and vegetables

• Nuts: no major change from current situation – large producers (incl EU investors) already meet EU market requirements

• Fruits & vegetables: upgrade of SPS standards in GE will limit low quality imports: chance for expansion of domestic producers (cost of compliance key) & investments incl in related sectors:

• import substitution

• exports (primarily to nearby markets); no impact on exports to the EU (distance, scale, other requirements to remain in place)

• Social: positive overall driven by + employment; – prices (SPS vs. cold storage infrastructure); + health

• Environment: limited overall impact – more intensive farming, CO2 up from greenhouse production, down from less transport

3. MD: textiles and clothing [impact]

• Expected substantial output (>10%) and employment boost (>6%) with strong growth of exports (>15%) and imports

• Effects materialising gradually: in the short run tariff reductions play key role, in the long run also NTMs

• Context: global trends in the sector more important for outlook in MD than DCFTA

• Employment growth important from social perspective: geographical distribution of the sector and female-bias

• Combination of positive / negative environmental effects: positive overall impact (greening of the sector’s expansion) more likely

3. MD: Sanitary and phytosanitary issues [1]

• Limited capacity in MD to comply even with WTO SPS obligations: e.g. weak coordination between involved institutions; lack of international accreditation of laboratories

• Relations with the EU – driver of SPS reforms in MD

• (Potentially) affected sectors (70% of MD exports):

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3. MD: Sanitary and phytosanitary issues [2]

• Sectoral winners and losers• Overall negative economic effect (esp. short- and mid-term)• Ambiguous social impact: – employment vs. + health &

institutions• Positive environmental impact

• Affected sectors: SPS issues do not appear to be a major barrier even for fresh fruits and wine (other factors matter)

Costs BenefitsNecessary investments to meet new standards (e.g. changing in production process)

Better food safety health

Operational compliance costs (e.g. testing)

Improved agricultural practices

Costs to build and maintain SPS infrastructure (mostly public costs)

Easier market access (in MD, EU, countries with similar SPS systems)

4. Recommendations – economic pillar

Policy measure

Provide technical assistance and capacity building in approximation process, especially in relation to SPS, TBT, trade facilitation, and IPR

Allow for phasing in of tariff reductions or approximation at sector level , especially for those sectors where the economic, social and environmental impact are expected to be high

Stimulate on-going improvements in investment/business climate

Support efforts facilitating structural adjustment resulting from implementation of the DCFTA

Stimulate entrepreneurship and competitiveness of SMEs

4. Recommendations – social pillar

Policy measure

Support flexibility of labour market – easing the reallocation between sectors

Support training programmes to allow easier update and upgrade of human capital

Prevent risks of pressures on implementation of labour rights

Allow for phasing in of tariff reductions at sector level, especially for those sectors where the social impact will be high

Consider simple mechanisms for monitoring of social (and environmental) impact of the DCFTA

Technical assistance and budget support for upgrading human capital and improving institutional and regulatory environment in the social policy

4. Recommendations – environmental pillar

Policy measure

Create incentives for environmentally friendly production

Maintain incentives and encouragement to implement internationalenvironmental agreements

Phasing in of tariff reductions at sector level, especially for those sectors where the environmental impact can be high

Provision of technical assistance, capacity building and budget support in environmental policy broadly defined

Allow for phasing in of tariff reductions at sector level , especially for those sectors where the environmental impact can be high (only for Moldova)

Questions & DiscussionDeadline for comments on the Draft Final Report:

the 28th September Contact us through:

W: tsia.ecorys.com/georgia W: tsia.ecorys.com/moldova

E: tsiageorgia@ecorys.com E: tsiamoldova@ecorys.com

T: +31-104538781 T: +31-104538781

3. GE: chemicals, rubber and plastic [impact]

• Strong output and export gains (>60%) with large employment increase (~40%)

• Mostly materialising only in long-run and driven by reductions in NTMs

• Domestic pharmaceutical market set to see major changes:– stop of low cost (low quality?) imports from 3rd countries– possible boost in investments– costs of compliance key for outlook for domestic producers

• Health impact: + from higher quality vs. – from drug costs increase

• Environment: + from higher standards & better control of chemicals vs. – from output increase

» positive overall effect more likely

3. MD: grains and crops [impact]

• Substantial gains in output and employment (up to 7%) ; major boost in foreign trade (up to 30%)

• Changes less pronounced if TRQs increase was to be permanent in the baseline

• Materialising already in the short run; driven by tariff reductions

• Positive employment effect main channel of social impact

• to be seen in the context of trend decline in employment

• Environment: increased land use and more intensive farming (more chemicals) vs. higher SPS standards and improved agricultural practices: overall effect uncertain; likely small