Assessment of the economic impact of the economic partnership agreement (EPA) on the trade liberalization between the East African community (EAC) and the European union (EU)

The aim of this study is to examine the economic impact on the full libearalisation of imports from the EU to EAC. The study specifically examined impact of trade creation effect, trade diversion and revenue effect on economy. To achieve these objective the study has to answer following important questions (i) to what extent does the effect of Trade creation between EAC and EU relatives to economic growth (ii) to what extent does the effect of Trade diversion between EAC AND EU relatives to economic growth (iii) what is the effect of tariff revenue between EAC and EU on the economic growth. The study used Partial equilibrium Smart model development by WITS in the data analysis. The empirical results using the model I have shown that imports from EU to EAC (Tanzania) would increase by approximately 171 Million US$ after full liberalization. This increase would contribute 0.5% increase in GDP. Trade creation would contribute an increase of 0.3% in GDP, however Trade diversion would affect the economy by 0.2%. the elimination of tariffs on imports from the EU would cost revenue loss of over 101 million USD whereby the GDP would decrease by 0.3%. this study recommend to minimize the Trade diversion and increase competition from non-EU firms if the dismantling of trade barriers puts large Euro firms in a position to exercise market power in EAC (Tanzania). Secondly, the heterogeneity of results suggest the need to apply variable geometry in respect to the pacing of opening and to ensure that other means of protecting cosmetic industries.