Yearning for a fair deal: EPAs and their effect Eastern and Southern African countries

Recent research by the Trades and Development Studies Centre Trust in Zimbabwe examines the implications of current Economic Partnership Agreements (EPAs) for Eastern and Southern Africa. There are many problems with the negotiations including a threat to existing regional integration efforts, a lack of negotiating capacity on behalf of the African-Caribbean-Pacific (ACP) group of nations and a threat to local producers, who will have to compete with more powerful European Union (EU) competitors. Faced with these problems is it prudent to continue with the negotiations for the EPAs with the EU? Are there any alternatives to the EPAs? These are the questions the Trades and Development Studies Centre Trust set out to answer.

Background

The African-Caribbean-Pacific (ACP) group of nations have traditionally been dependent on preferential market access into the European Union (EU) markets under the Lomé Agreement. The preferences were in the form of reduced or zero tariffs on key ACP exports to the EU. In addition, commodity protocols were incorporated in order to accommodate traditional ACP exports such as sugar, beef, veal and rum.

After the conclusion of the Uruguay Round of talks and the establishment of the World Trade Organisation (WTO) in 1995, the trade preferences became illegal because they violated the WTO Most Favoured Nation (MFN) principle. As such, the EU and the ACP states had to get special permission (waiver) to temporarily continue their special trading favours at the WTO Ministerial Conference in Doha, It is in this context that the EU proposed new trading arrangements which are WTO compatible. The EU further argued that Lomé preferences had not brought any trade benefits to most ACP countries as compared to non-ACP countries. For instance, whilst trade between the EU and non-ACP countries increased, EU - ACP trade declined from 6,7 % in the 1970s to 3% in 1998.

At the insistence of the EU, a new ACP-EU co-operation Agreement was signed in June 2000 in Cotonou, Benin (Cotonou Agreement). Under this agreement, ACP states would enter into reciprocal trade arrangements called Economic Partnership Agreements (EPAs). Under this scenario, ACP countries would be required to give the EU the same market access that the EU gives to them. Different regions in the ACP group can negotiate the trade issues and create their own EPA with the EU. The Southern African Development Community (SADC) and Eastern and Southern Africa (ESA) regions are in the process of negotiating such EPAs with the EU. These reciprocal trade arrangements are often described as WTO compatible in the sense that they are presumed not to violate the WTO rules on regional trade agreements. However it is far from clear that negotiating EPAs with the EU is the best option for the development of the ESA/SADC region.

There are many problems associated with the current negotiations. Reciprocal trade between the ESA/SADC countries and the EU is meant to start by January 2008. The negotiations for the EPA were meant to have started in September 2002. However these started way after this date around 2004. ESA/SADC countries are simply not ready for these negotiations. Important procedures such as analyzing the impact of the EPA on national and regional economies were done at a very late stage, and years after the ESA/SADC states had signed the Cotonou agreement.

ESA/SADC states have in the past been building institutions to promote regional economic development through trade and cooperation in various areas. These efforts saw the birth of the Southern African Customs Union (SACU, the oldest customs union in the world), Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) and the East Africa Customs Union (EAC). Instead of strengthening these regional institutions the manner with which the negotiating groups have been structured risks dismantling these institutions and also historical efforts made towards regional integration.

Although ESA/SADC and the EU states have competing interests in these negotiations, the ESA/SADC states are largely dependent on the EU especially with respect to the funding of the negotiations. It is difficult to see how the ESA/SADC states can effectively promote and protect their producers in these negotiations over markets when they are financially and technically compromised.

ESA/SADC countries lack the effective capacity to negotiate the EPA with the EU. This includes the human and technical resources to do so. On the other hand the EU has a strong and technical bureaucracy with decades of experience in handling tricky international trade issues.

There are reasonable fears that opening up ESA/SADC markets will wipe out local producers and have them replaced by EU exporters. Further ESA/SADC economies are largely agro-based and local agricultural producers will find it difficult to compete against resource rich EU-based agricultural producers who are invariably cushioned by hefty subsidies.

Faced with these problems is it prudent to continue with the negotiations for the EPAs with the EU? Are there any alternatives to the EPAs?

It does not appear as if the Cotonou agreement gave ESA/SADC countries real alternatives to EPAs. Although Article 37 of the Cotonou agreement talks of alternative trade arrangements with those non-LDC ACP states which are not ready to negotiate EPAs with the EU, there is no real alternative mentioned in the agreement. Article 37 promises to give those non-LDCs not ready for EPAs alternative trade arrangements with benefits similar to those under the Lome conventions. This is a dubious promise. The only possible alternative under Article 37 is the Generalised System of Preferences (GSP), a system of favours which must be granted to all developing countries. By definition this cannot result in favours similar to those under the Lome conventions because the later were meant for particular (ACP) developing countries, not all developing countries. Effectively Article 37 offers no real alternative to EPAs. Having said this, it is ironical that despite claiming to be unprepared for EPAs all ESA/SADC countries are negotiating one with the EU, and none have attempted to use the so-called alternative under Article 37.

ESA/SADC states must think of options to the current EPA negotiations. But what are these options, and how effective can they be?

1. Maintaining the status quo. Ideally many producers in the ACP group, including those in the ESA/SADC region would like the Lome preferences to be kept or even improved upon. They would like to continue getting special favours over and above other developing countries. This would see ESA/SADC states keeping special market access on favourable terms for example, for sugar and beef exports. To keep these favours ESA/SADC countries and their ACP counterparts must wait for the EU to be given another waiver to permit these one-way favours. However this is increasingly becoming a remote possibility for a number of reasons:

- Banana producing countries of Latin America have bitterly complained against the EU’s ACP preferences, arguing that they are discriminatory. The WTO has ruled that these preferences are indeed discriminatory and violate the MFN rule;

- There is a strong lobby in the EU and beyond (e.g. certain Asian countries) which is against Lome type trade preferences and is advocating for their ban at the WTO.

2. No reciprocity. Under this option ESA/SADC would not need to enter into damaging reciprocal arrangements with the EU, but to create non-reciprocal schemes. These are limited by the WTO rules to those non-reciprocal arrangements which are WTO compliant. This entails schemes under the GSP which is open to all developing countries. There are other GSP schemes which favour LDCs over developing countries, e.g., the EU’s Everything But Arms (EBA which gives LDCs products - except arms - entering the EU zero percent duty) scheme which is exclusive for LDCs. In this respect ESA/SADC countries would split along LDC and non-LDC lines. The EBA and the general GSP must be measured with the real market access under the Lome preferences. Even with these preferences ESA/SADC exports did not achieve a high level of penetration into the EU market.

A number of barriers prevented this, such as:

- Non-tariff barriers; subsidies granted to EU producers, especially under the Common Agricultural Policy (CAP) made it difficult for ESA/SADC producers to compete in the EU.

- Stringent rules for human, plant and animal health (Sanitary and Phytosanitary (SPS) measures created obstacles against ESA/SADC exports as exporters could not afford to meet the requirements.

- Administrative procedures to satisfy rules of origin requirements also dissuaded ESA/SADC exporters from fully taking advantage of the Lome preferences. Already the beef, cereals and dairy sectors in ESA/SADC states are facing dwindling opportunities as a result of the CAP reforms.

These barriers are still relevant under the GSP and its EBA variety, if they are not removed the GSP and the EBA options are not really options for ESA/SADC.

3. Some level of Reciprocity. This option allows ESA/SADC states to partially open up their markets to the EU by liberalizing specific sectors whilst shutting out certain EU products and services for the protection of infantile producers. EU exports to the ESA/SADC region face tariff and non-tariff barriers. However the case for lowering barriers to EU imports may have several negative results, for example:

- government revenue losses, worst affected would be Mauritius, Zimbabwe and Tanzania which would lose more than 30% of customs revenue;

- local industry may not be able to compete with stronger EU-based competitors;

- there will be an increase in EU imports compared to a decline in ESA/SADC exports, there is a possibility that the food and beverages sectors would suffer as a result of more EU competing products entering the market; While the short-term result is that cheaper food imports will benefit consumers, the food processing and milling industries will face ultimate ruin;

- lower ESA/SADC duties on EU imports will negatively affect trade amongst ESA/SADC countries with respect to their own FTAs such as under, EAC, COMESA and the planned SADC FTA.

ESA/SADC states may opt to shut out specific EU products and unilaterally liberalise their economies in areas they are ready to do so. From an ESA/SADC perspective this is reasonable because it protects vulnerable sectors from damaging competition. However both light market opening (some level of reciprocity) and the non-reciprocal unilateral tariff structuring have to comply with the WTO rules. At present Article XXIV which caters for RTAs does not permit such deviations. To accommodate this option Article XXIV has to be amended to:

- recognize the disparities between industrialized and developing countries;

- make the interpretation of the requirement for “substantially all trade” to be liberalized more flexible for developing countries which have economic sectors which are too sensitive to competition from industrialized trading partners;

- grant developing countries in a proposed FTA with an industrialized country more time and opportunity to adjust to the new arrangement (transition period), for example by up to 18 years or more.

The ACP states have tabled this proposal before the WTO for possible negotiation at the December 2005 summit. However the weight of influence seems staked against the ACP proposal. Japan and Australia are opposed to this proposal, added to these is the traditional hostility to ACP preferences as shown by Latin American countries, and sometimes with USA backing.

Tying Trade Liberalisation to Developmental Benchmarks

Proposals forwarded by Trades Centre under its study on New Enhanced Economic Agreements (ERA) provide practical options for future EU-ACP trading co-operation. Essentially, the proposal ties trade liberalisation by African countries to certain developmental benchmarks which include:

- Agreed measures of development and overall vulnerability of each African Regional Partner (e.g. SADC or ESA). For example, opening up of Africa’s markets to the EU must be tied to substantial debt relief by the EU to Africa. In other words, the EU pays a price for preferential market provided to it.

- LDC members retain their special access to EU markets without reciprocity for an extended period.

- Opening up of Africa’s markets is related to agreed benchmarks in reform of the CAP.

- EU trade diversion avoided by liberalizing at own pace within the WTO frameworks thus giving improved access to non-EU markets.

- Aid component of ERA is used to enhance trade capabilities and increase export diversification.

- Aid is also used to cushion the transition to more liberal trading conditions (especially changes in protocols).

- There is a contract enforcement mechanism (including dispute procedures) in place.

- Rules of origin are simple and facilitate cumulation.

- Review of WTO provisions on RTAs.

More aid, investment, and new issues.

ACP states (inclusive of ESA/SADC countries) seem to be involved in the EPA negotiations for the purposes of accessing more aid and investment from the EU. It is not clear that more aid and investment will only come from the EU if ESA/SADC states agree to EPA arrangements with the EU. Above this ESA/SADC states have committed themselves to supporting negotiations on investment, competition and intellectual property related issues both at an EPA level and at the WTO. This is despite their resistance to the discussions of these issues at the Cancun WTO summit. This shows a level of confusion as there is no guarantee that more aid and investment will materialize from the EU as a result of the EPA under negotiations.

Recommendations

The EPA negotiations should either be drastically slowed down or stopped. This will give ESA/SADC time to make real assessments of future trade relations not only with Europe but with the rest of the world. The present concern for ESA/SADC states like the rest of the ACP group is to maintain historical favours from the EU. At the same time ESA/SADC states want to benefit from the multilateral framework under the WTO. As explained above there is a conflicting legal responsibility here. In the short-term ESA/SADC states should:

- engage WTO partners to ensure that post-Lome trade arrangements do not get implemented by 2008 as planned under the Cotonou agreement.

- actively table alternatives to the EPAs proposal. This involves having to pull out of the current negotiations, or seeking a reprieve. The short-term plan obviously includes conflicting positions, the more reason why it is not ideal.

- ESA/SADC states should revisit their regional integration commitments and give effect to deeper integration. Emphasis should be on food security as the priority for the region. And with respect to trade relations with the rest of the world ESA/SADC states should.

- assess their historical dependence on Europe in the light of shifting geopolitical priorities. EU trade preferences have not and will not increase African productivity and economic security. Some sectors of ESA/SADC economies are at the mercy of EU CAP reforms and the EU is no longer a viable market for them.

- work collectively with other developing countries to ensure that the WTO framework works to the advantage of developing countries. ACP states have used the WTO summits as a place to secure the continuity of EU preferences. Instead better use of the multilateral framework can be made if ACP states focus on issues common to the trading prospects of all developing countries. Though some ACP states are active on issues common to all developing states, there is always the EU trade preferences issue.

- take a lead in negotiating the implementation of development country friendly WTO concessions, in this case the market access commitments of developed countries under Part IV of GATT. These concessions do not require reciprocal action from developing countries especially with respect to liberalization commitments. The WTO rules did not make flexible rules to govern RTAs involving developed-developing country configuration precisely because it makes no economic sense. Hence ESA/SADC states should insist on the actualization of those rules made with developing countries in mind.

* Many thanks to Dr. Medicine Masiiwa from the Trades and Development Studies Centre Trust (Trades Centre) for providing this summary of research into EPAs being conducted by the Trades Centre.

* Please send comments to [email protected]