Photo Credit: ec.europa.euBy Martin Khor*
Courtesy IDN-InDepth NewsAnalysis
GENEVA (IDN) - African Trade and Foreign Ministers, representing the world's poorest region, are calling for a rethinking of the Economic Partnership Agreements (EPAs) that they are being asked to sign up on with the European Union.
At two meetings in November -- the AU (African Union) African Trade Ministers meeting in Kigali, and the ACP (African, Caribbean and Pacific) Council of Ministers meeting in Brussels -- the Ministers took a critical view of the adverse effects the EPAs would have on their economies. They requested the EU to take a very different approach than the EPA model it has been putting so far to the African countries.
Under these EPAs, the European Commission (EC) would like Africa to open up its economies to European goods, services and companies, in exchange for continued duty-free access to Europe's markets. But the African countries are understandably worried their small industries and service operators will not be able to survive free competition from giant European companies, banks and commercial firms.
INTO THE MOUTH OF A LION
Moreover, African farmers are already losing their markets to artificially cheap imports of European poultry, tomato and other foods that are heavily subsidized. If agricultural tariffs are reduced further or eliminated under the EPAs, there may be further deterioration in the situation of farmers' livelihoods and food security in the African continent.
These concerns, and more, were expressed by African Ministers of Trade at their meeting in the Rwandan capital of Kigali earlier this month (November).One Minister described the EPAs as placing African countries into the mouth of a lion, in a repeat of the colonial experience.
The Ministers adopted a Declaration on the EPAs which made clear their criticism of the EC's model of EPAs, and their "deep concern" about the pressure exerted by the EC on some countries and regions to sign the interim EPAs.
Also, in a show of regional unity, the African Union Commission and the continent's regional economic communities covering Eastern, Central, Western and Southern Africa, published a position paper detailing the many problems the EPAs will cause to the region.
They also proposed various ways for Africa to get out of its predicament, instead of signing the kind of EPAs that the EC has been insisting on.
The African Trade Ministers' concerns may also be voiced at a Europe-Africa summit in Tripoli on November 29-30, 2010.
The growing African complaints on the EPAs is the latest stage in a long saga which started when the long-standing post-colonial arrangements, in which the European countries gave trade preferences for products coming from African, Caribbean and Pacific countries, came to an end. The ACP countries did not have to give preferences for European products in return, and thus this was known as non-reciprocal trade arrangements.
Under the 2000 Cotonou agreement, and a waiver obtained at the WTO Doha conference in 2001, the ACP countries would continue to enjoy the trade preferences until the end of 2007. They would have to sign EPAs with Europe by then to continue to obtain the preferences after that.
However the EPAs, unlike the earlier Europe-ACP arrangements, are reciprocal. Europe is asking the ACP countries to open up not only their import regime but also their services, financial, investment, and government procurement regimes. The Caribbean countries signed a comprehensive EPA with the EU in 2008 that included these elements.
However, up to now, according to a recent count, only 10 African countries have signed narrow interim EPAs (involving only goods) and another 9 countries have initialed a narrow EPA. There are 47 African countries involved in the EPAs.
None have completed a comprehensive EPA that includes services, investment, competition and government procurement.
ADVERSE EFFECTS
The low completion rate is due to the assessment by the African countries that there would be damaging effects from the EPAs. The following are some of the feared effects:
Firstly, the African countries fear that their local industries and farms will be damaged because the EPAs require them to reduce their tariffs to zero for 80 percent of their imports from the EU. Many local products may not survive or will lose market share to the cheapened imports.
Secondly, they are also against several other trade conditions, including prohibiting or restricting the use of export taxes. Most African countries tax the exports of some of their raw materials so that local industries can use them for processing or manufacturing.
A ban on export taxes will prevent African countries from taking measures to add value to their primary commodities and to climb the value chain and industrialise.
The loss of import duties and export taxes will also reduce the governments' revenue since these trade taxes are a large part of their income.
Thirdly, the African countries are asked to open their services, ranging from telecoms and retail trade to banking, to European firms. In the EPAs with the Caribbean, the countries opened up 70 percent of their service sectors. The smaller African service firms may be displaced by the big European companies.
Fourthly, the EPAs require liberalisation and deregulation of financial flows, and investment. This will make it difficult for the countries to regulate capital flow, when such regulation or capital controls are now recognised as important policy tools because of the present volatility of financial flows.
Fifthly, the EPAs would open up the government procurement business to European firms, which have to be treated equally as locals. This will affect the ability of the governments to give preference to local firms, when purchasing goods and services or awarding projects and contracts.
It will also reduce the benefits of fiscal stimulus or increased government spending to boost the domestic economy, especially during the economic slowdown, because of the leakage to imports and foreign services.
Sixthly, the African Ministers are worried that the EPAs would adversely affect Africa's regional integration process. Trade between countries in the region would be partly diverted to European products and services. The EPA negotiations that are going on between the EC and sub-regional blocs in Africa are also changing the regional configurations of African countries.
Moreover the EC is insisting that community levies earned by the regional economic commissions be abolished, which would deprive them of their revenue.
Seventhly, the EPAs would also make it more difficult for Africa to cope with the global economic slowdown. Their trade balance with Europe is likely to deteriorate, which could contribute to balance of payments problems for some countries. The reduction and elimination of tariffs will reduce governments' revenue. And their ability to regulate capital flows and to boost domestic or regional demand will also be affected.
Some of the countries that have not signed have come under pressure because of the threat that their preferences will be removed unless they sign the EPA.
The least developed countries in Africa do not face this pressure because even if they do not sign an EPA, they can still enjoy duty-free quota-free preferences for almost all products entering the EU, under the 'Everything But Arms' scheme.
However the non-LDCs face this pressure as they may only enjoy GSP preferences if they lose their Cotonou preferences. Of the 47 African countries negotiating the EPAs, 33 are LDCs and 14 are non-LDCs.
Eventually, however, even the LDCs will feel the effects of the EPAs because they belong to regional trade arrangements (some of them customs unions) in which the external tariffs are common or will become common. Thus if some countries lower their tariffs to EU products, the remaining countries will have to do the same, if the system of common tariffs are to be maintained.
These countries face a dilemma. They face the pressure to sign, to maintain their preferences and not lose some of their exports to Europe. On the other hand, some of these countries refrain from signing because of the many adverse consequences.
THE WAY FORWARD
What then can be done to avoid these damaging effects? First, the 33 LDCs do not have to sign the EPAs since their preferences will continue under the Everything But Arms scheme. They should not have to sign EPAs in order to maintain the common external tariffs they have or would like to have with the non-LDCs in their regional economic groupings.
Instead, the 14 non-LDCs can request that the EU provide them also with the Everything But Arms scheme, without their having to give preferences to the EU in return. There is a good case for this, as these 14 countries are also poor and vulnerable, and have similar characteristics as the LDCs.
Moreover, they belong to regional economic groupings in which LDCs are the majority of the membership, and there is thus also a good case that they be given a similar status as the LDCs so that these groupings can continue with their common tariffs, without the LDCs having to be sacrificed.
For example, in the East African Community, Kenya is the only non-LDC, while the other members (Burundi, Rwanda, Tanzania, Uganda) are LDCs. In West Africa, there are 12 LDCs out of the 16 countries. In Central Africa there are 5 LDCs out of the 8 countries. And in the Eastern and Southern African (ESA) community, there are 9 LDCs out of 12 countries. In SADC there are 3 LDCs of the 6 EPA countries.
There are a number of cases in the WTO in which waivers have been given for non-reciprocal agreements between a developed country member and a developing country or region. The United States provides a non-reciprocal preference scheme for Africa (known as AGOA), which was granted a waiver by the WTO in 2008.
The EU is also providing non-reciprocal preferences to non-EU European countries, that is, Moldova and 7 Western Balkan countries.
In 2008, Moldova received "autonomous trade preferences" from the EU in a scheme almost similar to Everything But Arms (EBA) given to LDCs. It was approved by WTO members in March 2008.
The EC explained that a FTA was not an option for Moldova because it "does not possess the competitive strength to take on reciprocal obligations of such an arrangement with the EU." Many African non-LDCs (such as Kenya, Ghana, Cote d'Ivoire, Nigeria, Cameroon) have lower per capita GDPs than Moldova and are thus just as deserving or more so to get the Moldova treatment or EBA treatment.
Thus, the best option to resolve the EPA impasse is for Europe to give a non-reciprocal preferential package for Africa as a region, or for the 14 African non-LDCs, in a treatment similar to Everything But Arms.
This is one of the options proposed in the EPA position paper of the AU Commission and the five Regional Economic Communities of Africa.
It is also the option that the ACP Ministers (many of them Foreign Ministers) called on the EU to take, in their Resolution on the EPAs, when they met on November 8-10, 2010 in Brussels.
The ACP Ministers requested the EU to consider granting the Everything But Arms facility under the EU's GSP scheme to ACP regions whose majority membership comprises LDCs. The Ministers stated this was with the view to foster regional integration and that such an offer is "politically defensible in the WTO."
In any case, a good solution should be found because it would be a contradiction for European countries to pledge to help Africa with aid and to achieve the Millennium Development Goals on one hand, and then to seek one-sided trade agreements that would severely damage their economic prospects on the other.
As it persuasively argued in the Moldova case, the EC could also come to the same conclusion that a FTA like the EPA is not an option for African countries because they "do not possess the competitive strength to take on reciprocal obligations of such an arrangement with the EU."
*Martin Khor is the Executive Director of the South Centre based in Geneva. He can be contacted at: director@southcentre.org The South Centre paper can also be accessed at the South Centre website www.southcentre.org
