Unequal Partners: How EUACP Economic Partnership Agreements (EPAs) Could Harm The Development Prospects of Many of The World's Poorest Countries
Unequal Partners: How EUACP Economic Partnership Agreements (EPAs) Could Harm The Development Prospects of Many of The World's Poorest Countries
Unequal Partners: How EUACP Economic Partnership Agreements (EPAs) Could Harm The Development Prospects of Many of The World's Poorest Countries
Unequal Partners:
How EUACP Economic
Partnership Agreements (EPAs)
could harm the development
prospects of many of the worlds
poorest countries
September 2006
I come from a small fishing village in Ghana. Members of my family fished for their livelihood,
but fishing has become impossible since larger European fishing vessels came and fished our seas
empty. The same happened with poultry. EU imports of frozen chicken wings destroyed the local
marketEPAs are free trade agreements, and as such, they will bring poverty to Africa.
Tetteh Hormeku, Third World Network, Accra, Ghana
Our experience tells us that FTAs between a large market like the EU and small economies are
not easily sustainable and often lead to a deficit for the weaker partner.
EU Europa Trade website: the EU describing its recent Free Trade Agreement (FTA)
negotiations with Central America1
Summary
The Doha Development Round of trade talks has stalled, but the worlds poorest
countries remain under pressure to open up their markets with potentially disastrous
consequences. These negotiations were meant to make trade fair, but they were
blocked by the USA and EU, unwilling to address the rigged rules and double
standards from which they benefit. The EU wants to forge new free trade agreements
with 75 of its former colonies in Africa, the Caribbean, and the Pacific (ACP). These
imbalanced negotiations of Economic Partnership Agreements between the two
regions, pit some of the worlds most advanced industrial economies against some of
the poorest nations on earth. In addition, the ACP countries are split into six small
groups for the negotiations; the smallest group, the Pacific Islands, is negotiating a
trade agreement with an economic giant more than 1400 times its size.
The EU has an opportunity to develop fairer trading relations with ACP countries, but
such extreme disparities in negotiating power could all too easily produce unfair
results, and Oxfam fears that the future development of the ACP countries may be
jeopardised by the EUs tactics. Far more is at stake for the ACP than for Europe.
Nearly half (41 per cent) of ACP exports go to Europe, but ACP trade is merely small
change for the giant European economy. Firms in the City of London pay more in
executive bonuses than Europe spends on buying products from the whole of the
ACP.2 Yet there is every sign that Europe is playing hardball in these negotiations,
putting commercial self-interest before development needs. In addition, there is a
wider concern that EPAs could undermine multilateralism.
Under the proposed EPAs:
farmers and producers in many of the worlds poorest countries will be forced
into direct and unfair competition with efficient and highly subsidised EU
producers;
regional integration amongst ACP countries will be severely undermined;
ACP governments will lose substantial revenue along with many of the policy
tools they need to support economic and social development.
In September 2006, the EU and ACP will start their mid-term review of the EPA
negotiations, a formal exercise scheduled when the EPA process was launched in
2002.3 The review provides a real opportunity for ACP governments and the EU
to fully consider the development implications of the current EPA proposals and
trends, and to re-focus efforts on putting together a pro-development trade agreement
in conformity with the Cotonou Agreement. As this note will show, the proposed EPAs
are a serious threat to the future development prospects of ACP countries, and the
forthcoming review must be used to force a radical rethink.
EU 13,300
425 3.20 31
Total EPA
Source: World Bank (2005)
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf
Notes: i Data given to two decimal places.
ii
Eastern and Southern Africa.
Iii
Data unavailable for Cook Islands, Nauru, Niue and Tuvalu
The current round of EPA negotiations has been sparked by the expiry of previous
trade agreements between the EU and ACP countries. Since 1975, political and
economic relations between the two blocs have been governed by a series of five-year
Lom Conventions.4 Recognising the vast economic differences between the EU and
ACP, the agreements provided trade preferences and aid to ACP countries, without
requiring them to reciprocate. ACP exporters were given substantial access to EU
markets, while ACP countries retained the right to protect their producers from highly
competitive (and often highly subsidised) EU exporters. The Lom Convention and
Cotonou Agreement were not unqualified successes. Despite having many pro-
development elements, they have also contributed in some ways to some of the
development problems faced by ACP countries today.
The last Lom Convention came to an end in 2000, and was replaced by the Cotonou
Partnership Agreement, which had the principal objectives of reducing poverty and
promoting the sustainable development of ACP countries and their gradual integration
into the world economy.5 Under the Cotonou Agreement, the EU and ACP agreed to
maintain the Lom preferential system until the end of 2007, and then to replace it with
a new Economic Partnership Agreement that would be WTO-compatible.6
Under the World Trade Organisation rules, both parties must liberalise, with the ACP
being required to give duty-free access to substantially all EU exports within a
reasonable time.7 So, to maintain the preferences they already have in the EU market,
from January 2008 ACP countries must open their own markets to direct competition
from highly competitive EU goods and services. In addition, the EU is pushing for the
inclusion of competition policy, investment, and government procurement. The
proposed EPAs imply nothing less than a fundamental restructuring of the political
and economic relations between the EU and ACP countries.
The EU is pushing strongly for the inclusion of competition policy, investment, trade
facilitation, and transparency in government procurement (the so-called Singapore
Issues) in the EPA process. With the exception of trade facilitation, developing
countries have successfully excluded these issues from the remit of WTO negotiations.
ACP countries have collectively stated that they do not want to include competition
policy, investment and government procurement in the EPA negotiations and
described their disagreement with the EU on these issues as of a fundamental
nature.26 At the last African Union Ministerial, ministers called on the EU not to press
African countries to take up obligations that go beyond their WTO obligations, and
called for these issues to stay outside the ambit of EPAs.27 Yet the EC continues to
insist that there will be no EPA without investment rules and full reciprocity.28
The implications for ACP countries of negotiating the Singapore Issues have not been
systematically analysed, but there is enough evidence to worry ACP policy makers. A
pragmatic concern is the sheer cost of implementation. The costs of implementing new
laws on competition would be substantial,29 and developing countries are still
struggling to implement the WTO obligations on customs reform, intellectual property
rights, and SPS agreed during the Uruguay Round. Estimates suggest that each of the
16 areas of reform agreed during the Round cost a country US$2.5m to implement.30
A more strategic concern is that ACP countries would be entering binding agreements
with the EU in key areas of trade and industrial policy. They have relatively little
experience or technical expertise in these areas, and it is not clear which type of policy
will best suit their economies, either now, or crucially, as they develop in the future.
For this reason it is imperative that ACP governments retain sufficient flexibility to
adapt policies as needs require.
Investment is a case in point. The EU argues that by entering a binding investment
agreement, ACP countries would benefit from an influx of foreign direct investment,
which would stimulate economic growth.31 To date, this appears to be little more than
conjecture. There is a large body of evidence which led the World Bank to conclude
that countries that have investment agreements are no more likely to receive additional
investment flows than countries without such a pact.32 Surveys suggest that the
primary disincentives for investors in sub-Saharan Africa are concerns surrounding
political stability, security, and unreliable electricity supply, rather than a lack of
binding investment agreements.33
In addition, the ECs EPA negotiating mandate favours non-discrimination, meaning
that ACP countries would be forced to treat giant European multinationals in the same
way as their own far weaker companies. This would prevent ACP governments from
using investment policies that many other countries have used to build up national
industries (including limits on ownership, performance on exports or local
employment, or insistence on joint ventures with local firms). Yet EU negotiators
continue to insist on including investment, claiming in their negotiations with West
African countries that it is not worth having an [EPA] between the EU and ECOWAS
if the Agreement did not include... liberalised rules for investment.34
Angola
Botswana
DRC
Lesotho
Madagascar
Malawi
SADC Trade Mauritius
Protocol Mozambique
Rwanda
South Africa
Swaziland
Tanzania
Zambia
Zimbabwe
This complex realignment of regional blocs and the pace of negotiations that the EU is
forcing on its former colonies will create serious difficulties for the harmonisation of
liberalisation schedules. Because ACP countries have different priorities regarding the
sectors they wish to protect from import competition and to preserve for the generation
of tariff revenues, it is possible that each member of an EPA will select different
products on which to liberalise. If regional groupings are not sufficiently harmonised
before an FTA is launched, the EPAs will create new barriers to intra-regional trade.
For example, if Kenya chooses not to liberalise flour and maintains its tariff levels but
Ethiopia removes all duties, traders may circumvent Kenyas restrictions by
transporting cheap (and possibly dumped) goods imported from the EU across the
border from Ethiopia.40 In order to prevent this type of transhipment, rigorous border
controls would have to be maintained to differentiate between goods originating
regionally and goods originating from the EU. The imposition of these time-consuming
customs procedures and costly rules-of-origin checks would reinforce barriers to intra-
regional trade rather than reduce them.
Table 3: Funds allocated and spent during each five-year financing cycle
(million euros)
The EC suggests that funds to compensate ACP countries for the costs of implementing
EPAs would come from the 10th EDF funding cycle (2008-13), for which a total of
22.7bn has been pledged. Yet, even before EPAs came onto the scene, it was estimated
that 21.3bn would be needed for the 10th EDF funding cycle, merely to fund the costs
of the EUs existing aid portfolio and maintain EU contributions at 0.38 per cent of the
EUs national income (GNI).45 If this is the case, the 10th EDF is merely business as
usual. Rather than provide new funds for EPAs, the EC will cover EPA adjustment
costs from its existing aid budget diverting money away from other areas, such as
health, education, and rural development.
Even if ACP countries decide to use existing aid money for EPA adjustment costs, it
might be very slow in arriving. During the last five-year cycle (200106), the EU
promised 15bn in aid to ACP countries. By the end of the cycle, only 28 per cent of
this money had been disbursed. The record for the previous cycle was even worse. For
19952000, a promise of 14.6bn was made. Funds only started to be disbursed in the
third year, and by the end of the five years only 20 per cent had been paid out. Since
ACP countries will quickly feel the impact of EPAs on their economies, the EUs
disbursement mechanisms clearly need a major overhaul if EU assistance is really to
make a difference.
ACP governments are wary of the ECs smoke-and-mirrors approach to development
assistance and have called for a separate and additional EPA financing facility,46 so that
the EC can be held to its promises and funds can be clearly tracked. To date, this has
not been agreed and the promise of assistance remains a mirage.
6. Sufficient time is allowed beyond the date of the next Joint ACPEU Ministerial
in the first half of 2007, if the review process is to ensure quality analysis on the
implications of EPAs, and for it to be genuinely comprehensive and inclusive.
1
http://europa.eu.int/comm/trade/issues/bilateral/regions/central_america/index_en.htm.
2
Total EU imports from the ACP were $35.8bn in 2004; while in 2005/6 financial year, London
City firms paid $US 36.2 bn (19bn) in bonuses. Sources: Hwww.trademap.orgH; Guardian
newspaper 17 August 2006.
3
Article 37.4 of the Cotonou Agreement. The Parties will regularly review the progress of the
preparations and negotiations and will, in 2006, carry out a formal and comprehensive review of
the arrangements planned for all countries to ensure that no further time is needed for
preparations or negotiations.
4
The Lome Conventions were part of a series of post-independence agreements which
governed relations between the EU and its former colonies. Note that the Lome IV agreement
spanned 10 years.
5
Article 1 (2) of the Cotonou Agreement.
6
The WTOs Enabling Clause allows countries to provide preferences to developing countries
as a whole, or just to LDCs. The Lom Conventions were incompatible because they excluded
a large number of developing countries.
7
Free trade agreements would have to accord with Article 24 of the General Agreement on
Trade and Tariffs (GATT) 1994. While the WTO explicitly recognises the rights of developing
countries to Special and Differential Treatment (SDT), Article 24 has the fundamental flaw of
lacking SDT provisions.
8
The high value of preferences is concentrated among a few beneficiaries, primarily small-
island states and other major sugar and banana producers. To a far lesser extent in terms of
value, preferences are also of considerable benefit to a small number of low-income countries
that are heavily dependent on a narrow set of products (notably tobacco, textiles, fisheries, and
cocoa). Source: K. Alexandraki, (March 2005) Preference Erosion: Cause for Alarm?, IMF
Policy Development and Review Department.
9
Rules of origin determine where a good comes from for the sake of trade preferences, as
only goods originating in certain countries qualify for duty-free access or lower tariffs. However,
current rules are much stricter than necessary.
10
Sanitary and Phyto-Sanitary Standards (SPS) are standards put in place in principle to
protect public health in an importing country, while Technical Barriers to Trade (TBT) are put in
place to ensure that products meet technical standards and other specifications for use in the
importing country.
11
Furthermore, the present and future value of ACP preferences is decreasing due to most-
favoured nation (MFN) liberalisation, reforms of the EU sugar and banana regimes, and the
introduction of other preferential schemes that provide developing countries with preferential
access to the EU market.
12
Karingi et al (2005) Economic and Welfare Impacts of the EU-Africa Economic Partnership
Agreements, UNECA, ATPC Work in Progress, No. 10.
13
European Commission (2005) Economic Partnership Agreements Putting a Rigorous
Priority on Development, memo, 20 January 2005. Brussels: European Commission.
www.europa-eu-un.org/articles/en/article_4245_en.htm.
14
S. Bilal, and F. Rampa (2006) Alternative to EPAs: Possible Scenarios for the Future ACP
Trade Relations with the EU, Maastricht: ECDPM, Policy Management Report 11.
15
L. Hinkle et al. (2005) Beyond Cotonou: Economic Partnership Agreements in Africa, in R.
Newfarmer, Trade, Doha, and Development: A Window into the Issues, Washington DC: The
World Bank, pp.26780.
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