EPA Update Policy Brief (Published 2014)

Background

Economic Partnership Agreements (EPAs) negotiations started in 2002 between the European Union (EU) and Africa, Caribbean and Pacific (ACP) countries, based on the Cotonou Agreement aimed at integrating ACP states into the world economy. The Cotonou agreement in 2000 made provision for bilateral trade agreements (EPAs) to replace the unilateral LOME Conventions that allowed duty-free and quota-free access of ACP countries exports to the EU that were challenged at the WTO negotiations by other non-ACP countries without preferential access to the EU market. Preferential treatment is incompatible with the World Trade Organisation (WTO) rules. The original Lome Conventions were non-reciprocal while the EPA will be reciprocal. The negotiations are focused on trade in tangible goods, investments and services. The controversial issues that arose during the negotiations are broadly focused on export taxes, Most Favoured Nation (MFN) and National Treatment (NT) clauses, agricultural subsidies and market access, and economic development cooperation, rules of origin and dispute settlement. The EPA negotiations divided the southern African region into two different blocs;

  •  the Eastern and Southern African (ESA) bloc comprising Madagascar, Malawi, Mauritius, Seychelles, Zambia and Zimbabwe and,
  • the Southern African Development Community (SADC) bloc comprising Angola, Botswana, Lesotho, Mozambique, Namibia, South Africa, Swaziland and Tanzania. From the onset, it can be observed that the bilateral negotiations effectively disrupted the region initiative of regional integration within the SADC region.

Besides the disruption of regional integration, this division into two negotiating trading blocs created implementation challenges such as multiple memberships and weakened regional bargaining power. The negotiations started in 2002 under a waiver called the Cotonou Agreement. In practice, the negotiations progressed very slowly than what had been originally anticipated. They were supposed to be concluded by 2007. Regulation 1528 was therefore adopted in December 20007 as a temporary solution to allow for more time to conclude the EPA negotiations and the ratification process. There has been no agreement on contentious issues such as MFN clause, cumulation, export taxes, agricultural subsidies and market access.

Current EU-Africa trade status.

Although the overall global share of EU trade with Africa has been declining, trade remains significant. In absolute terms exports from Africa to the EU increased from USD9bn in 2000 to USD213bn in 2013. The largest EU exporters to Africa in 2013 were France (18%), Germany (14%), and Italy (13%). The largest EU importers of African products are Spain (17%) Italy (16%), France (16%), UK (13%). Manufactured goods comprised 70% of all EU exports to Africa whilst energy constituted 64% of imports. Africa exports to EU are mainly raw materials especially crude oil raising the question of value addition and regional integration. The major trading partners with EU from Africa are South Africa, Nigeria, Algeria and Libya.

State of EPA Negotiations

Although the negotiations have been slow and stalled in some regions, four countries in southern Africa had signed the interim EPA on tangible goods by 2009, namely Madagascar, Mauritius, Seychelles and Zimbabwe. Given the EU deadline for negotiations of October 1, 2014, others fearing trade disruption, signed the interim EPA such as Botswana, Lesotho, Mozambique, Namibia and Swaziland. Malawi and Zambia initialled but have not signed the interim EPA. Angola and the Democratic Republic of Congo (DRC) have not initialled the agreement. Thus the outlook on the status of EPA is varied. The major casualty has been regional integration, a SADC initiative.
Botswana, Namibia and Swaziland are classified as developing countries and do not enjoy the Everything But Arms (EBA) EU offer to Least Developed Countries (LDCs), therefore feared trade disruption particularly of beef, grapes and sugar respectively. Angola, DRC, Malawi and Zambia enjoy the LDCs status and can still trade with the EU under the EBA duty-free and quota free. South Africa can still trade under the Trade and Development Cooperation Agreement (TDCA) signed in 1999.

Scepticism of the EPA

Judging from the previous experience that southern African countries have had with economic liberalisation programs such as the structural adjustments (SAPs) implemented in the late 1980s and early 1990s, African states are sceptical about the agreement, hence the emergence of the contentious issues. They signed because of immense pressure from the European Commission (EC).

Most favoured nation

The Most Favoured Nation is one of the contentious issues included in the agreement at the insistence of the European Union (EU). It means that any trade or investment concession that a country grants to another trading partner enjoying more than one percent of world merchandise is automatically extended to the EU. All the countries in southern Africa have established good relations with BRICS countries (Brazil, Russia, India and South Africa) and found it difficult to accept a deal that compels them to extend to EU concessions that they had chosen to make. Therefore, EPA does not promote their best interests. In practice it levels the playing field for all foreign investors. This was viewed as a defence mechanism for European interests against the onslaught of the BRICS countries.

National treatment

The national treatment clause does not allow discrimination between foreign and domestic investors. Both should be afforded equal treatment. National Treatment (NT) entails providing same treatment to both domestic and foreign players without any form of discrimination. Governments are prohibited from offering tenders for government procurement to exclusively national investors even if it might be their policy to encourage domestic industrialisation. It is one of the basic reasons why they had imposed export taxes. It is already a foregone conclusion that domestic suppliers cannot compete favourably with their EU counterparts. The result is destruction or scaling down of domestic industrial activities (contraction of manufacturing) with the accompanying loss of jobs. In both cased i.e. MFN and NT host states policy space is severely restricted.

Removal of export taxes

The EU is calling for the removal of export taxes on raw materials. However, export taxes were used historically as a development trade tool to discourage exports of raw materials and incentivise domestic industry growth by availing it cheap and adequate raw materials as well as raising financial resources for other essential development needs such as provision of public health and education services. It also acts as a protective measure for domestic industries from foreign competition.

Agricultural subsidies and market access

With regard to trade in agriculture, it is practically impossible for southern African countries to compete with their European counterparts that enjoy domestic support and export subsidies and need to be protected. Hence the tariff phase-down is a threat that will wipe out domestic agricultural production particularly by small-scale farmers. Already some European countries have been dumping foreign products on the African market and ruining the domestic producers. Most of them do not have legal safeguard measures such as the special safeguard mechanism (SSM) that can legally be used to regulate imports and protect domestic producers. Furthermore agricultural export commodity producers become uncompetitive on the European market and face the hindrance of SPSS and TBTs measures due to supply side constraints. This has become the case with cotton growers in southern Africa whose production has largely been abandoned.

Development assistance

On the accessing EDF by ACP, it was noted that the funds will not be available for ACP first due to the EU changing its goal posts through its bureaucratic procedures. In any case by 2015, funds to Africa from the EU will be reduced as they will be diverted to address critical issues such as terrorism and Ebola. The European Union itself has slipped into economic deflation. African states need to be self reliant and pull its resources ( natural resources) in order to strengthen its industries. Promoting inter regional trade was seen as essential within the SADC and COMESA markets.

Intellectual property rights

The strict enforcement of intellectual property rights has hit the pharmaceutical industries hard through the discouragement of the manufacture of cheap generic drugs that were accessible to the generality of the ordinary people. Consequently, medical care has risen sharply beyond the reach of the majority. Most of the drugs are now imported.

Dispute Settlement Mechanism

Any violation of the above clauses empowers a foreign investor to sue a host state at the World Bank International Centre for the Settlement of Investment Disputes (ICSID). They can sue even for loss of potential future profit. In all the recorded cases the foreign investors win at the expense of host states. The ICSID provides almost 100% protections against possible expropriation by the host state. These investments are guaranteed by the WB.

EPA Implementation Challenges

For those countries that have signed and ratified the interim EPAS there are challenges to implementation. These challenges include;

a. rules of origin given the cumulation issue  and COMESA Common External Tariff (CET) not operational

b. difficult economic conditions for some countries such as Zimbabwe, tariff phase down challenges

c. EU’s domestic support and export subsidies to its agriculture sector- too competitive for ACP products to enter EU market and no commitments to reduce this support

d. SPS (sanitary phyto-sanitary) and TBT (technical barriers to trade) measures by EU makes it difficult to access EU market especially in agriculture

e. No binding commitment on development, no provision of predictable additional resources to address challenges and build capacity

f. Supply side constraints –industrial development is slow

g. Erosion of preferential market access – EU negotiating other FTAs with India, ASEAN, etc. African countries also negotiating regional pacts such as the TFTA to be established in 2014 and the confidential FTA in 2017

h. The coming on board of the BRICS bloc (Brazil, Russia, India and China) -China has become an important trading partner for Africa and has potential to change direction of trade for some countries

Conclusion

The Zimbabwe government has formed an inclusive EPA committee comprising, both public and private sectors as well as the civil society and SEATINI was invited and is now a member of that committee. Its brief is to spearhead and make policy recommendations for the implementation of the interim EPA. SEATINI welcomed the invitation as it would provide it with first hand information on the challenges to EPA implementation.
African countries should have consolidated the gains of regional integration before negotiating the EPAs. It is quite evident that ACP governments are put under pressure to sign the EPAs by the EU against their own interests (e.g. Namibian case which signed the interim EPA under protest). In most cases within our countries there is a small powerful export-oriented lobby group that will advocate for the signing of EPAs so that their business interests are not disrupted, e.g. the tobacco industry in Zimbabwe, beef producers in Botswana, table grapes producers in Namibia and sugar producers in Swaziland. This is done despite the harmful effects of the agreement to the wider and less powerful economic sectors employing the majority of the population.

Recommendations

  • Africa needs to build its own capacity to add value to its products before exporting to the EU than continuing to just export unprocessed raw materials. Furthermore, the quality of the existing products needs to be improved.
  • There is need to increase allocation and release of additional financial resources to meet developmental cooperation which is the pillar of the EPAs especially to address supply side constraints such as infrastructure.
  • Africa should not lose sight of regional integrating efforts that have seen several missed deadlines because of the EPAs e.g. SADC and Common Market for Eastern and Southern Africa (COMESA) Customs Union, Tripartite Free trade Agreement (TFTA) in order to strengthen regional development.
  • There should be a delay in the implementation of the EPAs as more time for implementation should be given for countries that are facing economic difficulties beyond the 15years agreed. This allows time to adjust the local industries as well as build enough capacity for manufacturers.

References

  1. AllAfrica, “The Endgame of the EU-SADC EPA Negotiations- Southern Africa” at http://allafrica.com/stories/201404220514.html
  2. SEATINI, "EPA Update Roundtable Stakeholders Meeting Report", 3 December, 2014, Crowne Plaza Hotel, Harare.
  3. Tralac, “Conclusion of the Economic Partnership Agreement” at http://www.tralac.org/news/article/5900-conclusion-of-the-economicpartnership-agreement.html
  4. Tralac, “The EU’s EPA negotiations with the Southern African Development Community (SADC)”: July 2014 update at http://www.tralac.org/news/article/5907-the-eu-s-epa-negotiations-withthe-southern-african-development-community-sadc-july-2014update.html
  5. Wentzel Webber, “The grim EPA – where do we stand?” posted in Legal Articles on 17th December 2014 at http://thewritecandidate.co

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