Manoeuvering At the Margins of an EPA Deadlock - Will the EAC Bow Down to EU
Pressure?
By Fredrick Njehu
Tuesday, October 28, 2014
analysis
When the African, Caribbean and Pacific (ACP) group of states and the
European Union (EU) signed the Cotonou Partnership Agreement on 23 June
2000, both parties affirmed their commitment to work together towards the
achievement of the objectives of poverty reduction, sustainable development
and the gradual integration of the ACP countries into the world economy.
In their elaborate preamble, both parties further reaffirm their willingness
to revitalise their special relationship and to implement a comprehensive
and integrated approach for a strengthened partnership based on political
dialogue, development cooperation and economic and trade relations.
Over the last decade or so, there has been pervasive condemnation by
smallholder farmers, civil society organisations, parliamentarians, media
and religious group on the design and structure of the Economic Partnership
Agreement (EPA) between the East African Community (EAC) and the EU.
Smallholder farmers argue that negotiators and the private sector have
focused extensively on commercial interests without focusing on major
aspects of labour, standards, human rights, environment and climate change
as well as development as it was envisaged by the Cotonou Partnerships
Agreement.
Guided by the principles of the Cotonou Partnerships Agreement, EAC went
into these negotiations with a view to integrating themselves gainfully into
the global economy, sustaining their economic development and reducing
poverty with an eventual intention of exterminating it later.
By accelerating the already existing economic integration, the EAC hoped to
remove barriers to trade in the region and build bigger markets as well as
inspire the necessary investments and productivity expansions that will
drive development.
EPA concluded after a decade of sensitive negotiations
The EAC-EU EPA was finally initialed on 14 October 2014. Over the last
decade, the EAC has been very busy pursuing regional integration through
consolidating both the common market and the customs union. The EU has been
through the same journey before and is quite aware of this.
The EAC region has of recent past experienced concerted diplomatic tactics
from the EU pushing for a signature of the interim EAC-EU EPA concluded at
the end of 2007. The decade-long negotiations can be attributed to a failure
to agree on outstanding issues between the negotiating parties.
The outstanding issues among the negotiating partners were genuine and
should have been treated as such. Issuance of deadlines to EAC partner
states through withdrawal of the market access offer to the EU market for
Kenya from 1 October 2014 did not lead to a timely conclusion of an
agreement, but only spurred tensions between the EU and the EAC.
The areas that remained highly contentious until the end included the levels
of liberalisation the EU demands; export taxes; the MFN clause; infant
industry and safeguards; community levies; development cooperation/aid and
the issue of whether there are new funds or only a recycling of existing
funds etc.
(i) Market access
By 2033, the EAC has committed to liberalise up to 82.6% of all its imports
from the EU. In as much as this has been agreed, the EAC feels that the
level of liberalisation is high with a likelihood of having negative
implications on livelihoods, employment, shrinking of the policy space, and
on our efforts to industrialise and integrate meaningfully into the global
economy.
This extensive liberalisation is based on the argument that the region needs
cheap intermediate goods to be used as inputs in the production processes
thus enhancing competitiveness; and finished products whose availability at
lower costs is deemed to have consumer welfare-enhancing effects.
However, permanent removal of tariffs on these products makes it extremely
difficult for the EAC to produce them in future thus curtailing the
industrialisation process and relegating the region to the perpetual
production of raw materials.
(ii) Duties and taxes on exports
Under this clause, the EU would disallow the EAC partner states to impose
new export taxes or increase existing ones unless they can justify special
needs with regard to revenue, food security, or environmental protection.
Export taxes are an essential development tool that can be used in promoting
industrialisation and employment creation, and in creating incentives to add
value to local products rather than exporting them in their raw form.
For the EAC, export taxes remain very critical after the discovery of oil,
natural gas and other minerals. It is worth noting that the EU disciplines
in EPAs on export taxes emanates from its Raw Material Initiative which
states that 'Access to primary and secondary raw materials should become a
priority in EU trade and regulatory policy.
The EU should promote new rules and agreements on sustainable access to raw
materials where necessary, and ensure compliance with international
commitments at multilateral and at bilateral level, including WTO accession
negotiations, Free Trade Agreements, regulatory dialogue and
non-preferential agreements'. However, raw materials security for the EU
should not be at the cost of the EAC's development ambitions.
(iii) Economic and development cooperation
The main outstanding issue under this chapter was how to treat the EAC EPA
Development Matrix. The Development Matrix indicates costed priority
projects to address the supply side constraints in the region, the envisaged
adjustment costs and other trade related infrastructure so as to enable the
region to take full advantage of the market access granted by the EU.
The EAC position was that the Development Matrix should be part and parcel
of the EPA agreement. However, the EU has repeatedly stated that it will
contribute to the EPA under the European Development Fund (EDF), Aid for
Trade (AfT) and the EU budget.
These funds are obviously insufficient. The EDF is not only already
committed with only relatively small funds earmarked to support capacity
constraints, but it is also cumbersome to access.
In addition, AfT and the EU budget are still a nebulous concept, lacking
specificity on the exact amounts available. It is argued that the revenue
losses and the adjustment costs will be offset from the increase in trade
arising from the increased market access under the EPA. However, the
benefits accruing from the EPA are elusive yet the obligations are certain
and legally binding.
(iv) More favorable treatment (MFN) resulting from economic integration
agreements
Under this provision, the EAC is obliged to extend to the EU any more
favorable treatment resulting from a preferential trade agreement with a
major trading economy/country.
This circumscribes EAC's external trade relations and will undermine the
prospects of South-South trade which the EAC is aspiring to promote. In
addition, the clause is contrary to the spirit of the World Trade
Organization (WTO) Enabling clause that promotes special and differential
treatment for developing countries and South-South cooperation.
(v) Agriculture
The most contentious issues under this chapter were the agricultural
subsidies provided in the EU; and the weak safeguards provided for in the
EPAs. The EU has rejected for years the discussion of its subsidies in the
EPAs on the grounds that this is a WTO issue.
However, the EAC argued that the issue of subsidies has not been addressed
in the WTO as developed countries, including the EU have failed to live up
to what was agreed during the WTO Hong Kong Ministerial to eliminate export
and trade distorting subsidies by 2013.
There is ample evidence to show that agricultural subsidies in the EU have
led to dumping of agricultural products with far-reaching implications on
Africa's agricultural production and agro-processing. It is a "conventional"
example of a destruction of the extraterritorial obligation of governments
to respect the right to food.
The decision at last by the EU to remove agricultural export subsidies in
the context of the EPAs, announced earlier this year, is good news. But may
not cater for all distorting agricultural subsidies in Europe, to the
detriment of EPA countries.
How bad is losing EU market preference versus how bad is the agreement to be
ratified?
A study by South Center shows that the EAC is more competitive than the EU
on only 10% of tariff lines. As a consequence, this would mean that the
majority of products that are currently produced will be put at risk due to
tariff elimination in the EPA, and the EU being more competitive, producers
will lose market share to EU imports as well in home markets and other EAC
markets.
The study further shows that 51.3% of tariff lines/products where there is
current local production will be put at risk, perhaps even damaged (1,100
tariff lines out of 2,144) as these are lines where liberalisation will take
place and the EU is more competitive on these lines than the EAC.
Taking into account potential future production (tariff lines where there is
no current production), 2,366 tariff lines will be liberalised making the
possibility of having future production in these products questionable. In
total, 68.8% of all tariff lines or products could be put at risk (current
and future production).
Further, a short list of sectors where there is current production which
could be jeopardised and tariff lines where there is at present regional
trade which could be compromised by the EPA as the EU is more competitive
includes: processed oil products; chemical products for agriculture;
commodity chemicals; medicines, vaccines and antibiotics; intermediate
industrial products; final industrial products; vehicle industry;
agricultural products; and books, brochures and other printed material.
What next for EU-EAC EPA Negotiations?
The 1 October 2014 date had a strong message. It was either the EAC signs
and begins the ratification process of its interim EPA concluded in 2007 (no
longer an option for EAC) or EAC countries conclude a new regional EPA if
they wish to continue enjoying market access to the EU.
Otherwise, Burundi, Rwanda, Uganda and Tanzania have to rely on the
Everything But Arms trade regime where they have duty free quota free market
access to the EU, while Kenya has to trade under the less preferential EU
generalised system of preferences (GSP).
The EAC has been flexible in its market access offer to the EU given the
asymmetrical nature of the negotiating parties. But EPAs are only a free
trade area, with no additional financial package attached to it to address
fiscal challenges EPAs could bring, and a limited focus on development.
The deadline issued was not the EAC's but the EU's and the talks should have
been based on mutual 'how to conclude the talks'. In order to have a
'win-win' outcome of negotiations, then the EU should have been willing to
support the development pillar that addresses supply side constraints. In
addition, special and differential treatment should have been part and
parcel of the developmental EPA.
EAC negotiators were right to keep pushing for an extension of the EU
deadline under the EU Market Access Regulation 1528/2007 to such a period
where the negotiations can be concluded or an alternative trade arrangement
could be initiated. The EU should have shown flexibility and not penalise
EAC countries and Kenya in particular, which fell back to GSP from 1st
October 2014, though it can now be reinstated with the EAC-EU EPA deal
reached on 14 October 2014.
To save on the back and forth, the focus of the talks should have been on
development. This development should be sustainable and defined by the EAC
and agreed by both negotiating partners. In the current trade diplomacy,
trade is not only about tariffs, it is about regulation, standards and
norms, licensing practices, domestic taxes and investment.
More importantly, trade is not only about market access, it is about human
rights, corporate accountability, and environment and labour rights. So, it
is crucial that we look at the future trade relationship between Africa and
Europe in a broader yet detailed context.
Fredrick Njehu is Program Advisor-Trade Justice at Kenya Human Rights
Commission (KHRC). This article was published in
<
http://ecdpm.org/great-insights/manoeuvering-margins-epa-deadlock-will-eac-
bow-eu-pressure/> ECDPM's GREAT insights Volume 3, Issue 9 (October/November
2014).
Received on Tue Oct 28 2014 - 16:40:50 EDT