The past five years have seen the European Union (EU) and its former colonies in the African, Caribbean, and Pacific (ACP) group locking horns in potentially far-reaching trade and development negotiations. Called “Economic Partnership Agreements” (EPAs), these are ordered in a series of regional processes with the EU playing “hub” to six ACP regional “spokes”, four of which are in Africa. EPAs are intended to replace longstanding EU tariff preferences for the ACP with reciprocal trade agreements.
It is important to understand why EPAs were launched. World Trade Organization (WTO) rules ostensibly do not permit market access discrimination in favour of countries grouped on the basis of historical or geographical relationships, beyond those enshrined in the original General Agreement on Tariffs and Trade (1947). Historically, countries seeking to extend preferential access to their market for exclusive groupings of developing countries were required to seek a waiver from WTO rules. The EU was obliged to do this for its ACP preferential regime, owing to it being on the wrong end of WTO dispute settlement panels in the long-running “bananas dispute”. WTO members granted the EU its “waiver” on November 14, 2001 after a difficult negotiation in which the EU had to placate Latin American banana and Southeast Asian canned tuna producers.1 Recently Ecuador and the United States independently requested establishment of WTO dispute settlement panels to review the EU’s revised banana regime, arguing that it continues to discriminate against non-ACP exporters.
The clock stands at five minutes to midnight: the waiver expires at the end of 2007. So by January 2008, EPAs must be in place or the current preferential access regime, known as the Cotonou Partnership Agreement, will be vulnerable to more challenges. This is of great consequence for Africa, reliant as it is on exports of various commodities to the EU under the Cotonou Agreement. It is particularly urgent for African states that are not least-developed countries (LDC) to conclude EPAs. The programme for LDCs - the EU’s “Everything but Arms” (EBA) preference arrangement – is permitted under WTO rules as it discriminates on the basis of an accepted development category.
What is on the agenda? Just about everything comprising a modern reciprocal trade negotiation: trade in goods (agricultural and industrial); services; intellectual property rights; customs regimes; government procurement; investment regulations and protections; and competition policy. This agenda’s breadth is one of the most significant sources of tension, aggravated by the fact that developing countries rejected chunks of it (the Singapore issues2) in the WTO. The other source is the future of the EU’s development assistance package for the ACP, and the extent to which it will be linked with EPA outcomes.
Many African policy-makers, civil society representatives, and western development-focused NGOs argue that the EPA agenda is too broad and intrusive for African countries. Some go further in arguing that the trade liberalisation implicit in it would be harmful to African development. I am in favour of a broad and liberalising agenda under certain conditions. The economics at play convincingly point to the need for it. These consist of well-known African development challenges on which there is a consensus in development circles. Broadly, they can be categorised into two agendas: supply-side constraints, and trade constraints.
The former consists of a host of infrastructure needs: physical, institutional, financial, and technological. Solving them will take time, direct investment (especially foreign), appropriate regulations and implementation thereof, and money. The same logic applies to the litany of constraints traders encounter in doing business on, with, or from the continent. The two agendas are intimately connected and need to be tackled comprehensively. The EU could be playing a stronger role in addressing this agenda through greater direct investment; and more focused and responsive development assistance.
This needs to be matched by import liberalisation on the African side as Europe produces a host of productivity-enhancing goods required by African producers and consumers on which it makes no economic sense to impose duties. That applies equally to least developed countries (LDCs), of which 33 are in Africa, even though they are not obliged to open their markets to EU exports as they enjoy duty-free quota-free access to EU markets under EBA. Furthermore, many of them are negotiating as part of economic communities containing both LDCs and non-LDCs; to maintain the integrity of these communities, LDCs are obliged to reciprocate.3 But many African states’ depend on import tariffs for state revenues; therefore tariff liberalisation packages must be carefully designed so they don’t undermine what has been achieved through fiscal stabilisation and debt reduction packages.
Beyond historical relationships and the “feel good” factor, what is required to convince European investors and governments to increase their African footprint? Specifically, can a business case be made for significantly increased European FDI into the continent, beyond resource extraction? In my view, it hinges on regulatory upgrading and economic liberalisation in African states. Therefore, the broad EPA agenda is appropriately framed.
Unfortunately there is no guarantee that FDI will flow to Africa if these conditions are met, because markets are small; they are necessary, if not sufficient. Furthermore, the economics and content issues must be related to the capacity of African states both to negotiate EPAs but more importantly to implement negotiated outcomes. This should determine the overall scope of negotiations and commitments, and the manner in which they are sequenced. Unfortunately, the continent suffers from a generalised political and technical crisis of the state. This, and the continent’s aid-dependency means that substantial “aid for trade”, targeted at adoption of regulations and supporting institutions, will be necessary for a long time to come. Efforts to promote greater efficacy of aid disbursements must continue, albeit with the long-term objective of phasing out aid flows altogether.
Metaphorically-speaking, African EPAs should be Toyotas, rather than Lexus’s. And therein lies the rub(ber): the EU apparently insists on a Lexus in the face of widespread African opposition, whilst resisting the aid for a trade agenda.4 Aggravating this is a pervasive and apparently self-serving discourse within which EC negotiators propound what African countries need (which may well be correct), and how the EU is best placed to deliver it. This does not go down well in Africa where colonial memories bubble close to the surface.5 Compounding this negative negotiating dynamic is the fact that the EU holds almost all the cards: market power (access to the common market); financial power (development assistance); and negotiating muscle.
Whether consciously or not, the EU is undermining the spirit of EPA negotiations. In South Africa, we learned the hard way that the underlying spirit infusing negotiations is vitally important for the overall health of the endeavour. It is the fuel that determines whether the vehicle will reach its destination, stall, or combust. And as the EU knows too well, neither of the latter two is in Africa’s interests.
So it is scarcely surprising that Africa is embracing China with such enthusiasm. The Chinese state does not lecture African leaders on their development priorities. It does not lecture them (nor could it) on democracy and good governance (and unfortunately may promote the reverse). It provides pots of money freely and quickly, albeit opaquely. And its state-owned companies have netted a treasure trove of African resources as they venture where Europeans fear to tread. Last year’s China-Africa summit in Beijing, in which African leaders literally queued up to greet Chinese President Hu Jintao in a nauseating display of fealty, rammed the message home to Europe’s political elite.
So at the end of this year, notwithstanding Mr. Mugabe’s likely baleful presence, Europe will host African leaders in the first Euro-Africa summit in several years. Clearly Europe’s diplomatic leadership has recognised the threat China poses to their long-established dominance of African commodity supplies. If they wish to match this on the trade and aid fronts, they would be well-advised to pay closer attention to the EPA negotiations.
The goods agenda is clearly the most critical, owing to the imminent expiration of the WTO waiver. The most desirable solution amongst a range of difficult options6 is a combination of the EU not renewing the waiver for a limited period (“living in sin” in the WTO), whilst graduating those countries (non-LDC states) that do not benefit from access to EBA preferences to the EU’s GSP-plus scheme, and simultaneously reconfiguring the scheme to take account of their export interests.7 Crucially, this must include more liberal EU rules of origin to ensure actual trade takes place. This approach would minimise impending trade disruptions in non-LDCs associated with the waiver’s expiration, but would not obviate the need to negotiate long-term contractual arrangements (i.e. EPAs), since the regulatory agenda would not have been addressed.
Unfortunately there does not seem to be a political consensus in the European Union to pursue this path.8 Rather, the Commission seems to prefer maintaining pressure on its African partners in order to secure its ambitious agenda. Hopefully EU mercantilism will not stand in the way of an outcome supportive to African development needs.
This is an abridged version of a paper prepared for the European Centre for International Political Economy, available at www.ecipe.org. P Draper (2007) “EU-Africa trade relations: The Political Economy of Economic Partnership Agreements”, Jan Tumlir Policy Essay no2, ECIPE, June 2007.
1 Interestingly, the WTO Appellate Body’s ruling, in respect of India’s 2002 challenge to the EU’s GSP-plus scheme, provides legal cover for discriminating amongst groups of developing countries, provided objective criteria are used and no countries qualifying under those criteria are excluded. See United Nations Conference on Trade and Development (2005), UNCTAD GSP Newsletter, 6.
2 Government procurement, investment, and competition policy.
3 See P Draper op cit PP17-20 for a skeptical view concerning the efficacy of African regional economic integration schemes and the potential for EPAs to undermine those that function reasonably well.
4 In their defence, EC officials are constrained by their fiduciary duties to European taxpayers, and notwithstanding the much ballyhooed (and observed in the breach) G8 “doubling aid to Africa” agenda, there are still legitimate concerns about the efficacy of existing aid, never mind increased flows.
5 A recent case in point is the reaction of African Union Chief Commissioner Konare, to French President Sarkozy’s remarks on the latter’s recent African tour in which he said: “One cannot blame everything on colonisation — the corruption, the dictators, the genocide; that is not colonisation,”. Konare retorted: “Africa has been left behind largely because of its colonialism and that is a reality I am sure the president is aware of and no one can deny it”. Business Day, 31 July, 2007.
6 See P Draper op cit PP10-12 for an analysis of the options the EU confronts.
7 This is the subject of a recent Oxfam report. See Oxfam 2007, “A Matter of Political Will”, 25 April. It would require such states to sign up to a host of good governance conventions and meet the requirement of “vulnerability” in order to qualify for GSP plus access. Oxfam asserts that most non-LDC states could meet these tests. The real problem lays on the EU side, where sensitive commodity protocols would have to be revised and access expanded to qualifying non-ACP states. Also see Overseas Development Institute (2007), “The Costs to the ACP of Exporting to the EU under the GSP”, Final Report, March 2007.
8 Hence the title of the Oxfam report.