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The African Economic Partnership Agreements - what the details reveal

Written by Chris Stevens, Jane Kennan

By Chris Stevens, Mareike Meyn and Jane Kennan

We have been strangely silent in commenting on the Economic Partnership Agreements (EPAs) initialled last December by 18 African, 15 Cariforum and 2 Pacific states – and with good reason. We have been busy working with the European Centre for Development Policy Management to analyse all the African interim EPAs. This comparative analysis, which is now complete formed the basis of ODI’s contribution to a meeting at the UK House of Commons on 2 April.

The report has been described as 'encyclopaedic' – another way of saying 'mind bogglingly complex'. If so, it reflects the character of the EPAs themselves. Absorbing all the detail, and identifying priorities for further in-depth country- and issue-specific work, will take time, but we have pinpointed some general themes. These are summarised here and in the latest Trade Negotiations Insight and will be covered more fully in a forthcoming ODI Briefing Paper.

What are the concerns?
Concerns, most of them building up over the ten-year gestation period of the EPAs, reached a peak in the last quarter of 2007. ODI analysed every text from the six EPA negotiating regions in early November 2007, finding that the key chapters on future trade relations between the African, Caribbean and Pacific Group of States (ACP) and the European Union were still blank and major parts of the EPA remained highly disputed. The concerns raised in various studies highlighted the negative implications for African regional integration processes and the loss of ‘policy space’ for ACP countries that liberalise too fast and too extensively.

Our analysis of the African commitments in the Interim EPAs shows that some of these concerns were well founded. In other cases much will depend on how agreements are implemented.

Has the EU imposed new import taxes on African exports? Yes!
Ten of the 15 African non-least developed states and 8 of the 33 least developed countries (LDCs) have initialled interim EPAs. The distinction (between LDCs and non-LDCs is important as the former have an adequate alternative trade regime for their exports to the EU under the Everything But Arms (EBA) regime. Of the 30 African states that did not initial, only three have been exposed to a sharp change in the treatment of their exports by EU customs from 1 January 2008: Republic of Congo, Gabon and Nigeria. The remainder are mainly LDCs (25 states), plus Cape Verde which is no longer least developed, but will continue to receive EBA trade preferences for three years, and South Africa, which is party to the Trade Development and Cooperation Agreement with the EU. The impact of the EU’s withdrawal of highly preferential access to its market has been limited by the fact that these three countries currently export few sensitive products – but they all export some.

The biggest risk is that the interim EPAs with Botswana, Lesotho, Namibia and Swaziland will fall apart, resulting in crippling tariffs on a significant share of their exports to the EU. Swaziland is the second most vulnerable ACP country in terms of the share of its exports to the EU that would be adversely affected. Although all four states have initialled an interim EPA it is unenforceable in law in the Southern African Customs Union (SACU) unless South Africa also agrees to the tariff changes, either by autonomous decision or by initialling the EPA. The situation is unstable and everything could come toppling down through actions either by the EU (recognising that the EPAs are not legally binding) or South Africa.

Are the interim EPAs a mess? Yes!
The interim EPAs were finalised in a rush to beat the end 2007 deadline – and it shows. The East African Community (EAC) EPA, for example, fails to indicate if or when some 952 goods (accounting for 40% of the region’s imports from the EU in 2004-6) will be liberalised, or whether they will be excluded from liberalisation. All of the African EPAs differ and in only one region – EAC – do all countries have the same commitments. At the other extreme is West Africa, where the only two countries to have initialled have not only accepted different liberalisation commitments but also significantly different EPA texts.

The picture that emerges is entirely consistent with the hypothesis that countries ended up with deals that reflect their negotiating skills. Côte d’Ivoire, for example, will have removed all tariffs on 60% of its imports from the EU two years before Kenya even begins to start reducing its tariffs as part of the EPA.

What this means is that the EU needs to be willing to adjust terms that have been drafted too rapidly, addressing any clear errors and reviewing provisions that may become obstacles to development.

Do the EPAs create a barrier to regional integration? Yes and no…
One of the most serious concerns is that the EPAs, as they currently stand, may present obstacles to regional integration. Only in the EAC have all members joined the EPA and accepted identical liberalisation schedules. If these are implemented fully and in a timely way economic integration will have been reinforced.

However, in Central and West Africa, the main challenge for regional integration is that most countries have not initialled an EPA. Countries that do not belong to an EPA will not reduce their tariffs towards the EU, maximising the incompatibility between their trade regimes and those of Cameroon, Côte d’Ivoire and Ghana. Because so few countries have initialled texts, any further regional negotiations must revisit what has been agreed already – a view accepted by the European Commission and reiterated by Karl Falkenberg, Deputy Director General and DG Trade of the European Commission at the 2 April conference in London.

It is the integration of Eastern and Southern Africa (ESA) and the Southern Africa Development Community sub-group (SADC-minus) that may be most seriously affected as there are major differences in liberalisation schedules and exclusion baskets of the five countries that have initialled interim EPAs. Of the goods being excluded by ESA not one single item is in the exclusion basket of all five countries and over 75% are being excluded by just one. Comparing Mozambique’s schedules to those jointly agreed by Botswana, Lesotho, Namibia and Swaziland, just 20% of the items are being excluded by both parties.

What about the ‘MFN clause’ and other contentious issues?
Judging the potential impact of provisions in the main texts of these agreements, such as the ‘MFN clause’ (that requires each party to extend to the others any more favourable treatment they subsequently agree in another regional trade agreement) and the prohibition on food export bans in all EPAs except EAC, depends on how they are interpreted and enforced as well as on the analyst’s political and economic perspective.

While each of these provisions requires a blog to itself, one general observation is that the African EPAs are unusually restrictive in some (but not all) respects. The EU-South Africa and EU–Mexico FTA are less restrictive than any of the EPAs in several respects: they contain no MFN clause, standstill clause, or time restrictions for pre-emptive safeguards, and provide no sanctions in case of a lack of administrative cooperation.

Is there adequate aid provision? No!
All the EPAs (except the one with the EAC) have comprehensive but wholly non-binding provisions for development cooperation, mentioned in each and every chapter as well as in a section on development cooperation.

Yet the African ACP states will lose significant tariff revenue – in some cases very quickly – and financial support to offset this is essential. Additional support is needed for domestic producers to adjust to increased competition from imports and to develop new opportunities for exports as a result of duty-free, quota-free access (DFQF). DFQF will bring some immediate and valuable gains but its benefits are eroding quickly and offer only a short window of opportunity for ACP countries to transform their economies.

As DFQF is the centrepiece of the EU’s commitment to EPAs so far, it would be sensible to ensure that there is also adequate aid provision to remove obstacles to production and export, such as poor infrastructure and other physical or institutional deficiencies.

Stimulating debate
While absorbing the detail and identifying priorities for further esearch will take many hands and much time, there is – at last – information to share. The EPA debate has been limited because everything was possible, yet nothing was certain. Now we have some areas of certainty, especially over the specific tariff reduction commitments. We will move further and faster in absorbing the implications if we share information.

Among the most pressing questions are:

  1. How can the existing interim EPAs (which are a fact of life unless ACP countries withdraw) be merged into the regional EPAs that support regional integration processes in Africa?
  2. What will happen to the Southern African Development Community and the Common Market for Eastern and Southern Africa as a result of EPAs?
  3. How can EU development aid be effectively linked to EPAs?