Trade traps Why EU-ACP Economic Partnership Agreements pose a

40 Pages·2004·0.75 MB·English

Trade traps
Why EU-ACP Economic Partnership Agreements
pose a threat to Africa’s development
www.actionaid.org
EPA zones in Africa:
Southern African Central Africa (CEMAC) West Africa (ECOWAS) Eastern and Southern Africa
Development Community (ESA)
(SADC) Cameroon, Central African Benin, Burkina Faso,
Republic, Chad, Congo (Republic Cape Verde, The Gambia, Burundi, Comoros, Congo
Angola, Botswana, Lesotho, of), Equatorial Guinea, Gabon, Ghana, Guinea, Guinea-Bissau, (Democratic Republic of),
Mozambique, Namibia, São Tome and Principe Côte d’Ivoire, Liberia, Mali, Djibouti, Eritrea, Ethiopia, Kenya,
Swaziland, Tanzania Mauritania, Niger, Nigeria, Malawi, Mauritius, Madagascar,
Senegal, Sierra Leone, Togo Rwanda, Seychelles, Sudan,
Uganda, Zambia, Zimbabwe
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39 fighting poverty together
Trade traps Why EU-ACPEconomic Partnership Agreements pose a threatto Africa’s development
Contents
Acronyms and abbreviations
Executive summary
1 Introduction
2 EPAs: the European Commission’s main arguments
3 EPAs: the impact of reciprocity on development and poverty reduction in Africa
4 EPAs: the impact on African government revenues and public services
5 EPAs: investment and other ‘Singapore issues’
6 EPAs: the impact on African regional integration
7 EPAs: the negotiations are flawed
8 EPAs: the alternatives
9 Conclusions and recommendations
References
fighting poverty together 1
www.actionaid.org
Acronyms and abbreviations
ACP Africa, Caribbean and Pacific group ofcountries IMF International Monetary Fund
ADB African DevelopmentBank IPA investmentpromotion agency
AU African Union KACFC Kenya Agro-Chemicals and Food Company
BIT Bilateral InvestmentTreaty MDG Millennium DevelopmentGoal
CAP Common Agricultural Policy MIGA Multilateral InvestmentGuarantee Agency
CEMAC Central African Economic and Monetary Community NAFTA North American Free Trade Agreement
COMESA Common MarketforEastern and Southern Africa NIC Newly Industrialising Countries
CPA Cotonou Partnership Agreement OECD Organisation forEconomic Co-operation and
Development
DRC Democratic Republic ofCongo
PTA Preferential Trade Area forEastern and Southern
EAC EastAfrican Community
Africa
EBA Everything ButArms initiative
RTA Regional Trade Agreement
EC European Commission
SADC Southern African DevelopmentCommunity
ECOWAS Economic Community ofWestAfrican States
SADCC Southern African DevelopmentCo-ordination
EPA Economic Partnership Agreement Conference
ESA Eastern and Southern Africa (Economic Partnership SAP Structural AdjustmentProgramme
Agreementgroup)
SDT Special and Differential Treatment
EU European Union
TDCA Trade, Developmentand Co-operation Agreement
FAO Food and Agriculture Organization (United Nations) (EU-South Africa)
FDI Foreign DirectInvestment UNCTAD United Nations Conference on Trade and
FTA Free Trade Agreement Development
GATS General Agreementon Trade in Services UNDP United Nations DevelopmentProgramme
GATT General Agreementon Tariffs and Trade UNECA United Nations Economic Commission forAfrica
GDP Gross Domestic Product VAT Value Added Tax
ICOUR Irrigation Company ofthe UpperEastRegion WAEMU WestAfrican Economic Monetary Union
(Ghana) WTO World Trade Organization
ICSID International Centre forthe SettlementofDisputes
2 fighting poverty together
Trade traps Why EU-ACPEconomic Partnership Agreements pose a threatto Africa’s development
Executive summary
Proposed Economic Partnership The EU is using the EPA negotiations to push through
agreements on investment, governmentprocurement
Agreements (EPAs) between the
and competition policy thatdeveloping countries
European Union and African, Caribbean
rejected atWTO negotiations in 2003. These
and Pacific (ACP) countries constitute a agreements would reduce the policy space available to
African governments.
major threat to poverty reduction and
development. They will: EPAs threaten regional integration, a central plankof
African developmentstrategy since political
independence. This strategy has soughtto ameliorate
n constructnew and unfairtrade rules by creating free
the economic problems created by the colonial
trade areas between the EU and regional groupings
fragmentation ofAfrica into many nation states with little
ofACPcountries
economic coherence. The EPAs configuration process
n reduce the policy space thatACPcountries need to has created new regional groupings thatare
develop theireconomies and eradicate poverty inconsistentwith, and undermine, existing African
economic and political blocs. Reducing regional
n lead to significantlosses in ACPfiscal revenues integration to trade liberalisation undermines the
broadersocio-economic and political objectives of
n lead to de-industrialisation in ACPcountries
existing bodies.
n undermine African regional integration ACPconcerns have been marginalised while the
European Commission has employed divide-and-rule
n grantEuropean corporations greaterrights over
tactics in the EPA negotiations. The European
African economies.
Commission ignored ACPconcerns during the first
phase ofthe negotiations and continues to meddle in
This reportchallenges the European Commission’s
internal ACPnegotiation processes underthe guise of
argumentthatfree trade EPAs are the only way to meet
capacity building.
WTO requirements and to integrate African countries
into the global economy. Developing countries have a There are viable alternatives to EPAs, such as extending
rightto special and differential treatmentunderWTO the Everything ButArms scheme to all ACPcountries or
rules: any new trade agreementbetween the EU and revising WTO rules to allow fortruly pro-poorand pro-
ACPcountries mustpreserve and expand this right. developmentEPAs.
New research by ActionAid in Ghana and Kenya refutes ActionAid calls on British and European governments
the European Commission’s argumentthatEPAs would to change the European Commission’s EPA negotiating
aid poverty reduction and promote sustainable mandate, and withdraw demands forreciprocal trade
development. On the contrary, reciprocal trade liberalisation and agreements on the ‘Singapore issues’.
liberalisation underEPAs would lead to a decline in Both EU and ACPcountries mustpush forthe reform of
manufacturing and agro-industrial development. Agro- WTO rules to allow forpro-poorand pro-development
processing industries, such as the Ghanaian tomato trade agreements between developing and developed
and Kenyan sugarindustries are particularly vulnerable. countries. The European Commission mustbegin an
Eliminating tariffs would create significantrevenue immediate examination ofall possible alternatives
losses fora typical sub-Saharan African government to EPAs.
leading to eithersevere cutbacks in public services or
increased taxes on poorpeople.
fighting poverty together 3
www.actionaid.org
1. Introduction
Three decades afterthe firstLomé convention setthe arrangementbetween them had to treatACPcountries
trading relationship between the European Union and differently. With the expiry ofthe Lomé preferences, the
African, Caribbean and Pacific (ACP) countries, new EU and ACPcountries signed a cooperation accord
economic partnership agreements (EPAs) are being known as the Cotonou Partnership Agreement(CPA) in
negotiated thatconstitute a majorthreatto poverty 2000, which provides forthe negotiations and
reduction efforts and the developmentprospects of establishmentofnew trade agreements between the
some ofthe world’s poorestcountries. EU and regional ACPgroupings by 1stJanuary 2008.
New research by ActionAid in Ghana and Kenya shows EPA negotiations are one setofa series ofbilateral
thatthe proposed EPAs would harm African negotiations taking place in parallel to the multilateral
industrialisation efforts by forcing fledging industries to WTO talks.5The growing influence ofdeveloping
compete with established European corporations. Lost countries atthe WTO, particularly oflargercountries
revenues from indiscriminate and premature trade such as China, India and Brazil, has made itmore
liberalisation would create a strain on government difficultforthe EU and US to dictate terms to the rest
finances and public services. EPA investment ofthe world.6 As a resultboth economic superpowers
agreements would restrictthe ability ofAfrican have increasingly focused on bilateral and regional
governments to pursue nationally prioritised economic trade negotiations in orderto secure new markets for
and social objectives. theirgoods and services and obtain concessions from
poorcountries thatwould be difficultto achieve at
Trade with the EU is very importantforAfrica. The EU
the WTO.
is a farmore importantmarketforAfrica than the US
orJapan.1 Forhistorical reasons, the EU is sub-Saharan EPAs are premised on the assumption that
Africa’s single largesttrading partner, receiving about indiscriminate trade liberalisation and market
31% ofAfrica’s exports and supplying 40% ofits deregulation are bestforachieving development. This
imports.2 model ofdevelopmentwas forced upon many
developing countries in the 1980s and 1990s through
Between 1975and 2000, trade between the EU and
policy conditions imposed by the World Bankand the
ACPcountries was governed by the Lomé conventions,3
IMF, with disastrous consequences.7 Underthis model,
which granted ACPcountries betteraccess to the EU
the numberofpeople living below the poverty line
marketthan otherdeveloping countries.4The
continued to rise ratherthan decline, with 1.2billion
preferences granted to ACPcountries underthese
people in the developing world living on less than
conventions were non-reciprocal: ACPcountries did not
US$1a day by 2000. In Africa, the numberincreased
have to extend similarorotherpreferences to the EU in
from 217million in 1987to 291million (46% ofthe total
return. This was based on the recognition that, because
population) in 2000.8
ofthe vastdifferences in economic development
between the EU and ACPcountries, any fairtrade
1 Stevens, C. and Kennan, J. (2004) ‘Comparative Study of Preferential Access Schemes forAfrica’, Report on a DFID-commissioned study, IDS: April 2004, p.17.
2 Hinkle, L. and Schiff, M. (2004) ‘Economic Partnership Agreements between Sub-Saharan Africa and the EU: a development perspective’, World Economy, Vol.27, Issue 9.
3 They remain in place undera WTO waiveruntil December2007when they must eitherbe replaced by anothertrade agreement orbe extended through anotherWTO waiver.
4 Guaranteed quotas and prices and/orduty free market access, in certain agricultural products, especially sugar, beef and bananas.
5 There are 6 EPA regions in total: 4forAfrica, 1forthe Caribbean, 1forthe Pacific.
6 Although rich countries still do theirbest to get theirway by using dirty tricks and underhand tactics. See ActionAid (2004) ‘Divide and Rule: the EU and US response to developing country
alliances at the WTO’.
7 On the failure of the ‘Washington Consensus’see, Kohsaka, A. (2004) New development strategies: Beyond the Washington Consensus, Palgrave, Macmillan; Stewart, F. et al (1987)
Adjustment With a Human Face, UNICEF, New York; UNCTAD (2002) Economic Development in Africa, UNCTAD, Geneva.
6 World Bank(2001) Attacking Poverty, Oxford University Press, Oxford.
4 fighting poverty together
Trade traps Why EU-ACPEconomic Partnership Agreements pose a threatto Africa’s development
In a series ofstudies, Harvard University economist, Evidence from successful developers including the US,
Dani Rodrik, has shown thatthere is little evidence that UK, otherEuropean countries and the ‘Asian tigers’
trade liberalisation is correlated with economic growth. shows thatprotecting infantindustries was an important
He has shown thatwhilstno country has developed partofearly trade and industrial policy.12 Careful use of
successfully by turning its backon international trade, protection togetherwith otherpolicies to encourage
none has developed by simply liberalising its trade backward and forward linkages, learning and adoption
either. The critical balance lies in each country adopting oftechnology will be needed by African countries to
its own trade and investmentpolicies and strategies, in overcome the many marketfailures thatexistin their
line with its developmentneeds.9 economies. Successful developed countries did not
acceptthe economists’notion offixed comparative
A growing body ofevidence supports Rodrik’s work. For
advantage in producing and exporting particulargoods;
instance, the Africa Economic Report 2004 concludes
rather, they developed comparative advantage as they
thattrade liberalisation alone will notboostgrowth and
wentalong. Forexample, Taiwan was transformed from
poverty reduction in Africa.10 Instead, the reportargues
a tiny Japanese colony in the 1940s to a global leader
thatthe successful integration ofAfrica into the world
in steel and micro-processors in a single generation.
economy will require better-educated and healthier
Successful developmentneeds a dynamic, long-term
workforces, improved economic and political
policy approach, which Africa will lose ifitlocks itself
governance, betterquality infrastructure, and dynamic
into free trade with Europe.
trade policies, including gradual and targeted trade
liberalisation. A recentreportby the United Nations ActionAid believes thattrade and markets can be
Conference on Trade and Development(UNCTAD) importantinstruments forachieving economic
draws a similarconclusion.11 developmentand poverty reduction. Butthey mustbe
managed fairly to enhance opportunities forthe poor
Trade liberalisation plus enhanced marketaccess does
and to protectthe vulnerable. ActionAid calls forthe
notnecessarily equal poverty reduction: mostpoor
demands forfull reciprocal trade liberalisation and
countries undertookextensive trade liberalisation in the
negotiations on investment, competition policy and
1990s, and also received some degree ofpreferential
public procurementto be dropped from the EPA
marketaccess from developed countries, but
negotiations. Alternatives to EPAs mustbe sought.
performed dismally in reducing poverty. UNCTAD warns
thatifpasttrends continue, the poorestcountries in the
world will continue to lag behind the restin 2015, the
yearby which the international community hopes to
halve the proportion ofthe global population living in
extreme poverty.
9 See Rodriquez, F. and Rodrik, D. (1999) ‘Trade Policy and Economic Growth: A Sceptic’s Guide to the Cross-Country Evidence’, Centre forEconomic Policy Research, Discussion Paper
Series 2143; Rodrik, D. (2001) ‘The Global Governance of Trade As If Development Really Mattered’, UNDP; Rodrik, D. (2002) ‘Trade Rout: Reform in Argentina, Take Two’, New Republic, 14th
January 2002.
10 UNECA (2004) Africa Economic Report 2004, UNECA, New York.
11 UNCTAD (2004) The Least Developed Countries Report, UNCTAD, Geneva.
12 Chang, H-J. (1993) ‘The Political Economy of Industrial Policy in Korea’, Cambridge Journal of Economics, Vol.16, No.2; Amsden, A. (1989) Asia’s Next Giant, OUP, Oxford.
fighting poverty together 5
www.actionaid.org
2. EPAs: the European Commission’s
main arguments
The European Commission advances two main 5. (c) any interim agreement shall include a plan and
arguments in supportofits demand forthe creation of schedule forthe formation of such a customs union
free trade agreements (FTAs) between itselfand orof such a free-trade area within a reasonable
regional groupings ofACPcountries. The firstis legal – length of time16
thatthis is the only arrangementacceptable to the
The WTO’s understanding ofa “reasonable length of
WTO. The second is economic – thatsuch FTAs will
time”is that:
stimulate economic developmentin ACPcountries.13
We deal with each ofthese in turn. The "reasonable length of time" referred to in
paragraph 5(c) of Article XXIVshould exceed 10
WTO compatibility: years only in exceptional cases. In cases where
the European Commission’s legal argument Members parties to an interim agreement believe
The Cotonou Partnership Agreement(CPA) that that 10 years would be insufficient they shall provide
provides forEPA negotiations explicitly links them to the a full explanation to the Council forTrade
WTO, stating that: in Goods of the need fora longerperiod.17
The Parties agree to conclude new WTO-compatible Article XXIVgoes on to say that:
trading arrangements.14
8. (b) A free-trade area shall be understood to mean
In the early 1990s, the non-reciprocal trade preferences a group of two ormore customs territories in which
underLomé governing trade relations between the EU the duties and otherrestrictive regulations of
and ACPcountries were increasingly challenged: they commerce (except, where necessary, those
were seen to discriminate againstotherdeveloping permitted underArticles XI, XII, XIII, XIV, XVand XX)
countries and were therefore deemed incompatible with are eliminated on substantially all the trade between
certain WTO rules. There was also concern thatthe the constituent territories in products originating in
trade preferences had failed to integrate many ACP such territories… 18
countries into the global economy and were less likely
The European Commission interprets the above clauses
to do so because ofincreasing preference erosion (a
to mean that90% ofthe trade in goods between the
decline in the value ofthe Lomé preferences as a result
two parties mustbe liberalised overa period of10-12
ofmultilateral trade liberalisation).15This was the context
years19 an interpretation firstused during the EU-South
underwhich EPAs were proposed.
African trade negotiations in 1999.
EPAs fall underthe WTO rules on regional trade
There are a numberofproblems with the EU’s
agreements (RTAs). The mostimportantofthese is
conception ofreciprocity in EPAs. Firstly, the principle of
Article XXIVofthe General Agreementon Tariffs and
reciprocity as intended in the GATT/WTO does not
Trade (GATT) 1994, a founding documentofthe WTO,
necessarily carry overto North-South trade agreements,
which states that:
since small countries have notbeen required to offer
13 Lamy, P. (2004) Opening of the negotiations forthe Economic Partnership Agreement (EPA) between the Caribbean Forum of ACPStates (CARIFORUM) and the European Union, Statement
by Pascal Lamy, Kingston, Jamaica, 16th April 2004, http://europa.eu.int/comm/commissioners/lamy/speeches_articles/spla220_en.htm
14 Article 36.1of the Cotonou Partnership Agreement (2000).
15 Mbuende, K. and Davies, R. (2002) ‘Beyond the Rhetoric of Economic Partnership Agreements’, www.weedbonn.org/eu/texte/Booklet-Cape-Town-JPA.doc
16 WTO (1994) ‘General Agreement on Tariffs and Trade: Article XXIV’: http://www.wto.org/english/tratop_e/region_e/regatt_e.htm#gatt
17 WTO (1994) ‘Understanding on the Interpretation of Article XXIVof the General Agreement on Tariffs and Trade 1994’, http://www.wto.org/english/tratop_e/region_e/regatt_e.htm#gatt
18 WTO (1994) ‘General Agreements on Tariffs and Trade: Article XXIV’, http://www.wto.org/english/tratop_e/region_e/regatt_e.htm#gatt
19 European Commission (undated) interpretation of Article XXIV, http://europa.eu.int/comm/external_relations/mercosur/bacground_doc/template_paper5.htm; also based on EU-South Africa
Trade, Development and Co-operation Agreement liberalisation timescale.
6 fighting poverty together
Trade traps Why EU-ACPEconomic Partnership Agreements pose a threatto Africa’s development
reciprocal concessions to industrial countries in Asymmetrical ornot, reciprocity would ‘lockin’African
multilateral negotiations.20The 1979 Enabling Clause countries to only one path to development– thatofa
calls upon industrialised countries notto seekreciprocal liberalisation orfree trade model. More importantly,
concessions inconsistentwith the development, basing African country trade liberalisation commitments
financial and trade needs ofindividual developing on arbitrary timeframes presupposes thatdevelopment
countries. Secondly, reciprocity between developing is a linearprocess, which is often notthe case. Whatis
and developed countries can be very damaging to the the use ofgiving a country a longertransition period,
formerbecause the asymmetries in economic size when they may be worse offeconomically in 15years’
mean thatdeveloping countries have to make relatively time than they are now?
largerconcessions and beardisproportionately high
costs ofadjustmentthan the developed countries. Special and differential treatment fordeveloping
Premature trade liberalisation can also contribute to de- countries
industrialisation in developing countries, characterised
The European Commission’s claim thatEPAs mustbe
by a decline in manufacturing, the collapse of
free trade areas in orderto conform to WTO rules is
industries, and a loss ofjobs and ‘tacitknowledge’.21
self-serving and misleading. The WTO recognises that
ForAfrican counties to liberalise 90% ofall trade with developing and developed countries are different, and
the EU within a 10-12yearperiod would require them to reflects this in its rules on special and differential
open all but10% oftheirmarkets to EU products within treatment(SDT). Forexample, the General Agreement
a decade, regardless ofthe structural weaknesses or on Trade in Services (GATS) makes special provision for
the macro-economic conditions oftheireconomies. developing countries in relation to regional agreements
on services.23SDTis also explicitly partofthe Cotonou
‘Asymmetrical liberalisation’is not the solution Partnership Agreement, which states that:
The proposition thatthe gap in developmentbetween Economic and trade co-operation shall take account
EU and ACPcountries can be addressed through of the different needs and levels of development of
‘asymmetrical reciprocity orliberalisation’is not the ACPcountries and regions. In this context, the
convincing. Parties reaffirm theirattachment to ensuring special
and differential treatment forall ACPcountries.24
Although this differential approach, based on the trade
agreementbetween the EU and South Africa22, gives
WTO compatibility is a moving target
ACPcountries the opportunity to make slightly less
drastic (under90%) cuts in tariffs overa slightly longer Furthermore, an examination ofall SDT-related
time period, the extentto which developing countries provisions is partofthe ongoing WTO Doha round
liberalise theirtrade should be based on theirindividual negotiations,25 effectively making WTO compatibility a
developmentand economic needs, and notdetermined moving target. In fact, ACPcountries tabled a proposal
by arbitrary timeframes and productcoverage. atthe WTO in April 2004seeking more flexibility with
regard to the interpretation ofreciprocity in FTAs
between developed and developing countries:
20 Freund, C. (2002) ‘Reciprocity in Free Trade Agreements’, World Bank; Staiger, R. ‘Tariff Phase-Outs: Theory and Evidence from GATTand NAFTA: Comment’in Frankel, J (ed) (1998)The
Regionalization of World Economy, University of Chicago Press, Chicago; Yanai, A. (2001) ‘Reciprocity in Trade Liberalisation’, APEC Study Center, Working PaperSeries 00/01– No 2.
21 See forinstance, Freund, C. (2002); Hinkle, L. and Schiff, M. (2004); Frankel, J. (1998); World Bank(2004) Global Economic Prospects 2005, World Bank, Washington D.C; Yanai, A. (2001).
22 Underwhich South Africa was to liberalise about 86% of its trade with the EU, and the EU was to liberalise about 94% with South Africa (90% unweighted average of the two sides’trade).
23 Article V, paragraph 3.a of WTO (1994) General Agreement on Trade in Services.
24 Article 35.3 of the Cotonou Partnership Agreement (2000)
25 WTO (2001) ‘Doha Ministerial Declaration’’, Paragraph 44.
fighting poverty together 7
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2. EPAs: the European Commission’s main arguments
With regard to duties, appropriate flexibility shall be Whateverhappened to the ‘round forfree’?
provided fordeveloping countries in meeting the
In May 2004the EU proposed a special deal forthe
“substantially all the trade”requirement in respect of
world’s poorestcountries atthe WTO. Known as a
trade and product coverage, including in terms of
‘round forfree’, the offerwas thatthe G-90 group of
the application of favourable methodology and/or
leastdeveloped countries and ACPstates,
lowerthreshold levels, if to be applied, in the
measurement of trade and product coverage of would not be called upon to furtheropen their
developing country parties to an RTA [regional trade markets while they would benefit from improved
agreement]. access to developed and rich developing markets
fortheiragricultural and industrial products.28
The maximum length of the transition period
permissible is to be established, the period should Although this was a political tactic employed by the EU
be determined in such a mannerthat is consistent to divide developing countries atthe WTO (by creating
with the trade, development and financial situation a wedge between the G-90 and the G-20), taken at
of developing countries, but in any case not less face value, the EU appeared to acceptthe development
than 18 years.26 case fornon-reciprocal trade liberalisation atthe WTO.
Yetin parallel EPA negotiations, the EU insists that
This matteris ofinterestto many developing countries
reciprocity is good forACPcountries. The contradiction
in the lightofthe proliferation ofFTAs between
is glaring.
developed and developing countries.27 However, the EU
continues to show little interestin changing WTO rules
on regional trade agreements, insisting thatthe current
WTO rules offerenough ‘flexibility’to enable the
creation ofdevelopment-friendly trade agreements
between developed and developing countries.
26 WTO (2004) ‘ACPSubmission on Regional Trade Agreements’, 28th April 2004, pp.3-4.
27 Forinstance, CAFTA (the Central America Free Trade Agreement) which brings togetherthe US and El Salvador, Honduras, Nicaragua, Guatemala, and laterCosta Rica and the FTAA (the Free
Trade Area of the Americas) which brings togetherthe US and 34othercountries in the Americas8
28 European Commission (2004) ‘WTO-DDA – EU ready to go extra mile in three key areas of the talks’, 10th May 2004, http://europa-eu-un.org/articles/lt/article_3490_lt.htm
8 fighting poverty together