EPA Negotiations - November 07

> EPA Negotiations - November 07

(posted on 4/12/07)

source: Bridges Weekly Trade News Digest - 28 November 2007


With an end-year deadline looming, some countries in eastern and southern Africa have broken away from regional negotiating blocs to sign separate economic partnership agreements (EPAs) with the EU. The prospect of losing preferential access to the EU market helped push these countries to agree to open their own economies to a wide range of European imports.

Kenya, Tanzania, Uganda, Rwanda and Burundi, which together constitute the East African Community (EAC), initialled an 'interim' goods-only EPA with Brussels on 27 November. Botswana, Lesotho, Mozambique, and Swaziland signed a similar deal four days before, according to Gaborone-based newspaper The Reporter. Brussels hopes to supplement these agreements with provisions on services, investment, and other issues next year.

Under the framework deal between the EAC and the EU, they agreed to exchange final schedules detailing how tariffs would be phased out no later than 20 December. Sources say that the East African countries will remove barriers to EU exports covering some 82 percent of tariff lines over the next 25 years, with most of this to happen by 2023. The EU will lock in duty- and quota-free access for all imports except sugar and rice from its EPA partners from the beginning of 2008.

Critics warn that lowering tariffs on EU products could cost ACP governments substantial amounts of revenue, cause local businesses to be wiped out by a flood of cheap imports, and limit future prospects for industrial development. Some economic analysis has suggested that EPAs could also cause ACP imports to divert towards the EU at the expense of other, potentially cheaper, exporters in countries such as the US and China.

The new agreements formalise splits in two of the six geographical blocs the African, Caribbean and Pacific (ACP) group of states, each of which have been negotiating EPAs with the EU. The ESA, for example, is a subset of the 16-member Eastern and Southern African bloc, which also includes Mauritius and the Seychelles. South Africa and Namibia are still deciding whether to join Botswana and other members of the Southern African Development Community (SADC) in signing the agreement, though Angola has indicated that it would like to do so.

The 31 December deadline for the negotiations is the result of a waiver under which WTO Members agreed to let Brussels maintain its unilateral preference scheme for ACP states until the end of 2007, even after it had been ruled to violate multilateral trade rules by discriminating among developing countries. The five-year exemption was supposed to give the EU and the ACP countries -- which include some of the world's poorest -- time to replace the preferences with reciprocal EPAs, which would be more easily compatible with WTO rules.

ACP countries and the EU have been negotiating since September 2002, but had until recently agreed on little -- including on what might happen if the deadline were to pass without an accord.

Fear of lost market access

EU officials have insisted that the waiver under which the preferences operate cannot be extended to allow for further negotiation, although ACP countries as well as some research and advocacy organisations have contested this view. Brussels has warned the 31 relatively richer ACP countries that without an EPA, their exports would be slapped with tariffs identical to those that apply to all developing countries under the less-generous Generalised System of Preferences (GSP), potentially putting them in direct competition with companies in places such as Brazil and India. The rest of the 79-member ACP group, as least-developed countries (LDCs), would remain eligible for duty- and quota-free access for almost all products under the EU's 'Everything But Arms' initiative, albeit with more complex rules of origin.

The pressure on exporters in non-LDC members of the ACP group has been substantial: not only do they fear that they might not be able to compete in EU markets without preferential access, they do not know which trade regime might apply to their exports to the EU from 1 January 2008. This uncertainty could substantially delay the movement of goods, an issue of particular concern for companies trading agricultural products with a limited shelf life. Exporters in some non-LDC countries have lobbied for EPAs, fearing they would not be able to compete in EU markets without preferential access. These included, for example, beef exporters in Botswana. According to the government of Botswana's press agency, the country's trade minister, Neo Moroka, said that the interim EPA would provide permanent duty- and quota-free access to the EU market for important exports such as beef and some textiles. Beef industry representatives have praised the deal, saying that access to the EU market had actually been improved relative to the current preference scheme. The Kenyan cut flower industry had also been pushing for an agreement.

Other ACP blocs splitting

However, many ACP countries are unwilling or unable to sign an agreement, at least on the terms that the EU is seeking. EPA talks with West and Central Africa remain deadlocked. Some members of both regional blocs have asked Brussels for a two-year extension of preferences. EU Trade Commissioner Peter Mandelson earlier this month derided Nigeria as wanting "to sit like an elephant in the middle of the road" in the negotiations, a label which is believed to have made the Nigerian negotiators proud.

Caribbean countries, once thought the most likely to sign comprehensive EPAs to secure their banana exports to the EU, have not moved to initial even goods-only deals, amidst differences over market access. Anthony Gomes, a Jamican businessman, wrote last week in the Jamaica Observer that Brussels' far-reaching demands for market-opening -with very few products shielded from tariff cuts - were akin to asking for "a basket to carry water", a local expression for seeking the impossible. Furthermore, he said they went against the ostensibly development-orineted motivations for the EPAs.  

The Fiji Times reported on 28 November that the governments of Fiji and Papua New Guinea were refusing to comment on whether they would sign an EPA separate from the rest of the Pacific region. An EU spokesperson told Fijian radio that she believed that the accords would be signed in Brussels early next week. Sources close to the negotiations suggest that Papua New Guinea and Fiji fear that GSP tariff treatment would devastate their important tuna and sugar sectors respectively, and that a number of other countries in the region are unlikely to sign deals at the moment.

Following the deal between Brussels and the EAC, Luis Morago, the EU head of campaign group Oxfam International criticised the "enormous pressure" placed on the developing countries to sign. "Despite concerns raised by many, including the IMF, African civil society, trade unions, and academics, the [European] Commission has ignored possible alternatives and insisted on the deadline," he said. "They have essentially forced the East Africans to choose between guaranteeing markets for their agricultural exports today, and maintaining a degree of protection to promote future industrial growth - which all developed countries have done in the past."

Morago called on other ACP countries not to sign similar deals. "It suits the Commission to spread the impression that regions are falling into line and the rest should do so too," he acknowledged. "But we would urge other countries to take heed of the range of voices raised against these deals and continue to ask the Commission for more time to negotiate a pro-development deal, and for feasible alternatives to be considered."

One alternative to the interim EPAs now being signed could be "a simple framework deal with a promise to conclude an agreement, say by the end of 2008," according to Dominique Njinkeu, executive director of International Lawyers and Economists Against Poverty (ILEAP). He recently told Bridges that a time-limited plan of this sort would appear to suffice to meet the demands of multilateral rules for the WTO-compatibility of free trade agreements.