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Africans fear ‘ruin’ in Europe trade talks

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Africans fear ‘ruin’ in Europe trade talks

Opposition grows to more inequitable trade liberalization
From Africa Renewal: 
Reuters / Antony Njuguna
Participants at the World Social Forum in Nairobi Participants at the World Social Forum in Nairobi, Kenya, protest the European Union’s new Economic Partnership Agreements (EPAs).
Photograph: Reuters / Antony Njuguna

The warnings are grim. Cape Verde may lose 80 per cent of its import revenues. Three-quarters of Ghana’s industry may collapse. And African countries could end up even more dependent on trade with Europe than with each other. Such worries about the possible impact of ongoing “free trade” negotiations between Europe and its former colonies in Africa, the Caribbean and Pacific (ACP) are beginning to galvanize public debate in the region.

African governments, policy analysts, regional economic groups and civil society organizations are increasingly speaking with one voice: the Economic Partnership Agreements (EPAs) now being hammered out between Europe and the ACP countries must be significantly modified to safeguard those countries’ prospects for development.

“If the EPAs are signed as they are, it will be suicide and death for farmers,” Jules Zongo, national president of Burkina Faso’s regional chambers of agriculture, declared at a protest march and rally of 2,000 farmers in that country’s capital, Ouagadougou, in December. Several months earlier, civil society organizations rallied in Senegal, as part of a global Stop EPA campaign, to demand that their government not sign the agreements unless significant changes are made.

African leaders have taken note of such calls. When heads of state from throughout West Africa converged on Ouagadougou for a summit meeting in January 2007, Burkina’s President Blaise Compaoré affirmed that the “legitimate concerns” of farmers and other producers must be considered in any trade talks with the European Union (EU).

Among other venues, opposition to the EPAs also featured at the World Social Forum in Nairobi, Kenya, in January, at which tens of thousands of civil society representatives chanted and carried signs declaring: “Fight poverty… Say no to EPAs.” In April, the Africa Youth Coalition Against Hunger mobilized more than 1,000 activists from 20 countries in the Gambia to launch a “big noise campaign” to stimulate public debate on the proposed agreements.

Beyond the concrete impact that the new agreements may ultimately have on people’s lives, the negotiations are attracting wider attention for another reason: they began at a time when talks to further liberalize global trade, under the so-called Doha round of the World Trade Organization (WTO), seemed stalled.

One factor in the indefinite suspension of the Doha round last year was the reluctance of richer countries to liberalize their agricultural sectors, while at the same time they insisted that developing nations open their own economies even further to products from the North. Some analysts regard the EPA negotiations as an attempt by the more powerful EU to extend to its weaker ACP trading partners, through a different forum, agreements that it could not obtain at the WTO. The 27 countries of the EU have a combined gross domestic product of US$14 bn, while 39 of the 79 ACP nations are among the world’s least developed countries (LDCs).

New scenario

Although the Doha round talks have bogged down, earlier changes at the WTO have already seriously affected the nature of the EU’s relations with the ACP countries. From 1975 to 1994, the EU and ACP shared special development cooperation arrangements through a series of five-year agreements, originally known as the Lomé Conventions. Through those agreements, the EU granted trade preferences to ACP exports, without requiring similar treatment for EU products in ACP markets.

A market trader in Bamako, Mali, selling African-made textiles A market trader in Bamako, Mali, selling African-made textiles: Manufacturers will be hit hard if domestic markets are flooded with European goods.
Photograph: Reuters / Antony Njuguna

The so-called Uruguay Round of trade negotiations, which concluded in 1994, adopted new rules requiring parties to regional trade agreements to eliminate duties and other restrictive regulations on “substantially all the trade” among them. But for some regions application of the rules was postponed, as the WTO, which emerged from the Uruguay talks in 1995, agreed to a special exception allowing the EU to maintain “non-reciprocal” preferences for ACP exporters until December 2007.

With the WTO deadline in mind, in 2000 the two groups signed a new cooperation accord known as the Cotonou Agreement, covering aid, trade and political cooperation. Its aim was to “facilitate the economic and political integration of the ACP countries into a liberalized world market.” Its framers also envisaged the conclusion of negotiations on EPAs or other alternative trade arrangements by the start of 2008, to comply with WTO rules. Initial talks on the EPAs began in 2002.

Some developing countries now fear that the EU’s approach to such EPAs will oblige them to remove trade protections so quickly and to such an extent that the development of their own industries will be harmed. “At no point in time was an EPA as a free trade agreement the first choice for the ACP,” says Mauritius’ ambassador to the EU, Sutiawan Gunessee. “It was not. But we had no alternative.”

According to Zimbabwean Trade Minister Obert Mpofu, any new trade agreements should reinforce, not undermine, “the development of our economies, employment generation, wealth creation for our people and ultimately poverty reduction.”

Ending dependency?

In contrast, EU Trade Commissioner Peter Mandelson views the EPAs as beneficial. He argues that they will shift the relationship between the EU and Africa from one of dependency on tariff preferences to one that promotes business competitiveness. After 30 years of preferential market access, African countries still export a limited range of basic commodities, he points out. “Most of these are sold at lower prices than they were 20 years ago. This is not sustainable. It certainly isn’t sustainable development.”

Countered Nigerian Commerce Minister Aliyu Modibo Umar: “If 30 years of non-reciprocal free market access into the EU did not improve the economic situation of the ACP, how can a reciprocal trading arrangement achieve anything better?” Instead, he argues, simply liberalizing trade will “further widen the gap between the two [blocs] and probably destroy the little development that some ACP countries have managed to achieve over the past years.”

Unloading grain at the port of Dakar, Senegal Unloading grain at the port of Dakar, Senegal: Africa worries that Europe is trying to bring in new trade issues that have not been agreed at the World Trade Organization.
Photograph: / Robert Grossman

Hard choices

Under the type of EPAs currently proposed by the EU, ACP countries would eventually have to liberalize 80–90 per cent of their trade with the regional bloc in order to gain duty-free access to European markets. That would allow ACP countries to use tariffs to protect only a small portion of their products from competition with European goods.

To stay within that narrow band, governments would have to make some hard choices, notes Oxfam in a 2006 report, Unequal Partners. They could choose, for example, to maintain tariffs on valuable revenue-raising imports such as cars and electronics, protect staple foods such as maize, exempt a few existing industries from competition or retain the ability to support future industrial development.

Fiscal losses

In the short term, lifting tariffs on European goods would deprive many governments of an important source of fiscal revenue. “Many countries would lose the valuable income they earn from tariff duties,” notes Mr. Godfrey Kanyenze of the Labour and Economic Development Institute of Zimbabwe. Until countries are able to diversify their revenue bases — often a long process — they could be confronted with national budget deficits, possibly leading to lower spending on education, health care, poverty reduction and social security.

A 2002 study by the Common Market for East and Southern Africa, a regional trade bloc, found that if all EU imports entered that region duty-free, governments would lose about 25 per cent of their trade taxes and about 6 per cent of total tax revenue. Another study, by Germany’s Hamburg Institute of International Economics, estimated that declines in import duties in countries of the Economic Community of West African States would range from the equivalent of $2.2 mn in Guinea-Bissau to $487.8 mn in Nigeria. The decline would be sharpest in Cape Verde, where 80 per cent of import revenues are likely to be lost. If no adjustments on spending were made, Cape Verde and the Gambia would incur budget deficits of 4.1 and 3.5 per cent respectively.

Such “doomsday” predictions need to be treated with caution, responds EU Trade Commissioner Mandelson. “If we look closely, most studies are highly theoretical,” he argues. “They assume immediate and complete liberalization, and ignore the economic benefits of reform.” According to Mr. Mandelson, the EU and ACP can negotiate the timing and phasing of tariff reductions to guard against any sharp drops in government income.

The commissioner adds that while some “transitional protection” may be necessary, the aim should be to reduce protection to encourage local industries to become more competitive. Over time, ACP countries will need to adapt their economies to compete with the rest of the world.

‘Back door’ issues

In principle, the central objective of the Cotonou Agreement is poverty reduction. Both parties agree that whatever arrangements are negotiated, they should foster development in the ACP countries. But they differ on what policies would best serve that purpose, echoing debates that previously unfolded within the WTO.

The EU, for example, is proposing that ACP countries adopt stringent rules to protect foreign investment, promote domestic competition and increase transparency in government procurement procedures. Similar proposals — known as the “Singapore issues” after the WTO ministerial meeting at which they were first raised — were blocked by developing countries, which feared the rules would hinder their ability to use trade policy to promote development (see Africa Renewal, January 2004).

But rich countries, following their failure to introduce such issues into WTO agreements, are now trying to insert them into multilateral and bilateral agreements as conditions for aid or loans, notes Mr. Irungu Houghton of Kenya, a pan-Africa policy analyst for Oxfam. EPAs are one part of this broader effort to bring the Singapore issues in through “the back door,” he argues.

In several countries, Mr. Houghton told Africa Renewal, “there is intense pressure to open up procurement processes for public contracts and supplies to non-indigenous suppliers, who because of their international reach are able to produce those goods at a much lower cost than local contractors.” Such a liberalization of procurement would take away one of the few tools governments have traditionally used to promote local industry — that is, favouring domestic companies ahead of foreign ones.

Mr. Houghton notes that similar changes in government procurement policies are also appearing in Country Assistance Strategies — documents that spell out loan conditions from the continent’s main lender, the World Bank.

The implications of adopting all the Singapore issues in Africa have not been fully studied. But policy analysts agree that simply implementing new laws to enact the reforms will by itself be costly. Oxfam estimates that rewriting domestic laws and changing business procedures in each of the 16 areas of reform agreed under the Uruguay Round would cost an average country $2.5 mn.

The European Commission (the secretariat of the EU) insists, however, that there will be “no EPA without investment rules and full reciprocity.” The commission argues that “the EPAs are, at root, about putting progressive trade policy into practice,” by reducing bad business practices hindering investment in Africa.

‘A field of ruins’

But opposition is mounting to the EPAs, as currently envisaged by the EU. In 2004 civil society organizations from across the world rallied in London to launch a Stop EPAs campaign. The campaigners charge that in their current form EPAs are essentially narrow “free trade” agreements intended to further liberalize the markets of ACP countries. They cite examples of earlier trade liberalization measures. In 1986 Côte d’Ivoire cut tariffs by 40 per cent, resulting in massive layoffs in the chemical, textile, footwear and automobile assembly industries. Senegal lost one-third of manufacturing jobs between 1985 and 1990 after reducing tariffs from 165 per cent to 90 per cent. The campaigners are calling for EU-ACP trade relations that support the weaker partners’ pursuit of economic development.

The organizations endorsing the campaign include the Economic Justice Network in South Africa, Third World Network-Africa in Ghana, Civil Society Trade Network of Zambia, Action Aid and Oxfam International. In a number of African countries, including Burkina Faso, Ghana, Nigeria, Kenya and Senegal, thousands of farmers, workers and civil society activists have staged public protests against the perceived consequences of EPAs.

In April, West African business representatives also voiced alarm. Meeting in Dakar under the auspices of the regional chamber of commerce of the eight-country West African Economic and Monetary Union, they affirmed their readiness to become more competitive in global markets, but not to enter into competition “with unequal arms.” Commenting specifically on the EPAs, Mr. Iddi Ango, president of the regional chamber, said that “if we open up our countries, given the current state of our enterprises, it will not be an opportunity, but a disaster, a field of ruins.”

Mr. Ibrahim Akalbila, national coordinator of the Ghana Trade and Livelihood Coalition, comprising civil society and farmers’ groups in that country, cites the high domestic subsidies that many European governments continue to provide their producers, allowing European products to undersell producers in poor developing countries. “Whether it is tomatoes and rice, textiles or iron rods,” he said in April, “cheap imports, illegally dumped into our markets, are destroying whole areas of economic activity, and with it, the lives of millions.”

‘EPA light’

Some European analysts acknowledge the validity of the ACP criticisms. But they also note that the EU faces a dilemma: how to reconcile the special status of the ACP group with its obligations to the WTO.

One possible solution, they suggest, is for the EU to accept an agreement that is only as reciprocal as necessary to meet WTO requirements, while leaving the ACP countries some room to safeguard their domestic markets and industries. The European Centre for Development Policy Management, an independent foundation funded by a number of European governments, proposes the adoption of an “EPA light.”

Such an arrangement would initially require ACP countries to open up their markets only enough to comply with WTO rules. They would liberalize just 50–60 per cent of their EU trade over a long transitional period of 20 years or more, while the EU would continue to grant full market access to all ACP countries. During the transition, the EU also would support the building of viable industries in ACP countries.

Along similar lines, the UN Economic Commission for Africa (ECA) argues that the primary focus of EPAs over an initial 12-year period should be to strengthen intra-African trade, to help local industries first become more competitive with their African counterparts. Only after this period, notes the Addis Ababa-based ECA, should EPAs then consider opening African economies to EU competition. And even then, tariff reductions should be phased in gradually, to allow countries time to adjust to the rigours of global markets.

Alternative options

If ACP countries ultimately decide not to sign EPAs, there are a number of other options they could pursue. At the Cotonou meeting in 2000, the EU agreed that if EPAs were not accepted, it would propose “alternative possibilities, in order to provide these countries with a new framework for trade which is equivalent to their existing situation and in conformity with WTO rules.” A country, however, would first have to reject an EPA before work could begin on an alternative.

One such option would be to develop new trade arrangements agreeable to both sides. For example, notes Action Aid, the EU could continue offering ACP countries preferential access to European markets while allowing them to protect their vital industries or cut tariffs in ways that do not jeopardize their economic development goals. But such provisions would require changes to current WTO rules on regional trade agreements. With the Cotonou deadline looming and the Doha round talks still suspended, that option seems unlikely.

Therefore, both parties may have to rely on existing trade regimes. One of these is the Generalized System of Preferences (GSP): nonreciprocal market-access schemes open to all developing countries that meet certain standards in human and labour rights, environmental protection and good governance.

Nations classified as least developed countries — 39 out of the 77 countries currently taking part in the EPA negotiations — could benefit from one of the variants within the GSP framework, the “Everything But Arms” initiative. It grants LDCs nonreciprocal duty-free and quota-free access to the EU for all goods except arms and munitions.

Non-LDCs could also decide to seek GSP treatment, but they would not be eligible for full duty-free access to the EU market. Moreover, GSP arrangements are narrower in scope than EPAs or the current ACP-EU agreement, since they cover only market access. Unlike the Lomé or Cotonou agreements, they do not include any development assistance, in the form of either financial aid or technical cooperation. GSP rules are also considered more restrictive and onerous than those of the Lomé/Cotonou agreements: hence the reluctance of ACP countries to rely solely on them.

The European Commission acknowledges that the GSP alternative would be a “second best” solution, from the development perspective of the ACP countries. A GSP arrangement is not negotiated, like a contract. The EU would design it and offer it on its own terms, and could amend or suspend it at any time. The products covered would not include all those of interest to ACP countries. And if an ACP country were to develop a new product not on the list, that item would be excluded.

Some civil society organizations argue that in a worst-case scenario, GSPs could be used as a starting framework for a new trade arrangement, but with their flaws corrected to provide both market access and development assistance to ACP countries.

Because of the controversy, the British Parliament held public consultations on the EPAs in 2005. Subsequently, its parliamentary committee on international development recommended that the UK push the EU to ensure that alternatives for non-LDC ACP states guarantee the same level of market access as the Lomé arrangements. “Development,” it concluded, “should be integral to any trade options presented to the ACP, even when they are not the first choice of the EU.”