Policy recommendations

Economic Partnership Agreements

Spring 2009

The Economic Partnership Agreements (EPAs) between the EU and its partners in Africa, the Pacific and the Caribbean (ACP counties) were initially meant to merge development policy and trade policy into a comprehensive framework within the Cotonou agreement. However, now that the delayed negotiations have entered a crucial stage, it becomes more and more clear that development is barely taken into consideration in the agreements. The content of the agreements is determined solely by trade interests, turning EPAs into treaties that are essentially free trade agreements, and that will result in the opening up of new markets for EU produce. In other words, development is once again secondary to trade interests. Therefore, EPAs, in their current form, are not coherent with development policy.

EPAs: a tool for development?

The central objective of the Cotonou agreement, which was signed in 2000, and still is the legal basis for trade arrangements between the EU and its ACP partners, is poverty reduction. In the course to attaining this goal, emphasis was placed on three themes: gender equality, environmental sustainability and institutional development and capacity building [1][2]

As a continuation of the Cotonou agreement, the EPAs were initially conceived as a development tool, designed to increase regional integration among countries in the ACP subregions[3] and to diversify the economies in these ACP regions.

By encouraging regional integration, the formation of several regionally-integrated trade blocs amongst ACP countries, including a Pacific, a Caribbean and four African regions was envisaged.[4]These free-trade areas are intended to create the larger regional markets deemed necessary for strengthening economic development, south-south trade, for competition purposes and for the attraction of substantial foreign investment. Also, this would supposedly give ACP regions a stronger position vis-à-vis the EU. [5]

EPAs stimulate regional disintegration

Despite these ambitious ideas and good intentions, how exactly to go about reaching this regional integration was unclear from the start. Many of the countries conveniently shoved together in regional groups are hardly comparable in terms of economic development: some are relatively advanced, some belong to the worlds poorest, some produce rice, mangoes and bananas for export purposes, others depend on subsistence farming.

Only in a very late stage, in August 2008, a paper was published describing the EUs vision on regional integration. In the meantime, the interim EPAs that had been concluded between the EU and several individual ACP countries, have achieved the opposite: regional disintegration. Only one regional area, the Caribbean bloc, has managed to conclude a full, regional EPA.[6]

The countries that agreed to sign an individual interim EPA are usually the richest countries of their region. For these countries, the EPAs are relatively attractive, because of their economic position and relatively advanced economies, they will be in a better position to adapt to the new situation once borders open up for European produce. Plus, not signing an interim EPA for them would have to face trade arrangements under GSP+ which has much more disadvantages for them. Moreover, they are not eligible for trade with the EU under Everything But Arms (EBA). The least developed countries currently benefit from the preferential EBA agreement, which is much more advantageous for them. This makes signing an EPA a lot less attractive for these countries. To protect developing countries, unilateral preferences like Everything but Arms are still allowed[7][8][9]
When it turned out, by the end of 2007, that for all regions except one, signing a full, regional EPA was not a realistic option, these individual interim EPAs were proposed instead, in a hurry. It will be very interesting to see how the regions efforts to achieve economic integration will progress now, since neighbouring countries will be treated differently.

The second main objective, after achieving regional integration, of EPAs is the smooth and gradual integration of the ACP states into the world economy. This wider integration is also deemed necessary for the economic development of the countries. However, to what extent this integration into the world economy will stimulate or slow down the economic, social and human development of these countries remains unclear. Currently, only the Carribean region, as a region, has signed a full EPA and not with great enthusiasm. Guyana in particular expressed strong concerns and a reluctance to sign the treaty because of the lack of a level playing field. Issues of particular concern to Guyana were the inclusion of intellectual property rights provisions that go beyond the TRIPS Agreement and would limit the flexibilities for developing countries laid down in this agreement. Also, the most-favoured nation (MFN) clause included in the EPA seriously worried Guyana as it risked to damage its relations with other trade partners. Other ACP countries, too, are looking for ways out, for alternatives and are trying to analyze the consequences of not signing at all.[10] [11] 

EPAs: the real deal

The actual reason why EPAs are being established, is for the trade arrangements between the EU and the ACP to meet the WTO criteria for free trade. Within the WTO-framework recently agreements were made, obliging all countries to open their borders for imported products. On top of this, governments will have to limit subsidies intended to stimulate domestic production. The Cotonou agreement, currently the legal basis of trade between the EU and the ACP, does not comply with these criteria. ACP countries have access to European markets to some extent, while many ACP countries apply tariffs to imported products.[12] 

According to GATTs Article XXIV substantially all trade should be liberalized[13]Although from January 2008 on, WTO rules on preferential trade apply to all ACP countries, some room for flexibility remains. In fact, WTO does not oblige counties to cease all trade preferences. However, European Commission guidelines state that in a Preferential Trading Agreement at least 90% of trade should be liberalized which is still a rather high percentage. Although the EC has stated that in special cases the transition period could be up to 25 years, the usual transition period amounts to fifteen years, which is considerably short for countries that are highly dependent on tariff revenues

[14]. Another argument for the statement that within EPA negotiations, trade concerns are prevailing, is that on behalf of the EU, only trade officials and specialists actually conduct the negotiations, no development experts are involved. As a result, the negotiated texts fail to mention any of the developmental goals, let alone elaborate on how to reach these. [15] 

The EPAs directive⁹ and some of the draft EPAs clearly state that apart from the traditional trade in goods, also services and in some cases even capital arrangements will be included in the agreements. The European Commission is actively pushing for this, even though, in many developing countries, a services sector hardly exists. This implies that the services paragraph is part of the negotiations purely with the aim to open up new markets for European companies. This risks to seriously damage the existing economies of developing countries, in terms of their sensitive local industries and production models. Therefore, an effective safeguard mechanism should be included in the EPAs for ACP countries to use if faced with a surge of subsidised EU imports. On top of this, developing countries must have the right to temporarily support and/or protect the economic activities they want to develop. [16]

Policy Incoherence

Article 177 of the EC Treaty states the three objectives of development cooperation. Article 178 of the same treaty stresses that the EU will, in all its policy actions and in all policy fields that affect developing countries, take account of the objectives laid down in article 177. In other words, the treaty stated that actions in the field of trade policy, for instance, should not harm or undermine development efforts, but should aim to reinforce these. This is called policy coherence for development.

When looking at the process of EPA negotiations and at the content of the agreements, one cannot but conclude that the EPAs are clearly incoherent with the objectives of the EUs own development policy. In other words, by concluding EPAs in their current form and content, the EU is undermining its own development efforts. This is costly for both the developing countries and the EU.

Negotiation positions

Although officially the negotiations are fair and equal, the European Commission has, obviously, a much stronger position than the ACP countries. The ACP countries highly depend on trade relations with the EU, while European countries depend to a very limited extent on imports from developing countries.[17]

EC negotiators are putting pressure on ACP countries to sign by threatening to abandon preferential trade conditions, or even to cut development aid. Although it was not stated officially, there was the implicit threat that, should a WTO compatible alternative did not come into force by January 1^st, 2008, many ACP countries would find themselves trading with the EU on significantly less advantageous terms.[18]

This lack of a level playing field results in a very weak negotiation position for developing countries. The European Commission seems to believe that development will be achieved by trade in itself, and is pushing the ACP countries to agree on this. After the first round of negotiations was concluded at the end of 2007, the ACP countries raised several serious and very specific concerns, but the EC put these aside without paying any much attention to them.[19][20]

ACP countries should be given the chance to assess the advantages and disadvantages of new developments they face, and to, in the end, sign treaties that they believe will serve their interests too.

 

Notes 

[1] Cotonou agreement, article 35(2)

[2] Cotonou agreement, article 34.

[3] The EPA subregions are: Caribbean, Central Africa, East and Southern Africa, Pacific, SADC-minus, and West Africa.

[4] 3 The African regions consist of: a West-African region (ECOWAS), a Central African region (CEMAC), East and Southern African region (ESA)  and Southern African regions (BNLS). Further reading: ERO/FOS en 11.11.11.

[5] Davies R., Bridging the divide:the SADC EPA, Trade Insights, May 2008

[6] Partnership or power play? EPAs fail the development tests Emily Jones and Javier Perez, Trade Negotiations Insights, May 2008

[7] One of these arrangements is Everything but Arms(EBA), giving the Least Developed Countries tariff- and quota-free access to EU markets.

[8] A Keck P Low Special and Differential Treatment in the WTO: When, Why and How? WTO Staff Working Paper (May 2004); GATT Article XXXVI Para8 (1947)

[9] L Bartels The WTO Legality of the EUs GSP+ Arrangement 10 Journal of Intl Economic Law (2007) 1-18 p5 PSE POSITION ON ECONOMIC PARTNERSHIP AGREMENTS (EPAs) 27.08.2008

[10] ACP Council of Ministers, Declaration of the ACP Council of Ministers at its 86^th Session Expressing Serious Concern on the Status of the Negotiations of the Economic Partnership Agreements, Brussels, 13 December

[11] http://www.otal.com/ghana/epas.pdf

[12] http://ec.europa.eu/trade/issues/bilateral/regions/acp/

[13] Article XXIV GATT.

[14] European Parliament debate on Economic Partnership Agreements, Remarks by Peter Mandelson, Strasbourg, 22 May 2007

[15] Christopher Stevens, Mareike Meyn and Jane Kennan. "Comparative analysis of liberalisation schedules and other commitments of the African interim EPAs", Overseas Development Institute, April 2008

[16] Directives for the negotiations of Economic Partnership Agreements with ACP countries and regions, Chapter 4 (Trade in services).

[17] Commission of the European Communities, Commission Staff working paper accompanying the Commission working paper EU report on Policy Coherence for Development (COM 2007 545 final) 26-27.

[18] Oxfam, Unequal partners: how EU-ACP Economic Partnership Agreements (EPAs) could harm the development prospects of many of the worlds poorest countries, April 2008

[19] Mandelson in Southern Africa to deepen trade and development ties, DG Trade, Brussels, 28 February 2008.

[20] http://www.entrepreneurnewsonline.com/2008/11/african-template-for-epas-is-endorsed-with-recommendations.html

 

Documents

Box: EU-ACP partnership for development

Box: interim trade regime

Cotonou Agreement

Box: ERO/FOS questions & amswers about EPAs

Box: Oxfam briefing note 2006 Unequal partners

News archive of the EPAs case 2007-2008