Our Say: on Economic Partnership Agreements

Our Say: The EU Speaks Out on Economic Partnership Agreements

There has been much public debate, mainly through the media, about the negative impacts on African, Caribbean and Pacific (ACP) countries in entering into a free trade deal with Europe via its Economic Partnership Agreements (EPAs). This debate has intensified in the Pacific in recent weeks as the European Union (EU) has reached conclusion on what Non Government Organisations have described as a “controversial” EPA with the Caribbean region.

The EPA, which aims to strengthen ties between the two regions and promote regional integration in the Caribbean, is the first comprehensive North-South trade and development agreement in the global economy. It transforms long-standing trade articles enshrined in the Cotonou Partnership Agreement, including its predecessor agreements of Yaoundé and Lomé, into true multilateral trading arrangements as proposed at a global level today.

The Caribbean EPA deal has been termed “disastrous”, by the Pacific Network on Globalisation (PANG), with the organisation saying that the arrangement “holds nothing for the Caribbean but opens up the Caribbean to European exports.”

The EU asks why Caribbean trading relations with the EU should have any different growth potential from those of e.g. China? Why should European investments in the Caribbean be less advantageous to the wealth formation of the Jamaicans or Guyanese than they have been for the Indians?

Fiji and Papua New Guinea initialed an Interim EPA with the EU in December last year. This Interim EPA is a goods-only arrangement with the two Pacific countries which have the most trade in goods with the EU and has aimed to prevent them from falling into the clauses of General System of Preferences (GSP). Furthermore, it ensures continued access for Fiji sugar into the European market after 2015. The Interim EPA is still at this late stage in 2008, pending signature due to slow processing of final legal texts on the Pacific side, putting the two countries' trading conditions with the EU at risk. The translation into the several EU languages of the voluminous agreement package has now been suspended until next year at the EC Headquarters.

Several Pacific countries indicated their willingness to join the Interim EPA, however due to the delays as described above, this has become practically impossible path to cross. Instead the EU proposed a two-pronged approach as a way forward to the comprehensive EPA, which the Pacific countries have confirmed being willing to conclude by end of 2008. However, the Trade Ministers have decided to maintain unity and joint fronts turning down any two-speed highways.

The Pacific countries have informed the EU that they want to have a rendez-vous clause for Services. This is mainly because the temporary movement of people plays a key role in their upcoming negotiations on PACRER+ with Australia and New Zealand. The EU is still keeping the Services on the negotiation agenda because it believes that services like telecommunications, banking and construction are the backbone of a growing economy and most ACP countries desperately need to attract foreign investment in these sectors and others. The refusal by Pacific countries to engage in a services arrangement with the EU would significantly reduce the relevance of a comprehensive Pacific EPA.

Every ACP investment report published has said that breaking the dependence on basic commodity exports requires a transparent, secure, rules-based investment climate. EPAs can help establish this and many ACP countries agree: for instance, the full Caribbean EPA already includes services chapters. The European Commission (EC) firmly believes that services and other trade-related issues should be kept on the negotiation agenda as it believes the real added value of the Pacific EPA lies in these issues.
Also on the subject of negotiations, a review by the EU has revealed that it spent almost a billion euros between 2005-2007 funding 99 capacity building, technical assistance and infrastructure projects such as ports and roads in developing countries. The projects are linked to boosting the recipient country's trade infrastructure and ability to benefit from trade and open global markets.

Export Taxes and Infant Industries

The Pacific Network on Globalisation has maintained that a Pacific EPA would “reduce Pacific countries’ ability to regulate foreign investments in the public interest, lead to an undermining of access to services, including essential services such as education and healthcare, and would restrict the ability to nurture Pacific businesses and industries.” PANG has asked Pacific Trade Ministers to “defend the right to use a mixture of policy tools to promote development, including the right to impose export taxes and nurture infant industries.”

As we have seen in Fiji, and in many other countries before, opening up the market for foreign investors in telecommunications has brought the prices of these services hugely down to the benefit of the ordinary citizens. In addition, a good number of employment opportunities have been created.

It is only the private sector which creates growth in an economy, income to households through employment and fiscal revenues to the governments to be channeled to education, health, housing and infrastructure. Foreign investments give leverage to the growth of domestic enterprises and to the diversification of the economy to other sectors than basic agriculture through sub-contracting and through services to the foreign investors.

Pacific ACP (PACP) negotiators presented proposals on the issue of export taxes and infant industry safeguards during the last negotiating round in Brussels from 17-26 September, 2008 saying they would come forward with additional proposals. The EC is waiting for these proposals and will take them into consideration once they are tabled.

The Commission has stated its willingness to be flexible on the issue of export taxes but has repeatedly asked Pacific ACP representatives to provide concrete and specific examples on how and where export taxes will be used, however, the PACP has, to date, failed to provide any such examples.

Further discussions on exceptions for infant industry and export taxes can only be based on concrete market access offers, where the EU and PACP can discuss in detail, the reasons why and how specific countries need relaxation in rules for infant industry and export taxes. The EU feels that such offers should be tabled for discussion as soon as possible should PACP countries intend to keep their agreed end-of-2008 deadline.

EPAs and Regional Integration

The issue of regional integration under the EPAs has also been a contentious one for some stakeholders and NGOs who have argued that the EPA negotiating process forces ACP countries into affiliating themselves with only one region that will negotiate a far-reaching agreement with the EU, (thereby) jeopardising many other autonomous regional integration initiatives. They continue that several aspects of the trade liberalisation process vis-à-vis the EU, as envisaged in the EPAs, will involve very complex harmonisation and coordination processes within the ACP EPA regions. The process, they say, should not lead to regional integration in the ACP at a forced speed driven by an EU vision and agenda of integration.

The EC, for its part, says that the ACP-EU commitment to regional integration and building regional markets among ACP countries has not changed. While the EU and Caribbean have signed a full regional EPA, elsewhere the overriding priority has been to secure market access as of 1 January, 2008 for those ACP countries which faced the risk of increasing tariffs and did not belong to the group of Least Developed Countries (LDCs) which enjoy the free market access under the EU’s Everything But Arms (EBA) initiative. The interim EPAs not only avoided this risk, but were specifically drafted to lay the basis for negotiations toward full regional EPAs to continue.

While it has recognised the importance of international integration, the EC has maintained that regional integration is a key driver in all EPAs. Regional integration has been a key principle of the Cotonou Partnership Agreement (CPA) and the EPAs which are directly related to the CPA. The EC argument is that regional integration is a key impetus for the development of ACP countries which, by creating larger markets for ACP producers, will stimulate economic growth in the ACP and will assist the integration of ACP countries into the world economy. By negotiating on a regional basis, EPAs, which are expected to have a wider scope than just reciprocal trade liberalisation, will allow ACP countries the opportunity to strengthen their regional integration process and create dynamic regional markets, conducive to investment and development.

World Bank Report on EPAs and Africa

A World Bank report released this month (October, 2008) entitled Economic Partnership Agreements Between Africa and the European Union: What to do Now? calls the interim EPAs a “flexible, variable-geometry tool”. It stresses the flexibility and adaptability of EPAs saying that liberalisation will be slow with a limited adverse impact and a high potential for positive reform.

According to the report, EPAs give African policy-makers the opportunity to overcome domestic resistance to reforms. Without these, it says, it would be difficult for ACP countries to make the most of access to European markets granted by EPAs. The report calls for more liberalisation of African economies and suggests African EPA signatories cut Most Favoured Nation (MFN) tariffs to boost competition and prevent distortions at local level. It estimates that revenue losses will be modest overall, amounting to only one to four percent of total tax revenues at a short-term.

On rules of origin, the report says that “further liberalisation of the EPAs current restrictive rules of origin will be the key step” on the EU side. It states that simplification and relaxation of rules are a much higher priority.

Other Misconceptions

ACP countries have been forced into interim EPAs by European
Commission pressure

This is not true. The pressure came from the expectations of other WTO members, including non-ACP developing countries, that the EU and the ACP would respect their commitment to make their trade relations WTO-compatible by 1 January 2008. The countries that signed interim EPAs recognised they need to do this to be part of the multilateral trading system and made clear their strong commitment to the objectives of
the agreements and their conviction to build on them to agree full regional Economic Partnership Agreements in 2008.

Countries that have signed interim EPAs will see their markets flooded with cheap European imports

The suggestion that the EU was motivated by commercial self interest in the EPAs is wrong: EU companies want integrated supply chains that build up processing in ACP countries, not barriers that prevent it. EU companies export very little to the ACP and EU investors show too little interest in building up companies in these markets. Under the terms of the interim EPAs, the ACP countries are free to exclude a wide range of sensitive goods and sectors from any liberalisation.

Cuts in import duties as ACP countries liberalise will undermine government revenue

ACP countries have excluded many products from any liberalisation at all and will liberalise other tariffs over 10 to 15 years, lowering the tariffs on imports that the ACP economies need first. This will prevent dramatic changes in revenue. This said, the EU is
ready to assist with fiscal reform and adjustment to help cushion any net fiscal losses observed as a result of EPAs and has the means to do so. Economically, moving away from high tariffs is an important part of economic reform and the right thing to do. Replacing customs tariffs by other sources of fiscal revenue makes sense because taxes on imports suppress economic activity and are better replaced by sales, excise or other revenue taxes. These other forms of taxes are a more sustainable way to finance much needed basic social services such as health and education. In the early stages of liberalisation customs revenues can even increase as trade is stimulated when tariffs begin to come down.

The EU has suggested that future development funds are conditional on the signing
of an EPA

The EU has never tied development finance to the signing of EPAs. For example, on 9th December 2007 in Lisbon, the Commission signed strategy papers allocating €8 billion of the 10th European Development Fund (EDF) to 31 African countries for 2008 – 2013 using development criteria independent of the country's position on EPA (half of them have not agreed any form of EPA). The regional financing element of the EDF does support ACP regional integration but its programming guidelines do not specify that this must involve an EPA. It states only that where there is an EPA, funds must support the smooth implementation of any related commitments.

ENDS

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