PAAP
Policy Analysis and Advocacy Programme
Association for Strengthening Agricultural Research in
Eastern and Central Africa (ASARECA)
Electronic Newsletter
04 April 2008--Volume 11 Number 06
TRADE: THE STATUS OF EPA NEGOTIATIONS IN EASTERN AND SOUTHERN AFRICA
Ten African countries have signed interim Economic Partnership Agreements (EPA) with the European Union. The countries which have so far signed are: Kenya, Uganda, Tanzania, Burundi and Rwanda, all members of the East African Community. Others are; Mauritius, Seychelles, Comoros, Madagascar and Zimbabwe from the Eastern and Southern Africa and Indian Ocean States configuration. Under the agreements all residual tariff barriers have been removed; in the case of sugar, transitional quotas have come into force. As this Executive brief of February 2008 from the Technical Center for Agriculture (CTA) shows, some issues have remained contentious, particularly those relating to safeguard measures, rules of origin and food-safety issues, preference erosion, aid for trade, supply-side constraints, procurement provisions and the possible consequences of the EU’s most favoured nation (MFN) clause.
Introduction
T
HE EAC countries initialled the agreement on 23 November 2007; it grants duty-free, quota-free access to 100 percent of the EAC member states’ exports, with quantitative ceilings and safeguard restrictions during the transition period for EAC sugar exports. By contrast 82 percent of EAC imports will be subject to trade liberalisation. This will ensure duty-free access for 64 percent of EU exports within two years, 80 percent within 15 years and the remainder where commitments are made over 25 years. Food and agricultural products represent the main category of products excluded from tariff-elimination commitments, although other sensitive products are also excluded.
The ESA configuration states signed an interim EPA agreement between 28 November and 11 December 2007, with the agreement remaining open to the accession of other ESA members if they so desire. As in the EAC context, full duty-free, quota-free access was allowed effective 01 January 2008, with the exception of the special transitional arrangements for sugar and rice. The reciprocal tariff-elimination commitments however vary from country to country within the ESA.
Zambia initially appeared willing to sign, but declined to accede before an agreement on the tariff offer was agreed. Malawi is expected to join the ESA EPA in 2008 if issues around the structure of its tariff offer are resolved. However, Malawian civil-society bodies have called on the government not to sign the interim EPA and to rely on the Everything But Arms (EBA) arrangement. Major outstanding issues need to be resolved before a comprehensive EPA can be concluded, including a number of agriculture-related issues. According to the European Center for Development Policy Management (ECDPM) ‘the ESA wants to include provisions on export subsidies and domestic support in the EPA’ and to see commitments on support for processing, marketing, distribution and transport operationalised. The EC has categorically refused to discuss export subsidies and domestic support in bilateral Free Trade Area (FTA) negotiations. Major development-cooperation issues, and issues related to the development dimension also need to be addressed.
Elimination of all residual tariff barriers – except for sugar
Under both the EAC and ESA agreements the granting of duty-free, quota-free access in all areas except sugar, effectively removes all quantitative restrictions on duty-free access. This also extends to the removal of all special duties on food and agricultural products (with the possible exception of high-sugar-content products during the transitional period). In the EAC context the principal beneficiary is Kenya, with the elimination of residual duties and import restrictions on fruit-and-vegetable exports formerly enshrined in declaration XXII being potentially of some significance in terms of investment flows into these sectors. In recent years, the more favourable tariff treatment accorded to east African LDCs, combined with the importers’ need to ensure a diversity of supply in order to guarantee continuity, has seen new investment concentrated outside of Kenya. The equalisation of tariff treatment across EAC members could well serve to attract further investment into Kenya given its infrastructural advantages (although in the immediate future these benefits could be negated by recent political developments, while in the longer term the debate on food-miles is leading to uncertainty as to consumer responses to air-freighting food products). All other EAC members, given their LDC status, already enjoyed these tariff preferences under the EBA initiative.
In the ESA context, the conclusion of the interim EPA ensures continued duty-free access to the EU market for Mauritius, Seychelles and Zimbabwe and in addition removes all remaining residual tariff barriers, with potential benefits for Mauritius and in the long term Zimbabwe, in regard to attracting investment in product areas (largely fruit and vegetables) covered by Declaration XXII. In the case of Zimbabwe it also sees the removal of quantitative limits on beef exports, although this is of little direct benefit given the breakdown of animal-disease controls systems and the consequent ban on beef exports from Zimbabwe to the EU.
With regard to transitional arrangements for sugar, under the EAC agreement an additional tariff-rate quota with zero duty of 15,000 tonnes is to be opened for marketing year 2008/09, with a guarantee of prices equivalent to those paid under the sugar protocol. Since Kenya is the only non-LDC member of the EAC configuration this provision would primarily benefit it, although the volume of additional access granted falls short of Kenyan aspirations. After October 2009 the price offered by importers should not be less than 90 percent of the EU reference price for the relevant marketing year. For ESA interim-EPA members an additional quota of 75,000 tonnes has been made available, although it is not clear how this will be allocated at the national level. It can be presumed however that Zimbabwe will seek the lion’s share given its high level of dependence on the former special preferential sugar-access arrangement (43.2 percent of total duty-free access took place under the SPS arrangement, some 25,000 tonnes).
As in other regions however, total sugar imports into the EU from Africa, Caribbean and Pacific (ACP) countries will be subject to a safeguard arrangement: from October 2009 duty-free access will be granted subject to the application of the ‘dual trigger’ safeguard provisions applicable to all ACP sugar exports. This will be limited to 3.5 million tonnes for the ACP as a whole, with the following ceilings for non-LDCs: 1.38 million tonnes in 2009/10; 1.45 million tonnes in 2010/11; 1.6 million tonnes in 2011/2012 and for the following four seasons. Restrictions however are placed on exports of EAC sugar to French overseas departments (particularly Reunion), with the provisions of the EPA not applying for ten years, possibly 20 years, ‘unless the parties agree otherwise’.
Safeguard provisions
Under the ‘bilateral safeguard’ provision of both the EAC and ESA agreements, provision is made for ‘suspension of further reduction of the rate of import duty’ or an increase of the customs duty up to the World Trade Organisation (WTO) bound level or the ‘introduction of tariff quotas on the product concerned’. These provisions can be invoked where imports occur in such increased volumes as to ‘cause or threaten to cause serious injury to the domestic industry producing like or directly competitive products’. These safeguard provisions are available for 10 years (up to 2018), but can only be applied for two years (in exceptional circumstances such measures being extended for a further two years). However where they are applied for more than one year the measure must ‘contain clear elements progressively leading to their elimination at the end of the set period’. Normally before safeguard measures are implemented they must be considered by the ‘EPA Council, which has 30 days to decide if alternative remedies are possible’. If no decision is forthcoming from the EPA Council within 30 days then ‘the importing party may adopt the appropriate measures’. Once safeguard measures have been applied they cannot be re-imposed until at least one year has elapsed, that is, they simply cannot be rolled over beyond the two, or in exceptional circumstances, four years allowed, without a break in their application of at least one year. However in exceptional circumstances such measures may be immediately applied on a provisional basis for up to 200 days where ‘delay would cause damage’.
In the EAC context a critical issue relates to the territorial basis for the invocation of the safeguard measures agreed. The economic reality for Kenya is that, in value terms, it exports as much to fellow EAC members as it does to the EU. Kenyan companies therefore have a considerable interest in averting import surges from the EU of products which directly compete with Kenyan products on neighbouring EAC markets (for example the emerging intra-regional trade in prepared vegetables). The question is whether the current safeguard accommodates this critical concern, a concern which could become of wider regional relevance as intra-regional trade grows.
Currently, the text states that where imports are taking place in such a quantity as to cause or threaten to cause serious injury then ‘the EAC partner state concerned may take surveillance or safeguard measures limited to its territory.’ The key issue is how ‘its territory’ is defined. It is not clear whether the clause refers to the territory of individual EAC signatory states or the customs union as whole. Since the EAC is a single customs territory, and free-trade-area agreements are concluded between customs territories, this would imply that Kenya could invoke safeguard measures in response to an import surge into a fellow EAC member state, where import surges ‘threaten to cause serious injury to the domestic industry producing like or directly competitive goods’. This is likely to be an area of some controversy within the Southern Africa Development Cooperation (SADC)--EU EPA agreement, where the reference to ‘signatory SADC EPA state concerned’ appears to refer to individual member states’ political territories. This parallels the provision in the ESA-EU EPA, but raises the question of whether the slightly different formulation in the EAC-EU EPA was intended to accommodate Kenyan concerns. If safeguard measures were to be restricted to the political territory of the state invoking the measure, then the provisions as currently formulated would fail to address a major issue of concern to Kenya, namely averting import surges from the EU in those food and agricultural product areas where intra-regional trade is developing. This is an issue which could usefully be clarified in favour of EAC and ESA members in the light of the assurances given by EC President Barroso at the Lisbon EU-Africa Summit, and the moves towards a comprehensive EPA.
The rules-of-origin problem
In a number of agricultural sectors, (most immediately in the sub-sector of prepared bouquets of cut flowers, where for some bouquets involving non-originating blooms final packing has to take place in Europe) a number of specific rules-of-origin issues arise, which if not constructively addressed could inhibit movement up the value chain in east Africa. Currently, under both the interim EAC and interim ESA EPAs a commitment is made to review the provisions of the rules-of-origin protocol ‘with a view to their further simplification’ and taking into account ‘the development needs of the EAC party and development of technologies, production processes and all other factors, including ongoing reforms of rules of origin, which may require modifications to the provisions of this protocol’. This could offer opportunities to constructively address sub-sector-specific rules of origin, possibly through simplified derogation provisions and pan-African cumulation provisions. It remains to be seen whether these issues, essential to facilitating movement up the value chain in east Africa, will be fully exploited.
Food safety and sanitary and phytosanitary (SPS) issues and concerns
Issues related to food safety and the implementation of SPS barriers are becoming increasingly significant in trade between the EC and EAC member states. Elsewhere it is apparent that there is a need for a dialogue on the application of various EU standards in order to ensure that food-safety objectives are fully attained but in ways consistent with local production and the constraints of human and institutional capacity. Establishing institutional mechanisms for dialogue on the application of official regulations can be seen as a critical factor in minimising the cost-increasing effects of SPS and food-safety regulations, while at the same time fully respecting EU standards. Just what this can mean in practice is illustrated by the recent dialogue between EUREPGAP (now GLOBALGAP) and KENYAGAP, where procedures relevant to local circumstances were established, but in ways which fully respect EU food-safety requirements.
EUREPGAP standards require chemicals to be kept in a locked storage shed, with written records being kept of access to the store and usage of the chemical therein. In smallholder farming system building, such stores are prohibitively expensive. However Kenyan private-sector specialists pointed out that the underlying objective could be attained by having a locked chemical storage box, for which written records of access and usage are kept. The underlying objective was attained at much lower overall cost, making compliance by smallholder producers much easier.
Elsewhere the call has been made for special dedicated financing facilities to support food-safety compliance and verification in ACP countries during a transition period, with in addition resort to a binding dispute-settlement arrangement whenever disputes over the application of SPS rules arise. In the EAC-EU and ESA-EU interim EPAs there are no specific provisions on food-safety and SPS issues (unlike in the SADC text); equally there are no explicit provisions for aid-for-trade support in the areas of food-safety compliance and verification. While the ESA text on ‘Economic and development cooperation’ (Chapter IV) lists specific areas for cooperation in the sphere of private-sector development, infrastructure, natural resources and the environment, no explicit reference is made to cooperation in the sphere of food-safety and SPS compliance. This is equally the case with regard to the various areas for future negotiations listed in the text, and would appear to be something of an oversight given the growing importance of this issue.
In both the EAC-EU and the ESA-EU EPAs there are general dispute-settlement provisions, which commit the parties to dispute avoidance through consultations. Such consultations should take place through a written request, be held within 40 days of submission of the request, and be concluded within 60 days of submission of the request (unless both parties agree on a continuation). Particularly urgent matters can be taken up and addressed within 15 and 30 days respectively. If these consultations are not successful then the matter can be subject to arbitration. Each party appoints an arbitrator, within 30 days, with a mutually agreed third arbitrator also being appointed. No clear rules are laid down in the EPA with regard to the timeline for the conduct of this arbitration. However a commitment is made that ‘each party to the dispute shall be bound to take the measurers necessary to carry out the decision of the arbitrators. It is not clear whether these provisions apply to SPS and food-safety disputes, since the general exception clause excludes the application of these provisions where measures taken ‘are necessary to protect human, animal or plant life or health’. This would appear to exclude SPS and food-safety issues form the scope of these provisions.