THE COMMISSION’S APPROACH TO FUTURE ACP-EU TRADE NEGOTIATIONS:
A CRITICAL ANALYSIS
The Commission’s Basic Approach
It seems likely that the European Commission in its negotiating instructions will narrow down the options for future ACP-EU trade relations to the negotiation of economic partnership agreements[1]. While emphasising the need for flexibility to accommodate the different needs of ACP countries the Commission is looking in the longer term to be able to extend and merge various economic partnership agreements. As a consequence it is looking to negotiate agreements which are as similar as possible. Against this background the Commission feels that there is no need to await the decision of ACP countries on the various geographical configurations for negotiations before seeking negotiating instructions form the EU Council of Ministers.
The Growing Importance of Non - Tariff Barriers
There is growing recognition that a range of regulatory measures(health and safety issues, rules of origin etc) now constitute the principal barriers to ACP exports to the EU.The importance of these issues is highlighted by the on-going study financed by DFID on improving market access for developing countries and economies in transition. There is a need to ensure that these regulatory issues are taken up and addressed within any process of future ACP-EU trade negotiations from the perspective of ensuring that essential EU food safety and animal hygiene concerns are addressed, whilst minimising the additional costs placed on small scale ACP suppliers.
Extending And Merging Agreements: Implications for SADC
The Commission’s desire to negotiate agreements which can be extended and merged has a particular significance in Southern Africa, where the EU already has a free trade area agreement in place with South Africa, which de facto includes four other ACP countries, Botswana, Namibia, Lesotho and Swaziland. Significantly in the section of the Swazi Country Support Strategy dealing with trade agreements, no reference at all is made to Swaziland’s participation in the forthcoming economic partnership agreement negotiations. This implicitly recognises that the EU-South Africa Trade, Development and Co-operation Agreement is de fact being extended to Swaziland. If this is the case, with the SADC Trade protocol creating a free trade area amongst the majority of SADC countries by 2008, it would appear to be only a small step to the extension of the existing EU-South Africa Trade, Development and Co-operation agreement to the broader SADC region. Even if the existing agreement is not simply extended, then it can be envisaged that within a few years the two agreements would be merged.
ACP Market Access
The Commission is likely to propose to EU member states that upon entry into force of economic partnership agreements ACP countries should be given complete duty free access for all originating goods[2]. The Commission believes this would have a negligible impact on the EU market.
However, extending the preferential market access enjoyed by ACP countries is not seen as the most significant aspect of the proposed economic partnership agreements. Rather the
Commission is seeking to place the emphasis on the broader benefits which will be gained by ACP countries from the creation of a larger integrated economic area characterised by a stable, predictable and transparent policy framework. Within the Commission’s economic partnership agreement approach the emphasis is very much on creating a new trade dynamic between ACP and EU countries.
Living Up To Commitments
If the European Commission is proposing that upon entry into force of economic partnership agreements ACP countries should be given complete duty free access for all originating goods, the question arises, why has the Commission not already taken steps to extend complete duty free access to all goods originating in Botswana, Lesotho, Namibia and Swaziland, given that they are part of a free trade area agreement with the EU which has already entered into force?
According to the European Commission the creation of this larger economic area will bring benefits to ACP countries in terms of:
*the exploitation of economies of scale;
*the development of increased specialisation;
*increased competitiveness;
*attractiveness to foreign investment
*increased intra-regional trade flows;
*increased trade with the EU
*increased trade with the rest of the world
Proofing the Case Not Simply Asserting The Case
The Commission’s argument that a multiplicity of benefits will flow to ACP countries as a consequence of the conclusion of economic partnership agreement needs to be subjected to careful scrutiny, in the light of both the circumstances facing ACP countries and the wider developments in EU trade policy. Economies of scale benefits will only be gained if the supply side constraints facing ACP countries are comprehensively addressed. Improved specialisation gains raise important questions about the areas in which ACP countries can develop the capacity to specialise. Will these be areas with higher demand growth and stronger price trends than the current products in which many mono-crop ACP countries specialise? While it is clear how EPAs will increase EU exports to ACP markets (since tariffs will be eliminated on EU exports and at a minimum EU goods will be made more competitive vis a vis third country suppliers), it is far from clear how EPAs will increase ACP exports to the EU. This appears to assume increased investment flows into ACP economies. But will these increased investment flows really transpire when many ACP economies are remote, have poor transport infrastructure, lack efficient public utility provision and face serious human resource constraints, while the EU sits at the centre of a the network of free trade area agreements which provide access to 3 to 4 times the combined ACP-EU market? With regard to the intra regional ACP trade benefits surely these can and are being promoted without any need for concluding economic partnership agreements with the EU. If the actual realisation of all these benefits is problematical, then so would be the supposed benefits derived from EPAs with regard to ACP trade with the rest of the world. Clearly the case for EPAs needs to be demonstrated and not simply asserted.
The Scope of Economic Partnership Agreements
The first pillar of the proposed economic partnership agreements is the creation of a free trade areas in line with Article XXIV of the GATT, involving substantially all trade and with a transition period of 10 years. ACP countries will be allowed to exclude certain products providing at the end of the transition period substantially all trade is liberalised (around 90%). More than a 10 year transition period could be allowed but this would only be under exceptional circumstances. In order to accommodate the needs of least developed countries the Commission is willing to consider variable implementation of tariff phase downs between ACP countries signatories to the same economic partnership agreement. For example, this would involve least developed countries lowering tariffs on imports from the EU at a slower rate than their non-least developed country neighbours which are also part of the economic partnership agreement.
The second pillar of the proposed economic partnership agreements is the removal of market segmentation, through the simplification and reduction of administrative obstacles to trade.
The Customs Service Constraint on Variable Implementation
While the Commission argues that variable speed implementation is possible to accommodate the needs of least developed countries given the limited customs enforcement capacity in most ACP regions, this would just lead to increased levels of smuggling and would simply be trade diverting.
The Commission is also looking to create a free market in services through the negotiation of economic partnership agreements and to negotiate a wide range of agreements in trade related areas which build on existing international agreements. Trade related areas to be covered under the proposed economic partnership agreements include: liberalisation of capital movement; non-discrimination in investment, opening up of public procurement at all levels; mutual recognition agreement for various standards and the negotiation of equivalency agreement for SPS standards. The Commission is also looking to establish extensive programmes of technical assistance and capacity building activities, in order to assist ACP countries in negotiating in trade related areas.
The Agenda Behind Trade Related Provisions
The proposed liberalisation of capital movements which the European Commission’s current approach seeks to bring about could potentially have profound implications for currency stability in ACP countries. Similarly the provisions on investment (particularly those dealing with non-discrimination) would appear to be a back door way of getting the issues dealt with under the multilateral agreement on investment once more back on the international agenda.
With regard to the opening up of public procurement at all levels (including the local authority level) this was something which the South African government resisted under the TDCA negotiations, since it was felt to compromise various economic empowerment programmes which were being put in place. Such rules on public procurement could, for example, prevent local authorities granting preferential treatment under tenders to companies implementing gender sensitive policies.
The Commissions proposed approach on sanitary and phytosanitary issues would appear to run counter to current discussions in the EU Agricultural Ministers Council where mutual recognition and equivalency agreements are increasingly being questioned, given the perceived need to strengthen measures to protect European farming and European consumers from animal and human diseases. Commission trade negotiators may thus find themselves unable to deliver in these important areas under any economic partnership agreement negotiations.
The Commission has recognised in various statement that there will be a need for appropriate “flanking policies” and the adoption of appropriate development strategies, if ACP countries are to be able to effectively benefit from economic partnership agreements. There has even been some limited acknowledgement by the European Commission that assistance in addressing infrastructural problems in ACP countries will also be needed. In passing there has also been some acknowledgement that budgetary support and assistance with fiscal restructuring may also be needed in some ACP countries. However, in these areas the talk is only of utilising existing EDF resources and instruments. This is scarcely adequate given the relatively poor record the EDF has in comprehensively addressing supply side issues (see later section).
Comprehensively Addressing Supply Side Issues
The European Commission places far more emphasis on addressing policy constraints than it does on addressing the material and human resource constraints which inhibit competitive production in ACP countries. Clearly the European Commission and the ACP collectively will need to reach beyond current approaches and current institutional arrangements if comprehensive programmes to address supply side constraints in ACP countries are to be effectively supported. Addressing this issue will prove absolutely essential if the potential benefits which economic partnership agreements hold out are to be effectively realised (see later section for more details). If supply side constraints are not comprehensively addressed, then ACP countries could find themselves bearing the costs of economic partnership agreement without gaining any of the benefits. This is a very real danger given the current narrow tariff elimination focussed approach which the European Commission is adopting to the forthcoming ACP-EU trade, development and economic co-operation arrangement negotiations
Negotiating “Flexibility” and the WTO
The Commission maintains that it is committed to accommodating the different levels of development of ACP countries and adopting a differentiated approach.
The Commission appear to feel that the different levels of development of ACP countries can be taken into account in terms of:
*the duration of transition periods;
*the final product coverage included in full trade liberalisation;
*the sensitive sectors and products excluded from the scope of liberalisation;
*the degree of asymmetry in the extent of duty free access granted by the EU to ACP exports compared to the duty free access granted by ACP countries to EU exports.
However given that the Commission sees WTO rules and Article XXIV of the GATT as the guiding principles for the forthcoming economic partnership agreement negotiations, only in exceptional circumstances will variations be allowed from the WTO established norm.
Despite the Commission’s commitment to differentiated treatment of ACP countries in the light of their levels of development it is becoming apparent that this principle of differentiation will not extend to ensuring least developed countries retain there rights to non-reciprocal trade treatment. If least developed countries join economic partnership agreements they will be expected to give up their right to non-reciprocal trade preferences. Within the Commission’s approach least developed countries would only be accorded special treatment with regard to the delayed start of implementation and a slower pace of tariff dismantling.
The Commission does however appear to be considering the inclusion of clauses allowing the suspension of economic partnership agreement, if particular difficulties arise. However, this will only be allowed in exceptional circumstances. Joint institutions to be established to monitor the implementation of economic partnership agreement would presumably be the bodies to determine when and if exceptional circumstances have arisen which warrant the suspension of any or all of the provisions of the economic partnership agreement.
A Flexible Interpretation of Flexibility?
Following the Doha WTO Ministerial meeting, the European Commission expressed the view that the Ministerial resolution in Doha allowed negotiations to start on “clear and quite strict rules defining the conditions to be met for free trade areas and regional agreements to be WTO compatible”. If this is the case, then it is difficult to reconcile the Development Directorate’s commitment to “defending” flexibility in ACP-EU economic partnership agreement negotiations, with the Trade Directorate’s efforts to ensure that “clear and quite strict rules” are drawn up on what is a WTO compatible free trade area arrangement. Indeed, the EU’s commitment to “clear and strict rules” would appear to run counter to the need for “flexibility” in order to accommodate within economic partnership agreement negotiations the very different economic and social constraints facing ACP countries.
The Major Shortcomings of the Commission’s Approach to Future ACP-EU Trade Negotiations
-Ignoring the External Effects of the CAP
Within the Commission’s approach to economic partnership agreement negotiations no consideration at all is given to the external consequences of a reformed Common Agricultural Policy. Yet it is clear that with a process of reform of the Common Agricultural Policy underway designed to enhance the competitiveness of EU agricultural and value added food product industries on national and international markets, this will have an impact on the market conditions facing ACP producers of similar or competing products.
Agenda 2000 reforms in the beef sector have already resulted in a 13% decline in average EU beef prices. This clearly effects the returns to ACP beef exports to the EU market. The European Commission has estimated that if reform of the sugar sector were to be pursued involving a 25% reduction in the EU sugar price, then this would result in annual income losses to ACP sugar exporters of around US $ 250 million.
In the cereals sector, where the process of CAP reform is most advanced, average EU cereal prices have fallen 50% since 1992 and the EU intervention price for maize, wheat and barley is projected to be at, or below, world market price levels in the coming years. This will have clear implications for the relative competitive positions of EU and ACP cereal producers, manufacturers of cereal based value added food products and pig and poultry producers[3].
Against this background, given the importance of agriculture and agro-processing industries in ACP countries and with agricultural products accounting for around 36% of ACP exports to the EU market, there is a need to identify and address the effects of the reformed common agricultural policy on the competitive position of ACP agricultural producers and agro- processing industries within any process of future ACP-EU trade negotiations. There is clearly a need for comprehensive assessments of the likely implications of the on-going process of reform of the Common Agricultural Policy on diverse ACP countries. Where the external effects of reform of the Common Agricultural Policy impinge upon the essential trading interests of ACP countries, there is a need for the establishment of consultative mechanisms to look at how to minimise the negative effects of reform on ACP countries. This will, for example need to influence the extent to which ACP imports of EU agricultural and processed food products are actually subjected to free trade
Despite protestations from the Commission Agricultural Directorate to the contrary, such consultations need not undermine the sovereign rights of the EU to determine its own internal agricultural policy. Such consultations would however seek to acknowledge that this internal policy has external implications, which, in the spirit of partnership, need to be taken up and addressed within any process of negotiations.
-Underplaying the Fiscal Implications
While the Commission’s approach acknowledges that there will be some consequences for ACP government revenues flowing from moves towards free trade with the EU, there are no indications that the European Commission intends to include consideration of how to address the fiscal challenges arising from moves towards free trade with the EU within the process of economic partnership agreement negotiations.
This is a major shortcoming within the European Commission’s approach. In a number of ACP countries the revenue losses arising from moves towards free trade with the EU are likely to be severe. An analysis of the provisions of the EU-South Africa Trade, Development and Co-operation agreement reveals that revenue losses for neighbouring Botswana, Lesotho, Namibia and Swaziland will range from 5.3% of total government revenue (Botswana) to 13.9% of total government revenue (Swaziland). With this scale of revenue losses occurring at a time when ACP government will need to be developing comprehensive programmes designed to address supply side constraints to lay the basis for enhanced international competitiveness. Clearly this issue of the fiscal implications of the move towards free trade with the EU needs to be taken very seriously indeed.