ACP countries, Europe and the WTO: what agreements can be reached to promote development?
|21 may 2007 |
In order to convince African, Caribbean and Pacific (ACP) countries, which are still very reluctant to commit to new trade agreements with the European Union, the Commission unveiled a new proposal at the beginning of April focusing on the details of the Economic Partnership Agreement (EPA). With unlimited access to European markets and a period of transition for sensitive products, the EU means to confer on ACP countries their status as privileged trading partners. These proposals must, however, be placed in perspective with regard to the turbulent history of their relationships in this area. From Lomé to Cotonou and with a view to Economic Partnership Agreements, these relationships have committed them towards increased liberalisation of trade, but this comes at a price which is yet to be determined, and it may be a high one for developing countries. It is therefore necessary to take stock of the issues and questions raised by Europe’s position, and to show the extent to which WOAgri can provide tools that will be useful in the years to come.
1. From Lomé to Cotonou: the viewpoint of EPAs in the process of the liberalisation of international exchange
The Lomé Convention, which was signed by 9 EEC countries and 46 African, Caribbean and Pacific countries in 1975, established a privileged and negotiated relationship between Europe and EPA countries.
It covered two areas:
> The first involved technical and financial cooperation and included, among other things, the STABEX Programme for stabilising exports for agricultural produce1. Despite the attractiveness of this programme, it ended in failure, mainly for management reasons. While it would not be possible to revert to such a system today, it was an experiment to which WOAgri will have to give thought, given the interest that this type of system could generate for developing countries as part of a modernised system of international cooperation.
> A second commercial section established preferential, non-reciprocated margins, for almost all products exported to Europe: 93% of ACP products – essentially tropical products – were thus free to enter without customs duties. Certain so-called sensitive products were subject to restrictions on entering the European market, as quotas (on sugar, beef and bananas, for example).
These were therefore relatively major preferences, placing ACP countries at the top of the pyramid of trade privileges that the EU maintains with outside countries. But this relative advantage has been continually weakened because of the worldwide liberalisation of trade (with the lowering of duties advocated by the WTO) and the multiplying numbers of trade agreements signed by Europe with other partners.
The result was that in 2000, these preferential margins represented an average of no more than 2% for all products and services deriving from ACP countries compared with other developing countries. For agricultural products, they only reached 4.5%.
The Lomé system did not, therefore, succeed in curbing the marginalisation of ACP countries in trade: their exports are largely undiversified and still very dependent on the European market.
During the 1990s, a reform of the Lomé Convention took place. There were three reasons for this:
> failure of its commercial section to conform with WTO rules (non-reciprocity of rules and discriminatory preferences with regard to other developing countries),
> its ineffectiveness with regard to integrating ACP countries in international trade,
> finally, Europe’s re-specification of the way it organised its trade with outside countries.
After 8 years of bargaining, negotiations aimed at reforming the Lomé Convention resulted in the signing of the Cotonou agreement. This took place on 23rd June 2000, and governed trade relations between the European Union and 78 ACP States2 for a 20-year period, with the possibility of carrying out a review every 5 years.
This agreement only specified the framework and timeframes of future negotiations: geographical coverage, the products involved, the liberalisation process and associated actions are yet to be precisely defined.
What does it envisage? While cancelling the STABEX programme, it proposes a radical modification of the commercial section established by Lomé. In order to establish the reciprocity of preferences, which was a condition imposed by the WTO, it advocates the establishment of a free trade area between Europe and the various ACP regions: the Economic Partnership Agreements (EPA).
These same EPAs must promote economic integration between ACP countries belonging to the same area in order to enable the creation of larger and more stable markets. To do so, Africa found itself divided into four regional groups3 . The Caribbean and Pacific each represented a separate group.
According to the Cotonou agreement, the EPAs must come into force by no later than 1st January 2008, and will be implemented until 2020. Between 2000 and 2008, the Lomé system is being maintained through a dispensation agreed by the WTO.
The various ACP countries can, of course, refuse to ratify a new agreement. But the Cotonou agreement creates the possibility of an imbalance between ACP countries . In fact, those ACP countries4 belonging to the list of Least Developed Countries (LDCs) that were not signatories to EPAs would be able to benefit anyway from freedom of access to the European market for all of their products under the terms of the “Everything But Arms5 ” initiative. However, the ACP countries that were not LDCs and were not signatories may lose some of their advantages and be subject to an alternative system (probably the GSP, the Generalised System of Preferences, in which preferences are agreed equally to all Developing Countries - DCs).
> The Lomé Convention, signed in 1975, established a privileged trading relationship between ACP countries and the EU.
> The preferential margins granted to the ACP countries were then non-reciprocated.
> But these privileges weakened with the liberalisation of the European market within the framework of the WTO and the increasing numbers of bilateral European agreements. The economies of ACP countries are therefore still on the margins of world trade.
> The Cotonou agreement signed in 2000 established preference reciprocity and advocated
2. From Cotonou to today: implementation of the EPAs could have a negative effect on the development of ACP countries
Why has it taken eight years to give concrete form to the Cotonou agreement? Because the new Economic Partnership Agreements may have negative effects in terms of accessing the European market, competition of EU products in ACP markets and tax revenue and regional integration:
> on exports: it was not only bananas, beef and sugar that were able to benefit from Europe’s domestic prices being fixed by the CAP, but a free trade agreement with Europe may also lead to the loss of local and regional market shares for some countries.
> on imports: how will the domestic markets of ACP countries, eroded as they are by production constraints (weak infrastructures, economic and political instability and fragile financial systems), be able to react faced with opening up to competition with European produce? This is particularly so for food products of which ACP countries are short (cereals, dairy produce, beef, poultry and pork). Opening up the markets may also increase dependence on foreign markets and specialisation of the agricultures of ACP countries by giving preference to growing for export rather than for food production.
> on taxation: in a large number of ACP countries, over 20% of government revenues still derive from border crossing tariffs. Removing duties on European imports would, in many cases, cut these revenues by half. Since diversifying tax resources is very hard to do, national budgets could find themselves in real difficulty. Impact surveys financed by the European Commission have tried to assess these losses: in Tanzania, for example, they represent 20% of revenue, 16% in Uganda and 14% in the Congo and Chad.
> on regional integration: regional integration produces various positive effects such as encouraging investment and stimulating local trade because of the credibility and stability of trading policies. It also allows regional specificities to be taken into account. But this also increases the number of areas of negotiation and we cannot be certain that, in the medium term, ACP regions would have the administrative, institutional, political, economic and social capacities required to finalise the process of integrating and perfecting a single trade policy.
These risks come in addition to the undynamic negotiations of the WTO and to the parallel regional discussions about integration, not to mention to the bilateral trade negotiations with third parties: the negotiating capacities of African countries are under great pressure and their future is very difficult to discern.
The EPA negotiations therefore give the impression of simply going on and on…
> EPAs are potentially negative for ACP countries in terms of accessing the European market, of competing EU products in their markets, of tax revenue and regional integration.
> Talks are taking place alongside the Doha Round negotiations, the ups and downs of which slow down the EPAs that nobody really wants.
3. Europe’s new proposal and the reaction of ACP countries
a) Europe’s new proposal
On 4th April 2007, the EU proposed the abolition of all remaining tariff and quota limits for accessing EU markets for all ACP regions. South Africa will be the only exception and will continue to pay duties on a certain number of globally competitive products.
All ACP countries would thus be given unlimited access to the EU market, access already available to the Least Developed Countries as part of the “Everything but Arms” initiative. According to the EU, this “will encourage neighbouring ACP countries to collaborate and construct regionally-supplied markets and procedures – which will address the concerns of agricultural exporters in countries such as Kenya and Ghana”.
This would therefore put an end to segregation between ACP countries that are LDCs and those that are not.
This proposal is not linked to the condition of equivalent total and immediate reciprocity by ACP countries. If WTO regulations do require this to take place, a certain amount of flexibility will enable it to take place over a phase-in period that should be in excess of 12 years (the length of time that is usually granted for bilateral agreements of this kind). According to the EU, ACP countries would also retain the option to protect sensitive products, which would eliminate the threat faced by local producers, caused by the removal of duties.
The proposal covers all products, including agricultural products such as beef, dairy produce, cereals and all fruit and vegetables. It will apply in totality from the first day on which it comes into force – which is expected to be 1st January 2008 – with the exception of phase-in periods for sensitive produce such as rice and sugar. These must protect the interests of producers both in the EU as well as those in ACP countries. For sugar, this would come to an end in 2015.
Founding rules that are “simpler and better able to promote development” would also be established: they would guarantee market access for produce deriving from ACP countries and not from other countries that may only have benefited from the transit of this produce through their own countries.
According to the investment rules incorporated within the agreement by the European Union, EPAs should “facilitate the arrival, within regional organisations, particularly in Africa, of foreign investment and prevent leakage of national and regional investment”.
Europe is rejecting the possibility of prolonging a dispensation granted by the WTO that it views as unlikely and too costly in terms of the erosion of preferences. At the time, hadn’t the previous dispensation already been granted in exchange for reductions in preferential access agreed to ACP countries?
In case negotiations break down, the EU should therefore fall back on the generalised preference system, which applies the same treatment for all developing countries.
> The EU is proposing to open up its market totally to all ACP countries and for all products apart from rice and sugar, for which a phase-in period would be arranged.
> ACP countries would progressively open up their markets over a phase-in period in excess of 12 years.
> A list of sensitive products and services that would be liable for specific trading rules could be drawn up by ACP countries.
b) The reaction of ACP countries
Scepticism is still the order of the day for ACP countries. The fear of seeing their local agricultures threatened by the opening-up of their markets, even if this takes place progressively, is not allayed by EU proposals. Deborah Scott of the Agency for Co-operation and Research in Development (ACORD), a pan-African NGO, sees EPAs as “a real threat for African agriculture”. She does not believe that lowering duties will make it easier for small producers to gain access to the European market: without reforming the founding rules and actual assistance in seeing that quality standards required by the EU are met, ACP products will remain outside European borders. “This is hardly a generous offer as the EU is offering to eliminate tariffs on the remaining 3% of ACP imports, and in return they demand that Africa eliminates 80% of its tariffs on EU imports”6 » .
And what are the main issues for negotiations? The list of sensitive products and services (determined for each of the six ACP regions) and the duration of the phase-in period. Farmers in West Africa are rejecting the idea of an agreement being reached too quickly: Yamar Mobodj, who is an expert from the Economic Community of West African States (ECOWAS), states that “increasing African integration, developing the region and accompanying measures are prerequisites for EPA negotiations”. He stresses, however, that the EU and Africa are condemned to sealing a partnership that must result in development: “In Africa, agriculture is the core"7.
> ACP countries remain sceptical: opening up their markets is not free of risks.
> The founding rules, no-tariff barriers, the list of sensitive products and the duration of the phase-in period are grey areas.
While we await further advances in negotiations and any reaction that may come from WTO management, certain things can be learned from these turbulent trading relationships.
As was stressed previously, three elements distinguish the integration of ACP countries within world trade: their marginalisation, their non-dynamic specialisation in basic products and their dependence on the European market and other major agricultural powers.
While Europe may previously, with the Lomé Agreement, have considered that the self-reliance of ACP countries would, eventually, enable them to become integrated into the global economy, it’s wager is now that, on the contrary, it is by exposing these countries to international competition that they will succeed in achieving economic and social development.
Now, what is at stake for ACP countries revolves more around the compensation that they will have to agree to Europe than what Europe will grant in terms of market access. This proposal by developed countries is, moreover, eased to a great extent by the numerous non-tariff obstacles (health norms in particular) of European markets.
Will the phase-in period during which the markets of ACP countries will progressively open up to European competition enable developing economies to make up their lost ground? Will the EU and ACP countries be full trading “partners” according to an agreement with real reciprocal benefits?
Given the differences in relation to the competitiveness between the ACP and EU economies and the underlying downward trend of duties at European Union borders, one has every right to wonder what remains of the “special” system accorded to ACP countries by the Lomé agreement.
Does this put an end to privileges or does this mean opening up the economies of these countries for the sole benefit of developed countries and for the sake of the liberal doctrine of the WTO? The closer the implementation of the EPAs gets, and whatever the adaptations put forward by Europe, the deeper the uncertainty, due to an inability to assess the consequences in the short, medium and long term on the economies of ACP countries. This is where the lack of instruments for evaluation and impartial analyses makes itself cruelly felt. And it is this gap that WOAgri wishes to fill by building an international assessment agency and an economic model that is specifically devoted to agriculture. These tools will enable better decisions to be made and, above all, things to be seen things more clearly!
|1 Put forward by the European Commission, this system made significant means available to ACP countries to finance their agricultural sectors when they encountered difficulties caused by reduced income from exports. The system comes into play after reduced income from exports is observed, without intervening in the market. A reference level is established according to country, and the system guarantees the recipient country a transfer of financial resources that is equal, wholly or partially, to the difference between the actual value and the reference value. |
2 This group comprises the 48 countries of Subsaharan Africa, 15 Caribbean states and 15 Pacific states. East Timor joined the Cotonou Agreement in May 2003.
3 The Economic Community of West African States (ECOWAS), the Economic and Monetary Community of Central Africa (EMCCA), the East African Community (EAC), the Southern African Development Community (SADC).
4 The ACP countries are all Developing Countries. They break down into two categories according to whether or not they are seen as being among the Least Developed Countries (LDCs).
5 The removal of tariffs and quotas for all products entering the European Union from the Least-Developed Countries (LDCs), with the exception of arms. This decision came into effect in March 2001. This liberalisation is, however, being carried out progressivley until 2007 for rice, bananas and sugar.
6 Source : www.bilaterals.org
7 Source : www.allafrica.com