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Waiting for EPAs: As if it matters

Paper for the ACP-EU Joint Parliamentary Assembly Committe on Economic Development, Finance and Trade

20-09-2012

Bilal, S. 2012. Waiting for EPAs: as if it matters.

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For Committee on Economic Development, Finance and Trade ACP-EU Joint Parliamentary Assembly

 

Introduction

At the opening ceremony of the negotiations of economic partnership agreements (EPAs) between the European Union (EU) and the African, Caribbean and Pacific (ACP) States, on 27 September 2002, the chairperson of the ACP Group arrived late, keeping hundreds of officials and diplomats, not least then EU Trade Commissioner Pascal Lamy, waiting for some long minutes. Ten years and four EU Trade Commissioners later, the EU still seems to be waiting for many ACP countries to come along.

Perhaps with few exceptions, the EPA agenda has not generated the enthusiasm for effective development partnership it was meant to stimulate. To date, only 37 ACP countries have concluded some type of agreement and only 25 have confirmed their commitment by signing an agreement, (15 of which are Caribbean). In parallel, negotiations towards final EPAs have been progressing only very slowly, when they have not been stalled. There is a new sense of optimism among some EPA negotiators, not least in the European Commission, which could mean that the conclusion of some EPAs is in sight. This would be a welcome outcome, provided it would reflect key interests of all parties. But many uncertainties, and the disappointing experience of protracted negotiations definitely call for caution.

Key dimensions of EPAs

The main rationale given for EPAs are threefold:

  1. a focus on using the agreements as ‘tools for development’,
  2. an emphasis within the agreements on enhancing regional integration through agreements that are negotiated at the regional level, and
  3. a trade regime that is securely compliant with World Trade Organisation (WTO) rules.

To comply with WTO requirement, simple free trade agreements liberalising substantially all trade over a reasonable period of time are basically sufficient. Agreement on the market access coverage remains however an issue in several EPA negotiations. A number of ACP countries did conclude interim EPAs only to preserve their access to the EU market as the Lomé-type/Cotonou unilateral trade regime expired at the end of 2007. The EPA effectively grants duty-and quota- free status of their exports. Other countries chose to fall back on alternative schemes under the EU Generalised System of Preferences (GSP), in the form of the Everything But Arms (EBA) initiative for Least Developed Countries (LDCs) – which also provides duty-free-quota-free market access, and the less attractive standard GSP for non-LDCs – which is indeed less advantageous than an EPA, but does not require any liberalisation on the their part.

 

But EPAs do not aim to be only tools to guarantee the optimal preferential access to the EU market. They are conceived to promote market-led reforms and better integration of ACP countries into the world economy, as a driving force to foster development. Paradoxically, EPAs, which should have strengthened and anchored the economic relationship between many ACP/African countries and the EU, seem to have had the opposite effect: several African countries increasingly resent the EU insistence to press for domestic reforms and ambitious commitments in the comprehensive economic and trade agreements. In spite of their development objectives, EPAs have often become an issue of continued tension between the EU and Africa, which could well have deeper negative repercussions on the EU-Africa relations, including beyond trade and economic considerations.

All African and Pacific ACP countries remain officially committed to the EPA process though. So, the challenge is not only to address technical hurdles in the design of a jointly agreeable EPA with the EU. It also requires a genuine reassessment of the motivations and strategic orientations for the EPAs, on the part of each of the African and Pacific ACP countries and regions concerned, as well as on the part of the EU.

Key concerns The regional dimension

One of the biggest concerns throughout the EPA negotiations has been ‘the regional dimension’. Out the 20 African countries that have concluded interim or ‘stepping stone’ agreements which cover only trade in goods, only 5 have done so on a regional basis. The fact that some member states of a regional grouping have concluded an interim EPA whereas others have preferred not to, exporting instead under the EBA or standard GSP regime, is naturally a source of potential tension among regional members, and thus threatens to undermine the regional integration process they are engaged in.

Arguably the most important unsettled issue in the negotiations towards a final EPA remains the linkage, in practical terms, between EPAs and regional integration.

Ever since the start of negotiations in 2002, a great deal of emphasis has been put on ensuring that the EPAs ultimately served to enhance efforts at breaking down barriers to intra-regional trade and furthering integration. The benefits to be gained from the agreements as a catalyst of regional integration are still cited regularly as one of the main reasons for concluding EPAs.

For many reasons, however, the practical effect of EPAs on regional integration has so far been mixed.

One of the biggest hurdles in the African context has been the problem of ‘overlapping membership’ of countries within multiple regional groupings, which meant that the regional EPAs configurations does not necessarily coincide with the various regional integration processes. Besides, while the EPAs should be aimed at strengthening regional integration, they have often been resented as an attempt by the EU to drive the integration dynamics at a pace and in a direction not necessarily shared by the regional members.

At the same time, regional cohesiveness suffers with the existence of a viable alternative trade regime for LDCs with EBA, whereas neighbouring non-LDCs are faced with the less attractive GSP. Differences in domestic priorities for economic reforms, as well as long-standing intra- regional tensions – for example between some dominant players and some smaller, more vulnerable ones – have also played an important role in some regions, highlighting that decisions to forge closer economic ties are seldom a matter of economics alone, but have important political elements as well.

The objective to conclude coherent EPAs at the regional level is thus a priority to preserve the integrity of the regional integration dynamics in the ACP.

The development dimension

Another fundamental concern for Africa and the ACP in general has been the development dimension of the EPAs, or at times the perceived lack of it. The commitment to development- oriented EPAs, agreed upon by all the parties to the Cotonou Agreement, has been reiterated in numerous occasions by the key EU institutions (European Commission, European Parliament and the EU Council and its member states), ACP institutions (ACP Council), regions (African Union, ECOWAS, UEMOA, COMESA, EAC, SADC, CEMAC, ECCAS, CARICOM, CARIFORUM, Pacific Forum, etc.) and countries, as well as joint ACP-EU institutions (Council, Joint Parliamentary Assembly).

This development dimension can be articulated along three distinct but closely-linked axes:

  1.   EPA commitments to liberalise trade and establish clear rules for the promotion of a better business environment, taking into account the exclusions and transition periods available to ACP countries for tariff liberalisation and for implementation of other parts of the agreement, and flexibilities in areas such as safeguards and infant industry protection;

  2.  the accompanying policies and reforms to institutions and structures that are necessary to take advantage of the new trading opportunities, and

  3.  the provision of appropriate development support to cover adjustment costs, carry out reforms and implement the agreement.

Within this framework, the Parties also recognise the clear need for the provision of development assistance to build capacity, and implement the EPAs and accompanying reforms. The EU is committed to provide EPA-related development assistance as part of the Aid for Trade (AfT) initiative, through the European Development Fund (EDF) and other EU institutions’ and member states’ sources. However, African parties have called for larger and more comprehensive explicit binding commitments from the EU in the framework of the EPAs.

While ACP calls for development cooperation support are justified, it is most unlikely that the EU will agree to make binding commitments on additional, earmarked funding for EPAs. But there is no doubt that part of European development assistance will be available for some of the EPA needs as well.

Contentious issues

A number of “contentious” issues were identified in the interim EPAs concluded by many African states. In 2008, the AU Ministers of Trade and Finance identified a non-exhaustive list of those issues deemed contentious that caused serious concerns in most African regions. While the degree of “contentiousness” varies across the different regions and among the different countries within the same region, all the regions have unanimously expressed the need to review those clauses to provide more flexibility in the context of the final EPAs, notably in order to take into account their special development needs.

These critical issues include, amongst others, concerns about market access, including definition of “substantially all trade” and transitional periods for tariff liberalization, quantitative restrictions, export taxes, the standstill clause, regional levies, bilateral safeguards, agricultural safeguards and food security, the treatment of Infant Industry, the most-favoured nation (MFN) clause, the non-execution clause, the definition of parties and rules of origin. While some progress has been achieved in addressing these issues in the EPA negotiations since 2008, progress remains uneven across issues and regions. A number of additional bottlenecks have to be further addressed at the technical and/or political level in various regions. Beyond the central question of market access and liberalization schedules, these include issues such as good governance in tax matters, geographical indications, customs cooperation, EU domestic support and export subsidies, and provisions related to “sustainable development”, to mention but a few.

For many of these issues, technical solutions could easily be adopted should the parties desire to find a political compromise. Others might be reflect more entrenched positions by the parties, and thus might be more difficult to bridge.

A fundamental question however is why there would be more chances of progress now than over the last 10 years, and in particular the last 2 or 3 years. In other words, why would negotiators succeed in the coming months on issues they have failed to make substantive progress over the last few years? Unless there is a chance of strategy and new political impetus, it may be illusory to expect the conclusion of final EPAs any time soon.

The deadline: amending MAR1528

The European Commission (EC) announced on 30 September 2011 that countries that have concluded an Economic Partnership Agreement (EPA) but not taken the necessary steps to initiate its ratification would no longer benefit from the EPA market access to Europe as from 1 January 2014.

The EC Market Access Regulation (MAR) 15283 of 1 January 2008 provides duty free quota free market access for African Caribbean and Pacific (ACP) countries that have concluded an EPA. The Regulation requires countries to initiate the ratification process of the Agreement within a “reasonable period of time”. At it currently stands, the MAR is a temporary, unilateral instrument of the EU to ensure that, pending the implementation of the agreement by ACP countries, there would be no trade disruption.

The message sent by the EU is clear: if countries want to continue to benefit from EPA market access, either they have to sign and start the ratification of their existing EPA or conclude a new regional EPA. For others, either they will fall under one of the schemes of the new GSP (i.e. Everything but Arms, Standard GSP or GSP Plus) or they will have no preferences (as might be the case for Botswana and Namibia).

The intention of the EU is also clear: set a new deadline to provide a new impetus towards the conclusion of final EPAs, wherever possible at the regional level. Replacing interim EPAs by regional final EPAs would for sure be a better outcome. The threat of removing EPA market access has the parallel advantage of seeking compliance with the WTO obligations in case some countries might be tempted to maintain the status quo.

As a result, expect some countries, somewhat like in 2007, to think harder about whether to conclude an EPA or not. Some countries might be pressured to sign and start ratification, and ultimately implement, of an EPA that might not really fulfill their ambitions and interests in terms of content, timing and geographical configuration, by fear of market disruption, in particular if they risk loosing preferential access to the EU. However, others might simply walk out. If no common position can be found at the regional level, the EPAs could seriously disrupt any regional integration effort.

But 2014 is not 2007. The world has changed and this time the response might be different. The financial crisis invited itself to the dance, Africa has gained a lot more confidence in its economic prospects and the increasing importance of “emerging” partners has brought in a new geopolitical dynamism, de facto reducing the leverage of the EU.

The Never Ending Story

The current debate is on the arbitrary deadline that the EU should set: 2014 as proposed by the Commission and endorsed by the Council, or 2016 as voted on 13 September 2012 by the European Parliament. The further decision process with the European Commission, Council and Parliament will tell us. But it is not sure that it really matters.

Keeping negotiations ongoing is a costly process, including in terms of limited capacity and political capital. The key question is: what could negotiators be able to achieve over the next year that they have not been able to achieve over the last decade, and is time a key factor to unlock some of the current bottlenecks. If more time is justifiable, it should be granted of course. But the rationale for it should be well articulated. Buying time (for the sake of it) might have a high opportunity costs for little or no reward, as EPA negotiations might still not be concluded.

The end game

At this stage, all parties should have an interest in seeking a concrete way forward to the EPA process soon: either with the successful conclusion of the EPA negotiations or with an end to it.

Setting a deadline cannot be the only strategy. To find a way out of the current impasse, a more comprehensive approach must be adopted.

A proper assessment of the negotiations so far is required. This should entail identification of the bottlenecks, region-by-region, as well as the achievements and partial agreements found so far, chapter-by-chapter and provision-by-provision. While each regional grouping has its specificities, there are lessons to be drawn from achievements in the EPA negotiations in one region for the others.

The EU must propose concrete options to each region, highlighting the flexibility it could provide, as well as specifying its red lines. Similarly, it is high time for African countries and regions to reassess their position on EPA, prioritise their objectives and identify potential issues where concessions are possible to reach an agreement. In doing so, they have to assess the conditions under which they would be willing or not to conclude an EPA.

In this process, it is most likely that some African and/or Pacific countries will not want to conclude an EPA with the EU. This will have consequences not only for their relations with the EU, but for the regional integration process they are involved in. This is true in particular in the case where a common position on the EPA could not be found at the regional level.

It is thus important that the EU, but also the ACP countries and regions concerned, identify possible scenarios and fall back positions should the regional coherence be at risk because of the EPA process. Wishing for the best cannot suffice.

Last, but not least, all parties must recognise that the EPA process is first and foremost a political issue, not a technical one. It will have consequences on the strategic relationship with the EU, far beyond the trade arena. It will also have strong repercussions on the regional dynamics in the ACP and their relations with third countries. 

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Economic Transformation and TradeEU Development Policy and PracticeRegional IntegrationBriefing papersBriefings and background notesACP Group of StatesEconomic Partnership Agreements (EPAs)European Commission (EC)Trade