Global Trends by Martin Khor

Monday 22 November 2010

Africa resisting the threat of EPAs

African Trade Ministers recently criticised attempts by Europe to get them to sign Economic Partnership Agreements that would damage their economies, and are proposing more beneficial alternatives

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The economies of Africa, the world's poorest region, are under severe threat from free trade agreements that they are under pressure to sign with the European Union, the world's richest region.

Under these economic partnership agreements (EPAs), Europe wants Africa to open up its economies to European goods, services and companies. But the African countries are understandably worried their small industries and service operators will not be able to survive free competition from giant European companies, banks and commercial firms .

Moreover, African farmers will lose their markets to artificially cheap European food imports that are heavily subsidised, if agricultural tariffs are reduced or eliminated.

These concerns, and more, were expressed by African Ministers of Trade at their meeting in Rwandan capital of Kigali earlier this month.  One Minister described the EPAs as placing African countries into the mouth of a lion, in a repeat of the colonial experience.

The Ministers adopted a Declaration on the EPAs which made clear their opposition to the EU's model of EPAs.

Also, in a show of regional unity, the African Union Commission and the continent's five regional economic commissions covering Eastern, Central, Western and Southern Africa, published a position paper detailing the many problems the EPAs will cause.

They also proposed various ways for Africa to get out of its predicament, instead of signing the kind of EPAs that Europe is insisting on.

Some African Presidents are expected to voice the region's concerns at a Europe-Africa summit in Tripoli next week.

The growing African resistance to the EPAs is the latest stage in a long saga which started when Europe decided to end the long-standing post-colonial arrangement in which it gave trade preferences for products coming from African, Caribbean and Pacific (ACP) countries. The ACP countries did not have to give preferences for European products in return.

However under the Cotonou agreement, the ACP countries would have to sign EPAs with Europe by the end of 2007 if they want to continue to enjoy trade preferences.

Three years after the deadline, few African countries have signed the EPAs because of their damaging effects.  The EC has threatened to remove the preferences from countries that have not signed.

These countries face a dilemma.  They face the pressure to sign, to maintain their preferences and not lose some of their exports to Europe. On the other hand, these countries resist signing because of the many adverse consequences.

Firstly, the African countries fear that their local industries and farms will be damaged because the EPAs require them to reduce their tariffs to zero for 80% of their imports from the EU. Many local products may not survive or will lose market share to the  cheapened imports. 

They are also against several other trade conditions, including prohibiting or restricting the use of export taxes.  Most African countries tax the exports of some of their raw materials so that local industries can use them for processing or manufacturing.

A ban on export taxes will prevent African countries from taking measures to add value to their primary commodities and to climb the value chain and industrialise.

The loss of import duties and export taxes will also reduce the governments' revenue since these trade taxes are a large part of their income. 

Secondly, the African countries are asked to open their services, ranging from telecoms and retail trade to banking, to European firms. In the EPAs with the Caribbean, the countries opened up 70% of their service sectors.  The smaller African service firms may be displaced by the big European companies.

Thirdly, the EPAs require liberalisation and deregulation of financial flows, investment and government procurement. This will make it difficult for the countries to regulate capital flows, when such regulation or capital controls are now recognised as important policy tools because of the present volatility of financial flows.

The opening of government procurement business to foreign firms (to be treated equally as locals) will affect the ability of the governments to give preference to locals, or to boost the domestic economy, because of the leakage to imports and foreign services.

Fourthly, the African Ministers are worried that the EPAs would adversely affect Africa's regional integration process, since trade between countries in the region would be partly

diverted to European products and services.

Fifthly, the EPAs would also make it more difficult for Africa to cope with the economic slowdown, since their trade balance with Europe is likely to deteriorate; and their ability to regulate capital flows, to boost domestic or regional demand and to earn revenue through trade taxes, will be affected.

What then can be done to avoid these damaging effects?   First, 34 of the 47 African countries involved in the EPAs are least developed countries, and they do not have to sign the EPAs since their preferences will continue under an existing “Everything But Arms” scheme.

And second, the 13 non-LDCs can request that the EU provide them also with the Everything But Arms scheme, without their having to give preferences to the EU in return.  There is a good case, as the 13 African countries are also poor and vulnerable, similar to the LDCs.

There is a precedence.  The United States provides a non-reciprocal preference scheme for Africa (known as AGOA), and the EU itself is also providing non-reciprocal preferences to Maldova and Western Balkan countries, which are better off than the Africans.

In any case, a good solution should be found because it would be hypocritical for  European countries to pledge to help Africa with aid and to achieve the  Millennium Development Goals on one hand, and then to seek one-sided trade agreements that would severely damage their economic prospects on the other hand.