TWN Info Service on WTO and Trade Issues (Nov10/07)
30 November 2010
Third World Network

Africa resisting the threat of EPAs
Published in SUNS #7046 dated 24 November 2010

Geneva, 23 Nov (Martin Khor*) -- 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 that 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 the Rwandan capital of Kigali earlier this month. One Minister described the EPAs as placing African countries in 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 European Union's (EU) 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 the 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 up their services, ranging from telecommunications and retail trade to banking, to European firms.

In the EPAs with the Caribbean countries, these 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 the 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 its trade balance with Europe is likely to deteriorate; and its 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 (LDCs), 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 also provide them 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 precedent. The United States provides a non-reciprocal preference scheme for Africa (known as the African Growth and Opportunity Act), and the EU itself is also providing non-reciprocal preferences to Moldova and the 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 the one hand, and then to seek one-sided trade agreements that would severely damage their economic prospects, on the other hand.

(* Martin Khor is the Executive Director of the South Centre.) +