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Economic Partnership Agreements

In the balance

by Helmut Asche

In depth

Worried about its own industries, Nigeria does not want to sign the Economic Partnership Agreement with the EU: merchants in Lagos.

Worried about its own industries, Nigeria does not want to sign the Economic Partnership Agreement with the EU: merchants in Lagos.

The Economic Partnership Agreements (EPAs) between the EU and three of Africa’s Regional Economic Communities are facing challenges. The EPAs are not only supposed to foster intercontinental trade, but regional integration within Africa too. Critics, however, fear that agreements will hurt regional integration, and ratification has stalled. A new strategic initiative is urgently needed.

The EU isn’t the only regional community experiencing a crisis: Africa’s regional integration has also been much slower than many people expected. The full extent of the problems facing the continent’s regional economic communities (RECs) is unclear, however. We precise data concerning implementation.

Even if a customs union has existed for over a hundred years like the Southern African Customs Union (SACU), it may still not be fully in force. As EU history tells us, non-tariff barriers (NTB) tend to undermine efforts to eliminate customs duties. Only the EU’s bold Single Market Programme of 1987 put an end to the trend.

At present, the East African Community (EAC) is the REC that seems most likely to muster the political will to fully enforce its customs union, relying on mutually agreed standards to reduce non-tariff obstacles. Within the EAC, Kenya, Rwanda and Uganda have formed a coalition to accelerate integration. Their cooperation resembles the EU’s Franco-German axis. Other RECs lack similar coalitions. Most prominently, Nigeria and South Africa, the leading powers in their parts of the continent, are unwilling to drive integration and grant economic leeway to weaker member states.

What is at the root of the problem? Trade theory teaches that the RECs that are most likely to succeed are those that provide less developed members with real trade opportunities through an intra-industrial division of labour. These RECs allow for a regional division of labour within various sectors, including agriculture, manufacturing and mining. The model case is, once again, the EU. Nowhere in Africa is there such an intra-industrial division of labour, and that is why countries have proved unwilling to fully liberalise within the present setting.


Economic Partnership Agreements

One goal of the EU’s policy of Economic Partnership Agreements (EPA) was to address such problems. Few observers outside the European Commission believe that the EPA negotiations were conceived and conducted the way they should have been. Nonetheless, three regional EPAs are now ready to be signed and ratified:

  1. the EAC EPA (with five EAC member states),
  2. the ECOWAS EPA (with 15 member states of the Economic Community of West African States plus Mauritania) and
  3. the SADC EPA, which really should be called SACU EPA, as it does not comprise all 15 members of the South African Development Community but only the five members of the SACU plus Mozambique.

The agreements focus almost exclusively on liberalising the trade in goods. Their key benefits for African exporters are continued tariff-free access to the EU and improvements to the so-called rules of origin for products entering the European market. In return, African countries will progressively remove trade barriers for about 85 % of European exports to Africa. The current state of affairs is as follows:

  • The “SADC/SACU EPA” went into effect on 1 October. Another EPA with the other SADC states has been provisionally in effect for years. It is making progress towards ratification. So far, however, the EPA approach has thus split SADC in two.
  • The ECOWAS EPA has been signed by 13 African members with the notable exception of Nigeria, which suddenly expressed concerns about negative impacts on its industry. Meanwhile, Côte d’Ivoire and Ghana have ratified individual interim EPAs (iEPAs), thus securing a fallback option for duty-free access to the EU.
  • In the EAC, Tanzania has identified negative consequences for its nascent industry and now worries about its trading partner Britain leaving the EU. The government refuses to sign the agreement. Burundi has rejected the EPA in protest of the sanctions imposed by the EU. In response, Rwanda and Kenya made a show of signing the agreement in Brussels; Uganda will likely follow.

In Central Africa, Cameroon has signed a single country interim EPA (iEPA). The government wants to safeguard banana exports to the EU. This iEPA, however, puts an end to the long-planned customs union within the Central African Economic and Monetary Community (CEMAC), unless all other countries make exactly the same market access offer to the EU. There is a draft of a CEMAC EPA, but governments are showing little enthusiasm to sign.


Feared fragmentation

Many critics from civil society have long warned that the EPAs will cause renewed fragmentation in Africa. On the other hand, the EAC, ECOWAS and SACU are functioning RECs, and signing agreements with the EU would actually consolidate their common external tariff. In that respect, the European Commission is right to argue that the EPAs promote regional integration in Africa. Since the EPAs are basically trade-in-goods agreements without controversial provisions for services or investments, one can support signing them because they serve the greater good of strong regional communities, as I have argued earlier (Asche 2015).

The concerns that West and East African governments are raising now in regard to the final EPAs have some merit, however. For example, the clauses concerning the protection of new industries or the promotion of domestic commodity processing in Africa are not optimal. The EAC EPA does not even have an infant industry protection clause. Nonetheless, a smart application of the EPA provisions would still allow governments to promote agriculture and manufacturing in targeted ways.

Today, the scenario has changed however. If the EAC and ECOWAS EPAs are not signed, separate agreements will formally apply to individual member states, so the fragmentation that observers feared will indeed occur. With different rules and tariffs for member countries’ EU trade, it will become technically impossible to have African customs unions with common external tariffs, and no REC can even dream of eliminating its internal trade controls completely. Moreover, African leaders have a point in fearing that the RECs will be weakened when negotiating further trade agreements with China, India, Turkey and other emerging economies.
While the more advanced REC members are now concluding their own iEPAs, the least developed countries (LDCs) have the default option of continuing to export goods to the EU free of tariffs under the Everything but Arms initiative (EBA). That does not offer much consolation, however. EBA is a bilateral concession by the EU, not an international treaty. Moreover, several African nations are expected to attain middle-income status soon, so EBA will no longer be a valid backup for them.

One’s approach to trade theory has a bearing on the assessment of the impacts. According to the Anglo-Saxon line of thinking, which is largely shared by World Bank experts, multilateral liberalisation is what matters and regional integration broadly following to the EU model does not stand much of a chance in Africa. From this point of view, the situation does not look particularly dramatic and African RECs are ultimately expendable. To anyone with a different theoretical background, the situation is very worrying. After all, African RECs may well be necessary stepping stones to further multilateral trade integration. A new strategic approach is needed.


Africa-wide free trade agreement?

At first glance, there seem to be great alternatives. They are called TFTA (Trilateral Free Trade Agreement between COMESA, EAC and SADC) and CFTA (Continental Free Trade Agreement of the AU). Their appeal is based on the fact that they could undo the hopeless tangle of overlapping regional communities – the “spaghetti bowl” – and create one single market on the continent.

Most observers, however, have become sceptical for various reasons:

  • How is liberalisation supposed to succeed between RECs if it doesn’t work within the RECs themselves? The approach would make sense if the only reason for the lack of integration was due to the overlaps between the first-level RECs. It is not.
  • There is a risk that the TFTA from Cairo to the Cape would, under current conditions of trade costs, lead to an even higher concentration of industrial activity on the northern and southern edges, in South Africa and Egypt.
  • South Africa in turn is reluctant because it fears trade deflection: the TFTA is likely to turn African third-party states into gateways for duty-free imports from China and India – quite a concern in a low-threshold free trade area.

Accordingly, most African governments have become unwilling to seriously negotiate further tariff reductions on goods in the TFTA/CFTA context. TFTA or CFTA are unlikely to become a full-fledged alternative to the established RECs. Both projects have great long-term potential to facilitate continent-wide removal of technical barriers to trade, to ease personal freedom of movement and support cross-regional infrastructure, but that’s the most that can be hoped for. In the meantime, African governments should take the bold initiative to complete integration within the RECs, so no lorry is held up at border posts anymore.


Withdrawal or renegotiation

Regarding the EPAs, the situation between the EU and African RECs is now very tense. Several policy responses are possible:

  • The agreements could be completely withdrawn, which is what most international NGOs are calling for. After the de facto failure of the Transatlantic Trade and Investment Partnership (TTIP), such a radical change of course seems entirely possible.
  • The agreements could be renegotiated right away. They could also be signed and ratified with the binding stipulation that the text of the agreements will be improved during implementation. This option has the advantage of solidifying the status of EAC, ECOWAS and SACU+ as RECs, scrapping the special iEPA agreements and allowing the accompanying development programmes to be implemented immediately. Simply insisting that the current texts of the agreements remain unchanged is not a promising strategy, however.
  • A very good proposal made by the Dutch government, moreover, is that the EU and USA should harmonise their preferential trade agreements with Africa and make a joint offer to further simplify the rules and measures of origin (see Herfkens 2016 for explanation). Such a confidence-building initiative might also be taken up by the G20. Given US President-elect Donald Trump’s anti-trade rhetoric, however, this approach now looks less likely, all the more as the Dutch meant it as a development-friendly TTIP amendment.

Regardless of which negotiating option is chosen, a familiar problem lies at the heart of the EPA disaster: since the 1950s, European powers have seen Africa simply as a supplier of commodities and agricultural products. There was no manufacturing sector to talk of in Africa north of the Limpopo, and European governments showed no interest in fostering new industries in Africa. This dubious attitude is still evident in the EPAs, although scholarly research has of late stressed the structural need for industrialisation in Africa as a developmental imperative.

Europe’s agriculture and fishery policies have compounded the problems by undermining Africa’s role even as primary producer. Nobody involved in EPA talks on the African side was naive enough to be fooled by the EU’s stated intent to abolish direct agricultural export subsidies, since the so-called decoupled subsidies it uses instead largely have the same effect.

The right solution to this dilemma would be for Germany and its neighbours to take on their next great political project: phasing out present-day industrial livestock farming and highly-subsidised agriculture. This reform is no longer completely unrealistic. Nevertheless, it can only be included in the EPA renegotiations as a project for the future because it would create enormous tension at the social and geographic periphery of the EU in the current moment of crisis.

The upside is that the EU has already achieved significant reforms in certain agricultural regimes. For instance, the most comprehensive reform ever undertaken of the sugar market will go into effect in 2017. It makes sense in spite of possibly harming some small-scale producers both in Europe and in LDCs. Reforming the cotton market, the dairy market or the fisheries agreements would also make sense. Not to offer anything of this kind in future EPA negotiations with Africa would amount to a refusal to strategise.

The EU needs to become strategically a lot more flexible as it now wants to convince African countries of extending the EPAs into other controversial policy areas. Trade in services and technical trade facilitation are at the top of the agenda, and the theoretical case for this approach is clear. It remains a mystery, however, how the EU hopes to persuade Africa’s political leaders to start serious negotiations on these topics following their experience with the EPAs so far. Confidence-building is certainly needed.

The future of the entire economic relationship between Europe and Africa is at stake now. So far, it was regulated by the Cotonou Agreement, which will expire in 2020 and also relates to Caribbean and Pacific countries. The European Commission’s consultations with the policymakers from the respective regions have been half-hearted and uninspiring to date. The EU’s new member governments are not enthusiastic, either. The reason is clear: the Cotonou Agreement never became a platform for discussing joint prospects and bold developmental initiatives. It simply worked as a legal framework for development aid from Brussels and for the EPAs.

Ultimately it seems that a strategic initiative at the AU/EU level under the auspices of high-ranking, mutually respected personalities is urgently needed. This initiative should reassess the future of cooperation between Africa and Europe, with the understanding that the EU needs to re-examine the foundations of its own community, just like the AU needs to reconsider the role of the RECs.


Helmut Asche is an economist with 25 years of experience in development cooperation with Africa. Over the last years he taught as professor at the universities of Leipzig and Mainz. This essay is based on a short paper he wrote for Horst Köhler, Germany’s former federal president who had previously served as managing director of the International Monetary Fund. [email protected]


References

Asche, H., 2015: Europe, Africa and the Transatlantic. The North-South challenge for development-friendly trade policy. Berlin, Heinrich Böll Stiftung.
Herfkens, E., 2016: Lost in a spaghetti bowl? Mega-regional trade agreements, Sub-Saharan Africa and the future of the WTO. Berlin, Friedrich Ebert Stiftung.

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