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Trade and regional integration

Tough EPA talks

by Günther Taube, Hauke Broecker
The diplomats who are drafting Economic Partnership Agreements (EPAs) on behalf of the European Union and regional organisations of states in Africa, the Caribbean and the Pacific (ACP) are not making much progress. Though comprehensive treaties would boost trade and development, a number of ACP governments believe there will be drawbacks, such as high adjustment costs. A lack of negotiation capacities is another challenge – and this is where InWEnt can help. [ By Günther Taube and Hauke Broecker ]

Since 2001, negotiations for EPAs have been going on between the EU and regional blocks of ACP states. These negotiations mark a new chapter in the relations between the EU and the former colonies of its members. Earlier, these relations were defined by the Lomé Convention, which granted ACP states unilateral, preferential access to the European market. In addition, their export proceeds were guaranteed. Nonetheless, success was limited. In fact, over the past ecades, ACP states’ share in trade with the EU went from small to smaller. The Lomé Convention, moreover, was not in line with recent WTO rules, because the EU had unilaterally granted trade preferences.

The EPA approach is more broadly based than Lomé was. It combines the goals of trade and development policy. The outcome of the negotiations must, of course, be compatible with the rules of the WTO, which prohibit discrimination against trade partners. However, the WTO rules do give scope to reducing tariffs and non-tariff barriers in the context of regional integration, without demanding that all such advantages be offered to all WTO members. Likewise, the EU can enter into treaties with other blocs of nations.

The EU and its member states are striving for several goals in the context of EPAs and the Aid for Trade (AfT) strategy. These goals include
– improving the production and trading capacity of ACP nations,
– promoting regional integration by reducing trade barriers within the different blocks,
– funds for adjustment measures and
– boosting negotiating capacity.
Germany is playing a constructive role, not only through its contributions to EU development cooperation, but also through bilateral projects such as the training and dialogue programmes conducted by InWEnt on behalf of the Federal Ministry of Economic Cooperation and Development (BMZ).

The state of play

The original goal was to sign EPAs between the EU and six regional blocs of ACP countries (southern and eastern Africa, southern Africa/SADC, western Africa/ECOWAS, central Africa/CEMAC, Caribbean/CARIFORUM and Pacific) no later than 2007. That goal was missed. To date, the EU has only signed a comprehensive EPA with the CARIFORUM states.

The EU has therefore strived for interim treaties with members of the other regional blocs in order to cover the time until the ink can be put on comprehensive treaties. The scope of such interim treaties varies greatly, however. While all members of eastern Africa’s EAC have signed their bilateral interim agreement, only around a fifth of the members of ECOWAS, CEMAC and the Pacific states have done so.

A number of disputes have yet to be resolved. Conflicts of interest certainly play a role, but it has also become clear that most regional blocs and their members lack the capacities to negotiate complicated, far-reaching trade agreements with the EU.

The main bone of contention in most EPA negotiations concerns the economic effects of reciprocal trade relations between the EU and ACP nations. Several studies have estimated the likely impact. Diverging development levels among ACP countries make such estimates difficult, but the studies nonetheless draw crucial conclusions about trade-creating and trade-diverting effects.

The creation of trade is considered to be beneficial, because of its positive impact on economic welfare for all countries involved. In theory, consumers take advantage of cheaper products, and production factors throughout the region are allocated more efficiently. Trade diversion, by contrast, is considered to be harmful, as inefficient producers within the region are favoured over competition from outside.

Research predominantly finds that EPAs would mostly create trade. Moreover, there would be long-term dynamics thanks to the transfer of knowledge and technology as well as enhanced sales opportunities. Economists speak of “economies of scale” when greater production output lowers the cost per item. EPAs would also make ACP countries more attractive to foreign investors.

All these arguments speak in favour of EPAs. No doubt, trade liberalisation is advantageous mid- to long-term. However, the governments of ACP countries are paying more attention to the possible negative short-term impacts on their national economies. The potential sources of adjustment costs include
– adaptation of production and employment to changing circumstances,
– lower customs revenue along with the need to modify tax regimes,
– expenditures for implementing steps to facilitate trade,
– costs of programmes to differentiate exports and
– the need to fund advanced training and institutional capacity building.

Apart from trade liberalisation, the second goal of EPAs is greater regional integration. All parties involved view regional integration as an important part of political and economic development. Nonetheless, opinions about the influence of EPAs on regional integration differ. One reason is that the process of regional integration in the various ACP blocks is quite complicated, and particularly so in sub-Saharan Africa, where memberships of different blocks overlap. The result is not only inefficient regional integration but also more difficulty in agreeing on common views and goals.

Aid for Trade

In light of the potential negative impact an EPA may have on their economies, the governments of ACP countries have raised several demands, some of which have been met by the EU. Generally speaking, the EU has agreed to take more account of EPAs’ financial impact and to accept additional chapters in the treaties accordingly. For instance the EU promised to make a total of € 22.7 billion available as development aid from 2008 to 2013 in the tenth European Development Fund (after € 13.5 billion euros in the ninth EDF for 2002 to 2007).

In the AfT context, moreover, the European Council resolved in 2006 to have member states chip in additionally a total of € 2 billion per year, starting in 2010, for development cooperation related to trade. Germany’s BMZ is planning to expand AfT activities in order to contribute to making common European goals achievable.

InWEnt is contributing to making things happen. On behalf of the BMZ, InWEnt is promoting advanced training, dialogue and networking in partner countries. For instance, InWEnt is supporting the secretariats of both SADC and EAC through capacity-building programmes, with the focus on strengthening negotiation techniques and management capacity on top of advanced professional training. InWent is thus promoting regional integration in southern and eastern Africa.

On top of that, InWEnt is supporting networks and mechanisms that promote trade in Africa, Asia, and the Caribbean. In southern Africa, a capacity-building programme entitled “Global Trade - New Challenges for Customs Policy and Administration” is helping those involved in customs administration and policies in the SADC and EAC to make national and regional customs systems more efficient and prepare for the challenges of globalisation and trade liberalisation.

InWEnt's International Institute of Journalism (IIJ) is also doing meaningful work by training journalists on matters of trade and regional integration. Success of regional integration will always depend on competent reporting, because stable institutions can only be brought about if people know what the issues are and what they can expect. For years, relevant courses have taken place in the ECOWAS region, for instance.