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Trade policy

Opening markets is not enough

by D+C | E+Z
“Agriculture is certainly an area where ACP countries could serve the European market.” Grape harvest in South Africa

“Agriculture is certainly an area where ACP countries could serve the European market.” Grape harvest in South Africa

To restart negotiations on Economic Partnership Agreements (EPAs) with groups of African, Caribbean and Pacific (ACP) countries, the EU would do well to modify its conditions and pay more attention to its partners’ needs. The ACP countries, on the other hand, should work on boosting their competitiveness and strengthening local and regional markets. On such a basis, EPAs could yet prove useful. By Heiko Schwiderowski

There is not much talk at present about the EU’s Economic Partnership Agreements with ACP countries. The non-governmental organisations that campaigned against the EPAs and the European Commission both seem to be taking time out. The European Commission (EC) is not making much of an effort to negotiate further with ACP partners, and the subject has fallen below the radar of the media. No doubt, the eurozone crisis deserves more attention.

For the German economy, however, it would certainly be good if the EPA negotiations were concluded as soon as possible. German exporters are as unhappy about the continued uncertainty over reduced customs tariffs as companies in ACP countries are. In the interests of both sides, the EU should reconsider some of its conditions and listen more closely to the ACP countries’ objections.

The EPAs provide for transitional periods and exceptions in regard to sensitive products. Profits from such products secure incomes for large segments of the popu­lations of ACP countries. Neither Europe nor ACP countries would want to see such sources of income dry up fast. As a result, the purchasing power in ACP countries would dwindle fast, hampering the sale of Euro­pean goods there. In these cases, moreover, insistence on principles would thwart the efforts of development agencies that want to boost specific economic sectors in order to generate jobs. The EC should get together with the ACP countries and favourably reconsider product exemptions and the duration of transitional periods.

On top of that, the EC must better explain the programmes it is running to strengthen the competitiveness of the private sector in partner countries. Once more, the EC needs to respond to individual countries’ specific needs: project proposals should be put forward or invited by partners themselves. Instead, they are often dreamed up by bureaucrats in Brussels.

Credibility undermined by farm subsidies

EU export subsidies and their devastating conse­quences are among the few trade-related issues the media are currently paying attention to. EU dairy exports to the SADC (the Southern African Development Community) or exports of (unwanted) poultry meat have revealed to everyone the glaring contrast between European development work and the agricultural lobby. Such exports surge at the expense of disadvantaged people in the developing countries. Their livelihoods are jeopardised even though – and sometimes precisely because – they participated in sustainable agriculture projects funded by the EU or its members’ bilateral agencies. It is noteworthy that European tax payers are shouldering a double burden in these cases.

Nonetheless, there are two reasons why this issue must not be overemphasised:
– EU agricultural export subsidies are likely to be phased out in 2013, so the inundation of foreign markets – especially in Africa – with low-quality European food products will probably stop.
– Even without EU exports, African markets are flooded with food produced outside the continent. Indeed, imports from the EU are small compared with the volume of goods shipped in from Asia and America. African producers need to do more than just wait for the end of subsidised EU exports; they need to become more competitive instead of simply closing borders.

Indeed, EU farm subsidies are a more problematical issue from an inner-European perspective. They are by far the largest single item in the EU budget, and present the highest hurdle of all for agricultural and agro-processing imports to the EU. These subsidies artificially lower farms’ production costs in the EU, making it virtually impossible for “newcomers” from Africa to export agrarian products to Europe. Yet agriculture would certainly be an area where ACP countries could serve the European market. The bitter irony of it all is that many European farmers are struggling to stay in the business in spite of all the distorting subsidies.

The subsidies fly in the face of EPA aspirations. The EPAs were supposed to be a fair deal for all. To be credible in the eyes of ACP diplomats, the negotiators from the European Commission have to present a long-term strategy to boost competitiveness in ACP countries with EU money. The EU, moreover, must begin to phase out farm subsidies. The people in the Global South cannot wait much longer. In spite of various non-tariff trade barriers, countries outside the ACP regions manage to export to the EU. Apples from New Zealand and tropical fruits from Latin America are on sale in European supermarkets even though European production is heavily subsidised. Even the most basic consumer articles from Asia make it onto the European market, so the question is: why do comparable products from sub-Saharan Africa not do so?

Increase competitiveness

For too long, too little attention was paid to strengthening the competitiveness of African economies when priorities for development cooperation were defined and implemented. Admittedly, African policymakers must accept part of the blame. Since they still neglect regional integration and trade, for example, such trade cannot generate much employment. The crucial problem in this respect is poor infrastructure. ACP countries tend to lack up-to-date transport facilities and reliable energy supply.

These are issues the EPAs need to tackle first. Strengthening competitive capacity should not stop at exploiting the (limited) opportunities of servicing the EU market. The scope for trade across regional markets with neighbouring countries and at home needs to increase too. That will make it harder for imports to crowd out locally made products – and as a result, there will be more jobs in ACP countries.

Products from ACP countries need to prove themselves in international markets. Where there is no competition, there is no drive to become more competitive. In the long run, quotas for exports to the EU and guaranteed prices will only bring about the opposite of competitiveness. This was made evident by the EU Sugar Protocol: Mozambique, a country with a formerly strong sugar sector relied on what it thought were guaranteed revenues and neglected to invest in the industry. Today, its sugar mills stand idle – with no hope of earning foreign exchange for the country and its people.

The EC would do well to revise the agreement drafts it is negotiating with the ACP countries. A fair partnership depends on respect for the other side’s objections. But it is in the ACP countries’ own interest to work more systematically than at present on strengthening the competitiveness of local enterprise. National, regional and international market opportunities can only be harnessed for poverty ­reduction if appropriate conditions are created at home. The EPAs could – and should – provide a good foundation for doing so.