Economic Partnership Agreement negotiations

1. Economic Partnership Agreement negotiations A brief guide TWN Africa Secretariat, May 2004

2. EPAs … Key terms For explanations and more terms see: www.epawatch.net • Free trade agreements/free trade areas • Trade in goods, trade in services • Common agricultural policy/subsidies • Reciprocity / non-reciprocity • WTO compatibility • Preferential trade • Market access • Customs union • Special and differential treatment • General system of preferences (GSP) • Everything but arms/LDCs • Trade related areas/Singapore issues • Open regionalism/regional integration • Regional configurations • Commodity protocols • Adjustment funds • Assymetry • Compensatory trade measures • Non-execution clause • Development dimensions • Rules of origin

3. Economic Partnership Agreements are … free trade areas being negotiated between the European Union and ECOWAS SADC CARIBBEAN EAST AND SOUTHERN AFRICA GROUP CENTRAL AFRICA (CEMAC) PACIFIC

4. What is a free trade area? A group of two or more countries or economies that have eliminated tariff and non-tariff measures affecting trade amongst themselves. Countries sign a free trade agreement that allows their imports and exports to enter each others markets at duty free rates. Historically, most free trade areas have been regional trade arrangements and are part of regional integration processes. Eg: East Africa Community, COMESA, SADC or the European Union. The aim of these is to strengthen economic development amongst countries of a similar region by enhancing trade between each other. SACU is a customs union, because goods circulate freely, but in addition, the SACU countries have a common external tariff. Usually these trade agreements have been between countries that have similar levels of development, so that the signatory countries have balanced economic benefits. However, industrialised countries are now pushing for free trade areas with much poorer countries (eg. US-Latin America). The problem is how to ensure that the weaker countries in the trade agreement that are less competitive, and have less to export, are still able to derive benefits.

5. Free trade areas … more It is an established fact in economics that a free trade arrangement between economies of unequal strength WILL BENEFIT THE STRONGER ECONOMIES, WHILE THE WEAKER ECONOMIES COULD LOSE OUT, unless specific policy measures are taken to ensure equitable benefits. In the case of the European Union, the richer countries (eg. Germany, UK, France) have contributed large amounts to accelerate economic development in the the poorer countries (Greece, Portugal, Ireland) of the Union to address this problem. Free trade area/Regional trade agreements are now governed by WTO rules and must cover SUBSTANTIALLY ALL TRADE. There is little flexibility to allow for the differences in the economies. The EU and US have also pushed for FTAs to include SERVICES LIBERALISATION and POLICY DEREGULATION measures in areas such as government procurement, investment, competition. These proposals have been rejected in the WTO. EPAs are therefore a way for the EU to get its unpopular WTO proposals through the back door. The EPAs are not about ‘partnership’ and they are not about ‘development.’ They are about ‘locking in’ structural adjustment policy reforms ie. liberalisation and deregulation for the benefit of their own corporations. The EPA/FTAs will severely restrict the ability of governments to adopt policies that allow for the protection and growth of local economic operators in sectors such as agriculture, services and manufacturing.

6. Implications of free trade areas … • Unfair competition from European exports, implications for productive sector development (agriculture, industries.) • Deregulation, privatisation through investment, services agreements: public services in particular are targeted by the EU. • No ability to take advantage of European markets because of stringent non-tariff barriers, rules of origin, SPS measures etc. • Implications of EU enlargement … new member states will also have access to ACP markets. • Losses of government revenue from tariff reductions. • Development agreement but … adjustment costs all borne by the ACP!

7. Reference texts for EPA negotiations (I) • Cotonou Agreement provisions on EPA negotiations (2000) • Formal negotiations of the new trading arrangements [EPAs] shall start in September 2002 and the new trading arrangements shall enter into force by 1 January 2008 (Article 37.1) • Negotiation of the Economic Partnership Agreement will be undertaken by countries which consider themselves in a position to do so, at the level they consider appropriate and in accordance with the procedures agreed by the ACP Group. (Article 37.4) • In 2004, the Community will assess the situation of the non-LDCs which decide they are not in a position to enter into EPAs and will examine all alternative possibilities, in order to provide these countries with a new framework for trade which is equivalent to their existing situation and in conformity to WTO rules. (Article37. 6) • Negotiations of the Economic Partnership Agreements shall aim notably at establishing the timetable for the progressive removal of barriers between the Parties in accordance with the relevant WTO rules. (Article 37.7)

8. EPAs – main features • The key feature of the EPA/FTA negotiations will be trade liberalisation and deregulation, in particular • Elimination of tariffs on goods (around 90% of all trade over a ten year period) • Changes to the regulatory framework: investment rules and policy, competition, intellectual property rights etc. (Singapore issues), services liberalisation • The ACP Group has said that they will not benefit from EPA/FTAs unless the negotiations include a ‘development dimension’ ie.: • Additional aid to support ACP countries economic diversification and to strengthen their trade capacities • compensation for the ‘adjustment costs’ of liberalisation. • The European trade negotiators have refused categorically to include the negotiation of an additional aid package in the EPAs.

9. European Commission negotiating directives for EPAs (2002) • The Member States of the European Union have approved the European Commission’s the mandate to negotiate free trade areas with the EU. • The Negotiating Directives deal mainly with liberalisation in the following areas: • Trade in goods • Import duties • General provisions • Export duties • Quantitative restrictions • National treatment and fiscal measures • Tax carve out clause • Variable speed • Food security clause • Safeguards • Anti-dumping • Standstill clause • Transparency (customs tariffs) • Exceptions clause • Classification of goods • Rules of origin, administrative cooperation, financial responsibility • Trade facilitatiion • Trade in services • Current payments and capital movements • Trade related areas • Investment • Public procurement; • Competiitiion • Standards, technical regulations and conformity assessments • Data protection • Dispute Settlement, non-execution clause • Comment: Each of the EU’s negotiating demands have significant implications for ACP economies, and will require major revisions of domestic policy to facilitate opening up ACP markets to European businesses and exports. However the negotiating mandate of the trade negotiators does not give them any room to take on board the demands of the ACP countries to include development issues within the EPAs.

10. Official justification for the EPA negotiations From the EU • WTO incompatibility of Lome non-reciprocal regime • EU external trade policy: increase access for EU corporations through free trade agreements. • Emphasis in the Cotonou Agreement is integration of ACP countries into the global economy: EPAs are a stepping stone to global integration and are therefore instruments for development. • EPAs will encourage investment from EU firms. • System of unilateral preferences did not work; ACP countries need to become competitive. From the ACP • Dependence of ACP exports on EU preferences; countries are obliged to go along with what the EU even if this is not their most preferred option because they fear the consequences of losing their preferences to EU markets; • ACP countries are liberalising anyway; EPAs are part of a trend. • There is political pressure from the EU to negotiate despite the concerns from the ACP countries. • Negotiating is not agreeing: the aim of the governments is to get a deal which will benefit their countries, and particularly to ensure that EPAs have a strong development dimension to compensate for the adjustment costs.

11. Sub-regional negotiations (Phase II) • The regional secretariats are responsible for coordinating the EPA negotiations. • Each sub-region has to prepare a set of common positions and demands on the key areas, particularly tariff liberalisation. The sub-regions are also formulating demands to improve their access to EU markets. The trade negotiators have to negotiate on the basis of the mandates given to them by the Ministers. • Sub-regions have also established structures which include technical groups, officials and ministers. The officials will be in charge of most of the negotiations with the EU. The EU is represented by officials from the European Commission Trade Directorate. Negotiations will take place in the ACP capitals or in Brussels. • A small number of issues are being negotiated collectively by the ACP Group, coordinated by the ACP Secretariat and Committee of Ambassadors. • EPAs are supposed to enter into force by January 2008 and therefore have to be signed by 2007. This means the bulk of negotiations must be completed during 2004/2005/2006. Most of 2004 is now clearly being dedicated to a preparatory phase. • Challenges at the sub-regional level: • Do member states understand the issues and the way their interests will be affected? • There is a lack of technical capacity within trade ministries and regional organisations to cover all the areas. • The timelines for negotiations are very tight, given the lack of preparedness for the negotiations.

12. Sub-regional negotiations • Since Phase II of the negotiations were launched, progress has been very slow. Negotiating mandates and timetables (road maps) have been prepared by the regional institutions to outline their broad negotiating positions and demands. Degrees of detail on positions vary in the documents. The pace of the negotiations has also moved forward differently in each region. • East and Southern AfricaThis group is coordinated by the COMESA Secretariat. The Negotiating Mandate and Joint Road Map were finalised in Feb. 04. National and sub-regional structures have been established, as well as key negotiating areas. • ECOWASJoint Road Map for EPA negotiations was agreed by the Joint Technical committee, but is awaiting the approval of the ECOWAS Ministers (July 20040 before negotiations can start. • SADCThe SADC Group (does not include all SADC countries) launched negotiations in July 2004. • CARICOMThe Caribbean Group launched negotiations in April 2004. Negotiating mandate and Joint Workplan (April 04)have been prepared • PacificNegotiations to be launched in September 2004.All-ACP negotiationsRules of origin discussions underway, non-execution clause

13. EPAswhat are the options? • ACP countries may either be part of an EPA (negotiated as a region or individually) or be part of the EU’s General System of Preferences (less favorable market access terms). • LDCs can access EU markets through the EU’s Everything But Arms initiative, without being part of an EPA. • Both the GSP and the EBA are non-reciprocal, but they decided unilaterally by the EU (ie. Not negotiated) • The other options would be for the EU and the ACP Group to put together a non-reciprocal trade arrangement which accommodates WTO rules. They could also propose changes to WTO rules that would allow for continued non-reciprocal trade. This is not an option that the EU is prepared to consider.

14. Contradictions: EPAs • Cotonou Agreement is supposed to be about developing ACP countries, but all the costs of EPAs will be borne by the ACP countries rather than the EU. • EPAs claim to support and regional integration but ACP producers will probably lose regional markets as a result of additional competition from the EU. EPAs are hijacking regional integration to fit the needs of industrialised countries (market access) rather than the needs of the regions’ economies. • Cotonou Agreement provides for countries not to sign on EPAs, but no countries are examining the possibility of opting out of an EPA despite the negative implications. • While the EU states that EPAs will be flexible will take account of the development level of the ACP countries, the timelines for negotiations and for implementing EPAs are very short (12 years). • WTO compatibility, rather than development indicators are the benchmark for EPAs. At the same time, the ACP countries have repeatedly stated that WTO rules are biased against developed countries. WTO compatibility in the current context means automatically that the EU is in the better position. • LDC countries are negotiating EPAs, even though they are the group with nothing gain (access to EU markets are guaranteed by the EBA initiative) and more to lose (through liberalisation). • The EU’s negotiating mandate does not provide for additional funding to compensate for the very large losses in public revenue. • The ACP countries are very heavily reliant on the EU for funding for capacity building and technical support in the negotiations, even though there are major disagreements between the two parties on the approach, content and outcome of the negotiations. • ACP countries’ collective positions on WTO issues (eg. on investment, competition, procurement) are in danger of being contradicted by their positions in the EPA negotiations. Generally there is a problem of backtracking on their own positions.

15. Development issues • Strengthening regional integration? • The EU’s emphasis on regional integration is biased towards ‘open regionalism’ rather than ‘developmental regionalism.’ • Regional integration efforts, which are based on the Lagos Plan of Action have now been hijacked by the EPAs, since the processes of regional integration (timelines, content etc) are based on the EPA negotiations rather than what is genuinely required for the countries.

16. Institutional concerns • Lack of coordination with all ACP level and other regions. ACP negotiating guidelines ignored. • Lack of capacity in the Secretariat (technical); susceptible to manipulation from the EU • Negotiating Structures: weak national representation, key roles given to the Secretariat. • Lack of clarity and direction from Member States in shaping negotiations

17. Practical/tactical concerns • Timelines too short given lack of preparedness (2005/2006) • Lack of impact studies to information national positions • Misunderstanding the role of aid. • What is in it for LDCs? • Lack of national consultations with stakeholders.

18. Conclusions • Challenges for civil society • Bigger challenges are at the political level: weaknesses of governments vis-à-vis donors and the EU. • Formulation of demands and positions from civil society … what do we want? • Transparency, accountability in the process of negotiations