PUBLISHED ON September 15th, 2014

Pressure as EU issues new trade ultimatum

October 1, 2014 is an important date in the ten-year old trade negotiations between the European Union and ACP countries over the so-called Economic Partnership Agreements (EPAs). While EU boss in Uganda is quick to point out that the date is neither an ultimatum nor a deadline; come Oct. 01, the EU – a grouping of 27 European countries – will withdraw its free market access to countries that have not yet ratified the agreements.

Apparently, the EU is forced to act because it is also under pressure from other sources. With the US initiated AGOA planned for extension for another 15 years and the US promising $33 billion in trade deals, and with the Chinese also becoming a key player in developing countries, the EU doesn’t appear to have much time to tie up its trade relations with ACP countries. Development campaigners are crying foul, poor countries that depend on Europe as a key export market are feeling the pressure but the EU top officials say they have waited long enough.

Ambassador Kristian Schmidt, the EU Head of Delegation to Uganda, denied that the date was a deadline but suggested that the trade agreements are for the mutual benefit of both Europe and the ACP countries. “October 1 is neither an ultimatum, nor a deadline for EPA negotiations. It is the date when the Amendment of the so-called Market Access Regulation enters into application,” he said in an e-mail to The Independent. “From that date, only those ACP countries that have opted for an EPA will continue to benefit from free access to the EU market, unless they are Least Developed Countries (LDCs) and can, as such, export their products to the EU duty-free quota-free anyway.”

He added, “This regulation was always meant to be a temporary bridging measure, which advanced the application of the EU part of the deal while the ACP countries were proceeding with the signature and ratification of the interim EPAs made in 2007. It is therefore only normal that the EU is withdrawing free market access from those countries that have not seen through their commitments,” says Kristian Schmidt.

Schmidt noted that the EU has always wanted the African members of the ACP to sign the EPA’s for three main reasons; the first being the conviction that the EPAs on the table would better allow EU/African partners to benefit from trade opportunities on European markets, and to deliver export growth and diversification. New generous so-called “rules of origin,” for example, would allow African producers to accumulate added-value in the region, while still enjoying free access on EU markets, he added. “Our African trade partners had to find a way together to replace the previous ACP-EU trade arrangements that were found to be incompatible with the WTO rules because they discriminated against other developing countries,” he said, adding that EPAs as region-to-region agreements, are “a perfect fit with Africa’s own processes for regional integration, which Europe fully supports for both economic and political reasons.” Citing the EAC, Schmidt said the EPA with the EU would help to make the EAC internal market a reality.

Schmidt however suggested that he partly understood why some African countries are reluctant. “All trade negotiations touch on vested interests and negotiators on both sides are subject to a lot of sectoral pressure and lobbying,” he said. But at the strategic level, he added, African countries have repeatedly confirmed their strong commitment to the EPA agenda as is the case at the final declaration of the Africa-EU Summit 2014. “Agreement with West Africa was reached, so let’s hope an agreement with the EAC is also imminent. If not, LDCs will continue to benefit from free access to the EU market under the so-called ‘Everything But Arms’ (EBA) scheme, but not from the new improved EPA rules. Other African countries that do not fulfil the requirements of the Market Access Regulation would still benefit from generous trade preferences under the Generalized Scheme of Preferences (GSP), according to Schmidt.

EPA opposition persists

For apparent fear of this situation, a couple of ACP countries have opted out of the regional blocs and are now ready to sign as individuals. If the EAC bloc continues to dillydally, Kenya, the only country in the region that is not an LDC, could go it alone.

The SADC grouping recently agreed to settle for the EPAs and have finalised the text of the agreement, confirmed by the chief negotiators, and is now going to be presented for signature and ratification according to the domestic procedures of each partner.

Relatedly, West Africa finalized its negotiations after the EPA was successfully closed in Brussels on Feb.06 before the agreement was initialed on June 30. On July 10, ECOWAS Heads of State endorsed the EPA for signature. This development has now heaped more pressure on other regional blocs.

Africa Kiiza, a program officer for trade negotiations at the Southern and Eastern African Trade Information and Negotiations Institute (SEATINI)-Uganda, is worried about the consequences of the pressure on poor countries like Uganda. “If Uganda signs basing on deadline other than content, this would put her economy at stake,” he says. Kiiza notes that even if Uganda signs the EPA, it still won’t benefit until it addresses her supply side capacity constraints. It should be noted that the EAC countries have not effectively utilized these preferences and have remained largely exporters of raw materials to the EU because of the critical long-standing market entry barriers in the EU i.e. Sanitary and Phyto-Sanitary measures, Rules of Origin, Technical Barriers to Trade and subsidies; and because of the supply side constraints within the EAC countries. However, Emmanuel Mutahunga, the acting executive director of the Uganda Export Promotions Board, and who has been a key figure in the EPA negotiations from the very onset, says there is nothing to worry about because significant progress has been made on the negotiations.

“Uganda has arrived at convergence on most of the EPA clauses apart from only two. The two remaining items where convergence hasn’t been arrived at are agricultural subsidies and a non-execution clause, which deals with good governance, democratic principles and human rights, which the EU is proposing should also be covered in the EPA to give it an opportunity to take measures against a party that is deemed to be in breach of those aspects. On agricultural subsidizing the EAC is yet to agree on either domestic support or export services, those are the areas where we have really not got convergence.” But Chris Opoka, a Ugandan legislator at the East African Legislative Assembly (EALA), appears to have another story. “The EALA passed the EAC Joint Negotiations Act in 2008 but the Council of Ministers wants it repealed, a decision that the Assembly has strongly objected to. The Bill to repeal it was sent to the committee on Communications, Trade and Investments in the last session,” he says.

The delay in having the EAC Joint Negotiations Act repealed now stands as a barrier to the signing the EPA. That paves the way for individual countries especially Kenya, which is not an LDC like the rest of her regional partners, to go it alone.

Moses Ogwal, the director for policy at the Private Sector Foundation Uganda (PSFU) also doesn’t see the deadline as a big issue though he does admit that most of the major issues had been agreed upon apart from a few things such as the issue of export taxes whereby the EU objects to the EAC imposing taxes on EU exports to the region.

“As PSFU, we see no major problem with Uganda appending its signature on the EPAs,” said Ogwal. “The negotiations so far done are okay and we have protected our products as Uganda. However we need to work on our competitiveness and we hope the EU will help us improve. We need to work on the power, infrastructure, skills, cost of transport, cost of money, etc.”

Mutahunga says a meeting with the EU is in the pipeline as a convergence is imminent but even it does not happen, there is no reason to worry because Uganda is not desperate. “As far as we are concerned as a country we appreciate the fact that there are alternatives to EPAs that we could fall back to,” he said. However, he said the priority is to ensure that we have convergence with the EU as the EAC bloc on the two outstanding issues, but that convergence must take into consideration our interests. “Should we opt for a fallback position, it will definitely affect our EAC integration process,” he added.

The African position

Africa Kiiza says African countries are not keen on the EPAs because of the contentious issues therein. He argues that the EPA in its current form cannot work for Africa’s development, given the extensive level of liberalisation (82.6%) that the EU demands as part of the agreement.

He says this would have negative consequences for a country like Uganda that has to-date not recovered from the shocks of Liberalisation under the Structural Adjustment Programs. The EU also objects to imposition of taxes on her exports to Africa yet given Africa’s low domestic resource mobilisation capacity, export taxes still form a critical component of her economy; among others. Mutahunga however, says African countries cannot reject the EPAs because it is part and parcel of the ACP-ECP partnership agreements which they signed.

“What we are terming as ‘opposition’ to the EPAs are voices on concerns on certain issues in the negotiations and that’s perfectly normal in any negotiation,” he adds.

Kiiza however insists that poor countries like Uganda cannot afford to lose customs taxes for whatever reason. :Signing of EPA will be a failure for Uganda but a triumph for the EU. Besides, it is better Uganda explores other markets like COMESA where it has competitive advantage,” argues Kiiza. However, some industry observers say the EU is keen on seeing Africa conclude the EPAs because of the growing Chinese influence in Africa.

Mutahunga reluctantly disagrees with this view. He argues that the relationship between Europe and the ACP countries is ages old. What is true is that the Chinese influence has had a great impact on the way the EU has approached the negotiations. That’s for a fact, somebody may not want to accept it, but that’s what it is.”

Critics say the EU wants continuous importation of raw materials from Africa. Subsequently, the EU uses these raw materials to manufacture products, which it then exports to Africa rather expensively and – tax free – which they fear could worsen Africa’s trade deficit. Despite the Ping-Pong, the EU remains an important market for the EAC with products including coffee, cut flowers, tea, tobacco, fish and vegetables worth altogether €2.2 billion being exported to that region per year. At the same time, the EU supplies the region with the mechanical and industrial equipment, vehicles and pharmaceutical products among others.

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