ISS Today: East Africa’s trade deal with Europe buckles
- ISS TODAY
- 01 May 2017 11:19 (South Africa)
Kenya fumes as it risks losing its lucrative, duty-free access to the giant EU market. By Peter Fabricius for ISS TODAY.
Negotiations between the European Union (EU) and African countries for Economic Partnership Agreements (EPAs) have consumed vast energies from both sides this century – yet with not a great deal to show for it.
The EPAs were agreed to in principle in 2000, when the Cotonou Agreement replaced the 1975 Lomé Convention. In essence that fundamentally changed commercial relations between the EU and the developing African, Caribbean and Pacific (ACP) countries – from preferential, non-reciprocal, to normal, reciprocal trade.
But if African countries accepted that change in principle, realising it has been extremely fraught, taking the plunge into the icy waters of mutual free trade has evidently been too frightening for developing countries used to one-way traffic into the huge 510-million-person EU market.
And so, even after more than a decade of often tortured negotiations, the results are not impressive. Only 30 of the 76 ACP countries are implementing EPAs. In 2008, the Cariforum EPA was signed with 15 Caribbean countries. In the Pacific only two countries, Papua New Guinea and Fiji, signed on. In Africa, the EPA with ESA – the Eastern and Southern Africa group comprising Mauritius, Madagascar, Seychelles and Zimbabwe – entered into force in 2012. The Central African EPA was provisionally implemented in 2014 – but with just one African country, Cameroon.
The major regional blocs, the Economic Community of West African States (ECOWAS), Southern African Development Community (SADC) and East African Community (EAC), concluded negotiations in 2014. The so-called SADC EPA (though in fact comprising only six of the 15 SADC states, namely South Africa, Botswana, Lesotho, Namibia, Swaziland and Mozambique) entered provisionally into force in 2016. The ECOWAS nations – apart from Côte d’Ivoire and Ghana, which are implementing ‘stepping-stone’ agreements – are still stalling over signing and ratifying their deal.
Meanwhile in the EAC, Kenya and Rwanda have signed the EPA, but Tanzania, Uganda and Burundi have not, because of various reservations. The EPA can’t enter into force until all have signed and ratified it and this is looking unlikely to happen soon.
Burundi’s objections are clear and simple: President Pierre Nkurunziza won’t sign until the EU lifts the sanctions it imposed because of his unconstitutional clinging to power in 2015. But Tanzania, under its headstrong President John Magufuli, has been the major impediment to implementation. He has warned that the EPA will open the floodgates to a wave of EU imports that will wreck Tanzania’s own still-fledgling industries. Uganda’s Yoweri Museveni is also opposed, though less vehemently.
Their stance has raised tension with Rwanda, and especially Kenya. The other EAC members are all classified as ‘least developed countries’ (LDCs), which means they can export, duty-free, everything but arms (EBA) to the EU, anyway. Kenya, though, is a ‘developing’ country, which means it will lose its duty-free access to the EU if the EPA is not implemented soon. It will have to resort to the much less favourable General System of Preferences. Its exports to the EU – including its very lucrative cut flowers, tea and coffee – would then incur duties of 5 to 22%.
A similar issue complicated the SADC EPA negotiations. Botswana, Namibia and Swaziland, also non-LDC countries that risked losing lucrative duty-free access to the EU for their beef, fish and sugar, grew ever more testy as Pretoria – having the luxury of its own free trade agreement with the EU already in place – prolonged the EPA bargaining.
Trying to determine the net merits of extremely complex agreements like these is hard. Of course the EPA trade terms are less favourable to the EAC than the old Lomé non-reciprocal trade deal. But that had fallen foul of the World Trade Organisation’s demand for equal treatment by the EU of non-ACP countries. The EPAs appear to stretch the equal-treatment boundaries as far as possible. They are asymmetrical, giving the African countries immediate full access to the EU market while requiring the EAC, for example, 25 years to open 82.6% of its market.
And so in a 2014 report, the European Commission claimed that the enhanced access to the huge EU market would trigger an economic boom in the EAC, not least by attracting investors to take advantage.
But of course the economies of the EU and the African countries are also highly asymmetrical in strength. And so many African governments and industrialists still believe the EU is bullying them into opening their markets. Magufuli spoke for many of them in February when he branded the EPA ‘a form of colonialism’.
Many commentators appear to agree.
The United Nations Economic Commission for Africa has just produced a controversial report which argues that the EPA will expose EAC industries to EU competition they will be unable to withstand, and will lock in the region’s position as a mere low value-added commodity exporter.
“If the EAC-EU EPA is fully implemented, the region risks losing trading opportunities with other partners, industrial output, welfare and GDP,” the The East African quoted the report as saying.
Author David Luke warned that intra-EAC imports could decline by $42-million a year – mainly in manufacturing – while tariff revenues from EU imports would decline by $169-million annually under the EPA.
He also complained that the EPA would disrupt East Africa’s own regional integration efforts because of varying and sometimes contradictory terms and timetables.
Like several other analysts, Luke suggests the EPA is mainly an EU bid to gain unrestricted access to the EAC’s raw materials, an apparent reference to provisions which would terminate existing export taxes that could otherwise be used to encourage local beneficiation of such natural resources.
These export taxes were also a big issue in the SADC EPA negotiations. Yet in that one – and in all the other EPAs, including the EAC’s – the Africans negotiated provisions that would allow them to impose temporary export taxes in future if they required them to develop local industries, increase revenues, protect the environment or enhance food security.
All the EPAs also make provision for the African countries to erect tariffs to protect infant industries, or stem damaging surges in EU imports.
Luke implicitly acknowledges this when he warns that the EAC EPA will be calamitous unless EAC countries are able to clearly define what their infant industries are, as well as identify subsectors they intend to protect, The East African reports.
What this suggests is that if the EAC countries keep their wits about them and use the EPA tactically, it should benefit them on balance.
But this seems unlikely to happen, mainly for political reasons. The resistance from those opposed is clearly growing and the divisions among EAC members are widening.
Luke’s report itself has aggravated this polarisation, with Kenya and Rwanda angrily vowing they will refuse to discuss his report if it is tabled at an EAC Council of Ministers meeting expected to take place next week.
All this is bad news mainly for Kenya, because it faces diminished access to the lucrative EU market while the others continue to swan along regardless, relying on their EBA access.
Yet surely even they are squandering a larger strategic opportunity, in favour of just muddling along in this way? The World Bank expects Rwanda, Uganda and Tanzania to graduate from LDC status within a decade – when they, like Kenya, would also need the EPA to continue enjoying duty-free access to Europe.
The EPAs also allow members of all EPAs to source inputs from each other to jointly create goods that would enjoy duty-free access to the EU. These provisions, if properly exploited, could enhance rather than retard regional integration.
As South Africa’s Trade Minister Rob Davies noted in an article written for the European Centre for Development Policy Management in October 2014, “such provisions will encourage intra-African trade and industrialisation in Africa”.
Indeed, one could go further to suggest that the EPAs – largely driven by the EU – might just be what Africa needs: a sharp kick in the rear to spur its own tardy regional economic integration.
Let us not forget that the EAC members, like other ACP countries, have had one-way, duty-free access to the EU market for over 40 years, without experiencing anything close to an industrial revolution. That alone suggests it’s time to try something different. DM
Peter Fabricius is an ISS Consultant.
Photo: Kenyan President Uhuru Kenyatta delivers a speech after setting ablaze a pile of elephant tusks during an ivory burning event at the Nairobi National Park in Nairobi, Kenya, 30 April 2016. EPA/DAI KUROKAWA
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