EPAs will break East Africa’s dependency
The European Union (EU) is a key trading partner of Kenya and other countries in the Eastern and Southern Africa (ESA) region and by far the largest provider of development grants.
Economic Partnership Agreements (EPAs) will further deepen this relationship, from one that offers tariff preferences an eroding lifeline to one that builds lasting regional and international markets for the ESA. In short, the EU aim to create prosperous trading partners, moving progressively, over time, from dependency to opportunity.
We warmly welcome the joint conclusions adopted by the EU and the ESA ministers at the end of February in Brussels. These reconfirm the commitment of all parties to conclude a developmental trade agreement before the end of this year.
Following this important meeting, led on the ESA side by Kenya’s Trade and Industry Minister, Dr Mukhisa Kituyi, we have now agreed on a joint compass course.
At a moment like this, it is appropriate to recall what the EPAs really are about.
The nub of the EPAs is to foster regional economic integration. The first step will be to strengthen local markets and build up trade, and the capacity to trade, in the ESA region itself. This will facilitate regional trade and make the region more attractive for investment.
The EPAs will then bring such a regional market into closer economic partnership with the EU and gradually, and I mean very gradually, liberalise trade between the two. It will consequently help diversify ESA economies, deliver growth and jobs, break the dependence on preferential market access and integrate African economies into the global economy.
LET ME underline that the ESA countries will remove tariffs only over the long term not overnight, but carefully and progressively and with full consideration for their development needs.
Experience shows that carefully timed tariff cuts can benefit consumers and local companies that need cheaper machinery, raw materials and parts for assembly.
It is not true that EPAs will automatically lead to a long term net loss in public revenues. Yes, there will be changes in the structure. But this will not mean necessarily a drop in the volume of ESA government revenues.
East Africa’s experience during the first year of the EAC Customs Union implementation demonstrates that dynamic effects of trade liberalisation can overweigh the impact of tariff cuts on fiscal revenue.
The long transitional periods will also allow the EU to assist in fiscal reform processes in ESA economies processes that are underway in most developing countries even without an EPA. And more importantly, EPAs can in fact, be turned into an opportunity to break dependence on unpredictable tariff revenues. The EU is committed to helping those affected negatively to adjust.
Furthermore, we will continue to drive the debate in the context of the World Trade Organisation (WTO) on intellectual property rights and public health to make certain that developing countries will have access to affordable and appropriate medication to fight communicable diseases. The EU has and continues to be instrumental in ensuring that this is the case.
IN EAST Africa, Kenya already enjoys 97-98 per cent free market access into the EU. This is by far the best access offered by any developed country or economic bloc. But we are committed to improving this even further with the EPAs by addressing the remaining tariff lines.
Through the EPAs, the EU will also assist in further strengthening of ESA’s ability to tap into market openings that is, through aid for trade.
The EU is by far the biggest contributor of aid for trade in the world providing over half of it all! By next year the Commission will be providing Euros 1 billion ($1.3 billion) a year and if we add in our member states the figure doubles to Euros 2 billion ($2.6 billion) a year from 2010.
At the end of last year, the EU adopted a decision to allocate a substantial part of this assistance to support the implementation of the EPA agreements, with the lion’s share going to Africa.
In order to ensure that developing countries can actively participate in multilateral trade discussions, the EU has also assisted in setting up of an Africa Caribbean Pacific Office in Geneva that is accredited to the WTO and other international organisations.
In addition, the EU remains a committed development partner of the ESA group in more “traditional” areas of development co-operation. Out of the European Development Fund resources alone, the EU will be providing grants of up to Euros 5 billion ($6.5 billion) over the period 2008-2013 into the ESA region. A substantial part of this will be allocated to traditional intervention sectors of EU aid infrastructure and rural development while improvements in health care and education are largely supported through general or sectoral budget support.
BEYOND THESE allocations, the EU is making significant contributions to the region’s development through the member states’ bilateral cooperation programmes and development finance institutions as well as through joint contributions to multilateral organisations and global funds. Equally, sizeable funds will be channelled towards regional programmes, notably infrastructure, in order to underpin regional integration.
Decades of development co-operation have shown however that financial assistance alone is not sufficient to deliver development. We truly believe that transparent, predictable and enforceable “rules” are also central to development.
Private business needs rules to reduce risks and the ESA countries need stable rules to attract inward investment. EPAs are the opportunity to strengthen those rules, which are often part of regional integration initiatives.
EXPERIENCE SHOWS that countries without effective competition laws pay more for imports, shipping and services. Cartels target these countries, costing such countries millions of euros.
Transparent public procurement can also bring true benefits to ACP economies, since rules can cut costs by a third and reduce favouritism and corruption.
In short, aid is necessary to address physical constraints but the ESA governments can also do much to improve trade facilitation by improving economic governance and removing unnecessary red tape.
THE FUTURE is certainly about regional economic integration. Indeed, In East Africa Kenya is already trading more with its regional partners than with the EU and is a powerhouse in both the EAC and within Comesa.
We Europeans feel well placed to talk about the benefits of regional integration; after all, we shall celebrate our 50th birthday this month.
