Thursday, February 12, 2009

Europe, Africa and EPAs: opportunity or car-crash?

Kalypso Nicolaïdis - Paul Collier

A rethink of the agreements that govern European-African trade would benefit both sides, say Paul Collier & Kalypso Nicolaïdis

7 - 01 - 2008

Europe's trade policy has the potential to be a powerful instrument for African development. To date it hasn't been. The central element of this policy since 2002 - the establishment of economic partnership agreements (EPAs) - now needs to be rethought.

The media coverage of the European Union-African summit held in Lisbon on 8-9 December 2007 was dominated by the controversy over the presence of Zimbabwe's president Robert Mugabe, and the boycott of Britain's prime minister Gordon Brown. But the real political power-game was played out on another front. As ex-colonies, the seventy-nine-strong African, Caribbean and Pacific (ACP) group of states have since the 1960s benefited from special trade agreements with the European Union. Through preferential access to its market, support for basic commodity prices and thel ike, Europe served as an instrument for post-colonial atonement.

The need to review

But the deal has come unstuck. From 2002, the EU has promoted the adoption of new economic partnership agreements (EPAs) between the EU and six new ACP regions. These EPAs have become the subject of intense controversy, with their advocates (the European commission, led in this area by its trade commissioner Peter Mandelson)opposed by assorted NGOs, academics and a number of other WTO members.This is what the Lisbon summit - characterised by tense discussions between Europe and African states- was really about.

The necessity for reform, as well as the nature of the proposed changes, has been justified by the need to make these agreements compatible with the World Trade Organisation (WTO). The global trade regime allows for trade preferences only when they are either reciprocal (as they are within the EU) or when they are provided to developing countries on a non-discriminatory basis (as with the so-called "general [or generalised] system of preferences" [GSP]).

But the existing EU-ACP agreements are neither. The WTO waiver which made this state of affairs possible expired on 31 December 2007, thus making the preferential trade terms of the Cotonou agreementreached in 2000 no longer legal.

Does this mean that a deal needed to be rushedthrough by the end of the year, even as many of the ACP countries were still reluctant to sign? We do not think so. A great majority of WTO members stood, and still stand, to benefit from a careful revisiting of the EPAs and would not have insisted on a rigid respect of the deadline. Indeed, although close to twenty ACP states have concluded trade agreements with the European Union, most are (unlike the full EPA agreement concluded with the dozen Caribbean partners in December2007) interim accords designed to meet WTO rules. This leaves open the space for a welcome rethink in 2008.

In full sight

So what could such a rethink consist of? ACP countries in general and African countries in particular need two things from a trade deal that they can't do unilaterally.

First, they need a "commitment technology". The region suffers from a reputation as a high policy-risk environment - an image that events such as the post-election crisis in Kenya only reinforce -so it needs credible means of signalling to the rest of the world that it is locking in its own future policies. The reciprocity requirement of EPAs can provide such an insurance. But Africa should not liberalise abruptly. Like other regions, it should plan a gradual transition of perhaps two decades during which firms could adjust production and governments could adjust revenues. The European commission has plenty of experience with such gradual adjustments, and so agreeing to a reasonable timescale should be within the zone of possible agreement.

Moreover, such an opening of ACPs need not be discriminatory. The decision to set lower tariffs on goods imported from Europe than on those imported from elsewhere - as is currently envisioned - will unavoidably lead to trade diversion.The obvious way of avoiding this is for Africa to apply most-favoured-nation (MFN) treatment to its liberalisation, whether or not the EU suggests this. They should therefore negotiate EPAs with this additional liberalisation in mind. In fact, EPA-plus-MFN would also be in Europe's long-term interest.

The second need of the ACP countries is for improved market access to Europe, a need not adequately provided for by thecurrent scheme, Everything but Arms (EBA). Since it is only aimed at the poorest countries, EBA excludes Africa's more important economies - such as Ghana and (its current convulsions notwithstanding) Kenya - which could act as the engine of trade in the continent. Moreover, its highly restrictive "rules of origin" - 70% of content must be local - preclude Africa from exporting manufactures in ways that realistically correspond to its potential: namely, with a division of labour between countries, each accomplishing one or a few specific task in the production chain.

Instead, the European commission continues to rely on the outdated argument that its preferential scheme rightly encourages - deep vertical integration of production within single countries. EU experts need to recognise the structural realities of globalisation. The contrast with the success of African garment exports to the United States as a result of thebetter-designed American scheme - the African Growth Opportunity Act (Agoa) - makes the point, albeit here again thanks to a WTO waiver.

The final point is that additions to this core bargain should be avoided in the EPA deals. In particular, EPAs should not beseen as a return to policy conditionality: the reluctant acceptance by African governments of policy change in return for promises of aid. Nor should they be a device for reintroducing issues like investment, procurement, trade in services or intellectual property in forums where these governments are more susceptible to asymmetries of power than in the context of the Doha round which is at last creeping forward. This way lies a car-crash: African governments unwillingly agreeing to changes in which they do not believe. The European Union we believe in can do better.

http://www.opendemocracy.net/article/future_europe/europe_africa_EPA