ESA countries should move cautiously on services liberalisation with the EU
The outcome of Economic Partnership Agreement (EPA) negotiations, set for this December, will change a decades-old reciprocal trading regime between the European Union (EU) and African Caribbean Pacific (ACP) countries. Specifically, negotiations on trade in services under the EPAs have important development implications for Eastern and Southern African (ESA) countries.
The countries that constitute the ESA negotiating group are Burundi, Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Uganda, Zambia, and Zimbabwe, many of which are also the poorest and least developed in the world. For them, ensuring universal access to basic services such as health, education, sanitation, and water, as opposed to exporting services — which is the rationale behind a free trade agreement, is the real priority, and challenge.
In these countries countries, trade capacity, infrastructure, and regulation of services is weak and for many years, services were viewed as non-trad able, with the State being the sole provider-particularly in health, education, banking, telecommunication, and transport.
In the mid-1980s, the de-regulation process engineered by the International Monetary Fund (IMF) and World Bank led to the privatisation of many previously State-provided services. The absence of efficient regulatory, institutional, and administrative structures to meet the challenges that came with this liberalisation resulted in major reductions in welfare.
Afrcan countries see the EPA negotiations as a process, and opportunity that can help them overcome the challenges they face trying to penetrate and integrate into international services markets: the so-called supplyside constraints, such as inappropriate and weak infrastructure, institutional and regulatory capacity. They look at EPAs as potentially enhancing their capacity to provide, and supply services.
Against this background, the EU is seeking Most Favoured Nation status-over and above what is available in the WTO’s GATS (General Agreement on Trade and Services), for its service suppliers. In effect this would not only give EU companies unlimited access to the ESA market on terms similar to those available to ESA countries in the context of their various regional integration initiatives. They will also get automatic access to the treatment that ESA countries give to all other trading partners, with whom they have services economic integration agreements, or with whom, the ESA process has led to some form of services liberalisation. The scope of this can be far and wide depending on the level of openness of ESA countries which in the service sector is quite high.
More importantly, the EU also seeks national treatment commitments from ESA countries, which entitles EU companies to immediate and unconditional access to the treatment that ESA service suppliers are entitled to in the context of their various regional integration processes, (e.g Common Market for Eastern and Southern Africa, East Africa Community and others).
Aside from making it impossible for ESA to have exemptions, and adopt measures that favour ESA service suppliers, the result of conferring the most favoured nation status and national treatment to EU in the EPAs bars ESA countries from the ability to implement certain policy options, or regulations, that could increase the participation of local service suppliers in domestic and intra-regional trade.
ESA companies involved in supplying services cannot compete with their EU counterparts. While the EU is an important market for ESA services exports (tourism, and transport), ESA countries account for only 6.6 per cent of Europe’s total service imports. And there is no credible research showing that with a trade agreement, this dynamic will change.
Another argument for most favoured nation liberalisation in EPAs is that it would lead to tremendous investment flows. However, in the past, investment has been concentrated in a few areas, like banking, ignoring other essential sectors such as health, and even in these cases, the banks do not extend services to rural communities, but focus on urban areas where people have more money.
The EU also seeks removal of quantitative restrictions like quotas, limitations on the total value of transactions, limitations on the number of operations or the participation of foreign capital, or even restrictions on the types of establishments.
In order for a country to meet its national development objectives, these may be the very restrictions it must condition on market access liberalisation. If a country wants to increase the number of domestic service suppliers in banking for example, limiting foreign participation in some way, or through some conditions, may well be inevitable, and yet this would constitute a breach of agreement if ESA countries were to agree to the sorts of proposals the EU is presenting.
In the WTO’s GATS, countries are expected to be the judge of the extent, scope, and timing of their own services liberalisation, taking into account their national policy objectives. Developing countries can open fewer sectors, liberalise fewer types of transactions and progressively extend market access to others, while attaching conditions thereto aimed at increasing their participation in international trade in services. Asking ESA countries to commit to full liberalisation is contrary to the rationale behind progressive liberalisation: a cornerstone of the GATS.
ACP countries are under no obligation to negotiate a services trade Agreement with the EU. The WTO waiver that covers the Cotonou preferences relates to trade in goods: industrial and agricultural. Its expiry does not affect services at all. Therefore, ESA countries should move slowly and cautiously on services liberalisation with the EU.
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