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Business News of Thursday, 25 July 2013

Source: B&FT

EPA 2014 deadline

...A dangerous corporate strategy of the EU

The 25th Session of the Joint Parliamentary Assembly (JPA) of Africa, Caribbean and Pacific (ACP), and the European Union (EU) took place in Brussels from the 15th to the 19th of June 2013. Among the issues on the agenda was the unilateral deadline issued by the European Commission (EC) for ACP states that have initialled/signed interim Economic Partnerships Agreements (EPAs) to sign/ratify them by October 2014. ACP countries that fail to do so will lose their preferential market access offered by the EU. By that decision the EC assumed the high moral ground and attempted to paint a picture in which it was faultless in the EPA deadlock, and rather that ACP states were to blame for the impasse when in fact the EC is the chief culprit. This stance did not go down well with most ACP parliamentarians

The mood and sentiments of most ACP Parliamentarians, during both the formal and informal meetings, showed that the EC was unfair with the issuance of the EPA deadline. For instance, one MP indicated that it was surprising to have a one-sided deadline in partnership negotiations for only the ACP states while leaving the EU member-states. Some also deplored the pressure of the EC on countries to sign interim agreements that would destroy regional integration in Africa, and indicated that any agreement signed under coercion will lose its legitimacy and could be challenged in courts of law. According to the MPs, answers to the deadlock in the EPA should be sought from EC and not the ACP states, and they indicated that this unilateral EPA deadline will remain a sore point in EU-ACP relations and called on the EU to show flexibility.

More surprising to the ACP MPs was a call by the Christian Democrats of the EU Parliament to reject the report of the Committee on Economic Development, Finance and Trade which reflected the genuine concerns (de-industrialisation, revenue loss, loss of policy space etc.) of the ACP. The report also called for a high-level political dialogue between the ACP and EU to deal with the EPA dilemma. But the Christian Democrats asked for a separate vote on several paragraphs and amendments, and while the ACP group as a whole voted in one direction, Christian Democrats voted in the other and won the majority of the European side; and so several development-friendly paragraphs that were accepted at the committee level were rejected during the plenary.

It is important to understand the deadlock. The deadlock in the EPA negotiations boils down to a clash of logics in development thinking and vested interests. The European Commission in the midst of its never-ending financial and economic crises is looking for ways and means to exit the economic turmoil that has engulfed the Euro zone since 2008. Hence, the Commission has reduced the EPAs to a corporate agenda -- raw materials and markets -- and ignored all the genuine concerns from the ACP region.

For Instance, the EC launched its Raw Material Initiatives in 2008 -- which seeks to have privileged access to affordable mineral raw materials that, according to the EC, are crucial for the sound functioning of the EU's economy. Sectors such as construction, chemicals, automotive, aerospace, machinery and equipment sectors, which provide a total value-added of €1324 billion and employment for some 30 million people, all depend on access to raw materials. Most of the issues raised in the EU’s Raw Materials Initiatives find expression in the EPAs.

As Africa’s middle-class is growing, so too is the potential that the region will be a huge market for European companies. According to the African Development Bank (AfDB), Africa's middle-class had risen to 313 million people in 2010 -- accounting for 34% of the continent's population as compared with 111 million (26%) in 1980 and 151 million (27%) in 1990. The AfDB is predicting that the African middle-class will grow to 1.1 billion (42%) by 2060 and that will be a huge market with a youthful flavour. This is in sharp contrast to the aged demographic picture in Europe whose demands for goods and services are different and are likely to shrink.

To be able to have control in these areas, the EC insists on a number of contentious issues which are not necessary for a free trade agreement that is World Trade Organisation (WTO) compliant. Some of the contentious issues are export taxes, standstill clauses, Most Favoured Nation clause (MFN), just to mention a few. The MFN basically bars Africa from having any ambitious trade agreement with any trade partner -- especially the emerging economies such as China, India and Brazil -- and offers Europe privileged access to Africa’s raw materials, the prime target of the EU’s Raw Materials Initiative.

For instance, EU firms based in Cote d'Ivoire, Ghana and across the West and Central African coast have attained monopoly positions in so-called 'non-traditional exports' such as bananas, pawpaw, pineapples, agro-processing of cocoa and other products as well as a chunk of the shipping activity and control of key infrastructure such as terminals and ports along that entire stretch of Africa.

These well-integrated operations are backed by EU governments and promoted through every available means, including Foreign Direct Investment (FDI) and so-called 'development aid' flows. Such advantages are what the EU seeks to lock-in and expand on a virtually permanent and limitless basis through the instrument of the EPAs. This explains the unrelenting single-minded aggressiveness of the EU to exploit its political position to export its way out of its current crisis and to secure its competitiveness for the future.

The ACP states on the other hand have a transformative agenda that conflicts with the corporate agenda of the EU.

A key aspect of that agenda is strengthening regional and intra-African ties through trade. This has been demonstrated by their commitment to establish the Tripartite Free Trade Area by 2014 and the Continental Free Trade Area by 2017. Though not perfect, this is a home-grown initiative that could be improved -- especially its productive base. The EPAs threaten to stall the integration agenda being spearheaded by the Africa Union. This EU approach will undermine ACP countries’ development agenda and inevitably endanger particularly Africa’s economic future.

The emergence of China, India and Brazil is altering the trading patterns of African countries. The dynamism on the development landscape makes it imprudent for countries to lock themselves up in a free trade agreement perpetually, especially between unequal partners.

In terms of export of raw products, Europe remains the largest market for Africa. However, for value added products made in Africa the African market is the best destination. Regional trade in Africa is increasing at faster pace than Africa’s trade with the EU, and most of them are industrial products which offer a lot of employment for many during the process of value addition. For instance, within ECOWA most of the promising local companies such as pharmaceuticals, wire-weaving, furniture and a host of other companies in Ghana export to the sub-region. Should these be sacrificed?

In 2011 African Union Heads of State adopted the Africa Mining Vision. It is a vision that departs totally from the current regime where the natural resource sector is an enclave and most raw minerals are meant for export. It envisages a new regime in which mining plays a catalytic role in the transformation of minerals-rich African countries. It seeks value addition and strong linkages with the rest of the economy as against the aspirations and interests of the EU as contained in the EC Raw materials initiative.

The strategy of the EC in the light of this clash of logics and interests is to close all alternatives under its control, and with the deadline of October 2014 force countries to sign onto EPAs because of marginal increment in tariffs on ACP exports to the EU market. This is strange in a partnership as echoed by the ACP MPs throughout the JPA, but that is the reality. But the question is whether Africa governments will sacrifice the desire and initiatives to structurally transform their economies and move away from raw materials dependence, for the EU market access bait that will be eroded in the coming years anyway -- with or without an EPA.

Yes, ACP states are faced with genuine concerns of exporters; but that can be dealt with by destiny-changing decisions. Using Ghana as an example, a study by South Centre in Geneva, which updates the 2005 study undertaken by the UN Economic Commission for Africa in April 2005, estimates that the cost, due to new duties under the EU Generalised System of Preferences (GSP) that Ghana will incur, will be in the region of US$52million, whilst that of its current commensurate loss of tariff revenue from an EPA will be about US$374million. It means that by failing to sign the EPA the companies will lose US$52million (paid as duties to EU), whereas signing it will mean that Ghana government will lose US$374million as tariff revenue. The costs of signing an EPA far outweigh the benefits even from this narrow and limited criterion of net fiscal balance.

The wise economic and politically-sound decision to take is to compensate the companies for a period of time (say three years) and assist them to diversify their exports destinations to safeguard the integration and industrialisation agenda in Africa. To sacrifice all these for a market engulfed in crises, as the EU market is, is difficult to comprehend. Nothing short of pragmatic leadership is required.

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