Why Ghana should not sign IEPA

Any decision on the Interim Economic Partnership Agreement (IEPA) will trigger a range of effects on different actors. But the overall effect will be that Ghana will be worse off if it signs the Interim EPA agreement.. This is because the costs of signing the agreement far outweigh the benefits of signing the Trade deal. At the same time, what can be saved from not signing can be used to meet the problem posed by not signing it. The other way round is not possible.

A. Benefits of Signing the IEPAs/Costs of Not signing IEPA

In the absence of the IEPA, 70% of Ghana's current export to the European Union (EU) market will enter duty free. Of the reaming 30% which will face duties, the most important in terms of trade volumes and values are: tuna, (facing 18-20% duties); fruits and vegetables (2-8%) and cocoa butter and paste (4-6%). If Ghana signs the IEPAs, these products will continue to enjoy preferential market access, and not pay the relevant duties.

But if the EPAs are not signed, then, 'based on United Nations Economic Commission for Africa (ECA) and South Centre's calculations, and based on their current export volumes, these companies will pay a maximum combined import duties to the European Union of a tune of $52 million annually.

In addition, by the account of the companies themselves, a maximum of about 4, 000- 4,5000 jobs will be threatened.

B. Cost of Signing/Benefits of Not signing IEPA.

By contrast to the above, signing of the EPAs will trigger the following range of costs.

a) Imports effects on Domestic and Regional Market

The signing of the agreement will open up the market to about 80% to imported goods from European Union. Since most of these European goods enjoy better conditions of production, they will out-compete domestic products, which are either similar or substitutable. Even though there is an attempt to protect some domestic sectors through a sensitive list, this list is neither coherent or rigorous. So most of the sectors supposedly protected will suffer anyway.

According to MOTI's own figures, these sectors that will be most likely affected are the most dynamic and innovative future industries, like pharmaceuticals; high-value added, like plywood, veneer etc; as compared to lumber; which combined to be the most job-creating sectors.

These are also sectors that don't export to Europe, but rely on the domestic and regional market. Signing the IEPAs will destroy their domestic market. In addition, since the IEPA is bilateral, it will have the effect of blocking them out of the most important regional markets like Nigeria, which don't have the IEPA. And the full EPA, will open the regional market to competition, affecting them. These include pharmaceutical companies, wood products, wire weavers, plastic, pasta etc.

Jobs: From MOTI's analysis, the job losses in this already beleaguered manufacturing sector be a minimum of 43,000 direct jobs, with related indirect jobs across the economy escalating even further. This excludes means of livelihood in agriculture, etc.

b) Tariff Revenue

Signing the IEPA will cost government tariff revenue to the tune of $150million (according to MOTI) and $374 million (according to the United Nations and the South Centre) annually forgone on European imports. Thus, not signing the IEPAs will save the country this amount.

c) Policy Space

The signing of the IEPAs will take away the use of tariff as a policy tool. Due to World Trade Organisation rules, performance and domestic content requirements related to goods have become strictly circumscribed, (in key instances prohibited outright) leaving tariffs and the price mechanism as the tool of choice for promoting domestic content and local procurement objectives (outside investment rules).

In addition, under the IEPA, export taxes, which are also prohibited under the EPA. This could be used to make raw materials available for domestic use. A key example is the policy of scrap metal, which is used to make the material available for local use.

Also, funding of the EDIF and other similar initiatives from import duties will also be proscribed.

Furthermore, there is the issue of Most Favoured Nation (MFN) which basically bars Ghana from entering into any trade agreement with a third party. The rationale of this clause in the agreement is to secure the interest of the EU and deprives Ghana the opportunity to enter any trade agreement with other developing countries such as China, India or Brazil.

d) Regional mechanisms and economic and political space.

ECOWAS region is an economic space. Most of the domestic job-creating industries export mainly or even to the regional market. Going it alone and signing the IEPA will attract retaliation from players which want to protect their market, e.g. Nigeria. There is also the budding regional financial, services and infrastructure market that Ghanaian companies can tap into. It will also undermine common political solutions to common economic problems.

C. RECOMMENDATION

1. Ghana should not sign the IEPA.

2. To meet the challenges of the three export sectors which will face the combined duty of $52million, Government can raise the money out of its saving of $372 in tariff revenue to support such industries while they diversify their market. A significant number of countries are doing this, as confidential acts, including Namibia which is helping its beef sector diversify while holding signature of the IEPA at bay.

In any case, the preferences which the exporters currently enjoy, and which will be protected with the IEPA are being eroded and will be very little by the end of the Doha round negotiations in WTO. So most Ghanaian exporters have to diversify in the long-term, and become competitive outside preferences.

3. What is more, not signing the IEPAs, the government will also save the domestic sector, jobs, future policy space etc, which are practically priceless.