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Opinions of Thursday, 28 June 2012

Columnist: Acquah, Prosper Kwesi

EPA – EU’s Fight for Raw Materials & Markets for Its Products

A lot has been said and written about the Economic Partnership Agreement (EPA) being tabled by the EU for 98 African, Caribbean and Pacific (ACP) countries to sign. I am by no means an expert on EPA issues but from the little I know about the EPA, my strong opinion is that Ghana should NOT sign the EPA even if the terms are acceptable to the country. Instead Ghana should only sign as a member of the ECOWAS grouping. This article intends to share my thoughts in arriving at the conclusion above.
The EPAs are supposed to be reciprocal trade liberalization agreements which is meant to replace a non reciprocal agreement which expired in 2008. As part of the EPA, the EU is seeking the elimination of duties on about 80% of goods exported by the EU to ACP countries in return for a similar access to the EU market by ACP countries. According to the Socialist Group of the European Parliament, “the EPAs were intended to be centered on the objective of reducing and eventually eradicating poverty, consistent with the objectives of sustainable development and gradual integration of the ACP countries into the world economy”; a very laudable objective. Yet the negotiations have been bedeviled with a lot of acrimony, accusations and suspicions which has delayed the ratification and signing of the agreements by the six regional blocks that constitute the ACP. One wonders if the true objective of the EPAs is as stated above, and why the EU should coerce any country or regional block to sign the agreement.
The truth is that the EPAs are not as much about the interests of Sub Saharan Africa, the Caribbean or the Pacific countries as it is about Europe becoming more economically competitive. The EPAs are about finding market for European products, having access to cheaper raw materials from Africa and being able to compete with China, India and recently Brazil in the African market. When Africa exports raw materials duty free to the EU market, EU manufacturers will be able to buy these raw materials at cheaper prices because the saving from not paying import duties will be passed on to them. After production the EU manufacturers will be able to export their products to Africa duty free thereby achieving additional cost savings. The cost savings on both raw materials and finished goods is likely to make EU goods competitive with goods manufactured from China and other emerging countries.
It is very important for EU products to be competitive in the African market because most developed economies are experiencing little or no growth and in some cases shrinkage. It is obvious that products manufactured in Europe are unable to compete with those manufactured in Asia even in the European market let alone compete in the African market. The EU therefore sees the EPAs as its main way of becoming competitive again.
As much as every economist agrees that exports are very important to the development of ACP countries, the goods or products being exported are even more important. As figures show, ECOWAS for instance exports primarily raw materials to the EU market. ECOWAS countries cannot develop or become competitive from exporting unprocessed raw materials to the EU, China or USA only to turn around and import products that have been manufactured using those same raw materials. To develop, we must grow the domestic production capacities of member countries, increase agricultural production and industrialize just as China and Brazil are doing. This is the only way we can enhance regional integration, provide employment for our people, ensure food security and reduce conflicts in the region.
For Ghana and other ACP countries, any economic agreement that it signs should have these overriding aims of:
• Building the capacity of its people from advances of science and technology
• Ensuring sustainable development of its people and economy
• Regional (ECOWAS) integration
• Integration of the economies of all the ACP countries
• Enhancing the growth of key sectors of the economy such as manufacturing, agriculture etc.
• Ensuring development that sustains the environment – agreements should not be exploitative
The question we need to be asking ourselves is that will the EPA ensure that we achieve at minimum the things listed above? How complementary is the EPA to the developmental goals of Ghana, the ECOWAS region or the ACP countries. Will this agreement support Ghana’s goals of transitioning from being a raw material exporting nation to an industrialized manufacturing country? According to the European Commission (EC) /Eurostat figures, the EU imported EUR 1.5B worth of goods from Ghana of which only 2.8% were manufactured goods. Over 95% of these goods were unprocessed food (mainly cocoa), crude materials and mineral fuels. This pattern of exporting raw materials from Ghana or Africa to the rest of the world has persisted for decades and we can all attest to its consequences, – highly import dependent, collapse of the manufacturing sector and chronic high unemployment rates.
Since 2008, the EU has not being able to finalize these EPAs. There have been several accusations by ACP countries, European development organizations and even the Socialist Group of the European parliament against the negotiation styles used by the EU. Some of the accusations include the fact that the EU is using divide and rule tactics by beginning negotiations with individual countries when negotiations seem to stall with the regional groupings. For instance when negotiations with ECOWAS stalled, the EU decided to negotiate directly with Ivory Coast, Cameroun, Ghana etc.
The approaches of the EU seem to go contrary to their stated aim of ensuring regional integration within and across the ACP regions. The EU in recent times has resorted to threats and coercion by insisting that countries such as Ghana ratify or sign the EPAs by certain arbitrary deadline. The question is why should countries be pressured into singing agreements that are in their own interest? ACP countries should be wise enough to know when agreements are in their interest. The EPAs are primarily designed to secure and safeguard the interests of the EU and its people and not that of ACP countries.
It is not surprising to know that in November 2008, the European Commission (EC) adopted ‘Communication 699’ titled “The Raw Material Initiative (RMI) – meeting our critical needs for growth and jobs in Europe” which sort to outline the EUs strategy to respond to the raw materials challenge it faces. One of main pillars of the RMI according to the EU is “to ensure a level playing field in access to resources in third countries”. Also as part of its ‘Europe 2020 Strategy’, the EU has a flagship strategy "An industrial policy for the globalization era" and that strategy foresees the setting up of a framework for a modern industrial policy that will "address all elements of the increasingly international value chain from access to raw materials to after-sales service". Exactly what the EPAs seek to achieve is to guarantee access to raw materials and market for manufactured European goods.

One communication document from the EC also states “The Trade strategy for raw materials takes full advantage of the Market Access Partnership (such as the EPA). Furthermore, efforts are being made to introduce disciplines on export duties in the context of negotiations of some Free Trade Agreements.
The EU has also been using the opportunity of WTO accessions to include this issue in negotiations with a range of candidate countries relevant from a raw materials supply perspective.” The EU’s goals for the EPAs are too obvious.

We should be very suspicious of any negotiation in which one party coerces and threatens the other while negotiations are still ongoing. Ghana and for that matter other sub Saharan African countries should not be intimidated by the tricks of the EU. The truth is that the EU’s BATNA (Best Alternative to a Negotiated Agreement) is very low and that for the ACP countries is very high. The EU cannot export their finished products to the Americas, Asia, Australia or anywhere else apart from Africa. On the other hand Africa currently is unable to produce enough for its domestic needs let alone for export. The Chinese, Europeans and Americans are battling for the African market as a destination for their products. The EPAs seem to be the EU’s way of gaining some advantages over the competition. It therefore stands to reason that all that Africa will be exporting to the EU are raw materials. If those raw materials are exported to the EU duty free, it provides cheaper inputs for European manufacturers thus reducing their cost of production and improving their competitiveness with the Chinese.

ECOWAS Export to the EU

Source: Eurostat (online data code: DS_018995)

The chart above shows that of the EUR 21.2B worth of goods that the EU imported from ECOWAS countries in 2010, mineral fuels constituted 67% (EUR 14.3B), food and live animals 22% (EUR 4.6B) and crude material 6% (EUR 1.2B); all these goods (94% of ECOWAS’s exports to the EU) can safely be described as raw materials or primary goods, largely unprocessed.
If Ghana should sign an EPA and ECOWAS refuses to sign, the EU will flood Ghana with its manufactured goods while at the same time exploiting what is left of the country’s natural resources. Other ECOWAS countries such as Nigeria will most probably respond to Ghana’s actions by placing a ban on goods from Ghana (disregarding all ECOWAS agreements). It must be noted that signing an EPA with the EU is not bad in itself. What some of us are advocating is that the terms should be well negotiated so as to protect and even boost local industries and employment. For instance I don’t believe any trade or civil society group will be against the importation of construction and agricultural equipment into Ghana duty free; these organizations will however oppose the importation of agricultural products, furniture and the like into the country duty free. Some will even advocate a total ban on the importation of such products.
An agreement negotiated by ECOWAS is more likely to result in favorable terms for all its member countries than that which is negotiated by any single member country. In any case why should an individual country such as Ghana negotiate an EPA with a regional block, the EU?
ECOWAS and for that matter Ghana must ensure that before they sign the EPA, it must address the following important issues;
i. The list of EU products exempt from import duties should not include any agricultural product since EU countries continue to subsidize their farmers
ii. All other EU products that enjoy subsidies directly or indirectly must not be exempt from import duties.
iii. The percentage of EU goods exempt from duties should be negotiated down to below 50%.
iv. There should not be any ambiguities in the list of products or goods that Ghana or ECOWAS countries can export to the EU.
v. The EU must set up structures to ensure that Ghanaian and ECOWAS producers and manufacturers are able to meet the so called EU standards for their goods and products.
vi. The EPA should not include any intellectual property rules or clauses. As the EU will use that to bar the importation of certain products from China as well as block the use of certain technologies to develop local industry.
vii. The effect of the EPA on government tariff revenue is properly modeled out and understood.
viii. The EPA must at the minimum not hinder regional trade and integration.
ix. ACP countries should reserve the right to review the agreement every three (3) years and perform impact assessment to decide whether to abrogate or re-endorse it.
In my view as a pan-African, history tells us a lot about the human rights and good governance records of European countries when they divided up and colonized the African continent. It is therefore obvious that this agreement is not about human rights and good governance but rather about cheap raw materials and market for Europe’s products. It’s about competition with Chinese products. I am curious to know why the EU is pushing these agreements down the throats of ACP countries, (black countries). Why are countries such as Algeria, Egypt, Libya, Morocco and Tunisia not included in these EPAs? The only way the EU and other so called developed countries can continue to dictate to Africa is to keep the continent economically colonized. Just as India and Brazil in recent years, Ghana, Nigeria, Kenya and the likes can liberate themselves economically if concerted efforts are made at achieving that end.
To conclude, as I have indicated earlier, I am not necessarily against the signing of an EPA by Ghana or ECOWAS; my main concern is that there seem to be a lot of red flags that must be watched carefully. Ghana and ECOWAS negotiators must ensure that any agreement signed with the EU, Brazil, China, India or any other resource hungry economy is in the interest of the guy on the streets of Nima in Accra or Apapa in Lagos. All the issues I have raised in this article must be looked at intensely; we should not be swayed by promises of Aid and Grants. We must beware of aids and grants; they have not been able to transform our economies after depending on same for over half a century.

By Prosper Kwesi Acquah
Business & Financial Analyst,
Member of Volta Advocacy Forum