Joint memorandum submitted by several
Non-Governmental Organisations (NGOs)
1. SUMMARY
1.1 ActionAid,[6]
ACTSA,[7]
CAFOD,[8]
Christian Aid,[9]
One World Action, [10]Oxfam
GB, [11]and
Traidcraft[12]
welcome the opportunity to submit evidence to the International
Development Select Committee's evidence hearing on the European
Union's trade agreements with the African, Caribbean and Pacific
(ACP) states. Together with our partner organisations in ACP countries,
we have been tracking the progress of the Cotonou Agreement and
Economic Partnership Agreements (EPAs) for several years.
1.2 We have serious concerns about EPAs
and EPA negotiations, and consider them to be developmentally
flawed in both content and process. We believe that, in their
current form, EPAs will undermine rather than deliver their stated
objective of development and poverty reduction. For this reason
we have joined with counterparts in the ACP in calling to pause
current negotiations until significant concerns are addressed.
1.3 Our serious concerns relate to several
critical aspects of EPAs.
1.4 We believe that the demand in EPAs for
reciprocal market opening, and the aggressive liberalization timetable
put forward within EPA negotiations, will lead to significant
detrimental impacts on ACP agricultural and industrial producers,
ACP economies and poverty levels in ACP countries.
1.5 We are concerned by the pursuit of offensive
market interests by the European Union in EPA negotiations, most
notably of the "Singapore issues", strongly opposed
by ACP countries at the multilateral level. We believe that these
items offer little proven benefit to ACP countries but are accompanied
by high implementation costs and a growing body of evidence that
suggests they would be against ACP countries' development interests.
1.6 We are concerned by the extent of revenue
loss by ACP governments from tariff reductions and the level of
adjustment costs for ACP countries as a likely consequence of
EPAs. We are concerned that current levels of EU aid available
to ACP countries through the Cotonou Agreement will inadequately
address these financial burdens.
1.7 We are deeply concerned that EPAs will
undermine regional integration amongst ACP countries. EPAs present
serious obstacles to the encouragement of regional integration
within Africa, both in splitting apart existing regional processes
and in creating likely divisions between Least Developed Country
(LDC) ACP countries and non-LDC ACP countries. We do not consider
that either the European Commission or the UK Government has adequately
addressed these concerns.
1.8 Finally we are seriously concerned by
the EPA negotiating process. This includes the worrying behaviour
of the European Commission in negotiations so far, a lack of member
state scrutiny, and a weak evidence base on which the development
impact of EPAs is judged and incorporated into negotiation outcomes.
1.9 Given these substantial concerns, this
submission calls upon the UK Government to put greater emphasis
on the need for development concerns to be at the heart of the
EPA negotiations. In particular, the UK Government should direct
much greater levels of technical and political capacity into EU-ACP
trade negotiations. Significantly increased levels of member state
scrutiny are required over the negotiating position of the European
Commission. We call upon the UK Government to work to ensure that
the European Union drops both its demands for offensive issues
and its demand for reciprocity in EPA negotiations.
1.10 This submission further calls upon
the UK Government to live up to its commitment, made to the International
Development Select Committee in 1998 and contained in the Cotonou
Agreement, to provide alternative forms of non reciprocal market
access to the European Union to those ACP countries who do not
want to sign up to a free trade agreement.
1.11 Feasible alternatives to EPAs exist,
and may provide a more suitable development alternative to those
ACP countries that wish to make this choice. We find that the
failure to provide these alternatives is the result of lack of
political will on the part of the UK Government and the European
Commission. We call upon the UK Government to start work on alternatives
as a matter of urgency, working with ACP countries and in parallel
to the EPA negotiating process to deliver these well before the
end of the EPA negotiating process.
2. WHAT OPTIONS
ARE AVAILABLE
FOR ACP STATES
UNDER THE
COTONOU AGREEMENT?
ARE REGIONAL
ECONOMIC PARTNERSHIP
AGREEMENTS (EPAS)
THE MOST
SUITABLE DEVELOPMENTAL
TOOL FOR
ALL ACP STATES?
WHAT ARE
THE ALTERNATIVES?
Concerns regarding Economic Partnership Agreements
as Development Tools
2.1 ActionAid, ACTSA, CAFOD, Christian Aid,
One World Action, Oxfam GB and Traidcraft welcome the opportunity
to submit evidence to the International Development Select Committee's
one off evidence hearing on the European Union's trade agreements
with the African, Caribbean and Pacific states. Together with
our partner organisations in ACP countries, we have been tracking
the progress of the Cotonou Agreement and EPAs for several years.
2.2 We have serious concerns about the EPA
negotiations, and have found them to be developmentally flawed
in both content and process. In the Preamble to the European Commission's
mandate for negotiating EPAs, the Council of the European Union
sets the tone by which we believe EPAs should be judged. It refers,
as a priority, to:
"The commitment of the parties to centre
their partnership on the objective of reducing and eventually
eradicating, poverty consistent with the objectives of sustainable
development and the gradual integration of the ACP countries into
the world economy." [13]
2.3 Despite this, it is our belief that
EPAs, as currently envisaged, are highly likely to be damaging
to sustainable development in ACP countries and their attempts
to reduce poverty. There are five fundamental problems that should
be addressed if EPAs are to become "instruments for development".
2.4 (I) The development case for reciprocity
is not proven: The principal problem with EPAs is that they
will involve reciprocal market opening, marking a fundamental
shift in ACP-EU trade relations. The EU is pushing for ACP countries
(which include some of the world's poorest) to open "substantially
all trade over the course of a transitional period",[14]
which is being interpreted by the European Commission as being
"the elimination of customs duties"[15]
on more than 90% of ACP imports of EU goods and services within
10 years. While the precise timeframe is yet to be negotiated,
even the most liberal EC interpretation is setting a limit of
full reciprocity within 25 years. We believe that these timings
are based not on sound development understanding, nor on the needs
or interests of ACP poverty reduction strategies, but on the insistence
of the European Commission on standardising its preferences regime,
and on outdated free-market thinking.
2.5 ACP countriesincluding LDCs (see
section 4)are being asked to open their borders to European
goods, with little to gain from the EU in return. Under EPAs,
ACP countries would face a dramatic reduction in their ability
to protect themselves and their producers from cheap, often subsidised
EU goods flooding their markets and putting local farmers and
small-scale manufacturers out of business. While African markets
are not, in general, a major destination for EU agricultural and
value-added food product exports, since 1993 there has been an
alarming increase in the exports of simple value-added food products
such as cereal, poultry, prepared or preserved vegetables or fruits,
dairy and sugar products, particularly to West African markets
such as Senegal, Burkina Faso, Mali and Ghana, but also to other
African countries such as the DRC, Cameroon, Tanzania, and Kenya.
The increase has been most pronounced in cereal products, and
has been mainly a result of Common Agricultural Policy (CAP) reform.
To date the shift from price support to direct aid to farmers
in the EU cereals sector has resulted in the expansion of EU cereals
production, despite a reduction in prices of more than 50% on
average. It has also prompted an expansion of cereal-based food
product exports to ACP countries. This has seen the importance
of the ACP market rise from 13% to 21% of total EU exports for
products of the "milling industry", and from 5% to 7%
for "preparations of cereals".[16]
2.6 (II) The aggressive liberalization
timetable could have a devastating impact on poverty and on
vulnerable groups in ACP countries. Potentially this could lead
to:
Company closures and job losses.
As European goods begin to enter ACP countries with little
to no tariffs, many local businesses will close in the face of
increased competition. This would be particularly damaging in
the agricultural sector: for example, unfair competition from
European goods still heavily supported by the EU under the CAP
will have a serious impact on Kenya's dairy and cereals sectors,
and the poultry sector in Ghana.
2.7 The undermining of ACP industrial
development. A key development strategy in most ACP countries
is to encourage small enterprises to move up the value chain and
into new industries such as manufacturing or processing. Indeed
this is an area which already receives donor support from EU member
states. Under EPAs, European manufactured goods will be entering
African countries without paying any trade taxes, making it much
harder for local industry to compete. The EU's own Sustainability
Impact Assessment (SIA) of EPAs identifies this as a serious problem:
"While liberalisation might encourage
this [the ability of West Africans to buy products at affordable
prices], it might also accelerate the collapse of modern (sic)
West African manufacturing sector."
"The removing of protective tariffs will
accelerate the decline of modern (sic) manufacturing sector .
. ." [17]
Other sectors particularly at risk include the
growing Ghanaian plastics and food processing industries, and
the textiles and garments industries in East Africa.
2.8 Loss of vital government revenue.
Liberalisation will drastically cut fiscal revenues and consequently
limit ACP governments' capacity for social expenditure. For example,
between 25-30% of all Namibian government revenue was derived
from this type of trade tax between 1990-96. Current estimates
are that Kenyan revenues will decrease by 17%. This seems particularly
illogical as a poverty reduction strategy given the emphasis on
good governance and sound financial management placed on ACP countries
by EU donors.
2.9 Although the EU does acknowledge that
liberalisation will have some social consequences in the ACP,
the Commission's EPA negotiating mandate does not allow the necessary
policy scope for an alternative approach, even though this option
is provided for in the Cotonou Agreement. The furthest the EC
mandate goes on this is still, we believe, insufficient:
"Where serious difficulties occur as
a result of trade liberalisation, the ACP countries may, in consultation
with the Community, temporarily suspend the application of the
liberalisation schedule and, where necessary, re-modulate the
rate of progress towards the ultimate establishment of the free
trade area, in full conformity with the provisions of the WTO".[18]
2.10 (III) The ACP is still faced with
negotiations on "Singapore issues". Three of the
highly controversial "Singapore issues" (investment,
competition and transparency in public procurement) are included
in the EU negotiating agenda of EPAs. We see no justification
in including them in bilateral agreements when they have been
so strongly resisted multilaterally. Indeed, in some areas the
EU is pushing for EPAs to go much further on these issues than
was envisaged at the WTO. For example at the WTO the EU was calling
for transparency in public procurement. In EPAs the EU is calling
for liberalisation of public procurement on the basis of non-discrimination.
2.11 (IV) EPAs are already undermining
regional integration. It was the original stated intention
of the Cotonou Agreement that EPAs should contribute to the process
of regional integration between ACP countries. The progress of
EPA negotiations thus far indicates that the opposite is happening.
EPAs in particular put the poorest LDC ACP countries in an impossible
dilemma: should they continue with their non-reciprocal duty-free,
quota-free access into the European market and leave their regional
grouping, or should they negotiate alongside their regional partners
and face reciprocal market opening? While ACP LDCs have nothing
to gain from EPAs, their non-LDC neighbours have a great deal
to lose.
2.12 The East African Community (EAC) is
a case in point. The EAC includes Kenya, Uganda and Tanzania,
which have long been committed to closer economic collaboration
and are in the process of establishing a customs union and a joint
currency, having already established an East African Parliament.
As LDCs, both Uganda and Tanzania already have duty-free and quota-free
access into the EU market under the Everything But Arms initiative.
Consequently there is nothing for them to gain in joining an EPA.
Kenya's position, as the only non-LDC in the East African Community,
is now particularly isolated.
2.13 Largely as a result of the fear of
losing existing preferences, ACP regions have begun the process
of negotiating EPAs with the EU. However, the East African example
illustrates how little EPAs have supported regional integration.
After prolonged discussions within SADC and COMESA, the resulting
"regional grouping" of the Eastern and Southern African
countries (ESA) relates little to previous African progress on
regional co-operation. Tanzania, for example, chose not to negotiate
an EPA with the EU as a member of SADC. There is also much concern
about the quality of information flow between the COMESA secretariat,
which is negotiating the ESA EPA, and the group's member governments
and civil society organisations. The fact that the COMESA secretariat
itself receives EU funding has not helped the process of trust.
EPA negotiations are adding to the already difficult task of regional
collaboration within existing regional groupings in Africa, and
may therefore contribute to the derailing of existing processes
of regional integration.
2.14 (V) The EPA negotiating process
is seriously flawed. The EPA negotiations have been characterised
by a lack of transparency and a poor understanding of development.
The EU is forcing the pace of negotiations, at a level which is
too fast for many ACP countries, given the commitments already
being sought at the WTO. For example, the ACP group was keen to
negotiate key decisions as a single bloc in Phase I, before discussing
regional issues. Despite the logistical and strategic sense in
this, the EU refused to begin discussions until the ACP had broken
down into smaller groups.
2.15 Member state scrutiny of the European
Commission's approach to EPAs has been insufficient. In the UK,
HMG engagement with NGOs is now increasing, but much more effective
engagement by HMG with the EC is necessary. We feel strongly that
it is the responsibility of member states to hold the European
institutions to account. In oral evidence to the International
Development Committee on Thursday 16 October 2003, the Secretary
of State for International Development was questioned on bilateral
negotiations. He answered thus:
"You mentioned the EPAs . . . the Commission
has made it very clear that these are simply a development tool,
and it is important that they are held to that, and they have
to be negotiated . . ." [19]
While we welcome this statement, we are concerned
that EPA negotiations are progressing fast and the need for further
and better scrutiny, from a development perspective, is now very
clear.
2.16 We are also concerned at the poor evidence
base of the impact that EPAs will have on poverty in the ACP countries.
The EU itself is conducting its own SIA of EPAs, but we feel that
this process is marred by inadequate terms of reference and poor
consultation with civil society in the EU or the ACP. Moreover,
the SIA is not linked in any meaningful way to the negotiating
timetable, rendering it potentially meaningless. This needs to
be dealt with as a matter of urgency.
Alternatives Available to ACP States
2.17 The UK Government has strongly committed
itself to offering ACP countries (and in particularly non-LDC
ACP countries) an alternative to EPAs.
This commitment was underlined in the strongest
terms in the Government's response to the International Development
Committee's report on the renegotiation of the Lomé Convention.
The Government made the following commitments to provide alternatives
to ACP countries to the IDC: ". . . the Government certainly
agrees that they [EPAs] are not a universal solution. . . . That
is why we have worked to ensure that attractive alternatives will
be available, both for LDC and non-LDC countries."
And " . . . there should be a reasonable
alternatives [to free trade areas] available to Lomé partners,
without reduction in their market access to the EU."
[20]
And "The Government shares some of these
doubts about the FTA optionhence our determination to ensure
that it should not be the only option."
And "Thanks to the agreement the Government
obtained in the Council . . . non-LDC ACPs unable to join FTAs
should be offered a new trade framework equivalent to their existing
situation under the Lomé Convention."
As well as "The Government agrees that
it would be wrong to impose unfavourable terms on ACPs. Given
the alternatives which are to be made available, the risk of this
is much reduced."
2.18 The UK also took the lead on this issue
during the Cotonou negotiating process, fighting for, and winning,
the commitment in the Cotonou Agreement that the EU will: "examine
all alternative possibilities, in order to provide . . . [ACP]
countries with a new framework for trade which is equivalent to
their existing situation and in conformity with WTO rules."
[21]
2.19 However, since then, the Government
appears to have put minimal effort into realising these commitments.
The only official document on EPA alternatives to date has been
a rather negative, one-and-a-half page "non-paper" from
the DTI. [22]Having
been so instrumental in securing these commitments in the first
instance, we would strongly urge the UK Government to continue
to show the same level of political will on EPA alternatives.
2.20 This submission argues that there are
a range of feasible alternatives to EPAs and that there is no
reason why the UK Government should not take action to deliver
these alternatives, both in their own trade work and through engagement
with the European Commission, in order to fulfil the commitments
made through the Cotonou Agreement and to the International Development
Select Committee. As Institute of Development Studies economist
Christopher Stevens says: ". . . alternatives [to EPAs]
do exist . . . they are developmentally more coherent, and . .
. they could provide a better basis for achieving a compromise
between ACP and non-ACP developing countries in the WTO."
[23]
2.21 We consider it vital that ACP countries
be strongly involved in the shaping of EPA alternatives from the
outset and that they be given time to engage with the various
options during the EPA negotiating process, rather than being
presented with an EPA as a finished product at the last possible
moment (albeit with a poor alternative also offered) at the end
of 2007. That means starting work in consultation with ACP countries
as soon as possible.
2.22 Two alternatives will need to be offered,
one for LDC ACPs, and one for non-LDC ACPs. We address LDC alternatives
under section 4 of this submission, for non-LDC ACP countries
we consider the following as a potential, but not exhaustive,
number of alternatives.
2.23 Generalised System of Preferences
(GSP). Currently the GSP, the system by which the EU offers
unilateral trade preferences to other countries, appears to be
the most viable non-LDC alternative to EPAs. Significantly, one
of its prime purposes is to emphasise sustainable economic and
social development. [24]However,
as noted below, significant changes would be needed if it were
to achieve the poverty reduction focus specified in Cotonou.
2.24 The GSP is non-reciprocal and WTO-compliant
(although a reformed GSP could be subject to a dispute settlement[25]).
However, the terms are negotiated unilaterally in a non-transparent
process, meaning it is extremely difficult for ACP countries to
influence its form. It is also non-contractual, which is concerning,
as it would offer insufficient certainty to ACP countries. [26]It
may be possible to bind it at the WTO, however, [27]and
despite these limitations, the GSP, with suitable modifications,
could be a better option for ACP countries.
2.25 A new GSP is currently being negotiated,
in advance of the expiry of the current agreement on 31 December
2005. The review is likely to be completed by the Commission in
the first half of 2005, with a year-three review scheduled for
2007, although the GSP can also be amended at any time in the
interim period.
2.26 In the past, the UK Government has
sought an assurance that particular attention would be paid to
the interests of non-LDC ACPs, not in a position to sign an EPA,
during the review of the Community's GSP in 2004. [28]However,
the current Commission proposal for a revised GSP still falls
short of what would be required if the GSP were to be a serious
alternative to EPAs.
2.27 Rules of Origin (RoOs) as applied to
the GSP are too onerous, and are more restrictive than the RoOs
under Lomé. Regional cumulation, cross regional cumulation,
and cumulation of raw material, are extremely important to development
as many ACP countries lack access to raw materials or simple processed
inputs from within their own borders. The UK government has already
admittedin a wider contextthat there is a clear
need to reform the rules of origin. [29]This
reform should focus on those areas and products that matter most
to ACP countries, such as a single-stage processing requirement
on textiles and improvement of agricultural RoOs. An EPA-alternative
GSP would need to offer full cumulation.
2.28 The GSP's graduation mechanism would
also need to be reformed as the current system, as well as the
proposed one, mean that countries risk graduating from preferences
before they are genuinely competitive in that sector. In particular,
the element that a country should become ineligible for GSP preferences
when it accounts for 15% of developing world (rather than total)
exports to the EU will increase the probability that countries
will be graduated out of preferences too soon. A recent study
by researchers at Sussex University shows that, for instance,
this would deprive Thailand of preferences for vehicle exports,
despite the fact that Thailand accounts for less than 2% of total
vehicle exports to the EU. [30]
2.29 Preferences offered under a GSP also
need to be enhanced. Additional differentiated criteria would
need to be added to the GSP to enhance preferences to ACP countries.
We suggest that additional development criteria, such as commodity
dependence, landlocked economies, vulnerable island economies,
size of informal sector, priorities cited in ACP national development
strategies, poverty or Human Development Index levels, could be
added that would address some of the particular development challenges
faced by ACP states. This could amount to giving effective EBA
access for ACP countries.
2.30 Market access preferences alone will
not secure the reduction in poverty envisaged in the Cotonou Agreement.
We believe strongly that if the GSP really is to be an EPA alternative,
it must address some of the developmental elements promised by
Cotonou. This should include aid as well as technical capacity
building to address supply-side constraints and negotiating capacity.
It should also allow for adjustment costs. We also stress the
problems of sanitary and phytosanitary measures (SPS) and other
standards acting as non-trade barriers to ACP countries seeking
market access to the EU. Work on alternatives should also address
these issues as part of the wider Cotonou agreement and DFID's
trade policy work in general.
2.31 Several other market access ideas for
Africa are currently being discussed in the Africa Commission.
2.32 Further research is needed to identify
which alternative would be preferable. We are calling on the Government
to fulfil its commitments and work alongside ACP countries, in
parallel with the EPA process, to ensure that any alternative
provided is developmentally beneficial.
What work is the UK Government undertaking to ensure that ACP countries are offered a credible alternative to EPAs?
Government departments have told NGOs that there is no urgency in engaging with EPAs. What timetable of work does the UK Government have to ensure that these alternatives are offered to ACP countries before the current deadline of 2006?
What is the UK government doing to ensure that EPAs would enhance rather than constrain ACP countries' chances of achieving the internationally agreed Millennium Development Goals?
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3. WHAT ARE
THE IMPLICATIONS
FOR THE
ACP STATES OF
INCLUDING THE
"NEW ISSUES"
OF INVESTMENT,
COMPETITION, GOVERNMENT
PROCUREMENT AND
TRADE FACILITATION
IN THE
EPAS?
ACP States and New Issues
3.1 For ACP states there are several reasons to be cautious
of the European Commission's proposals to negotiate the "Singapore
issues" in EPAs.
3.2 The most important is that ACP countries have long
and strongly opposed negotiating in these areas. At the WTO, the
ACP and the Africa Union opposed the inclusion of the "Singapore
Issues" in the Doha Agenda. [31]Along
with other developing countries, they succeeded in forcing all
but one of these issues (trade facilitation) out of the Doha round.
3.3 Inclusion of these issues was not agreed in the Cotonou
Agreement. Although Cotonou refers to competition policy, trade
facilitation and investment it does so in the context of regional
economic development and development co-operation rather than
as a subject for trade negotiation on a non-discriminatory basis.
[32]
3.4 The ACP has also collectively stated that it does
not want to negotiate the "Singapore Issues" in EPAs,
saying that this area of disagreement with the EU was of a "fundamental
nature".[33] Despite
this long-standing opposition, the EU is currently pushing for
all four issues to be included in EPAs, on a non-discriminatory
basis.
3.5 Secondly, these issues have vitally important economic
and social development implications. The EU's EPA negotiating
mandate pushes for liberalisation that benefits European firms
disproportionately, at the expense of ACP country governments'
abilities to use government procurement or investment as an element
in development policies based on their own national priorities
and capacities. Joseph Stiglitz has said that the imposition of
the "Singapore Issues" on developing countries would
"almost surely impede development".[34]
3.6 Thirdly, were they to be agreed on, there would be
substantial costs to implementing policies on these issues, often
without any clear developmental benefits. Moreover the costs of
implementation are prohibitively expensive for cash-strapped governments.
In eight of the 12 developing countries studied by World Bank
economist Michael Finger, for instance, the cost of implementing
the six Uruguay Round agreements that required regulatory change
was larger than their entire annual development budgets. [35]
3.7 In addition, these issues cut to the heart of sovereignty,
and including them in a bilateral agreement is an invasion of
developing countries' policy space. Cotonou contains a strong
commitment to "ownership" of local policies:
" . . . co-operation framework and orientations shall
be tailored to the individual circumstances of each ACP country,
shall promote local ownership of economic and social reforms and
the integration of the private sector and civil society actors
into the development process." [36]
3.8 Finally, developing countries often have a limited
capacity to analyse and negotiate on these issues. We now turn
to particular concerns about each issue in turn.
Investment
3.9 Evidence suggests that non-discriminationthe
idea that a country cannot or should not systematically discriminate
between domestic and foreign investorsis not a successful
development strategy. During the early stages of their development,
many of the now developed countries did not adhere to this principle.
They used a range of instruments, including limits on foreign
ownership, insistence on joint ventures between foreign and local
firms, local employment and performance requirements on exports
to build up their national industries. [37]
3.10 The European Commission argues that an investment
agreement would attract much-needed FDI into these countries.
However, the literature suggests that FDI does not necessarily
follow the conclusion of investment protection treaties or free
market policiesnor does it necessarily precede economic
growth. [38]
3.11 Since the mid 1980s, nearly all African countries
have taken steps to reform and liberalise their investment regimes
through a combination of policy, legal and institutional changes.
Consequently, the continent has one of the most liberal (investor-friendly)
investment regimes in the world. Currently, there are 35 Investment
Promotion Agencies (IPAs) in Africa and African countries have
concluded 428 Bilateral Investment Treaties (BITs), mostly with
European countries. [39]This
constitutes about a quarter of all BITs in the world. [40]
3.12 Despite the high number of Bilateral Investment
Treaties (BITs) concluded by African countries and the extensive
rights given to foreign investors, Africa continues to lag behind
the rest of the world in attracting FDI. During the 1990s the
share of Africa in total world FDI and in total developing country
FDI dropped by 1% and 3% respectively. [41]A
recent World Bank survey on FDI flows from industrial countries
to 31 developing countries found that "countries that
had concluded a BIT were no more likely to receive additional
FDI than were countries without such a pact".[42]
3.13 In fact, countries such as China and Malaysia, with
comparatively discriminatory investment regimes have been among
the largest recipients of FDI during the last decade. This suggests
that the level of a country's per capita income, its rate
of growth and its physical and human capital infrastructure are
more critical determinants of FDI than free markets or legal and
regulatory frameworks. [43]There
is therefore no compelling reason why investment agreements under
EPAs will lead to increased FDI flows to Africa. On the contrary,
such agreements, including increased rights for European corporations
to extract African resources and repatriate profits abroad, could
increase "capital flight" from the continent. [44]
Competition
3.14 It would be very expensive for developing countries
to implement new laws on competition. The decision to establish
competition regimes should be based on their own cost/benefit
analysis, depending on the nature and composition of their private
sector, and integration into international markets. Many also
lack capacity in this area. [45]It
is also questionable to what extent African countries would be
able to enforce such a policy. As Cambridge economist Ajit Singh
observes, countries such as Ghana or Tanzania would find it very
difficult to provelet alone take action againstMNCs
that were using predatory pricing. [46]
Government Procurement
3.15 At least 60 non-OECD countries have procurement
outlays of less than $1 billion each, meaning it is questionable,
for them, whether it is worth the costs of implementing wide-scale
reform. [47]In addition,
Joseph Stiglitz argues that a government's ability to procure
from firms of its own choice is a major macroeconomic instrument
for developing countries. [48]And
again, genuine reciprocity is unlikelythere is little chance
that African companies are able to make inroads into EU government
procurement.
Trade Facilitation
3.16 While speeding the transit of goods through customs
and cutting red tape is a good thing in terms of border efficiencies,
the reforms required under trade facilitation are likely to be
extremely costly, and the implications for poverty reduction are
not yet well researched or understood. It would be a huge financial
burden for countries with such small trading levels to implement
trade facilitation regimes more suitable for France or Switzerland.
Developing countries are still struggling to implement the GATT
rules on trade facilitation, which are punishingly expensive.
By one estimate the 16 areas of customs reforms alone cost $2.5
million each to implement. [49]A
new trade facilitation agreement is now also under negotiation
at the WTO, potentially making regional agreements redundant.
In the 2004 DTI White Paper on Trade and Investment
the UK Government stated: "The EU as a whole has made clear
that we do not have `offensive' market access interests, and the
UK will seek to hold our EU partners to this." [50]What
steps has the UK Government taken to ensure that the European
Commission drops its offensive interests in the "Singapore
issues" in EPA negotiations?
4. THE EXTENT
TO WHICH
RULES OF
ORIGIN DISCOURAGE
SOME LDCS
FROM USING
THE EVERYTHING
BUT ARMS
AGREEMENT AND
MEMBERSHIP OF
AN EPA WILL
COMPEL THEM
TO OPEN
THEIR MARKETS
TO THE
EU, WHAT OPTIONS
ARE AVAILABLE
TO SUCH
STATES?
LDCs and the Obstacles to the Uptake of Everything But Arms
(EBA)
4.1 The EU is the single most important market for LDC
exports. It had been predicted that the introduction of EBA would
result in a positive but modest increase in ACP LDC exports. However,
while the EBA tariff concessions are superior to those offered
to LDCs under Cotonou, in reality, take-up has been disappointing.
Non-tariff barriers have made it hard for LDCs to exploit EBA's
preferences.
4.2 This is illustrated by figures provided by the DTI,
[51]which show that total
imports from LDCs into the EU actually fell by around 2% between
2001when EBA was introduced[52]and
2003. [53]
4.3 The principal non-tariff barrier is the overly onerous
RoO, which is significantly less favourable under the EBA/GSP
than under Lomé. Lesotho's experience highlights this dramatically.
In 2003, Lesotho exported $418.99 million of clothing to the USA,
$6.39 million to Canada, and just $1.18 million to the EU. The
primary reason for this startling difference is that the US African
Growth and Opportunity Act and the Canadian Market Access Initiative
for LDCs have considerably more flexible RoOs than the EU's EBA/GSP.
[54]
4.4 The specific elements of RoOs that have undermined
EBA preferences are the value-addition requirement and the need
for dual transformation in textiles/clothing (yarns to fabrics,
fabrics to clothing). The absence of a regional cumulation block
for African countries under GSP has also been detrimental. Finally,
many LDCs have simply found the costs and difficulties of providing
the necessary paperwork too high.
4.5 However, there are also other factors to blame for
the poor effectiveness of the EBA. These include the EU's rapidly
changing sanitary and phytosanitary (SPS) standards, and the failure
of EBA to address other supply-side constraints.
Economic Partnership Agreements (EPAs) and LDCs
4.6 Although the EBA will continue to exist, LDC countries,
which, as part of a regional negotiating bloc, sign up to an EPA,
may be compelled to open their markets to the EU.
4.7 Under EPAs, the EU appears to be pursuing the same
level of reciprocal market access from LDCs as from non-LDC ACP
countries. Should LDC countries chose to sign up to an EPA, this
effectively overrides EBA's unilateralism, as EPAs demand reciprocal
market opening.
4.8 Although special treatment for LDCs has been a core
principle of the multilateral trading system, [55]the
rules governing bilateral free trade areas (FTAs) do not contain
such forms of special and differential treatment for LDCs, who
must be treated in the same way as developed and developing countries.
As proposed EPAs are free trade areas they are bound by the constraints
of WTO rules on FTAs. [56]
4.9 In short, EPAs erode LDC countries' defensive interests
but fail to offer other, commensurate benefits. For this reason,
it is not clear why LDCs would want to join an EPA. It is not
even clear to UK Government officials. [57]Given
that LDCs account for 32 of the 46 African countries, and 46 out
of 77 ACP countries, negotiating EPAs this casts further doubt
on the viability of the EU's approach. For example in the ECOWAS
EPA negotiating region in West Africa, 13 out of 16 countries
are LDCs, which could leave a regional EU trade agreement with
only three countries.
Options available to LDCsEPAs or alternatives
4.10 LDCs therefore face two options. They can either
sign an EPA and be required to open their markets to EU trade
at the same rate as other non LDC countries, but potentially benefit
from marginally superior RoOs (although this is not a guaranteed
outcome of EPA negotiations).
4.11 The other option is for LDCs to decide not to sign
up to an EPA, and the reciprocal market opening that this entails,
yet maintain market access into the EU through EBA.
4.12 However this second option presents two important
difficulties. The first is that the current limitations that prevent
LDC uptake of EBA, outlined above, would have to be addressed
to make this a satisfactory alternative to LDCs.
4.13 It is vital that the EBA RoOs are modified to address
their current flaws. This should take into account production
constraints faced by most LDCs. For instance, LDCs must be allowed
to use intermediate and packaging materials without being penalised.
Quick and simple derogations where LDCs are seeking to establish
new export-oriented industries are also desirable.
4.14 A further problem created by EPAs is that were LDCs
to opt out of an EPA and remain with the EBA, EPAs would place
a substantial obstacle to attempts for these countries to pursue
regional integration, independent of the EU's EPA process, with
their neighbours.
4.15 Any LDC that wished to join a regional trade agreement
with their richer non-LDC neighbour who was part of an EPA would
face the problem of trade diversion from European exports. In
order to avoid becoming part of a de-facto free trade area
with the EU, LDCs would have to implement substantial border measures
to be able to screen out European exports. This would act as a
harmful and costly disincentive to locally owned regional trade
integration.
Why are LDCs being asked to open their markets to the EU without getting any substantial welfare gains in return?
What is the UK Government doing to address the problems contributing to the lack of uptake of LDCs of Everything But Arms?
Is the UK Government considering offering an enhanced Everything But Arms as an alternative to those LDCs who do not wish to join an EPA?
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5. AFTER THE
WTO RULING AGAINST
THE EU SUGAR
REGIME WHAT
CAN BE
DONE TO
HELP THOSE
ACP STATES HEAVILY
DEPENDENT ON
PREFERENTIAL ACCESS
TO THE
EU MARKET?
5.1 The October 2004 WTO panel ruling on EU sugar export
subsidies does not directly threaten the EU's preferential import
arrangements for sugar from ACP states.
5.2 The WTO dispute panel ruled illegal the export of
around 2.7 million tonnes of surplus EU productionso-called
"C" sugarwhich was found to be cross-subsidised.
The panel found that the EU is only able to export non-quota "C"
sugar at prices below the average total costs of production because
the support prices for quota sugar are sufficient to cover the
fixed costs of production, while world prices cover only their
marginal costs.
5.3 The panel also ruled that the subsidised export of
1.6 million tonnes of sugar, equivalent to total imports of sugar
from the ACP countries and India, has to be included when calculating
the total allowable quantity of EU subsidised sugar exports under
WTO rules. The EU has disingenuously claimed that this ruling
represents a threat to its preferential sugar import regime. This
is not true. The WTO ruling does not affect the EU's right to
import sugar on preferential terms; it only affects their right
to export on subsidised terms an amount equivalent to the value
of its preferential imports, in excess of its WTO reduction commitments.
The sugar panel ruling specifically states that the EU should
implement reforms in a way that protects the interests of those
countries already benefiting from preferential access.
5.4 However, any reform of the EU sugar regime, scheduled
for 2005 and further precipitated by the WTO ruling,[58]
that affects the price received by or quota allocated to ACP sugar-exporting
countries, will have a significant impact on those countries.
5.5 The extent to which ACP countries will be affected
by EU sugar reform depends on the extent to which their sugar
industries have the potential to survive in a more competitive
environment as well as the specifics of the reform proposals.
The European Commission's current reform proposals involve cutting
the internal support price for sugar by one-third over three years,
and reducing domestic production quotas by 2.8 million tonnes
over four years.
5.6 We are concerned that these proposals fail adequately
to take account of the interests of ACP countries, and the wider
concerns of developing countries. The steep and rapid price cuts
and limited quota reductions that have been proposed will both
undermine the value of preferential access for the poorest countries,
and fail to end over-production and export dumping. The reform
proposals also fail to incorporate either an adequate transition
period for ACP countries to adjust to the new EU policy environment,
or concrete plans to support ACP countries in making that transition.
5.7 EC reform proposals to cut prices by one-third would
have a very detrimental impact on some ACP sugar industries. Direct
job losses could be as high as 32,000 in Jamaica and 20,000 in
Trinidad, while Jamaica would lose
73 million a year in foreign exchange earnings, Belize
36 million, and Trinidad
30 million. [59]While
these countries are not among the poorest in the world, some of
them do have large numbers of very poor people. In Guyana, 35%
of the population lives below the national poverty line, and Swaziland
is ranked only one place above Bangladeshan LDCin
the UN's Human Development Index of 2003. Yet, in contrast to
clear plans to compensate EU sugar producers for lower prices,
the EU has been very vague about how ACP countries will be helped
to adjust to the new regime.
5.8 Nor does the proposed timetable for reform include an
adequate transition period for ACP countries to utilise proposed
EU adjustment assistance to improve the efficiency of their sugar
industries before the EU policy changes are implemented. The EU
should engage in a structured dialogue with the ACP countries
now, to agree how to address these concerns and to develop a package
of country-specific trade and aid measures. Country-level analyses
should be undertaken in association with local sugar associations
and national governments, with the aim of identifying specific
adverse effects and effective remedial measures that could be
supported by the EU. Possibilities for exploration include:
5.8.1 Using the Cotonou Agreement Investment Facility risk
capital loans at concessional rates to reduce the debt service
burden for smallholder sugar producers, since they will face a
loss of earnings per tonne on sugar produced, and to finance capital
investments in upstream value-added processing of sugar.
5.8.2 Extending EU support to ensure the continuation of social
service provisions, formerly financed by sugar companies, from
the additional revenues resulting from the EU sugar access arrangements
for ACP countries.
5.8.3 Supporting the establishment of a special unit in the
local sugar association or government, as appropriate, dedicated
to helping to identify and address the adverse consequences of
EU sugar reform.
5.8.4 Extending budgetary support to ACP governments, linked to
the decline in taxation revenue resulting from revenue losses
on exports of sugar after EU reform.
5.8.5 Providing compensation in the form of a quota buy-back
scheme for any ACP country wishing to transfer its quota back
to the EU in return for a guaranteed flow of development financing.
This option may be attractive to very high-cost producers where
lower EU prices may compromise the viability of their sugar industries.
5.8.6 Helping the industry to invest in better environmental
practices to ensure that it implements existing environmental
legislation and addresses the range of environmental impacts from
growing and processing sugar.
5.9 Some of the above measures could be supported using
existing instruments of the European Development Fund. Others
will require the creation of new instruments to overcome the shortcomings
of EDF procedures. Crucially, the EU must make a political commitment
to ensure the timely disbursement of funds, since delays have
seriously undermined previous efforts to extend adjustment assistance
to ACP producers of rum and bananas.
November 2004
Penny Fowler, Trade Policy Adviser, Oxfam GB, submitted
a supplementary memorandum in response to Question 48, oral evidence
session 30 November 2004. It drew attention to the points listed
above (5.8 through to 5.9). A copy of this has been placed in
the Library.
6
ActionAid International UK is a unique partnership of people
who are fighting for a better world-a world without poverty. Back
7
Action for Southern Africa (ACTSA) is the successor to the Anti-Apartheid
Movement and campaigns in support of peace, democracy and development
in Southern Africa. Back
8
CAFOD is the official development agency of the Catholic Church
in England and Wales, working in partnership with over 1,000 programmes
worldwide. Back
9
Christian Aid links directly, through local organisations, with
people living in poverty in more than 60 countries worldwide,
working where the need is greatest regardless of race or religion.
It supports programmes with the aim of strengthening the poor
towards self-sufficiency. Christian Aid is the official relief
and development agency of 40 British and Irish church denominations. Back
10
One World Action works with partners in Africa, Asia and Central
America to create the power and opportunity for the poorest communities
to transform their own lives. Founded in 1989, it now works in
more than 20 countries. Trade justice is a core area of work,
and it has a major project in Southern Africa building civil society
capacity to engage in current trade negotiations between African
countries and the EU. Back
11
Oxfam is a development, relief and campaigning organisation dedicated
to finding lasting solutions to poverty and suffering around the
world. Oxfam GB is a member of Oxfam International, a Confederation
of 12 development agencies that work in 120 countries throughout
the developing world. Back
12
Traidcraft is the UK's leading fair trade organisation. It works
to break down the barriers which prevent most producers from accessing
markets, by working with in-country partners to develop producers'
business skills and capacity and to create the environment needed
to help poor producers engage in sustainable trade. Back
13
Recommendation authorising the Commission to negotiate Economic
Partnership Agreements with the ACP countries and regions, 9798/02
ACP 84 WTO 59 + ADD 1. Back
14
Ibid. Back
15
Ibid. Back
16
Christian Aid EPA Research Update, The Interests of EU Agri-Business
in Better Access to African Markets, October 2004. Back
17
Sustainability Impact Assessments (SIA) of Trade Negotiations
of the EU-ACP Economic Partnership Agreements, Mid Term Report
Working Draft, 1 October 2003 http://www.sia-gcc.org/acp/download/summarized-mid-term-report-final-doc-light.pdf,
accessed Autumn 2003. Back
18
"Recommendation authorising the Commission to negotiate
Economic Partnership Agreements with the ACP countries and regions",
9798/02 ACP 84 WTO 59 + ADD 1. Back
19
Question 17, http://www.publications.parliament.uk/pa/cm200203/cmselect/cmintdev/uc1183-i/uc118302.htm Back
20
This and the next four quotations come from the UK Government's
response to the International Development Committee's report on
the renegotiation of the Lome" Convention http://www.publications.parliament.uk/pa/cm199798/cmselect/cmintdev/1068/106804.htm,
accessed on 8 October 2004. Back
21
Cotonou Agreement, Article 37.6. Back
22
Alternative to EPAs non-paper, EWT, DTI, July 2004. Back
23
Stevens, C and Kennan, J (2000) Post-Lome« WTO-Compatible
Trading Arrangements, London: Commonwealth Secretariat. Back
24
http://europa.eu.int/comm/trade/issues/global/gsp/gspguide.htm,
accessed on 8 October 2004. Back
25
Stevens, C and Kennan, J, op cit. Back
26
Stevens, C and Kennan, J, op cit. Back
27
Stevens, C and Kennan, J, op cit. Back
28
Directives for the negotiation of a new development partnership
agreement (draft document), agreed at the General Affairs Council,
29 June 1998. In addition, paragraph 58 of the Report on the Commission
communication on the guidelines for the negotiation of new co-operation
agreements with the African, Caribbean and Pacific Countries,
by the Committee on Development and Cooperation, 4 March 1998
(COM(97)0537-C4-0581/97) calls on the "European Member States
to ensure that the level of the GSP is improved substantially
in the course of the upcoming review". Back
29
In the UK Government's response to the European Commission's
Green Paper on the future of the rules of origin, it stated: "The
UK's view is that there is a clear need for urgent and comprehensive
review to ensure consistency between the current policy objectives
and the effects of PRO [preferential rules of origin]." Commission
Green Paper on the Future of Rules of Origin in Preferential Trade
Arrangements, United Kingdom Response, DTI and HM Customs and
Excise. Back
30
Stevens, C and Kennan, J (2004) Implications of European Commission
Proposals for Reform of the Generalised System of Preferences,
Brighton: Institute of Development Studies. Back
31
ACP Declaration on the Fifth Ministerial Conference of the WTO,
Brussels, 1 August 2003. Africa trade ministers' meeting, Grand
Baie, Mauritius, 19-20 June 2003. Back
32
To give two examples: for investment, the Cotonou Agreement went
no further than calling for co-operation "aimed at creating
a favourable environment for private investment" (Cotonou
Agreement, Article 21.1), and "taking measures and actions
which help to create and maintain a predictable and secure investment
climate" (Cotonou Agreement, Article 75). The EU Negotiating
Mandate goes much further asking for: "a regulatory framework
. . . based on principles of non-discrimination, openness,
transparency and stability." For government procurement,
Cotonou does not make any reference to public procurement. The
EU Negotiating Mandate asks for "progressive liberalisation
of . . . procurement markets on the basis of the principle of
non-discrimination" ("Recommendations authorising
the Commission to negotiate Economic Partnership Agreements with
the ACP countries and regions". Agreed by the EU General
Affairs Council 17 June 2002.) Back
33
ACP press release accompanying the Joint Report on the all-ACP-EC
phase of EPA negotiations held in October 2003. Joint Report on
the all-ACP-EC phase of EPA negotiations, October 2003, Para 25
says: "For the ACP side, the rules aspects of the trade-related
areas should not be the subject of EPA negotiations before agreement
is reached on how to treat these issues at a multilateral level,
particularly in the WTO." Back
34
Stiglitz, J (2004) An Agenda for the Development Round of
Trade Negotiations in the Aftermath of Cancu«n, London:
Commonwealth Secretariat. Back
35
Finger, M and Schuler, P (1999) Implementation of Uruguay
Round Commitments: the development challenge, World Economy
23, Washington DC: World Bank. Back
36
Cotonou Agreement, Article 19. Back
37
Chang, H J, (2002) Kicking Away the Ladder, London: Anthem
Press; Ranis, G (2003) "Symposium on Infant Industries: A
Comment", Oxford Development Studies; Tribe, M (Jan-Feb
2003), "Manufacturing, Development and De-industrialisation:
Rethinking the Infant Industry Concept", the Courier,
ACP-EU. Back
38
African Development Bank, International Investment in Africa:
Trends and Opportunities, 2001; Chang, HJ Foreign Investment
Regulation in Historical Perspective-Lessons for the Proposed
WTO Agreement on Investment, University of Cambridge, Faculty
of Economics and Politics Working Paper, March 2003; Chang, H
J, Kicking Away the Ladder, op cit; Singh, A, Foreign
Direct Investment and International Agreements: A South Perspective,
The South Centre, 2001; UNCTAD (2000) A Positive Agenda for
Developing Countries: Issues for Future Trade Negotiations;
World Bank (2003) Global Economic Prospects and the Developing
Countries 2003: Investing to Unlock Global Opportunities,
Washington DC: World Bank. Back
39
African Development Bank, International Investment in Africa:
Trends and Opportunities, 2001. Back
40
At least 42 African countries have both joined the Convention
for the Settlement of Investment Disputes Between States and Other
States (administered by the International Centre for the Settlement
of Investment Disputes-ICSID) and the Multilateral Investment
Guarantee Agency (MIGA-administered by the World Bank), which
offer non-commercial risk coverage for foreign investment. Back
41
African Development Bank, International Investment in Africa:
Trends and Opportunities, 2001. Back
42
World Bank, Global Economic Prospects and the Developing Countries
2003: Investing to Unlock Global Opportunities, 2003. Back
43
Bhinda, et al (1999) Private Capital Flows to Africa:
Perception and Reality, The Hague: FONDAD. Back
44
Africa already has a higher proportion of wealth held overseas
by residents than any other region of the world: 39% as opposed
to East Asia's 6% before the financial crisis of 1997. Capital
flight amounts to a significant economic loss for Africa. It constitutes
a diversion of domestic savings from investment, a loss of fiscal
revenue (through loss of taxation), and sustains the adverse psychological
perception that Africa is not conducive to FDI. Back
45
Stiglitz, J (2004) An Agenda for the Development Round of
Trade Negotiations in the Aftermath of Cancu«n, London:
Commonwealth Secretariat. Back
46
Singh, A (1999) Competition Policy and Development and Developing
Countries, South Centre Working Paper no 7, November 1999,
Geneva: South Centre. Back
47
Evenett, S (2002) Is there a case for new multilateral rules
on transparency in government procurement? Bern: World Trade
Institute. Back
48
Stiglitz, J (2004) An Agenda for the Development Round of
Trade Negotiations in the Aftermath of Cancu«n, London:
Commonwealth Secretariat. Back
49
Finger, M and Schuler, P (1999) Implementation of Uruguay
Round Commitments: the development challenge, World Economy
23, Washington DC: World Bank. Back
50
DTI (2004) Trade and Investment White Paper-Making Globalisation
a Force for Good, London: DTI. Back
51
Response to private letter to DTI requesting data on EU imports
from LDCs on a yearly basis between 2000 and 2003. Back
52
The EBA came into effect on 5 March, 2001. Back
53
This does not include imports of rice, bananas and sugar into
the EU as the tariffs on these products are being phased out over
a longer time period under EBA (2007 for bananas, and 2009 for
rice and sugar). Back
54
World Trade Organization, Background Statistical Information
with Respect to Trade in Textiles and Clothing, 20 September
2004. G/L/692. Back
55
GATT, Part IV (1947 and 1994). Back
56
Understanding of interpretation of Article XXIV of GATT. Back
57
At a recent NGO consultation a senior UK civil servant asked
another senior UK civil servant "what's in EPAs for LDCs?"
to which the other senior civil servant replied "to be honest
not very much that I can think of". Back
58
The EU is likely to appeal the ruling, which could delay the
final outcome until early in 2005. Assuming that the ruling is
not overturned on appeal, the EU will have to change its sugar
policies to reflect the findings of the WTO panel, or face potential
trade sanctions by Brazil, Thailand, and Australia. Current EC
reform proposals singularly fail to address the central finding
against "C" sugar exports, and this adds considerably
to existing pressure for EU sugar reform. Back
59
LMC International and Oxford Policy Management (2003). Back
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