House of Commons - Business and Enterprise

Select Committee on Business and Enterprise Written Evidence

Memorandum submitted by Tearfund

1. INTRODUCTION

Tearfund is a Christian relief and development agency working with local partners to bring help and hope to communities in need around the world. We are a member of the Trade Justice Movement, a growing coalition of organisations campaigning for pro-poor changes to the rules and institutions which govern international trade. We welcome the opportunity to make a submission to the Business, Enterprise & Regulatory Reform Committee on recent developments in trade. This submission will focus on Economic Partnership Agreements (EPAs), as this is the area of trade that Tearfund has focused on for the last two years.

2. STATE OF PLAY IN EPA NEGOTIATIONS

Following immense pressure from European negotiators, 20[25] countries in Africa and the Pacific initialled[26] Interim Economic Partnership Agreements (EPAs) with the EU in November and December 2007. Tearfund believes that a major factor compelling countries to sign was the threat of reduced access to Europe's markets on January 1st 2008 if an EPA wasn't signed. This is explored in more detail below. 15 Caribbean States also agreed a "Full EPA" with the EU on 16 December 2007.[27]

3. BACKGROUND TO THE EPA NEGOTIATIONS

Since 1976, the trade, aid and political relationship between the EU and its former colonies in Africa, the Caribbean and Pacific (the ACP), has been governed by a series of conventions—known as the Lomé Conventions. In recognition of the very different levels of economic development experienced by EU and ACP countries, the Lomé Conventions gave the ACP non-reciprocal trade preferences to European markets ie they had better access to European markets than other developing or developed countries, without having to "reciprocate" (offer market access to the EU) in return. ACP countries were only obliged to treat imports from the EU no less favourably than from other sources. However, these trade provisions were increasingly challenged by WTO members because they were seen to discriminate against non-ACP developing countries and hence to be incompatible with World Trade Organisation (WTO) rules. The fourth and final Lomé agreement was signed in 1996 and expired in 2000, but under a "waiver" granted at the WTO, its provisions could govern trade between ACP countries and the EU until December 2007.

A new deal—The Cotonou Partnership Agreement (from now on referred to as the Cotonou Agreement)—was signed in 2000 to replace the Lomé Conventions. Its stated aims are to "reduce and eventually eradicate poverty consistent with the objectives of sustainable development and the gradual integration of the ACP countries into the world economy".[28]

The Cotonou Agreement provided for negotiations of new trade agreements between the EU and the ACP, and thus EPA negotiations began in September 2002. From 2004, the ACP negotiated as six regional groupings: four in Africa, one in the Caribbean and one in the Pacific. As the EPA negotiations were launched within the framework of the Cotonou Agreement, this meant that, instead of being driven by the objectives of traditional trade negotiations, EPAs were to have the primary objective of sustainable development in the ACP, and they were to be negotiated in a spirit of partnership.

4. AN ASSESSMENT OF THE PROCESS OF NEGOTIATIONS

However, from the start of negotiations, the EC and ACP's vision of what a future ACP-EU trade agreement should look like—and how sustainable development in the ACP can be achieved—have been very different. Particularly in the areas of trade liberalisation, trade-related issues (including investment, public procurement and competition policy) and development assistance, the approach of the EC and ACP have been poles apart.

The EU and ACP have been two highly unequal partners in terms of political and economic strength and negotiating capacity. This power dynamic has overwhelmingly influenced the negotiations and in many ways robbed the process of any sense of "partnership". The ACP consistently raised concerns about these fundamental differences and tried to resist pressure from the EC. However, the EC increasingly used its economic and political power to press its own vision of EPAs onto the ACP: a vision of rapid and far-reaching liberalisation of ACP goods, services and investment markets and consequently a dramatic reduction in the freedom of the ACP to make economic policy choices that Europe itself has made in the past.

The dependence of most ACP countries on the EU for market access and development assistance has made it difficult for the ACP to resist aspects of EPA negotiations which were against their interests, let alone be able to promote their own interests. Indeed substantial evidence has emerged throughout the negotiations, that the EC was pursuing a "business-as-usual" tough negotiating approach and putting immense pressure on ACP countries to negotiate on its terms, despite the Cotonou objectives of development and partnership.

Tearfund and others documented evidence in May 2007 showing that the EC was:

— Dismissing pro-development proposals for EPAs from the ACP regions and failing to recognise their right to develop their own policies and determine their policy priorities;

— Showing disregard for ACP institutions, processes and politicians;

— Forcing the Singapore issues onto the negotiating table;

— Manipulating the prospect of aid, implicitly and explicitly linking future development assistance to concessions made by the ACP in EPAs;

— Threatening the loss of market access if EPAs were not concluded before the end 2007 deadline, in direct contravention to the EC's obligation under the Cotonou Agreement to provide at least equivalent market access to the ACP on 1st January 2008;

— Consistently refusing to examine alternatives to EPAs despite requests from the ACP and clear evidence that they exist;

— Excluding the dissenting voices of actors mandated by the Cotonou Agreement to be actively involved in the negotiations; and

As the end of year deadline for negotiations drew nearer, the EC continued to ignore both suggestions of feasible alternatives and calls for more negotiating time, and the pressure on ACP countries to sign EPAs increased significantly. The EC intensified its threat to increase tariffs on goods from non-Least Developed Countries (non-LDCs) in the ACP on January 1st if EPAs weren't signed.[30]

As a result, many ACP countries, particularly those with larger trade with the EU, were forced to lower their expectations regarding what EPAs could deliver and their main aim became to secure any agreement—without thorough assessment of the costs involved. From the end of November, countries began initialling what were termed "Interim" agreements, which covered mostly trade in goods, but included commitments to proceed towards "Full" agreements including services, investment and other trade-related issues in 2008. These interim agreements were hastily concluded meaning that only a handful of their provisions were actually negotiated.

A Declaration by ACP Ministers on December 13th 2007 summarises their perspectives on the EC's negotiating tactics: "Ministers deplore the enormous pressure that has been brought to bear on the ACP States by the European Commission to initial the interim trade arrangements, contrary to the spirit of the ACP-EU partnership... Ministers observed that the recent statements and pronouncements made by European Commission to the media and other fora, are at variance with the demands being made to the ACP negotiating regions and States... Ministers observed that European Union's mercantilist interests have taken precedence over the ACP's developmental and regional integration interests".[31]

Tearfund is dismayed by the behaviour of the EC during the EPA negotiations. Moreover, we are disappointed that the UK government and other Member States did not exert sufficient pressure or scrutiny to prevent Trade Commissioner Peter Mandelson and his negotiators from pursuing their offensive agenda, using such aggressive and unfair negotiating tactics.

5. AN ASSESSMENT OF THE CONTENT OF INTERIM EPAS

During the course of the EPA negotiations, but particularly in recent months, there has been major concern expressed by a wide range of stakeholders about the content of the texts on the table. Think tanks, academics, civil society, ACP government Ministers, Parliamentarians, trade unions, church leaders, and World Bank and IMF officials have all criticised the EC-led EPAs as being potentially damaging to development in the ACP. However, the EC, with the support of Member States, has relentlessly pursued its goal of getting the agreements signed, at any cost.

One of the main areas of concern has been around the scope and speed of liberalisation expected of the ACP. On the whole, this does not stem from ideological resistance to trade liberalisation, but from solid evidence that fast and deep liberalisation will be damaging to development. Of key concern in the EPA negotiations is the likely negative impact of bilateral liberalisation with the EU on the building of regional markets—a key development strategy for the ACP.

From the outset of the negotiations, the ACP have themselves expressed grave concerns with the idea of reciprocity (ie opening their markets in return for market access into Europe). Their 2002 Guidelines for the negotiations of EPAs state that: "given the possible adverse effect of reciprocity on domestic production and fiscal stability in ACP States, the latter cannot a priori accept to provide reciprocity in EPAs with the EU".[32] In April 2006, the ACP Ministers of Finance and Economic Affairs urged the EU to "put the development dimension first in the EPA negotiations, and allow each ACP State and Region the flexibility to make its own decisions on the timing, pace, sequencing, and product coverage of market opening in line with individual country's national development plan and poverty reduction strategies".[33]

Their concern about reciprocity is rooted in years of experience of the negative effects of inappropriate trade liberalisation policies which since the 1980s have been pushed on developing countries. Support given to farmers, traders and industries has been reduced and markets have been opened to competition from Europe and other developed countries. The result has often been that small-scale farmers and infant industries, lacking technology, infrastructure and support from their governments, have had to compete with the mechanised, commercialised and often subsidised agriculture and industries of the North. This has resulted in many jobs and livelihoods being destroyed and increased poverty and food insecurity.

The Minister of Trade and Industry for Ethiopia described the threat from EPAs in this way: "This type of trade liberalisation between unequal partners has historically proven to be an ineffective development tool and even counterproductive. Such a policy of trade liberalisation could inhibit our countries' ability to reduce poverty and ensure sustainable development".[34]

Our analysis of the Interim texts that have been initialled shows that if implemented, these agreements threaten sustainable development in the ACP on several counts. They require fast and far reaching trade liberalisation by the ACP countries—even the Least Developed Countries (LDCs), going far beyond what is required under WTO rules. Countries are liberalising between 80—97% of their trade and almost all liberalisation will occur within 10 to 15 years.

In most cases tariffs are to be frozen (or bound) on the first day of implementation. The provisions also create a large number of unnecessary binding obligations for ACP governments and require a number of reforms. The freedom to use many of the economic tools that Europe has used to develop is virtually eliminated. Many ACP countries are obliged to negotiate on services and investment in the future, despite consistent rejection by developing countries of negotiation on such issues. In addition, there are not adequate provisions that will allow ACP countries to protect their agriculture and infant industries from surges of (often subsidised) EU goods. More detail on the content of the EPA texts is provided in Section 6 below.

On the other hand, Europe's commitments are few and far between: critically, there are no binding commitments in the EAC, ESA or SADC texts that would mean Europe has to address its unfair subsidy system or increase aid to the ACP—two areas in which the ACP have been negotiating hard to see development gains.

Furthermore, instead of agreeing regional EPAs as has been the intention throughout the negotiations, at the last minute, the EC has pressed countries to sign individual or sub-regional agreements, independently of their regional partners. Countries have submitted separate tariff liberalisation schedules to their regional neighbours, preventing further integration of a region towards a customs union, and making stricter border controls to guard against EU goods entering their markets through neighbouring countries inevitable—leading to greater barriers to regional trade. Both the UK government and the European Commission have constantly hailed regional integration as the major development gain from EPAs. Yet, at the last minute, even regional integration was sacrificed by the need to sign an EPA.

6. THE ROLE OF THE UK GOVERNMENT

In March 2005, the UK government set out its position on EPAs with clear statements consistent with some of Tearfund's and the Trade Justice Movement's main policy calls. For example, it stated "the EU should take a non-mercantilist approach and not pursue any offensive interests'; that the "new issues" of investment, public procurement and competition policy should only be negotiated at the request of ACP countries; that the EU should be ready to offer alternatives to EPAs on request by the ACP; and that ACP countries should not be forced to liberalise. This was a welcome and important step. Then, in October 2006, ahead of a meeting of EU trade ministers in Luxembourg, the Government wrote to the EU Trade Commissioner Peter Mandelson, expressing its concern about the current state of the EPA negotiations and reiterating the points in the UK Government's March 2005 statement.

However, while at times such as these, the UK government has adopted a more progressive agenda, at other times, it has fallen short. In 2006, a review of the EPAs negotiations was undertaken, as provided for in the Cotonou Agreement. However, the UK government and other Member States failed to actively engage in this process, with the result that it proved a missed opportunity to improve the prospects of a development-friendly outcome to the negotiations. The Review was marked by major delays and a lack of transparency. The conclusions that came out of the ACP's own reviews were largely dismissed by the Commission. ACP concerns were sidelined and serious debate stifled.

During 2007, the UK government has increasingly departed from its 2005 position, at times actively supporting both agreements that Tearfund considers contradict the stated aims of its position, and supporting a process that is potentially extremely harmful to regional integration. The following table highlights how the EPA texts that have been initialled depart from the UK government's policy position.

THE GAP BETWEEN THE UK GOVERNMENT's 2005 POSITION AND THE CONTENT OF THE EPA TEXTS

What the UK government called for in its 2005 position paper	The content of the EPA texts
ACP countries should have maximum flexibility over their market opening	ACP governments are being pushed to sign up to free trade agreements that require sweeping liberalisation commitments over limited time frames. For example, the East African Community, including four LDCs, has agreed to liberalisation of 82%, while others have committed to even higher percentages (Botswana, Lesotho and Swaziland 86%, Seychelles 97%, Mauritius 95.6%, Papua New Guinea 88%). Most of this liberalisation will happen at the start of the liberalisation period.
ACP countries should be provided with effective safeguards to protect against subsidised EU imports	The texts contain inadequate safeguard clauses for the ACP. As currently structured, the safeguards will not protect ACP producers from import surges, which they are vulnerable to, particularly in the agricultural sector. The articles that include so-called "infant industry clauses" are, in reality, no more than ordinary safeguards by a different name. In addition, the EU makes no commitment to eliminate subsidies on tariff lines that are liberalised by ACP countries, in the EAC, ESA or SADC texts. This perpetuates unfair import competition for ACP producers.
The EU should provide complete duty and quota-free market access to the ACP, with no strings attached	The commercial gains arising from the duty and quota free offer by the EC are limited because of the failure of the EU to substantially improve Rules of Origin, the retention of transition periods on two key products (sugar and rice) and strict safeguards that limit ACP access to EU markets.
The EU should make rules of origin more development friendly under EPAs	The interim offer on RoOs that has been made to the ACP (September 2007) made only minor improvements to existing rules, and even these are still disputed by many EU Member States. ACP countries are being forced to agree to an interim arrangement for RoOs, lasting three years, with a vague promise from the EC to sign offer more "development-friendly" RoOs in the future. This makes it very difficult for the ACP to assess the worth of the EU's market access offer, and, as the permanent RoOs are to be negotiated in the future, after the main bulk of EPA terms have been agreed, the ACP will have much less scope to influence them.
Negotiations on trade-related issues should only take place if they are ACP-driven	In the SADC region the EC has insisted on commitments for negotiations on binding services and investment agreements—despite the region's repeated resistance to those controversial topics. Other countries and regions that have stressed they did not want to commit to negotiate in these areas have still had to sign up to a commitment to continue negotiating.
Alternatives to EPAs should be made available	No alternatives have been offered to the ACP. This is despite the fact that legal analysis shows that feasible alternatives are available. The Seychelles and Nigeria have asked for admission into GSP Plus for January 2008, which is both technically and legally feasible. So far we have no evidence that the UK government has supported these requests for immediate admission.
The UK government has consistently stressed, as recently as December 2007 that EPAs should promote the ACP's regional integration	The EC, apparently supported by the UK government, has pressed countries to sign individual or sub-regional EPAs, independently from their regional partners. This will commit them to liberalising to the EU before they have decided what to liberalise to each other (in the case of COMESA for example). It also threatens to lead to defensiveness between regional neighbours and greater barriers to regional trade.
Source: Traidcraft, Tearfund, Christian Aid and Oxfam (2007): Economic Partnership Agreements (EPAs): Assessing recent developments against the UK government's 2005 position. See www.tjm.org.uk.

Tearfund believes that there has been a lack of leadership across the UK Government on EPAs. The negotiations have not been given the political priority that they have warranted given the impact that the agreements will have on development. This is disappointing and threatens to undermine the UK government's broader development agenda. The governments' call at the 11th hour, along with the Netherlands, Ireland and Denmark, for the EC to show flexibility and not penalise countries unable to sign, came as too little too late. By December 10th, when that statement was made, most non-LDC countries had already signed.

7. LOOKING AHEAD: AN AGENDA FOR 2008

In the small window of opportunity that remains in 2008 to bring back the proper and right focus on development and partnership in these flawed negotiations, it is critical that UK government does all it can to help deliver on its March 2005 position and support calls from ACP Trade Ministers for key elements of the initialled deals to be revised,[35] given the haste in which they were concluded and their potentially disastrous impacts on development. It is particularly important that provisions are not put into practice that undermine existing regional integration processes.

It is also vital for the UK Government to push for a strong and effective monitoring and review mechanism within the EPAs that enables ACP countries and regions to assess whether EPAs are contributing to their economic development and regional integration and which builds in the legally enforceable right for commitments to be revised in light of the findings.

The UK Government has stated that the "new issues" of investment, public procurement and competition policy should only be negotiated at the request of ACP countries. However, it is clear that the Commission is determined to push the ACP from their current "Interim" EPAs to "Full" EPAs—including all of these trade-related issues. It will therefore be vital in 2008 for the UK and other Member States to exert sufficient pressure on the Commission to ensure that negotiations on these issues only take place if requested by the ACP and, where they do take place, they are not be driven by European offensive interests but focus on areas that the ACP wants to negotiate on, such as cooperation.

It is also key for the UK Government to seek to ensure pro-development alternatives for those countries that have not signed an EPA. We hope to see the UK government taking all of these issues forward in 2008.

December 2007