7 Interim Economic Partnership Agreement
between the European Community and its Member States and the South
African Development Community States
| (a) (29973) 13314/08 + ADDs 1-13 COM(08) 562
(b) (29979) 13386/08 + ADDs 1-13 COM(08) 565
| Draft Council Decision on the signature and provisional application of the Interim Economic Partnership Agreement between the European Community and its Member States and the South African Development Community States
Draft Council Decision concluding the Interim Economic Partnership Agreement between the European Community and its Member States and the South African Development Community States
|
| Legal base | Articles 133, 181 and 300 EC; QMV
|
| Document originated | 18 September 2008
|
| Deposited in Parliament | 29 September 2008
|
| Department | International Development
|
| Basis of consideration | Minister's letter of 26 January 2009
|
| Previous Committee Report | HC 16-xxxi (2007-08), chapter 5 (15 October 2008); also see (29043) 14498/07 and (29155) 14968/07: HC 16-xxi (2007-08), chapter 13 (14 May 2008)
|
| To be discussed in Council | Before the end of 2009
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared; further information requested
|
Background
7.1 The Economic Partnership Agreement (EPA) negotiations with
the African, Caribbean and Pacific (ACP) group of countries, which
began in 2002, aimed at redefining the trade regime between the
two groups of countries, thereby replacing the long-standing Lomé
system of preferential access to the European market for the ACP
from 2008. The EPAs are intended to be in conformity with WTO
rules, which require that barriers to trade be dismantled on both
sides, introducing an element of reciprocity into trade relations
between the EU and the ACP states for the first time. This gave
rise to concern that extensive market opening in these countries
to the EU could create strong adjustment pressures, while European
suppliers would be only marginally affected by free market access
for ACP goods and services. The deadline for negotiation was 31
December 2007.
7.2 The Commission's aim was always "full"
EPAs — which include provisions on trade-related areas,
trade-related rules and trade in services and include appropriate
links to development cooperation, as well as trade in goods —
in accordance with what is outlined in the Cotonou Agreement and
the Commission's negotiating mandate. But not all of the six ACP
negotiating regions were likely to conclude a full EPA by the
set deadline; so, for these regions, the Commission decided to
pursue basic "trade in goods agreements", which provide
for duty free/quota free access and simplified Rules of Origin.
7.3 Our earlier Reports set out our consideration
of the process in greater detail, concluding with a letter from
the Parliamentary Under-Secretary of State at the Departments
for International Development and Business, Enterprise and Regulatory
Reform (Mr Gareth Thomas) outlining the general situation as of
the end of April 2008.[27]
The Council Decisions
7.4 These two proposals are for:
— a
Council Decision authorising the signature, on behalf of the Community,
and provisional application of an Agreement between the EC and
its Member States on the one hand, and the SADC EPA states on
the other; and
— a Council Decision authorising the formal
conclusion, on behalf of the Community, of an Agreement between
the EC and its Member States on the one hand, and the SADC EPA
states on the other.
7.5 "SADC EPA states" refers to Namibia,
Botswana, Lesotho, Swaziland and Mozambique, countries within
SADC that have completed interim EPA negotiations. Of these, the
first four are members, along with South Africa, of the Southern
African Customs Union (SACU). In this Agreement, for some purposes
the "SADC EPA states" act collectively and for others
they act individually.
7.6 The Commission and SADC EPA states initialled
the IEPA on 23 November 2007, which enabled their inclusion in
the EPA Market Access Regulation adopted by the Council of Ministers
on 20 December 2007 (which provides for duty-free, quota-free
access for all SADC EPA states' exports to the EU, commencing
1 January 2008).
7.7 The Commission has issued these proposals together
as they both concern the formalities necessary to agree formally
and give effect to the same international agreement, namely the
Agreement establishing an interim Economic Partnership Agreement
between the EC and its Member States and the SADC EPA states (the
IEPA). The two step process is not unusual — the EC Treaty
expressly allows the Community to apply international agreements
provisionally, prior to their formal conclusion, as the formal
conclusion process can be lengthy.
Previous consideration
7.8 The details of the IEPA are set out in our previous
Report. In his accompanying Explanatory Memorandum of 10 October
2008, the then Parliamentary Under-Secretary of State at the Department
for International Development (Mr Gareth Thomas) said that the
UK had consistently stated that EPAs should help provide a strong
framework for long term development, economic growth and poverty
reduction, and had centred its policy on the principles set out
in the DFID/DTI Position Paper of 2005.[28]
7.9 This Agreement broadly aligned with these principles,
which included the belief that: ACP countries should be able to
decide the scope of issues covered within their IEPA; they should
have flexibility over their market opening; EPAs should provide
them with duty and quota free market access into the EU with improved
Rules of Origin; they should benefit from effective safeguards
to protect their markets when required; and EU partners should
provide ACP countries with effective development assistance to
benefit from new trade opportunities while ensuring aid is not
made conditional on signing an EPA. The initialling of this 'goods-only'
agreement had thus enabled SADC EPA states to secure market access
into the EU while allowing more time to work with other African
neighbours to negotiate a regional EPA covering other trade issues
such as services.
7.10 The Minister noted a number of positive features.
Better Rules of Origin (ROOs) would provide the SADC EPA states
with a more flexible and liberal basis to export to Europe. The
right to impose quantity restrictions on exports in the event
of food shortages addressed a common concern of African ACP countries
on food security. Protective measures such as safeguards would
enable SADC to apply or raise duties or quotas on imports if faced
with a surge of EU imports; their being easier to trigger than
current WTO safeguards would help protect vulnerable producers,
including emerging industries, from the increased volatility associated
with opening trade; the 12 year provision for non-LDC SADC EPA
countries and 15 years for LDC states was not, in the Minister's
view, ungenerous. The Agreement contained a number of developmental
provisions; this included the aspiration to create a regional
development financing mechanism such as an EPA Fund. A number
of EU Member States, including the UK, were also supporting aid
for trade initiatives in the region; the UK was currently on track
to spend over £400 million per year on aid for trade globally
by 2010, within which the southern African region was a major
plank, with specific targeting towards regional trade facilitation.
7.11 The Minister had, however, a number of concerns.
The first arose from the commitment in the IEPA by the SADC EPA
states to conclude negotiations on other trade issues (services
and investment) by the end of 2008, which he regarded as an ambitious
deadline; he would be asking the Commission to show flexibility.
7.12 Secondly, there was a potential for disruption
of SACU — which manages most of the borders of the SACU
members and collects tariffs which are redistributed between members
— and the free circulation of goods as agreed in the IEPA
arising from the fact that South Africa (SACU's biggest and most
influential member) had chosen not to initial the IEPA. Moreover,
since the SACU agreement technically prevents members from concluding
new trade agreements without the consent of all, there could be
difficulties should South Africa object to the IEPA agreement.
However, in concluding the Trade and Development Cooperation Agreement
with the EU, South Africa had acted unilaterally. The Minister
therefore felt that both the border administration and the SACU
consent issue were manageable in principle, but would require
the good-will of South Africa to support an IEPA and close working
between the SACU states to ensure a more complicated border administration
operated effectively. The UK was monitoring South Africa's position
and regional dynamics on these issues — which might partly
be affected by progress on negotiations towards a regional EPA.
7.13 The UK remained supportive of the aspiration
to conclude a region-wide Agreement. Ultimately the range of SADC
countries that initialled the IEPA reflects choices made by the
countries themselves. The liberalisation schedule for SACU EPA
states was designed to be very similar to the schedule for liberalisation
in the Customs Union. Also the agreement allowed accession of
new members and did not preclude the establishment or expansion
of customs unions or free-trade areas. However, the IEPA limited
the scope for SADC EPA states to use South African inputs in products
for export to the EU, which the Minister said could potentially
restrict the take-up of preferential access to EU markets accorded
by IEPA as well as restricting regional integration. SADC countries
such as South Africa, Namibia and Angola had raised these concerns
with the UK and the Commission as serious issues to be addressed.
However, the Minister noted, this was an interim Agreement: the
intention of the Commission was to conclude a broader regional
EPA which took these concerns into account. The UK would monitor
progress with a view to promoting any measures that could be taken
to facilitate development gains and support for integration in
the region.
7.14 Although the UK's aim to secure flexibility
for ACP countries on market opening had been addressed in this
Agreement, most of Mozambique's liberalisation would happen
immediately and the speed of adjustment could be a challenge.
Moreover, Mozambique's liberalisation schedule was to be merged
with the SACU EPA states at such a time as Mozambique made a technical
move onto a new customs classification system requiring it to
liberalise further: the Minister said that this was not ideal
— such a merger should be linked to development performance
and not customs administration. The UK would aim to monitor the
development impact of the proposed liberalisation schedule, and
also push the Commission to be flexible during implementation
by taking due account of any perceived development impacts and
challenges.
7.15 Finally, the Minister said that the Agreement,
like other EPAs, included provisions that were not strictly required
for WTO compatibility but were common in free trade agreements,
including the Most Favoured Nation Clause, Standstill Clause and
ban on new export taxes. These provisions had been raised as concerns
by some of the SADC countries and similar views are held by some
ACP representatives and NGOs. South Africa, Namibia and Angola
were very vocal about these concerns and had officially raised
this as a matter of concern during discussions with the UK government;
Namibia had also submitted a statement to Commission saying it
initialled the IEPA on the understanding that these concerns would
be addressed in subsequent negotiations leading to a comprehensive
EPA.
7.16 Summing up, the Minister said that he intended
to pursue the concerns that had been raised about the terms of
the Interim Agreement in the relevant Council Working Groups,
including measures not required for WTO compatibility (such as
the MFN clause and standstill clause), the commitments to broaden
the scope of the Agreement (on services and investment) and with
regard to regional integration. He proposed to monitor them and
lobby the Commission to address them in broader regional negotiations
towards a comprehensive EPA. Given these concerns and the fact
that discussion on the concluded SADC IEPA had not been held so
far in the Working Groups, the Minister concluded by saying that
it was possible that he might need to come back to the Committee
with further developments and advice on the SADC IEPA.
7.17 Although no issues arose about the procedural
aspects of these Council Decisions, the Minister having drawn
attention to other important aspects about which he felt that
he might need to revert to us, we retained the documents under
scrutiny.
7.18 We also drew them to the attention of the House
because of the widespread interest in the EPA process, and also
to the attention of the International Development Committee, so
that they might be aware of the elements of the EPA, as described
by the Minister, and of his concerns.[29]
The Minister's letter of 26 January 2009
7.19 The Minister provides what he describes as the
following update:
"Regional Integration issues — Border
administration: There
are concerns over regional integration as South Africa is not
party to the interim EPA (IEPA). The most pressing of these concerns
relates to the mis-match in tariffs between the SADC states and
SACU (South African Customs Union). The main challenge to maintaining
coherent regional trade regimes is to harmonise tariffs between
South Africa and other countries in SADC. The Commission has presented
South Africa with a range of options that would enable this and
dialogue is ongoing.
"Regional Integration issues — Content:
EPA rules on sourcing of materials mean
that inputs from South Africa which fall under the exclusion list
cannot be used in goods which are exported to the EU from SADC.
The Commission have informed us that these items are not indefinitely
excluded. However, our understanding from regional governments
is that there is not yet clarity on dates and how future sourcing
of inputs from South Africa will be managed. We are monitoring
the situation closely and will, if necessary, push for greater
flexibility from the Commission.
"Country Government Views: Angola,
South Africa and Namibia were the only governments in the region
to express opposition to the terms of the interim EPA. Botswana,
Lesotho and Swaziland have been generally supportive of the Agreement,
but they have expressed concerns about the impact of the Interim
EPA on regional integration.
"Whilst Namibia has signalled its intention
to sign they have also raised concerns, some of which echo those
of South Africa. We have received recent updates from the Commission
that progress has been made on the most contentious issues. On
balance, it appears that Namibia is likely to sign but will do
so with the expectation that their concerns be addressed in the
move towards a regional EPA.
"Engagement with South Africa is ongoing, however
given current domestic pressures in South Africa, progress has
been slow. We continue to track progress on the various negotiations
and do all we can to encourage both the Commission and key negotiating
partners to reach agreement on outstanding issues.
"Future Regional Engagement: The
Trade Commissioner will visit the Southern African region in February
to help progress discussions on the regional EPA. She will meet
with a range of stakeholders and government representatives. We
welcome this move and are aware that it has been positively received
by the region.
"The Commission has outlined plans to hold a
seminar in early 2009 once the Interim EPA has been signed. The
aim of this is to promote constructive discussion with countries
in the region on difficult or sensitive issues that are not fully
resolved within the Interim EPA but will be seriously considered
in the regional agreement.
"In summary, the SADC region is complex and
contains countries with quite divergent interests. While there
are a number of concerns that have not yet been resolved, there
are structures in place to work towards their resolution."
Conclusion
7.20 It is plain that there has been little concrete
progress regarding any of the Minister's major concerns. However,
there are indications that the Commission is beginning to address
them. Moreover, it would not be possible for them to do so were
the IEPA to remain unsigned.
7.21 We therefore now clear the documents. We
should be grateful, however, if the Minister were to write before
the summer recess with a further update.
7.22 In the meantime, for the same reasons as
before, we are both reporting these developments to the House
and drawing this chapter of our Report to the attention of the
International Development Committee.
27 See headnote: see (29043) 14498/07 and (29155) 14968/07:
HC 16-xxi (2007-08), chapter 13 (14 May 2008). Back
28
Which is reproduced at the Annex to chapter 1 of our First Report:
see HC16-i (2007-08), chapter 1 (7 November 2007). Back
29
See headnote; HC 16-xxxi (2007-08), chapter 5 (15 October 2008). Back
| 
