Trade Negotiations Insights • Volume 7 • Number 6 • July 2008
EPAs: what is at stake for agriculture and development in Central Africa
by Jacob Kotcho and Martin Abega1
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Negotiations between the EU and Central Africa on a final regional Economic Partnership Agreement (EPA) resumed in Brussels at the end of May. Exchanges focused on the text of the agreement put forward by Europe on market access and on trade in services while the development aspects of the EPA were once again put on hold. However, taking a dispassionate look at the rationale of rules of origin will demonstrate that in the current state of affairs, negotiations do not take into account the development needs of Central Africa and hence draw a veil over this crucial component of the EPA. Our overview of what is at stake for agriculture and development amply demonstrates this.
Agriculture is one of the most complex multilateral negotiating areas within the World Trade Organisation. This complexity is due, firstly, to the specific role played by this sector, and, secondly, to the refusal of the richer countries to give up some of their policy space and reduce the distortions they have introduced in the trade of agricultural products. The current world food crisis demonstrates that the overall political, economic and social stability of a country depends on its ability to provide enough food for its population and hence to attain food security.
The work of the Citizens’ Association for the Defence of Collective Interests (ACDIC) on EPAs has shown that ensuring food security involves (i) providing support for the agricultural sector; (ii) controlling the liberalisation of the market in agricultural products; (iii) ensuring proper management of the resources allocated to the agricultural sector; and (iv) promoting the consumption of local products. Focusing on these four points could help make the EPA a tool for development in so far as market access depends on the production, transformation and marketing of agricultural products. EU-CEMAC trade statistics (including Sao Tomé and Principe and the Democratic Republic of Congo) show that agricultural products only make up a small share of the region’s exports to the EU2.
Subsidising agriculture in the South
Support for the agricultural sector should be the preferred means of improving the market position of ACP countries so that they can benefit from the access to markets provided by the EPA. Agricultural support includes production subsidies, the financing of research and training programmes, the organisation and financing of management training for producers and the improvement of basic infrastructure to facilitate market access, etc. In the Central African negotiations these concerns are high on the agenda to facilitate capacity building. The problem is that the EU does not want to commit to providing the necessary support.
As far as Central Africa is concerned, appropriate policies should be put in place with corresponding budgets to match. The EU, for its part, should commit to making a contribution to financing these activities. A binding provision to this effect should be inserted into the legal text of the full regional agreement in order to enforce this. Moreover, as a precaution, Central African countries should introduce a clause which makes the dismantling of tariff barriers conditional on fulfilling commitments in the area of capacity building and development.
The protection of the Cameroonian poultry-raising industry against unfair competition from imports of frozen chicken pieces is a concrete example of this. While prices of all basic commodities are soaring, the market price of chicken remains stable. This is the consequence of the expansion of local production, the state authorities’ support of local production and the fact that prices can be controlled and limited.
Controlling the liberalisation of agricultural markets
“We need dynamic farm markets that encourage farmers to improve productivity and grow so as to feed a growing world market. This means progressive liberalisation of agricultural markets, which have been closed for decades while the rest of the global economy has opened up. Not opened overnight, but prudently, in a way that reflects a country’s capacity and respects the impact of reform on farmers.” To a large extent, ACDIC supports the principle set out by Peter Mandelson, the EU Commissioner for Trade, in a recent interview with the International Herald Tribune.3
This principle should be incorporated into the EPAs with specific provisions. In particular: (i) adding agricultural items to the list of excluded products in order to protect the fragile incomes of rural farmers and fledgling industries; (ii) strengthening quality control capacities for products of European origin sold in Central African markets, through building laboratories, setting up a system of quality control and certification of products, and training health and phytosanitary personnel; and (iii) setting up mechanisms to ensure that there is fair competition between European agricultural products, which benefit from all kinds of subsidies and support, and African products, which do not enjoy such advantages. These protective measures should be sufficiently robust to correct distortions and offset the negative consequences of the loss of customs revenue.
Measures to increase the effectiveness of the single regional market should also be incorporated. This involves building a regional communications infrastructure to facilitate the circulation of goods between the countries of the region. In turn, this would reinforce intra-regional trade which is more accessible and beneficial to local operators.
Escalating pressures
The signing of a full and final EPA assumes that the legitimate interests of both parties have been taken into account. However, political decision-makers in Central Africa have been pressured into signing this agreement before major differences have been resolved, namely over how the partnership will be financed, the rate and time-scale of trade liberalisation, the inclusion of the Most Favoured Nation clause and rules of origin in the text of
the Agreement.
The problem of financing the partnership, or the development dimension, is all the more crucial given that implementing the EPA will involve structural adjustments to the economies of the Central African States and consequent loss of tax and customs revenues.4 Logically, there is a need to reinforce basic infrastructures (to reduce the cost of production) and to improve the efficiency of internal tax collection instruments. Given these constraints, the Europeans argue that the costs of implementing the EPA should be met by the European Development Fund (EDF) through the National and Regional Indicative Programmes (NIPs and RIPs). Now, it is not difficult to see that the EDF is not the appropriate channel for financing the fallout from the EPA. The type of partnership being negotiated has the peculiar feature of granting reciprocal trade preferences which would entail major adjustment costs for Central Africa. Since these costs derive from the dismantling of trade barriers under the EPA, the modalities of financing such costs should be negotiated under the same heading as market access issues. Or, better still, once the amount of the RIP has been unilaterally fixed by the European Commission and has no link to the costs of implementing the EPA, some proportionality should be established between the losses incurred and the amount allocated by the EU.
Following this line of thought, it should be borne in mind that Central Africa’s dismantling of tariff barriers will make small and medium sized enterprises vulnerable, as they will face increased competition from products imported from Europe. The closing down of businesses and the knock-on social problems call for reinforcement of basic infrastructures and improvement in competitiveness. If indeed the EPA is a new partnership involving reciprocal opening-up and fair compensation for any ensuing losses, there is a need to make the reinforcement of basic infrastructure one of the priority areas for funding earmarked under the EPA Regional Fund and to ensure that the dismantling of tariff barriers will actually lead to lower market prices of goods for consumers.
We live in hope, as the saying goes, that the political representatives of Central Africa will remember that on July 16 2007 at Yaoundé, the Joint Central African Ministerial Committee and the European Commissioners for Trade and Development agreed, in relation to the sale of goods, that:
“Central Africa will provide an initial list in September of products to be removed from tariff protection covering 60% of imports originating in the European Community, as well as the list of remaining products. In relation to this list of remaining products, and with a view to establishing the coverage ratios and the timescale for the dismantling of tariff barriers contained in the Central African States’s final offer, the Ministerial Committee is agreed on developing a plan for tariff liberalisation which focuses on development, and therefore sets out the following targets: (i) for extremely sensitive products on this list, and for any future sensitive products put forward as candidates for liberalisation over the next 25 years, the European Commission and Central Africa undertake to study each tariff line on this list; (ii) the exact percentage of tariff dismantling will be determined after an examination of each tariff line, in a way which encourages development, improvements in competitiveness and diversification of sectors of production, economic growth, the fight against poverty, food security, consumer wellbeing and employment in Central Africa.”
As examples of persisting differences, we may cite the interpretation of GATT article XXIV relating to ‘substantially all trade’,5 rate of liberalisation,6 transition periods,7 liberalisation of at least 50% of the service sector and rules of origin. Actual examples of the latter show the scale of the problems that may arise if the negotiators do not keep their eyes on the ball.
The setbacks
According to the Cotonou Agreement, fish was considered to be an originating product if caught by ships on which 50% of the crew came from EU member states or from ACP/Overseas countries and territories.8 This guaranteed employment opportunities for citizens of ACP countries particularly on European Union tuna fishing vessels which would unload their catch in ACP countries to be processed before export to European markets. If the European Union had its way, European boat owners would be able to take on board a crew not originating in Central Africa but still benefit from the rules of origin - as if milk from a French cow which was imported and raised in Central Africa, subsequently produced French milk! The European Union wants to go even further and force Central Africa to accept that the opportunity to rent or charter boats must be first refused by European fishing interests.9
The EU’s unilateral demands also involve the textile sector. In a departure from the Cotonou Agreement, which stipulated that articles made from imported fabric could not be considered as having originating status, the EU now demands that in certain cases:
* The kind of yarn to be used in manufacture should no longer be specified10
* The reference to change in tariff heading should be removed and the 50% price ex-works should be the only condition set11
* Knitted and crocheted articles of apparel and clothing accessories (chap. 61) should be made directly from fabric rather than yarn, and articles of apparel and clothing accessories, other than knitted or crocheted (with the exception of handkerchiefs, pouches, shawls, scarves, mantillas, etc.) should have originating status if they are made from fabric.
We should therefore realise that, in concrete terms, the ACP countries will no longer form a single territory and hence a so-called ‘cumulation’ zone. In fact, regional agreements turn the countries within the regional bloc into a single territory. ‘Cumulation’ will no longer be possible unless the countries form part of the same zone, that is, the same trading area, unless the partners have the same rules of origin and are part of a legal framework which allows ‘cumulation’ and administrative cooperation. From this point of view, Cameroon will not be able to ‘cumulate’ with products originating in Nigeria until Central Africa and West Africa have the same rules of origin and engage in cooperation at the level of customs administration.
In a word, if Central African political leaders sign up to the rules of origin that the EU wants to impose on Central Africa, the industrialisation that is said to be necessary for growth and the fight against poverty will remain a distant dream. When we see the difficulties faced by Mauritius in using Kenyan inputs in its exports to Europe, we can imagine the blow our region would suffer when the EU, for its part, has already managed to create safeguard mechanisms.
In fact, it is unreasonable to force Central Africa to open markets completely to products where manufacturers close their own markets by recourse to a range of mechanisms and subterfuges. If globalisation is to become reality, it must take into account that in these circumstances the region is in a better position to know what is right for its own countries and hence for its sub-regions.
1 Jacob Kotcho is the Permanent Secretary of the Citizens’ Association for the Defence of Collective Interests (ACDIC) and Martin Abega is the Executive Secretary of the Cameroon Joint Employers’ Group (GICAM). See www.acdic.net and www.legicam.org
2 The four major agricultural exports from the Central African region only make up 7.6% of total exports to the EU estimated at a value of €6,676,659, while crude oil and minerals represent 57.6% (source: comtext 2007 EU declarations).
3 To read the full article see: “Opinion: Food insecurity”, Peter Mandelson, The International Herald Tribune, May 22 2008, www.iht.com
4 Studies are to be carried out on how to calculate the matrix for net fiscal impact on the basis of the general calculable equilibrium model (for the EU) and the partial equilibrium model (for Central Africa).
5 The basis for calculating the ‘substantially all trade’ to be liberalised is not consensual: Central Africa understands this trade to consist of both imports and exports, whereas other WTO members believe that such trade concerns only imports.
6 70/30 for Central Africa and 80/20 for the European Union.
7 25 years for Central Africa and 17 years for the European Union.
8 Article 3. (d) title 2.
9 We may well think that this is based on the lack of national capital in Central Africa for the direct acquisition of ships from the factory.
10 This specifically concerns coverings, bed linen, curtains, etc; other furnishing articles made from felt and non-woven fabrics, fabrics made from non-natural, rather than natural, fibers.
11 Embroidery in garment form, in strips or in patterns.
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