Leading Ministers of ACP states criticize EPA process, content

Leading Trade Ministers in the African, Caribbean and Pacific Group of states have strongly criticised the lack of development content of the Economic Partnership Agreements that they are negotiating with the European Union Commission.

At a workshop in Brussels on 12-13 October attended by three Ministers representing the ACP states and more than a hundred other participants, there were calls by many for a fundamental shift in the present EU approach to the EPAs, and for alternatives to the EPAs to be considered.

With a joint EU-ACP meeting coming up in November to review the EPA negotiations, it is clear there is a groundswell of discontent among government officials in ACP countries and among civil society groups in both ACP and European countries and that the talks are in a state of crisis.

With so many disagreements and uncertainties, it is unlikely the EPA negotiations can be completed by the deadline of end-2007. Several participants called for the EU to act to have an extension of the present waiver in the WTO that allows preferential market access for ACP states to the EU market. The waiver also expires at the end of 2007.

The workshop was hosted by the South Centre and co-organised by 9 NGOs - the Africa Trade Network, Caribbean Policy Development Centre, Traidcraft, Christian Aid, ICCO, 11.11.11 (Belgium), Oxfam International, SOMO and the Cooperative Bank.

Speaking at the workshop were Barbados Minister of Foreign Affairs and Trade Dame Billie Miller (who is also Chair of the ACP Ministerial Trade Committee and the lead CARICOM Ministerial spokesperson on EPAs), Senegal Trade Minister Mamadou Diop (who is also vice-chair of the African Union Trade Ministers), and Fiji's Minister of Foreign Affairs and Trade Kaliopate Tavola (who is also the Pacific region's lead Ministerial spokesperson on EPAs). A speech by Nigerian Trade Minister Aliyu Modibbo was also presented by his representative.

Another session included a panel of representatives of the UN Commission for Africa and of NGOs from Africa, the Caribbean and Europe.

Initiating the meeting, South Centre Executive Director Yash Tandon said that in the context of the mandated EPA review, fundamental issues need to be raised, including the possibility of renegotiating the Cotonou agreement, and the placing of development benchmarks to monitor the negotiations. There were also issues relating to process, and the workshop would consider all issues as there should not be a fixed mindset and instead participants should be open to other possibilities.

The ACP secretariat's General Under-Secretary Veniece Pottinger-Scott stressed that according to the Cotonou Agreement, the EPAs should be development instruments, for example, to promote sustainable development, poverty eradication and smooth integration into the world economy. It also includes goals of capacity building in ACP countries, enhancing their competitiveness and regional initiatives, fiscal reform and infrastructure.

However, she said the reciprocal trade relations envisaged means that the EPAs would require ACP countries to make serious adjustments. Thus, the development aspects must relate to these adjustment costs, as well as the cost of preference erosion due to the EU's CAP reform and other factors.

The development challenge of EPAs are three-fold. First is the scope of product coverage, special treatment, special products and trade in services. The scope determines the extent of adjustment.

Second is the content of EPAs and the development programmes that accompany the trade aspects that would assist ACP countries to boost production. Third is the quantum of financial support and mechanisms to address the adjustment costs.

Dame Miller of Barbados said the Caribbean countries' EPA objectives included economic development and reduction of economic vulnerability of Caribbean states. Their expectations are that the EPA would promote sustainable development, assist in the Caribbean countries' regional integration, and would provide special and differential treatment (SDT) for small states and asymmetrical treatment.

Given these expectations, there are several differences between the Caribbean and EU approaches to the EPAs, she said. First was on the pace of liberalization. Both agree on the need to strengthen the integration process of Cariforum (Caribbean Forum of ACP states) but the question was how and at what speed. The Caribbean countries were concerned about the impact of the EPA on Caribbean integration.

Dame Miller added that the EC had tried to persuade Cariforum countries to undertake the same commitments on market access, services, investment, intellectual property, competition, government procurement, SPS, and TBT. But the Cariforum approach is for differentiation, to reflect its single market and the Cariforum/Dominican Republic FTA. It wants to adopt the principle of "variable geometry."

Another main difference is on the understanding of development and how to make the EPAs development oriented, as the EPA "should be an instrument for development rather than oppression."

Dame Miller said the EC sees the EPA as a tool for stringent rules on investment and other issues, with limited development support, which ignores the structures of Cariforum. Cariforum has a more comprehensive view, stressing development that implies SDT, flexibilities in applying trade rules, more access to EU markets and binding commitments on development support.

Four areas of increased development support are needed, said Dame Miller. First is the need to address supply-side constraints. Decades of preferences have not improved ACP countries' ability to compete in global markets. However, the EU still stresses the market access aspect, that this will lead to greater efficiency and investment. "In our view, this is an unrealistic assumption as it does not address supply-side constraints," said Dame Miller. She added that the WTO task force on Aid for Trade had recognized the importance of supply-side constraints, and that the EC had endorsed this report and had said trade would not help development unless there is investment in infrastructure.

Dame Miller said the EC must urgently address this issue before establishing reciprocal trade relations with ACP countries.

Second is the need to address the loss of revenue. There needs to be an adjustment mechanism to address the impact of EPA-induced liberalization on trade revenue. As there is high dependence of ACP countries on trade revenue, liberalization could lead to revenue losses that are 3 to 10 times more than the projected benefits of the EPA.

Since Cariforum countries depend on tariff revenue, the sudden loss will cause great hardship and social dislocation as the impact will fall disproportionately on the poor. The EC should appreciate the need to make up for this loss.

Third, regarding trade liberalization in goods, there is a divergence as the EC wants a single approach for all Cariforum members by their all having the same common tariffs and the same starting point in the implementation period. This was not realistic. Cariforum will instead put forward phased baskets of goods with exclusion lists and a 25-year period to address sensitive products based on production and fiscal impacts. Also, Cariforum expects the SDT principle to apply, but this issue is unresolved.

Fourth, the regional preparation task force (RPTF) which was to link trade and development has not delivered its development promise to date, which is a major disappointment, said Dame Miller. The procedure to obtain funds from the EDF financial mechanism is "extremely cumbersome", and there are many project proposals stuck in the pipeline. She noted that the EU states have also expressed concern about the RPTF.

Dame Miller said in view of the EC's failure to respond to project proposals, she was proposing a new EPAs adjustment facility to overcome the EDF's cumbersome procedures. Under this facility, ACP regions and EU member states can jointly manage the projects.

On the EPA review, she said the Cotonou agreement had stated that by 2006 the parties will undertake a "comprehensive review", which she interpreted to mean that all issues are to be reviewed, adding that the review should be formal, comprehensive and deal with both trade and development aspects. For Cariforum, key elements in the review included regional integration, development support, capacity needs and implementation organs and funding.

Dame Miller said the EC itself has an adjustment fund to respond to problems created by the liberalization of its own members states, and Cariforum countries should benefit from a similar mechanism. Neither liberalized trade nor access to the EU market will bring about development. Countries with supply constraints cannot make the best use of market access under preferential terms. She noted that there was also a growing view among EU states about the need to address the ACP states' fiscal losses.

Senegal's Trade Minister, Mamadou Diop, said that "We have come to the moment of truth" with regard to the EPAs, and that the "all the expectations of the Cotonou Agreement can be jeopardized if we are not vigilant."

He added that "to date our development needs and concerns have not been taken on board by the EU" and that both government officials and CSOs increasingly agree that the EPAs ought to be challenged.

"Adopting a road map before assessing the impact on our economies is nonsensical, and yet this is asked of us," he said. Impact studies are indispensable, and a recent French parliamentary report on the EPAs had concluded that these studies are needed by poor countries so that the cart is not put before the horse.

He reiterated that impact studies have to be undertaken before countries commit themselves but "no benchmarking or impact assessments were done in our countries, no master plan was devised, no methodology and no scientific evidence was brought to the table before embarking on the road maps." He added that two studies had been rejected in Senegal as they did not meet up to its needs and due to the poor standards.

Diop remarked that the interpretation of Article 24 of GATT on the extent of free trade required of FTAs is open to different interpretations, and this led to a "limbo situation" on what leeway is given to ACP countries. He also complained that everything on the development aspect of the EPAs had been left in vagueness.

There are significant adjustment costs for ACP countries, stressed Diop. For example, in Senegal the farmers have dwindled and almost disappeared due to liberalization policies.

Moreover, removing tariffs would have a big impact on tax revenues. Government revenue would drop by 7 to 10 percent and in some African countries it could be 15 to 20 percent.

The EPAs based on free trade would add on to the difficulties of African countries. A recent ACP/EU meeting in Brussels concluded that little progress had been made in the talks regarding development issues and adjustment costs.

Diop said the EU negotiators impose their agendas on their counterparts, which is against the spirit of the EPA provisions. He noted that the European Parliamentarians had criticised the EU Commission, including for the gap between development support and trade aspects.

He stressed the ACP countries were faced with a "budgetary shock" due to the loss of tariff revenue as well as a trauma on their trade balance as a result of opening up under the EPAs. As there are social and cultural dimensions as well, "committing to such an EPA is committing yourself to a blank cheque." He added that the African Ministers should have a joint position to "revise and rethink the EPAs."

He proposed that the deadline for completing the negotiations (end-2007) be postponed. The deadline had been set in line with the WTO's Doha deadline and now that the Doha talks are at a standstill the EPA deadline could be postponed.

He suggested that the objective of reciprocal trade liberalization be dropped, and that the present system of trade preferences be continued. The priority of the EPAs should be development and not the trade dimension. Additional resources should be earmarked for environment, production, stimulating the ACP economies, and poverty eradication. There must be broad consultations with civil society.

In a speech read out by his representative, Nigeria's Trade Minister Aliyu Modibbo said there had been not much progress in the EPA negotiations due to lack of negotiating capacity of ACP countries and divergent positions (between the EU and ACP countries) on development issues. Despite the laudable objectives, the negotiations have generated a lot of fears among ACP states that they stand to lose.

"If 30 years of preferential market access did not improve the ACP countries' economies, how can reciprocal relations do better?" asked the Minister. "It will instead widen the gap and destroy the little development we have achieved."

He said the EPAs had been welcomed as a development tool but now it turns out the development dimension would not be at the core of the EPA and would not be integrated into the negotiations on trade liberalization. The negotiations must address the major development concerns which must be strong enough to offset the adjustment costs. For many countries, addressing supply constraints is the only incentive for joining the EPAs, and devoid of the development aspect the EPAs did not have meaning.

As the EDF (the present funding mechanism) does not address supply-side problems, Modibbo said he supported the case for a separate financial instrument. The third EDF installment risked being spread too thinly with no positive impact to combat poverty or improve production capacity. More resources apart from the EDF are thus needed.

Regarding the "Singapore issues", Modibbo said "we are not ready to negotiate competition, investment rules and government procurement". He noted that multilateral rules on these issues are not agreed on, and the EPAs had to be in line with the WTO (which had agreed not to set rules on these issues).

The Fijian Trade Minister Kaliopate Tavola said the Pacific countries had expectations of the development dimension being respected, for example, that no ACP state should be worse off and that the existing preferences would continue.

On the reciprocity principle, he said it was appreciated the EPAs had to be compatible with the WTO, but there was the question of what the WTO rules say, and which WTO rules to refer to. With the suspension of the Doha talks, the compatibility would have to be with the Uruguay Round provisions and this would cause difficulty.

Tavola added that it was known there would be a lagged reciprocity and that the Pacific countries wanted a 20 to 25 year transition period. On the development dimension, "we had assumed the EPA would be a development tool, addressing poverty, supply side constraints and investment flows."

On the negotiation process, there was now a pessimistic mood. Regarding the effects on regional integration, the Pacific integration process is at its infancy and the EPA should strengthen and not undermine it. The EPA can overwhelm the basis for regional integration especially if it opens up markets too early.

The main concern of Pacific countries is that the EPA will trigger off a FTA with Australia and New Zealand, under the terms of another agreement that the Pacific countries have with these two countries. If this were to happen, Australia and New Zealand would dominate the Pacific economies and "we will face de-industrialization and loss of jobs."

On the Singapore issues, the Pacific countries had included investment in the negotiations even though they appreciated the ACP position against the Singapore issues, but government procurement should stay out of the EPA.

Discussions on treatment of asymmetries have been inconclusive, especially on product coverage, the definition of substantially all trade (the Pacific countries wanted 60% as against the 90% asked by the EU) and the Pacific countries want a long transition period.

The Minister added that the Pacific countries also stress the need to look at alternatives to the EPA. The EU response is that this could only be at the request of an ACP state. The Pacific countries are looking at alternatives, as they can opt out of the EPA if the EU does not agree to the architecture proposed by the Pacific countries. "Some of our members don't even trade with the EU and ask what's in the EPA for us," said Tavola.

On what needs to be changed, the Minister said that "we should go back to the basics" in the Cotonou guidelines and develop the EPA in line with the development dimensions instead of having a trade focus. The quantum of EPA resources and the need for an EPA adjustment-cost facility are important. EPA resources should reflect the need to address adjustment losses including fiscal loss and employment loss when imports enter the economy, and supply side constraints.

He stressed the need to "review and reconceptualise the approach". Rejecting the demand for reciprocity in all areas, the Minister said "we should insist on lagged reciprocity, of opening our economies only when we have attained an adequate degree of competitiveness."

On future possibilities, Tavola said one solution could be to extend the everything-but-arms initiative (now provided to LDCs) to all developing countries. "We have to insist on the development aspects. Also, the review should lead to the possibility of alternatives (to EPAs) and should address the problem of resources."

Following the Ministers' presentations, there was an active question and answer session, and a brief summing up by South Centre Director Yash Tandon.