Africa-EU trade relations: round number two!

Peter Draper 29 January 2008

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The first phase of re-ordering Africa-EU trade relations is over. Interim Economic Partnership Agreements (IEPAs) between the European Union and African countries had to be signed by December 20th, 2007 before the WTO waiver allowing the EU to extend preferential market access to its former colonies expired. Thirty-five of 77 African, Caribbean, and Pacific (ACP) countries signed IEPAs, leaving 42 out of the net.

Of those not signing, thirty-two are least-developed countries (LDCs) – a category that WTO members are allowed to discriminatorily favour – and will revert to the EU’s “Everything but Arms” preference scheme, which allows them duty-free access to the EU market with no obligation to reciprocate. Signatory non-LDCs will also enjoy EBA-equivalent access to the EU market but were obliged to open their own markets to EU exports. That leaves 10, mostly Pacific, non-LDC countries out of the IEPA net. Three of the four African countries (Gabon, Nigeria, Republic of the Congo) will now export to the EU under the less generous Generalised System of Preferences, while South Africa has its own trade arrangement in place.

The outcomes

After all the acrimony concerning EPAs at the EU-Africa summit in December 2007, what can be said about this result? First, it is not clear that African signatories have the capacity to implement these agreements. This may give rise to administrative and political hurdles down the line. That points to substantial technical difficulties in concluding the next phase – focusing on behind-the-border trade regulations - never mind the political difficulties associated with it.

The next phase will focus on trade-related rules such as investment and intellectual property, and trade in services. Much of this agenda is appropriate for building properly functioning markets in the sub-continent; unfortunately the host environments are not well suited to wholesale importation of developed country regulatory standards. For this reason, and also because the EU is now trusted less than before the IEPAs were concluded, the scope, depth, and timing of these negotiations remain to be seen. They will be more contentious than those over goods. I hope that the EU substantially reduces its ambitions, but I am not optimistic.

Market access

Second and more positively, signatory non-LDC African countries concerns’ regarding continued access to the EU market have been allayed. This was the major motivation for most countries to sign IEPAs – not the potential trade and investment benefits they may give rise to. Assuming no WTO member finds fault with IEPA provisions and challenges them in the WTO – currently an unlikely scenario – market access is secure.

Third, as IEPA signatories open their markets to EU exports, they will experience competition, concomitant trade disruption, and possibly trade diversion. Countries that depend on import taxes to sustain their fiscus may also experience declining revenues. These potential impacts are lightning rods for the global NGO movement behind the anti-EPA campaign. Essentially, the fear is that what little industry there is in African economies will disappear, whilst already fragile states will wither for lack of cash. In this logic the tenuous economic and political recovery seen in parts of the continent in recent years may reverse.

These are legitimate fears. Offsetting them is the structure of the deals; potential for trade creation arising from tariff preferences granted to EU producers; and tariff preferences granted by the EU to signatory non-LDC African exporters. Presumably African negotiators have opted for long phase-downs and carve-outs for revenue-generating goods imports. To the extent that they have, adjustment costs will be accordingly smoothed. Furthermore, cheaper imports of EU goods, particularly those not produced domestically, should be good for consumers and producers reliant on imported inputs. On the flip side, these countries now have more favourable access to the EU market, although it remains to be seen whether they can overcome a litany of non-tariff barriers in accessing the EU market and domestic supply constraints. Yet if the EU’s aid envelope and a potential “aid for trade” package are deployed effectively, they could alleviate potential revenue disruptions, build trade supporting infrastructure and technical capacity.

Economic fissures

Fourth, IEPAs’ most enduring legacy is likely to be the potentially fatal blow their conclusion has dealt to feeble regional economic integration efforts in sub-Saharan Africa. With the exception of the East African Community, which signed as a bloc, every other regional grouping in the sub-continent fractured.1 Central to this is the EU’s well-intentioned differentiation between LDCs and non-LDCs and the presence within all groupings of both categories of country. Thus some countries are obliged to open their domestic markets to EU exports whilst others aren’t, rendering internal policing of EU-sourced goods probably a chimerical task in the face of chronic institutional weaknesses in trade administrations across the sub-continent. And the case of South Africa and its customs union partners continues to puzzle: South Africa is obliged to maintain different rules of origin to its partners as the EU insists South Africa is too competitive to enjoy EBA-type access to the EU market, whilst at the same time insisting the Southern African Customs Union be treated as a single market for EU exports.2 Consequently, the politics of the next phase are just as complex as the first. Intra-African politics concerning the locus and design of regional economic integration have lost their (admittedly tenuous in some cases) anchor. Given the continental leaderships’ obsession with creating customs unions - ironically modelled on and supported by the EU - can Humpty Dumpty be put back together? Is euthanasia a better option? Most likely regional economic communities will continue to subsist on a drip feed of EU cash – the zombie option. Regardless, these fissures will bedevil broader African politics for years to come.

Coming challenges for Africa-EU relations

The EU faces its own internal tensions: former colonial powers intent on maintaining influence in their erstwhile wards in the face of a strong Chinese challenge; member states that wish to cast the ACP adrift and focus on countries offering more enticing economic prospects for trade negotiations; and a host of new members for whom “development” means limiting access to their own markets.

Hence the stage is set for continued deterioration in Africa-EU political and trade relations as these processes work themselves out. China is the obvious beneficiary.

 


 

Footnotes

1 North Africa already has the Euro-Med agreements.
2 For an analysis of this particular negotiation see Draper, P (2007) “Lexus vs Toyota: The Southern Africa-EU Trade Agreement”, Bridges Monthly, 11(3), May. Concerning the implications it holds for SACU integration see Draper P, Khumalo, N and Sidiropoulos, E (2007) “Why SA should take lead in ending EPA standoff”, Business Day, 19th December.

 

 

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Topics:  International trade

Tags:  Africa, EU, Africa-EU trade, EPAs

Director, Tutwa Consulting

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