Primer on Economic Partnership Agreements EPAs WBI Course on Regional Integration in Africa and the

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Primer on Economic Partnership Agreements
(EPAs)WBI Course on Regional Integration in
Africa and the Economic Partnership
AgreementsMay 22-24, Nairobi, Kenya

• Dr. Mary Mbithi,
• Lecturer, School of Economics, University of
  Nairobi
• luciambithi_at_yahoo.com
• May 2006

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Over view of the Presentation

• 1. Introduction
• 2. Economics of EPAs.
• 3. State of play in EPA negotiations timing,
  nature of time
• 3. Constraints and deadlines.
• 4. Interaction between the EPAs and the Doha
  negotiations.
• 5. Interaction between the EPAs and African
  Regional Integration
• .
• 6. Concluding remarks.

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Introduction

• September 2002, ACP-EU EPA negotiations started
• End by Dec 2007,
• Implementation January 2008
• Objectrives of EPAs
• to foster the smooth and gradual integration of
  the ACP States into the world economy, with due
  regard for their political choices and
  development priorities, thereby promoting their
  sustainable development and contributing to
  poverty eradication in the ACP countries.
• EPA negotiations going on simultaneous with the
  Doha negotiations at the Multilateral level.

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Introduction

• Objectives
• Main objective is to contribute to the
  understanding of the EPAs negotiation process.
• Specific objectives
• Economics of EPAs.
• State of play in EPA negotiations timing, nature
  of time constraints and deadlines.
• Interaction between the EPAs and the Doha
  negotiations.
• Interaction between the EPAs and African Regional
  Integration

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Background information

• ACP-EU development oriented relations for about 5
  decades
• Association of OCTs 1957
• Financial aid through EDF
• 2. Youndé 1 and Youndé 2 conventions of 1963 and
  1969 respectively
• Financial, technical and trade cooperation

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EPAs Background information

• 3. Lomé conventions (Lomé I-III) 1975-1990)
• Non-reciprocal preferences for ACP countries
  exports to the EU,
• Stabex and sysmin system of compensation of the
  shortfalls in export incomes of the ACP due to
  price fluctuations.
• Commodity protocols in sugar, beef and veal, rum
  and bananas.

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EPAs Background information

• 4. Lomé IV (1990-2000)
• Political dimension, -clause on human rights.
• Support of the structural adjustment programmes
• Stressed on diversification of ACP economies
• Promotion of private sector
• Importance of regional integration.

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EPAs Background

• Evaluations and reflections on the ACP-EU
  relation (1957-1990s)
• 1. Poor performance of ACP trade
• Share of ACP in EU markets declined,
• Composition of ACP exports to EU market shrank
  (concentrating on a few products)
• Why poor performance
• Supply response constraints
• Restrictive rules of origin
• Lesson Non-reciprocal trade arrangements are not
  enough on the own. Require other supportive
  policies.

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EPAs Background

• 2. The contractual partnership lacked policy
  dialogue. Although jointly agreed, the EU
  unilaterally made interventionist approaches.
• 3. ACP group was in reality neither a political
  group nor an economic entity, had developed from
  essential historic reasons and exists only in the
  framework of relations with the EU. Should the
  relationship between the EU be based on the ACP
  as a group?.

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EPAs Background

• The diversity of situations within the ACP group
  suggested the need to change the form of the
  cooperation. geographical differentiation
• - small economics, island and land locked
  countries (REPAs)
• important view of the EU on regional integration
• The Green paper (EC,1996) the creation of
  political and economic agreement or agreements
  which go beyond national boundaries has been
  recognised as a necessary step for Europe and is
  so for ACP States as well.

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EPAs Background

• non-reciprocal trade arrangements provided to the
  ACP group of countries by the EU are inconsistent
  with the MFN principle of the WTO.
• -above factors, among others informed CPA (2000
  -2020).
• The CPA in addition to the provision of the
  previous Lomé IV, stressed on (political)
  dialogue between the partners, regionalism and
  participation of non-state actors,
• Proposed the new trading arrangement (EPAs) to be
  implemented by 2008

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Economics of EPAs

• EPA of two regional trading arrangements, the EU
  on one hand and a group of ACP countries,
• -North-South RTA.
• -six EPAs with the EU.
• -SSA 4 ECOWAS, CEMAC, ESA and SADC,

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Economics of EPAs Reciprocity

• preferential trade arrangements are inconsistent
  with the MFN.
• Article XXIV of GATT (1994) gives exceptions for
  countries
• -in a customs unions, in a Free Trade Area (FTA)
  or in an interim agreement.
• GATT enabling clause also provides exceptions
  allows for extension of unilateral preferential
  treatment to only LDCs or to all developing
  countries (such as the GSP schemes).

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Economics of EPAs Reciprocity

• Lome type of trade arrangement not covered by
  Art XXIV or the enabling clause incompatiable
  with WTO.
• Reciprocity- aprocess of making them WTO
  compatible.
• Implies loss of revenue on the Part of ACP
  regional groups.
• A study on EAC Tanzania and Uganda could lose 13
  billion and over 23 billion respectively.
• Lossess for kenya were estimated at 10 of the
  total Kenya revenue.

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Economics of EPAs FTAs

• FTA trade regimes between the Regional initiative
  and the EU as well as within the regional group
  member countries.
• trade creation
• (studies) greatest welfare gains for the southern
  countries, and lead to convergence of incomes of
  the North and the South.
• FTAs better than PTAs?
• -Liberalisation of MFN has contributed to
  erossion of preferences. Liberalisations are on
  going, the earlier the better,
• - FTAs contributes to better resource allocation
  and therefore to efficiencies

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Economics of EPAs FTAs

• EU is a more developed trading partner than the
  ACP countries, it is expected that EU may out
  compete some sectors of the less developed ACP
  countries.
• Studies for EPAs
• EU-ACP increase in imports from the EU.
  Tanzania. The manufacturing sector of EAC shown
  to face greater competition from the EU
  suppliers.
• Similar findings for ECOWAS region.
• Increased competition improve the quality of
  their products

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Economics of EPAs Negotiated

• non-reciprocal trade arrangement unitary granted
  with the beneficiary country having little or no
  control over their coverage and application.
• -granted with the interests of the granting
  country at the core.
• preferences are limited to certain commodities
  and offer a limited additional market access,
  which may not promote long-term economic
  development objectives of the beneficiary
  country.
• Preferences based on negotiations could cover a
  wider range of products, therefore providing a
  greater access to European markets.

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Economics of EPAs regional integration

• Enhancing regional integration and the associated
  benefits.
• -ACP countries develop their own intra-ACP
  dialogue structures, other gains of regional
  integration.
• It will increase the economic size
• -More FDI.
• - More specific in addressing sectoral interests
  at stake for their regional producers therefore
  allows differentiation.

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Economics of EPAs NSA participation

• The Participation of the private sector, civil
  society including academic circles, cooperatives,
  non governmental organizations (NGOs) and
  consumer associations to complement the official
  EPA partners.
• in form of dialogue in areas of interest
• in the implementation of certain cooperation
  operations.
• this enhances administrative implementation of
  the agreements,
• provide an enforcement mechanism through holding
  the official partners accountable to their
  commitments.

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Economics of EPAs Instruments of Development

• The central objective of EPA
• contribute to development of ACP countries
  through contributing to supply side capacity
  building in the regions, through enlarged
  markets, through removal of barriers to trade and
  through improved predictability and transparency
  of trade regulatory framework.
• Emphaisied by the development cluster for EPA
  negotiations as a stand alone issues in the
  negotiations as well as a cross-cutting issues in
  various clusters for EPA negotiations.

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Economics of EPAs Instruments of Development

• For ESA countries for instance, negotiations in
  the development cluster area are focused on
  improving
• -Policy and regulatory framework,
• -Financial cooperation,
• -Production, distribution, marketing and
  transport,
• -Access to allocation of financial resources,
• -Investment,
• -Transfer of technology and knowledge based
  systems,
• -Natural resource management, and,
• -Mining and mineral resource development.
• For EPAs to effectively contribute to
  development, they must integrate the national (or
  regional) development priorities and strategies
  of these countries.

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Economics of EPAs SD

• SD for LDCs.
• - First LDCs within the ACP are not obliged to
  sign an EPA
• EBA, access to the EU markets duty free, no
  expiry deadlines.
• However all LDCs in Africa have chosen negotiate
  EPA.
• Failure to utilize EBA provision is an
  indication of a supply response constraint
• ESA and ECOWAS, more members are LDCs (3 out of
  the ESA group of sixteen and 3 out of the ECOWAS
  group of fourteen are non LDCs.
• The challenge how to incorporate enough
  flexibility in the agreements to cater LDCs,
  non-LDCs, small land locked, and island states

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Economics of EPAs Preservation of Lome acquis

• EPAs will maintain and improve the current level
  of preferential market access into the EC for ACP
  exports.
• commodity protocols, would be reviewed in the
  context of the new trading arrangements,
• The issue of maintaining these preferences is
  complicated, especially in erosion of arising
  from the on going liberalizations of the MFN
  tariff rates at the WTO leading to declining
  value of these preferences.
• Since preference erosion will continue, an
  important approach to preserving the current
  market access of ACP products to the EU market
  would be to increase the competitiveness of these
  products to give them a better competitive edge.

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State of play in EPA negotiations timing, nature
of time constraints and deadlines

• -EPA negotiations started on 27 September 2002
  All ACP level
• - end by December 2007
• -enter into force 1 January 2008
• The Doha Ministerial conf granted ACP and EU a
  waiver allowing for Lomé type of preferences from
  1 march 2001 until 31 December 2007.

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State of play in EPA negotiations timing, nature
of time constraints and deadlines

• The first phase was conducted at "All-ACP"-EU
  level
• Phase II, on going is conducted at ACP national
  and regional levels
• Example Ph II in ESA in 3 phases
• -Ph I 7th February 2004 August 2004
• -a period for setting priority sectors and the
  ESA negotiation framework , NDTPF and RNF
• Conluded

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State of play in EPA negotiations timing, nature
of time constraints and deadlines

• Phase II is on substantive negotiations.
  September 2004 and was expected to be completed
  in December 2005.
• Output of this ph is an agreed upon outline EPA
• -May, 2006, outline not yet agreed upon, but 2nd
  draft of ESA-EU Approximation text is under
  consultation process.
• Phase III from January 2006 December 2007) is
  continuations and finalization Yet to start

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State of play in EPA negotiations timing, nature
of time constraints and deadlines

• missed deadlines of the conclusion of the Doha
  work plan, which were to be completed by 2005.
• -Uncertainty should the EPA partners go ahead
  and conclude negotiations on issues, not agreed
  upon at the WTO level. WTO should serve as
  benchmark for most of issues.
• -ESA e.g. will EU eliminate domestic support, as
  expected by ESA immediately after EPAs come into
  force when it proposes to do so at the WTO level
  by 2013?

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State of play in EPA negotiations timing, nature
of time constraints and deadlines

• the preparatory period is ending by December
  2007 is to be used for capacity building in
  public and private sectors of the ACP countries
  to increase their competitiveness and to support
  the regional integration initiatives (Art 37
  CPA).
• -assistance to budgetary adjustment and fiscal
  reform as well as infrastructure upgrading within
  this period.
• Little, if any of these has been done so far.

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State of play in EPA negotiations timing, nature
of time constraints and deadlines

• slow pace of integration of the regional
  initiatives FTAs. (EU General Affairs Council,
  2002) the ACP countries shall undertake, at
  least, to extend automatically the treatment
  granted to the Community to all other parties of
  the EPA concerned, preferably ahead of trade
  liberalisation vis-à-vis the Community.
• -Out of the ESA 16 countries for instance, 10 of
  them have joined the COMESA FTA
• -Some time will be needed for RI to fully
  operationalise their FTAs.

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State of play in EPA negotiations timing, nature
of time constraints and deadlines

• -phasing out of tariffs in ESA is pegged on
  COMESA Common External Tariff (CET), which is
  currently being deliberated on.
• if COMESA has no CET by 1st of January 2008, then
  the ESA group has no basis for its schedule of
  tariff elimination under EPAs.

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Interaction between the EPAs and the Doha
negotiations

• 2 negotiations going on simultaneously, but
  issues for issues for negotiation are similar
• Both have a convergent objective to promote
  development.
• -Both recognise limitations of the LDCs and the
  need for SD for them
• The 2 processes should complement each other in
  terms of the actions to be undertaken by the
  parties
• coordinate the SD, technical assistance and
  capacity building expected from the two
  processes to complement each other

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Interaction between the EPAs and the Doha
negotiations

• Issues under negotiation are the same
  Agriculture, services, Market Access for non-
  Agricultural Products (common known as NAMA),
  fisheries and trade related issues
• -Doha should provide the reference as to the
  content of the issues under ngotiation.

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Interaction between the EPAs and African
Regional Integration

• two have similar objectives to achieve
  development
• Promotion of regional integration of African
  countries by the EPA process is complicated by
  the multiple membership factor.
• EPAs have undoubted added to this complication
• ESA16 e.g. EPAs exists for purposes of EPA
  negotiations.
• - Although all the 16 are members of COMESA, they
  also belong to other regional initiatives.
• Various regional initiatives have different
  external trade policies such as the CET and ROO
  which makes the implementation of one regions
  trading regime difficult.

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Interaction between the EPAs and African Regional
Integration

• At EAC level, Kenya and Uganda negotiate an EPA
  with EU under the ESA configuration while
  Tanzania is under SADC group.
• If the harmonious trading under the EAC member
  countries is to be maintained, then the trade
  regime in ESA and SADC-EU EPAs should be similar.
• principle of differentiation within the EPAs
  further undermines the integration spirit.
• Do the EPAs promote or undermine regional
  integration?

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Interaction between the EPAs and African Regional
Integration

• There is a potential of EPAs to contribute to
  increased regional trade particularly through
  elimination of regional barriers to trade and
  implementation of regional programmes, such as
  infrastructural and trade facilitation programmes
  will increase connectivity of the regions and
  lower TTCs.
• Harmonization of regional trade policies may also
  contribute to increased regional trade.

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Primer on Economic Partnership Agreements
(EPAs)

• WBI Course on Regional Integration in Africa and
  the Economic Partnership AgreementsMay 22-24,
  Nairobi, Kenya
• Dr. Mary Mbithi,
• Lecturer, School of Economics, University of
  Nairobi
• luciambithi_at_yahoo.com
• May 2006