The so-called Economic Partnership Agreement (EPA) being negotiated between EU and ACP countries can have more devastating impacts on industrialization and development of low-income countries than the 5 per cent rules imposed on colonies during the colonial era. It will lock the Least Developed and other low-income (ACP) countries in production and exports of primary commodities and at best in some labour-intensive industries and assembly operations.
The EPA is supposed to be a reciprocal free trade agreement between unequal partners-i.e. between countries with little or no industrial base and European countries which are already industrialized. While EPA does not provide any gain in market access for ACP countries, it restricts their policy space further. In fact, they are threatened that if they do not ratify the contract, their preferential market access to the EU will be withdrawn. Even if they do ratify EPA, their preferential market access will be lost in 5 to 10 years anyhow, while non-LDCs try to preserve their preferential market access.
As far as policy space is concerned, zero tariffs would be applied to 80 per cent of tariff lines of LDCs in 15 years. The remaining 20 per cent covers “sensitive products” which include mostly agricultural items. Thus the industrial goods will be subject to free trade after 15 years. As far as agricultural goods are concerned, although some tariffs are allowed, imports of heavily subsidized agricultural goods from the EU (through Common Agricultural Policies-CAP) to LDCs undermines agricultural development.
No flexibility is allowed as ACP’s tariff lines are supposed to be bound not only within 15 years but also afterwards when 80 per cent of their tariff lines will be fixed at zero rates. What is more, the agreement also contains a standstill clause on tariffs. In other words, no new custom duty can be introduced except for some items in the sensitive list. For the first 15 years temporary infant industry protection will be allowed, but not ex-ante, as a tool of industrial policy. It will be allowed “ex-post” as a safe-guard measure. In other words, if there is a serious injury or threat of injury to an industry, the importing country may under certain conditions apply protective measures for two years. Nevertheless, even then the country will not have autonomy to do so because it has to consult the EU beforehand, implying that EU approval would be required. It is interesting to note that by contrast the EU has the right to increase its tariff beyond the bound rate in case the import price declines!!
The tariff structure to be imposed on ACP would lead to the loss of nearly all of their policy space. The experience of both developed and developing countries indicates that consolidation of an industrial sector will take longer than 15 years. Further, during the course of industrialization a country needs a flexible and dynamic tariff structure to alter individual tariff rates applied to different categories of industries, i.e. consumer goods, intermediate goods and capital equipment (M. Shafaeddin, “Towards an alternative perspective on Trade and Industrial Policies”, Development and Change, 2005:36.6,1143-62).
But the loss of policy space and policy autonomy does not stop at the restrictions of import tariffs. Export taxes cannot be increased either. Again to impose new taxes on new items must be negotiated with the EU authorities. Thus the loss of export taxes together with import duties would lead to the loss of important sources of government revenues necessary for financing economic development.
Second, the EPAs include a number of “WTO-plus” conditions and so-called Singapore issues such as liberalization of capital flows, financial services and government procurement as well as competition policy. Moreover, no preference should be given to local firms despite the fact that they are in unfavourable competitive position vis-à-vis transnational corporations. This makes it difficult to build the capacity of infant local firms.
Even if a country does not sign an EPA, it will suffer from its negative impact because of the inflow of EU products through its regional borders with countries which are involved in regional FTAs with that and that also sign an EPA.
ACP countries not only lose policy space for their long-run industrialization and development, they will also be more exposed to external shocks and global business cycles and competitive pressure of TNCs. The result: further de-industrialization, human misery and tragedy.
A very cogent analysis of the effects of EPAs. EPAs are a continuation of the same policies which have been shoved down the throats of poor developing countries through both SAPs and their later emanations in the context of PRSPs with the difference that it locks them into these policies. Unfortunately the voices of international organizations such as the UN and UNCTAD that has the responsibility of warning about the downside of entering into such commitments have been drowned out, as have those of the LDCs themselves with gimmicks such as “Aid for Trade” and the “Enhanced Integrated Framework” where in the name of interagency cooperation and “one UN” they are becoming a party to this charade. Kamran
Thank you for bringing up this important topic, but I have a few objections.
First, the previous Cotonou regime was deemed WTO-illegal due to its discrimination towards non-ACP developing countries. Two-sided (i.e. committments from both sides) agreements was the only way these countries could continue to get market access to the EU that is more generous than what is given to non-ACPs. So what is the EU to do if it wants to favour ACPs over non-ACPs (due to historical reasons)?
Second, the word reciprocal should be used with caution. You make it seem like both sides makes similar committments which is not true – even though it’s of course worth thinking about whether the ‘asymmetry’ is big enough in favour of ACPs.
Third, signing the EPAs is voluntary and if countries choose not to sign one, they can still continue to gain access to the EU through the GSP and Everything but arms arrangement – which is in fact more generous towards LDCs than non-LDCs and just as generous as the EPAs considering e.g. new rules of origin (although of course they don’t get the aid for trade etc that is conditioned upon signing the EPA).
Fourth and finally, you claim that “even if a country does not sign an EPA, it will suffer from its negative impact because of the inflow of EU products through its regional borders with countries which are involved in regional FTAs with that and that also sign an EPA.” Here, you forget about rules of origin. Each regional agremeents – e.g. SADC and COMESA – have their own RoO that requires goods that are imported from outside (e.g. the EU) to be sufficiently processed within a member state of the particular regional FTA.
However, I am also very skeptical towards the promised benefits in terms of industrialization and diversification that will come from EPAs…
Thanks for your comments and interests, Matt. However, I am afraid most of your objections are not correct. I am currently on mission but I will come back to reply to these issues in a few days or so.
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