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Why EU-EAC EPA falls short of EAC’s development interests.

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Added 1st September 2016 11:43 AM

If the Heads of State reject the signing of the EPA, then EAC’s industrialisation and development prospects will be saved.

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If the Heads of State reject the signing of the EPA, then EAC’s industrialisation and development prospects will be saved.

By Jane Nalunga

On September 8, the East African Community (EAC) Summit will convene in Dar-es-Salaam, to among other issues atop its agenda, make a final decision on whether to sign and subsequently ratify the Economic Partnership Agreements (EPA) or not.

If the Heads of State reject the signing of the EPA, then EAC’s industrialisation and development prospects will be saved. However, if they agree to sign the EPA in its current form and with its prevalent onerous, contradictory provisions, achieving socio-economic transformation and development as envisioned by the EAC Vision 2050 will be undermined.

The EPA is essentially a Free Trade Agreement that has been negotiated between the European Union (EU) and its former African Caribbean and Pacific (ACP) countries. While negotiations with Uganda, Kenya, Rwanda and Burundi started under the Eastern and Southern Africa (ESA) configuration with Tanzania under Southern African Development Community (SADC), in 2007, the five countries started negotiating as a bloc under the EAC configuration so as not to threaten regional integration. 

What is more revolutionary is that for the first time, EAC, a relatively poor region, is being required, albeit in a phased manner, to enter into a full reciprocal Free Trade Agreement with a much more developed partner, the EU, with its attendant negative consequences. There are negative implications of the EPA text proposed for signature and ratification. It is important to understand that there are efforts in all African countries, including EAC, to structurally transform their economies to promote industrialisation, facilitate backward and forward linkages, create employment and reduce poverty.

At national level, Uganda’s vision of achieving middle income status by 2021 is anchored through such aspirations, while at EAC level, there have been efforts to promote structural transformation through several policies and frameworks like the EAC Treaty and EAC Vision 2050.

Furthermore there have been moves to deepen integration at sub-regional and continental level through the SADC-COMESA-EAC Tripartite Free Trade Area and the Continental Free Trade Area (CFTA). However, the EPA text being presented for signing will compromise these efforts, despite the fact that the ostensible reasons for negotiating the EPAs was to promote regional integration and sustainable development.

Since the launch of the EPA negotiations in 2002, the Ministry of Trade, Industry and Co-operatives and the Ministry of EAC Affairs have done their best to secure the region’s interests and have ensured inclusive consultations throughout the negotiations process.

However, it is civil society’s view that a careful reading of the agreement arrived at and which the EAC is being pressed to sign and ratify falls short of securing the region’s overall development interests.

 

In a statement shared with negotiators from different EAC partner states and EU embassies of countries party to the EPA, SEATINI-Uganda has raised some of these concerns. These include:

The extensive liberalisation

According to the EPA, the EAC has offered to liberalise 82.6% of her imports from the EU over a 25 year transition period by initially liberalising 65.4% on entry into force of the agreement. The rationale is that some of these products are currently zero-rated because they are either industrial inputs or capital goods i.e machinery and pharmaceuticals. The EAC has also agreed to liberalise 14.6% in the 7th – 15th and 2.6% in the 13th–25th year of entry into force of the agreement. This sums up to a total of 4006 tariff lines to be liberalised under the agreement. Only 17.4% (1432 tariff lines) have been excluded from liberalisation to presumably cater for the protection of the sensitive products and infant industries.

This liberalisation seems to be taking a static approach to development which does not envisage Uganda and the East African region graduating to producing either industrial inputs or the capital goods. Indeed, while we may, for example, need to zero rate pharmaceuticals at this stage because we need cheap and affordable medicines, we should be looking forward to producing these pharmaceuticals in future. The zero rating and the Standstill clause (Article 12) effectively constrains the policy space for the region to achieve this aspiration. It should also be noted that the 25 years provided for the completion of liberalisation process may appear long in the life of an individual but it is actually a short period in the life of a nation.

In addition, the liberalisation schedule caters for the protection of infant industries and sensitive products. However, a careful examination of the schedules brings out clear contradictions. For example, on one hand, the EAC has protected maize (corn) flour (HS Code, 6 digits 110220) at a duty rate of 50% yet on the other hand, maize (corn) starch (HS Code, 6 digits 110812), which is a bi-product of maize flour has been liberalised. These contradictions equally apply to other products like cassava (manioc) and potatoes. With such a liberalisation schedule, promoting value addition through agro-processing will be very much constrained and will also compromise food security given the supportive linkages between agriculture and manufacturing.

Furthermore, the weak multilateral and bilateral safeguards on the one hand and the domestic trade distorting agricultural subsidies in the EU on the other, will further negatively impact on industrialisation and food security in the EAC region. It is worth recalling that the EU has refused both in the EPA and in the WTO to reduce domestic subsidies and has continued to engage in shifting their prohibited (red) subsidies into allowable (green) subsidies. Therefore, what is offered in Article 68 (2) of the EPA as a significant concession is actually miniscule.

The agreement provides for multilateral safeguards (Article 49) and bilateral safeguards (Article 50). But, they are very cumbersome to invoke as a party has to prove import surges and injury and establish a causal relationship between the surges and injury to the whole industry. The provision also requires a Country to have in place an investigative mechanism which is difficult to establish. This is why developing countries have not invoked these remedies in the WTO and are also demanding for a special safeguard mechanism for agriculture, which is user friendly.

Regional Integration

The extensive liberalisation with the EU will adversely impact on efforts by the EAC region to enter into other regional agreements. As most of the tariffs are zero-rated, they will hardly leave any room for offering better margins to our partners in the African region. This will subsequently undermine regional and continental integration which the African Union is trying to promote.

Export taxes, Rendezvous clause and MFN

There are other critical Articles, which will have far reaching consequences on regional integration and industrialisation in the region. These include Export duties and Taxes (Article 14), the Rendezvous Clause (Article 3), the More Favourable Treatment (MFN) resulting from a free trade agreement (Article 15).

According to the EU’s global strategy, EU’s consistent position is to negotiate bilateral and multilateral binding rules in these areas. These are the very areas which contain instruments that the Governments often use to direct development, promote local industries and nurture the private sector. Therefore, binding rules in these areas will constrain the policy space for governments to promote industrialisation and sustainable development. Indeed, Investment agreements contain very onerous clauses which make it difficult for governments to successfully regulate investments with a view of promoting sustainable development.

It is also important to appreciate the fact that while the EU market is important, the EAC market is of paramount importance for all partner states as it constitutes the largest market for the EAC Partner States and also offers better prospects for industrialisation and development of regional value chains.

While the exports originating from the region to the EU are mostly primary products, those traded within the region include value added products. In 2015, Uganda’s exports to other EAC partner States totaled to $771.6m compared to exports valued at $443m to the EU2. Critical to note is that the EU exports both industrial and value added agricultural products to the EAC.

It is also a fact that the preferences and the market that the EU is offering to the EAC are illusive as they are constantly being eroded by the Free Trade Agreements that the EU is entering into with all other regions in the world and also by the proposed tariff reductions in the ongoing negotiations under the WTO Doha Round. Therefore, preserving and consolidating the EAC market should be of priority to all the EAC Partner States.

We therefore call upon:

• The EAC governments, before deciding to sign, to do a deeper analysis of the EPA text, the liberalisation schedules and assess its impact on the EAC’s development objectives.

• The EU not to pressure the EAC Partner States into prematurely signing the agreement before the above analysis.

• The EU to live up to their promise of ensuring that the EPA will help EAC eradicate poverty and promote regional integration.

• Kenya should explore the alternative options available, i.e. the generalised system of preferences plus (GSP+) where her top 27 exports to the EU including the much cited flower and horticulture exports will access the EU market duty free and quota free. This is already being used by countries like Peru, Paraguay, Mongolia, Cape Verde, Equador, among others.

• The EU should consider the African Union proposal that EAC region should be treated as an LDC region given that 4 out of 5 partner States in the EAC Customs Union are LDCs.

The writer is the country director of the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI)-Uganda

 

 

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