By Adam Robert Green BRUSSELS, Mar 22 (IPS) The European Commission (EC) is increasing the pressure on the East African Community (EAC) to sign the free trade deal known as an economic partnership agreement with the EU.
Jacques Wunenburger, head of the economic partnership agreement (EPA) Unit at the EC, told IPS: "If no EPA is concluded, then these countries would be accommodated under either the ‘Generalised System of Preferences’ or ‘Everything But Arms’, as there is no other trade instrument available".
Both options would entail more stringent rules of origin and higher duties on EU imports than an EPA, he said, burdening companies that buy machinery and capital goods from Europe.
The interim EPA, also known as a Framework EPA (FEPA), is the first legally binding step towards a full EPA, a new trade framework that replaces the preferential, non-reciprocal trade system between the EU and the African, Caribbean and Pacific Group of States (ACP) that expired in 2007.
Talks have stalled due to EAC fears concerning reduced policy space, declining tariff revenue, and damage to local industry from EU imports. Compensation aid has also been a source of dispute.
The deal would require Burundi, Kenya, Rwanda, Tanzania and Uganda to liberalise tariffs on 82.6 percent of EU goods imports by 2033, while the EU liberalises all tariffs on EAC goods imports, with transition periods for rice and sugar.
David Hachfeld of Oxfam Germany told IPS that tariff liberalisation could cause enormous revenue losses for the EAC.
But Wunenburger insist that such fears are exaggerated: "Commentators often refer to the costs of EPA, such as fiscal losses due the lowering of customs duties, without considering that tariff dismantling could attract more trade, and increased volumes could partially offset the reduction of duties."
Reductions in tariff revenue will be gradual.
Hachfeld further argues that EPAs could depress local industry. He told IPS: "EAC countries would never be able to increase industry in competition with the EU, and might not see a rise in exports, except in basic food products."
Finally, he criticised the controversial Most Favoured Nation (MFN) clause, whereby the EAC would have to offer the EU the same trade terms as they offer other large countries and regions.
"MFN is important to the EU because they see emerging economies such as India and China, or blocs like Mercosur in South America, as competitors," he said. "But it limits the flexibility of EAC countries to negotiate with different partners and get the best out of each deal."
Marc Maes, an EPA critic from the coalition of Belgian non-governmental organiaations (NGOs) known as 11.11.11, says another clause, prohibiting increases in export taxes, is of similar concern because it prevents governments from stemming the flow of certain goods out of the country which may be necessary for building up local industry.
The EC wants the clause because access to raw materials is important for EU industry.
Aid compensation to address constraints to trade, like infrastructure, has been another key point of contention.
"Some EAC countries want the EU to pledge fresh money, but the EU has refused, arguing that there is a lot of money already available through the European Development Fund and aid from EU member states," explains Dr Sanoussi Bilal, head of the economic and trade cooperation programme at the European Centre for Development Policy Management (ECDPM).
The EU is also be adamant "that EPA negotiations are not about new aid for trade pledges", adds Bilal. Brussels has agreed to look at a list of funding requests, but it is not yet clear whether this will entail ‘‘new’’ money.
So far only one EPA has been finalised, with the Caribbean bloc, Caricom. Talks elsewhere have seen considerable differences of opinion.
"In Africa, only Botswana and Mauritius agree with the broad EU approach", says Maes. The Economic Community of West African States (ECOWAS) wants to liberalise around 67 percent of their markets in 25 years rather than 80 percent, for instance, because of concerns about food sovereignty and economic development.
Supporters of EPAs point out that the ACP share of EU trade declined under the unilateral preference system, from seven percent in 1975 to 2.9 percent in 2006, and remained concentrated on a small number of products such as oil, diamonds, cocoa and wood.
They also note the need for a predictable, transparent and simplified system with proper dispute resolution mechanisms through the arena of the World Trade Organisation (WTO), rather than a unilateral gesture extended by EU largesse.
Ben Bennett, principal economist at the Natural Resources Institute, notes that while preferential market access has been a powerful tool to generate growth, countries with an underlying comparative advantage, such as Kenya has in horticulture, can prosper under an EPA. The NRI is multi-disciplinary research centre.
Private sector institutions in East Africa are growing impatient with the delays. "Uncertainty means unpredictable policy, which holds back investment," said Godwin Muhwezi, council spokesperson for the East African Business Council (EABC).
EC frustration is growing. In February, EU Ambassador to Tanzania Timothy Clarke said in a statement: "The situation, as it stands now, is untenable. The EAC countries, despite not signing the EPA, have been enjoying free access to EU markets in the same way with other ACP countries that took legally binding commitments by signing".
Ronnie Hall, an independent consultant working with the Global Forest Coalition and Friends of the Earth, is critical of the aggressive approach: "The EU has been quite ruthless in pitting different ACP regions against each other, even negotiating bilaterally with different countries within EPA regions," she said.
But John Clancy, EC spokesperson on trade, denies that the EC is applying undue pressure. "Last year, the EAC put forward a number of concerns and the EU discussed them in order to find appropriate and feasible solutions. Let's not forget that we are now in 2010, more than two years after having initialled the FEPA, which has not been signed yet," he said.
Brussels hopes the interim EPA will be signed this month, to provide a sound legal footing for full EPA talks on heavily contested issues of investment, services and intellectual property rights.
