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3.1 Developments in trade negotiations V: Economic Report on Africa 2007

Written by: United Nations Economic Commission for Africa

Article Overview: The EPA negotiations

3.1 Developments in trade negotiations V: Economic Report on Africa 2007

The EPA negotiations

The long-standing Lomé preference system between APC countries and EU was
reformed in 2000 with the signature of the Cotonou Treaty. Cotonou rolled over
the existing unilateral trade preferences up to the end of 2007 when they should be
replaced by a WTO-compatible trade arrangement. The Cotonou trade arrangements
are currently not compatible with the WTO rules on preferential trade arrangements
(Lang 2006). Indeed, they fit neither the criteria of Article XXIV which call for
reciprocity and liberalization of substantially all the trade, nor that of the Enabling
Clause which entails that preferences are extended to all developing countries or all
LDCs. ACP countries and EU had to seek a waiver from other WTO members for
the Cotonou Agreement, and this was granted in Doha in November 2001. The
waiver expires at the end of 2007. It is expected that the negotiations on the regime
to succeed the Cotonou arrangements will have been concluded by this date.


ACP countries and EU have opted to negotiate Economic Partnership Agreements
(EPAs), which will be FTAs between ACP Regional Economic Communities
(RECs) and EU. In Africa, EPAs are being negotiated with the Economic and
Monetary Community of Central Africa (CEMAC), the Economic Community of
West African States (ECOWAS), Common Market of Eastern and Southern Africa
(COMESA) and the Southern African Development Community (SADC).

The negotiations on EPAs were launched in 2002. They revolve around market
access, fisheries, sanitary and phytosanitary (SPS) measures, agriculture, services,
investment and competition. Negotiations have evolved differently across the
regions. Each region has so far established a roadmap with the EU outlining the way
forward for the negotiations. Generally, there has been growing concern in Africa
that EPAs, while representing significant potential for growth and development,
also carry challenging adjustment costs. Evidence shows that EPAs could also translate
into tariff revenue losses, de-industrialization and reductions in intra-African
trade (UNECA 2004; 2005). African countries have called for enhanced support
to capacity building and financing. EU argues that such tools already exist and that
the discussions concerning their improvement are independent of EPA negotiations.
The focus of the negotiations for Africa has therefore shifted to the development
dimension of EPAs.

The negotiation process is further complicated by the overlapping memberships of
African countries in various RECs (UNECA 2006b). African countries and EU
appear to be in agreement that EPAs should be an opportunity to enhance regional
integration in Africa. Impact studies on EPAs (UNECA 2004) show that the
sequencing of liberalization is key to the development of the continent. This would
probably translate into a back-loaded tariff reduction on imports from EU, while
liberalization within RECs would be a priority. EU has also shown signs of readiness
to allocate additional resources to improvement of interregional trade infrastructure,
which would benefit African regional integration.

Article 37.4 of the Cotonou Agreement in 2001 stated that the Parties would conduct
a formal and comprehensive review of the process, structure and substance
of the negotiations, in 2006.16 This review is under way at the time of writing.
Preliminary results seem to indicate that, in several regions, the process of negotiations
is evolving more slowly than expected, partly due to disagreements with EU
on the development dimension of the EPAs but also because of the difficulties some
countries and regions face in forming internal consensus and informed positions on
technical and sectoral issues. The formal review will identify the necessary means to
allow timely completion of the negotiations by 1 January 2008. Should the negotiations
fail to reach conclusion by end of 2007, the question of a WTO waiver will
have to be reconsidered.

One of the questions that recently gained importance in talks regarding EPAs is
the potential alternative to the FTAs currently envisaged. The Cotonou Agreement
called for all alternatives to be explored. So far, the main alternatives appear to be
enhanced preferential schemes such as the Generalized System of Preferences (GSP)
and the Everything but Arms (EBA) initiative (Bilal and Rampa 2006). Further
analytical work on this issue is crucial.

The standstill in WTO negotiations also complicates the EPA process. In the absence
of evolution on rules for preferential trade arrangements, major uncertainties remain
on the degree of flexibility African countries have on the length of transition periods
and on the coverage of liberalization (Lang 2006). In this context, there is a risk that
negotiators will feel constrained and opt for conservative EPA provisions, retaining
few sensitive products and short transition periods.17 This could translate into more
acute adjustment costs for African countries in terms of both de-industrialization
and regional integration. UNECA research shows that the impact of EPA on African
economies could be positive only under a scenario of substantial asymmetry in
the degree of liberalization. In particular, the African Party would have to be able
to retain a significant share (up to 40 per cent) of trade out of the coverage of liberalization,
while EU would have to be willing to open its markets entirely to African
exports (Perez and Karingi, forthcoming).

The breakdown in WTO negotiations also affects other issues in the EPA negotiations.
For example, African countries are concerned that gains in access to the EU
market for agricultural products may not translate into increased exports as long as
international prices remain distorted by subsidies to farmers in the North. Likewise,
there may be a potential risk that opening service markets to EU producers may only
result in situations of unhealthy monopolies or oligopolies in the service markets of
African countries. As a consequence, African countries may feel bound to extend
liberalization of their service markets to other WTO members, without obtaining
the benefits of reciprocal concessions from these third parties.

EPA negotiations are the major task ahead of African trade policymakers, especially
since the freeze of the Doha Round. These pose great challenges but also real opportunities
in terms of development for the continent. In view of the short time remaining
for completion of the negotiations, it is important that all the parties involved
step up their political commitment to successful EPAs. The ongoing comprehensive
review process should be seized as an important opportunity to propose solutions to
resolve pending issues within Africa and between African groupings and the EU.

Generally, there are some positive developments in the negotiations so far, even if
these may still be too limited to make Doha a true development agenda. With the
suspension of the talks, there is a risk that these advances may be lost or delayed for a long time. In this respect, some have started to call, albeit reluctantly, for an agreement
a-minima, which would probably mean few commitments in agriculture and
NAMA in terms of market access and subsidies reduction, but some progress on
trade facilitation and some advances on Services and Aid for Trade.

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Article Tags: ACP countries, Africa, African countries, Cotonou Agreement, Cotonou Agreement, Economic Community of West African States ECOWAS, Economic Partnership Agreements, EPA, EPAs, liberalization, liberalization, Southern Africa COMESA, Southern African Development Community, trade arrangements, UNECA, WTO



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