EPAs - what has happened so far?

TIPS Workshop, Pretoria 4-5 March

Dr Mareike Meyn

Overview

1. Why did Lom é/Cotonou expire?

2. Why have EPAs been negotiated?

3. How does an WTO compatible EPA look like?

4. What does the EU offer?

5. What African countries need to assess

6. What else is in an EPA?

7. What is the development component of an EPA?

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1. Why did Cotonou expire in 2007?

     Cotonou (& Lomé) discriminated:  in favour of ACP  against some competitors Discrimination is outlawed by GATT/WTO unless:  it is justified under a ‘peg’ allowing discrimination (LDCs)  or the victims of discrimination choose to ignore it Until the mid-1990s the victims tolerated the discrimination, but then they took action:  the EU found that Lomé/Cotonou could be hung on only 1 peg … a waiver Waivers have become increasingly hard to obtain:   there was one for Cotonou which had expired by the end of 2007 the EU had to ‘buy off’ opponents (eroding ACP preferences) The trade regime must be hung on a better ‘peg’ – the EU chose EPAs

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2. Why have EPAs been negotiated?

   A good question, but … the short answer is that the ACP and EU agreed to negotiate them The Cotonou Agreement (2000) provides:    a framework for EU-ACP development co-operation to 2020 a trade regime until the end of 2007 a commitment to agree a new trade regime based on EPAs before 2008 EU had been negotiating since 2002 with six ACP sub regions:       CARICOM Eastern and Southern Africa ‘SADC minus’ Central Africa West Africa Pacific

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3. What needs to be in an EPA to be WTO compatible?

    EPAs need to liberalise ‘substantially’ EU-African trade within a ‘reasonable’ length of time to be WTO compatible There is no agreement at WTO   how ‘substantially all’ is to be defined how any agreement is to be judged This means in theory:  Parties can negotiate what they consider best but must be aware that that the outcome meets the

passive agreement

of all WTO members If an EPA will be challenged at WTO, the Dispute Settlement Body will finally decide:   what is ‘substantially all’ and how it can be measured what is a ‘reasonable period’

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How much can be excluded?

 The EU has not agreed a figure for ‘ substantially all ’  But the ‘ Maerten formula ’ has been widely cited West Africa Central Africa East and Southern Africa Southern Africa Caribbean Pacific 81 percent 79 percent 80 percent 76 percent 83 percent 67 percent  Why are there regional differences?

 Because a region that exports more than it imports has to liberalise less

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A worked example

 The ‘EU formula’ liberalises 90% of total trade – so the EU-ACP trade balance sets the ACP target  If the EU liberalises on 100% of its imports:  countries with a trade surplus less than 80% of imports with the EU can liberalise on  countries with a deficit must liberalise on over 80%   EU imports €100; ACP imports €50; total trade = €150:  90% = €135  EU liberalises €100 – so ACP must liberalise €35  €35 = 70% of €50

“About 80% of bilateral trade up to periods as long as 25 years”

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4. What does the EU offer?

   EPA signatories have duty and quota free market access except for  Rice (2010)  Sugar (de facto continuation of Sugar Protocol until 2009; thereafter prices are no longer guaranteed; enhance surveillance mechanism When are preferences helpful:  Short answer: when they confer a commercial advantage This can occur because:  EU taxes are lower on imports from preferred sources than from their competitors - the EBA sugar model:  importers pay a higher price than they would if market forces ruled - the Sugar Protocol model

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How can preferences be eroded?

 Short answer: by any change that reduces the commercial advantage  This can occur because of:  changes to a preference agreement (e.g. from Cotonou to    GSP) changes to other trade rules (e.g. more stringent SPS) changes to the treatment of competitors (e.g. GSP+) changes to the domestic EU market (e.g. change of subsidy model)  All of these are happening: so EPA benefits for African exports will be different in 5 years time from what they are now

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4. What does the EU offer?

 Assessing the export benefits of DFQF  what competitive advantage is conferred by DFQF compared to Cotonou?

 Will development support be provided to overcome supply-side constraints (e.g. to comply with SPS)?

 ODI research  97.6% of ACP exports entered the EU market duty free in 2006  EU’s offer accounts for little more than € 100 million in 2008 – compared to € 1.4 billion if all products were included  Value of ‘Cotonou plus’ RoO needs to be assessed

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5. What African countries need to assess

 What are the costs of liberalising vis à-vis the EU  on a national basis  on a regional basis  with respect to  immediate costs (revenue losses)  potential costs and benefits (increased competition from EU and regional sources ►consumer benefits vs. producer losses  What are the benefits of an EPA (DFQF, A4T, regional integration)   What are the costs of not joining an EPA?

Cost-benefit analysis continues in 2008

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6. What else is in an EPA?

 The Commission would like to include services and trade related issues (investment, competition, trade facilitation, public procurement, intellectual property)  EC: major objective is to ‘simplify and harmonise the rule of the game and to promote trade and sustainable development’  ACP: Obligations go beyond what has been agreed under WTO and will constrain ‘policy space’ and countries’ capacities.

 ACP would like to include binding financial commitments  ACP: Implementation of EPAs is a long-term objective  EU: Funds will be made available once needed.

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7. What is the development component of the EPAs?

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The main messages

  The trade chapter of Cotonou has come to an end EU favours EPAs as WTO compatible successor agreement   There is no agreement of how a WTO compatible EPA looks like ‘What else’ is in an EPA is up to the parties; no WTO requirements to include services or trade-related issues  African countries do not win much by DFQF compared to Cotonou (but compared to GSP)  EU and African countries have fundamentally different reading of development component

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EPAs – What has happened so far?

TIPS Workshop

5-6 March 2008