Implications of EPA/FTAs against developmental regional integration in Africa

22 September 2010

Why the EU's so-called "Economic Partnership Agreements" and free trade policies will have exactly the opposite effect of development on Least Developed Countries' economies.

(Note: A longer version of this paper was prepared for the Council for the Development of Social Science Research in Africa (CODESRIA) policy and research meeting on “African Economic and Political Integration, and Alternatives to the ACP-EU Economic Partnership Agreements” Addis Ababa, Ethiopia, June 9-11 2008).

African governments have long been formally committed to regional and continental cooperation as part of processes towards deeper economic and eventual political integration within the continental African Union. They have long argued the strategic rationale and imperatives for developmental regional integration in Africa, but the most difficult intellectual and policy challenges are not about the conceptualisation of the necessary political and economic modalities for such developmental regional integration, as much as: (i) the many internal/national and intra-African political and economic impediments and contradictory tendencies, and (ii) the various and changing external pressures working against strategic regionalisation alternatives for Africa.

The latest of many such external counter-thrusts against both national development strategies and developmental regional integration in Africa[1] comes from the so-called Economic Partnership Agreements that the European Union is determined to achieve with 79 African Caribbean and Pacific (ACP) countries These countries are often small, and/or developing or least developed economies (LDCs), and have long been strongly oriented to Europe in their external trade relations and heavily dependent upon European governmental and inter-governmental financial and technical aid, and European private sector investment.

The very logic, the planning and potential of developmental regional integration is directly threatened by the contradictory pressures that will be exerted by EPA trade liberalisation and ‘trade-related’ investment and services, government procurement, competition policy and other ‘new generation’ terms[2]. These threats can be summed up as follows:

Internal markets penetrated and eroded

Opening up African economies to highly competitive European producers and exporters will place enormous pressures on African producers and traders within their own national markets. This has long been evident under the current levels of external trade liberalisation through International Monetary Fund and World Bank structural adjustment programs (SAPs), as well as under WTO tariff reduction rules. But such external pressures on national traders and producers will also apply to their possibilities within the markets of other countries in the same African region - if these open up under EPAs. For example, in the case of Southern African traders, this would erode their preferential access to the nearby larger and richer South African market. In this way, EPA trade liberalisation will undermine one of the main aims of regional integration which is to create combined and enlarged markets to encourage local, national and regional producers, and the expansion of intra-regional trade.

Special and differential treatment compromised

At the same time, by pushing African regions towards rapid trade liberalisation, the EPAs will also contradict the need for different rates of tariff reductions for different regional member states through their own negotiated regional trade agreements. Such variable, gradual and differential tariff reductions are essential to give a measure of protection to weaker producers and traders within a region and to counter the advantages of the larger companies or more economically advanced regional members, such as Kenya within the East African Community, or South Africa within SADC. In fact, neither the EPA drive towards free-trade, nor the declared aim of the African Regional Economic Communities (RECs) to create their own internal free-trade areas ahead of the EPAs are appropriate for regions that bring together very unevenly developed countries.[3]

Administrative costs and burdens increased

In practice, the European Commission’s encouragement of integrated free-trade regimes in Africa will force the pace and precipitate them prematurely into regional free-trade areas[4]. It will thus be extremely difficult to monitor the movement of international imports throughout the region from member countries with much lower external tariffs. Wide differences between neighbouring countries are the result of autonomous trade liberalisation under the International Monetary Fund and World Bank SAPs, but these divergences might henceforth be compounded as a result of the extensive individual country trade liberalisation with the EU on a bilateral basis under the EPAs. Such an increased flow of international imports into the individual member states of each respective free-trade region in Africa will add to the administrative costs and burdens of intra-regional border controls. Similarly, it will complicate rules of origin monitoring on imports from countries in the same region.

Common External Tariff challenges

Alternatively, the transhipment or cross border ‘leakage’ of international imports from one country to another within the same region can be dealt with by agreeing a common external tariff (CET) system. However, negotiating such a common external tariff is extremely difficult between economies of very different size and with differing external trade policies. Yet, in essence, the rapid creation of such single CETs would be required for the negotiation of common regional tariff regimes with the EU - if that is the direction the regions eventually head towards. The key question is whether such CETs are going to be created purposefully, at an appropriate pace through negotiated intra-regional agreements, or whether they will be created piecemeal and cumulatively, in ad hoc ways, through the creation of a variety of bilateral external agreements with the EU.

Potential EU financial and technical aid manipulated

Despite these many policy dilemmas and practical challenges, the European Commission assures African governments that they can rely on EU investment, production, planning and research services - backed up by EU financial and technical development aid – to deal with the challenges posed. The so-called ‘adjustment costs’ entailed in rapid and extensive trade liberalisation will be taken care of under EU ‘Aid for Trade’ and other similar financial schemes. Many African governments are so dependent on EU aid that they are very susceptible to manipulation by adroit European trade negotiators. In fact, for some governments, it was the threat of losing EU aid that weighed on them as much as the threat of more unfavourable trade access terms into the EU market. Many African governments adopt the language of ‘adjustment costs’ in their perennial pleas for more aid; when, in fact, what is being referred to euphemistically as mere ‘adjustments’ are profound economic and social disruptions that will be extremely difficult to undo and may become irreversible. Furthermore, there are legitimate doubts about the real sums of aid on offer, and the indications are that such aid will only be available once the negotiations have been finalised[5].

Most European aid diverted and retained in Europe

But in addition to these questions, EU financial and technical assistance usually takes the form of contracting expert European consultancy and research services...paid for out of the pot of official EU development aid. From previous experience, this is likely to mean that the majority of the aid that the EU is holding out as an inducement to African countries will mainly go to European consultants and companies[6]. These will also even receive funding from the EU to ‘assist regional integration’[7]. Such aid to support regional integration invariably takes the form of publicly funded inter-governmental – or more often public-private partnership - large-scale regional infrastructure projects. These, in turn, are also often selected and designed to serve the anticipated trade and investment needs of EU companies.

Regional services cooperation countered

Such EU ‘aid’ will also undermine efforts towards greater services cooperation and mutual support between the member states of these regions. The European Commission’s push to get these regions to open up to and rely on EU companies to provide services will counter internally generated production and services capacities and thwart more self-reliant services development. Services cooperation programs between members of regional groupings could achieve more solid organic development, but that requires time and policy space. This does not preclude drawing on EU services companies when necessary, but it does mean being able to decide and negotiate specific time-bound contracts with targeted EU service providers, rather than creating a general agreement that enables any and all EU service companies to enter and operate according to their own business decisions. ‘Trade’ in services is, in major ways, a disguised form of investment[8], plus with the guarantee of their financial transfer rights back to their home bases, which the EU is also promoting through the EPAs.

Regional investment aims undermined

The liberalisation of investment terms and capital flows that the European Commission is pursuing would similarly undermine potential regional plans to develop joint investment strategies. These could be designed to promote, regulate, and even direct international, and internal, investors within agreed frameworks with appropriate criteria serving development needs and aims. The reinforcement of the rights and role of foreign (European) investors, a condition the EU is seeking within the EPAs ‘new generation’ clauses, would detract from the official needs of African regional groupings to develop greater investment self-sufficiency within their own intra-regional and inter-regional financial arrangements. Above all, reliance on EU investors, as with EU service providers, will perpetuate and increase the long-established net outflow of financial resources from such countries and regions.

Regional industrial and agricultural cooperation pre-empted

The main aims for the development of internal investment resources – and even the attraction of foreign investment – relate to the vital importance of regional groupings of African countries developing joint programs for infrastructural development, and in manufacturing, mining and agriculture (and most especially regional food security). Such programs are essential to combine or at least coordinate the respective resources and strengths of the participating economies in order to maximise their potentials, diversify and spread their productive capacities and, above all, reduce their external dependencies and exposure to external economic pressures and price shocks. All the above effects of EPAs and the reinforced presence of highly competitive EU companies in all these spheres will effectively pre-empt the growth and the very emergence of such home-grown and regional alternatives.

Potential inter-regional South-South relations prevented

The late insertion of an MFN (most-favoured-nation) clause into the EPAs is a significant attempt by the EU to invert the past ‘preferences’ accorded to the ACP in favour of a preferential positioning for the EU in relation to all the countries and regions of the South. In demanding that any terms agreed between countries/regions of the South be extended also to the EU, Brussels is actively intervening to prevent the diversification of their international relations and the emergence of alternative inter-regional developmental arrangements between these countries.

A complex process contracted and redirected

There are many other collective political, legal, economic, socio-economic and environmental dimensions that are crucial to create fully functional, comprehensive and well-rooted regional development processes. These make up the complex conditions needed to establish development communities, as distinct from mere trade and investment markets. Under the dominance of the current global trade-and-growth and international investment regime, African governmental policy makers – and even independent non-governmental and academic analysts – are increasingly focused on the market-building rather than the community-creating aspects of their regional plans and programs. The EPA’s emphasis on trade, investment and services liberalisation will undoubtedly reinforce this neo-liberal recasting and the re-direction of the African RECs.

An extended and incremental process curtailed

Finally, all these complex intra-regional processes require research, planning, complex inter-governmental negotiations, regular adjustments and amendments, as well as full consultations with the participation of all national and regional stakeholders. This will take years, if not decades. Yet, in spite of the EU's own drawn-out processes of multi-layered and variable regional coordination and integration, it is placing enormous pressures and pre-emptive demands on the African governments and regions. The pressure to wrap up negotiations by 2008 compounds an intrinsically complex and necessarily gradual process for African regions to be built. And they labour under far more adverse circumstances than the EU ever did. [1] Other counter pressures and programs included the “open-regionalism” promoted by the World Bank in the advanced phases of its structural adjustment policy engineering in Africa during the 1980s, and the “cross-border liberalisation” programs drawn up in East and Southern Africa in conjunction with the EC in the early 1990s.

Other counter pressures and programs included the “open-regionalism” promoted by the World Bank in the advanced phases of its structural adjustment policy engineering in Africa during the 1980s, and the “cross-border liberalisation” programs drawn up in East and Southern Africa in conjunction with the EC in the early 1990s.
[2] ‘Trade related’ is their formal designation within the WTO context, but these proposals, with yet others, have been transferred as ‘new generation’ issues within the EPAs... and other regional and bilateral FTAs.
[3] In a statement by AU ministers of Trade in April 2006, the Regional Economic Communities were asked to act as “building blocs for the African Economic Community, to ensure that economic partnership agreements with the EU do not constitute any obstacles to the coordination and harmonisation of their programmes and activities, including for the progressive formation amongst themselves of free trade areas and customs unions on a priority basis and ahead of any similar agreements with the European Commission.”
[4] This is what seems to have encouraged the declaration of the SADC free trade area in August 2008 – although this had already been foreseen at the launch of the SADC trade agreement in 2000. But the sudden declaration, in October 2008, of the rapid integration of SADC, COMESA (the Common Market of East and Southern Africa) and the EAC (East African Community) into one gigantic free trade area may be an immediate tactical response to EU pressures rather than to the long-standing plans within African Union in this direction.
[5] After earlier threats by the EC to withhold aid from governments refusing to sign EPAs, more diplomatic formulations from the EC now refer to such EDF aid being reserved and applied in future to ‘support the implementation of EPAs'.
[6] Although various EU governments have more recently announced that in future ‘only’ 40% of their overseas aid will be ‘tied’ – either to the supply of materials and equipment or the use of EU companies and consultants.
[7] As is the case with EU consultancy ‘experts’ located within the SADC secretariat in Gaborone.
[8] As is clearly evident in the terms of the General Agreement of Trade in Services (GATS) within the WTO.