Proposed Economic Partnership Agreements (EPAs) between the European Union and African, Caribbean and Pacific (ACP) countries constitute a major threat to poverty reduction and development. They will:
This report challenges the European Commission’s argument that free trade EPAs are the only way to meet WTO requirements and to integrate African countries into the global economy. Developing countries have a right to special and differential treatment under WTO rules: any new trade agreement between the EU and ACP countries must preserve and expand this right.
- construct new and unfair trade rules by creating free trade areas between the EU and regional groupings of ACP countries
- reduce the policy space that ACP countries need to develop their economies and eradicate poverty
- lead to significant losses in ACP fiscal revenues
- lead to de-industrialisation in ACP countries
- undermine African regional integration
- grant European corporations greater rights over African economies.
New research by ActionAid in Ghana and Kenya refutes the European Commission’s argument that EPAs would aid poverty reduction and promote sustainable development. On the contrary, reciprocal trade liberalisation under EPAs would lead to a decline in manufacturing and agro-industrial development. Agroprocessing industries, such as the Ghanaian tomato and Kenyan sugar industries are particularly vulnerable. Eliminating tariffs would create significant revenue losses for a typical sub-Saharan African government
leading to either severe cutbacks in public services or increased taxes on poor people.
The EU is using the EPA negotiations to push through agreements on investment, government procurement and competition policy that developing countries rejected at WTO negotiations in 2003. These agreements would reduce the policy space available to African governments.
EPAs threaten regional integration, a central plank of African development strategy since political independence. This strategy has sought to ameliorate
the economic problems created by the colonial fragmentation of Africa into many nation states with little economic coherence. The EPAs configuration process
has created new regional groupings that are inconsistent with, and undermine, existing African economic and political blocs. Reducing regional integration to trade liberalisation undermines the broader socio-economic and political objectives of existing bodies.
ACP concerns have been marginalised while the European Commission has employed divide-and-rule tactics in the EPA negotiations. The European
Commission ignored ACP concerns during the first phase of the negotiations and continues to meddle in internal ACP negotiation processes under the guise of
There are viable alternatives to EPAs, such as extending the Everything But Arms scheme to all ACP countries or revising WTO rules to allow for truly pro-poor and prodevelopment EPAs.
ActionAid calls on British and European governments to change the European Commission’s EPA negotiating mandate, and withdraw demands for reciprocal trade
liberalisation and agreements on the ‘Singapore issues’. Both EU and ACP countries must push for the reform of WTO rules to allow for pro-poor and pro-development trade agreements between developing and developed countries. The European Commission must begin an immediate examination of all possible alternatives to EPAs.
Three decades after the first Lomй convention set the trading relationship between the European Union and African, Caribbean and Pacific (ACP) countries, new economic partnership agreements (EPAs) are being negotiated that constitute a major threat to poverty reduction efforts and the development prospects of
some of the world’s poorest countries.
New research by ActionAid in Ghana and Kenya shows that the proposed EPAs would harm African industrialisation efforts by forcing fledging industries to
compete with established European corporations. Lost revenues from indiscriminate and premature trade liberalisation would create a strain on government finances and public services. EPA investment agreements would restrict the ability of African governments to pursue nationally prioritised economic and social objectives.
Trade with the EU is very important for Africa. The EU is a far more important market for Africa than the US or Japan1. For historical reasons, the EU is sub-Saharan Africa’s single largest trading partner, receiving about
31% of Africa’s exports and supplying 40% of its imports2.
Between 1975 and 2000, trade between the EU and ACP countries was governed by the Lomй conventions3, which granted ACP countries better access to the EU market than other developing countries4. The preferences granted to ACP countries under these conventions were non-reciprocal: ACP countries did not
have to extend similar or other preferences to the EU in return. This was based on the recognition that, because of the vast differences in economic development between the EU and ACP countries, any fair trade arrangement between them had to treat ACP countries differently. With the expiry of the Lomй preferences, the EU and ACP countries signed a cooperation accord known as the Cotonou Partnership Agreement (CPA) in 2000, which provides for the negotiations and establishment of new trade agreements between the EU and regional ACP groupings by 1st January 2008.
EPA negotiations are one set of a series of bilateral negotiations taking place in parallel to the multilateral WTO talks5. The growing influence of developing countries at the WTO, particularly of larger countries such as China, India and Brazil, has made it more difficult for the EU and US to dictate terms to the rest of the world6. As a result both economic superpowers have increasingly focused on bilateral and regional trade negotiations in order to secure new markets for their goods and services and obtain concessions from poor countries that would be difficult to achieve at the WTO.
EPAs are premised on the assumption that indiscriminate trade liberalisation and market deregulation are best for achieving development. This
model of development was forced upon many developing countries in the 1980s and 1990s through policy conditions imposed by the World Bank and the IMF, with disastrous consequences7. Under this model, the number of people living below the poverty line continued to rise rather than decline, with 1.2 billion people in the developing world living on less than US$1 a day by 2000. In Africa, the number increased from 217 million in 1987 to 291 million (46% of the total population) in 20008.
In a series of studies, Harvard University economist, Dani Rodrik, has shown that there is little evidence that trade liberalisation is correlated with economic growth. He has shown that whilst no country has developed
successfully by turning its back on international trade, none has developed by simply liberalising its trade either. The critical balance lies in each country adopting its own trade and investment policies and strategies, in line with its development needs9.
A growing body of evidence supports Rodrik’s work. For instance, the Africa Economic Report 2004 concludes that trade liberalisation alone will not boost growth and poverty reduction in Africa10. Instead, the report argues that the successful integration of Africa into the world economy will require better-educated and healthier workforces, improved economic and political governance, better quality infrastructure, and dynamic trade policies, including gradual and targeted trade liberalisation. A recent report by the United Nations Conference on Trade and Development (UNCTAD) draws a similar conclusion11.
Trade liberalisation plus enhanced market access does not necessarily equal poverty reduction: most poor countries undertook extensive trade liberalisation in the 1990s, and also received some degree of preferential market access from developed countries, but performed dismally in reducing poverty. UNCTAD warns
that if past trends continue, the poorest countries in the world will continue to lag behind the rest in 2015, the year by which the international community hopes to halve the proportion of the global population living in extreme poverty.
Evidence from successful developers including the US, UK, other European countries and the ‘Asian tigers’ shows that protecting infant industries was an important part of early trade and industrial policy12. Careful use of protection together with other policies to encourage backward and forward linkages, learning and adoption of technology will be needed by African countries to overcome the many market failures that exist in their economies. Successful developed countries did not accept the economists’ notion of fixed comparative advantage in producing and exporting particular goods; rather, they developed comparative advantage as they went along. For example, Taiwan was transformed from a tiny Japanese colony in the 1940s to a global leader in steel and micro-processors in a single generation. Successful development needs a dynamic, long-term policy approach, which Africa will lose if it locks itself into free trade with Europe.
ActionAid believes that trade and markets can be important instruments for achieving economic development and poverty reduction. But they must be managed fairly to enhance opportunities for the poor and to protect the vulnerable. ActionAid calls for the demands for full reciprocal trade liberalisation and negotiations on investment, competition policy and public procurement to be dropped from the EPA negotiations. Alternatives to EPAs must be sought.
- Stevens, C. and Kennan, J. (2004) ‘Comparative Study of Preferential Access Schemes for Africa’, Report on a DFID-commissioned study, IDS: April 2004, p.17.
- Hinkle, L. and Schiff, M. (2004) ‘Economic Partnership Agreements between Sub-Saharan Africa and the EU: a development perspective’, World Economy, Vol.27, Issue 9.
- They remain in place under a WTO waiver until December 2007 when they must either be replaced by another trade agreement or be extended through another WTO waiver.
- Guaranteed quotas and prices and/or duty free market access, in certain agricultural products, especially sugar, beef and bananas.
- There are 6 EPA regions in total: 4 for Africa, 1 for the Caribbean, 1 for the Pacific.
- Although rich countries still do their best to get their way by using dirty tricks and underhand tactics. See ActionAid (2004) ‘Divide and Rule: the EU and US response to developing country alliances at the WTO’.
- On the failure of the ‘Washington Consensus’ see, Kohsaka, A. (2004) New development strategies: Beyond the Washington Consensus, Palgrave, Macmillan; Stewart, F. et al (1987) Adjustment With a Human Face, UNICEF, New York; UNCTAD (2002) Economic Development in Africa, UNCTAD, Geneva.
- World Bank (2001) Attacking Poverty, Oxford University Press, Oxford.
- See Rodriquez, F. and Rodrik, D. (1999) ‘Trade Policy and Economic Growth: A Sceptic’s Guide to the Cross-Country Evidence’, Centre for Economic Policy Research, Discussion Paper Series 2143; Rodrik, D. (2001) ‘The Global Governance of Trade As If Development Really Mattered’, UNDP; Rodrik, D. (2002) ‘Trade Rout: Reform in Argentina, Take Two’, New Republic, 14th January 2002.
- UNECA (2004) Africa Economic Report 2004, UNECA, New York.
- UNCTAD (2004) The Least Developed Countries Report, UNCTAD, Geneva.
- Chang, H-J. (1993) ‘The Political Economy of Industrial Policy in Korea’, Cambridge Journal of Economics, Vol.16, No.2; Amsden, A. (1989) Asia’s Next Giant, OUP, Oxford.