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Economic Partnership Agreements: Questions and
Answers
1. What do Africa, Caribbean and Pacific countries gain from Economic
Partnership Agreements?
2. Why should regional agreements work any better than the existing
arrangements?
3. Why ask ACP regions to liberalise their tariffs?
4. How will the ACP replace the revenues they lose by reducing tariffs and
continue to pay for public services?
5. Why should EPAs include rules related to investment?
6. What are the timeframes for reforms?
7. Does the alternative to Cotonou have to be EPAs?
8. Will ACP countries get any more Aid for Trade money ?
9. Could we extend the Cotonou Waiver?
1. What do Africa, Caribbean and Pacific countries gain from Economic
Partnership Agreements?
Put simply, after more than thirty years of bilateral trade with Europe, the ACP still
exports just a few basic commodities, most of which fetch lower prices than they did
twenty years ago. Old recipes have not promoted diversification, competitiveness,
growth. And they are no longer compatible with WTO rules on non-discrimination and
have been successfully challenged. New solutions are necessary and urgent.
The EU's Economic Partnership Agreements are the agreements that the EU is
negotiating with the six African Caribbean and Pacific regions that will replace the trade
chapters of the Cotonou Agreement when the trade preferences of this agreement
expire in 2008. We have until that date to negotiate new agreements that are WTO
compatible.
The EPAs are intended to be broad agreements, helping first of all to build regional
markets and diversify economies in the ACP regions before opening up trade to build
increased, balanced and sustainable trade between the two regions. They will change
our relationship, from one that offers tariff preferences - an eroding lifeline - to one that
builds lasting and more efficient regional and international markets for the ACP.
2. Why should regional agreements work any better than the existing
arrangements?
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Regional integration is at the heart of the ACP's own development strategies. The fact
is that ACP economies are too small to go it alone and most trade more with Europe
than they do with their neighbours and more duties are paid on developing countries
exports to other developing countries than to OECD countries. This means that regional
integration has potential to boost local trade and create larger markets to attract trade
and investment. Most ACP countries currently depend on their exports to the EU. Take
the case of Ghana: 49% of their exports go to the EU, exports to its neighbour Benin
only accounts for 2.6%. In Cameroon, 61% of exports go to the EU, and 55% of imports
come from the EU. Eliminating barriers between neighbouring countries and creating
real integration would favour trade exchanges and boost economic growth. It would also
create bigger markets more attractive to investors and would facilitate trade with
landlocked countries.
Where an ACP region is preparing for a customs union, as the West and Central Africa,
this will boost the potential of the EPA. Otherwise, the European Union does not push
for customs union to be formed if the countries are not considering or not ready for it.
3. Why ask ACP regions to liberalise their tariffs?
We will negotiate the tariff reductions necessary for a WTO compatible Free Trade
Agreement but this has to be on the basis of mutual agreement, not EU imposition.
ACP countries and the EU have already agreed to revamp their trade relations and
progressively remove barriers to trade between them. This is necessary to stop ACP
marginalisation and contribute to ACP growth and poverty eradication. It is also a
prerequisite if ACP-EU trade relations are to be legally secure by being compatible with
World Trade Organisation rules on non-discrimination.
The backdrop of this is that most of ACP exports to the EU already enter into Europe at
zero tariff duty under a preferential treatment. EU products exported into the ACP, on
the other hand, do not benefit from the same treatment. Obtaining such access to ACP
markets is not an EU interest; the EU seeks only the treatment necessary to comply
with WTO rules. Nevertheless, the experience seen in emerging economies in Asia
also shows that a progressive and targeted reduction of customs tariffs benefits
consumers and companies (that need cheaper machinery, raw materials and parts for
assembly) and local products become more competitive when exposed to well designed
foreign competition.
The European Union has never proposed either a total elimination of tariffs, nor that
ACP should open their markets as widely or as the EU has already done nor at reckless
speed. It has also never proposed that the lowest applied rates by any ACP state
become the basis for regional liberalisation, or for a single external tariff.
On the contrary, the EU has clearly said that long transition periods, a phased
introduction of tariff dismantling, exemptions from liberalisation for sensitive products
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and a strong asymmetry between EU and ACP opening are perfectly acceptable and
reasonable.
4. How will the ACP replace the revenues they lose by reducing tariffs and
continue to pay for public services?
This question is not as acute as some would have it and answers are available.
Replacing customs tariffs by other sources of fiscal revenue is a reform most countries
have made because other fiscal revenues are more efficient both for the economy as a
whole and the government.
A much better long term solution is to shift dependence from tariff revenues to fiscal
revenues (through excise duties, sales taxes or taxes on revenues) but also by
increasing the tax base through boosting trade and economic growth. These other
forms of taxes are a more sustainable tax base to finance much needed basic social
services such as health and education.
Some studies have overestimated the impact of tariff reduction on fiscal revenues,
without considering other aspects. The assumption of rapid liberalisation on the ACP
side is clearly mistaken. Current high tariffs encourage smuggling and corruption, and
theoretical revenues are often lost through derogations and irregularities. Lower tariffs
would reduce the incentive for these practises. Customs revenues would also increase
by an increase in trade and these benefits would largely compensate the initial losses.
This said, the EU is ready to assist with fiscal reform and adjustment to any net fiscal
losses observed as a result of EPAs and has the means to do so. We have increased
our budget support, which is the most appropriate way to assist in this transition. We are
also ready to discuss regional financing mechanisms to that effect.
5. Why should EPAs include rules related to investment?
Asia and Latin America are channelling foreign investment into the infrastructure and
job creation their developing economies need. The October 2006 UNCTAD report on
global investment in developing countries highlighted the extent to which Sub Saharan
Africa in particular is falling far behind the rest of the developing world in attracting the
foreign investment that is vital for development. Africa in particular is trapped by barriers
to inward investment, nationalised industrial fiefdoms and fractured regional markets.
Africa's own investors choose to invest outside of the continent.
One of the key ambitions of the Economic Partnership Agreements is precisely the
creation of integrated regional markets that will help attract inward investment and keep
African investment from flying abroad. The EU is prepared to help improving conditions
in these economies for inward investment: clearer rules and rights for all companies.
Policy frameworks at regional level will further help consolidating national markets and
make them individually and collectively more attractive.
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The UNCTAD report offers the clearest argument why EPA are a pro-development
agenda. Those who dismiss the EU's position in these negotiations as 'forcing open'
these markets to unwanted EU investment misrepresent the EU's intentions
6. What are the timeframes for liberalisation?
The European Union is not pushing a simple `liberalisation' agenda. The EPAs aim at
long transition periods for the ACP (certainly more than the 12 years used in other
agreements) and will maintain exceptions for sensitive products ­ exceptions that Peter
Mandelson has said he will defend in the WTO if necessary. Studies and experience
show clear economic evidence that regional integration and trade liberalisation between
the ACP countries themselves brings clear economic benefits.
The idea that ACP countries are always threatened by imports is mistaken. In any case,
it is healthy for countries, including developing economies, to take in new imports.
These can be the very inputs necessary for local producers to develop and diversify
away from the current dependence on commodities and into areas such as value-added
industries.
Although the EU is often accused of having an aggressive liberalisation agenda in ACP
markets it is important to bear in mind that the EU exports to ACP markets represent a
tiny fraction of its external trade, and most agricultural goods from the EU already enter
at low or zero tariff rates. It has no mercantilist agenda in these markets. We have made
clear that we will remove export subsidies on any product where the ACP removes
tariffs.
7. Does the alternative to Cotonou have to be EPAs?
In theory, no. But there is simply no alternative that offers either the same development
benefits or can improve on ACP market access to Europe. The WTO waiver covering
the Cotonou preferences expires on 31st
December 2007 and the EU can no longer
continue these trade arrangements. This is one reason the ACP and EU agreed in the
Cotonou agreement itself that EPAs are the best option. In the event any Least
Developed Countries decides not to sign an EPA they can benefit from EBA but would
lose out on all the regional integration benefits of EPAs. The EU gave a commitment to
consider alternatives for any non Least Developed Country that indicated they would not
sign an EPA. However, no country actually requested this and all continue to negotiate
EPAs.
8. Will ACP countries get any more Aid for Trade money?
The ACP countries already benefit from substantial assistance through the European
Development Fund and the EU budget: 1.6 billion over the period 2001-2005.
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On October 16 EU Ministers agreed to prepare a strategy setting out the delivery of 2
billion per year of further aid by 2010 to help developing countries put in place new
trade policies to boost their growth and help them integrate into global markets. Very
significantly, they agreed that a substantial part of this increase in aid will be specifically
targeted to African Caribbean and Pacific countries, with a priority given to measures
that help put in place Economic Partnership Agreements.
The money will be available to help countries prepare new structural reforms and trade
policies, adjust to the changes they bring and enhance infrastructure and
competitiveness to seize trade opportunities. It will be delivered through a combination
of international partnerships, EU and Member States' development programmes.
9. Could we extend the Cotonou Waiver?
There is no realistic alternative to EPAs that has the same content and potential.
If we fail to put a new system in place we would have to fall back on the only legal alternative
which is the EU's existing Generalised System of Preferences: this is tariff only with less
generous access than under Cotonou for many and no economic governance framework. For
the West Africa region, for example, more than 1 billion of trade would potentially be lost, as the
average tariff to be paid under GSP is in average 20%. 36% of today exports from Ivory Coast
(700 million) would face a tariff of 27% against 0% under Cotonou and EPAs, for Ghana it is
25% of exports (240 million). For Central Africa, about 360 millions of exports would
potentially be lost.
Could we not negotiate with other WTO members to extend the existing waiver beyond seven
years? In practice, this would be extremely unlikely. The WTO waiver for the EPAs to be
negotiated was obtained on a time-limited basis. Extending it is not an option. The idea of a new
waiver sometimes comes up. But those who know the WTO will know that iťs far from clear we
could even obtain a new waiver. It wasn't in the deal at Doha in 2000. Non-ACP developing
countries, some of whom are actually poorer than some ACP countries, already resent the
favourable discriminatory benefits we provide the ACP.
The original Cotonou waiver was only secured by agreeing to cuts in the preferential
access granted to ACP countries. If we were to obtain a new waiver extension a hefty
price would be paid in the form of further ACP preference erosion. The best we could
hope for would be to secure more years of a failing agreement and we would secure it on
weaker terms, with ACP countries paying the long term price.
More information on EPAs:
http://ec.europa.eu/comm/trade/issues/bilateral/regions/acp/regneg_en.htm
Peter Mandelson's PRESS Office: Peter POWER +498 980348, Stephen ADAMS +498
963166
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Louis Micheľs PRESS Office: Amadeu ALTAFAJ +32 (0)498 952658, Marc LOGNOUL
+32 (0)498 982642