EPAs Making Trade Work for Development?

Sophie Powell, Traidcraft

Intro….

• Traidcraft: operating as an ethical trading company for over 25 years + a development charity for over 10 years.

• Mission statement: ‘fighting poverty through trade’. • ACP not benefiting sufficiently from trade & the EC’s

recipe is EPAs• But, will EPAs address problems of commodity

dependency; difficulties in capturing significant share of world trade; weak domestic and regional markets; failure of preferences?

• Will EPAs help the ACP to add value, diversify production and markets?

• Our experience & the evidence suggestions not…

Issue 1. Supply-side constraints & aid for trade

• main problems to trading in national, regional or international markets relate to supply-side constaints

• aid-for-trade is much needed and can be a great boost

• but aid for trade should not be tied to acceptance of free trade agreements or other damaging economic policies / conditionalities

Issue 2: the EU’s non-tariff barriers - e.g. RoOs

• complex RoOs limit ACP exports to the EU; the EU supposed to be improving RoOs. But,

• not clear whether the full picture will be known before ACP countries sign up to EPAs, effectively meaning they are signing up blind.

• no certainty about whether new ROOs regime will make it easier or harder for ACP countries to export products to the EU

• the EU should improve its ROOs anyway

Issue 3:

EPAs answer to Commodity Dependency? • Protectionism used by all now developed countries [South

Korea and Taiwan had average tariffs of 30-40% until the 1970s; Britain average of 45-55% when it was industrialising; US 35-50% until 1950s etc)

• EPAs likely to mean ACP liberalise 80% - not sufficient to protect existing sensitive sectors and new ones

• Countries will have difficulties fostering new comparative advantages (e.g. case studies on Ethiopia and Rwanda predict entrenchment of commodity dependency with EPAs) or maintaining fledgeling industries (e.g. light industries in Kenya under threat)

• Required tariffs unpredictable and will sometimes need to be raised - EPAs would impede such moves.

Issue 4: EPAs to boost regional trade?

• 80% liberalisation on the ACP side to displace up to 22% of growth of ACPs’ regional trade

• contraction in intra-regional trade – e.g. 6% in COMESA

• Estimates 15% loss in Kenya’s regional trade under an EPA in particular in manufactured goods

• Contracting of regional trade more pronounced in the sectors that are seen as the bases of industrialization,

• EPAs may pit neighbouring countries with different interests against one another, leading to increased defensiveness between countries in a region

Issue 5: ‘Rules’ the development component?

• ACP want investment, but not investment rules • No evidence that investment treaties increase investment

(African countries already have a total of 600 BITS)• Investment treaties can restrict the ability of governments

to direct investment in a pro development direction. • FDI can sometimes crowd out local investors; can fail to

generate linkages with the domestic economy (enclave development); and can have negative spillovers effects on environment.

• If properly channelled FDI can bring positive development benefits; but the EU’s proposals would restrict the flexibility of government to do this.

• Nevertheless the EC is forcing these issues.

Recommendations• ACP countries should decide pace of own liberalisation and

maintain flexibility to raise tariffs - not compatible with arbitary timeframes and %ages of an EPA

• Rules on trade-related areas such as investment and government procurement should be taken off the table

• Market access should be improved, including RoOs. • EU should fulfil obligation in Cotonou to an Alternative to EPAs

that at least no less favourable in terms of market access. • The Commission should provide reassurances that EDF

resources, Aid for Trade and any additional resources from member states, will be secure regardless of whether countries sign an EPA.

• Should support Africa’s own efforts, led by the AU, to consolidate is regional integration, without seeking to railroad

this via EPAs.