NEW ECONOMIC PARTNERSHIP AGREEMENTS (EPAs)

TACKLING NEW ECONOMIC PARTNERSHIP AGREEMENTS - EPA’s

Zambia and the other African Caribbean and Pacific (ACP) nations, and the European Union (EU) seem to have been playing cat and mouse over signing of the Economic Partnership Agreements (EPAs) for some time now. The EPAs were supposed to take effect beginning of January 2008, but even at the time of writing this article (late 2008) seemed a distant issue to resolve; whichever way.

What are these EPAs, in the first place? Economic Partnership Agreements are rules governing trade between the ACP countries and European Union nations. One of the main issues preventing movement to new agreements has been changing from preferential trade that allows ACP countries to export a quota of goods to the EU duty-free (without the EU getting similar access to ACP markets), to enabling the two sets of countries to sell to each other duty-and-quota-free.

ACP nations are mainly former colonies of European countries, and number over 70. They are generally African countries and islands of the Atlantic and Pacific Oceans.

The EPAs are a major element of the Cotonou Agreement signed in June 2000 in Cotonou, Benin, to replace the Lome Agreement which had existed since 1975, and have shaped trade between the EU and ACP. Signing the EPAs would mean bringing into harmony the rules of trade between the EU and ACP with those laid down by the World Trade Organisation (WTO). The WTO is the principle world trade regulator. The WTO replaced the General Agreement on Tariffs and Trade (GATT) in 1995 which had existed since 1948.

It is not easy understanding why it has been such a problem agreeing upon the type of EPAs that should be signed. Or, indeed, why it appears difficult seeing what sort of effect on countries like Zambia the EPAs would likely have. The EU seems to have been quite clear all along what it seeks; a quick shift to the new WTO trade rules. It is the ACP countries whose position has sometimes looked difficult to ascertain. One gets the idea that ACP countries have probably not been committed enough.

Felix Mutati, Zambian Commerce, Trade and Industry Minister at the time of doing this article was once reported to have uttered words understood in some media to mean that it was not necessary to set any time limit on the signing of the agreements.

The member countries of the ACP have generally contended that if goods from Europe were allowed to enter their economies without any duty being payable, they would grab the market from local suppliers and cause destruction of their nascent industries. This is based primarily on the premise that the EU, with its sophisticated manufacturing machinery, would supply better quality at relatively low prices, which the local industry would not match. ACP countries also fear that the highly subsidised agricultural industry in Europe would also be able to sell their products at prices too low to enable fair competition with their own farmers.

Minister Mutati was reported, too, as having stated that ACP countries including Zambia would like a development component in the EPAs. This has often been said, as a matter of fact, but there has not been any clear definition of the sort of development ingredient the ACP countries would like to see.

The clearer the position of the ACP countries, the more easily progress on the EPAs is likely to come. The EU has indeed been reported as unsure how exactly the ACP nations would like any new agreement to be configured. The EU has referred to the times before the Cotonou Agreement when poorer countries regularly complained that it was difficult to fully access the European market – apparently in an attempt to underline importance of non-quota access to the EU market.  

How anyone would decide that fair trade meant that there should be equal access to each other’s market even in a situation of unequal capacity could be a good subject for more debate.

Perhaps, however, much of the explanation to this puzzle lies in what has happened to the equation of world economy main players in the last fifteen years. At the time of signing the Lome Agreement in 1975, the major economic powers were Europe, North America and Japan. There has now been emergence of new big economies in the form of, primarily, China, South Korea and India. China, especially, has ensured a steady flow of its products for the consumption of all the other economies rich and poor.

Looking at the Southern African example where all shops are full of goods originating from China, would one be wrong to conclude that the Lome Agreement that is for preferential trade leaves the ACP market just too open to China while restricting Europe? European economists must have become all too aware of this obvious anomaly and decided that it would be fairer to their nations if ACP markets offered them the same boundless access that countries like China and India seem to have.

Going for equal market access seems the type of homework a hardworking government is expected to do for its people. African governments could try to ensure that the officials charged with shaping the new EPAs did all the homework they need to. That effort does not appear apparent just yet.

Now let us look at the question of whether or not the European products under the standard EPAs would for sure kill industry in the ACP communities.

It is doubtful that there is any amount of damage beyond what the products from China and India have done that would be caused by products from the European Union under new EPAs.

There have been fairly practical steps to form a free trade area of SADC countries in southern Africa. One effect of this is to give South Africa a more guaranteed market for its products as more trade barriers are lifted. Few will argue that South African products are any inferior in quality to those of the EU. Yet, the shops in SADC countries have plenty of goods from the south.

What adverse effect would EU products - which have the same quality as SA goods – have on less developed economies? If anything, presence of EU products might only serve to bring down the prices of competing South African products which, in fact, some suspect are overpriced outside SA to subsidise the pocket of consumers back home.

Comparing Chinese products with those of the EU is a lot like comparing them with those of South Africa. It is unlikely that EU products would be more expensive than those from China or India. One major reason is that in producing the higher quality that is associated with that region, there is general protection of the price of labour; suggesting the price of the goods cannot ordinarily be expected to be as low as that of Chinese products which are from basically cheaper labour (and perhaps a greater threat to ACP home industry growth).

It is difficult seeing why SADC nations including Zambia seem unconcerned about giving South African products a free market under the Free Trade Area (FTA) agreement, while preventing such participation from the EU (not suggesting that the EU deserves a blank cheque).

If nations like Zambia fear killing of their industry by the EU, they should have made steps to prevent killing of their industry by the ‘EU’ just close to home – South Africa. Otherwise, they could be denying themselves chance for South African products to get competition which could benefit consumers in Zambia and other countries with similarly poorer citizens.

One area in which goods from the EU would perhaps be useful is that of pharmaceuticals. Zambia has given products from India an almost absolute monopoly. This denies Zambians chance to try quality alternatives from regions like the EU (and, even more significantly, growth of its own pharmaceutical industry).

At the Doha round of talks in Geneva, Switzerland in 2007, India and Brazil were said to be the countries whose stand was strongest against allowing the EU access to the markets of the poorer countries. A close look at the way the world economy is going would reveal that the two nations may have been acting purely out of self-interest (and every country somewhat should, at least to some degree).

At the 2008 Doha talks, they (India and Brazil) may have had more interest in preserving the status quo of the emerging economies than in anything else; trying to ensure that their grip on some sectors of economies like Zambia remained unchallenged.

India and Brazil had reportedly been chosen to be the voice of the third world and those poorest of nations called Least Developed Countries (LDCs). Perhaps in the coming rounds of Doha talks, India and Brazil should only represent emerging economies. The LDCs should be represented by countries like Zambia and Mozambique. There are 39 countries in the ACP classified as Least Developed Countries, which include other African countries like Angola, Tanzania, Lesotho, Swaziland, Congo DR and Malawi.

The purpose of this discussion is not to persuade Zambia and other ACP countries to sign the EPAs in their present form. It is to bring out important aspects that ACP countries like Zambia seem to be ignoring. The argument regarding whether or not to sign the EPAs has in many ways not been given enough depth, suggesting a possibly serious deficiency in appreciating issues that it is no one’s but ACP nations’ business to understand.

It is also interesting to note that the EPAs do appear to have a provision to exempt countries with the weakest economies (the LDCs) like Zambia to sign under the ‘everything but arms (EBA)’ arrangement, under which there could still be preferential trade to exclude getting ‘exposure’ to EU products. This has not been openly discussed, at least in Zambia. More importantly, it suggests need to assemble a ‘crack’ squad to fully unravel the EPAs (and even any SADC free trade agreement) to set the right, fairer tone for both the strong and the weak.

Rupert Chimfwembe, 2008