Does aid alone deliver development? Or shouldn’t the EU (the biggest aid donor worldwide, particularly in Africa) pursue a strategy that combines trade and development, so as to help boost a process of self-sustained economic growth? At the European Commission, we are convinced that we need new trade and development partnerships, contributing towards a stable business environment, to attract foreign investment and help developing countries integrate into regional and global economies.
Relations
Trade and development relations between the European Union and the 77 African, Caribbean and Pacific (ACP) countries are based on ‘Economic Partnership Agreements’ (EPAs). The negotiation of EPAs with ACP regions was agreed between the ACP and the EU in Cotonou, Benin, in 2000. ACP EPA regions include: the Caribbean, Central Africa, West Africa, Southern Africa (SADC-EPA), Eastern and Southern Africa (ESA), the Eastern African Community (EAC) and the Pacific. The idea was to replace the old trade regime, based upon very favourable entry conditions for ACP products into the EU market which, by and large, neither delivered on its promises nor on trade and development.
It was agreed that discrimination between developing countries, unless soundly justified, must end and that preferential trade agreements with ACP countries would be brought in line with the World Trade Organisation (WTO) rules. In Cotonou, ACP countries and the EU agreed to negotiate EPAs within a seven-year time frame. Although negotiations got underway in 2002, the EU was unable to conclude wide-ranging, comprehensive regional agreements with all ACP regions before the old preferences expired on 31 December 2007.
In the latter part of 2007, with the 31 December deadline approaching, the focus of the negotiations shifted towards safeguarding, where possible, the ACP’s preferential market access to the EU. The target became less comprehensive agreements (which covered mostly trade in goods). These agreements fully liberalised trade in goods on the EU side – by eliminating the last remaining barriers for ACP exports (mainly agricultural ones), the EU made a down payment on their promise to make trade an instrument for development. As a second pro-development element, the EU improved the rules of origin regarding the products of particular interest for ACP exporters, i.e. textiles, fisheries and agriculture. This granted ACP exporters more freedom to draw on their inputs from the cheapest or most competitive producers and hence become more competitive in EU markets. All of this comes of course with a substantial amount of aid....
Liberalisation on the ACP side was dealt with flexibly, taking into account their special development needs and constraints. This allowed the ACP to exempt certain products from liberalisation and to phase in the removal of tariffs for other sectors over extended transitional periods, where needed. Safeguard clauses are in place to allow ACP countries to protect inter alia infant industries and food supplies, or to react rapidly to unforeseen negative developments due to liberalisation.
Interim Agreements were mainly conceived to protect less poor ACP countries from trade disruption, as the least developed countries (LDCs) continue to benefit from the Everything but Arms (EBA) scheme that grants full opening of the EU market to all LDCs. Despite this, a significant number of ACP LDCs decided to join interim EPAs, in particular to benefit from regional integration schemes.
Development opportunities
Gradual and controlled liberalisation is not an end in itself, nor is it to simply comply with WTO rules; it is an opportunity for development. Above all, liberalisation creates more opportunities for economic operators, strengthens competitiveness, creates jobs, and reduces prices for vital goods for producers and consumers alike. Many countries have deliberately and successfully used this process to boost their development.
Crucially, EPAs go beyond the EU-ACP trade dimension to reach other policy objectives: first and foremost, regional integration. Most of the ACP economies and their markets are small, scattered and fragmented, preventing them from achieving economies of any scale and of synergies at regional level. Political regional integration can help build peace and stability. Economic regional integration helps build regional markets and thus attract foreign investment in sectors other than energy and natural resources.
While interim trade deals mainly focus on trade in goods, the objective of the ACP-EU agreement in Cotonou was also to tackle all issues important for boosting trade and its contribution to development: services and investment, transparency of government procurement, intellectual property rights, competition law, sanitary and phytosanitary issues, social standards, environment issues to name a few. Negotiations on comprehensive EPAs with all ACP regions are ongoing. A comprehensive regional EPA was initialled with the Caribbean (CARIFORUM) region at the end of 2007, and signed in October 2008.
On services, when backed up by sound, sensible and effective regulation, the opening up of the telecom, transport, banking and insurance sectors can considerably improve the contribution such sectors within ACP countries make to other parts of the economy. For its part, the EU grants preferred access to its own service sectors. While sectors are opened up to foreign competition, ACP governments fully retain their own right to regulate, so EPAs do not interfere with governments’ capacity to design policies to shape the conditions under which all companies in their markets operate. Asymmetry and flexibility are key instruments to protect weaker service sectors in ACP countries, while basic services such as health care, education, water etc. remain firmly outside the process of liberalisation.
Transparent investment environment
Legal certainty and stability are key dimensions to EPAs. For growth you need investment. But investors, local or foreign, will only invest their money where the environment is fair, transparent and where there is a predictable legal environment. Even greater benefits can be reaped if such a stable legal environment is set up at regional level. Clear rules for intellectual, industrial, commercial and other property rights foster investment, jobs, and growth.
On top of this, the EU promotes regional integration and development thanks to its aid. The 10th European Development Fund (EDF) focuses on trade and regional integration with over €1.3bn for the period 2008-13. In addition, many country-specific assistance strategies include Aid for Trade elements.
Understandably EPAs will only bear fruit through full implementation. Trade liberalisation on the ACP side is scheduled over extended transition periods and several studies foresee positive results in line with our expectations. In another area in Africa, the Southern Mediterranean, we can see that doomsday forecasts for the Euromed region at the time of negotiating the EU-Med trade agreements did not materialise – on the contrary, the region (and some countries such as Tunisia) made the most of the agreement, diversified and expanded their economies and even accelerated the liberalisation foreseen in the agreement.
In the end, it is for the ACP countries and regions to take the final decision to press ahead: we cannot want EPAs more than the ACP do. The EU’s goal is to make developing countries better off as a result of these deals: regional EPAs will offer a precious opportunity to permanently alter the vicious circle of poverty and turn it into a virtuous sustainable cycle of growth. EPAs are at the heart to develop our relationship with the ACP countries for a better future and at a more mature level. It is for our ACP partners to rise to the challenge and grasp the opportunities – we can only support this endeavour.
Peter Thompson is Director of the European Commission, Trade Directorate-General, Development and Economic Partnership Agreements
