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MEMO/05/18

Brussels, 20 January 2005

Economic Partnership Agreements:
putting a rigorous priority on development

For the Commission, EPAs are a crucial part of the contribution that Europe must make to trade and development. The motive is simple and straightforward. It is to help ACP countries integrate in the global economy: it is not to win trade concessions for Europe. Yes, we see mutual advantages on both sides – not least our own long term interest in the eradication of poverty in developing countries for which there is an overwhelming moral as well as self interested justification. The objective is to achieve a gradual managed transition for the ACPs to eventual full participation in the global trading system on a basis that is properly tailored to their development needs. Development has pride of place. The mindset with which Europe is carrying forward the EPA discussions is fundamentally different from traditional hard nosed trade negotiations.

The increased public debate about the EPAs is welcome. It can only contribute to outcomes that are more positive for development than they would otherwise be. When the ACP countries and the EU decided in 2000 to negotiate Economic Partnership Agreements (EPAs), the public awareness and overall interest was limited. The intention was to achieve something more for development than could be achieved under unilateral EU preference regime. We always knew it would be complex, which is why we set a target for EPAs to enter into force in 2008. In 2000, 2008 seemed far away and many had doubts on the feasibility of such negotiations, given the heterogeneous nature of the ACP group.

This has now all changed. EPA negotiations have taken off. Regional talks between the EU and six ACP regions comprising all 77 ACP countries have been launched. Priorities are being defined, regional negotiating structures established, regular meeting and seminars organised. With all regions, the objective of clarifying the regional integration agenda and the link to EPAs has been set as a first priority for technical talks.

Yet in the intervening period concerns about development have grown. Africa is often at the top of these, because it is the region of the world where economic and social progress has proved most difficult and there is an urgent need to convey a new sense of hope. Policy initiatives, such as the UK initiated Commission for Africa, have focused discussion on how to achieve the Millenium Development Goals.

In this context, criticism of EPAs as the EU’s response to ACP economic marginalisation has been mounting. For example, various NGOs launched a “Stop-EPA” campaign in September 2004. According to these critics, EPAs will make “grossly unfair demands on ACP countries, will bring trade-related issues, which were abolished from WTO talks, in through the backdoor and will harm the poor through reducing ACP fiscal revenue”. The new Trade Commissioner, Peter Mandelson has asked that these criticisms be fully taken into account in the evolution of the EU’s policy.

He has made clear that he values the NGO role in bringing to public attention alternative perspectives on these crucial questions in trade and development policy. As the policy towards EPAs is refined in the months and years ahead, he recognises the value of the accompanying policy debate that the NGOs will lead.

While acknowledging that EPAs are not without risks, the ACP countries themselves have for the most part taken a positive approach. For example, beginning of December 2004 K.D. Knight, Jamaica's Foreign Minister and Trade Minister and acting President of the ACP Council welcomed the EU Trade Commissioner Peter Mandelson's commitment to use trade as a development tool for negotiating EPAs. “Knight said there was a common position of the EU and the ACP that recommended that free trade should not be seen as a panacea for fighting poverty and promoting sustainable development and for this reason, the EPAs will focus on building capacity to ensure ACP countries can be competitive. He added that the ACPs were in the process of ensuring that EPAs can be used as development tools and would not be looking at market access issues until a later date.”[1] Knight's comments at the press conference made it very clear that there was a strong wish by the ACP countries to engage in constructive talks on the future EPAs. So there is now for the first time, the opportunity for a fresh impetus to be given to the EPA debate.

The EU has stressed for some time that the core rationale of EPAs is to contribute to development and growth. But it is now the ACP countries which have recognized the opportunity to use EPAs as a stepping stone towards regional economic integration and development. In the last year, the ACP countries and the EU have agreed that EPAs will not be classical free trade agreements but will maximise the development potential of ACP economies. They have also agreed that South-South regional integration will be a key requirement for EPAs to result in increased trade and investment. Capacity constraints and underdeveloped economic and social infrastructure were identified as major barriers for enhancing trade and attracting investment. Therefore, the EPA process will be broader than pure trade arrangements and cover issues linked to development policy and support. The Commission is fully behind all of this.

The following question-answer section deals with numerous aspects which have been brought up in the recent debate. The answers are intended to be direct. The aim is to clarify the issues, not in order to close down debate but rather the opposite: to offer a clear statement of the Commission’s present stance on the criticisms that have been directed at its EPA policy in order to stimulate further, more substantive debate.[2]

1. A development approach to trade

1.1. Will trade liberalisation, regardless of the circumstances, generate rapid growth?

In all speeches on development, in both the bilateral and multilateral context, the Commission has emphasised the need to place market opening in the context of national, regional and international policies. The EPA approach aims at developing regional markets with a common set of border measures, tariff and non-tariff, as an incentive for more local economic activity.

Trade liberalisation alone has never been an objective of EPAs. Only in a second and later phase will the EU pursue the objective of introducing reciprocal access for EU goods or services. Commissioner Mandelson is particularly keen to ensure that the sequencing is right, region by region. Moreover, EPAs will be accompanied by appropriate development support measures, to help ACP business operators seize the opportunities provided by market opening (both in the EU and at the regional level). Therefore, while EPAs themselves will be mainly trade agreements, what could be called the “EPA process” will definitely be much broader and cover issues linked to development policy and support. Commissioner Mandelson intends to put the EPA under constant review: to make sure that the process puts development first.

1.2. Why is the EU asking ACP countries to open their economies to EU goods and services?

ACP regions will open their markets first of all among themselves, building larger regional markets in accordance with their own political objectives and agenda. EPAs will succeed if large segments of the ACP economies can be made competitive, but it is fully accepted that this can only be achieved over a reasonable transition period. Liberalisation schedules must and will take this into account. The transition period from 2008 to liberalise access for EU goods may be longer than 10 years as required by ACP regional development needs. In terms of liberalisation coverage the final target (after the transitional period) for ACP imports remains the coverage of substantially all trade. In our understanding, the objective of development should not be to create permanent protection but to provide the necessary transitional protection to encourage competitive local production of goods and services. This will depend on the ACP capacity to adapt and adjust their economies to the liberalisation process. Instead of discussing abstract percentages, the focus should be on what is useful or not useful for the development of individual ACP regions. Likewise, negotiations in services will depend on the regional agenda of the ACP partners and reciprocal market access will be discussed in line with individual development needs as well.

1.3. Why does the EU refuse to discuss its own protectionist Common Agricultural Policy?

We don’t. Agriculture will be a key area in negotiations. The CAP reform has provided a viable framework for restructuring agriculture in the EU, making our policies much less trade distorting. Stricter disciplines for domestic support are an intrinsic part of the WTO Doha Development Agenda. Access for ACP agricultural products to the EU market and export competition, however, will be fully addressed within the EPA negotiations.

1.4. Can the ACP countries under EPAs protect themselves from cheap, subsidised EU goods flooding their markets?

Within EPAs, ACP regions will define their level of protection against third country goods including EU goods. Over time EPAs will then define how this protection will gradually be eliminated for EU goods. In so doing, ACP countries can protect sensitive sectors during a transition period that will be negotiated. Even beyond this timeframe, a substantial part of ACP imports could still be protected under safeguard provisions to counter precisely the effects of “cheap, subsidised EU goods” in ACP markets. According to economists this should be more than sufficient to cover for example infant industries and sensitive agricultural products. The alternative – lasting and indiscriminate protectionism – would only lead to stagnating economies and further marginalisation.

The EU will determine its negotiating stance on these questions solely on the basis of what is best for development: there is no lobby of EU vested interests clamouring for easier access to ACP markets.

1.5. Can ACP countries protect their health and education services from liberalisation?

The EU has regularly excluded social services from WTO and bilateral service negotiations. Nobody has proposed to include these sensitive services in talks with ACP countries. This does not exclude that EPA regions may want to benefit from foreign investment in upgrading their health and education services. But that is a matter for their sovereign decision.

1.6. Example Kenya: Would Kenya’s ability to diversify and develop an advantage in value-added areas be undermined? What about textiles and garments?

One key target of EPAs is to improve the business environment for African entrepreneurs by promoting regional integration and tackling supply-side constraints. Globalisation and especially highly competitive production in East Asia are already now threatening various sectors in Africa and elsewhere. The EU is working with ACP countries to respond to this challenge. To use EPAs as a scapegoat for economic realities of today’s global market economy is missing the target. Under EPAs we would help to define or consolidate a common customs tariff to protect the emerging regional markets, so that Kenya could have an advantage regionally. For Kenyan exports to the EU, free access for textiles and clothing, which exists already today, will be consolidated within an EPA.

2. Trade-related issues as the backbone of regional economic integration

2.1. Will talks on investment, public procurement and competition policy limit the ability of ACP to support their own small producers or to require foreign companies to use local materials or local labour?

We recognise the concern among NGOs that the EU is “trying to reintroduce the so-called Singapore issues by the back door”. However everyone should acknowledge that investment, public procurement and competition policy are essential parts of successful economic governance. Creating transparent and predictable rules, which set, as necessary, limitations for economic actors, is going to be key to attract more local and foreign investment in the ACP. The EU’s aim is that EPAs offer a framework where these important issues can be addressed in a development friendly way and only as, with our assistance, the capacity of the ACPs itself grows to deal with them in a meaningful way. So, rules do need to be discussed with the objective to contribute to regional integration, trade, investment and development of the ACP. It is up to the ACP to decide in a first step which issue to tackle in their own regional integration agenda. But trying to harmonise rules in a regional framework will in no way impede countries to support SME's or to put in place effective investment and employment policies as well as social safety nets.

2.2. Does the EU call for liberalisation of public procurement? Does this mean that the ACP countries would no longer be able to prioritise local producers or small businesses for government contracts?

Prioritising, or as we say, introducing a regional preference into government procurement rules is not a problem. The key objective will be to introduce transparency in public procurement – a key requirement to ensure fair procedures and counteract corruption. Liberalisation of public procurement markets can realistically only be a long term objective and will depend on the level of development of ACP regions. It should be noted however, that inefficient public procurement can be a major limiting factor to economic development.

2.3. Example Kenya: The Kenyan Government has plans to keep a portion of Government contracts for micro-enterprises. Would an EPA mean they are no longer allowed to do this?

No. As said above, government procurement rules may contain a defined preference for regional producers. The only possible consequence of an EPA may be to extend the benefits to small enterprises from other East African member states.

3. Strengthening regional integration

3.1. Are ACP countries obliged to consider their terms of trade with the EU ahead of their strategic links with neighbouring countries?

No, on the contrary. EPAs are building on existing South-South integration. Therefore, regional integration aspects are being tackled first in the ongoing EPA talks. Initial positive effects are visible: in the past, economic integration was often not regarded as an important political objective. Through EPA talks, regional policies have achieved a higher political profile. Many ACP leaders perceive EPA negotiations as an opportunity and a challenge and put it on the agenda for national and regional dialogue.

3.2. What about the LDCs? Should they continue with their ‘non reciprocal’ duty-free, quota-free access in the European market, but leave their regional grouping or should they open up to the EU and stick with their regional partners?

This line of questioning confuses. The LDCs do not need to choose between full market access to the EU and any other option. Under Everything-But-Arms duty and quota free market access is guaranteed. LDCs just have to choose, as the non-LDCs, if they want to conduct EPA talks as part of their regional integration. The whole point of EPAs is to strengthen local/regional markets as the main vehicle for development and to go beyond traditional market-access schemes. Market access to the EU will be maintained open and might become more effective based on strengthened production and trading capacity as a result of more integrated regions.

4. EPA negotiations are balanced and fair

4.1. Have EPA negotiations been characterised by bullying and a lack of transparency? Is the EU forcing the pace of negotiations?

The opposite is true. The EU has accepted general discussions with the ACP for about four years after the signature of the Cotonou Agreement before entering into regional negotiations. And let us not forget: the Cotonou Agreement that has been endorsed and ratified by EU parliaments and ACP states, calls explicitly for the negotiation of EPAs.

It is up to the ACP regions to define their own regional priorities during the first phase of talks. This approach has nothing to do with bullying. As to transparency: seminars and conferences – many financed by the EU – have continuously highlighted the risks and opportunities of EPAs on a national, regional and all-ACP basis. The development dimension of EPAs is a crucial issue in each of these discussions. A regular EU newsletter service on EPAs informs about the progress in talks. Key documents are available on the EC internet site. A dialogue on political and technical level with critical or not yet sufficiently involved stakeholders will be further pursued.

4.2. Are there no alternatives offered to negotiating EPAs?

The negotiations of EPAs and the examination of alternatives for non-LDC countries[3] were decided in the Cotonou Agreement. At the request of the ACP side, the EU agreed to let the 2004 deadline for discussing alternatives pass and to be prepared for discussing such requests whenever appropriate. But both sides agreed that the joint ACP-EU focus was on designing EPAs which will be the most effective tools for the development of ACP countries. Why would one want to discuss second best alternatives at this stage? It is noteworthy, that no ACP country has so far requested the EU to examine alternatives to EPAs. On the contrary, all ACP countries are currently actively engaged in the negotiations.

4.3. Is the solidarity of the ACP bloc being undermined, leaving the EU with a weak, dependent and fragmented negotiating partner?

On the contrary, by defining a clear regional agenda in line with its own regional integration policy, each ACP region has a much stronger position vis-à-vis the EU than an ACP group of 77 countries with very divergent economic and political interests. However, it is important that in parallel to the regional talks, coherence is ensured on the all-ACP level. For this purpose, EU and ACP agreed on all-ACP – EU institutional structures to accompany regional negotiations. ACP regions now understand that one-size-fits-all solutions have not produced the expected development results. EPAs allow us to focus on specific regional realities, while offering all regions a choice to opt-in to any specific solution.

4.4. Will only the EU gain? What about the large majority of small ACP producers – don’t they have everything to lose and little to gain?

Given the level of poverty and the extent of marginalisation of many ACP countries, ACP businesses have a lot to gain by reshaping and improving their (sometimes very hostile) economic environment. The impact of EPAs will certainly be much more important to ACP economies than to the EU and the whole objective of current talks is to make sure that EPAs will support economic growth and poverty alleviation.

4.5. Will local businesses be able to cope with the EU competition or be forced out of business?

The raison d’être of EPAs is to help ACP to deal with the challenges of globalisation by developing stronger regional economies. There will be enough space to keep sensitive sectors (infant industries, sensitive agricultural sectors) protected (see above). However, EPAs will not be successful and will not be negotiated unless they go hand-in-hand with national and regional policies to strengthen local businesses. Private sector development and trade development are part of the wider Cotonou process.

4.6. Why does the EU not work with the ACP to get WTO rules changed to allow for fairer deals between unequal partners?

The Cotonou Agreement foresees that EU and ACP will co-operate closely in the WTO with a view to defending the EPA arrangements, in particular with regard to the degree of flexibility. The currently existing WTO rules call for a credible degree of market opening but at the same time offer sufficiently large flexibilities. When determining the degree of market opening, development objectives and political sensitivities can already be taken fully into account. Instead of focussing discussions on abstract percentages of market opening, discussions should focus on what degree of openness is useful for the development of each region and country and only then analyse compatibility issues, if any.

4.7. What about the Commission’s own Sustainability Impact Assessment (SIA)? Has it not concluded that ‘EPAs could lead to the collapse of the manufacturing sector in West Africa’?

The above quotation is a misquotation. The SIA mentions the potential vulnerability of the manufacturing sector but nowhere does it talk about a “collapse” of the sector. In fact it recognises the opportunities offered by the EPAs to strengthen the sector through regional integration and recommends that “emphasis should be placed on opportunities to develop a manufacturing base that ... contributes to improved levels of per capita GDP. In the first instance, ACP countries should pursue opportunities for vertical integration in the following sectors: cotton (textiles), cocoa and fisheries”. Indeed, the SIA highlights some areas of the manufacturing sector in West Africa as sensitive to liberalisation. But that is the objective of the SIA process – to advise negotiators on how to maximise the benefits and minimise any negative impacts of the EPAs. The EU is not seeking to impose its own agenda through the EPAs – rather the EU is aiming for the EPAs to offer the flexibility to allow development needs properly to be taken into account.

5. EPAs aim at a sustainable basis for government revenue

5.1. Will opening up to the EU reduce the revenue base for the ACP countries? Will there be less money for social expenditure?

We recognise the gravity of these concerns. Tariffs represent a key revenue base for some of the weakest countries in the world. And we have factored these concerns into our position for the EPA talks. The asymmetric and flexible nature of EPA will make sure that the fiscal impact is much less than many of the studies (based sometimes on 100% ACP liberalisation) suggest. The starting point for market opening will be a regional common external tariff, which each region will have to define itself. The intention of ACP regions is to have a common tariff structure generally lower than pre-existing national tariffs[4]. The opposite can however also be true (Uganda is a case in point). It is far from accepted that a tariff reduction leads automatically to a reduction in revenue. The contrary is often the case: a tariff reduction triggers more trade, avoids or reduces smuggling and effectively leads to higher tax revenue.

Moreover, long-term fiscal effects of EPAs will only progressively be felt in the future, following a sufficiently long transition period (see above) and giving ample space for fiscal reforms, which have already started in many ACP countries years ago.

Basically all countries understand that they will have to move from border revenue to forms of fiscal revenue based on internal taxation. In the end, economic growth is the precondition for widening and deepening the public revenue base. All public development assistance in the world will not be sufficient to finance the infrastructural and other supply capacity needs in ACP countries. The key is private investment. Large and stable regional markets are crucial to attract local, regional and international investment. EPAs are exactly meant to help with that.


[1] Agence Europe, 4.12.2004

[2] More information on the general background of EPAs can be found in various documents under the following web-address: http://ec.europa.eu/trade/issues/bilateral/regions/acp/index_en.htm

[3] LDCs can always benefit from the Everything-but-Arms scheme, which provides full market access to the EU.

[4] In other words, many ACP countries are in a process of decreasing their external tariffs in the context of their own regional integration. The opposite can however, also be true, Uganda is a case. EPA talks will be based on the new regional external tariff structure.


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