Solo IEPA will destroy Ghanaian Businesses
By Sylvester W. Bagooro of Third World Network-Africa
25 November 2011
Since the beginning of the year, the Trade and Industry Minister, Hon Hannah Tetteh has continued with her push for Ghana to sign and ratify the Interim Economic Partnership Agreement (IEPA) that was initialled in 2007 to save small proportion of exporters whose main export destination is the European market. The Minister has indicated that Ghana will decide whether to sign the IEPA or not as the Nation hosts the ECOWAS Ministerial Monitoring Committee meeting in Accra from the 28-30th of November 2011. Hon Tetteh was reportedly said, “For the past three years since I have been in this position as Minister, we haven’t really gone far with the ECOWAS EPA. The issues that we were discussing at the time I became Trade Minister are the same issues we are still discussing today within the framework of ECOWAS”. This statement seems to have summed up her frustration with the ECOWAS process. The current state of the EPA process has nothing to offer the region apart from destruction of the regional integration processes that have been set in motion over the years.
The trade pact has a number of clauses that fit well into the greed and the mercantilist nature of the European Commission but will derail the development plans of Ghana and the ECOWAS as a region. No wonder ECOWAS Heads of State expressed deep concerns with regarding the persistent divergences between the European Union and West African parties in a Communiqué reached by the sub-regional economic bloc at the 39th Ordinary Session of the Authority of Heads of State and Government of ECOWAS held in Abuja, Nigeria from March 23-24, 2011. The Heads of State and Government stated, “The trade agreement should preserve the independent resources of regional organizations by excluding ECOWAS Community Levy and the UEMOA Community Solidarity Levy from the scope of the tariff liberalization. It should also ensure a sustainable and gradual liberalization that safeguards the region’s tax revenue as well as ensure development capacity and avoid a reversal of the recent regional integration achievements. Above all, the trade agreement should maintain the policy space required to promote trade with other trading partners such as South-South countries/blocs within the framework of Most Favored Nation (MFN) clause in the EPA”.
Also, in November 2010 Africa Trade Ministers in Kigali, Rwanda adopted a declaration on the EPA. The declaration, among other things, called on the EU to rethink the basic premises of the EPAs. They also adopted a position paper by the African Union Commission and the Regional Economic Communities (RECs) on the EPA.
Broadly, some of the contentious areas raised are the development dimension of the EPA, Definition of substantially all trade coverage and transitional period Most Favored Nation (MFN) Clause, Non Execution Clause, Treatment of Community Levy, Export Taxes, Quantitative Restrictions, Standstill Clause (Modification of Tariffs), Special Agricultural Safeguards, Rendezvous Clause and rules of Origin. The implications of these clauses on the Ghanaian and the West Africa economies explain the delay in the EPA process. Broadly these clauses will disastrously impact on industrial development, food security and livelihoods, regional trade and integration, government support of local enterprise and industries in Ghana and the ECOWAS regions as a whole. These are explained in detail below.
Effect on Industrial Development
The EU’s position on the elimination of tariffs for 80% of trade; restrictions on the use of export taxes and quantitative restrictions; the provisions on the bilateral, and the standstill clause; will undermine the Region’s efforts to industrialize and its ability to move up the industrial value chain. West Africa will only have to watch imports engulf the sub region but there will not be any policy tool to safeguard local business. As a result, the region will remain a perpetual supplier of raw materials, with all the adverse implications that this entails. For industrial development, West African countries need to ensure that tariffs are maintained for those industrial sectors which are being developed. As acknowledged by many world renowned economists, no country, with the exception of Hong Kong (Province of China), has managed to industrialize without going through the infant industry protection phase.
Effect on Food Security and Rural Livelihoods
The EU has not indicated any willingness to abolish its agricultural subsidies. This poses major unfair competition against West African producers of poultry, tomatoes, beef, cereals etc. At present, these subsidies and domestic supports are not being removed at the WTO, or in the EPA negotiations. In the wake of climatic changes governments will need policy instruments that can be deplored at different times to ensure that policies are able to withstand the changing conditions. Shrinking of the policy space at this time of our development will be suicidal.
Effect on Regional Trade and Integration
Regional markets provide the best opportunity for local businesses to diversify and develop. This is one of the major lessons to be drawn from the global economic and financial crisis. However, if Ghana and other West African countries would have to liberalize 80% of trade as proposed by the EU, the regional market risks being taken over by EU products. The opportunity to increase intra-West African trade, diversify and industrialize will be significantly reduced. Local producers will have to compete with EU exports in their own national and regional markets. ECOWAS is moving towards a customs union, it will therefore be inappropriate for Ghana to destroy the integration agenda. Autonomous regional Integration and the upgrading of domestic market linkages is the best bulwark against external shocks and for recovery from recessions. Today, more than 90 per cent of Ghana’s most dynamic manufacturing exports go to the West Africa sub-region. Going solo in the EPA process will lead to intense division within the Region and hence the destruction of the regional market.
The IEPAs remain a Trojan horse as it will make it easier for the overall EPA process (among others) to override, as well as block progress towards West Africa’s regional efforts to develop coherent common tariff regimes that provide sufficient developmental space, the EU’s demands and pressure in areas that go beyond tariffs and WTO commitments – such as Financial Services, Public Procurement, Investment, Health, Raw Materials and Natural Resources - pose even greater threats and are of more strategic importance to Ghana and for the West Africa’s economic transformation, industrialization and overall development.
Effect on Tariff Revenue
As most tariffs will eventually be reduced to zero within the framework of EPAs, West African governments, and of course Ghana will experience a reduction in the collection of customs duties. Tariff revenues are a significant source of overall government revenue in West Africa and this loss will add to the already difficult situation governments are grappling with in the funding of their budgets. IMF studies have shown that for low-income countries, other taxation sources can at best recover 30% or less of the loss of tariff revenues.
EPAs in current global economic context
One of the main lessons of the global economic crisis that has been with us since 2008 is that this is the time to be diversifying trade away from over-reliance on EU markets. It is clear to all observers that the economic chaos engulfing the EU in its euro-zone shows no end in sight and the prospect of long- term stagnation is becoming ever more real. Most economies in the EU are registering low growth or no growth.
In spite of the above implications on the West African economies the European Union is so intransigent in the EPA negotiations and have adopted divide and rule tactics. At the moment the pressure is on Ghana to sign and that will be the end of the regional integration efforts. Sources close to the negotiators however indicate that a regional solidarity fund is being proposed to compensate Ghana and Ivory Coast for any losses that would be incurred for not signing the EPA. This is a very good idea and should be embraced by all the governments to save the sub region from disintegration. The Minister should redirect her energies towards this for the greater good of Ghana and the ECOWAS Region as a whole.
This is clearly not the time to lock Ghana and ECOWAS long-term trade and development prospects into an irreversible agreement that gives EU trade preference over every other trade partner. Fellow Ghanaians, this is not the time to sit down and allow the trade Minister to tie our hands in terms of development and make us perpetual producers of raw materials that will feed the industries of the Europeans. As Ghana hosts the Ministerial monitoring committee meeting from the 28 -30th November 2011, Ghanaian public and institutions are called upon to reject the IEPA and the solo agenda of the Trade Minister since it fits into the divide and rule tactics of the European Commission. The Minister is called upon to push for a regional solidarity fund as the best tactics against the pressure of the EU.