Al Jazeera | 22 Jun 2014
West Africa and Europe trade: Who will benefit more?
With controversial concessions made in a recent trade agreement with the EU, West Africa stands to lose a lot.
On February 24, ten years after negotiating an Economic Partnership Agreement (EPA) with the European Union (EU), the Economic Community of West African States (ECOWAS) negotiators agreed on a final document. The trade pact was supposed to be approved by the Heads of State at their 44th Ordinary Summit in Yamoussoukro, Cote d’Ivoire.
ECOWAS leaders agreed in principle to the trade agreement but put it off until concerns raised by the regional heavyweight, Nigeria, were addressed before a final decision can be taken. The problem with the EPA is that a number of concessions made by ECOWAS can deal a severe blow not only to the agricultural sector but also to manufacturing and thus the entire development agenda of ECOWAS member states.
The greatest blow is the loss of policy space for ECOWAS member states to craft an industrial path that serves the interest of the West Africa region.
Limited protection of local markets
Firstly, the agreement prohibits the use of tariffs as a tool for industrial development. Tariffs or import duties are used by countries to create a wedge between domestic and foreign products in order to create advantage for locally produced goods. This helps to sustain local businesses that are at an early stage of development. Most West African countries’ bound tariff rates for agricultural products at the World Trade Organisation (WTO) are about 99 percent.
For instance Ghana’s bound tariff on poultry products is 99 percent while its applied tariff is currently 20 percent. With the advent of the EPA, Ghana loses its right to protect local poultry farmers using tariff as a tool because no new duty can be imposed and the current rate cannot be raised.
The second provision that deprives West Africa member states of the needed space for development is the use of export taxes. Export taxes are used by countries to make a particular raw material available for local use. For instance Ghana used to have an export tax on scrap metal with the aim of making the material available for the local manufacturing sector. Again, a country like Kenya has an export tax on raw leather that makes the product available for local value addition in the Kenyan economy. Even the UK, for instance, like most developed countries, imposed exports taxes on raw wool and hides for its industrial development.
This agreement also insists that any favourable trade concessions that ECOWAS grants to a third party with a share of global trade in excess of 1.5 percent, ECOWAS will have to consult the EU. This gravelly undermines national sovereignty and South-South cooperation. As pointed out by the African Union and UN Economic Commission for Africa, this provision is controversial for a number of reasons.
The Most Favoured Nation (MFN) clause goes against the principles of the Enabling Clause of the World Trade Organisation, which expressly provides for the possibility of preferential agreements among developing countries.
Also there is no WTO rule that requires the inclusion of the MFN clause in a free trade area like the EPA. The EU’s own experience proves this point. In the EU-Mexico free trade agreement signed in 2001, there is no MFN clause.
Losses for local manufacturing
The second major area of loss concerns the liberalisation of 75 percent of trade over 20 years for West African countries. This will sacrifice manufacturers in the light industrial sector which form the basis for heavy industrial development. This targets goods such as aluminium, insecticides, soap and detergents, wire and metals, wood products etc. These constitute the heart of manufacturing in most West Africa countries. The regional market would be open for European take over once the trade pact is approved and implemented.
Worse still, this is happening at the time trade trends are changing rapidly in West Africa and Africa at large. Africa has been and remains the much larger market for ECOWAS manufactured products. Europe remains a large market for raw materials but Africa’s manufactured exports to the intra-African market are growing at a much faster pace than the exports to the EU market.
If West Africa countries are to move away from primary commodity dependency and become a manufacturing hub, the Africa market remains their best option. However, this market risks being taken over by European goods.
Also the agreement claims to protect the agriculture sector through the so-called sensitive list. That is some products would be selected for protection, but that will not really help West African farmers. The main problem in relation to the EU has been the huge domestic support granted to its producers to make their products cheaper in the outside market. The EU claims to be reducing its trade distorting subsidies by opting for "green box" subsidies, which are deemed to be non-trade distorting. So the total domestic support remains the same. However, there is increasing evidence that "green box" subsidies do distort markets and in fact put farmers in developing countries at a disadvantage. Furthermore, while the EU has shifted billions towards "green box" subsidies, it has continued to maintain high levels of trade-distorting subsidies.
The ways that West Africa can protect its agriculture from these subsidised imports are through the use of tariff policy and quantitative restrictions but these are prohibited with the advent of EPA. The text only contains weak safeguard provisions that West Africa countries will find difficult to invoke in case of import surges.
Sadly, West Africa has also conceded to forgo its tariff revenue in return for promised aid by the EU. Revenues to be forgone are even more than the uncertain aid. For instance Ghana might lose over $300m per year, as estimated by the South Centre, if it signs the EPA. The region as a whole stands to lose $1.8bn annually in import tax revenues. In return the, EU promises EUR6.5bn ($8.8bn) for the whole region over a period of five years. This pales in comparison to the revenue that would be forgone.
Worst of all, EPA also requires that within six months of conclusion, negotiations must begin to extend this regime from one that covers trade in goods into a treaty governing almost every other aspect of economic activity and policy decision-making in West Africa.
This means Europe will now be consulted on decisions of West Africa with regards to financial services and financial policy in areas such as current account and capital account management; all other service sectors; technology policy and intellectual property, including traditional knowledge and genetic resources; personal data protection and use; competition and investment and government procurement. The EPA is fundamentally an attack on national sovereignty.
Sylvester Bagooro is a Programme Officer at Third World Network Africa