Will the trade-off be worth it?
Business Day, South Africa
Will the Trade-Off Be Worth It?
By Mathabo le Roux, Johannesburg
7 May 2007
The pressure is on developing countries to finalise economic partnership agreements with the European Union, says Mathabo le Roux.
On the surface, the European Commission’s argument on how it sees economic partnership agreements with developing countries in the African, Caribbean and Pacific regions playing out, is compelling.
The trade in these regions is governed by the Cotonou agreement, a decidedly one-sided affair that ensures developing countries enjoy preferential access to European markets with no reciprocal treatment for European goods.
In fact, Cotonou is so one-sided that it is incompatible with World Trade Organisation (WTO) rules, and elicited grumbles from other developing markets, who challenge the advantages these select markets enjoy from the European Union (EU) as prejudicial. A WTO-granted waiver to allow for this trade relationship to become compliant with international trade rules expires at the end of the year, which is why the economic partnership agreements (EPAs) are currently being renegotiated.
But even though African, Caribbean and Pacific (ACP) countries have enjoyed preferential access to European markets, they still export only a few basic commodities. And the prices of many of these commodities are in long-term decline.
EU trade commissioner Peter Mandelson described the situation in a briefing on the partnership agreements in Brussels last month as a case of the ACP countries trading a "shrinking island of commodities in an ocean of the global economy", which was simply not sustainable.
Part of the problem is supply-side constraints and market capacity. The EU wants the EPAs to aim at integrating the ACP into the world trading economy and increasing the quantity and diversity of their trade. The core objective is to bring each EPA region under a single trade regime to encourage regional integration, the growth of regional markets and the creation of regional supply chains.
To tackle market constraints, the EU wants to implement a deal that covers services, including financial services, telecoms, transport and government procurement. Services, the argument goes, are the basis on which other sectors of the economy depend and therefore should be central to the development aim.
An agreement on services, the European Commission believes, would create more homogenous standards across participating regions, and this would enhance legal predictability, lower costs, enhance competitiveness and ultimately stimulate foreign direct investment.
But the question many are asking is for whom the EU wants this predictability. Peter Draper, a research fellow at the South African Institute of International Affairs, points out that services reforms, which mostly relate to regulatory issues, are likely to have a knock-on effect on the markets which accede to the reforms. Developing countries should be given time to study the effect that reforms would have on their markets before making commitments.
However, with the deadline for the conclusion of a deal set for the end of the year, there simply will not be enough time. As it is, the EU took a year to positively respond to a request that SA be included in the partnership agreement negotiations. The delay is understandable, since the EU had to establish whether any sectors in the EU in particular would be at risk from an influx of South African goods if duty-free access was granted to SA.
A study on the effect of SA joining the EPA found that the supply response from SA to duty-free access to the EU was likely to be minimal, with the possible exception of sugar and beef. The likelihood of SA compromising the access of other developing countries was found by the study to be modest, again with the possible exception of sugar and beef.
Despite these findings, the EU still argues for differential treatment for SA. Moreover, it appears that SA’s inclusion in the EPA has hardened the EU’s stance on pushing through binding commitments on services from developing countries.
At the briefing in Brussels, Mandelson reiterated that the EPAs were agreements and the EU, had "no desire to impose a decision" on the ACP. But, given the tight time frame, developing countries may feel pressured to concede on services to get a deal concluded before the expiry of the deadline, making Mandelson’s words ring rather hollow.
An overhasty agreement on services without proper scrutiny of the likely effect of reforms achieves the opposite of what the EU is envisaging with the partnership agreements and undermines development.
Also at the Brussels briefing, Mandelson said assumptions that the ACP regions could not negotiate their own deals was "patronising and wrong". But the direction the economic partnership agreement is taking seems to suggest that the ACP’s negotiating space is clearly delineated by the framework the EU dictates.
