Côte d’Ivoire’s EPA: Between a rock and a hard place
When senior officials and chief negotiators from West Africa and the EU reached a deal on a regional EPA earlier this year, it appeared to be a result which guaranteed market access to the EU while reinforcing West Africa’s trade integration. However, the signature of this agreement has since been delayed and its content is being called into question as Nigeria and other countries assess whether the deal is in the interest of their economies.
If key partners in the West African region choose not to sign and implement the regional EPA, Côte d’Ivoire will face a daunting choice – lose its preferential access to the European market or undermine its regional integration with West Africa under the ECOWAS Trade Liberalisation Scheme (ETLS). It is a very difficult position for a country which prides itself as both the motor for integration in West Africa and the region’s biggest (non-oil) exporter to Europe.
The Ministry for African Integration (which is responsible for EPA negotiations as well as West African regional integration) has a very clear view on this potential dilemma. “Our Leaders have given us a mandate to negotiate a regional EPA which promotes development and reinforces regional integration in West Africa” says Stéphane Aka Anghi, Conseiller Technique at the Ministry of African Integration, “as long as a regional EPA remains on the agenda, it is our plan A, B and C”.
Market access to the European Union
Côte d’Ivoire officials are acutely aware of what they stand to lose if no reciprocal free trade agreement is reached with the EU by October 2014. Chief among their concerns is preferential access to the EU for their main exports including cocoa, bananas, wood, tuna and a range of other products.
Without continued duty-free quota-free access to the EU market, these industries could disappear or, at the very least, they would suffer drastic reductions in exports. Exports of these products at preferential rates account for one third of Côte d’Ivoire’s total exports to Europe and generate millions of jobs, especially in vulnerable rural communities.
In the case of tuna and the four canneries which the industry supports in Côte d’Ivoire, exports to the EU are the backbone of the business. With trade preferences removed, and no EPA in place, tariffs would rise from zero percent to over 20 percent – a move that could wipe out the entirety of Côte d’Ivoire’s exports to Europe. Ivorian industry is already coming under increased competition due to preference erosion with respect to some competitor countries, such as South Korea which can now export tuna at a tariff of 12 percent under the EU-Korea FTA.
However, failure to reach a deal would not just undermine Côte d’Ivoire’s exports of primary products to Europe - it could also reverse the industrialisation process already underway in some sectors. The case of cocoa illustrates the dilemma they are facing.
Côte d’Ivoire is the world’s leading producer of cocoa (it is responsible for around one third of global production) and the sector is directly or indirectly responsible for millions of livelihoods in the country. Côte d’Ivoire is currently using its comparative advantage in cocoa to move up the value chain and start exporting value-added cocoa products. While this process is in its infancy, it is a promising sector which could create higher paying industrial jobs and contribute to the country’s development.
If Côte d’Ivoire finds itself under the Generalised System of Preferences (GSP) later this year, its cocoa industry will certainly survive in some form. However, the high tariffs in the form of mixed or specific duties on finished chocolate products, as well as the 9.6 percent ad valorem rate for cocoa paste, would drive Côte d’Ivoire back down the value chain to being a mere commodities exporter (with duty-free entry for cocoa beans).
Solidarity with the West African region
It is too early to start thinking about a plan B and Côte d’Ivoire continues to invest fully in reaching agreement on a regional EPA which preserves its market access to Europe and strengthens regional integration. However, many actors in the region are starting to think about what might happen if the regional deal falls through and various ECOWAS countries, including Côte d’Ivoire, start to seriously consider bilateral deals with the EU.
Such bilateral deals, rather than a region-wide EPA, would make the West African common market unworkable and Côte d’Ivoire could lose many of the benefits it currently enjoys under the ETLS. These benefits include preferential access into the markets of other West African countries for products which have been approved under the ETLS.
Côte d’Ivoire understands the importance of West Africa’s regional integration - it has played a key role in driving the process and is responsible for around one quarter of trade in the region. Further, for some of its industries, and especially for processed and industrial products, West Africa represents a much more significant market than Europe.
For the Grand Moulins d’Abidjan, with their towers visible from all around the city, any move away from Côte d’Ivoire’s integration with West Africa would be disastrous. They do not export to the EU, but harvest one fifth of their turnover from trade in West Africa. Flour is a highly sensitive product in the region and their preferential access to markets is thanks to the ETLS.
Each country in the region has to manage its own nuances and trade interests. For example, Ghana is at a similar stage of development to Côte d’Ivoire and is facing a similar dilemma, however it has a different export profile and this has influenced its approach to EPA negotiations. Ghana’s overall exports to the EU are worth only half of what Côte d’Ivoire exports. Moreover Ghana has gone further along the path of producing industrial products for the West African market and has developed a range of employment-generating sectors such as plastics, pharmaceuticals and wood and furniture products.
Nevertheless, the failure to reach a deal in the EPA negotiations would see Ghana lose access to the EU market for certain key commodities such as bananas, tuna and cocoa. Despite the importance of the regional market for Ghana’s processed products, it would be unlikely to seriously consider any outcome which resulted in lost access to Europe for these important commodities.
Fragmentation of West African trade policy
Many in West Africa argue that if a regional EPA cannot be delivered then Côte d’Ivoire should sacrifice its access to the EU market and prioritise regional integration under the ETLS. Nigeria adopted a similar path when it chose not to sign an interim EPA in 2007 and saw its preferential access to the EU downgraded from the Cotonou regime to the less-generous GSP.
However, the trade flows suggest that this would be a much more difficult decision for Côte d’Ivoire as it is responsible for almost forty percent of West Africa’s non-oil exports to the EU. Despite the much larger size of its overall economy, Nigeria’s non-oil exports to the EU are worth only one third of what Côte d’Ivoire exports. In addition, Côte d’Ivoire trades more in those products covered by Cotonou but excluded from the GSP (such as cocoa and bananas), compared to Nigeria’s overwhelming reliance on petrol exports to the EU which remain duty free even under the GSP regime.
While a bilateral EPA between Côte d’Ivoire and the EU would undermine West Africa’s goal of integration, the reality is that trade policy has been fragmented in the region since the EU’s Cotonou regime was found to be inconsistent with WTO rules in the 1990s.
Out of 16 countries in West Africa (the 15 members of ECOWAS plus Mauritania which has joined the bloc for the purpose of EPA negotiations), 12 are currently classified as LDCs and qualify for duty-free quota-free treatment under the EU’s “Everything But Arms” regime. These countries have tended to be less supportive of opening their markets to competition from Europe as they have little risk of losing preferential access to the EU in the near future. Nevertheless, these countries aspire to graduating from LDC status and would be adversely affected by any developments which undermine ECOWAS trade integration.
Cape Verde, which graduated from LDC status in 2008, exports to the EU under a regime which no other West African country shares. In December 2011, it became the first African country to gain GSP+ access to the EU market, though this access must be regularly renegotiated and it remains conditional on satisfying certain criteria relating to human rights, labour rights and the environment.
Nigeria has been under the GSP scheme since 2007 and Ghana and Côte d’Ivoire have had their duty-free quota-free preferences extended since they initialled interim EPAs in December 2007.
Even if Côte d’Ivoire and other non-LDCs in the region renounce the EPA with the EU, they would still be a long way from having a harmonised and coherent trade policy in West Africa. There would be several different regimes governing trade relations with their most important export destination - the European Union. Further, some countries in the region have already started entering into bilateral deals with other trade partners.
The next few months will be critical in determining the future of trade policy in West Africa, especially with regard to access to the European market and regional integration under the ETLS. Notwithstanding the different circumstances in each of their economies, ECOWAS countries are working hard with their civil society, business groups and development partners to find a solution.
No deal in the EPA negotiations may turn out to be a very bad deal for key industries in Côte d’Ivoire and other ECOWAS countries. They have a strong interest in finding a way to retain an integrated West African region with continued access to the European market.
Author: Ben Czapnik – Adviser, International Trade Centre. He worked with the government, private sector and civil society of Côte d’Ivoire on EPA and regional integration issues under the Programme d’Appui au Commerce et à l’Intégration Régionale (PACIR)
The views expressed herein are those of the author and do not necessarily reflect the views of the International Trade Centre or of the United Nations
Credit Photo: @Jan Hoffmann