EAC-EU EPA deal in sight with deadline for conclusion looming
After years of negotiations, the Economic Partnership Agreement (EPA) between the East African Community (EAC) and the European Union (EU) could be reached before the end of this month.
“We are optimistic (…) [the EU] will and we shall meet the October 1 deadline” declared Nelson Ndirangu, director of economics and international trade at the Kenyan Ministry of Foreign Affairs. EU and EAC officials will meet next week in an effort to converge towards a final agreement.
EPA negotiations began over a decade ago with a view to providing trade reciprocity, promoting sustainable development, and advancing regional integration between various regional groupings of African, Caribbean and Pacific countries and the EU. With respect to Africa, two regional EPAs, namely the agreements between the EU and the Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC), were concluded in July this year. A successful conclusion of the third and final EAC-EU EPA would close the chapter of a long negotiation process between Africa and Europe.
The slow pace of the EPA negotiations has long been a source of tension between the EU and African countries. In an effort to speed up the talks, the European Commission announced in September 2011 that it would be imposing October 1, 2014 as a deadline for the withdrawal of the market access regulation “MAR 1528” that currently provides duty-free, quota-free market access to ACP countries. Should the latter not agree on an EPA by this deadline, they could potentially lose their free access to the EU market.
The planned EU-EAC EPA, if ratified, would establish a free trade area between Europe and the five East African countries Burundi, Kenya, Rwanda, Tanzania, and Uganda.
Export taxes as the last hurdle
“We are now consolidating the EAC’s common position and we will remain firm on the issue of taxes on exports,“ said the EAC chief negotiator Karanja Kibicho after an emergency meeting of the regional bloc in Arusha on September 11. He affirmed that the EAC is now planning to negotiate with the EU how long it will be allowed to maintain exports taxes. Moreover, sources indicate that Kibicho precised that the proceeds from the taxes on raw materials would be channelled to the development of infant industries, food security and currency stabilisation.
The political dimension of export taxes has been the most contentious issue in the EPA negotiations. Export taxes are perceived to be trade distorting by some countries while others insist on maintaining policy space in their use as they view them as a tool for industrial development. The latter position, in turn, is countered by some experts arguing that there is only little evidence on the welfare effects of export taxes.
The European Centre for Development Policy Management (ECDPM) has made a comparative analysis of the SADC and ECOWAS EPAs which shows that both agreements contain flexibility provisions for countries to apply export taxes in exceptional circumstances in case of specific revenue needs, to promote infant industries or for environmental protection. While the ECOWAS EPA allows for temporary export duties on a limited number of products after consultation with the EU, the SADC EPA contains more specific provisions on export taxes which can be levied during a maximum of 12 years and for up to eight (HS6 tariff line level) product categories.
That said, the SADC partners have also committed themselves to ensure that their export taxes do not reduce the supply on the EU market below current levels in the first six years and below 50 percent of current levels in the remaining six years. Therefore, the ECDPM concludes that at least in the short term, export taxes “may have only little effect to retain inputs for local production.” It remains to be seen to what extent these export tax provisions will serve as a blueprint when the EU and EAC delegations take their seats at the negotiating table next week.
Uncertainty about non-execution clause
Until recently, sources indicated that East African leaders were not keen to sign a trade agreement that includes a non-execution clause – in other words, a clause that permits the deal’s suspension in cases of proven human rights violations.
A non-execution clause would entitle the European Commission to take trade measures against partner countries not abiding by the principles of humans rights, democracy and good governance. These measures are also aimed at strengthening criminal justice both at the domestic level in Africa and globally with the International Criminal Court (ICC). Lately, the East African region has been confronted with allegations of human rights violations. For example, in 2011 the ICC decided to press charges against the current Kenyan President Uhuru Muigai Kenyatta for crimes against humanity in the aftermath of the December 2007 presidential election. The start of the trial is scheduled for October 7 this year. More recently, Uganda was criticised for newly introduced laws allowing for life imprisonment for “aggravated homosexuality” and banning the “promotion of homosexuality”. In August this year, Uganda’s Constitutional Court annulled the anti-gay legislation.
Based on the documents available, it could not be assessed whether human rights issues are explicitly addressed in the latest draft EAC-EU EPA. As an indication of how this specific issue was settled in other agreements, the ECDPM found that both the SADC and ECOWAS agreements “do not contain an explicit non-execution clause (…) [but] instead, a reference is made to the Cotonou Agreement (…) but with no specific (…) [mention of] human rights or the rule of law.”
High stakes for Kenya
The pressure for concluding the EPA negotiations is particularly high for Kenya which is the only non-LDC in the region. If the European and East African negotiators don’t manage to secure a deal in the coming weeks, Kenya will incur high costs in the form of the elimination of preferential margins – as the country will shift to the EU Generalized System of Preferences – while LDCs will continue to benefit from duty-free-quota-free access to the EU under the Everything But Arms regime. Sources suggest that the potential move to the GSP could expose Kenya to an immediate 12 percentage points surge in duties for all products entering the EU.
The Kenyan flower industry, accounting for approximately 25 percent of national GDP, is reported to be highly concerned about a potential failure of the EPA negotiations. Specifically, the Kenya Flower Council fears market share losses because competitors such as “Colombia, Tanzania, Uganda, Rwanda, Burundi and Ethiopia [would] continue to enjoy their duty free-status.”
"We appeal to the EU to think of the welfare of the thousands of workers who earn a living in the cut flower industry. Over 70 per cent of workers in that industry are women, most of whom are single parents," said Eunice Waweru of the Nairobi-based non-governmental organization Workers Rights Watch.
Despite these considerations, observers also note that rather than striking a bilateral deal with the EU if the EPA is not achieved before October 1 2014, Kenya – similar to other African non-LDCs – ought to secure a complete adherence to the agreement from all members in order to maintain the integration integrity at the regional level.
Challenging transition to implementation
Experts indicate that given the protracted nature of the negotiations and as witnessed in the case of more mature agreements such as the CARIFORUM-EU EPA, the implementation of the trade deals can also be challenging. The experience in the Caribbean region has shown that after the conclusion of the EPA with the EU, not all member states in both regions have ratified the agreement. In addition to the asymmetry in ratification, several years passed before the envisaged development cooperation was operationalised through running programmes and projects. Importantly, beside the political will for implementing an EPA, ACP governments also need to have sufficient public revenues, which has not been the case during the most recent financial and economic crisis.
Sources: The Star, Civil Society raises concerns over EAC-EU trade deal, September 16, 2014; The East African, Region gets closer to deal on trade with EU, September 13, 2014; Brookings, Africa in the News: EAC Debates EU Trade Agreement, September 12, 2014; Xinhua News Agency, Roundup: Kenya says EAC-EU trade talks to conclude before deadline, September 11, 2014; BBC, Uganda court annuls anti-homosexuality laws, August 1, 2014; International Criminal Court, The Prosecutor v. Uhuru Muigai Kenyatta, February 2011