East African trade ministers reached consensus on EPA, bringing the process near close (republished)

24 September 2014

[updated version of Bridges Africa article from September 18, 2014] [see erratum, Tuesday 30 September]

 

The member states of the East African Community (EAC) reached a consensus on the draft Economic Partnership Agreement (EPA)  following a ministerial meeting held in Arusha, Tanzania. To date, discussions to seal a deal with the EU are still on-going. Brussels already concluded two other such agreements involving African country blocs, namely the Southern African Development Community (SADC) and the Economic Community of West African States (ECOWAS), in the past months. 

 

“We were able to agree and all of us were able to sign on to the economic partnership draft,” Kenyan Foreign Affairs Cabinet Secretary Amina Mohamed told reporters following the ministerial meeting. Further meetings are scheduled this week to finalise the agreement, Mohamed added.

 

The process to establish EPAs between the EU and various regional groupings of African, Caribbean and Pacific (ACP) countries began over a decade ago, with the goal of ensuring trade reciprocity, promoting sustainable development, and advancing integration between the parties involved.

 

In the case of Africa, two regional EPAs – those involving ECOWAS and SADC, respectively – were concluded this past July.

 

“SADC has signed and ECOWAS has signed so we’re the last ones to it but it’s also safe to say that we probably got a very good deal,” Mohamed said.

 

Even with the EAC consensus on the draft agreement, however, some uncertainty remains regarding how the EU will treat East African exporters from 1 October onward. This date is the deadline that the European Commission established three years ago for withdrawing the market access regulation “MAR 1528,” which currently provides duty-free, quota-free (DFQF) market access to ACP countries.

 

Some analysts have warned of an elimination of preferential margins between 1 October and the ratification of the EAC EPA. Others have suggested that it would be enough for these East African countries to have initialled the agreement before the deadline in order to preserve their DFQF access to the European market.

 

Export taxes as sticking point

 

A week before the consensus was reached, the EAC’s chief negotiator Karanja Kibicho said that the Eastern African bloc “will remain firm on the issue of taxes on exports.”

 

In this context, he affirmed that the EAC was planning to negotiate with Brussels how long it will be allowed to maintain export taxes. Moreover, Kibicho specified 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 was one of the most contentious issues in the EPA talks. Export taxes are perceived to be trade-distorting by some countries, while others insist on maintaining some policy space for their use, given their potential as a tool for industrial development.

 

The latter position has been questioned by some experts, who argue that there is little evidence on the welfare effects of export taxes. Since the text of the draft EAC EPA is not yet publicly available, it could not be determined how negotiators resolved this contentious issue.

 

As an indication of how export taxes were addressed in other agreements, the European Centre for Development Policy Management’s (ECDPM) comparative analysis of the SADC and ECOWAS EPAs shows that both agreements contain flexibility provisions for countries to apply export taxes in exceptional circumstances – such as for specific revenue needs, the promotion of infant industries, or for environmental protection.

 

While the ECOWAS deal allows for temporary export duties on a limited number of products after consultation with the EU, the SADC version 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.

 

However, the SADC partners have also committed to ensuring that their export taxes do not reduce supply on the European 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.”

 

Non-execution clause

 

Until recently, sources indicated that East African leaders were hesitant to sign a trade agreement that includes a non-execution clause – in other words, a clause that permits the deal’s suspension in instances of proven human rights violations.

 

A non-execution clause would entitle the European Commission to take trade measures against partner countries failing to abide by the principles of humans rights, democracy, and good governance. These measures are 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 a series of allegations of human rights violations. For example, in 2011 the ICC decided to press charges against current Kenyan President Uhuru Muigai Kenyatta for crimes against humanity in the aftermath of the election-related violence seen in December 2007. A hearing on how to proceed with the trial is scheduled for early October in the Hague, though whether Kenyatta would attend was still unclear at the time of this writing.

 

Based on the documents available, it could not be assessed whether human rights issues are explicitly addressed in the draft EAC-EU EPA. With respect to the SADC and ECOWAS agreements, the ECDPM found that both EPAs “do not contain an explicit non-execution clause,” noting instead that the deals refer to the Cotonou Agreement “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 economy in the region that is not a least developed country (LDC). If the European and East African negotiators do not manage to secure a deal, Kenya would incur high costs due to the elimination of preferential margins, given that it would shift to the EU’s Generalised System of Preferences. Meanwhile, LDCs would continue to benefit from DFQF access to the EU under the Everything But Arms regime. 

 

Analysts suggest that the potential move to the GSP could expose Kenya to an immediate 12 percentage point surge in duties for all products entering the EU.

 

The Kenyan flower industry, which accounts 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.”

 

Challenging transition to implementation

 

Given the protracted nature of the negotiations, along with the results seen in the case of more mature agreements such as the CARIFORUM-EU EPA, experts have suggested that the implementation of the trade deal may pose its own series of challenges.

 

The CARIFORUM group, which is made up of 15 Caribbean countries, signed an EPA with the EU in 2008. In the years since, only some member states in both regions have ratified the agreement. In addition to this asymmetry, several years passed before the envisaged development cooperation was put into operation through programmes and projects.

 

Furthermore, besides needing to amass the necessary political will to implement 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.   

 

ICTSD reporting;  “EAC Five sign EU trade deal,” THE STAR, 22 September 2014; “EAC strikes economic partnership deal to join EU,” CAPITAL NEWS, 21 September 2014; “Global court orders Kenyan president to attend hearing,” REUTERS, 20 September 2014;  “Civil Society raises concerns over EAC-EU trade deal,” THE STAR, 16 September 2014; “Region gets closer to deal on trade with EU,” THE EAST AFRICAN, September 13, 2014;  “Africa in the News: EAC Debates EU Trade Agreement,” BROOKINGS, 12 September 2014; “Roundup: Kenya says EAC-EU trade talks to conclude before deadline,” XINHUA NEWS AGENCY, 11 September 2014; "EAC partner harmonise position on EU trade pact", Allafrica, 23 september.

 

Erratum: This article was corrected on Tuesday 30 September. The previous version contained inaccurate terms leading to think that the EU EAC negotiations were over. In fact negotiations to conclude the deal with the EU are still on-going. A consensus was reached on a preliminary draft agreement at the ministerial level following an EAC Council of Ministers meeting held in Arusha, Tanzania on 20 September. 

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