And so far, influential EPA advocates are in the lead, according to Yash Tandon, former head of the South Centre and critic of African EPAs with Europe. As corporate proponents advance the trade deal, negotiations threaten East African unity at a critical time in its still early development.
The Economic Partnership Agreement (EPA) to open trade between East Africa and Europe is still on the table. At a three-day conference in Dar es Salaam negotiators walked away from the disputed deal, but promised to come back to it.
A deadline was set at the 7-9 June conference to sign the EPA and usher in freer trade between the two regions by the end of November 2010. A deal was first initialed in 2007 between the East African Community (EAC) of Tanzania, Rwanda, Burundi, Uganda and Kenya, and the bloc across the table, the European Commission (EC). This was the Framework for an Economic Partnership Agreement (FEPA), drafted as a temporary stand-in to await a mutually agreed EPA, but a formal deal has not since been reached because of an impasse over several key issues.
In fact, the conference in Dar es Salaam was supposed to cut off the ‘Framework’ from FEPA to secure a legally binding deal, but the EC didn’t get the signatures it was looking for.
‘We would have preferred to sign,’ said Eric van der Linden, head of the Delegation of the European Commission in Kenya, whose sights are now on talks leading up to November. ‘In trade negotiations, you have to be optimistic.’
Van der Linden said while he was hopeful to close the deal, he was not surprised the EAC withheld because the week before the East African Legislative Assembly (EALA) resolved to delay signing the EPA in its current form. The 3 June resolution urges the European Union (EU) to work with the EAC ‘to include interests of both parties.’
But critics of the EPA, glad for the latest hitch in trade talks thanks to the independent legislative arm of the EAC, should curb a positive outlook.
The November deadline comes when the EAC common market, which opens in July, will still be finding its feet, and the accelerated negotiation puts pressure on both sides to quickly resolve outstanding issues, said Yash Tandon, co-founder of the Southern and Eastern African Trade Information and Negotiations Institute and former executive director of the South Centre.
Key unresolved issues are: Losing export taxes that protect domestic industries against highly competitive and cheap European goods; EU concessions on economic and development cooperation; and the most favoured nation (MFN) clause that would force the EAC to duplicate for Europe any external preferential trade agreements with, for example, China or India. The implications of these final bargaining chips have drawn an allusion from EPA critics like former Tanzanian president Benjamin Mkapa of this latest European effort to secure access to East Africa to the infamous 1884 Berlin Conference, dubbed the Scramble for Africa.
‘Europe will not concede on these issues,’ Tandon said, an unsettling reality because the EC-EAC negotiations are ‘heavily asymmetrical.’
Tandon said negotiations are firmly in Europe’s favour as an established bloc with strong members, while the EAC is only recently a unified region and four of its five members are UN-classified least developed countries (LDCs). With its weight, Tandon said Europe is able to negotiate EPAs that are crippling for African regions by using deadlines like the one now set for the EAC; ‘carrot and stick’ bargaining like aid and threatening or imposing sanctions – as done to Zimbabwe; and by taking advantage of regional fragmentation.
REGION IN PIECES
A significant destructive consequence of EPA bargaining with Europe is the subtle corrosion of unity in the African economic regions. Regional division is to Europe’s advantage and fits their ‘divide and conquer’ strategy for Africa, Tandon said.
The EAC is still negotiating as one bloc, but fragmentation is not unknown in the African Economic Community in EPA negotiations. In June 2009 four members of the Southern African Development Community (SADC), Botswana, Lesotho, Swaziland and Mozambique, signed an Interim Economic Partnership Agreement (IEPA) with the EC. Other key members of this community, like South Africa, rejected a similar deal. South African commentators criticised the negative impact of EPAs on regionalisation, among other reasons like the probable trade diversion from other continents and the expected loss from cut export taxes.
The SADC is now in a position where some members have opened trade with Europe and some have not, but a handful of countries in both camps are part of the Southern African Customs Union (SACU) that promotes free trade between member states. To protect itself from an inflow of European goods via other SACU members friendly to EPAs with Europe – Swaziland, Lesotho and Botswana – non-IEPA signatory South Africa could choose to drive a tariff wall through its own customs union, Tandon said.
The EAC should learn from the experience of its southern neighbours at a time that will critically test East Africa’s unity, Tandon said. The EAC Common Market Protocol will take effect from1 July and the varied preparedness and enthusiasm of member states have already sparked questions on their commitment to unity.
While divisions remain informal in the EAC, the powerhouse of the region has familiarly gone rogue, but unlike South Africa’s position in the SADC, top players in Kenya are leading the drive to let Europe in.
Kenya is the region’s EPA proponent, Tandon said, because Kenya stands to lose the most if it is not signed. As LDCs, the other four EAC members enjoy duty-free and one-way trade to rich country markets, including those in Europe. Kenya, a non-LDC, does not enjoy this benefit – as preferential trade under the Cotonou Agreement between the African, Caribbean and Pacific (ACP) countries (including Kenya) and the EU expired in 2007, to be replaced by EPAs.
The EPA is designed to end non-reciprocal preferential trade of goods from developing countries into European markets by taking down trade barriers against European goods flowing the other way. EPAs make open trade a two-way street. For LDCs though, duty-free trade can remain one-way – so of the EAC countries, it’s Kenya that’s sweating.
To maintain its duty-free ride into European markets, exporters in Kenya are lobbying to stamp and sign the EPA, and support letting East African protective tariff walls crumble to do it.
Kenya’s biggest exporting industry is horticulture, and flowers make up 90 per cent of its exports. This has landed the flower industry firmly behind the EPA.
Without this trade deal, the half million people directly employed by the horticulture industry and 4.2 million it indirectly employs would be heavily hit by the alternative – an end to duty-free access to Europe, said Jane Ngige, CEO of the Kenya Flower Council.
The industry currently benefits from zero-rated tariffs on some products and an average of 2.59 per cent on exports to Europe, its biggest foreign market where it enjoys a 24 per cent market share. During the airway disruption in April as volcanic ash drifted over Europe the horticulture industry lost an estimated Ksh231 million per day, CEO Stephen Mbithi of the Fresh Produce Exporters Association of Kenya told reporters. Last year the industry brought in US$924 million; Kenya’s biggest foreign currency earner.
‘If we lost the EPA we will not be competitive in the marketplace, so we will lose exports,’ Ngige said. ‘Kenya would be losing these jobs.’
But jobs in less established and developing industries in Kenya and the region would be lost if the EPA is signed, Tandon said.
‘Many industries [in the EAC] need a tariff wall,’ Tandon said. ‘Without it, you get deindustrialisation as a result.’
It is small and medium-sized industries that should oppose EPA membership but it is the big exporters as well-organised lobbyists that are whispering into the ears of EAC trade ministries, Tandon said.
A POLITICAL PLUS
Another tactical push for EPAs, despite drawbacks like flushing domestic markets with cheap EU goods and preserving that unsavoury privilege with the MFN clause, is the ‘carrot and stick’ benefits Europe is sliding over the table, Tandon said.
The 2010/11 budget recently made headlines in Kenyan dailies as a towering tab without the coffers to settle.
The Ksh997 billion budget projection will be supplemented by €500 million – US$602 billion – from the EU, a rise of 25 per cent from assistance in 2009/10.
Tandon called it a motivator from Brussels for the EC’s star proponent for an East African EPA.â¨Van der Linden refused comment.
‘I’ve never heard about this,’ van der Linden said. ‘If we are [supplementing Kenya’s budget], it’s news to me so I can’t comment.’
The supplement was announced on 12 June by the EU. Tandon said such financial giveaways erode African independence and strengthen the negotiating position of the donor.
‘All these countries are highly dependent on aid. Europe is going to leverage that.’
To even the standing leading up to the November EPA deadline, Tandon advised EAC members to continue to work as a unified region to guard against damaging concessions.
One way to ensure EAC members participate equally is to engage the countries’ parliaments in debate over what an EPA means for each member. Subjecting the Framework to parliamentary ratification would open dialogue to all players instead of leaving it to the few and influential, Tandon said.
‘The tail is wagging the dog right now. Kenya is wagging the rest.’