20070619 Draper

EU-Africa Trade Relations: The Political Economy of Economic Partnership Agreements: 

EU-Africa Trade Relations: The Political Economy of Economic Partnership Agreements Peter Draper Senior ECIPE Fellow And SAIIA Trade Research Fellow

OVERVIEW: 

OVERVIEW EPAs and African Development Challenges: Policy Perspectives What Kind of EPA? Case-study: The SADC EPA

A. EPAs and African Development Challenges: Policy Perspectives: 

A. EPAs and African Development Challenges: Policy Perspectives Governance Supply-side constraints Trade constraints

1. Governance: 

1. Governance Pervasive incapacities: Large states with dispersed populations Colonial boundaries and ethnic fragmentation Chronic institutional weaknesses “Aid for trade” Trade facilitation

2. Supply-side Deficiencies: 

2. Supply-side Deficiencies NB: Tenuous globalization Inadequate infrastructure Physical Financial Institutional Technological FDI unforthcoming, especially in services Therefore: Core infrastructure services liberalization “Aid for trade” Investor protection agreements Competition policy and institutions

3. Trade Constraints: 

3. Trade Constraints Commodity exporting development paths “Resource curse” “Dutch disease” Market access barriers to diversification Tariff escalation Locked in through preferences Small domestic and regional markets But others have overcome this (East Asia Inc.) Supply-side problems inhibit export expansion Trade liberalization Intermediate and capital goods especially, but also consumer goods Promote efficiencies and global integration

B. What Kind of EPA?: 

B. What Kind of EPA? Policy issues restated The matter of the waiver The goods agenda The regulatory agenda Aid for trade Regional economic integration The negotiating spirit

1. Policy Issues Restated: 

1. Policy Issues Restated Chronic state incapacities mean agenda must be: Tailored to African capacities Sequenced Not on my agenda: Intellectual property rights Government procurement Environment

Policy Issues Restated: 

Policy Issues Restated On my agenda: Goods trade Reciprocal liberalization Commodity protocols Regulations Trade facilitation Core infrastructure services Competition policy Investor protection agreements “Aid for trade”

What kind of design?: 

What kind of design?

2. The Matter of the Waiver: 

2. The Matter of the Waiver What happens when the ACP waiver expires at the end of 2007? Commodity protocols WTO-incompatible Therefore subject to challenge (some candidates) Uncertainty for suppliers and importers Therefore serious risk of trade disruption and diversion

The Matter of the Waiver: 

The Matter of the Waiver Options for the EU? Cut-off the grouping concerned Political feasibility and/or desirability? Probably not a realistic option Unilateral waiver extension and/or “live in sin”? WTO precedent for this (AGOA) EU fear of blowback for other negotiations, EU’s WTO “credentials”, and negotiating strategy (leverage) point to the latter If so then for how long?

The Matter of the Waiver: 

The Matter of the Waiver Seek new waiver But who pays? EU interest and/or political commitment? Graduate non-LDCs to GSP or GSP-plus? GSP-plus offers better access Non-LDCs may still be worse off (and without recourse) Rules of origin under both are problematic Treatment of sensitive commodities if latter? EU negotiating leverage Combination of “living in sin” and “GSP-plus” most likely until EPAs are concluded?

3. The Goods Agenda: 

3. The Goods Agenda Trade liberalization GATT Article XXIV - substantial flexibility Tariff revenues Import substitution? LDCs: EBA, rules of origin and regional integration Reciprocity: mercantilism and adjustment

4. The Regulatory Agenda: 

4. The Regulatory Agenda “Policy space” How much is enough? Should “good” policies be locked-in rather? Which politicians will pursue this? Tailoring and sequencing Trade facilitation Reinforced by core infrastructure services liberalization

Trading Across Borders can be challenging…: 

Trading Across Borders can be challenging… Source: World Bank (DoingBusiness)

Trading Across Borders: Africa: 

Trading Across Borders: Africa For those trading manufactured goods in Africa, customs and transport combined are the single greatest cost Exceeds tariff charges on exports to developed countries Approximately 70% of imported cargo is inspected (versus 5% in OECD) This has major implications for: supply-chain management Costs (cargo delays; inventories; corruption opportunities)

The Regulatory Agenda: 

The Regulatory Agenda Investor protection agreements Balance between: Foreign and domestic investors’ rights Investor rights and responsibilities Lack of a harmonized EU approach? BITs still the default option? Reinforces governance agenda Sceptical of “strategic management of foreign investors” Therefore competition policy How much should EU approaches be feared?

5. “Aid for trade”: 

5. “Aid for trade” Debate over efficacy of aid Which countries to support? Donor vs host-nation interests? Fiscal space, impacts and coherence (PRSPs) Broader development impacts Yet Sub-Saharan Africa is dependent and will remain so for a long while, with many needs identified above

“Aid for trade”: 

“Aid for trade” Therefore: Build absorptive capacities Promote good governance Bring China and other emerging donors into broader Aid processes Relationship between aid and trade negotiating agendas?

6. Regional Economic Integration: 

6. Regional Economic Integration Economics of African integration: Dependence on trade with external partners Intra-regional trade levels are low New economic geography: north-south better than south-south Agglomeration and its impacts Competition agenda Yet regional trade facilitation is important

Does Africa have a basis for formal regional economic integration?: 

Does Africa have a basis for formal regional economic integration? Source: The Economist True extent of cross-border trade?

Regional Economic Integration: 

Regional Economic Integration Politics Whose model of integration? Sovereignty newly acquired Eastern and Southern Africa are, err, confused! Spare some sympathy for the EU Legal implications concerning negotiated commitments?

Slide24: 

Ghana Nigeria AMU ECOWAS WAEMU São Tomé & Príncipe Egypt Burundi* Rwanda* DR Congo Malawi* Zambia* Zimbabwe* Comoros* Seychelles Mauritius* Madagascar* ECCAS COMESA SADC SACU CEMAC Mano River Union IGAD Mozambique IOC Tanzania1* Kenya* Uganda* EAC Ethiopia Eritrea Sudan Somalia South Africa Botswana Lesotho Namibia* Swaziland* Liberia Sierra Leone Cameroon Central African Rep. Gabon Equat. Guinea Rep. Congo Chad Cape Verde Gambia Guinea-Bissau Benin Togo Côte d’Ivoire Niger Burkina Faso Mali Senegal Conseil de l’Entente Guinea CILSS Angola Nile Basin Initiative Algeria Libya Morocco Tunisia Mauritania MAIN AFRICAN REGIONAL AND SUB-REGIONAL ECONOMIC INTEGRATION ARRANGEMENTS ACRONYMS AMU: Arab Maghreb Union CEMAC: Economic and Monetary Community of Central Africa CILSS: Permanent Interstate Committee on Drought Control in the Sahel COMESA: Common Market for Eastern and Southern Africa EAC: East African Community ECCAS: Economic Community of Central African States ECOWAS: Economic Community of Western African States IGAD: Inter-Governmental Authority for Development IOC: Indian Ocean Commission RIFF: Regional Integration Facilitation Forum SACU: Southern African Customs Union SADC: Southern African Development Community WAEMU: West African Economic and Monetary Union Reunion Djibouti 1/ Tanzania is also a member of the Nile Basin Initiative

7. The Negotiating Spirit: 

7. The Negotiating Spirit Stylised choice (ECDPM): “Alternative EPAs” How to structure a trade deal? Versus “Alternatives to EPAs” Aid, not trade I favour A(i) but: “Lexus vs Toyota” Significant perception and negotiating gaps EU discourse (and practice) reinforces these problems EU/EC political constraints

The Negotiating Spirit: 

The Negotiating Spirit African issues: EU holds all the cards (“power play”) Own vulnerability mixes with history in a heady cocktail Yet good governance begins at home Aid is not an entitlement Correctly structured EPAs could be important development tools

C. Case-study: The SADC EPA: 

C. Case-study: The SADC EPA Configuration conundrums Regulatory riddles South Africa, the EU, and Southern African Regional Integration Towards a successful conclusion?

1. Configuration Conundrums: 

1. Configuration Conundrums The EC understandably wants to negotiate with single economic regions, but many grand plans in the region: SACU already a customs union SADC customs union (2010) COMESA customs union (2008) EAC customs Union (current) Negotiating groups not aligned with these RECs European Commission may fund negotiating groups, not RECs

Configuration Conundrums: 

Configuration Conundrums Issues: Membership in only one CET possible Strain on scarce institutional resources Confusion for business (rules of origin; tariff schedules) EPA process may force rationalisation

Configuration Conundrums: 

Configuration Conundrums South Africa, in a customs union already, has its own agreement with the EU (the TDCA) Mozambique, Angola, Tanzania are LDCs, not part of SACU, and Tanzania part of the EAC Reconciling the TDCA with EPAs? “TDCA-rerun”: BLNS defensive interests and the TDCA? Lesotho’s EBA access if TDCA adopted? Or EBA access for South Africa? More likely: differentiation for South African products Rules of origin will undermine regional economic integration

2. Regulatory riddles: 

2. Regulatory riddles Should South Africa/SACU negotiate new generation issues? Market access fears (but isn’t that the point?) “Policy space” (“new country” argument) “WTO-plus” (but the WTO is not going to deliver) Privileging regional harmonization (but SA’s high-cost growth model) SA’s competition institutions are robust and could be extended to the region Substantial network of BITs Services remain the key negotiating chip

C. South Africa, the EU, and Southern African Regional Integration: 

C. South Africa, the EU, and Southern African Regional Integration If a viable Southern African regional economic community is to emerge, South Africa must be at the centre Regional economic powerhouse Fiscal strength Danger: SA’s high-cost growth model This would revolve around SACU But the EPA process undermines this objective

South Africa, the EU, and Southern African Regional Integration: 

South Africa, the EU, and Southern African Regional Integration Hence South Africa and the EU are in competition to define the shape of the regional project This is aggravated by some EU member states equating South Africa with the BRICs (ie competition in the EU market) EU-South Africa “Strategic Partnership” Defensive economic interests (agriculture especially) Yet this is not supported by economic realities

D. Towards a successful conclusion?: 

D. Towards a successful conclusion? EC must minimise differentiation for SA goods SA must negotiate services Otherwise status quo ante remains Namibia (beef, grapes), Botswana (beef) and Swaziland (sugar, clothing) stand to lose By some estimates these losses would substantially outweigh EU development assistance to those countries Therefore GSP-plus option a serious possibility MAT countries should go it alone or, in Tanzania’s case, join more sensible groupings