Updating Economic Partnership Agreements To Today's Global Challenges: Essays On The Future of Economic Partnership Agreements

Economic Policy Paper Series 09
Updating Economic Partnership Agreements

to Today’s Global Challenges
essays on the future of economic partnership agreements
Edited by Emily Jones and Darlan F. Martí
© 2009 The German Marshall Fund of the United States. All rights reserved.
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Updating Economic Partnership Agreements to
Today’s Global Challenges
November 2009
Updating Economic Partnership Agreements: An Overview

Emily Jones and Darlan Fonseca Martí��3
Part I. The imperative to update the EPAs
Updating EPAs: Rising to the Challenge

Emily Jones and Darlan Fonseca Martí ��9
Beyond the Economic Partnership Agreements: A New U.S.-European Approach
to Trade and Development in sub-Saharan Africa
Katrin A. Kuhlmann��15
Economic Partnership Agreements: How to Rebound?
Patrick Messerlin��22
From an Ugly Duckling to a Beautiful Swan? Thanks to the WTO, the European Union
is on the Way from Preferences to Reciprocity in Defining Trade Relations with its
Favorite Associate Countries
Christian Häberli ��28
Part II. A fresh start for the negotiating process
Economic Partnership Agreements: To be or not to be?

Sanoussi Bilal ��33
EPAs: A Challenge to Development
Bert Koenders��44
Taking Stock of the EPA Process: Original Objectives, Past Achievements,
and Future Challenges in Finalizing and Implementing EPAs
João Aguiar Machado��48
The Interim Economic Partnership Agreement (IEPA):
View from the South African Government
Xavier Carim��54
Updating Economic Partnership Agreements to Today’s Global Challenges i

Charting the Way Forward for EPA Negotiations: Overcoming Challenges
and Realizing Opportunities
Jean Noel Francois��61
Why are the Economic Partnership Agreements detrimental for Africa’s future?
Ablassé Ouedraogo��66
Part III. Evaluating and updating the contents of the EPAs
Economic Partnership Agreements: The Symbol Versus the Reality

Christopher Stevens��71
Modeling the Economic Partnership Agreements: Challenges and Lessons
David Laborde Debucquet ��78
The Treatment of Trade in Services in Economic Partnership Agreements (EPA):
Implications for Prospective EPA Partners
Pierre Sauvé and Denis Audet ��85
EPAs and Liberalization of Renewable Energy Industry in sub-Saharan Africa
Stephen Karekezi, John Kimani and Oscar Onguru��92
Prospects for Innovation and Technology Transfer Under the European Community-Group
of African, Caribbean, and Pacific Economic Partnership Agreements
Ruth L. Okediji��98
Can the Economic Partnership Agreements (EPAs) Become a Useful Tool
for Export Diversification?
Xavier Cirera ��104
Economic Partnership Agreements and Rules of Origin: Outcomes and Challenges
Eckart Naumann��111
Updating Economic Partnership Agreements to Today’s Global Challenges ii

Acknowledgements
The preparation of this electronic book has
proved to be a learning and rewarding experience.
The editors would like to sincerely thank the
German Marshall Fund of the United States
(GMF) for trusting us in the preparation of this
book. The editors would also like to gratefully
acknowledge GMF for financial support. In
particular, we would like to express our sincere
gratitude to David Kleimann, of the German
Marshall Fund’s office in Brussels, for his useful
suggestions and enthusiastic cooperation in
the conception, preparation and finalization of
this book. Finally, we would like to express our
gratitude to the experts who accepted to contribute
to this compilation of essays. Their opinions,
technical insights, divergences and suggestions
provide inspirational background to, hopefully,
formulate creative ways to improve the EPAs.
2 The German Marshall Fund of the United States

Updating Economic Partnership
Agreements: An Overview
Emily Jones1 and Darlan F. Martí2 The marked divergences of views in this book
regarding the content and structure of the EPAs
Sub-Saharan Africa has been hit hard: first by the reflect the complexity of negotiations but also point
food crisis, more recently by the financial and to the necessity of adapting EPAs to the specific
economic crises, and at the same time grappling needs of different regions or countries. Despite these
with the challenges of adapting to climate change. differences, however, there is convergence over
In this fast evolving context, African countries the fact that the EPAs matter greatly and that they
continue to negotiate the challenging Economic should be designed using the lenses of employment The state of play
Partnership Agreements (EPAs) with the European generation, economic diversification, regional in the negotiations
Union (EU). These new agreements have the integration, and more generally, development. and the current
potential to help African countries accelerate
their economic growth and develop more resilient
global economic,
Part I. The imperative to update the EPAs financial, food and
economies. However, the presence of negotiating
The state of play in the negotiations and the environmental
deadlocks or a sense of fatigue as well as the lack of
current global economic, financial, food, and crises provide
a real appetite for these agreements among many
environmental crises provide a window of a window of
African, Caribbean, and Pacific (ACP) negotiators,
opportunity to rebuild trust among EPA partners, opportunity
raise legitimate questions regarding their structure
particularly by updating and improving the content
and content, as well as their ability to constitute to rebuild
of these texts. Jones and Martí argue that, because
instruments to leverage economic growth. trust among
EPAs matter so much and have the potential to
deliver both positive and negative outcomes, design
EPA partners,
In fact, just as the crisis has highlighted the
vulnerability of African economies, it also provides is crucial. In this sense, there are already a quite particularly by
an opportunity to reflect on the EPA’s function as a large number of possible improvements that can be updating and
true development partnership. The state of play in easily incorporated in the agreements, including improving the
the negotiations and the occurrence of the current safeguarding the food security and industrialization content of these
global economic, financial, climatic and food crises of ACP countries. Moreover, if the EPAs are to texts.
create in fact an imperative to update the EPAs remain a relevant and pertinent development
(Part I of this book). In order to seize this window instrument over the years to come, they must
of opportunity for reflection, a new beginning for be flexible, adequately monitored, and, ideally,
negotiations, based on trust and commitment, is inserted in a broader trade and economic policy
crucial (Part II). A better negotiating environment framework guided by poverty reduction objectives.
should allow for a stimulating debate on the
Evaluating the broad approach taken by the
possible and desirable improvements for these
agreements (Part III). Without purporting to be EPAs, Kuhlmann argues that the current focus
of EU and U.S. trade policy toward Africa
exhaustive, the collection of opinion pieces in this
is misplaced. She argues that until regional
book hopefully provides a contribution to help
steer the EPA debate toward a truly developmental markets in sub-Saharan Africa are strengthened,
preferential market access, rather than the
and more positive direction.
reciprocal liberalization envisaged in EPAs,
1
DPhil candidate, Department for Politics and International
should be pursued in order avoid costly trade
Relations, and coordinator of the Global Trade Ethics Project, diversion and loss of tariff revenue. The main
Centre for International Studies, University of Oxford. constraints on trade, including intra-African
2
Economic Affairs Officer, United Nations Conference on Trade trade barriers and weak infrastructure, are within
and Development (UNCTAD).
Updating Economic Partnership Agreements to Today’s Global Challenges 3

sub-Saharan Africa, not in international markets. asymmetrical liberalization which will remain
Strengthening regional markets requires, first legally challengeable under present WTO rules, and
and foremost, a focus on capacity building, the MFN clause, he concludes that EPAs will de facto
particularly support for ‘development corridors’ become a model for North-South cooperation.
across the continent. As the United States is
currently reviewing AGOA (African Growth and Part II. A fresh start for the negotiating
Opportunity Act), she strongly advocates that process
There is common the Europe and the United States join forces, and Model or not, observers of the EPA negotiations
agreement that integrate trade policy with development goals as and negotiators themselves seem to agree that
EPAs must be part of a new transatlantic leadership. the negotiating process has been strained over
designed to serve the past years to the point of near collapse. The
Looking at possible ways to print a new departure
development, and divergent views expressed in Part II illustrate
to EPA negotiations, Messerlin identifies
there is close some of the significant gaps that remain between
‘inescapable’ flaws and positive lessons from the
consensus that the negotiating parties. These divergences also
past years of discussions. He argues that EPAs
parties need to indicate clearly that a trust gap remains in the
will generate few trade liberalization gains as
show increased negotiations and that the bruises caused by the
ACP countries will continue to protect inefficient
December 2007 deadline have not healed entirely
flexibility in their sectors, impeding economic diversification.
yet. This said, there is common agreement that
approach to move Moreover, EPAs are likely to entail high
EPAs must be designed to serve development, and
the negotiations government revenue losses and trade diversion in
there is close consensus that parties need to show
forward, favor of European producers, but to the detriment
increased flexibility in their approach to move the
particularly in light of regional producers. To solve these difficulties,
negotiations forward, particularly in light of the
he suggests that ACP countries launch an initiative
of the ongoing ongoing financial crisis.
at the World Trade Organization (WTO), offering
financial crisis.
to trade a better access to their markets to third An overview of the negotiating state of play is
parties, in return for being allowed to keep positive provided by Bilal, who briefly examines the EPA
tariffs on imports from the European Community negotiating process from its inception to the
(EC). Meanwhile, he strongly advocates that the EC present day. In addition to a quick overview of the
adopts a more flexible approach to EPAs, including main challenges which each ACP region is facing
dropping the controversial Most Favored Nation in the negotiations, this essay enumerates some of
(MFN) clause. the ‘contentious issues’ in the interim agreement,
and comments on complications in reconciling
EPAs were, from the outset, a ‘Gordian Knot’
EPAs with regional integration initiatives as well as
with the Cotonou agreement simultaneously
with development finance. EPAs, as a trade policy
promising to maintain non-reciprocal preferences
overarching instrument, must remain flexible
into Europe, and ensuring WTO compatibility,
and be able to evolve as the trade and productive
contends Häberli. The 2007 deadline proved to be a
characteristics change in ACP countries. Given the
window of opportunity, which the Caribbean region
scope and permanent nature of the agreements,
seized, negotiating an agreement that provides
Bilal warns countries against accepting EPAs in
significant concessions from Europe, particularly
haste purely to maintain access to EU markets.
in services, and which will result in deeper North-
South integration than ever before. While he
identifies some problems with EPAs, including

The challenge is to provide renewed impetus to disciplines. South Africa’s decision to join the EPA
EPA negotiations. Koenders, on behalf of the negotiations stemmed in fact from the perception
Dutch government, notes the limited progress in that the negotiating process would provide a
EPA negotiations despite a strong desire to see window of opportunity to consolidate the regions’
EPAs as a cooperation and development milestone. trade relations internally (SADC, SACU) and
Koenders acknowledges that it was ‘probably vis-à-vis the European Union (EPA, EBA, TDCA).
overambitious’ to assume that comprehensive Notwithstanding this initial intent, Carim notes
regional free trade agreements could be agreed how the negotiating process has been strained and
upon with so many diverse and relatively poor highlights the intransigence of the European Union
countries in just a few years, especially given to genuinely discuss and address the concerns
their limited negotiating capacity. It is a ‘genuine of Southern African EPA countries. In his view,
accomplishment’ that with the interim EPAs, there is a ‘disjuncture between the declaratory
the largest developed market in the world is principles that launched the negotiations and the
able to provide the best available market access ambitions of the EC.’ Even in their best form, the
conditions to Africa, the poorest continent. Moving main benefit of EPAs is to secure market access to
forward, the European Union must be flexible and Europe, and at present the interim agreements pose
pragmatic, including by accepting ACP demands significant problems related to regional integration,
on contentious issues. tariff concessions in favor of the EU, legal and
institutional provisions, and the inclusion of new
Machado, writing on behalf of the European generation issues.
Commission, notes at the outset that the rationale
for EPAs is not to forward the economic interests The interim EPAs and the resulting overlaps
of the European Union, but rather to stop the which further complicate the prospects of regional
economic marginalization of ACP countries. He economic integration in Africa are also described
states that, with EPAs, ‘trade meets development’ by Francois, from the African Union (AU)
through gradual, managed liberalization in Commission. Francois insists on the importance
goods and services combined with transparent of greater coordination among African countries
rules, credible institutions, and aid. A series of and regions to improve the strength of their
flexibilities, it is argued, enable a gradual opening negotiating positions. He highlights, for instance,
process. The positive experience of other countries, the importance of exchanging information,
including Tunisia under the Euro-Med agreement, formulating common negotiating positions, and
shows that countries can succeed if they are willing cooperating with, for instance, the EU Council, the
to innovate and to accept the challenges of change. EU Parliament, the EU rotating presidency, and
EPAs provide only an opportunity for reform and, selected member states. One useful instrument to
in the end, it is for ACP countries and regions to promote harmonization, Francois argues, is the
decide whether to press ahead. ‘It is a challenge model template for full and comprehensive EPAs
they must decide to meet.’ recently developed by the AU Commission.
Carim, from the South African government and Examining the EPAs from the context of West
negotiating team, agrees that the EPAs could Africa, Ouedraogo argues that the European
provide leverage to enhance regional economic Union has unfortunately engaged in ‘power
integration, strengthen customs unions, and deepen politics’. Pressure to extract an agreement from
cooperation in new areas, including trade-related ACP countries has led to a situation characterized

by division and confusion, and has brought whole, the EPAs are quite ‘anodyne’ because it
negotiations to a deadlock. The EPAs, as proposed is reasonable to question whether controversial
by the European Union, would not assist ACP elements will ever be enforced. Moreover, as
countries in the realization of their development preferences are eroded, the value of EPAs will
goals. Instead, they present obstacles to regional diminish so if the ‘EPA shoe starts to pinch’ ACP
integration and do not facilitate economic countries ‘may simply take it off.’
diversification. Instead of a Free Trade Agreement
Perhaps the most (FTA) format, it is argued that a cooperation There are clearly very different understandings
framework, completed with a trade pillar built of the impact of the trade liberalization aspects
pragmatic way to
under the EU’s improved Generalized System of of EPAs, and models are one way to adjudicate
give a fresh start
Preferences (GSP) schemes, would provide a more between these evaluations. Laborde describes
to negotiations
appropriate platform for real cooperation between the use of economic models in FTA—and EPA—
is indeed for negotiations. A strong advocate of models,
the European Union and the ACP.
both sides to he warns that the results produced need to be
demonstrate interpreted with caution, not least because they
Part III. Evaluating and updating the contents
their commitment can be subject to the power politics of negotiations.
of the EPAs
by agreeing to If used in an honest way, models help rationalize
There is little doubt that rebuilding trust and negotiations, increase transparency, and facilitate
improvements
providing new momentum to the negotiations mutual understanding. In fact, models conducted
where possible.
might prove difficult. The good news, however, is for the EPAs have highlighted the potential adverse
that there is no shortage of creative ideas, positive effects of EPAs for ACP countries, particularly for
lessons learned, and sometimes consensual trade diversions, government revenue loss, and
recommendations to improve the content of these deterioration in balance of payments. Models show
agreements. Perhaps the most pragmatic way to that the European Union will benefit to a greater
give a fresh start to negotiations is indeed for both extent than ACP countries from trade gains, but
sides to demonstrate their commitment by agreeing equally that the trade liberalization ‘will not be a
to improvements where possible. terrible shock for ACP countries.’ Moving forward,
Stevens, for instance, argues that whereas it is important that ACP negotiators have the
proponents and opponents of EPAs claim the relevant training and experience to use models to
agreements push the boundaries of liberalization, their advantage in negotiations.
the agreements are ‘more prosaic than As far as trade in services is concerned, Sauvé
revolutionary.’ Analyzing which ACP countries and Audet question the extent to which the
accepted or rejected EPAs, he suggests that EU-Caribbean Forum of African, Caribbean and
decisions can be explained largely by the degree Pacific States (CARIFORUM) EPA can be used as
to which exports were vulnerable to the threat of a model for other regions. Given marked economic
higher tariffs that came with the end of Cotonou differences between Caribbean, African, and
preferences. This pattern clearly indicates that the Pacific countries, they argue that the services and
acceptance of EPAs or their interim versions stems investment chapters of prospective EPAs with other
primarily from a desire to maintain market access regions should not be as extensive. The key is to
conditions to the European market and not from get the timing and sequencing of market opening
the actual merits of these agreements. Looking and policy consolidation right. EPAs for African
at the likely impact, Stevens suggests that, on the and Pacific regions should therefore first focus on

building up regulatory and productive capacity. A In the context of the global economic crisis, Cirera
complementary, subsequent process could then be questions whether EPAs will facilitate export
the gradual opening of those sectors. diversification, which is essential for increasing
the resilience of ACP economies. Analyzing trade
Introducing a fresh angle to the EPA debate, data from 2000 to 2007, he shows that existing
Karekezi, Kimani, and Onguru link EPAs to preferential schemes such as Everything But Arms
energy and climate change, examining the possible (EBA) and the Cotonou Agreement have not had
implications of EPAs for the renewable energy any major impact on export diversification in ACP The challenge for
market in sub-Saharan Africa. The availability of countries. Learning from these experiences, he negotiating parties
modern, reliable, and efficient energy services is an argues that, if EPAs are to succeed where others is to put aside the
essential driver for development and the authors failed, they need to be reformed. In particular, this rocky negotiating
fear that, if sub-Saharan Africa’s negotiators are not requires further improvements in rules of origin,
alert to the potential pitfalls of EPAs, the growth process to date,
a shift in emphasis from liberalization of financial
of a promising embryonic renewable energy rebuild the trust
sectors toward specific programs to increase trade
industry could be permanently stunted. Learning needed for a true
finance for new export sectors, and additional
from previous experiences, they make a series of partnership, and
targeted assistance to increase productivity in these
recommendations for how the sector should be sectors. with renewed
treated. Above all, the needs of local industry must focus, enter into
be prioritized by carefully sequencing liberalization, Delving further into the theme of export a constructive,
and by incorporating investment requirements for diversification, Naumann examines the new EPA realistic and
transfer of technology, by creating joint ventures rules of origin. Although often overlooked, rules pragmatic
with local businesses, and by having significant of origin can be just as significant an impediment dialogue as on
local shareholding in Greenfield investments. to accessing the European market as tariffs are.
how best to
Naumann examines the changes that have been
Innovation plays indeed a crucial role in achieving update EPAs.
introduced in EPAs, which relate mainly to exports
the diverse array of economic development of textiles and clothing, fish and fish products,
goals of ACP governments. Okediji examines and certain agricultural products. He argues
the potential of EPAs to encourage creativity, that these changes are few and of questionable
innovation, and technology transfers. She argues immediate benefit. Of particular concern is
that, as designed, EPAs share the pitfalls of other that restrictions and onerous administrative
free trade agreements, addressing innovation requirements do little to foster regional production,
exclusively through formalized rules of intellectual that is, most exporters will find it easier to source
property protection. This narrow approach fails materials from outside the region than from
to respond to structural challenges faced by neighboring countries. A series of product specific
ACP countries seeking to acquire technology. improvements are suggested, as well as more
To facilitate technology transfer and stimulate general changes, including expanding rules on
domestic innovation, Okediji makes specific cumulation.
recommendations, including a strengthening
of EPA technology transfer obligations and a Conclusion
protection of ACP countries’ national policy space.
There is no single conclusion emanating from
A core objective that all parties agree on is the this book as its purpose is to foster reflection
need for EPAs to foster economic diversification. and debate. However, some points emerge from

the opinions expressed and two messages can be to how the agreements can be improved, ranging
delineated: one depressing, the other uplifting. from relatively minor changes in existing texts, to
major changes in structure. Several improvements
The negative message is that there seems to be are consensual (e.g., the elimination of the MFN
near universal agreement that EPAs fall short of clause), others seem to be more controversial
their developmental potential and that they need (value of exclusion lists, rules of origin) and others
improvements. Eight years down the negotiating still would need further careful elaboration (e.g.,
road, the promised improvements have not innovation, trade in services, monitoring).
materialized, regional integration has been largely
compromised, and trust has eroded. The challenge for negotiating parties is to put
aside the rocky negotiating process to date, rebuild
The positive message, however, is that actors have the trust needed for a true partnership, and with
not lost hope of turning this situation around, renewed focus, enter into a constructive, realistic,
and there is no shortage of creative suggestions as and pragmatic dialogue on how best to update EPAs.

Updating EPAs: Rising to the Challenge
Emily Jones1 and Darlan F. Martí2 all negotiating sides claim to be pursuing a
developmental outcome. Beyond conjectures
The Economic Partnership Agreement (EPA) about what the development dimension of these
negotiations between the EU and the African, agreements consists of, what matters is that all
Caribbean, and Pacific (ACP) countries have aspects of the EPAs be assessed using the lenses of
attracted so much attention, been the subject of so economic growth, or even better, poverty reduction.
many analyses, raised so many expectations and This is all the more necessary as the EPAs are cast
caused so many fears that it becomes difficult to to last for a long time, in fact, endlessly, in principle. The Economic
identify areas of the debate where commentators
Partnership
seem to agree. There is little doubt that the debate While there is agreement on the importance of
Agreement
has become emotional and politicized. getting the form and content of EPAs right, after
negotiations
eight years of protracted negotiations, there are
One point of convergence is that the EPAs signs of ‘EPA-fatigue’ on all sides. As negotiation between the
can potentially have a large direct impact rounds are continually postponed, and momentum EU and ACP
on development—and that impact could be seeps away, it seems increasingly likely that African countries have
positive or negative. EPAs can indeed aggravate countries will find themselves facing the status attracted so much
existing developmental difficulties, for instance, quo for many years to come, with some countries attention, been
exacerbating balance of payment difficulties or operating under ‘interim EPAs’, and others the subject of so
reinforcing the reliance of ACP producers on exporting to Europe under alternative regimes. many analyses,
the EU as an export market. However, the EPAs
raised so many
can also contribute in a significant manner to This scenario would be unfortunate, to say the least.
expectations
accelerating economic growth and possibly It would further impede regional integration in a
employment generation, by, for instance, facilitating continent already beset with integration challenges, and caused so
exports through simplified rules of origin or leave untapped the potential of better trade between many fears that it
by ensuring more and secure access to effective Europe and Africa, and do lasting damage to becomes difficult
trade-related support and financial assistance. It is, Europe’s reputation. Against this backdrop, perhaps to identify areas of
as a result, safe to state that EU-ACP cooperation— looming threat, all negotiating actors must embrace the debate where
and the EPAs as a central part of it—matters the challenge of updating the EPAs and making it a commentators
greatly. This helps explain why all stakeholders in useful trade tool for economic growth for the years seem to agree.
the negotiations have not yet simply abandoned to come.
the idea of an equitable agreement despite all
difficulties. Crisis as opportunity
Just as the global crises have shocked policy-
Another, closely related point of convergence
makers into questioning received wisdom and
is that, because EPAs can seriously affect
rethinking the way that the world economy is
development, their design and implementation
are fundamentally important, albeit complex. managed, so they provide an opportunity to take
stock of the EPA negotiations. If the crisis has
Even when defending contradictory positions,
provided any lesson, it is the danger of designing
economic policy according to ideology rather than
1
DPhil candidate at the University of Oxford’s Depart- a pragmatic and flexible approach that responds to
ment for Politics and International Relations.
2
Economic Affairs Officer, United Nations Conference
inevitable complexities and dynamics.
on Trade and Development (UNCTAD).

This lesson is particularly pertinent as we evaluate capacity, which means that the drive for negotiating
the EPAs. In fact, whereas international trade the EPAs, and concluding their Interim versions,
can indeed provide an important leverage for is much more related to maintaining preferential
development, empirical research suggests that free access to the EU’s markets than anything else.
trade agreements (FTAs) do not automatically lead
to increased exports and economic growth.3 It is With these constraints in mind, it is important to
even more hazardous to predict that FTAs will yield strike a balance between idealism and realism. In
African countries actual poverty reduction. The question then, is not a rapidly evolving international trading context
so much to isolate the development dimension of and now faced with these concomitant global
and regions vary
EPAs, but rather to design learning lessons from crises, how should the EPAs be updated? Are the
significantly and
other FTAs and fitting them to the peculiarities mandate, objectives, structure and current contents
face a myriad likely to respond to the current and real challenges
of development of poor signatories to harness trade and growth
linkages. vulnerable ACP countries face? What are not only
challenges, and desirable but also feasible changes?
their needs will African countries and regions vary significantly
continue to be and face a myriad of development challenges, EPAs: Updating the content
diverse well into and their needs will continue to be diverse well The international trade context in which ACP
the future. If into the future. If EPAs are about harnessing the countries evolve is changing rapidly. For the first
EPAs are about potential of increased trade for development, time in centuries, the EU will soon cease to be
harnessing the they cannot be isolated from the wider economic Africa’s main trading partner. For instance, China
potential of policy environment of ACP countries. They shall overtake the EU as West Africa’s primary
increased trade should hence be solidly embedded into national source of imports by 2010.4 In addition, while the
development frameworks, flanked by appropriate EU and the United States remain major suppliers of
for development,
measures to boost productivity, promote economic Foreign Direct Investment (FDI) to Africa, Asian
they cannot be
diversification and the diffusion of innovation. emerging economies are increasingly present.
isolated from the
wider economic Nonetheless, new investments from both new and
Such an embedment requires tailor-made EPAs
traditional trading partners tend to be directed to
policy environment carefully calibrated to local specificities - a major
the extraction of natural resources, particularly oil
of ACP countries. challenge for both sides: the EU has little desire
and gas.5 The challenge for EPA negotiators is to
for nuance and variation as it is seeking to build
reflect on how these partnerships could support
a series of FTAs based on harmonized rules that
market and productive diversification—instead of
work toward an eventual global compact. Moreover,
reinforcing current trade and investment patterns.
it has relatively little political capital to invest
The emergence of new partners for Africa is an
into negotiating a series of highly differentiated
opportunity for negotiations as it should increase
agreements with small and fragmented ACP
the chances of engaging in a true ‘relationship of
economies. African countries on the other hand
equals’, as enshrined by both Africa and Europe
have limited administrative and institutional
in the Lisbon Declaration. The elimination of the
3
For a recent reference, see, for instance, Vollrath, Thomas L. & 4
Authors’ calculations from www.trademap.org
Hallahan, Charles B., 2009. “Economic costs and payoffs of bilat-
See, for instance, UNCTAD 2008, World Investment Report,
5
eral/regional trade agreements” 2009 Annual Meeting, July 26-28,
p.38. Available at: http://www.unctad.org/en/docs/wir2008p1_
2009, Milwaukee, Wisconsin 49375, Agricultural and Applied
en.pdf
Economics Association.

infamous MFN clause from the EPAs would be a improvements on rules of origin and cooperation
symbolic but concrete step in that direction. regarding technical issues, for instance), this focus
on market access can prove narrow, and repeat
As if these changes were not enough, EPA the pitfalls that thirty years of Lomé-Cotonou
negotiators must design EPA texts that reflect preferences have faced. To support African
and respond to new challenges, some of which countries to develop more resilient economies,
could not be foreseen or were not duly taken EPAs need to support local innovation and
into account at the time the negotiations were entrepreneurship, the diffusion of technologies EPAs cannot solve
launched. The ongoing and concomitant food, as well as the emergence of local and regional the consequences
environmental, financial and economic crises have industries. of the current
once again dramatically exposed the underlying
vulnerabilities of African countries. For instance, Economic diversification into higher value dynamic
economic crises or
after a few years of sustained strong growth and products and the necessary industrialization of those of collapsed
high levels of optimism, growth rates in sub- African regions, for instance, must be upheld or threatened
Saharan Africa are expected to fall in 2009 and and supported by EPA mechanisms. Processing agricultural
exports, which have driven much of Africa’s recent and industrialization is already an explicit policy production. They
expansion, are expected to fall by 40 percent. It is, objective in most African countries, sometimes can, nevertheless,
moreover, foreseen that the continent’s problems prominently enshrined in national industrial aggravate the
would be seriously aggravated by the rise of visions. As EPAs, and their interim versions, consequences
global temperatures with particularly dramatic currently stand, however, several industrial policy of these crises.
consequences for the production of staple food. instruments would be forbidden or restricted after Or, hopefully, they
the implementation of the agreements. A large part can also provide
EPAs cannot resolve the consequences of the of African industrial policies are, in fact, based
current economic crises or those of collapsed instruments to
on instruments such as border tariff protection
or threatened agricultural production. They attenuate the
(tariff escalation and tariff peaks), export taxes
can, however, aggravate the consequences of (some with a clear industrializing intent), public
consequences
these crises. Or, hopefully, they can also provide procurement measures favouring local producers of these crises
instruments to attenuate the consequences of these and suppliers, and, punctually, competition policy and assist ACP
crises and assist ACP governments to deal with and import restrictions.6 governments to
them. For instance, more diversified economies are deal with them.
more resilient economies, prepared to withstand In addition to the necessary exclusion (temporary
not only the contraction of export markets, but also or definitive) of fragile or infant industries from
the challenges of adapting to climate change. liberalization, another useful instrument would be
A series of steps could, as a matter of fact, be taken to grant ACP governments the flexibility to modify
to update EPAs to respond to these difficulties and tariff reduction schedules (akin to renegotiating
an invaluable window of opportunity for such a schedules) to spur competitiveness and enable trade
review is offered by the occurrence of these crises policies to adapt to evolving global production
and the current negotiating state of play.
Much of the attention in the EPA debate has 6

See, for instance, Marti, D. and Ssenkubuge I. 2009,
“Industrialization and Industrial Policy in Africa: is it a
been on maintaining (at the least) and increasing policy priority?” South Centre Research Paper Number
(at best) market access and entry into the EU 20. Available at: http://www.southcentre.org/index.
for ACP producers. While beneficial (yielding php?option=com_content&task=view&id=998&Item
id=67

systems. Flexibility with exclusion lists as well In addition, EPAs would need a coherent
as with the implementation of tariff reductions and gradual approach to the liberalization of
would provide reassurances particularly to Least agricultural products and inputs, particularly
Developed Countries (LDCs) and therefore an through carefully identified (temporary or
incentive for these countries to join their non-LDC excluded) sensitive products. The relaxation of
neighbors in fully regional EPAs. certain aspects of Rules of Origin in the EPAs could
also facilitate increased value-added exports to
A general lesson The restriction or prohibition of industrial Europe, including for textiles and fish, although a
instruments is not only politically unpalatable but positive outcome is not automatic and would still
from the current
also unwise as diversification is an evolving process require sectoral support. Financial support for
concurrent
which requires changing trade and economic agricultural infrastructure and trade infrastructure
financial, policies.
economic, climatic is also capital. Finally, given the experience of the
ACP countries, particularly those in Africa with
and food crises Productive diversification, particularly in
import surges, it will be important that adequate
is therefore that agriculture and agro-processing, as a response
instruments are provided to them to address this
EPAs need built- to the global economic crisis has, in addition, at
phenomenon in the context of the EPAs. An ad-hoc
in flexibilities, least two fundamental short- and medium-term
and special agricultural safeguard mechanism is not
(as opposed to by-products. First, it contributes to improved food
only legally and technically possible, but is also a
security. Second, provides a tool for climate change
rigid regulations, requisite in a context in which the subsidization of
adaptation. Net food imports, at levels present in
norms and European agriculture is allowed to continue.
Africa, are not viable in light of the recent food
more restricted crisis, which revived the debate concerning the
utilisation of A general lesson from the current concurrent
need for balance between importing and local financial, economic, climatic and food crises is
trade policy tools), production. It is known that the improvement of therefore that EPAs need built-in flexibilities,
real monitoring rural infrastructure, the environmental recovery (as opposed to rigid regulations, norms and
and evaluation of rural areas, the modernization of agricultural more restricted utilization of trade policy tools),
as well as the production and support for agricultural trade real monitoring and evaluation as well as the
possibility of have enormous potential for poverty alleviation possibility of adjustments and amendments, and
adjustments and given the importance of the agricultural sector for a firm embedment in broader development and
amendments, and African economies. sectoral policies. A review of the vast number of
a firm embedment African governments must channel investments
legal analyses and economic assessments of EPAs
in broader or of their Interim versions shows that there is
towards the agricultural sector, particularly for
development and no shortage of ideas and proposals that form a
the modernization of production systems, the
sectoral policies. solid basis for updating several aspects of the
electrification of rural areas, the encouragement
agreements.
of processing and value addition activities, and
the strengthening of farmers’ awareness about and
EPAs: Updating the structure
capacity to trade. EPAs can contribute to those goals
by making available trade related financial assistance In many ways, the recommendations made
(e.g., supporting rural banks) and by encouraging above—simple illustrations of what can be both
agriculture or resource-based diversification (i.e., desirable and feasible—are aimed at adapting EPAs
chemical, leather and textiles industries, agro- rather than completely overhauling them. Is this
processing and rural services enterprises). sufficient? Given that most African countries have

so far opted out of an EPA, and that many countries where the emerging opportunities are in global
that signed interim agreements have hesitations trade, the extent to which impending preference
about moving beyond trade in goods, we cannot erosion will undermine any market access benefits
shy away from asking more fundamental questions from EPAs, and hence the extent to which they
with relation to the EPAs and their ability to deliver are willing to compromise in order to continue
their stated objectives. privileged relations with the EU. Despite the intense
and long debate about alternatives, the discussion
In presence of so much controversy over over the structure or architecture of the EPAs is Another element
fundamental aspects of the EPAs (such as clearly not closed yet. of a fresh start for
their architecture and requirements of WTO
EPA negotiations
compatibility), it is legitimate to wonder whether Another element of a fresh start for EPA
the mandate was ill-designed and whether it needs negotiations relates to the persistent negotiating
relates to the
to be changed. Indeed, the negotiating mandate of capacity constraints of African governments, persistent
the EPAs is almost 10 years old and the texts which particularly in light of the wide scope of the negotiating
have been perpetuated in Interim EPAs already EPAs. The EPA agenda will inevitably have to be capacity
seem out of date or at least largely disconnected adapted (either by being reduced or by extending constraints
from some of the main global challenges ACP negotiations over a longer period of time) to match of African
countries face today. the capacity of African governments. Human and governments,
institutional capacity building is necessarily a particularly in light
While changing the mandate is tempting, regional long-term effort, which needs to be untied, neutral, of the wide scope
integration, economic growth and development are and participatory. And the regional dimension of
already explicit and perhaps overriding objectives
of the EPAs. The
negotiations necessitates a coordinated approach EPA agenda will
of the mandate. Negotiating deadlocks have not that respects the pace of the most vulnerable
arisen with respect to the broad objectives of the inevitably have to
countries in a region—even if that entails agreeing
EPAs, but rather in the specific means and tools to be adapted (either
to minimum common denominators only. However
deliver those objectives. Amending the mandate frustrating such slow pace or delays may be for
by being reduced
would not prevent new impasses at the micro level. the EC negotiating machinery; this is the only or by extending
For this reason, there is likely to be significant approach that is equitable and compatible with negotiations over
mileage in focusing on increasing flexibility in endogenous, nationally and regionally-owned a longer period of
specific areas of the texts, in line with the specific integration processes. Furthermore, it is the only time) to match the
needs of demands of each ACP region. approach that can ensure the actual implementation capacity of African
of a negotiated outcome. For EPA implementation governments.
Nonetheless, it is possible that even with significant
to happen and work there needs to be political buy-
changes, some regions or countries may still
in and a satisfactory acceptance of these agreements
find the rigidities of a FTA ill-suited to their
by the private sector and the civil society.
development needs. Now that the December 2007
deadline has elapsed and that stable export schemes Finally, the success of EPAs needs to be assessed
are in place for all ACP countries (albeit unilateral against their development impact—not only
and hence lacking in legal security), negotiators against commitments to implement. For this
have the time to identify their main interest in reason, the importance of a well functioning
having a privileged economic relationship with built-in EPA review mechanism, based on periodic
the EU and creatively assess the most suitable impact evaluations cannot be overstated. Such
framework for that. In particular, they can assess a mechanism would be fundamental if African

countries are to embed their EPAs within a national Because EPAs matter so much and have the
and regional development vision, and hence use potential to deliver both positive and negative
this partnership as a policy instrument. Moreover, outcomes, design is crucial. The agreement must
a real monitoring and review mechanism would be a ‘living’ one open to modifications if it is to
provide a reassuring guarantee, which may provide remain a relevant and pertinent development
strong incentives for implementation. At present, instrument over the years to come. In light of the
EPAs are in danger of falling short of this vision. current economic, financial, climate and food
EPAs can’t The few LDCs that have chosen to initial an Interim crises, it would seem that much of the proposed
solve all Africa’s EPA (Tanzania, Rwanda, Burundi and Uganda content of the EPAs, or their Interim versions,
development in EAC; Mozambique and Lesotho in SADC) has already been outlived. This need not be so.
problems, and no have arguably done so more to preserve regional Actually, this should not be so. The very concrete
one should expect cohesion than because they believe in the merits consequences of these crises on African countries
of the EPAs themselves. Such a review mechanism have highlighted the real challenges governments
or claim them
would only be effective as a guarantee if it has teeth, face, for which EPAs could provide assistance.
to. However, if
in other words, is based on independent evidence
properly updated, and well design benchmarks or a list of items to be Having said this, EPAs, as FTAs, can only deliver
these agreements monitored, and it yields adjustments if necessary. so much. The rhetoric that EPAs could lead to
could truly make development or poverty reduction is not helpful
several positive Conclusion as it raises the expectation that these agreements
contributions. could be a panacea. It also places disproportionate
North-South economic collaboration generally and pressure on negotiators. EPAs cannot solve all
the EU-ACP collaboration in particular can provide Africa’s development problems, and no one should
strong leverage for economic growth strategies. expect or claim them to. However, if properly
The EPAs are central in the context of such updated, these agreements could truly make several
collaboration and because of the possible breadth positive contributions. Facing this reality would
of their scope, they do matter greatly for economic provide both African and European negotiators
development - EPAs may even provide a defining with a more honest and a fresh departure, enabling
framework of national or regional economic and negotiations to continue.
investment policy making (e.g., defining the floor
for trade-related regulations).

Beyond the Economic Partnership
Agreements: A New U.S.-European
Approach to Trade and Development in
sub-Saharan Africa
Katrin A. Kuhlmann1 European Commission (EC) is determining how
to move forward with the Economic Partnership
The United States and European Union are Agreements (EPAs). On the U.S. front, Congress
at a critical turning point in their trade and and the Executive Branch are embarking on
development policies with sub-Saharan Africa. a comprehensive review of trade preference
The vehicles for large-scale international policy programs, including the African Growth and
change, including the Doha Development Round Opportunity Act (AGOA). On both sides of the
and developed country agricultural reform, have, Atlantic, significant political will and resources Setting sub-
at least temporarily, ground to a halt. The deadline are being put behind initiatives to promote food Saharan Africa
for meeting the Millennium Development Goals is security, and there is an increased focus being on a different
fast approaching, yet sub-Saharan Africa continues placed on how to promote regional integration and course will
to suffer from seemingly intractable poverty on a development of markets in sub-Saharan Africa. In
massive scale. require creating
sub-Saharan Africa, economic and political leaders
the conditions
are supporting a movement to develop trade and
Setting sub-Saharan Africa on a different course for sustainable,
transport corridors, or “Development Corridors,”
will require creating the conditions for sustainable, regionally-focused,
that criss-cross the continent and hold the
regionally-focused, market-led development. Too market-led
potential to increase economic opportunities, spur
often, however, international policies have fallen development.
sustainable development, and strengthen regional
short of their potential to help move Africa in
trade links.
this direction. With the overlapping crises of food
insecurity, climate change, and global financial This essay will address several questions and
instability, the need for viable solutions is now more present recommendations for moving forward.
pressing than ever. Improving regional markets and What are the global implications of the EPAs? What
strengthening Africa’s agricultural sector will help lessons can be learned from trade and development
lessen sub-Saharan Africa’s extreme vulnerability policies of the past? Can the African “Development
in increasingly volatile global markets and could Corridors” provide an alternative, Africa-led
buffer farmers from the impact of climate change.2 framework for North-South cooperation? What
International trade and development policies are some concrete recommendations for a new,
should be better framed and coordinated to comprehensive approach to EU and U.S. trade and
respond to these challenges. development policy with sub-Saharan Africa that
go well beyond the EPAs and the limited policies of
There is both an urgent need and real potential
the past?
for a positive shift in trade and development
policy with sub-Saharan Africa. In Europe, the
Setting the stage—global implications
of the EPAs
1
Katrin Kuhlmann is a resident fellow at the German Marshall
Fund of the United States, president of the Trade, Aid and It is important to remember that the EPAs were
Security Coalition, a non-profit initiative of the GlobalWorks
Foundation; and adjunct professor at Georgetown University born out of a vision for the African, Caribbean, and
School of Law. The author would like to thank Janet Wangu Pacific (ACP) countries that actually tracked closely
Mania, a Kenyan lawyer and recent Georgetown LLM graduate,
for her insight and research in this area.
with the objectives of the Doha Round and were
2
The Intergovernmental Panel on Climate Change estimates that
intended to represent a comprehensive approach
between 75 and 250 million people in Africa will be exposed to to trade with developing countries that would
increased water stress by 2020, and, in some countries, yields promote local and regional trade as well as trade
from rain-fed agriculture could be cut in half.

with Europe. If pressed, however, most European States.5 As the U.S. Congress prepares to consider
negotiators would admit that the EPAs as they how to expand preference programs and create
continue to be conceived are less than ideal. additional benefits for sub-Saharan Africa, the
EPAs could undermine the possibility of creating
According to studies, the EPAs will actually cause new opportunities and jeopardize current
trade diversion rather than trade creation and preferential access to the U.S. market under AGOA
complicate rather than facilitate regional trade. and the U.S. Generalized System of Preferences
As the U.S. The “sensitive product” exemption under the EPAs, (GSP) program.
which allows ACP countries to exclude up to 20
Congress prepares
percent of trade from liberalization, has effectively Analysis shows the implications the EPAs
to consider how to
enabled countries to protect all products they would have for regional economic integration
expand preference
currently produce while liberalizing and reducing in sub-Saharan Africa. The “sensitive product”
programs and tariffs on everything imported.3 Not only could this exemptions do not overlap between countries and
create additional limit regional trade and lock countries into trade within regions, resulting in a situation where over
benefits for sub- patterns that currently contain very little value- half—and in some regions up to 92 percent—of
Saharan Africa, added trade, but developing countries also face the products likely to be excluded as sensitive
the EPAs could losing tariff revenues upon which they rely heavily. would not overlap with any of the exclusions of
undermine the EU producers, meanwhile, could divert trade away any other country in the same region. Increasing
possibility of from lower-cost, more competitive third-country and diversifying regional trade would, as a result,
creating new producers, including those from the United States. become much more difficult.6
opportunities and The International Food Policy Research Institute’s
(IFPRI) analysis shows that some U.S. exports This adverse effect on regional trade represents
jeopardize current one of the EPAs’ most serious shortcomings. Much
would decrease significantly, as would exports
preferential of the potential for market development in Africa
from Central and South America, China, Japan,
access to the lies in increasing African countries’ ability to trade
Thailand, and others.4 The EPAs also contain a
U.S. market under with—and through—their neighbors. Strengthening
notorious “most favored nation (MFN) clause”
AGOA and the that will result in the ACP countries giving the EU regional trade, which requires both building strategic
U.S. Generalized the best trade access afforded to any other trading infrastructure and lowering regional trade barriers,
System of partner going forward. will allow African producers to grow their markets,
Preferences diversify product lines and realize economies of
(GSP) program. Under U.S. law, in order to be eligible for scale. This is a necessary step on the path to full
preferential access to the U.S. market, countries liberalization with industrialized countries and
must comply with a number of standards set by the wider world. For their part, developed country
Congress, including one requiring that beneficiary trading partners should target assistance to support
developing countries do not grant preferential African regional integration efforts.
access to their own markets that has or is likely to
have a “significant adverse effect” on the United Despite Europe’s assertions that no alternatives
to the EPAs existed when the agreements were
proposed, several viable alternatives exist, which
3
See for example Patrick Messerlin and Clair Delpeuch (2007). could be staged or pursued simultaneously. Over
“EPAs: A Plan A+,” November 2007
4
Antoine Bouet, David Laborde, and Simon Mervel (2007). 5
United States Trade Act of 1974, Title V: 19 U.S.C. 502 (2)(C).
“Searching for an Alternative to Economic Partnership Agree-
ments.” IFPRI Brief [48] December 2007. 6
See Bouet, Laborde, and Mervel,

the longer term, ACP trade could be liberalized The author’s recommendations, building on the
multilaterally on a MFN basis, which would satisfy lessons of the past, include the following elements.
the goals of both World Trade Organization (WTO)
compliance and regional integration in sub-Saharan Recommendations
Africa.7 In the immediate term, Europe could 1. Make access to international markets as simple
extend additional preferential benefits to the non- and expansive as possible
Less Developed Countries (LDC) ACP countries
as part of a group of similarly situated small and Open international markets across sectors, If lessons learned
vulnerable economies.8 Depending upon how these including agriculture, will be critical if sub-Saharan in the past
preferences were established, the EC could either African economies are to grow and diversify. are taken into
invoke the authority of the enabling clause or apply Unilateral preference programs already govern a account and
for a separate waiver for the program similar to the substantial portion of EU and U.S. trade with sub- market access
one granted for the AGOA program. An enhanced Saharan Africa, and improving these programs so
is better coupled
preferential arrangement would also avoid trade that they are more comprehensive, simpler to use,
with strong
diversion and revenue loss. If lessons learned in and more reliable, is a logical next step. Europe
commitments to
the past are taken into account and market access has already shown leadership with Everything But
is better coupled with strong commitments to Arms (EBA), its comprehensive program for the build capacity and
build capacity and support regional integration, LDCs. For the sub-Saharan African countries that support regional
preferences’ effect would become more predictable are not classified as LDCs, enhanced preferential integration,
and their benefits more widespread. market access could also be the answer. As U.S. preferences’ effect
experience with AGOA has shown, extending would become
The current European Trade Commissioner, preferential market access to African LDCs and more predictable
Catherine Ashton, has signaled a new willingness non-LDCs alike has broad support and can act as and their benefits
to show flexibility in the next phase of the EPA a catalyst to promoting regional integration. This more widespread.
negotiations, opening a window of opportunity option could also be accomplished consistent with
for Europe and the ACP countries to present the rules of the WTO.
strong alternative proposals for a new framework
for collaboration. More broadly, U.S. interest in Preferences work best if all developed countries
trade preference programs, capacity building, fully open their markets to the poorest, most
food security, and Africa’s increasing focus on the vulnerable countries. U.S. preference programs
development corridors present opportunities to need to be expanded to include all products from
increase Africa’s participation in global markets and sub-Saharan Africa, including agriculture. U.S.,
strengthen regional integration. If brought together, European, and other programs should contain the
all of these elements have the potential to chart a most simple, transparent rules of origin possible,
new course for sub-Saharan Africa. and all preferences should remain in place long
enough for real investment to take place.
7
See for example Patrick Messerlin and Clair Delpeuch (2007). Until regional markets in sub-Saharan Africa
“EPAs: A Plan A+,” November 2007.
are strengthened, preferential market access
8
The WTO Appellate Body has ruled that preference programs,
a deviation from the MFN principle underpinning the WTO, are should be pursued in order to avoid costly
permissible as long as the preferences are made available to all trade diversion and loss of tariff revenue. A
“similarly situated” countries that share “development, financial
and trade needs.” WTO Appellate Body Report on EC-India
comprehensive duty-free, quota-free program that
Panel on EC-Preferential Tariffs, April 7, 1994. contains transparent, simple rules of origin would

work best for the poorest and most vulnerable The number of landlocked countries in sub-
economies, including those in sub-Saharan Africa Saharan Africa adds to the urgency of significant
with severe economic challenges that fall outside new investment in infrastructure and capacity.10
of the traditional LDC definition. 9 Where transport routes do exist to connect
landlocked countries to ports, poor conditions and
Preferences are just the beginning, however, and numerous checkpoints hamper trade and run up
the recommendations that follow build upon this costs. Agricultural producers are hit hardest, since
Despite the foundation. Multilateral liberalization and better transport costs are relatively higher for many farm
regional market access can be pursued on a parallel products, including cotton, fruits, and vegetables.
importance of
track, and immediate focus needs to be shifted to An additional day’s delay due to transport and
capacity building,
addressing the underlying causes of Africa’s low customs issues can cause exports of time-sensitive
U.S. and EU
levels of trade and nearly non-existent value-added agricultural goods to decrease by seven percent.11
efforts have production.
been ad hoc, Despite the importance of capacity building, U.S.
bilateral instead 2. Couple market access with capacity building and EU efforts have been ad hoc, bilateral instead of
of regional, and focused on strengthening regional markets in sub- regional, and insufficiently tied to demand on the
insufficiently tied Saharan Africa ground. Business needs, while a driver of economic
to demand on the Up until now, developed country trade policies activity, are often overlooked. No mechanism to
ground. Business toward sub-Saharan Africa have focused primarily incorporate broad-based local business demand
needs, while a on one piece of the complex puzzle of sustainable exists, resulting in a system in which the interests of
driver of economic development: granting access to international few have often prevailed.
activity, are often markets on the assumption that the ability to The capacity building aspect of any trade policy,
overlooked. trade and take advantage of these markets would including the EPAs, is therefore critical and
follow. Strengthening sub-Saharan Africa’s regional should be placed front and center.12 Although
markets has not yet received the focus that other European institutions generally integrate trade
African development issues have, despite the power and development functions well, the EPAs do
of these markets and regional systems to move not go far enough to lock in additional capacity-
goods, services, people, and information. building resources and deliver on their goal of
Weak capacity in areas like customs, transport,
storage, quality control and certification, water
facilities, telecommunications, and electricity 10
Transport costs can account for up to one-third of GDP and
and power services limit the ability of many can represent much of export value for many landlocked coun-
producers to trade. Infrastructure networks are tries. In Rwanda, for example, transport costs account for up to
40 percent of the value of coffee exports. See “Land Transport
underdeveloped or non-existent, and regional for Exports: The Effects of Cost, Time and Uncertainty in sub-
institutions, while numerous, are weak when it Saharan Africa.” U.S. International Trade Commission, 2009.
comes to implementing agreements. 11
Id. While the costs of transport delays are significant, the
benefits of reducing transport times can be immediate and
transformative. Mali and Senegal signed a border coopera-
tion agreement that reduced the number of checkpoints from
twenty-five to four, and transport time quickly went from seven
to ten days to just one or two. World Bank Group (2008). Doing
Business in Landlocked Countries 2009, Washington, DC: IBRD/
9
See Kimberley Ann Elliott (2009). “Trade Policies for the Poor:
World Bank Group, 2008.
Who’s Setting the Pace? Will the U.S. Catch Up?” Center for
Global Development Working Paper, September 2009. 12
See Bouet, Laborde and Mervel

being a powerful instrument for development.13 A Without agricultural development, broad-based
real opportunity exists to make capacity building growth and poverty alleviation in Africa will not
the starting point with the EPAs, creating a new be possible. Poverty reduction will not succeed
model going forward. Once African regional without focusing on increasing productivity for
markets are stronger, more robust market access Africa’s many smallholder farmers and connecting
will also be possible. these farmers to functioning markets. International
trade and development policies could be a
U.S. trade policies with sub-Saharan Africa, tremendous catalyst for positive change instead of More substantial,
including AGOA, have also not adequately the impediment to agricultural growth they have better coordinated
incorporated capacity building. Stronger links often been in the past. capacity building
between trade and development policy are needed,
initiatives could
and coordination on trade and development within Preferential market access for African agriculture
and among the U.S. Congressional committees comes at virtually no cost to U.S. or European help foster
and Executive Branch agencies could be improved producers, yet the benefits of increased access for functioning
across the board. African agriculture are great. Europe’s relaxation regional markets,
of its sugar program for LDCs through EBA has opening up
More substantial, better coordinated capacity- already shown the immediate job-creating potential opportunities for
building initiatives could help foster functioning of such a change in policy. The EPAs, on the other Africa’s farmers
regional markets, opening up opportunities hand, could stall local and regional agricultural and businesses
for Africa’s farmers and businesses along the development because of the trade diversion they along the entire
entire supply chain and helping Africa meet the cause, limiting opportunities for farmers to build supply chain
challenges of food security and climate change. regional trade ties and achieve economies of scale.
Better regional markets would also create and helping
meaningful opportunities for developed country As a new way forward is explored and greater Africa meet the
businesses in the short and long term. Prioritizing emphasis placed on building regional trade ties, challenges of
agricultural development and building around other policies that impact African agriculture food security and
a common framework, as discussed below, will must also be part of the solution. Although climate change.
increase chances of success. full-scale reassessment of developed country
domestic support policies is not likely to happen
3. Create opportunities for African agriculture soon, opportunities exist to streamline Sanitary
and Phytosanitary (SPS) procedures and increase
Agriculture is the most significant industry in sub-
training to help African producers meet SPS rules.
Saharan Africa, with around 500 million people or
Comprehensive approaches that address all steps
between 70 and 80 percent of the subcontinent’s
in getting products to market will help ensure that
population dependent on farming for their
farmers can take advantage of opportunities to
livelihoods. Most farmers have little access to
trade.
markets and are extremely vulnerable in the face of
crises. 4. Support African initiatives, including the
development corridors
While European and U.S. trade and development

13
See Overseas Development Institute and the European Centre
for Development Policy Management, “The New EPAs: Com- policies undoubtedly have a significant role to play
parative Analysis of Their Content and the Challenges for 2008,” in increasing Africa’s low share of international
March 2008.

trade,14 international policies will have a limited connect remote rural areas to markets. Given the
impact unless they complement the Africans’ importance of agriculture to sub-Saharan Africa’s
own initiatives to build regional markets and future, as discussed above, particular attention will
address needs and barriers on the ground. The need to be placed on linking poor farmers with
main constraints on trade, including intra-African commercial markets. The development corridors
trade barriers and weak infrastructure, are within provide the framework for building regional
sub-Saharan Africa, not in international markets.15 integration, increasing value-added production and
Given the size of Policy change internationally has to be met with achieving greater economic diversification. Ros
the continent and internal policy change, and African political will is Thomas, an expert in African spatial development
the scale of the a critical driver. and a former senior official at the African
infrastructure and Development Bank, estimates that trade could
The only real solution is to meet the Africans expand by $250 billion over the next 15 years if the
capacity gaps, a halfway. Given the size of the continent and the corridors receive adequate support.17
comprehensive scale of the infrastructure and capacity gaps, a
framework around comprehensive framework around which to align By supporting the development corridors,
which to align developed country and African interventions would donors could better prioritize and leverage their
developed country help achieve more significant results and economies investments, and the common framework the
and African of scale. The Africans have such a framework, corridors provide would bring stakeholders
interventions which is built around trade and transport corridors together in a targeted and systemic way. As major
would help that link mineral investments to ports through donors, Europe and the United States could take the
achieve more trunk infrastructure and, in many cases, could lead, working closely with the Africans, the private
significant results generate true sustainable development, similar sector, and public-private partnerships. Through
to corridors that spurred development in ancient the development corridors, barriers to trade on
and economies
Rome, industrializing Europe, and the 20th century the ground, including infrastructure deficiencies,
of scale.
United States.16 transport links, storage, and local and regional
trade policies, could be systematically identified
These development corridors hold tremendous and addressed, creating the force for change that
potential and while they have the backing of the could open up opportunities within sub-Saharan
Africans, they will require additional resources Africa and between African markets and the rest of
to modernize infrastructure and build capacity to the world.
14
Over the long run, open global trade would have a significant 5. Coordinate U.S. and European policies
impact on developing country income. One estimate predicts
possible gains of around $200 billion per year. See Cline, Wil- European and U.S. processes that integrate trade
liam (2004). Trade Policy and Global Poverty. Washington, DC:
Center for Global Development. policy with development goals in sub-Saharan
15
Weak infrastructure and intra-regional trade barriers par- Africa should be part of a new transatlantic
ticularly impact agricultural trade, as do low technology, poor leadership. Coordination between the United
skills, high internal taxes, and continued dependence on a small
number of commodities, high transport costs, the spread of
HIV/AIDs and pricing and marketing policies that penalize
small farmers. See Moss, Todd and Alicia Bannon (2009). “Africa 17
See Rosalind Thomas (2008). “Trade Corridors in Africa—
and the Battle over Agricultural Protectionism.” Washington, Connecting Markets: Development Corridors and SDIs—an
DC: Center for Global Development. African Private Sector-Led Growth Strategy.” Presentation to
16
There are 26 official corridors as identified by the New Eco- the Paul Nitze School of Advanced International Studies, Johns
nomic Partnership for African Development (NEPAD), and they Hopkins University, Washington, DC, October 2008.
criss-cross the continent.

States and Europe should increase wherever 6. Continue to work multilaterally
possible, including on food security initiatives
and dialogues on regional integration. Within the Even with Doha stalled, Europe and the United
U.S. government and the EC, dialogues that bring States could together craft a package that would
diverse expertise to the table on all sides, like the complement an eventual Doha deal and help
U.S. Trade and Investment Framework Agreements African countries see the benefits of working
(TIFAs), are good models that should be prioritized, multilaterally. A package that includes duty-free
strengthened, and more extensively used. quota-free preferences, aid for trade/trade capacity European and
building, and trade facilitation would have a
U.S. processes
Working across government agencies is also significant impact and give the African countries
that integrate
important. For example, the United States could a stake in the multilateral process. Doing this now
would show sub-Saharan Africa that trade can have
trade policy with
comprehensively promote sustainable development
and regional markets in sub-Saharan Africa by a positive impact, and extra market access would development goals
coordinating resources and programs across become a meaningful development tool instead of a in sub-Saharan
agencies, including the U.S. Department of difficult trade-off. Africa should be
Agriculture, the U.S. Agency for International part of a new
Development, the U.S. Department of State, the transatlantic
Millennium Challenge Corporation, the U.S. leadership.
Export-Import Bank, the U.S. Overseas Private Coordination
Insurance Corporation, the U.S. Trade and between the
Development Agency, and others. United States
and Europe
should increase
wherever possible,
including on food
security initiatives
and dialogues
on regional
integration.

Economic Partnership Agreements:
How to Rebound?
Patrick Messerlin1 pinpoint the emerging opportunities that these years
of negotiations have revealed (Section 2). Grasping
When Peter Mandelson, then European these opportunities would first require changing
Community (EC) Trade Commissioner, decided the mindsets of the protagonists of the negotiations
to launch the negotiations on the Economic (Section 3) in order to open a wide range of options
Partnership Agreements (EPAs) with the African, to improve the situation (Section 4).
Caribbean, and Pacific Group of States (ACPs),
At this juncture, his initiative attracted a lot of heat from almost all Inescapable flaws
the quarters—not only from ACPs, economists
the time seems The EPA negotiating endeavor is undermined by
and non-governmental organizations (NGOs),
ripe to re-assess inescapable costly economic flaws. In a nutshell, the
but also from EC member states and members
these negotiations of the national and European Parliaments.2 Since EPAs are doomed to generate a “no liberalization,
and provide a fiscal crunch” outcome in the ACP countries for the
then, negotiations remain slow, opening the risk
fresh assessment following reasons.
of getting “agreements by exhaustion.”3 As of July
for the new Trade 2009, the Dominican Republic is the only ACP to The “no liberalization” aspect has two components.
Commissioner. have ratified its EPA. Indeed, the EPA ratification
process looks even more tumultuous and • The EPAs allow the ACPs to keep their current
problematic than their negotiations. tariffs on (at least) 20 percent of their tariff
lines, a figure high enough to protect almost
At this juncture, the time seems ripe to re-assess all the ACP domestic productions. The
these negotiations and provide a fresh assessment ACP producers who will remain protected
for the new Trade Commissioner who will inherit with respect to the EC and to the rest of the
the complex task of concluding them—asking the world will have no incentive to improve their
crucial question: are the EPAs a stand-alone policy production and/or decrease their prices, giving
of preferential market access, or are they a pillar to ACP consumers no reason to support the
of the EC development and foreign policies, that EPA process.
is, an instrument aiming to support the long-
term development of the ACP economies and • The EPAs require the ACPs to eliminate their
friendly relationships between the EC and the current tariffs on EC imports for the remaining
ACP countries? (at most) 80 percent tariff lines. This will
make it very easy for EC firms to compete
That said, a fair review should reflect the with ACP producers in their own markets,
inescapable flaws of the EPAs (Section 1), but also and very hard for potential ACP producers to
enter these markets. Such a situation will entail
severe long-term economic costs for the ACPs:
1
Patrick Messerlin is a professor of economics and director of
Groupe d’Economie Mondiale at Sciences Po (GEM). The author elimination of domestic producers, high prices
is grateful to Claire Delpeuch, David Kleimann, and two referees charged by EC firms behind ACP tariffs on
for their very helpful comments on earlier drafts.
imports from non-EC origin. In short, ACP
2
House of Commons, “Fair trade? The European Union’s trade
agreements with African, Caribbean, and Pacific countries.” consumers will pay rents to EC firms, another
Sixth Report of Session 2004–05. London, U.K., March 23, 2005. key reason for them not to support the EPAs.
3
Melissa Julian (2009). “EPA Update.” Trade Negotiation
Insights, ICTSD, Vol. 8, no. 6, August, 2009. “Le point sur les Combined, these two forces will make it very
négociations APE.” Eclairage, ICTSD, Vol. 8, no. 6, Août.
difficult for ACP countries to reach what is

probably their most cherished goal—economic cost—the need to build or expand trade negotiating
diversification. machineries. Fortunately, however, the stalling
of the Doha negotiations in 2008 has limited the
“Fiscal crunch” is the only outcome to be expected opportunity cost of building such machineries.
from eliminating ACP tariffs on imports from the
EC on 80 percent of tariff lines, with huge adverse Second, the EPAs are increasingly presented by the
implications for ACP government budgets.4 The Commission as a “process”—an endeavor that can
EC says that it is ready to provide compensations, evolve substantially. Reference is sometimes made Making the EPAs
but has no binding obligation to do so. More by the Commission to Mexico or Morocco, which
a process requires
importantly, in economic policy, correcting a have progressively opened their economies via a
a serious strategic
mistake by an off-setting policy is more uncertain series of bilateral agreements, first with the United
and costly than eliminating the initial mistake. States and EC, culminating in Mexico’s unilateral
re-appraisal from
And from a political perspective, EC compensatory liberalization vis-à-vis the rest of the world the three main
aid will inevitably expose the EC to accusations launched in March 2009. There is, nonetheless, one protagonists in
of colonialism. key difference between these cases and the EPAs. the EPA debate:
Mexico or Morocco were the demanders of all these the ACPs, the EC,
All these flaws could ultimately lead to a disastrous agreements, while the ACPs are not—a critical and the rest of
deterioration of the long-term political relations point revisited below (Section 4). the world. If not,
between the EC and the ACP.
the basic flaws
The third positive experience of EPAs regards
of the EPAs are
Emerging opportunities? their provisions setting the regulatory framework
to be adopted in key services by the ACPs. For
likely to entail very
That said, it would be surprising if the past years of negative economic
negotiations had not revealed some opportunities instance, Articles 93 and 95 of the EC-Caribbean
EPA require the existence of independent (for the ACPs) and
to be carefully exploited in the future.
regulatory bodies in courier and telecom services. political (for the
First, the EPA initiative was so wide ranging that it Such provisions are critical for long-term ACP EC) consequences.
forced the ACPs to realize that they have to entirely development because services have amply shown
re-think their trade policy. Indeed, EPAs tolled their critical role in economic diversification, in
the death knell of non-reciprocal preferences even tradable goods and beyond.
more so than the Doha Round, sterilized by the ill-
conceived initiative of a “Round for free” tabled by Changing minds
Pascal Lamy, then Trade Commissioner. While the Making the EPAs a process requires a serious
Least Developed Countries (LDCs) indeed require strategic re-appraisal from the three main
caution to open their economies to international protagonists in the EPA debate: the ACPs, the
competition, a Round for free (LDCs are not EC, and the rest of the world. If not, the basic
requested to make concessions in the Doha Round) flaws of the EPAs are likely to entail very negative
is a trap in so far as it freezes their economies, economic (for the ACPs) and political (for the EC)
while the rest of the world moves fast. That said, consequences.
this salutary shock caused by the EPAs came with a
First, the ACP are, in fine, the key players. To win
4
Jean-Jacques Hallaert (2010). “Fiscal revenue losses and trade the EPA match, they should accept the need to shift
diversion from the EPAs: Are the concerns justified?”, Journal of
World Trade. February, Vol. 44, Issue 1.
away from their traditional trade policy (based on
distortive border barriers) and to turn to the much

more direct, hence powerful, policies (regulatory growing markets, and hence have good reasons to
reforms, domestic taxes, or subsidies) which are at be supportive of ACP efforts. This will also require
their disposal and much more capable of addressing political will because, as shown by Table 1, the EPAs
their supply problems at their roots. The utilization induce these players to be offensive on products for
of this domestic policy space would require major which the EPAs give high preferences to EC firms
political will and courage; all the more so since the (cell B) and adopt a more lenient attitude on ACP
ACP have been put in such a difficult situation by goods highly protected on a Most Favored Nation
Once and for all, the hasty way the Commission designed the EPAs (MFN) basis (cell D). Unfortunately, the latter
the EC should in 2007. products are likely to be more numerous than the
clearly answer the cell B goods, and the liberalization of goods highly
Second, the EC should realize that hiding behind protected on a MFN basis would generate major
following question:
the ACP decisions to keep highly protected goods gains for the ACP consumers and key incentives to
are the EPAs a
is cynical (it should have expected the ACPs to fall the ACP producers to improve their products.
stand-alone policy into the 20 percent exclusion list trap), that pressing
of preferential for quick signatures is not credible from a trade Improving the EPAs
market access, group that itself moves so slowly on minor sectors
or are they a Possible improvements to the EPAs are listed below
for itself (agriculture) and that hiding behind
pillar of the EC in order of decreasing efficacy.
“interim” agreements without ratification for
development many years is not an option acceptable for a group An ACP initiative at the World Trade Organization
and foreign of democracies. Once and for all, the EC should (WTO)
policies, that is, clearly answer the following question: are the EPAs
an instrument a stand-alone policy of preferential market access, The EPAs sharply magnify the distortive structure
aiming to support or are they a pillar of the EC development and of the ACP tariffs which will be divided between
foreign policies, that is, an instrument aiming to zero and high tariffs. Only the ACPs have the
the long-term
support the long-term development of the ACP power to address this issue in a fully satisfactory
development
economies and friendly relationships between the manner, and they have a strong interest to do so, as
of the ACP
EC and the ACP countries? underlined in Section 1.
economies
and friendly Finally, the rest of the world—in particular major
relationships players such as Brazil, China, or the United
between the States—have increasingly high stakes in the ACP
EC and the ACP
countries? Table 1. The EPAs impact on third parties (non-ACP-non-EC countries) in WTO negotiations
Products with low pre-EPAs tariffs Products with high pre-EPAs tariffs
Products liberalized under EPAs Cell A Cell B
• probably a very frequent case • probably a rare case
• low preference margin for EC firms • high preference margin for EC firms
• weak incentives for the third parties to • strong incentives for the third parties
act in the WTO to act in the WTO
Products sensitive under EPAs Cell C Cell D
• probably a very rare case • probably a frequent case
• no preference margin for EC firms • no preference margin for EC firms
• no special incentive for the third •n o special incentive for the third
parties to act in the WTO parties to act in the WTO

They could thus launch an initiative at the WTO.5 from the ACP, hopefully including in their requests
The ACPs, or some leading ACPs, would offer to both cell D (high MFN tariff rates) and cell B (large
non-EU WTO members better trade access to their preferential margins in favor of the EU) products.
markets in exchange for being allowed by these Again, such cuts would be expressed in bound
WTO Members to keep ACP positive tariffs on tariffs, with a possibly limited impact on applied
imports from the EC (instead of the zero tariffs tariffs. Such an initiative is less powerful than an
imposed by the current EPAs). ACP-led initiative because it would be politically
difficult to force the ACP-LDCs—exempt from The EC is in the
Such an initiative would rely on two negotiations: concessions under the “Round for free” notion—to uncomfortable
between the ACPs and the non-EU WTO members exchange of concessions in the WTO. situation of
to define the tariff cuts the ACPs would grant to
these Members, and between the ACPs and the Second, non-EC-non-ACP countries may choose
being unable to
EC to define the new (more limited) tariff cuts to litigate, rather than to negotiate. Several EPA solve the basic
in the new EPA context. Successful negotiations provisions are legally challengeable. Brazil already problems it has
would lead to a WTO agreement standing alone or raised concerns about the “MFN provision” generated with the
included in the Doha Round. which requires all parties to offer the same trade EPAs. Negotiating
concessions they accord to major countries to initiatives from
It is essential to underline that, as always in the all EPA signatories (hence the EC). Many other the ACPs and/or
WTO, the ACPs would offer cuts of their bound EPA provisions could be challenged. For instance, from the rest of
MFN tariffs which could result in cuts of their interpreting “substantially all the trade” as the the world should
applied tariffs, but not necessarily. In the latter liberalization of trade flows covered by an average
case, the ACP offer would seem of limited value.
thus come as a
of 90 percent of the tariff lines is not an iron cast great relief to the
But, it represents a true improvement in access to proposition. Litigation is not very satisfactory: it
ACP markets by the certainty it provides to the EC, who should
cannot solve the basic EPA economic flaws, and
world exporters. warmly support
targets scattered legal points. Litigation is also
the worse scenario for the EC, if only because the
them.
Two initiatives from the rest of the world
slower the ratification process of EPAs, the deeper
The rest of the world could take two very different the ACP hostility to the EPAs would grow, favoring
types of initiatives. First, major WTO members more frequent litigation.
may choose to negotiate in order to reduce or
Initiatives from the EC
eliminate the preference margins which are granted
to EC firms by the ACPs, and which limit their own The EC is in the uncomfortable situation of being
firms’ access to the ACP markets with huge growth unable to solve the basic problems it has generated
potential. As a result, they may request tariff cuts with the EPAs. Negotiating initiatives from the
ACPs and/or from the rest of the world should thus
5
Claire Delpeuch (2007). “One Minute to Midnight: Is there Still come as a great relief to the EC, who should warmly
Time to rethink EPAs?” Washington, DC: The German Marshall support them. That said, what could the EC do on
Fund of the United States, Policy Brief, October 2008.
Claire Delpeuch and Patrick Messerlin (2007). “EPAs: A Plan its own? It could undertake a careful adjustment of
A+.” Available on GEM website: http://gem.sciences-po.fr its focus on regional EPAs in order to define useful
Claire Delpeuch and Patrick Messerlin (2009). “Sortir de
l’impasse des APE : Pour une initiative des pays ACP à l’OMC.” flexibilities in its position.
Annuaire Français de Relations Internationales, Vol. X, pp. 613-
634 (GEM website).

A careful adjustment: The heated discussions on cozy budgetary agreement with South Africa (a
the EPAs have somewhat overblown the regional very costly agreement for South Africa).6
dimension—by EPA critics and supporters alike.
First, from an economic perspective, ACP regions In short, focusing on “process” entails the EC
are very small—less than twice the size of the fostering the emergence of “leading” ACP countries
Bulgarian economy. Including Nigeria and South willing to shift away from traditional trade policy to
Africa in the corresponding ACP regions will bring better targeted domestic policies (see Section 2).
In short, focusing them to the combined size of roughly Romania EC “flexibilities”: Such a careful adjustment suggests
on “process” and Bulgaria. several “flexibilities” in the EC current position.
entails the EC First, the EC should drop the controversial “MFN
Second, from a political economy perspective, a
fostering the provision” which cumulates so many negative
regional approach has pros and cons. Supporters
emergence of effects. It constitutes a key obstacle to progress
of a regional approach argue that it would help
“leading” ACP the ACP members to reform their trade policies. in delicate EPA negotiations, such as those in
countries willing But, the EPA freeze of the 20 percent tariff lines Southern Africa. It will dissuade the ACPs to
to shift away from undermines greatly this argument since this conclude meaningful trade agreements with
traditional trade exception is large enough to cover most of the other trade partners, bringing no gain to the EC
policy to better goods produced by individual ACP countries. other than freezing the ACPs, and in complete
targeted domestic Rather, it induces individual ACPs to fight for their contradiction with the Mexican or Moroccan cases
own highly protected sectors when defining the mentioned by the Commission. It will generate
policies.
regional list. The resulting regional deals may be so increasingly bitter frustrations due to infringed
difficult to reach that either they will be frozen for a sovereignty, particularly in those ACPs eager to play
long time or they will quickly collapse. The EC has a leading role. Last but not least, it is challengeable
a long experience in such negative deals, with its in the WTO, and dropping it now would avoid
common agricultural and fisheries policies. a humiliating defeat to the EC in Geneva sooner
or later.
The last reason for the EC to review its regional
approach is the most important when the EPAs Second, pending the full adoption of regional
are conceived as a “process.” An ACP initiative as agreements among ACPs, the EC should work
described above is most unlikely to be taken by the in favor of minimizing the differences in tariffs
whole set of countries. It would require some ACPs imposed on EC products by neighboring ACP
to take the lead. Individual ACPs that could play countries. This is crucial for minimizing the
a “role model” for the other ACPs, unilaterally, in risks of massive smuggling between neighboring
bilateral agreements or in the WTO, should thus ACP—smuggling has a strong corrosive impact
not be “glued” in regional agreements. In many on the robustness of ACP states. What matters are
respects, this is illustrated by Southern Africa: tariff differences among neighbors. For instance,
Botswana, Lesotho, and Swaziland are torn apart a situation where one ACP country keeps a 10
between their desire for a more open trade policy in percent tariff on a good imported from the EC
goods and services (in this respect, the EPA is more while its neighbor liberalizes fully the import of
promising than the current SACU trade agreement this product is less distortive than a situation where
with South Africa) and the continuation of their
6
Peter Draper and Nkululeko Khumalo (2009). “The Future
of the Southern African Customs Union.” Trade Negotiation
Insights, ICTSD, Vol. 8, no. 6, August.

the two ACPs maintain two very different tariffs divergent views on this issue), and competition
(say 20 and 50 percent) on imports of the same policy (a too farfetched endeavor, all the more
product from Europe. A tailor-made design of the because competition issues could be addressed in
EC rules of origin could help to get such a desirable much simpler alternative ways). Second, the EPA
narrowing of tariff differences. For instance, the provisions on services should focus on institution-
EC could decide to introduce some flexibilities in building. They should not cover specific services
its rules of origin regime if the two ACP neighbors and leave enough time for the ACP to build their
narrow down their key tariff differences. much needed institutions and therefore better The way the
grasp their comparative advantages and negotiating EC extricates
Third, African ACP governments have recently interests. The EC should, in addition, not repeat itself from the
expressed a growing desire to combine EPAs and the harmful provisions on audiovisuals which were
AGOA. It is a kind of Mexican strategy—and a
EPA “faux-pas”
imposed by EC member state hardliners in the will shape its
weak form of the above-described ACP initiative Caribbean EPA.
in the WTO. As a result, the EC should support reputation for
such a request. It should also start to discuss with a long time,
Conclusion
the United States on what could be done jointly or particularly for the
cooperatively. The way the EC extricates itself from the EPA Commission which
“faux-pas” will shape its reputation for a long
has played such a
Last but not least, conceiving the EPAs as a process time, particularly for the Commission which has
dominant role in
requires the inclusion of trade in services in the played such a dominant role in this venture. All the
speeches by the EC as a supporter of development
this venture.
EPAs, with two conditions. First, services will be
so demanding for the ACPs in terms of institution- and as a global responsible player will be perceived
building that the EC should not burden the ACPs very differently by all the developing countries—
with other issues, such as government procurement ACP and the others—if the EC holds true to
(largely covered by World Bank rules), investment its commitments on the EPAs as a process and
provisions (the EC Member States have strongly develops appropriate flexibilities.

From an Ugly Duckling to a Beautiful Swan?
Thanks to the WTO, the European Union is on
the Way from Preferences to Reciprocity in
Defining Trade Relations with its Favorite
Associate Countries
Christian Häberli1 Clause) or (ii) in the context of a regional trade
agreement (RTA) (GATT Article XXIV and
Cutting the Gordian Knot GATS Article V). Not surprisingly, it was mostly
Sometimes even governments and trade diplomats developing countries which, through WTO dispute
can work fast, against the clock and against settlement procedures, successfully challenged
the odds. Even if the purpose is as complex as three different sets of EC measures: its banana
deepening special relations without discriminating regime, its special preferences for certain countries
EPA negotiations against others. Perhaps this was only possible combating drug production and trafficking, and its
were extremely because on December 31, 2007 the time had re-export subsidies for ACP and Indian sugar.
difficult. For the run out. Preferences vs. reciprocity
first time, the
World Trade WTO vs. history EPAs and their WTO compatibility are a Gordian
Organization The historic ties between the European Knot, because the Cotonou Agreement provides
(WTO) showed the Communities (EC) and the African, Caribbean, that the new EPAs would continue temporary non-
way forward: out and Pacific Group of States (ACP) constitute an reciprocal preferential treatment for ACP member
of the colonial intrinsic mesh of interests reaching far beyond states, at least on a level equivalent to the trade
approach to colonial trade. A large number of agreements since preferences under the Fourth Lomé Convention,
preferences, and 1963 tried to incorporate the manifold power and be supportive of regional integration among
asymmetries between the contracting parties ACP countries. At the same time, the EPAs would
as a guardian
into an initially rather unilateral kind of five-year have to be fully compatible with the WTO once the
for third country
development plans under the name of Yaoundé waiver that protected EU/ACP preferential relations
interests.
(I–II) and Lomé (I–IV). The Cotonou Agreement expired. Adding to these legal difficulties was the
finally adopted on June 23, 2000 extends over 20 fact that economic realities had changed. A few
years and covers a much larger number of subjects. tariff preferences, even when coupled with financial
The Economic Partnership Agreements (EPAs) aid and technical assistance (still controlled by
initiated in 2008 are the new trade component of Brussels), had become clearly insufficient to honor
the Cotonou Agreement. the historic obligations of certain EU member
states. Despite all agreements and preferences most
EPA negotiations were extremely difficult. For the ACP countries continuously lost market shares
first time, the World Trade Organization (WTO) against their competitors from Asia and Latin
showed the way forward: out of the colonial America who successfully penetrated European
approach to preferences, and as a guardian for markets under no, or with much less, preferential
third country interests. The biggest obstacle to conditions. Were preferences “Opium for Africa”
a discretionary development of EC-ACP trade instead of an instrument for development?
relations were the so-called most-favored nation Was Lomé an ugly duckling, for cynical trade
(MFN) provisions obliging all members of economists and lawyers?
the WTO to grant tariff and other preferences
indiscriminately, with only two exceptions: (i) Time pressure as a deal-maker for regional
preferences for all developing countries (Enabling integration
Perhaps surprisingly, given the vociferous

1
Christian Häberli is a senior research fellow at the World Trade opposition to changes by numerous ACP
Institute, University of Bern, Switzerland.

governments, NGOs, and trade pundits, the 2007 and intellectual property, e-Commerce and public
deadline turned out to be a window of opportunity. procurement, as well as chapters on environmental
Threatened by, and threatening with the end of the and labor standards. The most important so-called
WTO waiver, the European Commission succeeded “WTO Plus” advances are doubtlessly the extensive
in convincing most ACP member states to sign a and mutual (but not reciprocal) concessions for
sort of start-up “Interim EPAs” coming close to trade in services and investment.
its idea of a new era of trade cooperation. At the
same time, one group of states, the Caribbean, A critical look Regardless of the
very skillfully used its specific situation of having The main issue in assessing the EPAs is obviously answer to the
two “big brothers” in order to extract some real not the length of the list but the substance covered question of who
trade concessions in the field of services from the by these topics. Empirical research will be necessary pushed whom in
European Union. To take but one example, the for such an assessment. In addition, and before this negotiation,
tourism industry today is a business where only joining the chorus of (mostly self-) praise, and the CARIFORUM-
vertically structured companies with market access showing off a beautiful swan to the world at large, a EC EPA signed on
rights and commercial presence in the countries of couple of legal questions also deserve a closer look:
their customers can offer a full range of services,
October 15, 2008
WTO compatibility, bilateral MFN commitments, opened the door
from door to plane, hotel, and beach. Perhaps it was and preference erosion.
the perspective to break into America’s hinterland to more North-
that enticed the European Union to make WTO compatibility South regional
concessions precisely for such services (for both integration than
market access and national treatment), which they Two scenarios were never realistic options in ever before.
had never offered to anybody in the multilateral EPA negotiations: full reciprocity, i.e., equal tariff
(Uruguay Round) negotiations on services. As a and other concessions on both sides, and full
matter of fact, the United States enjoyed better non-reciprocity, i.e., the expectation that only the
market access in that region than EU-based European Union would make concessions. The
exporters and service providers, despite the sizeable first scenario would have meant full economic
financial assistance from Europe. Equal treatment integration despite what will remain for a long
with the United States thus became the bottom line time to come a largely asymmetric relation.
for the EC, all the easier to obtain because the U.S. The second scenario would not be compatible,
government lacked the political will and fast track because of the geographic coverage of the EPAs,
authority from the U.S. Congress to push for deeper with the requirements laid down by the Enabling
economic integration in the Caribbean. Clause. This clause enumerates the conditions
under which non-reciprocal preferences may be
Regardless of the answer to the question of granted by developed to developing countries,
who pushed whom in this negotiation, the whether autonomously or by way of preferential
CARIFORUM-EC EPA signed on October 15, 2008 trade agreements (PTAs). As one exception to the
opened the door to more North-South regional MFN obligation it only allows preferences for all
integration than ever before. This is certainly true developing or for all least developed countries—but
when looking at the number of topics it addresses, not for a hand-picked selection of both, such as the
besides the classic tariff preferences of the older ACP. Dating back to the 1970s and without having
agreements: technical barriers to trade, sanitary and ever been modified, today it falls short of the
phytosanitary measures, competition, innovation

requirements for non-reciprocal trade relations. It Caribbean trading partners with third countries,
could even be called a “disabling clause.” the European Commission obtained a very strict
non-discrimination concession from the ACP. In
EPA contracting parties thus had no choice but to the services chapter, the EC offers “to commercial
go by the other exception to the MFN obligation, presences and investors of the Signatory
i.e., Article XXIV of the General Agreements CARIFORUM States a treatment no less favorable
on Tariffs and Trade (GATT) shields RTAs and than the most favorable treatment applicable to
A third problem customs unions from the obligation to extend like commercial presences and investors of any
with EPAs is in all concessions to all other WTO members. This third country with whom it concludes an economic
Article can only be invoked if the RTA covers integration agreement after the signature of this
fact inevitable. All
“substantially all the trade.” The ACP countries agreement.”2 In exchange, the ACP states extend
tariff reductions,
thus had to make many more concessions than they a similar guarantee to EC service providers and
whether in a WTO
would have liked. In the case of the CARIFORUM- investors that will thus benefit from any more
or RTA context EC agreement, the line-by-line tariff concessions favorable concessions the CARIFORUM states
or autonomous, granted by the 15 Caribbean states extend over could grant to “any major trading economy”
lower the tariff an impressive 1,500 pages. However, a closer look (Article 70(1)(b). Interestingly, “major trading
wall impacting on at the more sensitive products reveals not only economy” is defined as “any country accounting
trade between implementation periods extending as far as 2033 for a share of world merchandise exports above
nations. At the but also some concessions in the form of tariff- 1 percent.” Such a low threshold includes many
same time, rate quotas. Moreover, an estimated 20 percent more countries than just the United States.
they reduce the of all tariff lines remain without any concessions. Unsurprisingly, this ratchet clause (which looks
advantages that The word “substantially” has never been defined a bit like the national treatment provision for
other preference so, given the existing and prevailing asymmetry sub-federal entities in Article 301/2 of the North
of concessions in the EPAs, they could still fail America Free Trade Agreement) was criticized
beneficiaries
the compatibility test under GATT Article XXIV. in the WTO by Brazil and others arguing that it
had enjoyed
Like for the other RTAs, a formal endorsement raises a hurdle to more South-South economic
beforehand.
by the competent WTO Committee on Regional integration. Time will show whether this is only
Least Developed Trade Agreements (CRTA) is unlikely. Because the a theoretical concern, as some of the negotiators
Countries (LDCs) Enabling Clause does not address North-South were quick to point out, or whether the bilateral
are those which PTAs it cannot provide legal coverage under its MFN provision is indeed preventing developing
lose most in this paragraph 2c for the non-reciprocal character of the countries from seeking more favorable treatment
process called EPAs, for instance by a decision of the Committee among them.
preference on Trade and Development (CTD). This means
erosion. that the lack of full reciprocity will always cast some Preference erosion
uncertainty in the key issue of EPA compatibility
with the WTO obligations of its contracting parties. A third problem with EPAs is in fact inevitable.
All tariff reductions, whether in a WTO or RTA
Mfn provisions context or autonomous, lower the tariff wall
A second challenge for the CARIFORUM-EC

2
Article 70(1)(a), emphasis added to show the limits of this
contracting parties are the provisions regarding bilateral MFN commitment. The EC remains free to offer more
bilateral MFN treatment. In order not to lose favorable services concessions in free-trade agreements with
other developed countries without having to extend the same
preferential access through future deals of its treatment to the CARIFORUM states.

impacting on trade between nations. At the standards, known to constitute even more complex
same time, they reduce the advantages that other trade barriers which disproportionately affect
preference beneficiaries had enjoyed beforehand. LDC exports.
Least Developed Countries (LDCs) are those which
lose most in this process called preference erosion. EPAs as a model for others, and for the WTO?
Indeed, by offering duty-free market access to the For two reasons, EPAs cannot be considered as a
European Union for all goods from all ACPs, the blueprint for other RTAs. They are nevertheless
EPAs also erode the preferences from the so- a step forward in terms of partial reciprocity, and EPAs cannot be
called “Everything But Arms” (EBA) initiative of in lessening third country discrimination. This considered as
the European Union. However, tariff preferences has implications also for the future of regional a blueprint for
obviously cannot be permanent in a world that integration and for the multilateral trading system. other RTAs. They
may see MFN tariff freedom in a not too distant are nevertheless
future—at least for non-agricultural goods shipped No blueprint…
a step forward in
to developed countries.
First, each such agreement addresses the specific terms of partial
A closer look at the trade impact of existing situation of its contracting parties. For example, reciprocity, and
preferences for LDCs puts the erosion problem in it is difficult to imagine that a country like China, in lessening
a different perspective. The EC initiated its much- or the Association of Southeast Asian Nations, third country
touted EBA in 2001, and for reasons of WTO would ever even contemplate more than perhaps discrimination.
compatibility extended it to all LDCs, not only to a polite dialogue on human rights within a trade This has
those in the ACP Group. At the 2005 WTO Hong agreement. Likewise, the European Union will implications also
Kong Ministerial Meeting, “duty-free quota-free” hardly envisage substantial financial assistance to for the future
(DFQF) treatment was prescribed for at least 97 such large and more advanced trading economies,
of regional
percent of all LDC goods exports to developed beyond some trade facilitation projects. As for the
integration and
countries. A number of other developed countries world’s biggest economy, its trade agreements with
somewhat timidly followed the European Union developing countries follow different objectives, not
for the multilateral
with their own versions of DFQF, including Japan, all necessarily linked to trade promotion objectives. trading system.
Switzerland, and Norway. However, it now appears
that the EBA did not bring about new trade for Second, even the EPAs fail to address the totality
LDCs, with the (temporary) exception of sugar. of the obstacles preventing a level-playing field
This shows how little trade preferences alone can between such unequal parties as the ACP and the
do for trade creation. The reasons are not only European Union. For instance, such agreements
the lack of competitiveness and logistics prevalent contain no disciplines on the domestic support
in many developing countries. Even where the provided by rich countries to their farmers. They
tariff advantage over other supplying countries is even prohibit trade remedies that could offset such
greatest, e.g. for animal products other than fish, subsidies. This simple fact explains why for instance
nothing happened through EBA. The sad truth South Africa—a free-trade-minded country—
is that for these products there has been virtually steadfastly refused a free trade agreement with the
no certification by EC inspectors for LDC-based United States that might have washed away its own
exporters, with the exception of four animal casing small-scale, unsubsidized corn producers. South
producers in Bangladesh.3 “Fortress Europe” at Africa, together with Namibia and Angola, has
its worst! And we are not even looking at private also refused to sign even an Interim EPA with the
European Union.
3
As verified by the author in May 2008.

…but a step forward agreements would follow a common pattern of
partial reciprocity as well as of sectoral and topical
The EPAs thus cannot be a panacea for all future coverage, they could together set a new standard
North-South RTAs. Even so, the EPAs show a way for the common overall objective of sustainable
forward and may yet lead the way for future PTA development through trade development. EPAs
negotiations. may thus lead the way in a world-wide competition
First, all such agreements will henceforth comprise for better trade regulation!
Finally, the a financial assistance package, more or less
multilateral Finally, the multilateral constraints shaping the
important, and more or less managed in common new EPAs show the need for a thorough review of
constraints (rather than by the donor party alone as before). the rules and disciplines laid down in the Enabling
shaping the
Second, the “WTO Plus” chapters of the Clause and in GATT Article XXIV. The European
new EPAs show
CARIFORUM-EC EPA will provide at least a Union has now steered clear of the preferential
the need for a (not to say deferential) type of agreements to a new
thorough review template for other such agreements, especially
as long as relevant multilateral rules for, say, set of progressively reciprocal RTAs. In its wake,
of the rules and the Enabling Clause may well turn out to become
investments, competition, or government
disciplines laid obsolete, at least for contractual preferences. Even
procurement, are lacking or deficient. Of course,
down in the what matters more than a list of covered items is if this represents a new economic reality, the
Enabling Clause the binding character of the concessions made relevant WTO bodies i.e., the General Council, the
and in GATT therein. Trade never happens from tariff reductions CRTA, and the CTD will have to take a new look
Article XXIV. or other trade facilitation measures for goods alone. at these two legal bases for such agreements—and
Regardless of whether they are in fact substantial or at the so-called Part IV of GATT 1994 (“Trade
not, these new chapters are of a dynamic character and Development”). Other items on this agenda
that can be developed on the basis of their own would be the respective safeguard, anti-dumping,
review clauses and in light of the evolving trade investment protection, and dispute settlement
patterns between the contracting parties. Besides, provisions in various multilateral and regional
the commitments which the ACP partners have agreements. The purpose of such a review should
sometimes grudgingly accepted constitute as many be to provide PTAs with sufficient flexibility to
improvements of their own standing—a non- allow for a dynamic development, but without
negligible argument in today’s global competition preventing other RTAs, particularly South-South
and trade and investment promotion. trade agreements, from unlocking the biggest trade
development potential of today, i.e., trade between
A need for new approaches in regionalism— developing countries.
and in the WTO
Whether and when all of this will happen remains
Looking beyond EC-ACP relations, such a template to be seen. For all their infant diseases, many of
could also address the infamous “spaghetti bowl which are attributable to the circumstances and the
syndrome,” which in the absence of progress at the haste that accompanied their genesis, the EPAs are
multilateral level is likely to further increase with not a bad start.
each new RTA. If at least the future North-South

To be or not to be?
Sanoussi Bilal1 products have since entered the EU markets under
one of the following regimes:
The delivery of Economic Partnership Agreements
(EPAs) between the European Union and the a. An EPA providing duty-free, quota-free
African, Caribbean, and Pacific (ACP) countries has (DFQF) market access to the European Union
so far been a slow, painful, and incomplete process, for those countries that have initialled such an
whose future remains most uncertain. Will most agreement.
ACP countries finally rally under the EPA banner, The delivery
forgetting about the bumpy road to get there? Or b. The Everything-But-Arms (EBA) initiative
under the generalized system of preferences of Economic
will EPAs continue to split regions and divide ACP
(GSP) of the European Union, which also Partnership
policymakers on the most appropriate way to pursue
provides for DFQF access to the European Agreements (EPAs)
sustainable development and maintain a privileged
relationship with an important and traditional Union, though under less favorable rules of between the
partner, the European Union? origin than EPAs (notably for fisheries and European Union
textiles), to all least-developed countries and the African,
1. A long and strenuous process (LDCs). Caribbean, and
The 1996 European Commission Green Paper on Pacific (ACP)
c. The EU GSP available to all developing
the relations between the European Union and countries other than non-LDCs. countries has
the ACP countries first proposed EPAs, and these so far been a
principles were enshrined in the 2000 Cotonou d. Another free-trade agreement, namely the slow, painful,
Agreement. After a lethargic preparatory period, Trade, Development, and Cooperation and incomplete
the EPA negotiations started in September 2002 at Agreement (TDCA) between the European process, whose
the all-ACP level, and at the end of 2003–early 2004 Union and South Africa. future remains
at the level of the six ACP EPA regional groupings. most uncertain.
To avoid having to face newly imposed market
By the end of the 2007 deadline, according to
restrictions (i.e., higher import duties or more
which all agreements should have been concluded,
restrictive rules of origin), several African and
only one region, the Caribbean, had finalized the
Pacific countries have thus opted to conclude
negotiations, and more than half the ACP countries
interim EPAs that cover market access in goods
failed to reach any type of agreement with the
only, leaving other dimensions such as trade in
European Union.2
services and trade-related issues (investment,
With the expiration as of January 1, 2008, of the competition, government procurement, intellectual
unilateral Cotonou preferences, imports of ACP property rights, trade facilitations, environment,
etc.) to be negotiated in a second phase in 2008-
2009. Other African and Pacific countries preferred
to conclude only a single undertaking, and have
1
Sanoussi Bilal is head of the Economic and Trade Cooperation
Programme at the European Centre for Development Policy thus continued negotiations with the European
Management (ECDPM) in Maastricht and Brussels. Union as part of their initial regional EPA
2
For a detailed analysis of the final process and outcome of the configuration, though without agreeing to any prior
EPA negotiations, see S. Bilal and C. Stevens eds. (2009). The
Interim Economic Partnership Agreements between the EU and interim EPA.
African States: Contents, challenges and prospects. ECDPM Policy
Management Report 17, with ODI, Maastricht: European Centre Following the conclusion of some interim
for Development Policy Management. Retrieved at: www.ecdpm.
org/pmr17 agreements by the end of 2007, EPA negotiations

have continued in all African EPA regional These differences are important as they reflect not
groupings and in the Pacific in 2008 and 2009. only superficial tensions, but are often symptomatic
At least formally, few countries or regions have of more deeply rooted differences of approaches or
achieved progress since, and only little. concerns about the EPAs and regional integration
processes. Understanding recent events is thus
In parallel, the (interim) EPAs initialled at the crucial to appreciate the possibilities of moving the
end of 2007 had to be notified to the World Trade EPAs forward. This is of particular relevance as all
The European Organization (WTO). Before doing so, however, the African and Pacific countries are currently engaged
European Union insisted on completing first the in ongoing negotiations with the European Union
Union has
‘legal scrubbing’ of the agreements and on officially for the conclusion of final, regionally-based EPAs.
feared that in
signing them. This process has taken much more
the absence of
time than expected. While the Caribbean EPA 2. Some major challenges
clear and binding and the interim EPA with Cote d’Ivoire have been
deadlines, the Each country and region has its economic, political,
signed, notified to the WTO (Autumn 2008), and
negotiation and negotiating specificities, making generalization
given assent by the European Parliament (March
process a dangerous exercise, as it can lead to serious
25, 2009), only a few other countries have signed
could drag on misperception and misunderstanding. However,
their interim EPAs, but in most cases not yet
some challenges in the current EPA process are
indefinitely. This notified them at the WTO:
common to many stakeholders cutting across ACP
is one of the
• Central Africa: Cameroon on January 15, 2009 countries. These include the elements enumerated
primary reasons
(notified to the WTO on 24 September 2009) and briefly discussed below.
why the European
Commission • Southern African Development Community Negotiating final EPAs and status of interim
insisted on (SADC): Botswana, Lesotho, and Swaziland on agreements
sticking to the end June 4, 2009; Mozambique on June 15, 2009;
While all African and Pacific countries and regions
of 2007 deadline
• East and Southern Africa (ESA): Madagascar, have expressed the willingness to negotiate final
to conclude EPAs that would supersede the interim agreements,
Mauritius, Seychelles, and Zimbabwe on
WTO-compatible August 29, 2009; and the timeframe for concluding EPAs remains an
trade agreements issue. The European Union has feared that in
with the ACP. • Pacific: Papua New Guinea on August 30, 2009. the absence of clear and binding deadlines, the
negotiation process could drag on indefinitely. This
Finally, while some other ACP countries have
is one of the primary reasons why the European
chosen to initial an interim EPA, they have yet
Commission insisted on sticking to the end of
to formally sign them. Table 1 summarizes the
2007 deadline to conclude WTO-compatible trade
situation as of the end of September 2009.
agreements with the ACP. Over 20 months later,
The African and Pacific regions are thus currently no final EPA has been concluded yet, and the
split between the countries that have not yet negotiation process has stalled in several regions,
concluded any agreement with the European Union, such as Central Africa and Pacific. In addition, as
those that have concluded an interim EPA but still mentioned above, several of the interim EPAs still
have to sign it more than a year-and-a-half after remain to be signed, giving some credence to the
initialling, and those that have finally signed it. European fears.

As far as African negotiators are concerned, this industry provisions, non-execution clause, the most
slow process can be explained by: favored nation (MFN) clause, and rules of origin.
a. the moderate appetite if not reluctance to The European Union has acknowledged the
open up domestic markets to EU competition existence of such contentious issues within the
by concluding such a free trade agreement, interim agreements and adopted a more flexible
approach on some of the issues, already suggesting
b. concerns about the scope of a final EPA (see some revised provisions. Some African countries
below), Several African
(e.g., Namibia) or regions (e.g., East African
negotiators and
Community [EAC]) would like to see the interim
c. concerns about an appropriate development politicians have
EPAs amended. But the European Union is willing
dimension, notably in terms of EU voiced concerns
to consider revisions in the context of negotiations
commitments to support accompanying over a number
toward final and comprehensive EPAs only.3 While
measures to an EPA, a dimension missing or of provisions
being too weak in the current framework for the European Commission’s apparent flexibility has
encouraged some countries to sign their interim appearing within
some ACP stakeholders,
EPA and move forward in the negotiations, it has the interim
d. c oncerns about some inadequate provisions in antagonized some others who are reluctant to sign agreements
the interim EPAs (see below), an interim agreement which they deem flawed, that they view
since certain improvements have already been as ‘contentious’
e. difficulties in reaching common regional identified and some revised provisions agreed and which they
positions endorsed by all countries of a in principle with the European Union. These demand be
regional grouping, and tensions, which threaten the cohesion of regional reviewed. These
integration processes, are best illustrated by the
f. n
umerous domestic capacity constraints, issues include,
current situation in Southern Africa, where some
including negotiating trade in services or among others:
members of the Southern Africa Customs Union
some trade-related issues (e.g., investment, the definition of
(SACU) have recently signed their interim EPA
competition, government procurement, and substantially all
and are actively engaged in negotiations toward a
intellectual property). trade, transitional
comprehensive EPA (i.e., Botswana, Lesotho, and
Should negotiations face delays, the interim Swaziland), whereas the other members continue periods, export
agreements might be applied over a longer period to voice serious concerns about this process (i.e., taxes, free
than initially foreseen or even become permanent. Namibia and South Africa).4 circulation of
goods, national
Contentious issues in the interim agreements The debate over contentious issues has crystallized
treatment,
tensions for two reasons. First, it reflects a
Several African negotiators and politicians have bilateral
divergence of views over some specific content
voiced concerns over a number of provisions safeguards,
appearing within the interim agreements that they infant industry
3
For an extensive discussion on these contentious issues, see D.
view as ‘contentious’ and which they demand be Lui and S. Bilal (2009).“Contentious Issues in the Interim EPAs: provisions, non-
reviewed. These issues include, among others: the Potential flexibility in the negotiations.” ECDPM Discussion execution clause,
Paper 89, Maastricht: European Centre for Development Policy
definition of substantially all trade, transitional Management. Retrieved at: www.ecdpm.org/dp89 the most favored
periods, export taxes, free circulation of goods, 4
See P. Draper and N. Khumalo (2009). “On the Future of the nation (MFN)
national treatment, bilateral safeguards, infant Southern African Customs Union.” Trade Negotiations Insights
Vol.8, No.6, July-August 2009, ECDPM/ICTSD. Retrieved at:
clause, and
www.acp-eu-trade.org/tni rules of origin.

of the agreements, which when considered of be designed in the final agreements, ranging from
strategic importance by one of the parties may comprehensive rules to best endeavor language.
block progress in the negotiations or signing of an In order to address the specificities of individual
agreement. But it also highlights challenges related countries and sub-regions, variable geometry might
to the status of the interim agreements and the be applied within a region, as some countries may
process toward a final EPA. The European Union undertake commitments on services liberalization
introduced interim agreements as temporary or other issues while others do not. Indeed, in
The current stepping-stone agreements that would bridge the the near future it seems most unlikely that any
challenge is thus gap between the loss of Cotonou preferences as of African or Pacific region will undertake common
to find sufficient January 1, 2008, and the conclusion few months regional commitments on services and on critical
common ground later of final EPAs. With the EPA negotiations trade-related issues. It is important, however, that
among regional progressing at an extremely slow pace and their commitments undertaken by individual countries
conclusion not yet in sight, the status of interim in the context of an EPA remain coherent with their
partners and for
agreements becomes more prominent. They regional agenda and ambitions, to prevent regulatory
the EU to provide
should start being implemented by the African fragmentation and disintegration of some regions.
sufficient flexibility
and Pacific countries concerned. Interim EPAs are
to accommodate fully-fledged free trade agreements in the sense Harmonization of the EPA process with regional
specific concerns of Article XXIV of General Agreement on Tariffs integration initiatives
in order for and Trade (GATT), which should thus be notified So far, the only regions that have not been
regional groupings to the WTO and should be signed and ratified by divided by the EPA process are the Caribbean5
to conclude the parties concerned, in line with their domestic (with the exception of Haiti that has yet to sign
final regional procedures. They could be amended, in which the regional EPA) and the EAC.6 Yet, the initial
agreements, case these amendments would have to be notified objective of EPAs is to foster regional integration
which harmonize to the WTO and be signed and ratified as well by and not to complicate it. The current challenge
commitments the parties. The European Union is afraid that this is thus to find sufficient common ground among
in a coherent would unduly delay the process of adoption and regional partners and for the European Union
implementation of the interim EPAs and reduce
manner among to provide sufficient flexibility to accommodate
the incentives of some countries to conclude a final
all countries specific concerns in order for regional groupings
EPA. On the contrary, some ACP countries do not
within a region. to conclude final regional agreements, which
wish to have to sign and ratify an agreement they
do not fully endorse, in particular on substantive
issues where a compromise could or has been found
5
For an assessment of the Caribbean EPA, see C. Stevens, J.
Kennan, and M. Meyn, (2009). “The CARIFORUM and Pacific
with the European Union. ACP Economic Partnership Agreements: Challenges Ahead?”
Economic Paper 87, London: Commonwealth Secretariat.
Thematic scope of final EPAs Retrieved at: www.odi.org.uk/resources/details.asp?id=2864&tit-
le=cariforum-paciﬁc-acp-economic-partnership-agreements-
challenges-ahead
The rendezvous clauses in the interim agreements 6
See for instance, O. Barabinde and G. Faber (2009)., “EPAs
specify areas to be addressed in negotiations (in and Integration in SSA,” in Faber, G. and J. Orbie eds. Beyond
particular relating to services and trade-related Market Access for Economic Development: EU-Africa Relations in
Ttransition. Oxon and New York: Routledge, ch.6, pp.111-134;
issues), without, however, prescribing the outcome and S. Bilal and C. Braun-Munzinger (2008). “EPA Negotia-
of these talks. Accordingly, if negotiations on tions and Regional Integration in Africa: Building or Stumbling
Blocs.” Conference Paper prepared for the 3rd Trapca Annual
services and trade related issues are concluded, Conference, Arusha, Tanzania, 13-14 November 2008. Retrieved
there are various options of how provisions may at: www.ecdpm.org/bilal

harmonize commitments in a coherent manner In this respect, the case of West Africa will be
among all countries within a region. However, particularly instructive. Indeed, the parties have
should some countries continue to see little agreed in June 2009 to conclude, by the autumn of
development benefits from concluding an EPA, it 2009, a regional EPA on trade in goods and EPA-
is likely that divergences over an EPA will remain related development cooperation.8 Notwithstanding
in some regions, with the possibility of some EPAs the challenge of agreeing to a common market
à la carte being concluded. This outcome could opening for Economic Community of West
seriously complicate regional integration initiatives. African States (ECOWAS) that complies with the While all parties
minimum European requirements (currently set at recognize
Development support for EPAs 80 percent of the value of imports of EU products the necessity
to the region), a major question remains as to how of financial
While all parties recognize the necessity of
the European Union will respond to the ECOWAS assistance to
financial assistance to support the negotiation and
EPA Development Program (EPADP/PAPED). Can
implementation of EPAs as well as to assist ACP support the
the EPADP be further elaborated and used as a
countries in fully benefiting from these agreements, negotiation and
strategic template to program AfT support for EPA
challenges relate both to the amounts and to the implementation
and regional integration, in a way that promotes aid
effective use of resources, which will be provided of EPAs as well
effectiveness principles as embodied in the Paris
under the European Union’s joint Aid for Trade as to assist ACP
Declaration and Accra Agenda for Action (e.g.,
(AfT) strategy. While the European Commission
country ownership, donor alignment, coordination countries in fully
has made clear that it will not provide any additional
and harmonization, mutual accountability)?9 And benefiting from
finance for EPA support beyond the 10th European
can donors commit to provide sufficient support these agreements,
Development Fund (EDF) currently available, EU
over time for this process? challenges relate
member states have committed to increasing their
AfT spending.7 A challenge in implementing AfT both to the
Impact of the global crisis amounts and
is the translation of commitments into concrete
programming and the effective assessment of needs The financial crisis, though having its origin to the effective
in ACP countries and regions. The reality is that, in developed countries, has generated a global use of resources,
while there is plenty of money to support trade- recession that has severe consequences for the which will be
related initiatives in ACP countries, captured under prospects of economic growth and development provided under
the AfT umbrella, there is no specific additional of ACP countries, notably through a decline of the European
commitment from donors to respond to the trade and investment flows, lower remittances, and Union’s joint
increasing needs that the implementation of an lower commodity prices with a greater volatility.
Aid for Trade
EPA would generate, in particular if ACP countries This appears to have led already to a reduction
(AfT) strategy.
are to effectively adjust to a new competitive of employment opportunities and an increase in
environment and develop their productive capacity poverty and malnutrition for the most vulnerable
and infrastructure accordingly. people. In this context, it becomes more urgent for
ACP countries to unleash the potential that regional
integration processes carry in order to stimulate
7
The EU Aid for Trade Strategy specifies a concrete target of
increasing EU trade related assistance (TRA) to €2 billion per
year by 2010 (€1 billion each from the European Commission 8
See joint declaration, available at: http://trade.ec.europa.eu/
(EC) and from EU member states). As the EC is already close to
doclib/html/143819.htm
providing its target, most of the increase in TRA is expected to
come from member states. Around 50 percent of the increase is 9
See www.oecd.org/document/18/0,3343,
earmarked for ACP needs. en_2649_3236398_35401554_1_1_1_1,00.html

economic growth. The creation of effective regional an interest for negotiations in these areas.
markets, encompassing not only institutional
arrangements but also physical integration, policy In addition, the global crisis has further heightened
coordination, and the pooling of resources, can the need for a timely and appropriate level of
be decisive to stimulate production capacities, support, notably in terms of EPA-related aid for
trade and investment flows, when integrated in a trade and effective delivery mechanisms. Greater
broader development strategy that does not rely effort should be made to effectively address the
Whether final and on an obsolete and rigid economic orthodoxy. The EPA-related loss of revenues from import duties
EPAs will be ultimately beneficial only if they can and to support fiscal adjustment. The current crisis
comprehensive
contribute to such regional objectives. has made the fiscal debate extremely sensitive in
EPAs will be
some regions (notably West and Central Africa)
concluded at the
In the short run, EPAs offer little prospect of and could even prevent the conclusion of an EPA
regional level in addressing the immediate consequences of the by some African leaders. Without flexibilities, EPAs
Africa and in the crisis. Special attention should thus be given to may add to the pain of the crisis.10
Pacific remains the scope of commitments and their sequencing,
an open question. to reflect the specific current conditions and 3. To be or not to be? Which way forward?
In the near development approaches of each country and Whether final and comprehensive EPAs will be
future, however, region. In particular, the difficulties resulting concluded at the regional level in Africa and in
it is unlikely that from the global crisis should be more explicitly the Pacific remains an open question. In the near
other regions taken into consideration in the EPA process. This future, however, it is unlikely that other regions
will conclude should lead to greater flexibility in the EPA agenda, will conclude Caribbean-like EPAs as only a
Caribbean-like including inter alia: handful of African countries remain committed
EPAs as only a to the ambitious EPA agenda initially set out
a. possible revision of some EPA provisions
handful of African under the impulse of the European Commission.
regarding market opening, in particular
countries remain Following the turbulent negotiating process of
by introducing, where appropriate, some
committed to the flexibility in the scope and speed of trade 2007, where antagonizing tactics and (at times
liberalization as well as in some other disgraceful) power play were too common,11 2008
ambitious EPA
obligations (revision of schedules, safeguards, and 2009 have been marked by a return to a more
agenda initially
serene atmosphere, thanks notably to the EU
set out under infant industry support measures, export
Trade Commissioner Catherine Ashton, who has
the impulse of restrictions, standstill clauses, rules of origin);
the European b. c areful services liberalization, considering 10
For a discussion, see S. Bilal, P. Draper and D.W. te Welde
Commission. proper sequencing and regulatory (2009). “Global Financial and Economic Crisis: Analysis of and
requirements, notably in the sensitive sector Implications for ACP-EU Economic Partnership Agreements
(EPAs).” ECDPM Discussion Paper 92, Maastricht: The Euro-
of financial services (at the source of the pean Centre for Development Policy Management. Retrieved at:
financial crisis), and possible postponement www.ecdpm.org/dp92
of or agreement to a built-in agenda for 11
For an account, see for instance, Bilal and Stevens (2009) cited
in footnote 2. Elgström, O. (2009). “From Cotonou to EPA Light:
commitments in this area when desired by the A troubled negotiating process,” in Faber, G. and J. Orbie eds.
African parties; and Beyond Market Access for Economic Development: EU-Africa
Relations in Transition. Oxon and New York: Routledge, ch.2,
pp.21-37; and C. Weller and K. Ulmer (2008). “Trade and Gover-
c. some flexibility and restraints in trade-related nance: Does governance matter for trade?” November, Brussels:
areas when the African side does not express Aprodev. Retrieved at: www.aprodev.net/trade/Files/Events/
Trade-and-gov.pdf

adopted a less confrontational approach than her European Union seems to have implicitly lowered
predecessor, Peter Mandelson. But tensions have its ambitions, having accepted to conclude a goods-
flared again in some instances, notably in Southern only agreement (and development cooperation
Africa, with South Africa and the European Union at the instance of ECOWAS), the first such
at a deadlock. More generally, the post-2007 EPA agreement since the end of 2007. It is doubtful that
process has been marked by a widespread apathy negotiations, if successfully concluded, will quickly
from most ACP actors. move toward a “second phase” to include trade in
services and trade-related issues. For the European EPAs are generally
Most ACP countries initially engaged in EPA Union too, preserving regional coherence seems to not perceived as
negotiations with reluctance. The prime objective be the paramount objective. opportunities,
has been to maintain their preferential market
but as destiny,
access to the European Union while making In Central Africa, where the situation is similar to
minimal commitments in terms of opening the one in West Africa, one country—Cameroon— the price which
markets or regulatory reforms (including the so- has concluded an interim EPA. However, the state of must be paid to
called trade-related issues). EPAs are generally not the region’s integration, the political dynamics, and continue to export
perceived as opportunities, but as destiny, the price the institutional capacity constraints are such that to Europe—the
which must be paid to continue to export to Europe— EPA negotiations have gone into a sleeping mode, main trading
the main trading partner for many ACP countries. with no progress in sight. partner for many
By concluding interim EPAs, those countries that ACP countries.
really needed to conclude a new trade agreement In Southern Africa, the region is divided between
By concluding
with the European Union to preserve preferential Botswana, Lesotho, and Swaziland, joined by
interim EPAs,
access to the European market have done so. Once Mozambique on the one side, and Namibia and
South Africa, joined by Angola, on the other side, those countries
the interim EPA signed, their market access was
splitting SACU and SADC and threatening the that really needed
secured. Other countries that chose not to conclude
existence of the current regional arrangements to conclude a new
an interim EPA and have relied instead on the EU
unless a compromise is found soon. Internal trade agreement
GSP (standard or EBA) since 2008, do not seem
to have been negatively affected. The main driving regional politics seem to have played a crucial role with the European
force for pursuing regional EPA negotiations is in the respective positions in the regions, notably Union to preserve
thus the need to maintain a regionally coherent between Botswana and South Africa. In this context, preferential
preferential regime with the European Union.12 the EPA negotiations have further exacerbated access to the
existing tensions. While technically not out of reach, European market
This is the case in West Africa, where the region’s it is unclear whether diverging positions can be have done so.
agenda to form a customs union is incompatible mended to conclude a regional EPA.
with a couple of countries (Ghana and Côte
d’Ivoire) having concluded interim free trade In East and Southern Africa, where countries have
agreements with the European Union. Fostering negotiated jointly but concluded individual interim
regional integration seems thus the main traction agreements, regional coherence is not yet at stake,
for pursuing a regional EPA, though there is no though the ambitions to form a COMESA-EAC-
guarantee of success. It is also worth noting that the SADC free trade area and customs union will not
be sustainable with heterogeneous market access
commitments toward the European Union. Most
12
In this regard, it is interesting to note that regional negotia- countries that have opted out from interim EPAs
tors are often more positive about the EPA ambitions than their
national counterparts.
are likely to maintain their position. Those with an

interim EPA are pursuing further negotiations with The second factor is political. A major lesson of
the European Union, which are likely to lead to the EPA process so far is that many of the ultimate
agreements with variable geometry, some countries decisions are driven by politics. Some ACP head
accepting commitments on trade in services, for of states have been lobbied, if not pressured, by the
instance, while others are not willing to commit at European Union to conclude an EPA, and decisions
this stage. have not necessarily been made on the technical
merits of the EPA provisions negotiated, but on
It is important to As for the Pacific, negotiations are also de facto broader political and geostrategic considerations.
frozen, with most of the attention of the region This is unlikely to drastically change in the near
remember that
focused on their new trade negotiations with future, and trade analysts should not be surprised if
EPAs make sense
Australia and New Zealand. A regional EPA is they are at times at a loss to explain the outcome of
only for those
unlikely to emerge soon. the negotiations and national decisions to conclude
countries and
or not an EPA.
regions which Besides these regional considerations, two other
are seriously key factors will determine the occurrence and While it would be foolish to predict the outcome
committed to a shape of final EPAs, none of which are related of the current EPA negotiations, it is fair to assume
reform process. to traditional technical trade and development that a patchwork framework of EPAs is likely
In these cases, considerations, which should arguably be guiding to emerge over the coming months, with some
principles for trade negotiators. The first is the countries concluding a comprehensive EPA, some
the EPAs should
availability of additional aid related to an EPA, or limiting their ambition to agreements covering
be framed
at least the new packaging of existing development trade in goods (most likely including a rendezvous
accordingly,
cooperation commitments to give the impression clause), and others abstaining altogether from
to provide the that fresh AfT is forthcoming. Many African sealing any deal. This should come as no surprise,
supporting countries have expressed their support for an EPA though, as there is no ‘one-size-fits-all’ recipe for
framework on the condition that appropriate development development,14 and trade agreements should be
while preserving assistance is delivered. To the extent that new AfT tailored to the specific conditions of the parties
the necessary programs provide the opportunity for better needs engaged. But whatever the outcome, it is important
flexibility to assessments, a more strategic orientation of the to remember that EPAs make sense only for those
actively pursue support provided, and greater coherence among countries and regions which are seriously committed
other development donors along the aid effectiveness principles of to a reform process. In these cases, the EPAs should
policy reforms the Paris Declaration, this may result in pro- be framed accordingly, to provide the supporting
and adjustments. development outcomes. But as stressed by the framework while preserving the necessary flexibility
EU member states,13 additional aid should not be to actively pursue other development policy reforms
the bait for ACP to conclude an EPA. However, and adjustments. To engage in EPAs under any
since the European Union is not able or willing to other circumstances, or to contemplate signing
commit new funding, repackaging of old wine into far-reaching agreements purely on the basis of
new bottles is likely to be the approach followed. maintaining access to the EU market, would be
absurd and incredibly short-sighted.
13
See Council Conclusions of May 27, 2008. Retrieved at: http://
register.consilium.europa.eu/pdf/en/08/st09/st09629.en08. 14
See notably D. Rodrik (2007). One Economics, Many Recipes:
pdf And of November 11, 2008. Retreived at: http://register. Globalization, Institutions, and Economic Growth. Princeton
consilium.europa.eu/pdf/en/08/st15/st15298.en08.pdf University Press.

Table 1. Overview of ACP EPA status (as of September 2009)
Liberalization Notification
Regional Grouping Members¹ Trade regime² commitment3 Signature to WTO
Comoros IEPA 81%
Djibouti EBA
Eritrea EBA
Ethiopia EBA
Madagascar IEPA 81% 29/08/09
ESA EPA Malawi EBA 29/08/09
Mauritius IEPA 96% 29/08/09
Seychelles IEPA 98% 29/08/09
Sudan EBA
Zambia IEPA 80%
Zimbabwe IEPA 80% 29/08/09
Burundi IEPA
Kenya IEPA
EAC EPA Rwanda IEPA
Tanzania IEPA
Uganda IEPA
Angola EBA
Botswana IEPA 86% 04/06/09
Lesotho IEPA 86% 04/06/09
SADC EPA Mozambique IEPA 81% 15/06/09
Namibia IEPA 86% 04/06/09
South Africa TDCA 86% 11/10/99 02/11/2000
Swaziland IEPA 86%
Cameroon IEPA 80% 15/01/09
Chad EBA 24/09/2009
Cent. African Rep. EBA
Congo Standard GSP
CEMAC EPA
DR Congo EBA
Eq. Guinea EBA
Gabon Standard GSP
S. Tomé/Principe EBA
Notes
¹ Countries in italics are classified as LDCs
2
EPA: economic partnership agreement; IEPA: interim EPA; EBA: Everything-But-Arms; GSP: generalised system of
preferences; TDCA: Trade, Development and Cooperation Agreement
3
Estimates of goods trade liberalization in EPA/IEPAs as reported by the European Commission (in percentage of value
of imports from EU); for independent estimates, see Bilal and Stevens (2009) for Africa and Stevens, Kennan and Meyn
(2009) for the Caribbean and Pacific countries.

Benin EBA
Burkina Faso EBA
Cape Verde4 EBA
Côte d’Ivoire IEPA 81% 26/11/08 11/12/08
Gambia EBA
Ghana IEPA 80%
Guinea Bissau EBA
ECOWAS EPA Liberia EBA
Mali EBA
Mauritania EBA
Niger EBA
Nigeria Standard GSP
Senegal EBA
Sierra Leone EBA
Togo EBA
Cook Islands Standard GSP
Fed. Micronesia Standard GSP
Fiji IEPA
Kiribati EBA
Marshall Islands Standard GSP
Nauru Standard GSP
Niue Standard GSP
PACP EPA
Palau Standard GSP
Papua New Guinea IEPA 30/08/09
Samoa EBA
Solomon Islands EBA
Tonga Standard GSP
Tuvalu EBA
Vanuatu EBA
Notes
2
3
4
Cape Verde has been classified as non-LDC since January 2008 but will be able to export to the EU under the EBA
initiative for a transitional period of three years.

Antigua/Barbuda EPA 87% 15/10/08 16/10/08
Bahamas EPA 87% 15/10/08 16/10/08
Barbados EPA 87% 15/10/08 16/10/08
Belize EPA 87% 15/10/08 16/10/08
Dominica EPA 87% 15/10/08 16/10/08
Dominican Rep. EPA 87% 15/10/08 16/10/08
Grenada EPA 87% 15/10/08 16/10/08
CARIFORUM EPA Guyana EPA 87% 21/10/08 16/10/08
Haiti EBA
Jamaica EPA 87% 15/10/08 16/10/08
St Kitts/Nevis EPA 87% 15/10/08 16/10/08
St Lucia EPA 87% 15/10/08 16/10/08
St Vincent/Grenadines EPA 87% 15/10/08 16/10/08
Suriname EPA 87% 15/10/08 16/10/08
Trinidad/Tobago EPA 87% 15/10/08 16/10/08
Notes
2
3

EPAs: A Challenge to Development
Bert Koenders1 of contention, prompted a series of WTO panels,
all of which condemned the European Union.
After seven years of Economic Partnership
Agreement (EPA) negotiations, only one At the same time, many development and trade
full EPA has been agreed: the EU Caribbean experts questioned the continuation of the EU-
Forum of African, Caribbean and Pacific States ACP trade arrangements for other reasons. Some
(CARIFORUM) EPA covering the 15 Africa, blamed the unilateral preferences for locking the
Caribbean, and Pacific Group (ACP) countries ACP countries into exporting a limited package
in the Caribbean.2 Another 21 ACP countries are of goods (mainly raw materials) to the European
party to interim EPAs, half of which have been Union. More generally, the lack of economic
signed formally. However, the majority of the ACP development in Africa was seen as an indication
countries (41 out of 77) have not entered into any that a new approach was required: progressive
EPA at all. This lack of involvement is especially liberalization and stronger regional integration
acute among Least Developed Countries (LDCs) were held to be key factors in the resumption
in Africa. of longer-term economic growth. With regard
to the mainly middle-income countries of the
This situation calls for reflection. Why has progress Caribbean (some of which have higher per
been so limited? What are the consequences of capita incomes than certain EU member states),
the current situation? How should we proceed many within the European Union felt that it was
from here? time to broaden the economic relationship.
Why EPAs in the first place? Against this background, the ACP countries
‘Something has to change.’ We heard this and the EC consented in the 2000 Cotonou
opinion expressed time and again in the 1990s Partnership Agreement to replace the unilateral
with regard to the EC-ACP trade regime. trade preferences with EPAs by 2008, through a
process of regional negotiations. In the WTO Doha
To begin with, the unilateral trade preferences conference in 2001, the EU and the ACP countries
the European Community (EC) awarded to the were able to secure a transitional waiver for the
ACP countries for decades under the Yaoundé unilateral trade preferences until January 1, 2008.
and Lomé agreements had come under attack in
the World Trade Organization (WTO). Several What sort of EPAs?
developing countries in Latin America and Asia The broadly shared view was that EPAs should
no longer accepted the special treatment extended become development instruments that would
to ACP countries, arguing that the EU-ACP support the gradual integration of the ACP
regime ran counter to the non-discrimination countries into the world economy. However, it
principle of the multilateral trade framework. soon became clear in the course of negotiations
The banana regime, which was a particular bone that different choices were in play about how best
to give shape to that development dimension.
1
Bert Koenders is the Dutch minister for development coopera- The current Dutch government, in office
tion.
since early 2007, has always taken the position
2
The CARIFORUM EPA was signed in October 2008 by all
CARICOM countries and the Dominican Republic. Haiti, which
that the development dimension should
did initial the interim EPA in December 2007, has not signed yet. take precedence in the EPAs, which, at the

same time, must adhere to WTO guidelines. EU products would flood their markets,
Important elements would therefore be: to the detriment of local producers. The
bilateral safeguards and the food security
• Building on and strengthening existing clause in the first EPA texts provide such
regional cooperation. Trade barriers between scope, while specific review clauses ensure
poor countries can hamper growth and make some degree of flexibility, especially
regions in Africa less attractive to domestic for the more vulnerable countries.4
and foreign investors. Improved regional
integration is, therefore, an important aspect • Improved rules of origin. Under Lomé
of the development dimension of the EPAs. and Cotonou, rules of origin for textiles
and clothing, fishery products and a
• Clear asymmetric liberalization. On the EU number of other specific products were
side, EPAs should grant all ACP countries preventing the ACP countries from making
full access to the European market.3 The full use of their preferential access to the
Netherlands was one of the proponents of the EU market. The Dutch government had
duty-free, quota-free negotiating proposal called for improvements for a long time.
the Commission put forward in spring 2007. The proposal for Cotonou-Plus Rules of
On the ACP side, while the EPAs should Origin that the European Commission
ultimately lead to more open markets, issued in September 2007 went a long
they should not impose undue limitations way in addressing these issues. The single
on these countries’ ability to protect the transformation rule for clothing, in
livelihoods of millions of farmers or infant particular, is an excellent step forward.5
industries. ACP countries should therefore
be allowed—if they so desire—to exempt a • A broader scope for cooperation, with full
significant part of imports from the European EPAs requiring the consent of the ACP
Union from their liberalization schedules regions. The Netherlands takes the position
and opt for long transitional periods for that agreements about services and trade-
other sensitive import products. From this related “Singapore issues” (procurement,
perspective, the general indicator used by the trade facilitation, investment, competition)
Commission in the negotiations to ensure can contribute to economic development
WTO compatibility—at least 80 percent in the ACP countries. Nevertheless, it is
liberalization over a maximum of 15 years up to the ACP countries to decide if they
on the ACP side—seems realistic and gives want or not to include these elements.
the ACP side considerable policy space.
• Well-defined trade defense instruments.

ACP governments should have sufficient
scope for (temporarily) changing the agreed 4
The CARIFORUM EPA contains a review article for the nine
import regime if there is a real chance that most vulnerable economies (out of 15).
5
Under this rule, a piece of clothing is said to originate in an
ACP country even if the cloth is imported from a cheap, non-
3
The CARIFORUM EPA was signed in October 2008 by all ACP supplier such as China or India (single transformation).
CARICOM countries and the Dominican Republic. Haiti, which Before, the cloth had to be woven in an ACP or EU country,
did initial the interim EPA in December 2007, has not signed yet. though the thread could be imported from elsewhere (double
.
transformation).

Why has progress been so limited? their access to the EC market. While some LDCs
There was little movement in the negotiations until chose to enter into an EPA because they saw it
well into 2007, when the Cotonou preferences as a step toward greater regional cohesiveness
were about to expire. Just before the deadline of (for instance Tanzania, Rwanda, Burundi, and
December 31, 2007, most of the non-LDCs agreed Uganda in EAC; Mozambique and Lesotho in
to initial an Interim EPA to secure their continued the Southern African Development Community
access to the EC market. In addition, a number or SADC), many refrained from taking action.
The reasons of LDCs entered into interim agreements in their
In addition, many ACP countries hesitated because
behind the limited region. Since then, however, only the CARIFORUM
of the potential loss of government revenue that
progress in the EPA has been concluded. Negotiations are
would result from liberalizing the bulk of their
negotiations are ongoing in all regions, with a view to concluding
imports from the EU under an EPA. They have
manifold. It could final, comprehensive EPAs with entire regions.
called for guarantees, in the form of at least
be argued that partial compensation by the EU. The EU has
The reasons behind the limited progress in the
it was probably consistently declined to take up that suggestion,
negotiations are manifold. In general, it could
overambitious be argued that it was probably overambitious to which would be practically tantamount to buying
to assume that assume that comprehensive regional free trade EPAs. Most EU member states, including the
comprehensive agreements could be agreed with 77 diverse and Netherlands, have always argued that while
regional free trade relatively poor countries with limited negotiating substantial support was available under European
agreements could capacity within a matter of a few years. Development Fund (EDF) 10 and Aid-for-Trade
be agreed with to support the transition process, tariff revenue
77 diverse and Regional integration takes time, as we well compensation with aid money was not on the
know from our experience within the European cards. Moreover, ACP countries could receive
relatively poor
Union. In some parts of the ACP, regional help to change their tax base (e.g., the transition
countries with
bodies are practically non-existent, or if they do from import duties to sales tax). However, this
limited negotiating exist, they are too loosely organized. While EPA issue continues to slow down the negotiations.
capacity within negotiations have succeeded in stimulating regional
a matter of a integration debates, there is a limit to the extent How to proceed?
few years. to which regional integration can be effectively The current situation is unfortunate, but not
stimulated from the outside. CARIFORUM was dramatic. In fact, one could argue that some
able to achieve a fully regional EPA by building success has already been achieved: since 2008, all
on the relatively strong Caribbean Community but three ACP countries in sub-Saharan Africa
(CARICOM) structure. East African Community (Nigeria, South Africa, and Gabon), now benefit
(EAC) initialled an interim EPA, building on from duty- and quota-free market access to the
the customs union they had agreed before. European Union, either under EBA or under
An important factor is that within existing an interim EPA. It is a genuine accomplishment
organizations—and even customs unions— that the largest developed market in the world
members often had widely divergent interests. is able to provide best available market access
As beneficiaries of Everything But Arms (EBA) conditions to Africa, the poorest continent.
since 2001, the LDCs had nothing to lose from the The CARIFORUM EPA and the interim
expiry of the Cotonou preferences at the end of EPAs do largely live up to our expectations
2007 and very little to gain from EPAs, in terms of

about the development component, in terms important that the European Union take a flexible
of asymmetry (with useful exclusions), and pragmatic approach to negotiations. The
protection against import surges, infant Netherlands (together with Denmark and Ireland)
industries, food security, rules of origin, etc. has been commended by the ACP for advocating
more flexibility on the part of the European Union
But obviously there is a major downside to the over the past years. There is a series of contentious
current situation in which half of African countries issues in the negotiations that should not block
are part of an interim free trade agreement progress. If ACP regions want an explicit reference If a more flexible
(FTA) with the European Union, while many of to food security and infant industries, it should be deadline helps
their neighbors are not. This is not conducive to included (as was recently done). If specific elements to achieve
regional cooperation and integration—quite the of another interim EPA are desired, it should be
contrary. Up to now, regional integration has been
genuine regional
possible to insert them. If changes need to be made agreements, we
strengthened by the EPA process in the Caribbean in the initial liberalization schedule in order to
and possibly in the EAC region. However, in other should embrace it.
secure signature under the interim agreement, these
regions the outcome is unclear and there is some changes should be taken on board. If ACP countries
cause for concern: will the EPA process eventually do not want to negotiate trade in services and/or
strengthen or weaken regional integration? trade-related Singapore issues, we could accept that,
or suggest a rendezvous clause in the final EPA. If
Take the situation in West Africa: both the major
eliminating certain export taxes proves difficult for
non-LDC economy (Nigeria) and 13 LDCs are not
an ACP country, we should accept exemptions. If
party to any interim EPA, while non-LDCs Côte
the MFN clause6 provokes unwarranted political
d’Ivoire and Ghana have concluded bilateral interim
resistance, we should be able to explain that the
EPAs. Yet, Côte d’Ivoire is a member of UEMOA, a
clause would not hamper future South-South
customs union with a common external tariff. And
trade. If the vast majority of countries in a region
the whole ECOWAS region, to which Ghana is also
consist of LDCs, we could consider a liberalization
a member, is striving to become a customs union.
scheme that covers less than 80 percent or a period
Fortunately, the negotiations with the full West of more than 15 years. Flexibility and pragmatism
African region have recently gained momentum. are required, but always within the boundaries of
The region has been able to present joint what could reasonably be defended in the WTO.
proposals for trade liberalization under a regional
The current Trade Commissioner, Catherine
EPA, which, however, do not yet come close
to the indicators the European Commission Ashton, has made a commendable effort to
generally uses to assess WTO compatibility. move forward in the negotiations. It is crucial
that under the next European Commission this
The EPA negotiations with several African approach is continued and expanded further.
regions will probably require more time
than was initially foreseen; after all, regional
integration does not happen overnight. If a 6
The MFN (Most Favored Nation) clause in EPAs requires
the ACP partners to give EU products similar access, if the
more flexible deadline helps to achieve genuine ACP partners were to negotiate a Free Trade Agreement with
regional agreements, we should embrace it. another major trading nation (more than 1 percent of world
trade) or trading region (more than 1.5 percent of world trade),
and vice versa. This therefore covers many developed coun-
For achieving progress in the signing of the Interim tries and regions, but also emerging countries and regions
EPAs and toward definitive regional EPAs, it is like China, India, Brazil, Thailand, Mercosur, ASEAN, etc.

Taking Stock of the EPA Process:
Original Objectives, Past Achievements,
and Future Challenges in Finalizing and
Implementing EPAs
João Aguiar Machado1 2007, but not all of our ACP partners seemed ready
at the time.
What are Economic Partnership Agreements
(EPAs)? Where do they come from? How did the A first result: interim agreements
European Union address the occasional bumps on
As the previous preferential scheme approached its
the negotiating road with its African, Caribbean,
expiration, it became necessary to protect the ACP’s
and Pacific (ACP) partners? Why are EPAs, if not
preferential market access to the European Union
The negotiation a model, certainly an ambitious attempt to create
from disruption. To this end, less comprehensive
a new trade and development partnership with
of EPAs with agreements or interim agreements (covering mostly
a number of developing countries, on the basis
ACP regions was trade in goods) were initialled with ACP regions
of viable, long-term self sustained growth? This
agreed between article assesses the progress so far, and details or countries at the end of 2007. These agreements
the ACP and the the Commission’s endeavors to boost fairer and fully liberalized trade in goods on the EU side. By
EU in Cotonou, eliminating the last remaining barriers for ACP
forward-looking trade relations for sustainable
Benin, in 2000. development in a fast changing world. exports (mainly agricultural exports) the European
The idea was to Union made a down payment on the promise to
replace the old Boosting self-sustained economic growth: it make trade an instrument for development. As a
all started in Cotonou, Benin second pro-development element, the European
trade regime of
Union offered to improve considerably the rules of
EU unilateral The negotiation of EPAs with ACP regions was origin regarding the products of particular interests
preferences by a agreed between the ACP and the European Union for ACP exporters, i.e., textiles, fisheries, and
comprehensive in Cotonou, Benin, in 2000.2 The idea was to agriculture. This gave ACP exporters more freedom
new partnership replace the old trade regime of EU unilateral to source their inputs from the cheapest or most
that would preferences with a comprehensive new partnership competitive producers and hence become more
better deliver that would better deliver development. It was also competitive in EU markets.
development. agreed that discrimination of other developing
countries should end and trade preferences with Liberalization on the ACP side was dealt with
the ACP should be brought into line with World in a flexible way to take account of their special
Trade Organization (WTO) rules. In Cotonou, ACP development needs and constraints. This allowed
and the European Union agreed a period of seven the ACP to exempt products from any liberalization
years to negotiate the EPAs. Negotiations really and stretch removal of tariffs for other sectors
only got underway in 2002. However, apart from over long transition periods if this was considered
the Caribbean, progress was slow in most regions. necessary for their development needs. There are
The Commission would have preferred to conclude further special clauses (safeguard clauses) that allow
wide-ranging, comprehensive regional agreements the ACP to protect inter alia infant industries and
before the old preferences expired on December 31, food security, or to react quickly to other unforeseen
negative developments due to liberalization.
The interim Agreements were in large part

1
João Aguiar Machado is deputy director-general for DG Trade conceived to protect non-Least Developed
at the European Commission.
Countries (LDCs) from trade disruption, as
2
ACP EPA regions include: the Caribbean, Central Africa, West
Africa, Southern Africa (SADC-EPA), Eastern and Southern
the LDCs could continue to benefit from the
Africa (ESA), the Eastern African Community (EAC) and the Everything but Arms (EBA) scheme that the
Pacific.

European Union grants unilaterally to all LDCs. European Union. The statistics tell a clear although
Nevertheless, a significant number of LDCs have perhaps also worrying message in this regard: in
also signed up to interim EPAs. 2007, excluding South Africa, total EU imports
from and exports to ACP countries represented
In addition to the interim agreements, a less than 3 percent of total EU imports and slightly
comprehensive EPA was initialled with the more than 3 percent of total EU exports. This is
Caribbean region (CARIFORUM) at the end of less than EU trade with Switzerland, which in
2007, and it was signed on October 15, 2008. This 2007 amounted to more than 5 percent of total EU One of the key
“comprehensive” EPA goes beyond trade in goods imports, and almost 8 percent of total EU exports. observations
and also covers services, investment, competition,
the ACP and EU
intellectual property rights, and government ACP countries have continually lost market share
procurement—rules of good economic governance. in the European Union. From 1975 to 2000,
made was that
The CARIFORUM EPA is unique among the despite the European Union granting the most unilateral EU tariff
EPAs and in international trade and development advantageous tariff preferences of any trading preferences did
agreements offering as it does a host of provisions partner, ACP countries found that they were not deliver on
customized to the countries of the region, including increasingly marginalized. Their share of EU their promises—
clauses governing the behavior of investors and imports declined from 7 percent to 3 percent and neither on
access to medicines. The agreement also foresees their small and segmented markets have become trade, nor on
a number of arrangements to ensure and monitor less and less attractive for trade and investment development.
implementation, with a joint effort between EU and operations when compared to other developing
Caribbean countries, and with a broad participation countries. EPAs were agreed as an attempt to
of stakeholders. stop and reverse this ongoing marginalization
by placing trade in the context of a longer term
In all other regions in Africa and the Pacific, development agenda.
interim agreements were initialled at the end of
2007. So far, the following have been signed: Ivory One of the key observations the ACP and
Coast in West Africa in November 2008; Cameroon European Union made was that unilateral EU tariff
in Central Africa in January 2009; Botswana, preferences did not deliver on their promises—
Lesotho, Swaziland, and Mozambique in Southern neither on trade, nor on development. Appropriate
Africa (SADC) in June 2009; Papua New Guinea in regulations that would provide security to
the Pacific Region in July 2009; and most recently economic operators are lacking or insufficiently
with the ESA region (Comoros, Madagascar, transparent, credible, or enforceable. Outside
Mauritius, the Seychelles, Zambia, and Zimbabwe) the commodities sector, neither local nor foreign
in August 2009. investors find most African economies attractive—
this is where EPA is to make its contribution.
Currently we are in the process of finalizing and EPAs were born out of the recognition that
signing the initialled interim agreements, a process gradual, managed liberalization in goods and
that nears completion with signatures by Haiti, services combined with transparent rules, credible
Ghana, Namibia, Fiji, and the EAC group. institutions, and aid, can promote development.
Today, agreement has already been reached on
Why EPAs? many of the previously hotly debated issues and
What is the rationale behind EPAs? To begin with, the remaining issues will now be addressed in the
they are not about the economic interests of the

context of the negotiations toward comprehensive, tackled by many ACP governments. The objective
regional EPAs. is to gradually expand the revenue basis to absorb
losses from liberalization and reduce the burden
Freer trade—not free trade—an opportunity on competitiveness and growth that is implied
for development by collection revenue through tariffs, by shifting
Of course, the underlying premise is that the toward general income or consumption-based
opening of ACP markets will take place at the right taxation. Experience in a number of countries, such
Crucially, EPAs pace over time and will allow sufficient flexibility as the Dominican Republic, Kenya, or Mauritius
go beyond the to help shelter or adjust sensitive sectors (in has shown it is possible to reform taxation in a
EU-ACP trade particular agro-food) and offer safeguards to cope way that compensation for revenue losses from
dimension to other with unexpected crises. Gradual and controlled liberalization is achieved.
policy objectives: liberalization is not an end in itself or just due to The potential impact of liberalization under
first and WTO rules. It is an opportunity for development. EPA again underlines the need for reform. The
foremost, regional Above all, liberalization will create more European Union and other donors will continue
integration. opportunities for economic operators, strengthen to support ACP efforts and increase support
competitiveness, create jobs, and reduce prices for where needed. Moreover, the EPA package aims
vital goods for producers and consumers alike. at delivering a net positive effect on fiscal revenue
Many countries have deliberately and successfully through boosting economic growth in the ACP,
used this process to boost their development. strengthening their capacity to manage trade and
Under the interim EPAs many ACP countries collect tariffs where they continue to exist, and
continue to protect their most sensitive products: reduce losses through enhanced transparency in
in some cases, up to 20 percent of the imports have government procurement.
been excluded from any liberalization altogether.
Some argue that large exemptions will lead to a Regional integration
preservation of the status quo and water down Crucially, EPAs go beyond the EU-ACP trade
any beneficial effects from liberalization. Others dimension to other policy objectives: first
argue that liberalization leads to an efficient and foremost, regional integration. Most ACP
allocation of resources. This is where the many economies and markets are small, scattered, and
studies and negotiations can help tease out the fragmented, preventing them from achieving
most appropriate approach given the different economies of scale and of synergies at regional
development levels, to allow for capacity to be built level. Regional integration will help build regional
up over time and with assistance, so the protection markets and attract foreign investment in sectors
of sensitive sectors and infant industries are good other than energy and natural resources. The
cases for exceptions to be made to the rules. associated political integration, peace, and stability
would also have positive effects.
Losing fiscal revenues and infant industries?
In recent years, regional trade integration between
Some fear that trade liberalization will bring about developing countries, “South-South” trade, has
a substantial loss in customs revenue for countries been booming, bringing benefits to ACP countries,
that still depend on such revenues for much of but still intra-regional trade accounts only for a
their public spending. This is indeed an important fraction of total trade of most ACP countries. Yet
point. Fiscal reform is already widely discussed or

overall, the barriers facing South-South trade are Legal certainty and stability is also a key
estimated by the Organisation for Economic Co- dimension to EPAs. To grow, you need
operation and Development (OECD) to be almost investment. But investors, African or foreign,
three times higher than those facing North-North will only put their money where they feel that
trade. This suggests considerable scope for trade there is a fair, transparent, and predictable
policy to boost trade between low and lower- legal environment. Even greater benefits can be
middle-income countries thus helping economic reaped if such a stable legal environment is set
development and poverty reduction. up at regional level. Clear rules for intellectual, While interim
industrial, commercial, and other property trade deals
Beyond trade in goods rights foster investment, jobs, and growth. mainly focus on
While interim trade deals mainly focus on trade trade in goods,
in goods, the objective of the ACP and European Hand in hand with development the objective of
Union in Cotonou was to also tackle all other issues All comprehensive regional EPAs will include the ACP and EU
important for boosting trade and its contribution development cooperation provisions tailored in Cotonou was
to development: services and investment, to the needs and specificities of the region. to also tackle
transparency of government procurement, Combined with the trade and trade-related rules all other issues
intellectual property rights, competition law, of the agreement that are designed to promote
important for
sanitary and phytosanitary issues, social standards, development and regional integration, these
boosting trade and
and environment issues, to name but a few. provisions further reinforce the integrated nature
Negotiations on comprehensive EPAs with all ACP of EPAs as trade agreements for development. EPA
its contribution
regions are ongoing and may be concluded in 2009 development cooperation provisions are not meant to development:
or 2010. to replace existing legal or financial instruments, services and
but to underpin the commitments made in investment,
In particular, EPAs call for gradual and controlled EPAs by provision of development cooperation transparency
liberalization in the service sector, backed up by in the priority areas identified. In addition, the of government
good regulation. The opening up of the telecom, development chapter recognizes that ACP regions procurement,
transport, banking, and insurance sectors can help need to mobilize more development cooperation intellectual
improve these sectors in ACP countries, which and commits EU member states to support the property rights,
are essential as inputs for the development of all EPA through their bilateral development assistance,
other sectors of the economy, with the European
competition law,
as well as ensuring that the European Union sanitary and
Union granting access to its own service sectors. undertakes to facilitate the cooperation of other
It should be noted that while these sectors are phytosanitary
donors.
opened up to foreign competition, the ACP issues, social
governments fully retain their rights to regulate, The EU and ACP states have agreed the six regional standards, and
so EPAs do not interfere with the capacity of strategies and indicative programs of the 10th environment
governments to formulate policies to shape the European Development Fund (EDF) focusing on issues, to name
conditions, under which all companies in their trade and regional integration with an amount but a few.
markets operate. Asymmetry and flexibility of over €1.3 billion for the period 2008–2013. In
are also used to protect weaker service sectors addition, many country assistance strategies include
in ACP countries, while basic services such as Aid for Trade components to support the regional
health care, education, water etc., are outside integration strategies and economic development
the scope of EPAs and will not be liberalized. drive of the EPAs.

In total, the European Commission and member EU goal is also to promote sustainable development
states’ spending on the wider Aid for Trade through EPAs—although ACP governments are
agenda, including trade-related infrastructure and not always ready to address it. On the contrary,
productive capacity building, was €7.2 billion in sustainable development is the key principle
2007, of which the ACP region was also the largest governing the CARIFORUM EPA. It is covered in
beneficiary. The resources made available will detail in two chapters dealing with environmental
help countries prepare new structural reforms and and social provisions. It reaffirms the sustainable
The relationship trade policies, adjust to the changes EPAs bring development provisions of the Cotonou Agreement,
between the and enhance infrastructure and competitiveness to respect for international environment standards,
European Union seize trade opportunities. Under its Aid for Trade and commitments to international labor standards.
and Africa in strategy, the European Union further undertook
steps to increase the overall aid for trade amounts, On sustainable forestry, the Commission’s initiative
many ways in this area is FLEGT (Forest Law Enforcement,
and to ramp up its trade-related assistance (TRA)
anticipated what Governance and Trade), and EPAs put forward
component, specifically targeting trade policy,
U.S. President proposals that are in line with FLEGT priorities. On
regulations, and trade development-oriented
Barack Obama productive capacity, to €2 billion per year. In 2007, fisheries, EPAs, in particular for the Pacific, Eastern
envisaged for the the European Union’s aid for trade has surged by and Southern Africa, and Caribbean regions,
United States nearly a quarter, to €1.96 billion. include provisions on fisheries management and
and Africa in his control to ensure that exhaustible resources like fish
recent speech Partners for change are caught in a sustainable manner.
in Ghana—one The relationship between the European Union
where “we are EPAs in the context of the financial crisis
and Africa in many ways anticipated what U.S.
partners in President Barack Obama envisaged for the United What of the financial and economic crisis? The
building the States and Africa in his recent speech in Ghana— current economic situation poses particular
capacity for one where “we are partners in building the capacity challenges to trade policy. Of course, Europeans
transformational for transformational change,” where investment as well as Africans are nervous about the crisis.
in people and infrastructure, diversification of However, these challenging times also provide for
change,” where
exports, and the creation of good environments opportunities. Liberalization schedules foreseen
investment in
for small and medium-sized businesses is at the by EPAs will be phased in over several years, and
people and estimates seem to indicate that the crisis should be
infrastructure, forefront of our partnership. EPAs go a long
way toward creating the necessary climate and over by then. It is now time to rise to the challenge
diversification of posed by the crisis, to innovate and to adapt—and
beginning the long overdue changes that will help
exports, and the to emerge from the crisis in a stronger economic
achieve economic prosperity.
creation of good position.
environments Strong on sustainable development + social
for small and So far, there is no evidence of an escalation of
clauses? protectionism. The fall in trade is mostly due to
medium-sized
In the Commission’s view, sustainable development the cyclical downturn and not any retreat from
businesses is at is a fair, balanced, inclusive, and long-term oriented open trade. However, some new barriers to trade
the forefront of relationship between the European Union and our have been introduced since the beginning of the
our partnership. ACP partners, with the objective of contributing to crisis. The challenge for trade policy is to prevent
the overarching objective of poverty reduction. The protectionism from taking hold. For trade to

be part of the solution to the crisis, the G20 is “Jeune Afrique” magazine (“Jeune Afrique,”
putting in place a trade policy strategy based n°2463, 23/29 mars 2008) underlines that, since
on two specific commitments: an immediate the inception of the EU-Med trade agreements,
“protectionism standstill” until the end of 2010 and Tunisia has seized the opportunity to innovate and
the finalization of the Doha Development Agenda reform while implementing the trade agreement
at the earliest possible opportunity. Of equal with the European Union, even accelerating the
importance to the finalization of the Doha Round liberalization process while building a strong
is the continuation and successful conclusion of the industrial and business service base.3 In the end, it is for
negotiations toward EPAs. ACP countries and
You choose regions to take the
Looking into the crystal ball In the end, it is for ACP countries and regions to decision to press
What will happen when all EPAs have been signed take the decision to press ahead: we cannot want ahead: we cannot
and entered full implementation? Do not forget EPAs more than the ACP do. It is a challenge they want EPAs more
that liberalization on the ACP side is scheduled must decide to meet. With EPAs, trade meets than the ACP do.
over long transition periods, hopefully well beyond development. There is also a moral imperative to It is a challenge
the current crisis. Several studies foresee positive close the deals, as the European Union cannot treat they must decide
results in line with our expectations. However, different groups of developing countries (Asian or
to meet. With
these are just forecasts—let us look at some hard Latin American vs. ACP) unequally. The EU’s goal
EPAs, trade meets
facts. In another region of Africa, the Southern is to make developing countries better off as a result
Mediterranean, we can see that doomsday forecasts of these deals: regional EPAs will offer a precious
development.
for the Euro-Med region at the time of negotiating opportunity to permanently alter the vicious circle
the EU-Med trade agreements did not materialize. of poverty and turn into a virtuous circle of growth.
They are the basis to develop the relationship with
In 1995, the Euro-Mediterranean partners agreed the ACP to a more mature level.
on the establishment of a fully-fledged Euro-
Mediterranean Free Trade Area (EMFTA) by 2010. Examples in other regions of the world indicate
Thanks to the Euro-Med agreements, EU imports that, when countries are willing to innovate and to
from Mediterranean countries more than doubled accept the challenges of change, they can succeed.
in less than ten years, from almost €48 billion In the ACP area, this is what the Caribbean region
in 1999 to around €107 billion in 2007, with an is doing. EPAs provide an opportunity to reform
average annual growth of 10.6 percent. the tax and overall economic system, to initiate
a sustainable cycle of growth, and ultimately to
The share of the Mediterranean countries in EU27 accelerate the exit from dependence. But only the
imports was 6.4 percent in 1999—it now stands countries concerned can take the strategic decision
at 7.5 percent. The share of the Mediterranean to embrace change and make the most of the
countries in EU27 exports was 9.9 percent in opportunities presented. Once that decision has
1999 and is now 9.7 percent. Imports from been taken, and negotiations have been successfully
Mediterranean countries rose faster than EU concluded, we shall start real work: turning EPAs
exports toward those countries, dispelling the into reality. EPAs are not a destination; they are a
myth of the invasion of EU products onto local journey—a journey we are hoping to make with our
markets. Some Mediterranean countries, like ACP partners.
Tunisia, made the most of the agreements and
are now leading the pack. A recent issue of the 3
“Jeune Afrique,” n°2463, 23/29 mars 2008.

The Interim Economic Partnership
Agreement (IEPA): View from the
South African Government
Xavier Carim1 no longer considers tariffs as the main barrier to
international trade. It targets non-tariff measures
Introduction that impede access for EU firms, and prioritizes
There can be little doubt that the Economic market opening and rules in new areas that are
Partnership Agreements (EPAs) negotiations important to the European Union such as services,
between the African, Caribbean, and Pacific (ACP) investment, procurement, intellectual property,
countries and the European Commission (EC) have and competition.
The negotiations been controversial. The negotiations have not only At the heart of the difficulties in EPA lies the
have not only strained relations between some ACP members disjuncture between the declaratory principles that
strained relations and the EC, but also created frictions within many launched the negotiations and the ambitions of the
between some of the regional groupings that make up the ACP. EC that go far beyond the need to transform ACP-EU
ACP members and This is no different in Southern Africa, where trade relations into a WTO compatible arrangement.
the EC, but also controversy and division continue to mark the EPA By the end of 2007, when the EPA was to be
created frictions negotiating process. concluded, only one ACP region signed a full EPA.
within many The EPAs emerged as the European Union’s Many ACP countries agreed only to initial an Interim
of the regional proposal for World Trade Organization (WTO) EPA (IEPA) so as to maintain their preferential access
groupings that compatible alternative to Cotonou Agreement to the EU market. Still others opted not to initial
make up the ACP. preferences that had been provided legal cover or sign either the IEPA or a final EPA because they
This is no different in the WTO through a waiver that was to expire were unable to accept the terms of the agreement.
in Southern at the end of 2007. The stated objectives of the These countries were then forced to export to the
Africa, where EPA included that no ACP country would be European Union under considerably less preferential
worse off following the negotiations, and this conditions. In other words, these countries were left
controversy and
was accompanied by clear commitments that “worse off,” contrary to the undertaking specified
division continue
the EPA would support regional integration and at the launch of the negotiations. Where only some
to mark the countries of regional groupings in the ACP agreed to
EPA negotiating development in the ACP. The European Union also
indicated that that it had no mercantilist objectives, initial or sign the IEPA, regional integration processes
process. have been placed at risk.
and that the EPA would provide a platform for
enhanced development support for ACP countries. The EC possesses formidable negotiating
Despite these declaratory statements of good machinery. In addition to discrepancies in
intent, the negotiations themselves revealed negotiating strength and capacity between the EC
concrete elements of the EC’s trade strategy as and the ACP, the threat of losing preferences for
spelled out in its policy document entitled “Global the small and vulnerable economies that make
Europe.” This is a strategy for “an activism in up the ACP provided the EC with additional
creating open markets” for EU firms in the face of negotiating leverage that made it difficult for many
intensifying global competition, particularly from ACP countries to resist EC demands. A range of
such emerging economies as China, India, and provisions introduced by the EC as “deal breakers”
Brazil. The strategy paper makes clear that the EC in the final negotiating sessions in 2007 put
enormous pressure on ACP countries to submit to
EC demands and accept contentious clauses into
1
Xavier Carim is deputy director general with the International
Trade and Economic Development Division at the Department
the agreement or face losing preferential access to
of Trade and Industry in South Africa. the EU market on which they are highly dependent.

South Africa’s motivation for joining the EPA 3. Third, all SADC EPA States should obtain
Process duty free market access to the European
South Africa’s decision in 2004 to participate in the Union: harmonization of the region’s
EPA was motivated by a desire to strengthen regional access to the European Union at the best
integration in Southern Africa and to consolidate available conditions. South Africa indicated
the region’s trade arrangements with the European that it would not press this point at the
Union. South Africa believed it was possible to expense of any other SADC EPA member,
align its existing trade agreement with the EC (the and recognizing the EU’s sensitivities in South Africa’s
Trade, Development, and Cooperation Agreement agriculture, this objective could be obtained decision in 2004
or TDCA) with the EPA. Our participation in over a suitable transitional period. to participate
the process also followed on requests from ACP in the EPA was
4. Fourth, all new generation issues (services,
SADC and the European Union to play a role in motivated by
investment, procurement, intellectual
the negotiations and, as the mid-term review of a desire to
property, competition, labor, and
the TDCA was scheduled for 2005, an opportunity strengthen
environment) should be subject to non-
to consolidate the region’s trade relations with the regional
binding cooperative arrangements to build
European Union appeared to be offered. integration in
capacity at national level, to be followed
In seeking to advance this objective, South Africa, by regional convergence to build regional Southern Africa
together with the SADC EPA States, over an 18- markets as a prerequisite to entering into and to consolidate
month period developed a negotiating framework negotiations with the EC at a future date. the region’s trade
that was adopted by SADC EPA Trade Ministers arrangements
The EC responded in March 2007 (one year later)
in February 2006. The framework, submitted to with the European
and, while it agreed that South Africa be included
the EC in March 2006, set out the following core Union.
in the negotiations, it insisted that due to its
elements for the negotiations.
level of competitiveness, South Africa would be
1. F
irst, since Botswana, Lesotho, Namibia, and differentiated from other countries in the region.
Swaziland (BLNS) were de facto subject to the It argued that LDCs must offer reciprocal market
TDCA by virtue of being part of the SACU openings to the EC and while the TDCA should
customs union with South Africa, they would remain the benchmark for the offer from the BLNS,
accept the TDCA as a basis for a negotiating it would consider addressing their sensitivities
outcome so long as their sensitivities under under the TDCA but would not grant new
the TDCA were addressed. protection to South Africa. Finally, the EC insisted
that new generation issues be included.
2. S econd, the other SADC EPA members
(Mozambique, Angola, and Tanzania), all The short timeframe for negotiations of nine
least developed countries (LDCs), should months before the December 2007 deadline put
be allowed to continue to receive duty free enormous pressure on the negotiating process.
quota free access under the EC’s Everything Between March and December 2007, positions
But Arms (EBA) initiative that extends such among members of the SADC EPA members
treatment to all LDCs along with improved shifted: LDCs in the SADC EPA Group agreed to
rules of origin. grant the EC reciprocity, and, aside from Angola,
Namibia, and South Africa, SADC EPA members
agreed to negotiate services and investment

immediately and to negotiate disciplines on African Group (ESA) comprising the other SADC
procurement and competition in future. In the members. While the decision to configure in this
final negotiating session in November 2007, the EC way may have been the decision of countries in
introduced a range of new demands, none of which Southern Africa, the fact remains that the IEPA
had been considered by the SADC EPA Group in is deepening fragmentation in the integration
detail, and presented these as “deal breakers.” processes in Southern Africa. South Africa joined
the SADC EPA Group configuration in 2006.
The insistence Since 2007, Angola, Namibia, and South Africa
have raised concerns with the IEPA. We have Under the IEPA, SADC members have at least four
on treating South
argued that, in its current form, the IEPA will sets of separate trade relations and regimes with the
Africa differently
unduly limit the region’s development policy European Union and each vary considerably from
amounts to a space, hamper efforts at trade diversification, and one another. This will complicate—even foreclose—
refusal by the EC undermine existing regional integration processes efforts to build a single trade regime in SADC and
to recognize SACU in SADC and SACU. Other members of the Group between the SADC and the European Union, which
as a customs have been more favorably disposed mainly to remains the region’s single most important trade
union, and a secure their access to the EU market. This, however, partner. The tariff reduction commitments in each
clear measure has come at the expense of regional integration. of these configurations varies from one to the other
of how the EPA and, on implementation of the separate agreements,
has undermined Concerns with the EPA: regional integration SADC members will be required to introduce new
regional The insistence on treating South Africa differently customs controls to avoid trade deflection.
integration. amounts to a refusal by the EC to recognize SACU
as a customs union, and a clear measure of how Concerns with the EPA: tariff negotiations
the EPA has undermined regional integration. It The EC offered all ACP countries, except South
is inconceivable that the EC would itself accept Africa, duty-free, quota-free (DFQF) access to its
that any of its trading partners would provide market for all products, except on rice and sugar
differential market access to different Members of which were subject to a transitional period. While
the European Union. For the European Union, any impressive in form, in substance, the difference
exchange of tariff concessions must apply to all its between DFQF and existing access under the
Members equally in order to retain the integrity of Cotonou Agreement is marginal. Where new
its customs union. Surely, the same should apply to market access opportunities do occur, the supply
SACU. This differential approach to the region has capacity response in ACP economies is highly
been a source of perennial friction as it undermines constrained. Moreover, as all ACP countries
policy coherence in SACU. account for less than 3 percent of EU world
imports, the EC DFQF offer will impose minor
At the outset of the EPAs negotiations in 2002, adjustment costs in the EU market.
SADC members were split into separate EPA
configurations: i) the SADC EPA Group comprising By contrast, the EC has secured new openings of up
the BLNS, Mozambique, and Angola; ii) East to 80 percent in the markets of the ACP for exports.
African Community (EAC) comprising SADC The exchange of tariff concessions is, in these
Member Tanzania; iii) Central African Economic terms, unbalanced. This outcome should also be
and Monetary Community (CEMAC) that considered in light of the EC negotiating position
includes the DRC; and iv) the East and Southern on LDCs and small and vulnerable economies

(SVEs) in the Doha Round. In these negotiations, current revenue distribution arrangement between
the EC supported the position that LDCs and SVEs its members unworkable.
make no, or minimal, market access commitments.
It appears the EC aims to ensure that no other Concerns with the EPA: legal provisions
WTO member obtains improved market access in The IEPA will limit the scope for industrial and
the ACP through the multilateral process, while agricultural development policy among SADC and
it secures for itself vastly improved access into the SACU countries. Some provisions are WTO-plus
ACP economies via the EPA. and others presume a decision-making structure It appears the EC
that does not exist among the SADC EPA countries. aims to ensure
In the tariff negotiations between South Africa/
The IEPA will also hamper efforts to diversify the that no other
SACU and the EC, progress was made on industrial
tariffs and fish but differences remained on
region’s trade relations with other key economies WTO member
including the most dynamic emerging economies obtains improved
agriculture. However, the unilateral decision by
in the world. market access in
the EC to remove South Africa from the IEPA in
2008 while the exchange of concessions was still the ACP through
The IEPA provision on national treatment reduces
under negotiation, converted a draft SACU offer the policy space currently available under the WTO
the multilateral
into a final tariff offer from BLNS. Implementing in a manner that could undermine South African process, while it
this outcome will fracture the common external government procurement for black economic secures for itself
tariff that underpins SACU as the BLNS, but not empowerment programs. The provision on free vastly improved
South Africa, will be required to grant improved circulation of goods provides that once a good enters access into the
access to the European Union on approximately any SADC EPA State, it must be allowed to circulate ACP economies
450 agriculture, industrial, and fish tariff lines. freely without any additional duty. This ignores the via the EPA.
Subsequently, while the EC offered to forego fact that, aside from SACU where goods move freely
this additional access to the BLNS so as not to within the customs union, there are three separate
undermine the SACU CET, to date, this offer has customs jurisdictions in the SADC EPA Group
not been formalized. which would make this provision unworkable.
The IEPA thus threatens to break up SACU—the Under the IEPA, export taxes that could be used
oldest customs union in the world—by creating to promote industrial and economic development
different tariff commitments among its members are prohibited, except under exceptional
vis-à-vis the European Union. If other SACU circumstances and subject to EC agreement. Again,
Members implement the IEPA, the misalignment this goes beyond WTO requirements which permit
between tariff dispensations under the IEPA and export taxes. The IEPA also includes WTO-plus
the TDCA would require new customs controls provisions on customs administration that grants
at South Africa’s borders within SACU to collect the EC the right to suspend tariff preferences
tariffs on EU products subject to lower tariffs under if it deems that a party does not comply with
the IEPA than the TDCA, to avoid trade deflection. EC-defined stipulations for cooperation and
Customs controls would also be required on administration on customs matters. The provision
products that are subject to different rules of on quantitative restrictions is also WTO-plus in
origin under the EPA and the TDCA. Aside from that it prohibits quantitative restriction measures
the administrative costs involved, breaching the currently allowed under the WTO.
common external tariff in SACU will make the

The IEPA provision on infant industry limits its advantage they grant to another third party to the
application to a safeguard provision. The purpose European Union. By excluding South Africa from
of an infant industry clause is to assist developing the IEPA, while other SACU countries remain
countries to promote new industries, whereas a under this obligation, a wedge in SACU’s common
safeguard provision is employed to respond to a trade policy emerges. The MFN clause will limit
surge in imports. Moreover, the safeguard clause in the ability of ACP countries to diversify their trade
the IEPA is highly constrained and would not allow relations away from the European Union as it
It should be noted for a rapid response to address a surge in imports will ensure that trade relations with the European
that there is no in, for instance, subsidized agricultural products Union are privileged in perpetuity. Trade policy
compulsion to from the European Union. sovereignty will be compromised and leverage in
negotiate new any future negotiations will be undermined.
The IEPA defines parties to the agreement as the EC
generation trade and EU member states on one side, and the SADC Concerns with the EPA: new generation
issues under the EPA States as a single party acting collectively on the issues
EPA to meet WTO other. This presumes a legal and institutional basis
requirements. It should be noted that there is no compulsion
for decision-making among the SADC EPA States
Neither the to negotiate new generation trade issues under
that does not exist. The IEPA also defines a single
the EPA to meet WTO requirements. Neither
Cotonou judicial process for trade remedies (anti-dumping,
the Cotonou Agreement nor the TDCA contain
Agreement nor subsidies, and safeguards), although only South
any obligation in these areas. Second, some new
the TDCA contain Africa has the legal and institutional framework for
generation trade issues are under negotiation in the
any obligation implementing trade remedies. SADC EPA states
WTO (services, IP, and environment), while others
in these areas. would thus be required to reach consensus to pursue
have been excluded (investment, competition,
trade remedies or dispute against the EC, while the
procurement, labor) due to the concerns raised by
EC could act against the entire SADC EPA Group.
developing countries. Third, as SADC countries
The IEPA also establishes new regional institutions
have little capacity and no common policies in
to implement the agreement without specifying
these areas, negotiations run the risk of delivering
how these new institutions would relate to existing
unbalanced outcomes that may be prejudicial to
SADC and SACU institutional structures or to
national development objectives and outcomes may
national competencies.
foreclose prospects for deeper integration in SADC
The most favored nation (MFN) clause obliges and SACU.
SADC EPA Members to grant to the European
South Africa recognizes the importance of the
Union any trade advantage it may extend to other
so-called new generation issues. However, these
major trade partners in future negotiations. A
are complex issues that impact directly on national
major trading partner is defined as any developed
regulatory and legislative frameworks. Moreover,
country or countries/grouping accounting for more
across the region, there is insufficient empirical
than 1 percent of global trade (Mercosur, India,
data and understanding on the regulatory and
and China). The SADC EPA states that obtain duty
trade implications of negotiating market access
and quota free access to the European Union under
disciplines in these areas. We have thus argued
the IEPA will not be able to receive anything more
that the region should engage these issues in a
from the European Union if the latter negotiates a
technical exchange and cooperation framework
more preferable arrangement with another third
that would not involve substantive obligations nor
party. However, they would have to offer any

be subject to dispute settlement under the EPA. Although the joint declaration was to be negotiated,
Our approach would aim to secure EC assistance in the end it was unilaterally drafted by the EC and
in the development of SADC institutional, it has been couched in “best endeavor” language
policy, and legislative infrastructure at national that does not stand against the legal stronger
levels as a prelude to building regional rules and provisions contained in the IEPA. The declaration
markets. Once there is a degree of commonality provides no legal security that the “progress” made
among members of the region, we could consider in Namibia would be incorporated in a final EPA
negotiating market access and rules with third text. Notwithstanding this uncertainty, the EC Our approach
parties, including the EC. invited the SADC EPA Group, except South Africa, aims to create the
to sign the IEPA in June 2009. In June 2009, the EC, conditions for all
However, Botswana, Lesotho, Swaziland, and Botswana, Lesotho, Swaziland, and Mozambique
Mozambique agreed to negotiate with the EC
Members of the
signed the IEPA. Their decision to sign the IEPA SADC EPA group
provisions on services and investment immediately. represents acceptance of the IEPA in its current
They have also agreed to negotiate procurement to participate in a
form by those Parties.
and competition at some future date. Angola, final EPA outcome,
Namibia, and South Africa did not accede to South Africa, together with Angola and Namibia, and thereby to
this EC demand. In other configurations, SADC has not accepted this as a conclusion to our establish a single
countries have accepted to negotiate these new negotiating process. We have agreed to continue regional trade
generation issues. As such, the IEPA is establishing to engage the EC to resolve all the outstanding arrangement
a basis for new generation of trade policy division issues. We remain committed to seeking an with the EU.
in the region, and the EC will obtain preferential outcome that supports regional integration and
access to the markets of individual economies development, and does not limit our efforts at trade
in the region, before the region has had the diversification. South Africa’s proposed approach
opportunity to build its own regional market. is that contentious provisions in the IEPA be
addressed satisfactorily, and that SACU continue
Recent developments and way forward to work to forge a common tariff offer to the EC
Following positive overtures from the new EC in order to preserve the SACU CET; the essential
Commissioner in February 2009, the SADC EPA underpinning for the customs union.
Group and the EC met in Namibia in March 2009 Our approach aims to create the conditions for all
to address some of their concerns. At the March Members of the SADC EPA group to participate
meeting, the EC indicated it was only prepared to in a final EPA outcome, and thereby to establish
discuss seven issues, of which five could be solved. a single regional trade arrangement with the
The EC was not prepared to discuss the many other European Union. Our approach also avoids having
issues of concern. Moreover, even on the five issues to sign and ratify two agreements (IEPA and full
that were resolved, the EC insisted that it would EPA) by drawing it into a single process. In making
not change the IEPA but it would be prepared to these adjustments to the negotiating process, we
“secure” these new provisions via a declaration that would also ensure that trade between the ACP
would accompany the signed IEPA. The declaration and European Union is not disrupted. We believe
would specify that the new provisions would be that the IEPA in its current approach requires the
incorporated into the text of a final EPA. region to make a false choice: either to maintain
access to the EU market or to advance the regional
integration process. We believe the negotiating

process could be re-configured, with more time, to that South Africa cannot achieve these objectives
allow the region to do both: advance the regional on its own. We need a common vision among the
integration agenda in Southern Africa and maintain SADC EPA States and a continued willingness
access to the EU market. from the EC to prioritize its professed concern
to promote regional integration not just in
South Africa will not sign an EPA until it is broad declaratory statements, but in the detailed
convinced that the concerns we have raised are outcomes of negotiating processes. The EC now
South Africa substantially addressed. While we are firmly appears open to consider these proposals. Time will
committed to addressing these issues, it is evident tell if this is indeed the case.
will not sign an
EPA until it is
convinced that
the concerns
we have raised
are substantially
addressed. While
we are firmly
committed to
addressing these
issues, it is evident
that South Africa
cannot achieve
these objectives
on its own.

Charting the Way Forward for EPA
Negotiations: Overcoming Challenges and
Realizing Opportunities
Jean Noel Francois1 Economic Communities (RECs) must adopt a
common strategy for engagement with Turkey
Background should it be willing to engage in trade negotiations
A total of 44 African countries are members of the with the African Signatory IEPA States.
African, Caribbean, and Pacific Group of States
(ACP). To date, 19 African countries (9 LDCs and Addressing EPA Challenges
10 non-LDCs) have initialled Interim EPAs but not At the Joint Conference of African Union (AU)
all have proceeded to sign. The fact that fewer than Ministers of Trade and of Finance that was held on African countries
half of the African members have even initialled 3rd April 2008, Ministers identified a number of need support for
an agreement clearly indicates that countries have contentious issues in the Interim EPAs that need infrastructure
reservations with the EPA negotiating process and to be addressed in the context of the negotiations development,
with the contents of the agreements. of comprehensive and full EPAs. While some consolidation of
progress has been made toward resolving some of regional markets
EPA negotiations between the European Union the contentious issues, major challenges remain on and other policy
and African countries are negotiations between the MFN provision and the special safeguards for
unequal partners in both political and economic
interventions
agriculture, among others. that can address
terms. The European Union is Africa’s major
trading partner and provider of development There is no questioning that development should the problem
assistance as well as budgetary support for the bulk be the primary aim of the EPAs. However, the of production
of countries involved in the EPA negotiations. Most development component in the interim agreements and supply side
countries that initialled the agreements did so to is shallow and the prospects for a stronger constraints which
avoid disrupting trade and losing export markets in component in the full EPAs are not clear. The most African
the European Union. Fear of losing EU budgetary interim agreements lack binding commitments countries face.
support was a contributory factor to the initialling from the European Union to provide financial
of the Interim EPAs by some of the countries. resources to finance the implementation of the
agreements. Focus of the agreements has been
The Interim agreements have led to some limited more on trade liberalization than on addressing
improvements in market access. A notable supply-side constraints which are critical for taking
improvement is on the rules of origin for textiles advantage of market access opportunities. Despite
and fish products, which African producers having preferential market access to the EU market
should take advantage of to increase exports to for over twenty years, the share of Africa’s trade
the European Union. The Interim agreements in global and EU trade was characterized by a fall
have also opened new market access into Turkey. over the years. African countries need support
In fact, by virtue of the Customs Union (CU) for infrastructure development, consolidation of
which the European Union has with Turkey, regional markets, and other policy interventions that
Turkey is required to offer duty free quota free can address the problem of production and supply
(DFQF) market access on all non-agricultural side constraints which most African countries face.
imports from countries which conclude an
EPA (or its interim version) with the European EPAs and WTO compatibility
Union. African countries and African Regional
The Cotonou Partnership Agreement (CPA)
1
Mr Jean Noel Francois is the Acting Director for Trade and
requires EPAs to be compatible with World Trade
Industry at the African Union Commission Organization (WTO) rules. This requirement is

generally understood to mean that FTAs should rather than strengthen Africa’s regional integration
be compatible with Article XXIV of GATT 94. efforts.
However, what constitutes “Substantially All
Trade” in this Article is not universally agreed. As The adverse implications of the current EPA
a result, this has remained a contentious issue in configurations for regional integration in Africa
the EPA negotiations. The EC’s interpretation is can be illustrated with the following examples. The
that “substantially all trade” requires African EPA SACU, made up of Botswana, Namibia, Lesotho,
Moving the signatories to liberalize 80 percent of their trade vis Swaziland, and South Africa, is under threat
à vis the European Union. Moving the negotiations because of the EPA process. All the members of
negotiations
forward requires a more constructive approach that SACU except South Africa and Namibia signed
forward requires a
balances the requirement of WTO compatibility the Interim Agreements and this is now causing
more constructive serious challenges within the region. In the broader
approach that with the need to promote rapid and sustainable
economic growth in developing countries. WTO SADC region, Mozambique, Botswana, Lesotho,
balances the and Swaziland have initialled Interim Agreements,
compatibility in the EPAs should also reflect
requirement of while Angola decided not to. Trade between South
adequate special and differential treatment,
WTO compatibility asymmetry and the sprit enshrined in the WTO’s Africa and the European Union is continuing under
with the need to Enabling Clause. the TDCA. Some SADC countries like Zimbabwe
promote rapid negotiated and initialled the Interim Agreements
and sustainable EPAs and regional integration under the ESA-EPA configuration. SADC is
economic growth supposed to launch its CU in 2010. The interim
A major objective of EPAs, as agreed in the CPA, EPAs and their resulting different trade regimes
in developing is the reinforcement of the regional integration
countries. WTO complicate the problem of multiple memberships
initiatives of the ACP countries. Africa’s key of RECs that characterizes regional integration in
compatibility in integration initiative is the establishment of a Pan Africa and could delay the launch of the Customs
the EPAs should African Economic Community, with the RECs as Unions in the continent.
also reflect the building blocks. The configuration of African
adequate special countries for EPAs is not in line with membership Scope of the EPAs
and differential of the RECs. Out of the eight RECs recognized
by the African Union2 , only the East African The broadening of the scope of the EPAs to include
treatment,
Community (EAC) is negotiating EPAs configured trade in services as well as the Singapore issues (i.e.,
asymmetry
in its recognized form. The creation of Free Trade competition policy, investment, and government
and the spirit procurement) is also problematic for some African
enshrined in the Areas (FTAs) and Customs Unions (CUs), on the
basis of EPA configurations that will run parallel countries and regions negotiating EPAs. Most
WTO’s Enabling countries in Africa have limited experience in
to programs of the RECs will tend to undermine
Clause. services liberalization at the regional, continental,
and multilateral levels. Negotiating these issues
would also cause problems for African RECs
2
The Regional Economic Communities recognized by the because they do not have a regional framework for
African Union are as follows, Southern African Develop-
ment Community (SADC), Common Market for Eastern and intra and inter regional liberalization of services. As
Southern Africa (COMESA), East African Community (EAC), a result, it is difficult to have a regional approach to
Arab Maghreb Union (UMA), Intergovernmental Authority on
Development ( IGAD), Economic Community of West Africa liberalization of services with the European Union
(ECOWAS) Communaute Economidue des Etatesde l Afrique under EPAs.
Centrale (ECCAS) and Communaute des Etats Sahariens(CEN-
SAD)

Given the growing importance of services in national objectives. Such policy space should
international trade and the positive contribution include the right to use export taxes, grant subsidies
that services can make to economic and social to local companies, and the right to regulate and
development, the need for cooperation between introduce new regulations. Countries that are
African countries and the European Union in going to negotiate services should therefore be
this area cannot be overemphasized. However, careful when developing their schedules of specific
such cooperation agreement, as envisaged by commitments. Care should be taken to inscribe the
the CPA should focus on capacity building and necessary limitations on market access and national The global
strengthening regulatory institutions in the African treatment on all sectors chosen for liberalization. economic and
partner countries. Already, there are some African financial crisis
countries in favor of negotiating rules and taking The role of the African Union in the and the response
commitments in services and Singapore issues EPA negotiations of developed
without a common regional position. This has The AU Commission is not a negotiating party in countries reflect
complicated the implementation of the agenda for the EPA negotiations. It provides a forum for the the failure
regional integration. elaboration of common African positions in EPA of markets
negotiations. Common positions enable negotiating and indicate
EPAs and the global financial crisis
groups to negotiate from a point of strength and
that market
The negotiations for full EPAs are continuing promote harmonization, thus contributing to the
liberalization
amidst a global financial and economic crisis that process of continental economic integration.
cannot always
started in the United States mortgage market but
has its effects felt across the world. Lack of adequate
In their Maputo Declaration of 2003, the AU be relied upon
Heads of State and Government mandated the AU to produce
control and excessive liberalization of modern
Commission to coordinate EPA negotiations in developmental
financial services have been a major root cause of
Africa. In line with the mandate, the Commission results.
the crisis. Developed countries have handled this
has organized sessions of the Conference of AU
crisis by taking measures to protect local markets
Trade Ministers where EPA negotiations have been
from import competition and by putting in place
considered and pertinent declarations adopted.
bailout packages in favor of the financial services
Technical meetings for the coordination of the
and other sectors. There have also been increases in
EPA negotiations have also been organized. The
anti-dumping measures adopted by the developed
Policy Organs of the AU have adopted various
countries. Developing countries have also taken
declarations on EPA negotiations since the year
action aimed at mitigating the impact of the global
2003 to guide the negotiations. Over the years, the
economic and financial crisis on jobs, income,
AU Ministers of Trade, the Executive Council, and
and poverty. Such measures include raising tariffs,
the Assembly of Heads of State and Government,
use of non tariff measures, as well as trade defense
have adopted decisions and declarations on EPAs.3
mechanisms.
The global economic and financial crisis and the 3

The decisions and declarations taken by the policy organs can
response of developed countries reflect the failure be summarized as follows, at the Ministers of Trade level, Mauri-
tius Declaration (2003), Cairo Declaration (2005), Nairobi Dec-
of markets and indicate that market liberalization laration (2006), Addis Ababa Declaration (2007), Addis Ababa
cannot always be relied upon to produce Declaration (2008) and the Addis Ababa Declaration (2008).
At the Executive Council level, Banjul (2006), Accra (2007) and
developmental results. The key lesson to be drawn Sitre (2009) Decisions. At the highest level, the Assembly of
for the EPA negotiators is the need for African Heads of State and Government, the Addis Ababa Declaration
countries to have adequate policy space to be on EPAs of January 2007, the Addis Ababa Declaration on EPAs
of January 2008 and finally the Sharma El Sheik Declaration on
able to deal with domestic problems and promote EPAs of June 2008.

At the Joint Conference of AU Ministers of Trade negotiations on special safeguards for agriculture at
and of Finance held in Addis Ababa on April 13 the WTO would inform EPA negotiating positions.
2008, the Ministers mandated the AU Commission The outcomes of the WTO services negotiations
to develop, in collaboration with UNECA and the could also be useful for those countries and regions
RECs, a model template to be used as a guide in that are negotiating trade in services under EPAs.
the negotiations of full and comprehensive EPAs. It is in this regard that EPA negotiating regions in
At the 5th Session of the AU Ministers of Trade Africa ought to consider waiting for the conclusion
As the Conference that was held on March 19-20, 2009, of the DDA round in 2010 before concluding
negotiations for Ministers agreed that the AU EPA Model Template EPAs. This way, it will be possible to maintain
full EPAs continue, be used as a broad set of guidelines in the EPA coherence between African negotiating positions
there should be negotiations. It is important for African countries in the WTO and EPA negotiations. However, given
improvements on and regions negotiating full EPAs with EC to follow that the main process drivers at the WTO are
this ministerial directive, which has been endorsed mainly preoccupied with domestic issues, there are
the rules of origin
by the AU Heads of State and Government. chances that the round may not be concluded in the
regimes under
immediate future.
the EU’s GSP At the Africa-EU Lisbon Summit, the need for
schemes as well high-level political dialogue to examine issues In light of the DFQF market access granted by
as on those under relating to the EPA negotiations with a view to the European Union, it becomes imperative to
interim EPAs. In moving the process forward was underscored. The ensure that rules of origin do not prevent African
broad terms, the dialogue should be organized as quickly as possible countries from effective access to the EU market.
improvements by the AU Commission and EC to give impetus and As the negotiations for full EPAs continue, there
should aim at political guidance to the EPA negotiations. should be improvements on the rules of origin
regimes under the EU’s GSP schemes as well as
simplifying the
The way forward on those under interim EPAs. In broad terms,
concepts and
The ultimate responsibility for the social and the improvements should aim at simplifying the
methods used concepts and methods used for the purpose of
for the purpose economic development of Africa falls squarely
upon the peoples and leadership of Africa. This determining origin in light of the development
of determining needs of African countries, for instance, allowing
responsibility includes the mobilization of internal
origin in light of cumulation among all ACP and African countries.
resources and rallying all the peoples of Africa,
the development including those in the Diaspora, and all friends of The new rules of origin regime should also foster
needs of African Africa to the effort. The African leadership and the development and industrialization of Africa.
countries. negotiators should ensure that odious agreements, Some of the challenges being faced in the EPA
which would be detrimental for the development negotiations cannot be resolved at the technical
prospects of Africa, are not concluded with third level and require high level political engagement
countries or partners. instead. The inclusion or not of the MFN provision
The renewed political willingness of the leaders of in the EPAs is a case in point. It is crucial, in this
the G-20 and G-8 for the conclusion of the WTO’s sense, to foster collaboration between African
Doha Development Agenda (DDA) in 2010 is a leaders and the political leadership of the European
positive development. The conclusion of the DDA Union, European Council, European Commission,
has, as a matter of fact, important implications for European Parliament, the EU Presidency, and
EPA negotiations. For example, the conclusion of selected member states of the EU.

As the negotiations for full EPAs continue, African negotiating groups should continue
efforts should be made to enhance the pressing for a clear legal commitment on additional
participation of all relevant stakeholders, the resources to support specific development
private sector, parliamentarians, and civil programs and projects as well as to address
society. In particular, national and regional EPA adjustment and implementation costs. The
parliaments should be regularly informed commitment of the European Unioins to respond
on the progress of the negotiations given the to these needs should go beyond best-endeavor
role that parliamentarians are expected to obligations. In view of the challenges that have Some of the
play in the ratification and domestication of been faced in the utilization of EDF resources, challenges being
EPAs. Feedback received from the relevant the negotiators should also insist that regional faced in the EPA
stakeholders should be seriously considered EPA funds be used for the implementation of negotiations
in formulating EPA negotiating positions. EPAs. African RECs/Negotiating regions should cannot be
identify bankable projects focusing on building of
There is need for increased collaboration among resolved at the
infrastructure and enhancing the production and
the RECs EPA Negotiating Regions to share technical level
supply-side capacities of African countries, so that
experiences and reduce information asymmetry Africa can beneficially participate in the global
and require high
among EPA negotiators. The AU Commission economy and effectively utilize the DFQF market level political
stands ready to play its coordination role in this access to European markets. engagement
regard. The efforts by SADC, COMESA, and EAC instead. The
authorities to establish a FTA should be sustained. EPAs will bring fundamental changes to the inclusion or not of
This framework should also be used to identify economies of Africa countries that will sign the MFN provision
practical solutions to the problems of different rules them. In this regard, it is important that the in the EPAs is a
of origin, cumulation, and unaligned tariff regimes negotiations and implementation of EPAs be
case in point.
within the same regional blocks. Other regions monitored regularly. While appropriate institutions
could also use the same approach in trying to solve can be created to perform this monitoring
some of the challenges being confronted in the function, it is of paramount importance that
EPA negotiations and in the broader framework mechanisms are identified in the agreements to
of regional integration. In the long term, regional ensure the availability of adequate resources for
economic communities should be given the mandate the monitoring. It is equally important that the
to formulate trade policies for their regions. agreements provide some guidance on what actions
will be taken should the monitoring reveal specific
Even the best trade policy will not bring positive challenges for African countries resulting from the
results if not complemented by relevant national implementation of the agreement.
and regional policies. In this regard, African
countries will need to ensure that follow up There is no doubt that EPAs can serve as an
measures and policies to create incentives that important instrument for the promotion of
encourage local companies to export their products sustainable development and eradication of poverty
to take advantage of the EPAs are put in place. Such in Africa, as envisaged in the Cotonou Partnership
complementary policies could focus, in addition, Agreement, if the contentious issues identified in
on strengthening national and regional industries the Interim EPAs are adequately addressed and
with a view to broadening the African export the full EPAs are made to become development
base and taking advantage of the market access friendly. African and EU negotiators must strive to
opportunities in the EU markets. achieve this objective.

Why are the Economic Partnership
Agreements detrimental for
Africa’s future?
Ablassé Ouedraogo1 staff, representatives of Parliaments, farmers, and
private sector associations, as well as internationally
Introduction renowned trade specialists.
In September 2002, the European Commission, Nonetheless, this outcome is not inevitable. A
on behalf of the EU member states, initiated new win-win result between the European Union and
trade negotiations for the Economic Partnership the ACP is not only possible, but also absolutely
Agreements (EPAs) between the European Union necessary.
and 7 African, Caribbean, and Pacific Group (ACP)
countries. This was in response to pressure from A Power Struggle
the World Trade Organization (WTO), which
deemed that the EU’s long standing preferences Europe, unfortunately, conceived the EPAs as a
in favor of the ACP were illegal because of their classical free trade agreement, similar to those
discriminatory nature against other developing it signed, for instance, with Chile and Mexico.
countries from Asia and Latin America. The EPAs As such, the EPAs do not cater for regional
aimed to support poverty reduction, sustainable differences among ACP countries. Moreover, the
development and the progressive integration guiding strategy for formulating these agreements
of ACP countries in the world economy, while was maximising the competitiveness of European
stimulating regional economic integration. If both firms abroad.
sides of the partnership sought to make these aims Presented with this approach, the many
a reality, the new agreement could significantly stakeholders in the negotiations have forcefully
transform the lives of countless people who live in expressed their concerns that these agreements
poverty, give viable incomes to farmers and small would jeopardize the means of existence of ACP
entrepreneurs, and provide decent jobs to workers. countries as well as deprive them from having
In the current negotiating process, Europe has recourse to necessary development policy tools.
unfortunately engaged in power politics to the Analyses point to the fact that Europe will win
detriment of a partnership. While it is true that more from such an agreement, while many
international trade entails a power struggle, the ACP countries will face a deterioration of their
conclusion of EPAs in their current format will economic situation. This is illustrated by the fact
deprive ACP governments of policy instruments, that exporters from the European Union will gain
which are essential for their development. These more from trade reciprocity than those from ACP
agreements will, in addition, result in a blow countries, as the latter already have significant
to regional integration, aggravating poverty access to the European market.
and perpetrating the reliance of ACP countries These differences in expected gains explains
on primary commodities. These negative the strong tensions that occurred between
developmental implications explain why EPAs
the EU and ACP countries in December
have attracted so much criticism over the last 2007, when the European Union wished to
months, especially from the African Union, ACP impose the EPAs and its trade interests, over
ministers and heads of state, UN and World Bank development and regional integration concerns.
Two deeply different visions of development
1
Ablassé Ouedraogo was deputy director general of the World
Trade Organization and is special advisor to the president of the
were at the heart of these contradictions.
WAEMU Commission for the EPA negotiations.

To achieve its objective, the European Commission integration is supposedly one of the columns of
has exploited both the fragile negotiating capacity these new agreements but all efforts in that sense
of ACP countries, by dividing them into six have been blown by the EPAs imposed by Europe at
negotiating groups, and the December 31, 2007 the end of 2007.
deadline, by threatening to raise trade barriers.
The division of regional groups has reinforced the The incoherence in Europe’s approach to the EPA
economic and negotiating imbalance that has long negotiating process has brought discussions to a
characterized EU-ACP relations. Fragmented ACP real deadlock. This is reflected in both the content To achieve
countries had to confront the Commission, the and in the structure of the EPAs:
its objective,
most powerful and most experienced negotiating • With relation to its content, the EPAs, as the European
machinery in the world. proposed by the European Commission, do not Commission has
The EU’s tactics can hardly be justified on the assist ACP countries in the realization of their exploited both the
basis of legal restrictions, including the very development goals. Against the backdrop of fragile negotiating
notion of a non-negotiable deadline. There were globalization and the need to constitute larger capacity of ACP
indeed alternative ways for the European Union economic spaces, the bilateral interim EPAs countries, by
to maintain its markets open. The extension of the being proposed present considerable obstacles dividing them into
WTO waiver for a supplementary period in order to the integration between existing regional six negotiating
to complete the negotiations, as requested by the trade partners. In addition, these agreements
groups, and the
West and Central African regions, was a case in do not facilitate economic diversification,
December 31,
point. For this to happen, however, the European particularly since they restrict the policy
options available to ACP governments to
2007 deadline,
Union would have needed to demonstrate real by threatening
political will to support ACP countries in their support the development of new industries.
As far as food security is concerned, the new to raise trade
poverty reduction efforts as well as in their struggle
agreements could needlessly expose small barriers.
for sustainable development. As the deadline
loomed closer, such political will was placed farmers to surges from competing imports.
under mounting pressure, including from big Moreover, there is no sign from Europe that
firms exporting to the European Union or having significant new finance will be made available
invested in ACP countries, a large number of which for the development of infrastructure in
are European. ACP countries. On the contrary, the new
As a consequence, many ACP regions find agreements arguably create conditionalities
themselves in a situation in which several trade and additional costs for the delivery of old
regimes coexist, de facto compromising all chances promises of financial assistance.
of real regional integration and contradicting the Concerning market access, Europe does not
explicit objectives of the EPAs. For instance, all assure any significant opening of its services
African EPAs are different, with the exception markets and, notwithstanding the effective
of that signed by the East African Community. lowering of its tariffs, does not improve its
Regional negotiators in charge were bypassed rules of origin, which remain complex.
by the European Union who imposed bilateral
agreements without any true national and As far as investments are concerned, the
regional consultation, as occurred in Ivory Coast proposed agreements are not very likely to
and Ghana, in the case of West Africa. Regional

foster new flows. There are concerns that the meeting in Brussels between EU and ACP
proposals would further tie the hands of ACP chief negotiators scheduled for June 17, 2009
governments by prioritizing investors’ interests was postponed until the end of October 2009.
over public concerns. The depth of divergences on many issues still
under negotiation indicates that even the new
In addition, the initialled EPAs do not support deadlines are unlikely to be met.
innovation since intellectual property rules
It is clear that the hinder access to knowledge, rendering What alternatives are there?
inoperative the already weak European
initialled EPAs and It is clear that the initialled EPAs and those
commitments for the transfer of technology.
those currently currently being negotiated will not, in their
being negotiated • In relation to the negotiating process, the EU’s current form, contribute to the development of
will not, in their pressure to extract an agreement from ACP ACP countries, contrary to the hopes placed in
current form, countries has led to a situation characterized this new partnership by all its participants. Far
contribute to the by division and confusion which compromises from reorganizing economic and trade relations
development of the continuation of negotiations and the to spur development, these new agreements could
ACP countries, conclusion of full and global EPAs within a lock the ACP into patterns of inequality and
reasonable timeframe. In West Africa, for marginalization, further tilting the multilateral
contrary to the
instance, during their summit, on January trading system against developing nations.
hopes placed
18, 2008, WAEMU Heads of State expressed
in this new It is, therefore, urgent to conceive of a new
their profound concerns regarding the
partnership by all continuation of negotiations, especially
approach to EU-ACP trade in order to implement
its participants. a fair and mutually beneficial agreement. If its rules
with respect to the development dimension
are fair, international trade and investment can be
of these new agreements. Acting on their
a source of shared prosperity and development.
instructions, ministers in charge of the EPAs
If not, it can be a source of increased poverty
confirmed the region’s preference for a fully
and exclusion and many ACP countries will find
and global developmental EPA. Despite these
themselves locked in the vicious cycle of exporting
commitments, the agreed deadline of June 30,
little value-added products and importing onerous
2009 was unrealistic having regard to the width
goods. In fact, the bulk of investments into ACP
of tasks to be achieved.
countries go to extractive industries, resulting in
In addition to working for the conclusion of the creation of only few employment opportunities.
a fully regional EPA, indeed, West African
A truly fair trade agreement can help the ACP
negotiators also have a duty to support Ivory
modify the terms of their integration into the global
Coast and Ghana in the finalization of their
economy and stimulate a fairer distribution of local
interim EPAs. This stretches even thinner what
value addition in favor of workers and producers, as
is already a limited human capacity.
well as local and foreign investors. Such agreement
Finally, trust between the two parties must would spur long-term sustainable changes, helping
be rebuilt. Without trust, negotiators will countries to diversity their economies away from
not be able to extricate themselves from commodity dependence.
the current deadlock, and negotiations will
A fair agreement of this type is not only still
continue to be delayed. For instance, the
possible but is also absolutely necessary. All it

would take to achieve that noble objective is quota-free access to the EU’s market, for all
political will and sheer acknowledgement that time goods except armaments. Rice and sugar are
has come to change the direction of EPAs. Other subject to a progressive liberalization schedule.
than this, the only obligation for a fair EPA is its
conformity with the rules of the WTO. In this • GSP-plus: Encourages beneficiary countries to
respect, two options are possible for trade in goods: commit to sustainable development and good
governance objectives while offering them
• To negotiate a free trade agreement which duty and quota free access to the EU’s market
would include only the fundamental elements for 88 percent of all products. All LDCs and
of WTO compatibility; economically vulnerable countries can benefit
from this scheme. The weakness of this option
• To adapt European preferential regimes in is that it does not provide preferences for
order to grant ACP exporters full access to banana, sugar, rum, and beef—all important
the European markets, in conformity with export products for many ACP states.
WTO rules.
• GSP: Offers all developing countries free
The first alternative would enable the negotiation access to the European Union for 66 percent
of much more favorable texts than those being of all products
currently submitted to the ACP. As a matter of
fact, some of the most worrying provisions, such Economic models have consistently demonstrated
as the standstill clause and the most favored nation that the GSP-plus scheme, even without any reform,
(MFN) clause would be eliminated and safeguards offers an economically advantageous exporting
could be improved. scheme for most ACP countries in comparison
with the proposed EPAs. Even if its coverage and
The second option would allow ACP countries to conditions are more restrictive than those of an
have access to European markets while maintaining EPA, the GSP-plus scheme would avoid all negative
their autonomy over their trade policies. It implications of a reciprocal free trade agreement.
would also allow ACP countries to proceed with And all ACP states already comply with most of
regional integration at their own pace. While this the scheme’s requirements concerning governance,
option would certainly entail an erosion of trade democracy, and child labor.
preferences for ACP exporters, such losses would
be minimal if compared to the costs of a free trade The European Union, in its endeavors for a fair
agreement with the European Union. Besides, such agreement could strengthen the GSP-plus scheme
preferences could provide the basis for a fair deal to expand the coverage, to make it equivalent to the
on several additional areas, notably on trade in coverage of the Cotonou Agreement. Europe could,
services, investment, transfer of technology and as a matter of fact, merge the EBA and the GSP-
innovation, and aid for trade. This option can be plus schemes to cover all economically vulnerable
implemented relatively simply if the EU adapted its countries (including the LDCs). To make it more
existing preferential regimes to reflect the interests predictable and grant certainty to investors, the
of ACP countries: European Union could eliminate discretionary
aspects of these schemes and commit to make them
• Everything But Arms (EBA): Grants the 41 permanent. This would simply entail an ordinary
Least Developed Countries (LDCs) a duty- and administrative procedure with a ministerial decision.

Conclusion and to facilitate the conclusion of a full, global,
The current context of financial, economic and developmental and fair EPA. For the European
humanitarian crises which favor protectionism Union, the current standstill in negotiations and
and a contraction of investments do not favor the resistance by ACP countries to sign the proposed
conclusion of EPAs. Worse still, pressure to conclude EPAs should provide an incentive to rethink
the EPAs are jeopardizing the EU-ACP historic these agreements afresh and avoid locking in
ties. Given this, ACP countries could consider an agreement that, although based on good
The change deepening ties with other development partners, intentions, is ill-conceived. It is therefore time
of negotiating replacing relations with Europe with other countries for the European Union to cease its display of
personnel who might better respond to the priorities and power politics and to embrace an adult to adult
looming in the interest of ACP governments. ACP countries must partnership with ACP negotiators. That was the
horizon could enhance their solidarity and withstand pressure spirit of the Lisbon summit which called for a
to obtain a better EPA, particularly as an exclusive productive and mutually beneficial EU-ACP
offer a window
and restrictive deal with Europe could hinder the partnership. This change would not only respond to
of opportunity
fostering of relations with emerging nations as the hopes of millions of people living in poverty in
to change the ACP countries, but it would prove beneficial for the
direction of the development partners for the ACP.
European Union, too.
EPA process The change of negotiating personnel looming on
and to facilitate the horizon could offer a window of opportunity
the conclusion to change the direction of the EPA process
of a full, global,
developmental
and fair EPA.

The Symbol Versus the Reality
Christopher Stevens1 Lessons from the pattern of EPA acceptance
An important piece of evidence is the pattern of
The analysis of the Economic Partnership
ACP acceptance or rejection of EPAs3. Of the 76
Agreements (EPAs) has been fixated on their
ACP states that took part in the EPA negotiations,
symbolism but, now that their details can
only 36 initialled an agreement (most of which
be analyzed, it is the reality that counts. The
have either gone on to sign an amended version
symbolism and the reality, however, are very
or are expected to do so).4 This low proportion
different. Only time will tell how the EPAs2 are The analysis of
has attracted much attention, especially since the
implemented, so the argument is necessarily partly
overall average has been boosted by the 100 percent the Economic
speculative. But in content they are more prosaic
rates achieved in the Caribbean Forum of African, Partnership
than revolutionary and it is plausible to argue that
Caribbean, and Pacific States (CARIFORUM) Agreements
implementation in many (though not necessarily
and the East African Community (EAC); by (EPAs) has been
all) cases will be equally drama-free. Yet the debate
contrast in three regions only one-eighth of the fixated on their
has been portrayed in ideological terms from
negotiating states have accepted (see Table 1). The symbolism but,
the outset, with EPAs cast (by supporters and
low acceptance rate is certainly problematic in now that their
opponents alike) as pushing the boundaries of
several respects—most notably in what it means for details can be
liberalization.
future regional trade integration since it introduced
analyzed, it is the
Though the discourse has tended to focus on major divisions in all except two ACP sub-regions.
reality that counts.
the symbolic EPAs, in reality these agreements Some states have committed to removing tariffs on
have always primarily been about retaining imports from the European Union and each other
preferential market access for the Group of while others have not. But the (legitimate) concern
African, Caribbean, and Pacific (ACP) exports to over the consequences of a low acceptance rate
Europe in a form that, at a minimum, was ‘least has diverted attention from another key feature.
cost’ for the European Union at the World Trade As explained below, the pattern of acceptances/
Organization (WTO) and, at best, also advanced rejections is very close to what was predictable from
other EU interests (primarily in relation to non- countries’ objective self-interest, and the differences
ACP partners). Anything more than this would are almost all of cases where countries expected not
have been unnegotiable, acceptable only to ACP to accept an EPA have done so.
states persuaded of the developmental desirability
The negotiating ACP countries fell into one of
of broad-based and deep liberalization or to those
three categories in terms of their vulnerability to
with so much to lose from an end to preferences
the threat used by the European Union to force the
that they felt obliged to accept deeply unpalatable
pace of the negotiations. It threatened, and then
provisions. The evidence suggests that few fall into
put into effect, the termination of the preferential
either category.
3
Since the process of signing the EPAs is still underway at the
time of writing—and uncertain in a few cases—the terms ‘accept’
and ‘reject’ are used to cover either the initialling of the EPAs
(which for most states took place at the end of 2007) or the
failure to do so, or signature where this has happened.
1
Christopher Stevens is a senior research associate at the Over- 4
Only 75 of the 77 countries that receive Cotonou trade prefer-
seas Development Institute (ODI). ences negotiated an EPA. Somalia and East Timor did not. In
2
The term EPA is used to cover both full and interim agree- addition, South Africa (which does not receive Cotonou prefer-
ments, except where the context makes it important to distin- ences) was a negotiating party—making 76 negotiating countries
guish between them. in total.

Table 1. Overview of EPA signatory states
Countries falling Proportion of Number of
Initialling/ into EBA/stan- signatory liberalization
Members Signatory statesa dard GSP countries schedules
ESA IEPA Comoros Comoros Djibouti 55% 6
Djibouti Madagascar Eritrea
Eritrea Mauritius Ethiopia
Ethiopia Seychelles Malawi
Madagascar Zambia Sudan
Malawi Zimbabwe
Mauritius
Seychelles
Sudan
Zambia
Zimbabwe
EAC IEPA Burundi Burundi — 100% 1
Kenya Kenya
Rwanda Rwanda
Tanzania Tanzania
Uganda Uganda
SADC IEPA Angola Botswana Angola 71% 2
Botswana Lesotho
Lesotho Mozambique
Mozambique Namibia
Namibia Swaziland
South Africa
Swaziland
CEMAC IEPA Cameroon Cameroon Chad 12.5% 1
Chad Cent. African Rep.
Cent. African Rep. Congo
Congo DR Congo
DR Congo Eq. Guinea
Eq. Guinea Gabon
Gabon S. Tomé/Principe
S. Tomé/Principe
ECOWAS IEPA Benin Côte d’Ivoire Benin 13% 2
Burkina Faso Ghana Burkina Faso
Cape Verde Cape Verdeb
Côte d’Ivoire Gambia
Gambia Guinea Bissau
Ghana Liberia
Guinea Bissau Mali
Liberia Mauritania
Mali Niger
Mauritania Nigeria
Niger Senegal
Nigeria Sierra Leone
Senegal Togo
Sierra Leone
Togo
Notes:
(a) Countries in italics are classified as LDCs.
(b) Cape Verde has been classified as non-LDC since January 2008 but will be able to export to the EU under the EBA
initiative for a transitional period of three years.

Table 1. Overview of EPA signatory states Continued
Countries falling Proportion of Number of
Initialling/ into EBA/stan- signatory liberalization
Members Signatory statesa dard GSP countries schedules
PACP IEPA Cook Islands Fiji Cook Islands 14% 2
Fed. Micronesia Papua New Fed. Micronesia
Fiji Guinea Kiribati
Kiribati Marshall Islands
Marshall Islands Nauru
Nauru Niue
Niue Palau
Palau Samoa
Papua New Solomon Islands
Guinea Tonga
Samoa Tuvalu
Solomon Islands Vanuatu
Tonga
Tuvalu
Vanuatu
CARIFORUM EPA Antigua/Barbuda Antigua/Barbuda — 100% 1
Bahamas Bahamas
Barbados Barbados
Belize Belize
Dominica Dominica
Dominican Rep. Dominican Rep.
Grenada Grenada
Guyana Guyana
Haiti Haiti
Jamaica Jamaica
St Kitts/Nevis St Kitts/Nevis
St Lucia St Lucia
St Vincent/Grena- St Vincent/Grena-
dines dines
Suriname Suriname
Trinidad/Tobago Trinidad/Tobago
Notes:
(a) Countries in italics are classified as LDCs.
Cotonou tariff regime under which Europe has transition periods for rice, sugar, and bananas, the
imported goods from the ACP states for the past last of which expires in 2009). But for the non-
three decades (the regime lapsed on December 31, LDCs the next-most-favorable regime is either the
2007). Countries that had not, by this time, been standard Generalized System of Preferences (GSP)
granted an EPA-based tariff regime found that their or, in the case of products which it does not cover,
exports have since been taxed on the basis of the the Most Favored Nation (MFN) regime. Tariffs
next-most-favorable tariff regime for which they are under these regimes can be high.
eligible. For least developed countries (LDCs) this
next-most-favorable regime is the non-contractual The basis for allocating countries to one of
Everything But Arms (EBA) scheme under which the three categories is the extent to which it is
the European Union has autonomously decided vulnerable to this threat (and why). Category 1
to import virtually all goods duty free (subject to comprises ‘vulnerable’ countries that stood to lose
in a very tangible way if the pre-existing regime

for their exports were not continued and they were
downgraded to the GSP. Kenya, for example, faced Figure 1. EPA status by ACP category
60
the imposition of significant tariffs on its exports of Not as predicted
horticulture and processed tropical fruit. Another As predicted
50
illustration of the scale of the problem: Had beef
14
preferences ended for Botswana, the European
40
Union’s import taxes on its beef exports would
have been equivalent to 80 percent of their value,
Percent
1
30
obviously making the trade commercially unviable.5
The other countries did not face the danger of an 20 39

immediate, significant increase of barriers to their 30
5
exports if Cotonou came to an end and was not 10
replaced by an equivalent new regime. Hence they 11
could face this prospect with equanimity, but for 0
Vulnerable Good Non-sensitive
differing reasons. alternative exports
Category 2, the largest, included countries with ‘a

good alternative.’ It consisted primarily of LDCs and Cooperation Agreement (TDCA) with the
which, since 2001, have been eligible for the duty- European Union it has access to the EU market
and quota-free (DFQF) market access extended by that is preferential, although not as good as that
the European Union under its Everything But Arms available to other ACP states. While a failure to
(EBA) initiative to all LDCs (ACP and non-ACP agree an EPA would not improve the status quo
alike). Therefore, the end of Cotonou for an LDC ante, neither would it cause deterioration.
meant only the need to fill in different forms in
order to export to the European Union under EBA, The reason the third group, those with “non-
to forego the right to meet the European Union’s sensitive exports,” did not fear the end of Cotonou
rules of origin requirements by combining its own is that its main exports are all products on which
production with others’, and to forego whatever the EU’s standard tariffs are either zero or very low.7
‘security’ is afforded by a negotiated agreement This applies to the oil exporters Nigeria, Gabon,
as opposed to a unilateral EU decision.6 In and Congo and also to most of the non-signatory
addition to LDCs the category also includes South Pacific states which export mainly fish to the
Africa. Under its bilateral Trade, Development, European Union (where the ‘real’ negotiations may
be on Fisheries Partnership Agreements).
5
M. Meyn (2007). “The End of Botswana’s beef exports to the Figure 1 shows that 54 percent of the ACP states
European Union?” Overseas Development Institute Project
Briefing, September. were in Category 2, with 31 percent in Category
6
The rules of origin specify how much production or which 1 and the rest in Category 3. The figure also
processes must be undertaken within an ACP state for the illustrates that countries broadly acted as would be
resultant goods to be eligible for preferences. Under Cotonou,
production undertaken in any ACP state counted toward meet-
ing these thresholds, and the same applies to countries signing
an EPA. Such combination (known as cumulation in the jargon) 7
Selecting the membership of group 3 is more subjective than
is also possible between LDCs, but only if certain conditions are for the other two groups since few countries have zero vulner-
met—none of which apply to the LDCs that have not initialled/ able exports, so a judgement is required on the thresholds to
signed an EPA. be applied.

predicted from their objective interests. It shows the perceived the “cost” of accepting the EPA to exceed
proportion of countries in each category that have them.
acted as predicted and those that have not.
How constraining are EPAs?
For the countries in Category 1 with vulnerable
This raises the question of whether the EPAs are
exports the ‘prediction’ is that they would accept an
indeed anodyne or whether the countries have
EPA and almost all have done so. For countries with
miscalculated the cost of signing. As in all trade
a good alternative or with non-sensitive exports the This raises the
agreements, not only is ‘the devil in the details’
prediction is that they would reject an EPA, and
but also in the enforcement. EPAs will only limit question of
in both cases a majority have done so, although a
signatories’ policy space if, one, the text requires whether the
significant minority have accepted.
actions that the country would not otherwise EPAs are indeed
The countries that have acted non-predictably are choose and, two, these requirements are enforced. anodyne or
mostly LDCs plus a number of CARIFORUM states whether the
The picture on tariff removal is clear: many
that export very few (if any) sensitive goods to the countries have
countries, but not all, have managed to exclude
European Union. In many cases they belong to miscalculated the
from any liberalization a large proportion of their
regional groups that also include one or more states cost of signing.
most sensitive goods and to defer for a decade or
with substantial vulnerable exports. Given that the As in all trade
more a significant reduction of high tariffs.8 Less
latter were under strong pressure to accept an EPA,
clear are the implications of the many other ‘rules’ agreements, not
a rejection by the former would have fractured
created by the EPAs that establish an apparent only is ‘the devil
the regional grouping. A desire to retain a pre-
existing regional grouping may, therefore, explain
commitment to alter other policies besides those in the details’
on tariffs, some of which may not even be directly but also in the
the decision of Burundi, Rwanda, Tanzania, and
‘trade related.’ They are not always as transparent enforcement.
Uganda to join Kenya in initialling the East African
as the commitments to remove tariffs. Signatories
Community (EAC) EPA, and of Antigua, Bahamas,
may not even be sure whether an existing or
and Haiti to accept the CARIFORUM EPA. But
planned policy falls foul of a general commitment
this does not explain the decision of, for example,
in the EPA text. While the details vary between the
Lesotho, Madagascar, Mozambique, or Zambia.
EPAs, common problematic provisions include,
There appear to be country-specific explanations in
each case. Lesotho and Madagascar are understood for example, those on regional preferences and on
to have been influenced by the improved EPA rules the “MFN clause.” The regional preference clauses
of origin (RoO) for clothing, Zambia is believed require each ACP signatory to extend to all the
to have sought the short-term increase in the others any improved treatment that it grants to
volume of sugar it could export to the European the European Union. This requirement can be
Union within an EPA, and Mozambique’s general problematic in regions (such as the Caribbean
trade stance is liberal (in order partly to reduce Community [CARICOM] and Southern Africa
dependence on high-priced imports from protected Customs Union [SACU]) that specifically allow
South African producers). The important general lesser developed members to apply trade defense
point is that the expected “gains” from acceptance measures on imports from more developed
are generally quite small yet none of these countries
8
S. Bilal and C. Stevens (2009). “The Interim Economic Partner-
ship Agreements between the EU and African States.” Policy
Management Report 17, European Centre for Development
Policy Management, Maastricht.

members. In such cases, the EPA rule—if trade preferences. In other words, the stark choice
implemented—may prevent a lesser developed facing a non-implementing ACP state if it is taken
country taking advantage of the latitude that is to dispute settlement and loses is similar to the one
allowed in the pre-existing regional agreement. it faced in 2007—with the penalties being the same
or smaller.
The critical phrase though is if implemented.
The implications of the new rules are sometimes Take the celebrated example of the MFN clause that
Take the opaque; many policies might be considered to requires an ACP state to extend to the European
be in conflict with the EPA rules—whether or Union any more favorable treatment it subsequently
celebrated
not they are may be resolved only in dispute offers to a major trading country with which it
example of the
settlement. An ACP state may take the view agrees a free trade agreement. It is hard not to
MFN clause that that a certain policy is compliant with the EPA agree that this represents an infringement to ACP
requires an ACP while the European Union might take one of sovereignty, but will it ever be applied? Since the
state to extend three positions: it might agree that the policy is initial onus will be on the ACP states autonomously
to the European EPA-compliant, it might take the view that the to extend to the European Union any more
Union any policy is not EPA-compliant but decide to take no favorable treatment it will be up to them to decide
more favorable action, or it might make a case under the dispute whether or not the provision is better, whether its
treatment it settlement provisions. Only in the third case may partner is a major trading country, and whether
subsequently a reluctant ACP state be forced unwillingly to it is in a ‘free trade agreement.’ All are subject to
offers to a major change a policy, and then only if the outcome of dispute. What counts as more favorable treatment
trading country the dispute panel is adverse to the ACP party. in an agreement that may have some parts that
with which it are less good and some that are better? Is a trade
The provisions on dispute avoidance and settlement agreement notified to the WTO under Part IV
agrees a free vary between the EPAs but generally establish three (which deals with special and differential treatment
trade agreement. levels of intervention: consultation, mediation, for developing countries) of a free trade agreement,
It is hard not to and arbitration. Action follows from the first two or must it have been notified under Article 24?
agree that this only by mutual consent. If they fail to produce a Even the apparently precise definition of major
represents an mutually acceptable outcome, the complaining trading country is open to some fudging. The EAC
infringement to party may refer the matter to dispute settlement, EPA includes the definition that it is any developed
ACP sovereignty, with a panel being selected jointly by the European country or any country accounting for more than
but will it ever be Union and the ACP. If the panel ruling goes 1 percent of world merchandise exports in the year
applied? against it, a complained-against party must take before entry into force of the new agreement. Yet
steps to remove the infraction of EPA rules in no source is specified for the measurement of the
ways that do not create a new infraction. Not all 1 percent (and there are several candidates, usually
the EPAs specify what then happens if there is no giving different figures)—and full data for the most
action, or inadequate action, but the final resort is extensive (the UN Comtrade database) normally
that the complaining party can suspend its trade emerge with a lag of over three years. It is clear
concessions under the EPA. that the MFN clause will cover an agreement with
an Organisation for Economic Co-operation and
The ultimate “risk” that any ACP government
Development (OECD) state that is uniformly more
runs in making a narrow interpretation of opaque
favorable than the EPA but its jurisdiction in all
provisions is that it may be required to reverse this
other cases is open to dispute.
position at a later date on pain of losing some or all

Reality will probably be messy are actually in a position effectively to apply any
ACP states will implement unpalatable policies such changes on the ground is more questionable.
that they would otherwise avoid only if: the EPA Of those countries that interpret the EPA text in
text requires them to do so and either they choose a narrow way, some may be taken successfully to
autonomously to apply the requirement or the dispute settlement but others will not.
European Union takes them successfully to dispute
Actual implementation is therefore likely to
settlement and the perceived costs of European
be messy. Undesired policies will be applied in Actual
sanctions exceed those of implementation. In this
some cases but not in others. The underlying
context the term “implementation” is not limited implementation
trend, though, will probably be for lower rates of
to passing a law or a regulation; it extends to the is therefore likely
compliance with undesired policies rather than
effective enforcement of these measures. to be messy.
higher rates. This is because ”preference erosion”
will reduce the costs of failing to abide by an Undesired policies
It is likely that some ACP states will be persuaded
unfavorable dispute settlement ruling. In a decade’s will be applied
(perhaps through diplomatic or commercial
time, when the highest tariffs are due to come in some cases
pressure) to introduce new laws and regulations
that they might have been able to defer or avoid. down, many of the countries that in 2007 were in but not in others.
This expectation is supported by the huge disparity Category 1, with significant vulnerable exports, The underlying
between the EPAs suggesting that the less well will no longer be there. The commercial value of trend, though,
organized ACP states have accepted texts largely the EPA preferences will have been overtaken by will probably be
compiled in the European Union while the better events. If the EPA shoe starts to hurt they may for lower rates of
organized ones have obtained a much less onerous simply take it off. compliance with
deal.9 Whether or not the less well organized states undesired policies
rather than higher
9
op.cit. S. Bilal and C. Stevens (2009)
rates.

Modeling the Economic Partnership
Agreements: Challenges and Lessons
David Laborde Debucquet1 For optimistic observers, applied economic models
are used to assess ex-ante the impact of policy
Trade negotiations, whether bilateral, regional, or scenarios to help policymakers and stakeholders
multilateral, rely more and more on quantitative make the most suitable choices. The results of the
analysis and modeling tools. The Economic models should help them make the right decision
Partnership Agreements (EPAs) have not escaped (signing or not signing a trade agreement), improve
this trend and dozens of studies have been the design of a trade agreement (by identifying
Under what conducted over the last five years. Why do we whether products are sensitive and defining the
need models? What types of models have been right speed of liberalization), and consider policies
conditions can
used? Have they taught us useful lessons? How to enhance the benefits of such agreements or
a model be
well can real life negotiations be reflected in compensatory policies (adjustment package) for the
used to shape models? Conversely, under what conditions can a
negotiations with agents expected to register losses.
model be used to shape negotiations with pro-
pro-development development outcomes? Such an approach is advocated by the European
outcomes? Commission, which requires impact assessments
This article examines the use of models in the to be conducted for any trade agreement under
EPA negotiations and concludes that, even if their negotiation. However, for cynical observers,
results should be considered with caution, they models will be used ex-post to justify decisions
help to rationalize the negotiations and may reduce that have already been taken, in many cases, for
the asymmetry of power between the European non-economic reasons. In which cases, models
Community (EC) and its Group of African, help policymakers sell their choices to their
Caribbean, and Pacific (ACP) partners. Beyond the constituencies using the scientific methodology of
design of the trade liberalization process with the complex mathematical models.
EPA agreements, models should play an important
role during the implementation process by helping Both the economists that supply such models and
to sketch the best adjustment policies. the different stakeholders (policymakers, civil
society) that will be faced with their results have
Why do we need models? to acknowledge this ambivalent situation. All the
Oftentimes, economic rationality plays a results and interpretations must be considered
secondary role in the genesis of the numerous carefully. Models and their results are tools that will
trade agreements negotiated since antiquity. be used by different players, each of them having
The EU-ACP relations do not escape this rule. their own political agenda.
Indeed, the EPA process is more the result of As usual, the truth lies somewhere between the
political commitments rooted in deep historical naïve and the optimistic view. Depending on
relations than economic rationale. Considering the period, models have been used more to sell
this institutional background, we may wonder political decisions or to design the features of
why quantitative economic models are needed in a the agreements.
highly political discussion.
1
David Laborde Debucquet is a research fellow and co-leader
of the “Globalization and Markets” research project inside the
Markets, Trade, and Institutions Division at International Food
Policy Research Institute (IFPRI).

Which models have been used?
EPA models: A few references
Broadly speaking, two families of simulation
models have been used to assess the EPAs.2 On the Among cross-country analysis in partial
one hand, there are computable general equilibrium equilibrium, readers can refer to:
models (CGEMs) and on the other hand, partial Ben Hamouda, H., S. Karingi, B. Idrissa
equilibrium models (PEMs). Both present specific Ouedraogo, N. Oulmane, and M. Sadni-Jallab
limitations, pros, and cons. (2006). “Assessing the consequences of the It is important
CGEMs provide the most rigorous framework to Economic Partnership Agreement on the
to note that,
assess the macroeconomic effects of trade policies Ethiopian economy.” African Trade Policy
during this period,
(efficiency and redistribution effects) but the level of Centre, Work in Progress, No. 43, UNECA,
Addis Ababa. www.uneca.org/atpc/Work%20
almost all studies
detail regarding sectors and countries is somewhat focused on the
limited. On the contrary, PEMs can be conducted in%20progress/43.pdf
trade dimension
at the product level (more than 5,000 products), Fontagne, L., D. Laborde, and C. Mitaritonna. of EPAs. Step by
analyzing specific cases with precision. However, the “An Impact Study of the EU-ACP Economic step, the full free
fields of investigation are more limited (essentially
Partnership Agreements in the Six ACP trade agreement
to trade and custom revenue effects). Regions.” EC DG TRADE, Brussels. http:// (FTA) hypothesis
Indeed CGEMs have been used to assess the ec.europa.eu/trade/whatwedo/trade_analysis/
has been replaced
economy-wide impact of the EPA agreements, st_acp_epa_en.htm
by more accurate
their effects on gross domestic product (GDP), scenarios
In a multi-country CGE framework, the readers
real income, “welfare,” current accounts, can refer to: introducing
unemployment, dynamics of the different sectors,
asymmetric
net fiscal impact for government, and so on. Initial Bouet, A., D. Laborde, and S. Mevel.
liberalization in
simulations simply compared full Free Trade “Searching for an Alternative to Economic
Agreements between the European Union and the
terms of speed of
Partnership Agreeements.” IFPRI Research
ACP regions to the Cotonou preferences. Before Brief, Washington, DC. http://www.ifpri.org/
liberalization and
December 2007, alternative scenarios to EPAs were publication/searching-alternative-economic- product coverage.
also investigated. It is important to note that, during partnership-agreements
this period, almost all studies focused on the trade
dimension of EPAs. Step by step, the full free trade Keck, A. and R. PierMartíni (2008). “The
agreement (FTA) hypothesis has been replaced by impact of Economic Partnership Agreements
more accurate scenarios introducing asymmetric in Countries of the Southern African
liberalization in terms of speed of liberalization and Development Community.” Journal of African
product coverage.3 More recently CGEMs have also Economies, 17(1), 85. http://www.wto.org/
been used to focus on other aspects of EPAs, such english/res_e/reser_e/ersd200504_e.doc
as the Aid for Trade package and/or development
2
Simulation models refer to analytical tools that compare one
state of the “world” to another state of the world, e.g. a world
without EPA and a world with EPA.
3
EPAs allow ACP countries to exclude some products from the
liberalization scheme and to implement tariff reductions over an
extended period of time.

programs, which aim to design policies to be gains in terms of market access for ACP countries
implemented in parallel to trade liberalization. (compared to the previous Cotonou framework
or the Generalized System of Preferences [GSP]
Interestingly, if initially many studies used a single alternatives) and lead to a steep liberalization with
country CGEM, more recent assessments rely on only one partner (the European Union), which
multi-country (regional or global) CGEMs, due may cause important trade diversion. In this
to the preeminent role of the regional integration context, ACP countries suffer from terms of trade
Models have also dimension in the negotiations. For instance, in losses. Liberalization with the European Union
the case of the West Africa EPA, a regional CGEM benefits EU exporters but reduces the market
demonstrated
is used to analyze different issues pending in shares of third countries. Such an agreement
that the EPAs will,
the negotiations: features of the trade agreement increases the level of distortions across trading
in addition, have as currently designed (speed of liberalization,
three implications partners and has an efficiency cost.5 Choices made
coverage of sensitive products), assessment of the by importers no longer follow the true prices
for ACP countries. net fiscal impact for the West African countries, of different producers but are twisted by policy
First, the fall in and integration of the development package linked choices (who gets preferences and who does not).
tariff revenue to the EPAs in order to provide a more complete Moreover, the request for sensitive products, in
will reduce picture of the agreement that will go further than a particular in agriculture, also increases the level
governments’ simple trade agreement. of distortions across sectors, since some products
income which will remain protected and others will be liberalized.
The use of PEM was more intensive in the pre-2007
in turn means By maintaining some tariffs (in many cases, the
period. Such models were used to analyze trade
that public impacts and custom revenue losses at the product highest initially) and eliminating protection for
expenditures or level (or tariff line). Due to their level of detail, they other sectors, countries support some producers
investments will but not others. This creates an unfair situation that
have been particularly helpful in assisting countries
have to be cut. will bias the allocation of resources in the economy.
to build the exclusion list of sensitive products4 for
the interim agreements. Both these effects reduce, and may even offset, the
gains coming from trade liberalization.
What have we learned from the models? Models have also demonstrated that the EPAs
Both PEMs and CGEMs are based on neo- will, in addition, have three implications for ACP
classical international economics with strong countries. First, the fall in tariff revenue will reduce
micro-foundations. In this framework, it is governments’ income which in turn means that
assumed that welfare increases as countries move public expenditures or investments will have to
toward freer trade. However, the design of the be cut. This is a grim perspective for countries
trade liberalization component of the EPA is where the public sector represents most of the
not a canonical example of trade liberalization. formal sector and where social programs (health,
Indeed, numerous results have quickly emphasized education) and public infrastructure—key elements
the adverse effects of the EPA for the ACP
economies. EPAs actually include relatively low
5
Because trade agreements twist relative prices and create distor-
tions among exporters (“trade deviation” effect), such policies
are largely criticised by economists. They prefer policies that in-
4
Depending on the ACP regions, a different mix of modeling crease allocative efficiency and/or productivity gains. It explains
exercises and participative/interactive approaches with stake also why economists and their models will find the strongest
holders has been chosen to define the regional/country sensitive gains in the EPA process related to structural reform and “Aid
product lists. for Trade” packages.

to achieve sustainable development and attract increase in its trade deficit of up to 2.7 percent of its
investments—are already too limited. For instance, GDP (Fontagne, Laborde, and Mitaritonna 2008).
the trade liberalization with the European Union,
its main partner, may lead to a fall of tariff revenue Finally, by granting concessions to EU exporters,
of 45 percent for Cote d’Ivoire, a revenue that third parties will be excluded from the domestic
represents about 28 percent of government income markets of ACP countries, including other regional
(Fontagne, Laborde, and Mitaritonna 2008). An producers. If EU imports replace regional imports,
important alternative would be to increase the the mechanical effects of the EPAs will go in the For the country
resources collected6 by reforming the tax system. opposite direction of the official goal of boosting
as a whole, the
However, this is quite difficult to implement as in the regional integration of ACP countries. While
asymmetric
many countries the formal sector is very limited7 the increase of EU exports will belong to the range
[15 to 17 percent], other exporters will face a
liberalization
and increasing the tax pressure will shift more (more concessions
workers to the informal side. Indeed, workers and decrease of their exports by [–2.6 to 3.6 percent]
(Bouet, Laborde, and Mevel 2007; Fontagne, than gains)
firms will have more incentives to move, or to
Laborde, and Mitaritonna 2008). will lead to a
return, to the untaxed informal sector if the tax rate
applied on formal activities increase.
deterioration of
It is important to keep in mind that a few the trade balance
Second, for the country as a whole, the asymmetric assumptions in a CGEM model will drive most of which could
liberalization (more concessions than gains) will the story. A key feature is for instance the current
cause balance
lead to a deterioration of the trade balance which account closure that defines the external constraint
of payment
could cause balance of payment problems. Since on a country, i.e., how a country can finance its
imports. Two main solutions can be assumed. The
problems.
many ACP countries have pegged their exchange
rate (e.g., zone Franc), they will not be able to use first one is optimistic and can be seen as a “free
currency tools to solve their difficulties, which lunch” case: the country borrows external resources
means they could enter a period of macroeconomic to pay for its new imports. It is an easy solution
instability. The shadow of a devaluation could in the short run but costly in the future since the
follow after the EPA implementation, however country will have to reimburse its debts. Otherwise,
this decision is always politically difficult to it will have to depreciate its currency in real terms
adopt. The only other way to restore the external —assuming it can—to boost its exports and to limit
account balance is to create a domestic recession: its imports. The last strategy is instantly costly since
an outcome which would contradict the objectives it will reduce the purchasing power of the country
promoted by the EPAs (e.g., economic growth). For on the world market. Another important modeling
instance, Mali will have to find a way to solve an assumption defines the government constraint:
how can it restore its fiscal balance? Should it cut
expenditure or revenues? Such assumptions will
lead to more or less positive outcomes of such an
6
It is important to keep in mind that tariff revenue reduc-
tion leads to a diminution of the amount of tax paid by the agreement and there is no “universal” truth. When
consumers. With perfect competition, tax revenue losses by the modeling trade liberalization, it makes sense to
government is totally saved by the consumers, the nation does
not suffer a revenue loss. However, many ACP countries face have different assumptions for different countries:
imperfect price transmission and the tariff revenue decrease may the European Union and a small Pacific island do
be captured by a “middleman” that may be a foreign agent.
not have the same capacity to handle international
7
Even in nonagricultural activities, about 75 percent of employ-
ment in Africa is informal (“Women and Men in the Informal
and domestic constraints.
Economy: A Statistical Picture,” ILO, Geneva 2002)

Therefore if the “liberal” neo-classical models European goods will be limited. The most
have helped to justify the fears of opponents of affected parties will be other developed and
the bilateral agreements between the European emerging country exporters (the United
Union and the ACP countries, they also have States, Brazil, and in particular China that
quantified their adverse effects. Actually, they has taken large market shares in Africa in the
have demonstrated that trade liberalization will recent years).
not be a terrible shock for ACP countries. For
Neo-classical most countries/studies the effects are in a range • Finally, if the inclusion of sensitive products is
[–1 percent, +4 percent] of GDP by the end of the costly in terms of the overall economic welfare,
models have
implementation process. It means that after the full it may significantly reduce tariff revenue losses
demonstrated that
implementation of the agreement (15 to 20 years) and/or the competitive pressure on domestic
trade liberalization producers, in particular for local farmers
will not be a ACP countries will have an annual GDP slightly
above/below their expected level in a world without whose basic products are weakly differentiated
terrible shock for from the EU agricultural exports.
EPA, where instead they rely on the EU’s GSP/
ACP countries. For
GSP+ trade preferences. At the same time, modeling exercises have also shed
most countries/
studies the effects Effects could be more moderate for three light on the gains and losses of different alternatives
are in a range main reasons: for ACP countries. With the approaching deadline
of December 2007, the messages delivered by the
[–1 percent, +4
• First, the tariff revenue losses are limited. models varied across countries: some countries
percent] of GDP
The trade agreement with the European were expected to gain from signing an interim-
by the end of the Union will just remove tariffs on EU imports. agreement or an EPA, while others were expected to
implementation Other imports are still dutiable and even lose but stood to lose even more if their alternative
process. EU imports are still taxed through domestic was to switch from Cotonou preferences to the GSP
excise and value-added tax (VAT) or sales regime (such as developing countries exporting
tax. Since the 1990s many African countries bananas and sugar). Finally, the outcomes for some
have started a fiscal transition, with import other countries were neutral or positive if they
duties representing a declining share of did not sign (e.g., Least Developed Countries that
government income. Moreover, a close look benefit from the Everything But Arms initiative,
at the data shows that for many countries the developing countries that are mainly oil exporters).
duty collection rate is relatively low (below Interestingly, multi-country models have also
60 percent) meaning that the government shown the strategic consequences of individual
received much less than the nominal tariff will choices: if it is economically rational for no country
lead us to think. Thanks to PEM and CGEM, to join an interim agreement with the European
it is possible to quantify the losses and identify Union in a given region, it is also rational for all
exactly which countries are vulnerable, and countries to join if at least one country enters an
how their governments should be supported. agreement. Indeed, trade agreement and trade
preferences are a matter of competitiveness: you
• Second, many EU products are poorly give “preferences” to one country versus the others.
substitutable with local production (price When you are among the few to benefit from
range, quality, etc.). As a result, the competitive preferences, your gains are large. On the contrary,
effects and the negative effects on regional if you are one of the few countries excluded from
integration from increased imports of the process you will lose your market shares to

preferred exporters. So, the more countries benefit and the EPA is an excellent illustration of such
from preferences, the less exporters gain from an evolution. Fundamentally, bringing models to
receiving them, but, equally, the higher the cost of the negotiating table helps to root the discussions
being excluded. in a rational framework and leads negotiators
to adopt a common language. The results of a
Having noted this, it is quite difficult to know if model should always be interpreted carefully,
models and their results have played a role in the especially having regard to the limited quality of
final decisions by ACP governments of whether data available for most ACP countries, and the Quantitative
to join interim agreements. In any case, what has underlying assumptions that drive the models. tools play an
been observed in terms of choice is consistent with Understanding and analyzing the mechanisms of a increasingly
the teachings of different models. Here, it is also model leads negotiators to focus on the effects that
important to understand that the definition of the
important role in
could have been neglected otherwise. Interestingly, trade negotiations
situation of reference, the “baseline,” is crucial. If it also requires each delegation to be clear on
one assesses the effects of the EPA in comparison and the EPA
its objectives. Policymakers have to take full
with the Cotonou preferences, gains shrink. If you is an excellent
responsibility for their decisions and must refrain
assess them in relation to the GSP, gains will be from having models decide for them. For instance,
illustration of
magnified. As a matter of fact, African negotiators when models are used to study the issue of sensitive such an evolution.
have emphasized the existing Cotonou situation as products, they generate the gains for each product Fundamentally,
a reference point, while the European Union has on the basis of which the government can consider bringing models
argued that, after 2007, Cotonou was no longer it as sensitive (e.g., tariff revenue saved), and the to the negotiating
an option and that only the GSP was a realistic gains for the producer and cost for the consumer table helps to root
reference point. (i.e., changes in domestic prices). However, models the discussions
do not propose a solution; it is the role of the in a rational
Now, if the models have clearly shown the limited
policymaker to weigh up the different components framework
risks of the trade dimension of EPAs, they also
and make a decision. In several ACP regions, and leads
provide a relevant framework to confirm that
defining priorities at the country and regional level negotiators to
such agreements are beneficial. They help to
has been an important outcome of the EPA process
identify the sectors that may gain from the adopt a common
and has forced local policymakers to identify and
agreement and those which should be targeted by language.
clearly express their choices.
Aid for Trade measures to ensure that producers
can grasp potential benefits. At the same time, Using a strong analytical framework based on
models help identify the main challenges for the models may help to reduce the gap between
government and define a time path for budget negotiators, but it is still a challenge for negotiators
support and fiscal reform. They also help to sketch to agree on a common tool to be used. This has
reasonable investment policies that can be scaled been achieved in the long-lasting EPA negotiations
according to the absorption capacity of individual in West Africa where a regional CGEM has
ACP countries. been developed to assess the agreement. A
steering committee comprising negotiators from
Models and negotiations: complex both sides took part in its development. The
interactions data, assumptions, and scenarios studied were
As already said, quantitative tools play an commonly agreed upon. Such an analytical tool
increasingly important role in trade negotiations may be difficult to design and has high transaction

costs, but it facilitates transparency and mutual models announced they would assess the effects
understanding during the negotiation, especially of an EPA when they were actually assessing a full
when delicate issues are at stake like assessing the FTA scenario.
fiscal impact of the agreement or the magnitude
of accompanying measures that should be Using models is the best way to bring a scientific
implemented. aspect to the negotiation and to reduce the role
of other negotiation tools (rhetoric, carrot and
Improving Of course, bringing an applied research tool to stick strategies). This is a very desirable feature
a negotiating arena is always a delicate exercise. in a context of asymmetric power and capacity
capacity building
Each party will always welcome conclusions and between negotiators, as is the case between the EU’s
at the national
results that support their own point of view and economic super power and the more vulnerable
and regional will have incentives to criticize any assumption ACP economies. At the same time, it is also
level within or methodological choice causing the results crucial that ACP countries have the human capital
ACP countries to move into the opposite direction. However, in their negotiating team to handle such tools.
remains the main applied economic modeling is not “Ars gratia Without the relevant training and experience,
prerequisite for artis.” It is designed to provide rational policy ACP negotiators will suffer from a significant
achieving an recommendations to policymakers. Economic disadvantage and may adopt a defensive position
efficient, quick, models may appear as alien constructs to against modeling tools when such a tool may in
and fair outcome negotiators. To be relevant, models need to be as reality help them demonstrate the rationality of
from the EPA close as possible to trade negotiators and interact their requests, allowing them to become proactive
negotiations. closely with them as only close interaction can help in the negotiations. Even if such resources have
to demonstrate their value-added. At the same time, started emerging in ACP countries, they are still
it is important that modelers defend their scientific insufficient. Skilled trade negotiators and trade
independency and do not forfeit their credibility in economists are still a rare resource and at the same
the political turmoil of negotiations. time many ACP countries are involved in many
parallel negotiations at the regional level (FTA
Models will feed the negotiations with results implementation, definition of a regional Common
and will in turn be fed by the negotiations. External Tariff [CET]), bilateral level (with the
This last point is very important since many European Union), and multilateral level (Doha
“EPA assessments” have focused on theoretical Round etc.). Improving capacity building at the
scenarios disconnected from what occurs in real national and regional level within ACP countries
life negotiations. Such analyses have blurred the remains the main prerequisite for achieving
public debate. This was particularly the case when an efficient, quick, and fair outcome from the
EPA negotiations.

The Treatment of Trade in Services in
Economic Partnership Agreements (EPA):
Implications for Prospective EPA Partners
Pierre Sauvé and Denis Audet1 first comprehensive EPA and set an important
precedent in the treatment of services trade in
This paper highlights some of the key implications preferential trade agreements. Not surprisingly,
and challenges that the members of the African, its structure and core provisions are replicated in
Caribbean, and Pacific Group of States (ACP) the draft EPAs under negotiation with other ACP
are likely to confront in agreeing to enter into regional groupings. The bulk of the EPA’s services
comprehensive Economic Partnership Agreements and investment provisions are spelled out in Title
(EPAs) with the European Union (EU) featuring II of Part II of the Agreement entitled “Investment, The EPA
detailed disciplines on trade and investment in Trade in Services, and E-commerce.” Title II concluded
services. The main provisions and architecture features seven chapters, whereas the schedule of between the
of the first comprehensive EPA—that signed each party’s commitments is detailed in specific
between the European Communities (EC) and
European
annexes. Further provisions governing services Union and the
the Caribbean Forum of African, Caribbean, and trade can be found in the Protocol on Cultural
Pacific States (CARIFORUM) in December 2007— CARIFORUM
Cooperation, in chapters governing competition
is used as a basis for assessing the EPAs still under countries took
policy, transparency in government procurement,
negotiation with other regional groupings of ACP and development cooperation matters. Such a
into account
countries. The analysis suggests that given the scattered treatment reflects the complex nature of the inherent
marked economic differences among ACP regions, services trade and the wide spectrum of regulatory differences
the services and investment chapters of prospective measures governing such trade. between the
EPAs with other ACP regions should not be as two negotiating
extensive as those found in the EC-CARIFORUM The EPA concluded between the European partners by
Agreement and that any agreed provisions in these Union and the CARIFORUM countries took into providing for
areas should relax further the reciprocal nature of account the inherent differences between the two
various means
the EPA’s rules and market access commitments. negotiating partners by providing for various means
of asymmetrical
Addressing such areas of behind the border of asymmetrical commitments and obligations.
rule-making in a flexible manner should enhance In services trade, asymmetry is reflected in
commitments
domestic and regional investment climates and differing coverage of each partner’s schedule and obligations.
help promote progressively greater competition of commitments. According to the Caribbean In services trade,
through new entry in sectors of crucial importance Regional Negotiating Machinery (CRNM), the EC asymmetry is
to economy-wide performance. has committed more than 90 percent of the sectors reflected in
listed in the World Trade Organization (WTO) differing coverage
Services and investment provisions in the services classification list (i.e., GNS/120), whereas of each partner’s
CARIFORUM-EU EPA the more developed CARIFORUM countries have schedule of
The signature of the EC-CARIFORUM EPA on agreed to undertake binding (and status quo) commitments.
December 16, 2007 marked the realization of the commitments in regard to 75 percent of sectors and
lesser developed countries in 65 percent of sectors.2
Moreover, whereas EU commitments tend to be
1
This paper was prepared by Pierre Sauvé, deputy managing immediate in character, in some CARIFORUM
director and director of studies at the World Trade Institute,
in Bern, Switzerland (E-mail pierre.sauve@wti.org) and Denis
Audet, trade policy consultant (Email: denis.audet@gmail. 2
Caribbean Regional Negotiating Machinery (CRNM) (2008).
com). The analysis contained in this paper draws on Sauvé and “Getting to Know the EPA: Provisions on Services and Invest-
Ward (2008). The views expressed in this paper are those of the ment,” “The EPA: Fact vs. Fiction,” and “The EPA at Glance.”
authors and should not be ascribed to the United Nations or to Retrieved at: http://www.crnm.org
the institutions to which they are affiliated.

member states commitments can be phased-in represent a significant improvement over the EC’s
over longer timeframes to address various policy existing commitments and Doha Round offer in the
sensitivities at the national or regional level. WTO. For their part, CARIFORUM members have
made only limited temporary entry commitments
Sector-specific regulatory frameworks are spelled for contractual service suppliers and independent
out in Chapter 5 for computer services, courier professionals. Despite such improvements in
services, telecommunications services, financial conditions of access, it bears noting that economic
The EPA’s umbrella services, international maritime transport services, needs tests are still applied in certain EU countries
and tourism services. These regulatory frameworks albeit without numerical limitations.4 Moreover,
provisions on
either broadly codify relevant provisions found partner countries still need to conclude mutual
development
in the General Trade Agreement on Trade in recognition agreements in certain sectors to take
cooperation Services (GATS) and form the backdrop against
affirm the central full advantage of the EPA. Some provisions are
which new or improved (GATS+) commitments also not formally binding and “best endeavor”
importance of have been agreed, or they innovate by developing commitments will need to be materialized
trade-related new disciplines and agreeing on commitments in into concrete provisions, notably in respect of
technical sectors that were weakly or not addressed under the procedures governing the granting of entry visas.
assistance GATS (e.g., tourism, maritime transport, Mode 4
in order to trade).3 While preserving the GATS’ bottom-up (or Protocol III on Cultural Cooperation establishes
complement the voluntary) approach of scheduling commitments, a framework within which the parties can
liberalization of the EPA features a GATS+ “standstill clause” that cooperate with a view to facilitating exchanges of
services and compels parties to schedule commitments at the cultural products, notably audiovisual services
investment and prevailing level of openness (i.e., locks in the in which CARIFORUM members had strong
regulatory status quo). export interests. While the provisions governing
to support the
the temporary entry of artists, other cultural
CARIFORUM With regard to the treatment of services-related professionals and practitioners are not formally
states’ efforts to labor movement, Chapter 4 applies to measures binding, they retain their salience and novelty by
strengthen their concerning the entry into and temporary stay committing the parties to endeavor to facilitate the
capacity to supply in their territories of key personnel, graduate movement of workers in artistic fields. The CRNM
newly-opened trainees, business service sellers, contractual expects that the EPAs will encourage the conclusion
services markets. service suppliers, independent professionals, of co-production agreements that should make it
and short-term visitors for business purposes. possible for Caribbean audiovisual producers to
According to the Caribbean Regional Negotiating access new sources of funding for creative projects
Machinery (CRNM), the new access opportunities in the region.
for CARIFORUM contractual service suppliers
The EPA’s umbrella provisions on development
3
Whereas in the GATS, the member states were given the option cooperation affirm the central importance of trade-
to voluntarily sign on to some texts, e.g. the Understanding on related technical assistance in order to complement
Commitments in Financial Services and the Reference Paper
on Basic Telecommunications, these elements form an integral
and binding part of the EPA. Similarly, the tourism regulatory
framework draws its inspiration from the Doha Development 4
Economic needs tests are not defined in the GATS. They con-
Agenda proposal for a GATS Annex on tourism services that fo- sist of various quantitative and qualitative factors whose aim is
cuses attention on the prevention of anti-competitive practices, to limit the degree of new presence in a market based on various
mutual recognition, promoting sustainable forms of tourism, criteria linked to the capacity of markets to absorb new competi-
compliance with environmental and quality standards, as well as tors. Such tests may affect both domestic and foreign service
technical assistance. suppliers or apply solely to foreign suppliers.

the liberalization of services and investment and for economic diversification and global
to support the CARIFORUM states’ efforts to repositioning because of its value-added
strengthen their capacity to supply newly-opened potential. With the looming combined
services markets. The agreement pursues this aim effects of preference erosion and the
through an aid for trade agenda in services that decline in EC agricultural support policies
included improving the ability of CARIFORUM for Caribbean producers of bananas and
producers to meet EC regulations and standards, sugar, such a diversification imperative was
improving their export capacity, facilitating particularly strong. To date, only
interaction and dialogue, addressing quality the CARIFORUM
and standards needs, strengthening regulatory • The EPA supported the creation or
region appears
regimes and implementation capacities, as well as strengthening of regional regulatory regimes in
a number of key areas of economic governance,
to have had a
establishing mechanisms for promoting investment. sufficient comfort
such as competition policy, government
procurement, finance, or telecommunications. level to sign onto
The impetus for services and investment
a comprehensive
commitments in the CARIFORUM-EU EPA • While the region had witnessed an increase EPA. This reflects
To date, only the CARIFORUM region appears to in investments from Europe, European FDI a complex
have had a sufficient comfort level to sign onto a in most non-tourism sectors had stagnated set of factors,
comprehensive EPA. This reflects a complex set of in preceding years. Hence, the investment
many of which
factors, many of which were mutually reinforcing: component in the EPA was seen as offering a
were mutually
framework of rules to facilitate the easier flow
• There was widespread recognition of the of investment in both directions, to reduce
reinforcing.
role of services being both a dominant sector discriminatory treatment of foreign investors
in the region as well as a key input into and to give increased predictability and
other key segments of the economy. From transparency to the investment regime.
CARIFORUM’s perspective, the European
Union represents a market of 457 million • CARIFORUM officials also expect that such
consumers that could easily absorb increased an enhanced investment regime would offer
services exports from the Caribbean region. companies from the region more opportunities
for the transfer of technology, lead to the
• The process of intra-Caribbean regional creation of more (and better) jobs and
integration was largely deemed as suboptimal encourage the production of quality products
and suffering from an “implementation deficit” and services from the region.
by regional leaders, so that the EPA’s emphasis
on regional groupings was seen as offering • The region as a whole brought “signalling” into
a desirable boost to the internal integration the EPA’s properties, viewing it as a powerful
process, offering a tool with which to advance means to signal to foreign investors and
CARIFORUM competitiveness, and promote development partners the region’s commitment
productive capacity and innovation in new to continued economic reforms.
products and production systems.
• The earlier trade negotiation experience gained
• The region’s service sector, especially in the Free Trade Area of the Americas (FTAA)
knowledge-based services, was generally and the CARICOM-Dominican Republic
seen as offering the most viable avenue

Free Trade Agreement contexts contributed The potential for services and investment
to improving the quality of the region’s trade commitments in other ACP regions
policy formulation and negotiation capacities, The potential for global repositioning into higher
enhanced closer ties between governments value-added services and the degree of readiness
and industry in trade policy discussions and in negotiating a comprehensive EPA varies
boosted the region’s overall level of comfort significantly across the six ACP regional groupings.
in dealing with many of the policy and Table 1 compares these dimensions for three
When compared regulatory areas which are also dealt within a such regions: CARIFORUM; Common Market
with CARIFORUM, comprehensive EPA. of Eastern and Southern Africa (COMESA); and
the African regions CEMAC (Communauté économique et monétaire
• Unlike other ACP regions, notably sub-
clearly possess de l’Afrique centrale–Central Africa).
Saharan Africa, CARIFORUM members were
larger economic not confronted by the problem of overlapping When compared with CARIFORUM, the
diversification regional initiatives with differing memberships African regions clearly possess larger economic
potential in and the attendant risk of overlapping diversification potential in agriculture and
agriculture and disciplines and institutions. manufacturing but lag behind in services trade.
manufacturing However, in both the COMESA and CEMAC
but lag behind in sub-regions, enhancing the quality of service
services trade. delivery and attracting greater levels of foreign
Table 1. ACP potential and readiness in concluding a comprehensive EPA

CARIFORUM COMESA CEMAC
Export Potential
Population (millions) 26 389 30 (90 if the DRC is
included)
Agriculture Limited and declining as Large export potential, Large export potential,
EU support declines and as subject to addressing subject to addressing
preferences are eroded infrastructure bottlenecks infrastructure bottlenecks
Manufacturing Limited by scale Large export potential Weaker export potential
considerations subject to addressing owing to infrastructural
infrastructural bottlenecks bottlenecks: need for a
complimentary focus on
logistics, transport, and
trade facilitation
Services Large potential for Strong potential in selected Significant weaknesses
specialization with sectoral sectors subject to enhanced in investment climates,
expertise and high human supply of human capital and regulatory and supply side
capital strengthened negotiating, capacities; landlocked
implementation, and supply- countries need to pursue a
side capacities trade facilitation agenda
Readiness to negotiate services and investment provisions
Regionally-integrated market Operational but small Incomplete; services regime Incomplete; chiefly limited
not yet in force to goods trade
Prior free trade agreement FTAA and bilateral FTAs from Limited None
(FTA) negotiation experience the mid-1990s onwards
Implications for existing Positive: complimentary to Mixed: significant overlap Mixed: significant overlap
integration efforts and reinforcing Caribbean with existing regional with existing (but weakly
Single Market initiatives; no integration schemes implemented) regional
regional overlap integration schemes

investment in the sector could play a significant EPA as the only feasible model for structuring
role in addressing the manifold infrastructural its cooperation with ACP partners in a WTO-
bottlenecks—in energy, transport, logistics, trade compatible manner. The African and Pacific
facilitation, and the like—that impede both primary regional groups thus need to evaluate which is the
and secondary sector production and exports. The best form of trading arrangement that will satisfy
decision to engage in more meaningful negotiations their development goals. Options include:5
in services trade and investment must, accordingly,
rest on broader, economy-wide, considerations Option 1: A comprehensive and reciprocal EPA The inherent
than those stemming from a more narrow focus on that, beyond trade in goods, delves complexity and
export interests in the sector. into behind the border areas such great sectoral
as investment, services, government diversity
In terms of readiness to conclude a comprehensive
procurement, competition policy of services
EPA, the CARIFORUM was much better
as well as cultural cooperation negotiations, the
prepared in almost every respect than the two
matters, together with the attendant lack of progress
African regions under consideration. First, the
development assistance. in establishing
CARIFORUM process of regional integration was
significantly more advanced than the regional Option 2: Continued reliance on the EC’s regionally-
integration processes in Africa. This was especially unilateral (and non-permanent) integrated
true on the services front. Second, as noted above, preference schemes, which are
services market
CARIFORUM trade negotiators were able to confined to goods trade only, and
and the novelty
capitalize on their earlier negotiating experience. with continued reliance on the
of regional
Finally, CARIFORUM did not suffer, as did EC’s services commitments under
the WTO.5 coordination
African countries, from overlapping membership
efforts on behind
of different regional economic communities. The
the border
inherent complexity and great sectoral diversity A third potential option could be for EPA partners
of services negotiations, the lack of progress in
issues, have all
to aim to conclude WTO-compatible preferential
establishing a regionally-integrated services market, contributed to
trade agreements (PTAs) limited to goods trade
and the novelty of regional coordination efforts raising policy
or to goods and services trade only, but not other
on behind the border issues, have all contributed policy areas such as investment, government
anxiety levels
to raising policy anxiety levels among African procurement, or competition policy. While such among African
negotiators. This, in turn, has precluded the an option is certainly possible under WTO law, negotiators.
conclusion of comprehensive EPAs and resulted it does not appear politically feasible given the
in further delays in—and fueled significant stated aims of EC negotiators. Nor would it appear
controversy over—the EPA negotiating process to make much policy sense given the close and
beyond goods trade. increasingly complimentary relations between
investment and trade or between services trade
Implications for services and investment
negotiations in African and Pacific regions
5
To date, developing countries’ interests in terms of WTO/GATS
Prospective EPA partners are confronted with a improved access for temporary labor mobility, so-called Mode
4 trade in services—the main offensive sector for this group
relatively narrow range of options in deciding the of countries—have not been fulfilled and improved access is
basis upon which to pursue their trading relation being pursued via other negotiating avenues such as bilateral
with the EC. The EC considers a comprehensive and regional preferential trade agreements as well as non-trade
bilateral guest worker programs.

and competition policy disciplines and the critical regional investment climates and in promoting
need for all ACP regions to enhance their trade greater competition through new entry in sectors of
infrastructure, attract more capital and improve crucial importance to economy-wide performance,
domestic regulatory regimes and institutions including in agriculture, fisheries, mining, and
through enhanced economic governance. manufacturing, and in helping to promote needed
economic diversification. An EPA compact on
In pondering whether to engage more services and investment cannot be viewed merely
Given the marked comprehensively into EPA negotiations with the as a stand-alone element. Rather, as noted above,
EC, prospective EPA partners must also take it must be seen as part of a determined effort to
economic
into account the likelihood that the WTO aid for enhance the infrastructure for trade and to lower
differences among
trade process might yield equally tangible and the overall cost of producing goods and other
ACP regions, it targeted forms of needed capacity building than
can be argued services, and to make them accessible to markets at
that likely to emerge from the EPA process. A key home and abroad.
that the services question facing African and Pacific region ACP
and investment members is thus whether they can use the EPA’s At the same time, prospective EPA partners must
chapters of EPA services chapters and their likely development strive to get the timing and sequencing of their
to be concluded finance and technical assistance complements as a market opening or policy consolidation right. More
with other ACP useful cooperation and developmental tool. While so than the CARIFORUM states, Africa and the
regions should not there is no WTO obligation compelling them to Pacific negotiators will need more time to allow
be as extensive as negotiate services, investment and other behind for the building up of regulatory and productive
those found in the the border issues in the EPAs (an argument used by capacity. Perhaps a first useful step should be
EC-CARIFORUM prospective EPA partners with a view to reduce the to work within the EPA on building up such
EPA comprehensiveness), there is little doubt that capacities. A complementary, subsequent, process
Agreement.
the European Union expects that a comprehensive could then be the gradual opening of those sectors
EPA will feature asymmetrical services and in which two elements exist: (1) a readiness to open
investment commitments combined with an up progressively and (2) the needed funding to
embedded aid for trade package. ensure that regulatory implementation, and supply
capacities are properly buttressed.
Conclusion
There is, indeed, a need to ensure that both a
Given the marked economic differences among comprehensive EPA and its services and investment
ACP regions, it can be argued that the services and chapters provide for a development cooperation
investment chapters of EPA to be concluded with roadmap that adequately supports commitments
other ACP regions should not be as extensive as made. A development-enhancing equilibrium
those found in the EC-CARIFORUM Agreement must be found between the agreed rules and the
and that such prospective EPAs should be adjusted commitments scheduled in services and investment
to relax further the reciprocal nature of the EPA’s while also maintaining conditions of asymmetrical
rules and market access commitments while reciprocity. While it is most unlikely that the EU’s
nonetheless satisfying the (admittedly weak) EPA-related aid for trade commitments could ever
requirements of GATS Article V. be made legally binding, greater consideration
Addressing such chapters in a flexible manner could be given to ensuring that prospective EPAs
could prove useful in enhancing domestic and with acute trade capacity constraints receive
funding that is not only targeted at specific

implementation or supply side bottlenecks (as in
the CARIFORUM-EU EPA), but also involves
funding that is additional to that already committed
under the European Development Fund (unlike the
CARIFORUM EPA).
The EC-CARIFORUM EPA showed how

asymmetrical commitments and variable geometry
in rule-making offer useful tools to structure
investment and trade in services relations between
unequally matched partners. Such tools may be
adapted to encourage deeper and faster integration
among developing countries before initiating a later
stage of integration between developing country
partners and the EC.

EPAs and Liberalization of Renewable
Energy Industry in sub-Saharan Africa
Stephen Karekezi, John Kimani, The market for renewable energy
and Oscar Onguru1 Today, Africa, especially sub-Saharan Africa and its
large and underserved demand for modern energy,
Renewable energy and epa negotiations represents, in potential terms, one of the largest
Africa’s energy sector can best be viewed as being markets in the world for renewable energy. The vast
comprised of three distinct areas: North Africa, market potential is a result of a combination of the
which is heavily dependent on oil with relatively following factors:
Modern energy high levels of access to modern energy services;
supports South Africa, which depends on its well endowed Renewable energy potential: Africa is well
productive coal deposits and has registered high electrification endowed with a wide array of renewable energy
activities, is a levels; and the rest of the continent—sub-Saharan resources. The continent is estimated to have
determining Africa—largely reliant on traditional and inefficient a technical hydroelectric potential of about
biomass energy resources. Sub-Saharan Africa is 1,750 TWh per annum; 9,000 megawatts of
factor of costs
characterized by some of the world’s lowest levels of geothermal potential (including hot water and
and global
access to modern energy services with many rural steam based but excluding heat applications
competitiveness and the almost unlimited energy potential of
and, in this sense, areas recording rural electrification rates of less
than 10 percent.2 heat pumps); abundant biomass; and significant
is a pre-requisite solar and wind potential.3
for sustained It is widely recognized that the availability of
economic and modern, reliable, and efficient energy services is an Better match between renewables and rural
social growth—a essential driver for development. Modern energy dispersed demand for energy services: Due
key objective of supports productive activities, is a determining to limited urbanization, the majority of the
factor of costs and global competitiveness and, population in sub-Saharan Africa is largely
the Economic
in this sense, is a pre-requisite for sustained rural and lives in dispersed settlements.4 This
Partnership
economic and social growth—a key objective of pattern of settlement, combined with difficult
Agreements rural terrain, makes it expensive and difficult to
(EPAs). the Economic Partnership Agreements (EPAs).
This article examines the implications of the EPA deploy conventional centralized energy systems.
negotiations for the development of the renewable However, this pattern provides a perfect match
energy sector in sub-Saharan Africa and argues for decentralized renewable energy technologies
that, if its negotiators are not alert to the potential such as solar, wind, cogeneration, biogas, and
pitfalls of EPAs, the growth of a promising small hydro.
embryonic renewable energy industry could be
permanently stunted.
3
S. Karekezi and T. Ranja (1997). Renewables Energy Technolo-
gies in Africa. London, U.K.: Zed Books Ltd. “The Eastern Africa
Market Assessment Acceleration.” Geothermal Market Assess-
ment Report, Geothermal Conference Agenda. Washington, DC:
Business Council for Sustainable Energy; Federal Ministry for
Economic Cooperation and Economic Development, Undated.
1
AFREPREN/FWD—Energy, Environment and Development Note to CODEV: Hydropower Outlook for Africa. Accessed on
Network for Africa. August 27, 2009 at: http://www.energypartnership.eu/download/
BMZ-DEV_Note_Hydropower_Outlook_for_Africa_2007.pdf
2
S. Karekezi, J. Kima, O. Onguru, and W. Kithyoma (2009).
“Large Scale Hydropower, Renewable Energy and Adaptation to 4
S. Karekezi, J. Kimani, A. Mutiga, and S. Amenya (2003). “Ener-
Climate Change: Climate Change and Energy Security in East gy Services for the Poor in Eastern Africa Sub-Regional ‘Energy
and Horn of Africa.” Nairobi, Kenya: Energy, Environment and Access’ Study of East Africa,” Unpublished. Energy, Environment
Development Network for Africa (AFREPREN/FWD). and Development Network for Africa (AFREPREN/FWD).

High oil prices: In times of high oil prices, waste products, bagasse, to provide heat for sugar
renewables can be competitive5 and their use production and generation of electricity for their
allows a reduction of fossil fuel imports. In own internal use and export to the grid. Through
addition, the unpredictability of high oil prices cogeneration, the sugar industry in Mauritius now
has increased the interest of African policy in meets over half the country’s electricity needs and
renewables as they often have more predictable electricity sales are now more profitable than their
price patterns. sugar business. The tea industry in eastern and
southern Africa is also beginning to grow its energy The vast market
Failure of conventional energy systems: Poor business as its location in the highlands combined potential for
management and drought combined have with good rainfall patterns and numerous rivers renewable energy
crippled much of the conventional power sector provide excellent small hydro potential. A number
in sub-Saharan Africa with governments in the
in sub-Saharan
of tea industries have become energy self-sufficient Africa presents
region often resorting to very high cost stopgap and are exploring possibilities of exporting excess
oil-fired emergency power supply measures. a unique window
electricity to the grid.7
The steep premiums charged by emergency of opportunity
power suppliers combined with high oil prices The success of these installations demonstrates to establish
has now resulted in extremely high electricity that renewable energy can play an important role a competitive
prices—many sub-Saharan African electricity in ensuring that agro-industries remain profitable renewable energy
tariffs are twice as high as tariffs found in entities and are better able to compete in a bruising industry with
much of the industrialized world and in other world market of continuously falling prices for the concomitant
developing parts of Asia and Latin America. primary commodities. Energy self-sufficiency benefits that
The very high cost and poor performance of combined with the added revenue streams of accompany
conventional power systems makes renewables electricity sales allow agro-industries to remain
industrialization,
competitive purely on financing terms. In viable and provide them with the opportunity to
generation of
contrast to industrialized countries that need move up the value chain by producing other high
to subsidize renewables on environmental value by-products such as ethanol as in the case of
better paying
grounds, renewable energy development in sub- the Malawi sugar industry.8 and more secure
Saharan Africa can be justified on economic jobs, rural
grounds.6 The vast market potential for renewable energy in development,more
sub-Saharan Africa presents a unique window of competitive
As a result, there is now an emerging infant opportunity to establish a competitive renewable export revenues,
African renewable energy industry, particularly energy industry with the concomitant benefits that and increased
within the agro-industrial sector. For example,
government tax
sugar-processing factories use one of their primary
revenues.
5
S. Karekezi, J. Kimani, O. Onguru, and W. Kithyoma (2009).
“Large Scale Hydropower, Renewable Energy and Adaptation to
Climate Change: Climate Change and Energy Security in East 7
S. Karekezi, J. Kimani, O. Onguru (2006). “Contribution of
and Horn of Africa.” Nairobi, Kenya: Energy, Environment and Renewables to a Sustainable Power Sector in Kenya.” Nairobi,
Development Network for Africa (AFREPREN/FWD). Kenya: Energy, Environment and Development Network for
Africa (AFREPREN/FWD).
6
S. Karekezi and W. Kithyoma,W. (eds) (2005). “Sustainable
Energy in Africa: Cogeneration and Geothermal in the East and 8
K. Deepchand (2002). “Bagasse-Based Cogeneration in Mauri-
Horn of Africa—Status and Prospects.” Nairobi, Kenya: Energy, tius: A model for Eastern and Southern Africa.” Nairobi, Kenya:
Environment and Development Network for Africa (AFRE- Energy, Environment and Development Network for Africa
PREN/FWD). (AFREPREN/FWD);.

accompany industrialization,9 generation of better thus cutting off the participation of locally-
paying and more secure jobs, rural development, owned service companies.
more competitive export revenues, and increased
government tax revenues. This unique window Liberalization of investments: Negotiation of
of opportunity for to develop an indigenous, EPAs appear to have a significant European-led
competitive, and viable renewable energy industry push for the liberalization of investment—
is further supported by the fact that most renewable which would imply a liberalization of energy
The key question energy technologies are generally not very investments, including, most likely, renewables.
sophisticated with much of the required expertise As Stichele (2005) notes, proponents of this
that needs to be
still in the public domain. Therefore, developing argument claim that “liberalization is likely
asked is whether
a competitive renewable energy industry is to lead to the establishment of conducive
EPAs will assist conditions to attract the much needed foreign
or strangle the within the reach of many sub-Saharan African
countries. Finally, with no major conventional investment” into, for example, the nascent
embryonic infant local renewable energy industry. However,
energy industry existing in most countries, the
renewable energy based on past experience in the energy sector
local embryonic renewable energy industry faces
industry in sub- no major local challenger in securing favorable in sub-Saharan Africa, liberalization does not
Saharan Africa. treatment and subsidies that are justifiable for a always lead to a significant increase in foreign
growing infant industry. investment. For example, despite liberalizing
its power sector a decade ago, Malawi has not
EPAs and the liberalization of the renewable received any foreign investment in the sector.10
energy industry in SSA Liberalization of provision of energy services:
With respect to EPAs, the key question that needs Energy services in sub-Saharan Africa have
to be asked is whether EPAs will assist or strangle largely remained in the hands of large state-
the embryonic infant renewable energy industry owned utilities or multinational companies.
in sub-Saharan Africa. The answer to this crucial This is particularly true for the oil and power
question depends on how well the following key sectors. In the power sector in particular, the
issues are addressed during their negotiations: participation of local investors, especially
those interested in providing renewable
Elimination of import duties on imports of energy services such as cogeneration and
renewable energy technology: The removal of small hydropower generation, has been
import duties on renewables could lead to an
hampered by a lack of supportive policies and
influx of unnecessarily sophisticated / expensive
regulation designed to attract and support local
technologies that utilize little local content. For
renewable energy investors, e.g. attractive and
example, EU-based renewable energy industries
predetermined feed-in tariffs for renewables
are likely to supply over-engineering and
and small scale electricity generation options
unnecessarily sophisticated renewable energy
combined with “light-handed” regulatory
technologies whose after-sales service can only
options such as Power Purchase Agreements.
be provided by European service companies
Most of the policies that have accompanied the
9
S. Karekezi, J. Kimani, O. Onguru, J. Atiang, J. and Mbithi
(2007). “Sustainable and Community Participation in Biomass- 10
E. Marandu and D. Kayo (eds). (2004). The Regulation of the
Based Cogeneration in Kenya.” Nairobi, Kenya: Energy, Environ- Power Sector in Africa: Attracting Investment and Protecting the
ment and Development Network for Africa (AFREPREN/FWD). Poor. London, U.K.: Zed Books Ltd.

liberalization of the power sector have been now affecting much of the industrialized world
designed to establish an enabling framework has resulted in many of the investors from more
that attracts large scale foreign investors advanced industrialized countries losing interest
and has failed to mobilize and enhance the in sub-Saharan Africa. The end result is that there
participation of local small scale energy are very few serious long-term large investors in
investors. Liberalization of the renewable the region’s power sector, virtually no significant
energy sector could very well replicate the local investment in power industry and continued
adverse impacts of power sector liberalization under-performance of the electricity sector. To sum up,
in sub-Saharan Africa. sub-Saharan
The unhappy result of liberalization of the power
Africa’s unhappy
To sum up, sub-Saharan Africa’s unhappy sector in many sub-Saharan Africa countries have
experience with liberalization and reforms linked led countries such as Senegal, Cameroon, Chad,
experience with
to the energy sector and to World Bank-led Mali, and Cape Verde to return the power sector liberalization and
Structural Adjustment provides an important back to state hands thus missing out on some of the reforms linked
backdrop to the understanding of what EPAs more attractive benefits that liberalization and local to the energy
might do to the region’s infant renewable energy private sector participation could deliver, that is, sector and to
industry. Power sector liberalization in sub-Saharan throwing the baby out with the bathwater.13 World Bank-
Africa is synonymous with establishing favorable led Structural
conditions for power sector investors from more As the adverse experience of power sector
Adjustment
advanced economies with almost no attention liberalization shows, it is possible that if sub-
provides an
given to promoting local investors and establishing Saharan Africa’s negotiators are not alert to the
potential pitfalls of EPAs, the infant embryonic
important
regulatory framework and incentives for supporting backdrop to the
local investors.11 emerging renewable energy industry could be still-
born as a result of any of the following: understanding of
The few investors from more advanced economies what EPAs might
that deemed sub-Saharan African countries to • The European renewable energy industry is do to the region’s
be of interest asked for and secured enormously likely to opt to expand production of renewable infant renewable
advantageous short-term deals that virtually energy technologies in Europe to be exported energy industry.
eliminated all risks and allowed for higher than to sub-Saharan Africa instead of establishing
normal profits to be realized by means of some what it is likely to consider as un-economic
of the world’s highest electricity prices to poor small renewable energy industries in these
sub-Saharan Africa economies.12 Many of these countries. In fact, many of the components
short-term power sector investment deals have of renewable energy technologies would be
run into heavy criticism as they resulted in very manufactured, under European license, in
high prices without delivering significantly more China, India, and parts of Southeast Asia, and
secure electricity services. The financial crisis simply assembled in Europe for onward export
to sub-Saharan Africa.
11
E. Marandu and D. Kayo (eds). (2004). The Regulation of the • The aforementioned influx of over-engineering
Power Sector in Africa: Attracting Investment and Protecting the and unnecessarily sophisticated renewable
Poor. London, U.K.: Zed Books Ltd; Stichele, M.V. (2005).
energy technologies that places European-
12
“Dangers in Liberalization of Services and Investment in
EPAs.” SOMO Briefing, May 31, 2005. Accessed on August 21,
2009 at: http://syspro2.enda.sn/seminaire/docs/Services%20 G. Gualberti, et al. (2009). “Electricity Privatizations in Sahel:
13
and%20Investments%20in%20EPA’s.doc A U-turn?” Energy Policy, doi: 10.1016/j.enpol.2009.05.018

based service providers at an advantage and region, especially in terms of employment and the
cuts out local service providers. associated impact on poverty reduction.
• The opening of the renewable energy sector Third, it is imperative that liberalization is
in sub-Saharan African countries would likely not implemented in a “blanket” fashion. It is
lead to foreign investors “cherry-picking” the vital that sectors in which sub-Saharan Africa
most lucrative investments—with the highest is relatively competitive be liberalized first
The European returns and lowest risks.14 This could be at while less competitive infant industries are
the expense of investing where returns are liberalized later.15 This would require the speed
Union and African
relatively lower but where energy services are of liberalization to be adjusted to reflect different
negotiators must
most required, for example, in poor rural areas. levels of competitiveness in different renewable
truly treat EPAs energy technologies.
as vehicles for Which way for epa negotiations?
sustainable Fourth, liberalization of the renewable energy
The liberalization of the power sector without a
development industry should involve local private sector in a
clear role for local private investment contributed
in sub-Sahara significant way. There are three possible approaches
to a complete reversal of privatization in some
Africa. This that could be used to achieve this goal:
sub-Saharan African countries. Emerging from
implies that the these experiences is a series of lessons and Local manufacture of key components: EPAs
EU’s commercial recommendations for how EPA negotiations on could include a provision that all renewable
interests in the energy services, and the renewable energy industry energy systems installed by EU companies
agreements in particular, could lead to win-win options for all in sub-Saharan Africa must have at least
should be key stakeholders. 40 percent of the value of the installation
secondary to comprising of locally/regionally produced
First and foremost, the European Union and
the development components. For example, for a solar
African negotiators must truly treat EPAs as
needs of the sub- photovoltaic system, the photovoltaic panel,
vehicles for sustainable development in sub-
Sahara African control equipment, and the end-use equipment
Saharan Africa. This implies that the EU’s
region. maybe imported from the European Union
commercial interests in the agreements should
but the batteries, cables, and balance of system
be secondary to the development needs of the
can be locally produced or imported from
sub-Saharan African region and the need to grow neighboring sub-Saharan African countries.
promising embryonic infant renewable energy
industries. Encouragement of joint ventures: EPAs should
not encourage the establishment of wholly
Second, liberalization must lead to a significant foreign-owned stand-alone renewable energy
amount of new capital investment or expansion investments. Rather, joint ventures between
of existing investment in sub-Saharan Africa. European investors and existing locally-owned
Merely opening up the market for the entry of
finished renewable energy products is unlikely
to lead to long-term economic benefits in the 15
L.E. Hinkle and R.S. Newfarmer (2006). “Risks and Rewards of
Regional Trading Arrangements in Africa: Economic Partner-
ship Agreements between the European Union and sub-Saharan
Africa.” In: Bourguignon, F. and B. Pleskovic (eds). (2006).
14
E. Marandu and D. Kayo (eds). (2004). The Regulation of the Annual World Bank Conference on Development Economics 2006:
Power Sector in Africa: Attracting Investment and Protecting the Growth and Integration. Washington, DC: The International
Poor. London, U.K.: Zed Books Ltd. Bank for Reconstruction and Development/The World Bank.

renewable energy entities should be promoted Significant local shareholding in greenfield
and provided with substantial incentives. investments: Understandably, there is the
An ideal joint venture would be between a likelihood of European investors not finding
European investor (50 percent shareholding) any existing or suitable local partners to form
and a locally-owned venture (50 percent joint ventures. In such a situation, EPAs could
shareholding) that has been in existence for set a condition that 50 percent of the shares
at least five years. This arrangement would be held by a government agency for a limited
promote technology transfer and ensure that period of time after which the government Last but not
only investments that are in conformity with could relinquish its stake through the national least,the success
the needs of the country take place.16 stock exchange to local retail investors that are of EPAs and
showing growing appetite for energy stocks— the associated
This model has proven successful in other amply demonstrated by the highly successful
parts of the developing world. In India, for liberalization in
IPO (initial public offers of shares) of Kenya’s
instance, the emergence, efficiency, and quality the African energy
flagship local power generation company—
improvement of wind turbine manufacturers sector, largely
KENGEN that attracted small scale local retail
could be attributed to the establishment of investors in virtually all regions of Kenya.
depends on
joint ventures between Indian companies and capacity and skills
foreign partners. This joint venture model Last but not least, the success of EPAs and the of African EPA
has also worked in the renewable energy associated liberalization in the African energy negotiators.
industry of an African country, Mauritius, sector, largely depends on capacity and skills of
which enacted legislation and policy measures African EPA negotiators. The bulk of African
designed to encourage cogeneration of joint EPAs/trade negotiators have limited specialized
ventures between foreign investors and local expertise in energy and renewables and have
sugar companies.17 not been able to forge effective partnerships
with existing African energy/renewables experts
that can be found in national utilities, African
16
IRC (2007). The Evolution, Growth and the Present Scenario of academia, civil society, and diaspora. Forging
the Indian Automobile Industry. Accessed on August 22, 2009 at:
http://www.books.iupindia.org/overview.asp?bookid=IB1101257 these partnerships is likely to be a key factor to
17
K. Deepchand (2002). “Bagasse-Based Cogeneration in unlocking the benefits that EPAs could deliver to
Mauritius: A model for Eastern and Southern Africa.” Nairobi, Africa’s infant renewable energy industry.
Kenya: Energy, Environment and Development Network for
Africa (AFREPREN/FWD); S. Karekezi, J. Kimani, O. Onguru, J.
Atiang, and J. Mbithi (2007). “Sustainable and Community Par-
ticipation in Biomass-Based Cogeneration in Kenya.” Nairobi,
Kenya: Energy, Environment and Development Network for
Africa (AFREPREN/FWD).

Prospects for Innovation and Technology
Transfer Under the European Community-
Group of African, Caribbean, and Pacific
Economic Partnership Agreements
Ruth L. Okediji1 divide” between industrialized nations where
most research and development investments
Introduction (R&D) occur, and the countries of the African,
Studies of the relationship between labor Caribbean, and Pacific Group of States (ACP) who
productivity and development progress have long rely primarily on imports of technology to enhance
established a link between technological diffusion domestic supplies of technical knowledge, suggests
and economic growth.2 But only recently has the that existing global policies directed at promoting
Despite the relationship between technology, innovation, and technology diffusion and increasing access to
incontrovertible commerce become a staple feature of international technical knowledge have been wholly inadequate.
role of innovation economic agreements. Beginning with the
in productivity auspicious integration of trade and intellectual The innovation context of free trade
growth (and thus property rights (IPRs) under the World Trade agreements
in enhancing Organization (WTO) Agreement on Trade-Related Like most other free trade agreements (FTAs),
development Aspects of Intellectual Property Rights (TRIPS the EPAs address innovation exclusively through
prospects), Agreement), the acquisition of technology by formalized rules of intellectual property (IP)
access to new developing and least developed countries (DCs protection and in terms that view the creative
and LDCs) has become routinely recognized as an enterprise as a byproduct of the free movement
technologies by
important goal within a larger global framework of goods and services across borders. Several
DCs and LDCs
in which “development” is the stated rationale for studies confirm that trade liberalization facilitates
remains one any number of multilateral initiatives and accords. knowledge diffusion by opening markets to new
of the most The Economic Partnership Agreements (EPAs)3 goods and services that embody new technological
contested areas have similarly followed this burgeoning tradition, inputs allowing local firms to improve efficiency
of international recognizing in several provisions the need to gains and contribute positively to domestic
economic encourage creativity, innovation, and technology productivity.4 Further, as new goods and services
regulation. transfer in order to accomplish the development penetrate the domestic and regional market,
objectives of the agreements. opportunities for follow-on innovation to adapt
new knowledge to local conditions can stimulate
Despite the incontrovertible role of innovation domestic creativity and increase prospects for
in productivity growth (and thus in enhancing absorption of technical knowledge. In theory,
development prospects), access to new technologies then, standard assumptions from the free trade
by DCs and LDCs remains one of the most context of what might loosely be called a global
contested areas of international economic innovation policy include the following: (i) lower
regulation. The persistent and growing “innovation barriers to the entry of goods and services promote
competition and encourage R&D investments by
1
Ruth L. Okediji is a professor of law at the University of Min- firms, (ii) trade surpluses will generate income for
nesota Law School. investment in aid and capital to reinvest in local
2
See e.g. Robert J. Barro and Xavier Sala-i-Martín. Technologi- and regional markets, and (iii) the competitive
cal Diffusion, Convergence, and Growth, 2(1) J. Econ. Growth 1
(1997); Richard R. Nelson and Edmond S. Phelps. Investment in
Humans, Technological Diffusion and Economic Growth, 56(2) 4
See generally David Coe, Elhanan Helpman, and Alexander
Am. Econ. Rev. 67 (1966). Hoffmaister (1997). North-South Spillovers, 107 Econ. J. 134;
3
For purposes of this essay, references to the EPAs will encom- Jonathan Eaton and Samuel Kortum (1997). Engines of Growth:
pass draft agreements, the interim agreements as well as the Domestic and Foreign Sources of Innovation, 9 Japan World
EC-CARIFORUM EPA. Econ. 235.

environment resulting from an open trade regime First, markets for technology are famously complex
will stimulate productivity of small and medium because, among other things, knowledge goods are
enterprises (SMEs) and encourage local innovation. difficult to price due to uncertainties associated
with valuation of new technologies. Even in
As scholars have pointed out, however, many developed economies, asymmetries of information
of these assumptions are untested under the between buyers and sellers complicate negotiating
regulatory environments that prevail in ACP strategies and generate significant transaction
countries. While foreign firms historically have costs.5 In ACP countries, where deficiencies in In ACP countries,
enjoyed technological gains under conditions technical expertise are compounded by a lack of where deficiencies
of liberalized trade, evidence of any substantial institutional support to facilitate transactions in in technical
positive innovation and technological impact on technology, the negative externalities associated
ACP countries is far from established. On the
expertise are
with cross-border purchases of technology can compounded
contrary, constraints on the scope and flexibility be prohibitive.
of ACP countries to implement domestic policies by a lack of
more conducive for technological catch-up and Second, although in theory IPRs provide the legal institutional
imitation are inherent to the global IP system framework in which technology transactions support to
pursuant to the TRIPS Agreement. Yet, most free can more easily occur, IPRs are also instruments facilitate
trade agreements are structured along these classic through which owners can extract rent beyond the transactions
assumptions, with no proven basis to suggest that marginal cost of their inventions. In markets where in technology,
the negotiated frameworks in fact support access optimal investments in innovation take place, a the negative
to technology, facilitate technology transfer or competitive equilibrium could occur between externalities
stimulate domestic innovation. It is important in firms by which licensing agreements, patent pools associated with
light of ongoing EPA negotiations to reconsider or other arrangements facilitate access to new
cross-border
how technology can best be diffused in aid of technologies, thereby enhancing the competitive
purchases of
development goals and economic growth. environment among producers of new goods and
services. Such welfare-enhancing prospects are
technology can
The limits of iprs as mechanisms for technology far less likely in environments typical of many be prohibitive.
transfer to ACP countries ACP countries, which are characterized by weak
regulatory agencies, low rates of specialization,
It is well established that IPRs comprise the classic
small markets, and minimal R&D investments.
mechanism for promoting innovation and diffusion
of new technical knowledge, particularly in high- Third, positive foreign direct investment (FDI)
income countries. These private rights are granted flows, accompanied by relevant technology
with the familiar, if simplistic, justification that transfers, have long been a standard justification for
enhancing public welfare by encouraging creative implementing IPRs in DCs and LDCs. As recent
activity, including investments in R&D, is best empirical evidence illustrates, however, firms in
achieved through the grant of proprietary rights. In developed countries invest in R&D for reasons that
a globalized economic environment, however, IPRs extend beyond mere appropriability of returns.6
increase the costs of access to knowledge goods
for the public at large, and particularly for DCs
and LDCs.
5
See generally George A. Akerlof (1970). The Market for “Lem-
ons”: Quality Uncertainty and the Market Mechanism, 84 (3) Q.
J. Econ. 488.
6
See Giorgio Barba Navaretti and Anthony Venables (2004).
Multinational Firms in the World Economy, Princeton University
Press.

Similarly, firms choose to invest in overseas markets that protection for IPRs, as linked to innovation
in consideration of factors far beyond the domestic and technology transfer, may occasion costs that
availability of protection for IPRs.7 Accordingly, should be offset by balancing the obligations
when international economic agreements imposed on DCs and LDCs with principles that
incorporate protection for IPRs, technology secure the primacy of the social welfare objectives
transfers are not an ineluctable outcome; rather, underlying IPRs.
IPRs usually place new technologies beyond the
When reach of most ACP firms. Further, the absence (or For sure, the TRIPS Agreement recognizes the
failure) of domestic policies and institutions to “underlying public policy objectives of national
international
address potential anti-competitive effects of IPRs in systems for the protection of intellectual property,
economic
domestic markets suggests that the diffusion goals including developmental and technological
agreements objectives.”9 However, it imposes no legal obligation
incorporate of the IPR system are also less likely to be viable.
on member countries to implement norms that
protection for Avoiding the classic paradigm of regional FTAs can secure those objectives. The Agreement
IPRs, technology acknowledges the importance of technology
transfers are not The recent integration of IPRs in a series of as an essential development input, but offers
an ineluctable regional and multilateral trade agreements8 no framework to evaluate the efficacy of the
outcome; rather, assumes the traditional justification that technology mandatory rules in enhancing access to knowledge-
flows, innovation, and enhanced competition are based goods.10 It grants rights to members to
IPRs usually place
the natural by-products of granting proprietary implement domestic policies and laws to promote
new technologies
interests in knowledge goods. As such, long- basic development interests, including measures
beyond the reach standing technology and innovation deficits in
of most ACP firms. to address market distortions caused by abuses of
DCs and LDCs are treated as symptoms of market IPRs,11 but this comes with political and economic
failures attributed to, among other things, low levels costs that often are too high for ACP countries to
of FDI, weak or non-existent domestic absorptive bear, either for fear of retaliation from developed
capacity for new technical knowledge, and low rates countries or for lack of domestic capacity to take
of capital accumulation. Rarely do recent free trade advantage of these provisions. Notable examples
agreements incorporate any provisions or principles include the Doha Declaration,12 which only one
that address the structural pitfalls common to DCs ACP country to date has tried to implement, and
and LDCs that have adopted IP laws but have yet the Berne Appendix13 for securing bulk access to
to experience any development gains as a result.
Nor do these agreements reflect any possibility
9
See Agreement on Trade-Related Aspects of Intellectual Prop-
erty Rights, April 15, 1994, Marrakesh Agreement Establishing
7
D. Wheeler and A. Mody (1992). “International Investment the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299;
Location Decisions: The Case of U.S. Firms.” 33 Journal of 33 I.L.M. 1197 (1994) [hereinafter TRIPS Agreement], pmbl.
International Economy 57; Fink, Carsten and Keith Maskus (eds.) Paragraph 5.
(2004). Intellectual Property and Development: Lessons from 10
See id., art. 7.
Recent Economic Research, Oxford University Press. 11
See id., art. 8.
8
See, e.g. Agreement on Trade, Development and Cooperation 12
World Trade Organization (WTO), Ministerial Declaration of
between the European Community and its Member States, on
November 14, 2001, WTO Doc. WT/MIN(01)/DEC/1, 41 I.L.M.
one hand, and the Republic of South Africa, on the other, art.
746 (2002) [hereinafter Doha Declaration].
46, Apr. 12, 1999, 1999 O.J. (L 311) 3; Economic Partnership
Agreement between the CARIFORUM States, on one hand, and 13
Berne Convention for the Protection of Literary and Artistic
the European Community and its Member States, on the other, Works, Appendix, September 9, 1886, as last revised July 24,
arts. 112, 132, 142, O.J. L 289/I/3, Oct. 30, 2010 [hereinafter EC- 1971, amended October 2, 1979, S. Treaty Doc. No. 99-27, 828
CARIFORUM EPA], Chapter 2. U.N.T.S. 221 [hereinafter Berne Appendix].

educational materials, which no ACP country has for domestic innovation in ACP countries or
ever utilized. exacerbate the innovation divide.
In light of this, the EPAs can make significant Ceding national policy space
contributions to the innovation deficit by explicitly
incorporating norms that obligate EC member Like other regional FTAs, the EC-CARIFORUM
states to recognize the right of ACP countries to EPA has incorporated IPR provisions that largely
freely exercise the special and differential rules mirror the substantive obligations of the TRIPS
Agreement. And despite the fact that Article 46 of Further, unlike
that apply to them in the context of IPRs. Further,
the Cotonou Agreement explicitly acknowledged many existing
the EPAs could be treated as binding obligations,
the development dimension of IPR protection, EC FTAs, the EPAs
rather than mere exhortations, the stated objectives
of the TRIPS Agreement. A practical expression negotiators have in some cases attempted to include could provide
of such a commitment could be that the EC agrees obligations that extend even beyond those required technical
to evaluate any ACP domestic policy designed by the TRIPS Agreement. These so-called “TRIPS- assistance to aid
to promote access to EC technologies in light plus” provisions generally require ACP regions to ACP countries in
of the relevance of such a policy on measurable strengthen particular IPRs beyond the minimum the design and
development goals, particularly in areas such as standards established by the TRIPS Agreement.15 In implementation
education, R&D, infrastructure, and public health. addition, a provision may qualify as “TRIPS-plus” of IP policies that
Further, unlike many existing FTAs, the EPAs if it expands the scope of subject matter coverage
operationalize
could provide technical assistance to aid ACP beyond those disciplines recognized by the TRIPS
TRIPS Aarticles
countries in the design and implementation of IP Agreement. For example, in the area of copyright,
Article 143 of the EC-CARIFORUM EPA imposes
7 and 8, in
policies that operationalize TRIPS Articles 7 and 8, particular by
in particular by recognizing appropriately crafted on the CARIFORUM the obligation to comply with
the standards set forth in the World Intellectual recognizing
limitations and exceptions to IPRs. Numerous
Property Organization (WIPO) “Internet appropriately
other recommendations exist for structuring EPAs
more meaningfully to enhance the capacity of Treaties”—the WIPO Copyright Treaty (WCT) crafted limitations
ACP countries to absorb technical knowledge and and the WIPO Performances and Phonograms and exceptions
improve the domestic technological environment.14 Treaty (WPPT). to IPRs.
The point simply is that the EPAs should not
While such obligations may be facially neutral,
replicate the failed innovation and diffusion
there are hidden costs associated with even
strategies of contemporary FTAs.
ostensibly beneficial provisions. The fact is that any
increased breadth of subject matter covered by the
Technology and IP provisions in the EPAs
IPR provisions of EPAs reduces the discretionary
The pivotal question, then, is how to make IPRs policy space that could be used to promote
relevant to the development agenda reflected in the initiatives directed solely at domestic innovators
Cotonou Agreement and stated in the objectives of in ACP groupings. The more policy space is taken
the specific EPAs. At a minimum, the obligations over by EPA-based obligations regarding IPRs,
pertaining to IPRs should not impede prospects the less ACP countries can act unilaterally for the
benefit of local firms.
14
See, e.g. Okediji, Ruth L. TRIPS, Access to Public Health and
Public Education: Opportunities for ACP Countries in the EPA
Negotiations, Available at http://www.acp-eu-trade.org/library/
files/Okediji_EN_171108_TradeFacility_TRIPS.pdf 15
See, e.g., EC-CARIFORUM EPA, arts. 143, 147, 151-163.

In short, decreased opportunities for have much more at stake than the EC with respect
experimentation, combined with the reciprocity to trade disparities.17 If ACP exports to the
imposed by national treatment and most-favored European Union are likely to be less competitive,
nation obligations, will rob ACP countries of any and estimated tariff losses are as significant as
advantages or opportunities to develop competitive projected, the loss in income for most countries
strategies to address the technological lead and will have a direct impact on domestic investments
dominance of EC firms. Such artificially induced in technology and innovation.18 To offset the
The role of EPAs “lead time” was crucial to the industrial success economic consequences of trade diversion that is
in promoting of many developed countries such as the U.S. anticipated as a result of the EPAs, ACP countries
technological and Germany that delayed membership in major must diversify and build up the competitiveness of
diffusion and international agreements until their domestic domestic markets. This process requires access to
enhancing firms had accomplished a certain level of technical technology and strengthening domestic capacity
or competitive capacity. While this privilege has to incorporate new techniques and processes in
innovation
been foreclosed given the TRIPS Agreement, it is productive activities. None of the technology
capacity in
nevertheless important for ACP countries to refrain provisions in the EPAs provides a basis for ACP
ACP regions from ceding any additional policy space that could countries to experience positive welfare gains
is essential to be essential for leveraging future opportunities for over what currently prevails under the TRIPS
whether these a more deliberate strategy of securing sustained Agreement. Technical assistance, financial
agreements can access to new stores of technical knowledge. assistance, and other levers such as transitional
materially affect periods could mitigate the short-term costs of the
sustainable Passive versus active technology obligations passive technology obligations currently in the
development EPAs. A possible consideration is that funding
Currently, the EPA framework for innovation
gains. approximate to losses in tariff revenue could
and technology transfer consists of good faith
be contributed to a fund to support access to
commitments to cooperate in the area of research,
technology for SMEs in ACP countries, as well as
innovation, and technology transfer.16 Like the
other assistance directed at innovation supports.
TRIPS Agreement, these commitments do not
However, long-term solutions require significantly
impose any legal obligations on the EC to adopt
different substantive and institutional arrangements
policies that improve prospects for technology
transfer, nor do they recognize existing normative to secure sustainable access to technologies for
principles that could stimulate access to technology development goals.
in ACP states. At best, the EPA provisions appear
neutral with regard to the question of innovation 17
See, e.g., Lionel Fontagne, David Laborde, and Cristina Mitari-
and access to technology in ACP countries. tonna. “An Impact Study of the EU-ACP Economic Partnership
Agreements (EPAs) in the Six ACP Regions,” CEPII-CIREM,
April 2004, at 21-23.Accessed on September 7, 2009 at: http://
The role of EPAs in promoting technological trade.ec.europa.eu/doclib/docs/2008/march/tradoc_138081.pdf
diffusion and enhancing innovation capacity 18
Id. See also Michael Gasiorek and L. Alan Winters (2004).
in ACP regions is essential to whether these “What Role for the EPAs in the Caribbean?” 27(9) The World
Economy 1335.
agreements can materially affect sustainable
development gains. Some impact studies
demonstrate that on the whole, ACP countries
16
See, e.g. EC-CARIFORUM EPA, arts. 135-138, 142.

Improving prospects for access to technology and Conclusion
innovation under the EPAs From access to health and education to climate
The multilateral system for the protection of IPRs change mitigation and adaptation, innovation and
already recognizes important exceptions and new technologies play a crucial role in achieving
limitations necessary to address the provision of the increasingly diverse array of economic
public goods, most notably in the area of public development goals. The ongoing EPA negotiations
health and education. The EPAs provide an offer an opportunity within the unique context of
a historical relationship between the EC and ACP The ongoing EPA
opportunity to incorporate these access norms into
countries to address a critical source of economic negotiations offer
the free trade environment, while also adopting
growth by adopting provisions that encourage an opportunity
special concessions to reduce or eliminate the
transaction costs associated with utilizing the access to technology on terms consistent with the within the
mechanisms designed for the benefit of ACP multilateral IP system, and with the aspirations unique context
countries. Ultimately, access to technology must of the Cotonou Agreement. In contrast to other of an historical
be considered a basic development goal; unless FTAs, the EC-ACP EPAs should go beyond mere relationship
the EPAs establish a viable legal framework formal acknowledgement of the essential role of between the EC
with complementary mechanisms that create technology in accomplishing development-related and ACP countries
convergence between the welfare goals of IPRs and goals. Instead, the technology-related provisions
to address a
those of the free trade paradigm, the innovation of the EPAs should enable an environment in
critical source of
which access to technology and strengthening
deficit will outlast (and eventually overwhelm) any economic growth
gains possible from a liberalized economy. the domestic innovation capacity of ACP states
constitutes a material part of the EC’s investment in by adopting
the development process. provisions that
encourage access
to technology
on terms
consistent with
the multilateral
IP system.

Can the Economic Partnership Agreements
(EPAs) Become a Useful Tool for
Export Diversification?
Xavier Cirera1 and Pacific (ACP) countries3 are engaged in
the EPA negotiations, which are expected to
Since the start of formal negotiations in September be concluded this year. Amidst the current
2002 for the Economic Partnership Agreements global crisis, questions are raised about the
(EPAs) the world has changed significantly. New appropriateness of the EPAs as an instrument
global challenges have emerged with great strength, to face the crisis. This paper focuses on export
making economic growth and poverty reduction diversification, an essential element to make ACP
This paper even more challenging tasks than a decade ago. economies more resilient to the new challenges. It
focuses on export Economic policies are being shaped in order to shows that there is no clear indication that existing
respond to these new challenges and uncertainties, preferential schemes such as Everything But Arms
diversification, an
and more importantly, a window of opportunity (EBA), the Cotonou Agreement, or the Generalized
essential element
is opening in order to reconsider existing policies; System of Preferences (GSP), have had any major
to make ACP allowing more regulatory and government impact on export diversification. As a result, the
economies more intervention policies to gain momentum. EPAs need to be reformed to include additional
resilient to the
elements on Rules of Origin (RoO) and financial
new challenges. The current financial crisis is hitting Least
assistance, if the objective of export diversification
It shows that Developed Countries (LDCs) hard. Although
in ACP countries is to be achieved.
there is no mostly shielded from financial contagion
clear indication due to poor financial development, decreases
Why export diversification?
in industrialized countries’ demand and
that existing Export diversification is the process through which
the subsequent fall in commodity prices are
preferential countries export new products (products not
reducing growth rates and government revenues
schemes such significantly. For example, exports to the United exported previously) and reduce the export share
as Everything States from LDCs in sub-Saharan Africa (SSA) of traditional products. Despite the fact that new
But Arms (EBA), decreased by 11.5 percent in October and exports may not necessarily have a higher value-
the Cotonou November 2008 with respect to the previous year added than existing ones and that a qualitative
Agreement, or (World Bank 2009).2 While the slowdown in assessment of the characteristics and importance
the Generalized economic activity has reduced the sharp increases of these “new” products would be important
System of in food prices that occurred in 2007, these increases from a developmental point of view, the empirical
Preferences are expected to re-emerge as soon as the global evidence clearly shows that diversification toward
(GSP), have recession is over, posing additional challenges for new exports is associated with higher growth
had any major those LDCs that are net food importers.
impact on export In the midst of the current crisis turmoil and the
diversification. new global challenges most African, Caribbean,
1
Xavier Cirera is a research fellow at the Institute of Develop-
ment Studies, University of Sussex.
2
World Bank (2009). “Swimming Against the Tide: How Devel-
oping Countries Are Coping with the Global Crisis.” Back-
ground Paper prepared by World Bank Staff for the G20 Finance 3
The exception is the 15 Caribbean Forum of African, Carib-
Ministers and Central Bank Governors Meeting, Horsham, bean, and Pacific States (CARIFORUM) countries that have
United Kingdom on March 13–14, 2009. already signed a full EPA agreement.

and development.4 Furthermore, climate change under the Cotonou Agreement or the GSP. As a
adaptation and mitigation policies also require result, before asking whether the EPAs can deliver
economic diversification. Some mitigation policies, export diversification one should ask what has been
such as border carbon taxes or standards, try to the record so far of existing EU preferential trade
discriminate toward favoring “green” products. agreements delivering export diversification.
This creates new trade patterns, opportunities
and threats, as well as the need to diversify away Rather than looking at how diversified ACP
from carbon intensive products. In addition, exports are, which is highly dependent on a set of While the benefits
in order to create climate-resilient economies, economic, geographic, and institutional variables,
of diversification
adaptation policies require diversification away a more interesting exercise is to look at whether
are clear, it is
from commodities more vulnerable to climate the high degree of preferential treatment provided
under EBA, Cotonou, and GSP is associated with
less evident how
change shocks. to achieve it, and
the export of new products. In order to identify
While the benefits of diversification are clear, this type of export diversification, one needs to more importantly,
it is less evident how to achieve it, and more work with highly disaggregate trade data, so new whether
importantly, whether preferential trade agreements products can be identified. The COMEXT database preferential trade
are a useful tool to achieve this objective. provides information about exports and imports agreements are
to the European Union for highly disaggregated a useful tool
ACP export diversification: What the product data at HS-8 digits. The procedure that we to achieve this
data says… follow to identify new products is the following. objective.
Since 2001, the ACP LDC countries have had duty- We use 2000 as the base year and define a new
free access to the European Union (EU) markets for product as a product that was not exported in 2000,
all products except bananas, sugar, and rice under but exported thereafter. There are, of course, some
EBA preferences. Furthermore, previous to 2001, all limits to this approach. First, we may be counting
ACP countries, LDC, and non-LDC countries have exports that for some reason were not exported
had preferential access to a large list of products in 2000, but were traded before, as new varieties.
Second, the introduction of new product codes for
customs purposes, which is the result of splitting
4
An important feature of the historical record is that, at least existing codes, implies that these new product
until relatively high levels of per capita income are reached,
economic development is associated with the evolving diversi- codes are considered new varieties. Third, as has
fication of production into a progressively wider array of new been well documented (see for example Besedes
types of industries and exported products (Imbs and Wacziarg,
2003). Diversification reduces vulnerability with respect to
and Prusa 2006)5 a large number of products
external shocks, decreases the incidence of trade shocks (Ghosh exported to a specific market are likely to stop
and Ostry 1994), creates learning opportunities, and, more im- being exported at some point. The duration of trade
portantly, it is clearly correlated with high rates of growth (Hesse
2006). Recent evidence suggests that the product mix exported is likely to be lower for new products where trading
by countries is a strong predictor of growth (Hausmann, Hwang, relationships have not yet been consolidated,
and Rodrik 2006). Sources: J. Imbs and R. Wacziarg (2003).
“Stages of Diversification.” American Economic Review, Vol. and the data analyzed suggested that for most
93(1), pp. 63-86. A. R. Ghosh and J.D. Ostry (1994). “Export countries the percentage of products where exports
Instability and the External Balance in Developing Countries.”
IMF Working Papers 94/8. Ricardo Hausmann, Jason Hwang, disappeared is larger in new varieties. As a result,
and Dani Rodrik (2006. “What You Export Matters.” CEPR Dis- our measure of new exports is likely to overestimate
cussion Papers 5444. Hesse, Heiko (2006). “Export diversifica-
tion and economic growth.” Paper presented at the World Bank
workshop on “Export Growth and Diversification: Pro-active 5
T. Besedes and T. Prusa (2006). “Ins, outs, and the duration of
Policies in the Export Cycle.” Washington, DC: The World Bank. trade.” Canadian Journal of Economics, Vol. 39(1), pp. 266-295.

Table 1. ACP Export Growth Decomposition 2000–2007
Existing New Existing New
Growth Products Products Growth Products Products
LDCs 2000/07 share share Non-LDCs 2000/07 share share
Angola 111.66% 97.78% 2.22% Ivory Coast 39.24% 84.44% 15.56%
Benin –30.55% 68.68% 31.32% Ghana –2.23% 91.62% 8.38%
Burkina Faso –57.09% 67.42% 32.58% Nigeria 48.67% 96.20% 3.82%
Burundi 10.68% 90.14% 9.86% Cameroon 45.48% 90.17% 9.83%
Cape Verde 46.20% 32.15% 67.85% Gabon –26.75% 84.27% 15.73%
Centr. Africa –77.52% 89.50% 10.50% Congo –13.14% 81.18% 18.82%
Chad –51.99% 52.05% 47.95% Kenya 27.92% 86.52% 13.48%
Congo (DR.) –28.62% 84.24% 15.76% Seychelles 9.15% 89.29% 10.71%
Djibouti –66.70% 67.75% 32.25% Mauritius –14.04% 91.76% 8.24%
Eq. Guinea 193.66% 86.91% 13.09% Zimbabwe –53.92% 82.95% 17.05%
Eritrea –41.23% 33.55% 66.45% South Africa 44.20% 87.15% 12.84%
Ethiopia 31.95% 75.92% 24.08% Namibia 90.77% 84.20% 15.80%
Gambia –66.90% 54.17% 45.83% Botswana 60.85% 99.25% 0.75%
Guinea –8.05% 91.76% 8.24% Swaziland 19.34% 81.89% 18.11%
Guinea Bissau –73.45% 56.14% 43.86% Bermuda –77.39% 95.37% 4.63%
Haiti 38.80% 83.29% 16.71% Belize –30.88% 81.11% 18.89%
Kiribati 3087.73% 0.09% 99.91% St.Ch.&Nevis –87.86% 86.05% 13.95%
Lesotho 439.60% 95.88% 4.12% Bahamas 24.34% 74.32% 25.68%
Liberia –13.30% 95.04% 4.96% Dominican R. 145.37% 87.28% 12.72%
Madagascar –8.69% 84.97% 15.03% Antigua, Barbuda –71.39% 84.48% 15.52%
Malawi –3.22% 97.70% 2.30% Dominica –67.20% 59.54% 40.46%
Mali –52.74% 81.80% 18.20% Jamaica –3.21% 78.55% 21.45%
Mauritania 67.71% 95.04% 4.96% St Lucia –15.18% 39.71% 60.29%
Mozambique 709.79% 92.82% 7.18% St Vincent –33.24% 93.30% 6.70%
Niger 89.56% 89.68% 10.32% Barbados –41.24% 72.45% 27.55%
Rwanda –3.83% 85.53% 14.47% Trinidad Tobago 80.43% 72.82% 27.18%
S.Tome, Princ –70.79% 67.56% 32.44% Grenada –70.86% 19.49% 80.51%
Senegal –8.73% 86.16% 13.84% Guyana –2.31% 89.17% 10.83%
Sierra Leone 26.92% 84.30% 15.70% Surinam 42.18% 64.37% 35.63%
Solomon Is. 40.02% 20.57% 79.43% Papua N.G. 54.64% 95.48% 4.52%
Somalia 214.29% 27.06% 72.94% Nauru 254.45% 0.78% 99.22%
Sudan –43.40% 68.40% 31.60% Fiji –23.66% 95.11% 4.89%
Tanzania –6.79% 87.30% 12.70% Tonga –6.53% 16.42% 83.58%
Togo 163.78% 85.45% 14.55% Micronesia 710.47% 0.00% 100.00%
Tuvalu 9.21% 0.08% 99.92% Marshall Is. 19987.04% 0.06% 99.94%
Uganda 29.28% 90.65% 9.35% Palau –45.69% 0.00% 100.00%
Vanuatu –50.56% 48.38% 51.62%
Zambia 147.71% 86.96% 13.04%
Source: Author’s own elaboration from COMEXT.

Figure 1. Non-parametric estimate of the relationship
between new products share and export volume
Lowess smoother
1.0
0.8
0.6
Extensive
0.4
0.2
0 10000000 20000000 30000000 40000000

total2000_07
Bandwidth = 8
Source: Author’s own elaboration from COMEXT. Nigeria and South Africa excluded.
diversification. However, keeping these caveats in experiencing a decrease.6 A more interesting

mind, this measure provides an upper bound for picture emerges from the decomposition of exports
measuring export diversification at the product into existing products and new varieties. For most
level. of the ACP countries with the exception of 13
small countries,7 mainly small islands, growth in
Table 1 shows the results of decomposing export exports to the European Union during the period
growth for ACP countries from 2000 to 2007.
Clearly the experience has been very mixed, with
some countries increasing the nominal value of 6
Analyzing the impact of preferences on export growth requires
a more rigorous analysis, since high commodity prices and spe-
exports to the EU from 2000 to 2007, while others cific country shocks may play a more important role on affecting
the level of exports. However, for cases with negative nominal
growth, it does indicate that the existence of preferences as such
is not sufficient for expanding exports. In addition, not all ex-
ports to the European Union are eligible to preferential treatment
use preferences due to costs of compliance with preferential use
(Manchin, 2006). Source: Manchin, M. (2006). “Preference utili-
zation and tariff reduction in EU imports from ACP countries.”
The World Economy, 29 (9). pp. 1243-1266.
7
These countries are Cape Verde, Eritrea, Somalia, St Lucia, Gre-
nada, Nauru, Solomon Island, Tuvalu, Kiribati, Tonga, Micro-
nesia, Marshall Islands, and Palau.

2000–2007 occurred primarily in existing exports. concrete measures are required to encourage the
Regarding the importance of the shares of new emergence of new exports.
exports on total exports, Figure 1 shows a non-
parametric plot of both variables. Clearly, as we Export diversification occurs at the level of the
should expect, the importance of new products firm. Firms introduce new products for exporting,
is larger for countries with narrow export bases. and this process depends on various factors that
For 61 percent of the countries analyzed the go beyond tariff preferences. As a result, there are
There is no importance of new products is below 20 percent of some key elements that should be incorporated
total exports for the period, and when we exclude into the EPAs in order to facilitate this process
evidence that
countries with very low export volumes, 72 percent of product discovery. Among these elements, we
these new
of countries have a share of new products below 20 focus on three key issues: RoOs, services and trade
trade-related finance, and development finance.
elements by percent.8 The data, therefore, suggests that despite
the existence of preferential schemes, and the
themselves will be Rules of origin (RoOs)
introduction of EBA, ACP exports to the European
enough to foster
Union have diversified very little. RoOs have been a long standing obstacle for trade
diversification,
integration in preferential agreements and free trade
and therefore, So how can the EPAs be reformed to deliver agreements (FTAs) (see for example Brenton and
concrete export diversification? Manchin 2003, for the case of EU preferences).9 The
measures are European Union is reforming the RoOs and the new
Export diversification is a main objective of the
required to EPAs. The EPA CARIFORUM agreement states CARIFORUM EPA and different interim agreements
encourage the in Article 8 “cooperation priorities” as a priority already include some more flexible RoOs. A clear
emergence of for cooperation: “…(iv) The diversification of example is the modification of the RoOs for clothing,
new exports. CARIFORUM exports of goods and services moving from double to single transformation, and
through new investment and the development of effectively removing the requirement to source
new sectors.” It is assumed that this diversification fabric domestically. These more flexible RoOs have
will be achieved via EU/ACP economic integration, been very successful in creating new exports of
ACP/ACP integration, some changes in RoOs, clothing from SSA to the United States through
and new disciplines, for instance in services and AGOA (Frazer and Van Biesebroeck 2007; Collier
investment, as well as financial and technical and Venables 2007).10 Consequently, it would be
cooperation with the European Development Fund important to expand this flexibility to the processing
(EDF). By introducing elements going beyond of most agricultural products in order to encourage
border measures, the new agreements acknowledge export diversification.
that the experience regarding the growth of ACP
Key within enhancing RoOs is to facilitate
exports has not been, in general, very positive.
cumulation among countries. While there is
However, in our view, there is no evidence that
these new trade-related elements by themselves will
be enough to foster diversification, and therefore, 9
P. Brenton and M. Manchin (2003). “Making EU Trade Agree-
ments Work: The Role of Rules of Origin.” The World Economy,
Vol. 26(5), pp 755-769.
10
G. Frazer and J. Van Biesebroeck (2007). “Trade Growth under
8
As suggested above, our measure of diversification is an upper the African Growth and Opportunity Act.” NBER Working
bound, and suggests that for most countries any new products Papers 13222. P. Collier and A.J. Venables (2007).” Rethinking
exported after 2000 do not represent more than a 20 percent Trade Preferences: How Africa Can Diversify its Exports.” The
share, in countries with an already very narrow export base. World Economy, Vol. 30(8), pp. 1326-1345.

uncertainty over cumulation due to the large It is unclear how the EPAs via financial services
number of countries that have not signed the EPAs, liberalization can improve the situation. Foreign
allowing cumulation beyond EPAs and expanding banking penetration is already substantial in many
it to other GSP countries may provide a very ACP countries, and it is not clear how moving from
successful tool for promoting South-South trade having foreign bank subsidiaries, with own capital
and new exports, with low risk of trade deflection. requirements, to foreign branches may improve
More importantly, it would encourage firms to the availability of trade finance. On the contrary,
integrate along value chains. it may increase financial risk for ACP countries, Allowing
since it may make domestic financial regulation cumulation
Financial services and trade finance difficult to implement. While encouraging selective beyond EPAs
liberalization of financial services specialized on and expanding
The current financial crisis is hitting the availability
trade and productive sectors may be beneficial in it to other GSP
of trade finance worldwide hard (ICC 2009).11
some cases, it would be potentially more beneficial
Recent research on the impact on trade credit in countries may
to complement these measures with the creation
SSA by Humphrey (2009)12 suggests a slightly provide a very
of specific programs for trade finance within EPAs
different picture for that region. On the one hand, successful tool for
that would support production and marketing
the fact of having an underdeveloped financial promoting South-
activities in new export activities.
system implies that firms have been less affected South trade and
by the crisis, since established firms tend to obtain Development finance new exports, with
trade finance using non-banking channels such as
low risk of trade
finance from importers or other networks. On the Despite the attempts by ACP countries to link the
other hand, there are indications that lack of trade EPAs to specific development finance programs,
deflection.
credit may be a problem for new exporters and this has been kept outside EPA negotiations, and
small cooperatives. the EDF and “aid for trade” strategy remain the
main instruments and policy frameworks in this
Lack of finance is among the major constraints area. As suggested above, discovering new products
that firms face in SSA. Finance is especially and new markets is often a very costly exercise
critical for economic diversification, since there that in the absence of developed financial systems
is a large finance gap and uncertainty from the requires additional financial assistance. If the EPAs
discovery of a new product and the resultant are a process of fostering economic integration
initial investment costs to the consolidation of primarily via tariff reductions, but also via more
exports of that product. Covering this finance gap flexible RoOs, assistance on standards and better
is critical for the sustainability of the firm and service, one may ask whether it would be more
the consolidation of new exporters. Therefore, it efficient to tie development finance to specific
is imperative to increase the availability of trade opportunities arising from the EPAs.
finance in countries with large underdeveloped
financial systems. Export diversification is one of the objectives of
aid for trade programs, and specific programs
have been funded by the EDF to support market
11
ICC (2009). “Rethinking Trade Finance 2009: An ICC Global
Survey.” International Chamber of Commerce. studies and trade related infrastructure. Despite
12
J. Humphrey (2009). “Are Exporters in Africa Facing Reduced the fact that most of the attention regarding linking
Availability of Trade Finance?” Institute of Development the EPAs with development finance has focused
Studies, mimeo. Retrieved at: http://www.ids.ac.uk/index.
cfm?objectid=C369D2D2-AEE3-EB77-A7847EA6F6FBF447
on compensation from trade reform, benefits

would arise from linking development finance to agreed, it is unlikely that the EPAs can have any
EPAs’ new opportunities for diversification. Once impact for economic diversification in the short-
products have been identified, where countries run. However, in the medium and long run, export
may have capacity to produce and export, that diversification is crucial in order to face these new
have larger preference margins and most favorable challenges and create more resilient economies,
standards and RoOs as a result of the EPAs, finance and, therefore, the EPAs should be reshaped to
programs can be designed in order to push the achieve this objective. The record in terms of export
Considering the development of these new activities. This more diversification of previous EU trade agreements has
long period of integrated approach between development finance been disappointing. As a result, this article suggests
implementation of and trade opportunities from EPAs is likely to be that is important that the EPAs include concrete
the EPAs that is more effective than the abstract and less focused measures to foster diversification. In our view, key
currently agreed, programs often funded by the EDF. among these measures are: (i) more flexible RoOs
allowing for cumulation with more countries,
it is unlikely that
Conclusion (ii) selective liberalization of trade services that
the EPAs can
The current global challenges mean that policies offer finance for the productive and trade sector,
have any impact complemented with specific development finance
for economic need to be revisited. The fact that the EPAs
negotiations are still ongoing opens a window of programs for trade in new activities, and (iii)
diversification linking and integrating newly created export
opportunity to shape the agreements and include
in the short run. opportunities under the EPAs with specific
new elements that make economies more resilient
However, in the to these changes. Considering the long period development finance programs for new exports.
medium and of implementation of the EPAs that is currently
long run, export
diversification is
crucial in order
to face these
new challenges
and create
more resilient
economies, and,
therefore, the
EPAs should
be reshaped
to achieve this
objective.

Economic Partnership Agreements and Rules
of Origin: Outcomes and Challenges
Eckart Naumann1 products made up exclusively from local materials,
the allocation of origin is generally straightforward,
Rules of Origin (RoO) are a key determinant of unambiguous, and largely noncontentious. For
market access yet they are too often overlooked products assembled in multiple locations, complex
in negotiations for preferential market access. and sometimes contentious rules apply.
This article comments on the RoO underlying
the “Interim EPAs” (IEPAs) and relates to the EPAs, as a framework for preferential trading
Southern African Development Community relations between the European Union and the
(SADC)—European Union IEPA unless otherwise ACP, are no exception and require rules defining
specified.2 It describes the few changes introduced what products originate in the ACP and can thus
to the RoO compared with the previous Cotonou benefit from more favorable entry into European
preferences, relating mainly to the treatment of markets. EPAs provide ACP countries with duty-
textiles and clothing, fish and fish products, and and quota-free (DFQF) market access, which
certain agricultural products. It demonstrates that means that EPAs slightly increase the scale of duty
these changes are of questionable benefit for the and quota preferences over what was previously
countries of the African, Caribbean, and Pacific available under Cotonou, but provide only marginal
Group of States (ACP). market access benefits compared to the Generalized
System of Preferences’ (GSP’s) Everything-But-
Rules of Origin and EPAs: the devil lies in the Arms program for ACP countries belonging to
details the Least Developed Country (LDC) group. Put
RoO stipulate how much local processing must be simply, the main market access benefit of initialling
performed on materials and intermediate goods an IEPA lies in the opportunity cost of otherwise
in order for a product to be considered to be of losing Cotonou preferences and (for all but LDCs)
local origin, and thus qualify for more favorable reverting to the less favorable GSP regime. It is
market access treatment in a trade agreement. therefore important to focus on the conditions
RoO confer an economic nationality on a product, attached to this DFQF benefit—and amendments to
which differs from a purely geographical allocation the RoO—in order to assess changes and determine
of origin relating to the country of final shipment. whether EPAs add value to the previous access of
RoO, therefore, ensure that a predetermined level ACP exporters into the European Union.
of local value-addition has taken place. For raw The European Union uses a RoO framework that is
materials extracted in the exporting country, or relatively consistent across all its preferential trade
regimes. This, in effect, limited the scope of changes
to the rules during the initial EPA negotiating
1
Eckart Naumann is an economist and associate at TRALAC,
the Trade Law Centre for Southern Africa. phase. Local origin (and hence qualification for
2
Note: The RoO found in the different IEPAs are largely the preferences) is based on the requirement that
same. When Cotonou expired the EC published a set of regula- goods must be wholly obtained or ‘substantially
tions (EU Council Regulation 1528/2007) to ensure interim
market access to IEPA signatories until such time that the provi- transformed’ in the preference-receiving country:
sions set out in the IEPAs were formally implemented both on
the part of the European Union and ACP member states. This
Regulation, which defines market access only for ACP countries
that initialed an IEPA, contains RoO that are largely the same as
those contained in the (reciprocal) IEPA. the IEPAs also contain
a provision that RoO are to be revisited (re-negotiated) within a
certain number of years.

1. T
he “wholly obtained” condition is met by determination of origin in certain industry sectors,
raw materials extracted, agricultural products have subsequently held back the formulation of a
grown and harvested and livestock born and clear policy and negotiating strategy on this issue.
raised in the exporting country, fish caught Despite their criticism of the existing RoO regime,
within the country’s territorial waters, and ACP countries were equally unable to articulate
any finished products made exclusively from a unified position on the reform of RoO during
local materials; the EPA negotiations and instead focused only on
Despite their negotiating specific changes in certain sectors.
2. S ubstantial transformation—a necessary
criticism of the
requirement when imported materials are Textiles and clothing
existing RoO
used—is determined through compliance
regime, ACP with product-specific rules, using three
The textile and clothing sector RoO have long
countries were been considered sensitive for both the European
different methodologies on a stand-alone or
equally unable Union and ACP. Since the inception of the EU
combination basis. These are:
to articulate a GSP, preferences in these sectors have been
unified position a. the so-called value-added test (normally granted only where exporters could demonstrate
on the reform of expressed as a limitation on the value of that a substantial portion of production along
imported materials), the value chain was undertaken locally. In the
RoO during the
context of clothing, the requirement over the past
EPA negotiations b. the tariff heading jump (where the pre four decades stipulated the use of locally-made
and instead and post-processed products or materials fabric, while for fabric, it demanded the use of
focused only can be classified within a different tariff locally-spun yarn. Put differently, two distinct
on negotiating heading), and, stages of local transformation were required. This
specific changes requirement ignores developments that have taken
c. a specific technical requirement.
in certain sectors. place in the global textile-clothing pipeline since
At this point it may be worth reflecting on earlier then and has resulted in the majority of ACP states
developments with respect to EU RoO, which have being totally unable to fulfil the required EU RoO
long been criticized for being overly complex. and still remain internationally competitive.
A 2003 Green Paper on the future of RoO in
Under the IEPA, there has been a shift to ‘one-step
preferential trade arrangements, published by the
transformation’ for both textiles and clothing and
European Commission, undertook an “overall
this probably represents the single most important
assessment of current problems relating to the
improvement of the EU-ACP RoO. However, this
determination of origin,” and reviewed “available
positive outcome was accompanied by two other
options.” While the Paper focused mostly on issues
changes that are more restrictive:
of control rather than substance with regard to
changes to the RoO, subsequent working papers • textiles and clothing are now excluded from the
by the European Commission acknowledged value-tolerance (or de minimis) provisions which
shortcomings of the current regime and signaled grant producers a 15 percent exemption by value
a proposed change to the EU RoO into a system from the normal RoO requirements; and,
based on the value-addition principle. Deep
divisions among European Union member states • the sector has also been excluded from the
on these proposals, also with respect to the outward processing arrangements otherwise
provided in the provisions on territoriality.

The combined result, in Southern Africa, for automatically be considered to be of local origin,
instance, is that a Lesotho-based producer would considering the sole economic rights that countries
be prevented from outsourcing minor operations enjoy over this area. With respect to this issue,
(for example embroidery or dying) to a contractor Namibia had in fact initialed the IEPA under some
based in neighboring South Africa without being protest, maintaining its full economic rights over its
disqualified under the rules. While this specific EEZ (in the context of RoO) while also referring to
example is based on a real-world situation, it also a number of other unresolved issues.
demonstrates that the few RoO changes that have In the fish and fish
been undertaken so far do little to encourage Under the IEPA RoO, fish and fish products caught
products sector,
greater regional economic integration, which beyond the 12-mile limit are only considered as
the requirements
after all remains a stated policy objective of these originating when a number of conditions have
been met. These relate to a vessel’s (country of
that confer local
agreements. In fact, these restrictions, and the origin have been
onerous administrative requirements that continue origin) registration, the flag under which it sails,
and complex ownership criteria extended to both slightly relaxed
to underlie the RoO do little to foster regional
private and legal persons. The only significant in comparison
diversification of production; for most exporters
under EU preferences, it remains an easier task change in this respect relates to the nationality of with those under
to source non-originating materials from abroad the crew. Under Cotonou, at least 50 percent of the Cotonou
than to partner with regional stakeholders in the the crew, captain and master included, had to be agreement,
production value chain. nationals either of the ACP state or the EU. This but overall
requirement has now been removed. they remain
Fish and fish products Other adjustments to the rules include changes
complicated and
In the fish and fish products sector, the to the requirements relating to leasing. While restrictive.
requirements that confer local origin have been for all practical purposes it remains virtually
slightly relaxed in comparison with those under impossible for an ACP EPA state to lease foreign
the Cotonou agreement, but overall they remain registered vessels (for example in the absence of
complicated and restrictive. a domestic commercial fishing fleet), the rules
have been amended from previously requiring an
The new EU RoO in the IEPAs continue to consider offer to the European Union (which must have
fish caught in inland waters (rivers and lakes) as been rejected) to negotiate a fisheries agreement,
well as within a country’s 12-mile territorial zone to offering it the right of first refusal of a leasing
as originating in the exporting country, which or chartering agreement. The revised conditions
means that landlocked ACP countries whose on this issue remain relatively vague and do not
fishing industry is limited to inland waters will provide sufficient certainty to governments and
not be constrained by RoO and would be mainly commercial operators alike. The leasing provisions
concerned with other market access hindrances, also continue to be limited to fish caught within the
such as Sanitary and Phytosanitary (SPS) exporting country’s EEZ, which effectively prevents
standards. For ACP countries with a significant operators from targeting some of the commercially
sea-fishing industry, this 12-mile limitation remains valuable yet highly migratory fish species that
contentious, with many countries arguing that fish might move in and out of this area.
caught within the 200 mile exclusive economic zone
(EEZ) (subject to any local licensing regulations There has also been another change to the
that might be in place) and landed locally should treatment of fish with the introduction of a 15

percent product-specific allowance in some means of a derogation Annexure. Products include
categories concerning the use of non-originating dairy produce, certain plant material, wheat flour,
fish material (this might involve imported fish or animal and vegetable fats, bread and preparations of
fish caught by vessels not complying with the list flour, pasta, and other categories. These alternative
of conditions). Since Cotonou already contained rules are generally very product-specific and often
a general tolerance provision—incidentally also permit either a slightly higher imported material
15 percent—without any exclusions (unlike other allowance or provide a different methodology as
EU agreements, which sometimes exclude textiles a means to determine origin (for example a tariff
and fish from this provision), the significance of jump requirement instead of a value-based test).
this change to the rules is questionable. Many ACP Whether the RoO contained in these derogations
countries had also sought less restrictive RoO for are significantly more favorable for ACP exporters
fish products of Chapter 16 (e.g., canned tuna), than the original rules is not clear and is likely
arguing that the processing and canning should on to depend on the production setup of individual
its own be a sufficiently value-adding activity to producers and exporters.
confer origin, while such a provision would also be
useful at times when highly migratory fish species Cross-cutting changes: the case of
were not available “locally.” On this aspect in cumulation
particular the European Union has so far remained New rules on cumulation under the IEPA are
relatively intransigent with respect to most ACP of considerable concern to ACP countries. The
regions, even though many countries—particularly “cumulation principle” considers parties to a
in Africa—have significant fish processing preferential trade agreement—bound together by
industries. The one exception to this rule pertains near-identical market access provisions to a third
to the Pacific ACP group, which has been granted a country—as being jointly eligible to meet the
rule-change, subject to administrative requirements RoO requirements. Two or more countries may
being fulfilled. then each fulfill a part of the rules, depending on
the availability of supply or individual areas of
A notable absence in IEPAs is the tuna derogation,
competitiveness. Under Cotonou, ACP states were
which under Cotonou exempted a specific annual
considered a single territory for RoO purposes and
quantity of tuna loins and canned tuna from the
were eligible for full cumulation. This meant that
strict origin requirements otherwise applicable to
an ACP country could use inputs produced in any
exports from the ACP. Although some country-
other ACP country and it would be considered
specific temporary derogations have been granted
originating. Cumulation therefore has been, and
subsequent to the expiry of Cotonou—notably
remains, an issue of great importance and concern
to certain East African countries—these were
to the ACP. Under the IEPA, the new market
essentially effected outside of the EPA process
access regulations permit cumulation only between
and through a special EC framework, and valid
countries that initialled the agreement, effectively
only for a year. The changes to the RoO in no way
leaving out more than half of the former Cotonou
compensate for this loss in ACP privilege.
beneficiaries and in some instances breaking up
existing commercial trade arrangements. The
Agricultural products
GSP also offers no such cumulation (in fact,
There are some RoO changes for certain processed the only cumulation relates to four pre-defined
agricultural products in the IEPA, implemented by regions, none of which are least developed ACP

countries). Only once an ACP state has signed and chains, thereby acting as a stimulus to regional
implemented the IEPA on its part may it cumulate economic integration. In essence, the current
production with all other ACP states. situation—given the fragmented trade preference
relationship between the European Union and ACP
ACP countries without an IEPA countries—represents a step back from Cotonou.
At present, more than half the ACP countries There is little technical reason why cumulation
previously eligible for preferences under the cannot be extended much further than has been the
Cotonou Agreement have reverted to GSP market case even under Cotonou—at least to include other At present, more
access, having failed to initial or conclude an EU preferential trade partners for trade in goods than half the
IEPA or full EPA respectively. This outcome is where tariffs have been abolished. Added to this is ACP countries
significantly less favorable than both Cotonou and the need for simpler administrative requirements, previously eligible
IEPA provisions. Although the EBA offers DFQF which to this day continue to undermine for preferences
market access, it is not open to all of the ACP cumulation.
under the Cotonou
countries, some having had to revert to the full The architecture and substance of future ACP-EU Agreement have
GSP. Aside from the less favorable tariff regime, RoO remains uncertain as IEPAs also contain an reverted to GSP
GSP RoO are also considerably less favorable than undertaking that the rules should be reviewed market access,
the IEPA (or the interim regulation), in some within a specified period of time (in the case of having failed to
instances because of stricter product-specific SADC within three years of entry into force of the initial or conclude
requirements or resulting from the absence of IEPA). This may of course be considered either a
cumulation provisions.
an IEPA or full EPA
threat or an opportunity. It is unclear whether such respectively.
negotiations would begin only once each member
The way forward state has implemented the provisions or whether
While the current situation with respect to RoO these should take place on a one-on-one basis,
may technically be temporary, the status quo which is unlikely. Whether individual or groups
may yet remain unchanged for some time given of ACP countries will be able to obtain significant
the slow pace of implementation of the various concessions beyond the limited changes that have
interim arrangements, and lack of progress toward taken place thus far remains questionable, as the
concluding a full bilateral agreement. Purely from European Union through the Commission, has
the perspective of market access, there is in fact often expressed its desire—and demonstrated this
little incentive for the ACP to implement the IEPA, in practice—to maintain a level of overall harmony
as the EC Market Access Regulations essentially across its preferential RoO regime and will thus
provide the same preferences to countries that likely continue to be guided by this objective,
initialled an agreement as is the case once the irrespective of the few changes that have already
agreement enters into force, the key difference taken place in the context of EPA negotiations.
being that the interim measures remain From the EU’s perspective, this approach is perhaps
non-reciprocal. understandable since it allows it to maintain a
fairly consistent external trade policy regime while
A further issue that needs to be addressed pertains benefiting its customs apparatus with relatively
to cumulation. Aside from the product-specific uniform rules and regulations. Equally, however,
transformation requirements contained in the this policy effectively undermines the European
RoO, cumulation can play an important part in Union and ACP’s ability to pursue a differentiated
assisting countries to develop regional supply

and more meaningful outcome more suitable to the systems in ACP countries that go well beyond
prevailing economic realities within the ACP states. current norms, particularly with respect to being
able to demonstrate compliance with RoO to
There is also confusion over earlier EU proposals ACP and European customs officials. The burden
to embrace a value-added based system in of proof and potential penalties will likewise
determining origin. Whether this would represent remain a burden on the trade process. The value-
an improvement over the current system, especially added based system’s vulnerability to exchange
for exporters in less developed countries, is rate fluctuations, international price movements
uncertain. What is clear is that a value-added based (especially with regard to commodity inputs) and
system requires accounting and administrative other exogenous variables is also well-documented
and adds to the uncertainty that ACP states face
with regard to future preferential market access to
the European Union.

O ff i ces
Washington • Berlin • Bratislava • Paris
Brussels • Belgrade • Ankara • Bucharest
www.gmfus.org

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Economic Policy Paper Series 09

Updating Economic Partnership Agreements

The German Marshall Fund of the United States

GMF Paper Series

About GMF’s Economic Policy Program

Updating Economic Partnership Agreements: An Overview

Part I. The imperative to update the EPAs

Updating EPAs: Rising to the Challenge

Part II. A fresh start for the negotiating process

Economic Partnership Agreements: To be or not to be?

Updating Economic Partnership Agreements to Today’s Global Challenges i

Part III. Evaluating and updating the contents of the EPAs

Economic Partnership Agreements: The Symbol Versus the Reality

Updating Economic Partnership Agreements to Today’s Global Challenges ii

2 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 3

4 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 5

6 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 7

8 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 9

10 The German Marshall Fund of the United States

Much of the attention in the EPA debate has 6

Updating Economic Partnership Agreements to Today’s Global Challenges 11

12 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 13

14 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 15

16 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 17

18 The German Marshall Fund of the United States

While European and U.S. trade and development

Updating Economic Partnership Agreements to Today’s Global Challenges 19

20 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 21

22 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 23

24 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 25

26 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 27

Perhaps surprisingly, given the vociferous

28 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 29

A second challenge for the CARIFORUM-EC

30 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 31

32 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 33

34 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 35

36 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 37

38 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 39

40 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 41

42 The German Marshall Fund of the United States

Updating Economic Partnership Agreements to Today’s Global Challenges 43

44 The German Marshall Fund of the United States

• Well-defined trade defense instruments.

Updating Economic Partnership Agreements to Today’s Global Challenges 45