By:
H.E Benjamin William Mkapa at the EALA,
13th February 2012,
Arusha
I wish at the outset to thank the organizers of this workshop for inviting the South Center to make its presentation. I am here as the Center’s Chairman of the Board. I have no political or governmental authority. And I hasten to affirm that I have no statutory prescriptions to give.
Some of you may know something about the Center. But in order to put my intervention in context, it is necessary that I outline the origins and mandate of the South Center. The Center originated from the South Commission, founded in 1987 under the Chairmanship of Tanzania’s founding President Mwalimu Julius Nyerere, and comprising such eminent personalities as Mathir Mohammed, Manmohan Singh, Enrique Iglesias, Michael Norman Manley, Shjridath Raphal, Carlos Andrez Parez, Abdus Salam and a dozen other personalities from the South.
They were moved by the fact that “most of the people of the North are affluent, most of the people of the South are poor; while the economies of the North are generally strong and resilient, those of the South are mostly weak and defenseless; while the countries in the North are, by and large, in control of their destinies, those of the South are very vulnerable to external factors and lacking in functional sovereignty.”
Given this situation, they spelled out in their Report the challenges which the South would have to solve, and made recommendations and proposals together with strategies appropriate for and conducive to development in the countries of the South. For the purpose of your discussions it may be useful to remind ourselves what their Report identified as the dominant challenges. They stated:
The challenge to the South is to reaffirm, in words and action, that the purpose of development is the promotion of the well-being of its people, with economic growth directed at satisfying their needs and fulfilling their purposes.
The challenge to the South is to strengthen democratic institutions so that its people may live in freedom and chart their own path to development in harmony with their culture and values.
The challenge to the South is to use its own resources more effectively to accelerate its development, giving priority to meeting the basic needs of its people and freeing them from poverty, disease, ignorance, and fear.
The challenge to the South is to enable its people to realize the full potential of their talents and creativity, and to develop self-confidence, and to mobilize their contribution to the well-being and progress of their societies.
The challenge to the South is to enlarge its capacity to benefit from advances in science and technology in securing a better life for its people.
The challenge to the South is to pursue its development with due concern for the protection of the natural environment so that it may sustain the present and future generations.
The challenge to the South is to organize itself effectively and to seek strength through wide-ranging joint undertakings of South-South co-operation which benefit from complementary resources and increase collective self-reliance.
The challenge to the South is to use its unity and solidarity in efforts to make the world a more just and more secure home for all its people, through a restructuring of global relationships that responds to the growing intimations of the interdependence of the world’s nations and people: members of one human family living in one world.
These challenges are formidable. But they must be met.
To ensure that their Report does gather dust and mildew in libraries and offices, the deemed it wise to establish a South Center which would follow up the work of the Commission. It is an intergovernmental organization which acts as think tank of the South to monitor and give advice when sought on these challenges, strategies and actual negotiations for a changing, globalizing and new economic and trading system. Therein lies our interest in the EPA and WTO negotiations.
I will now turn to the topic of multilateral and bilateral trade agreements with EAC countries as my focal point
Any bilateral or multilateral trade agreement must be of service to the development of the East African Community. These agreements cannot be seen as ends in themselves, but instruments for development. It is in this context that each set of negotiations must be closely examined.
However, first and foremost, we need to examine what exactly is the pathway to development for East Africa?
We live now in a fast changing world. The paradigm of globalization and free trade is being questioned. It is now being asked if ‘state capitalism’ might be the next model of the day – capitalism with the strong hand of the state. As this debate continues, the reality is that our major trading partners – the US and EU for example – have markets that are stagnant or they may even be shrinking. On the other hand, our African market is growing. We also have the growing markets of the emerging developing economies.
Trade agreements facilitate exports. Whilst exports can be a very important instrument for our overall development strategy, it is but one pillar, and not even the main pillar. The main pillar, if we are serious about development must be to increase domestic production capacities, diversification, industrialization and increasing agricultural production. There is no other alternative in order to achieve broad-based development, and most importantly, employment and food security. We cannot continue to export a narrow range of products and import a broad range of finished goods on our way to development. The hard work of industrialization and food production must be done.
The question we must therefore ask of trade agreements is this: Do they help us increase domestic production capacities? Encourage diversification and industrialization? Increase food security? Provide quality employment? Will these trade agreements support our move from being largely raw natural resource exporters, towards being producers of more sophisticated products? The answers to these questions will point the direction for what we do with trade agreements, in particular, the EAC EPA.
Change in Market Access Regulation 1528/2007
In September 2011, the European Commission has proposed to remove 16 African countries from the EU Market Access Regulation 1528/2007. At the end of 2007, this regulation allowed those African countries which had initialed or signed an EPA to enjoy duty-free access to the EU market, as they continued to move towards signatory and ratification. This regulation gave the necessary cover for our countries as we continue to negotiate the difficult issues with the EU – for example – the range of contentious issues (export taxes; level of liberalization; development assistance; MFN clause etc).
Even as these negotiations have not been concluded by both sides, the EU is now saying that if Ghana, Kenya Namibia (which have initialed but not signed) and Botswana, Cameroon, Cote d’Ivoire, Swaziland and Zimbabwe (which have signed but not yet ratified) have not ratified the EPAs by 1 January 2014, they will be dropped from the list of countries receiving EPA treatment.
EAC Options
We are therefore confronting, if you like, ‘the moment of truth’. There are several options:
1) Kenya signs the EPA alone, so that it can retain its preferences in flowers and fish. This would destroy the EAC customs union. The LDCs would not be able to open up their markets to Kenya if they do not want EU goods to flood their internal markets.
2) The entire EAC region signs the EPA – LDCs in the WTO which do not have to take tariff cuts in WTO trade liberalization rounds will have to cut their tariffs to zero for at least 80% of trade with the EU. This will have deep ramifications on the ability of the region to industrialize. Given that the EU remains a major food exporter and still subsidizes its agricultural sector to the tune of 60 billion Euros a year, (despite excluding some agricultural tariff lines from liberalization) this could shrink the size of the local markets that our small farmers sell on.
3) Or should the entire region not sign the EPA? Kenya would lose its preferences on flowers. But how important is this sector, in comparison to opening up the EAC market to EU and the real threat of not being able to industrialize in the future? Are there alternatives that could be considered (So that such a ‘crisis’ situation could be used instead as a turning point? As the Chinese observe: Every crisis presents also opportunity.
What is Contentious about the ‘Contentious Issues’
Those of you negotiating this know the details of these contentious issues better than I. What I do know is that issues include
· The extent of liberalization the EU is asking for,
· Export taxes – which I will talk more about in a while,
· MFN clause,
· Agricultural subsidies, and the
· The Singapore issues,
· Among the most contentious.
From what I hear, despite pronouncements of flexibility by the EU, they have not been very ‘flexible’ and our concerns remain. The AUC and all the Regional Economic Communities (RECs), including the EAC Secretariat, came up with a Common Position paper at the end of 2010. The risks for Africa include:
· Effect on industrial development
· Effect on food security and rural livelihoods
· Effect on regional trade and integration
· Effect on Tariff revenue
· Effect on governments’ support of local enterprises and industries (if services, investment and other Singapore issues are incorporated eventually into the EPA).
I will not go into the details on these problems. I have done so on other occasions. However, I would like us to take a look at the interest of our trading partner, the EU. What is the EU’s interest in the EPA? The Tshi people of Ghana have a saying: If there had been no poverty in Europe, the white man would not have come and spread his clothes in Africa.
Is this EPA being negotiated because they deeply care about African and EAC regional integration and development? Or are they being primarily driven by their own economic interests?
EU’s Raw Materials Initiative
The EU launched its raw materials initiative in 2008. According to the Communication from the Commission and other European bodies in Feb 2011, ‘One of (the initiative’s) main pillars is to ensure a level playing field in access to resources in third countries.’ The EC even says that an element of this overall raw materials strategy is ‘the need for a ‘raw materials diplomacy’ anchored in wider policies towards third countries such as promoting human rights, good governance...’ etc.
The Commission identifies 14 critical raw materials. These are elements which ‘display a particularly high risk of supply shortage in the next 10 years and which are particularly important for the value chain. The supply risk is linked to the concentration of production in a handful of countries’.
In terms of being the top three sources of imports into EU (2007, or 2006), East Africa shows up twice on this list of 14 – Cobalt for Tanzania, where as the 3rd largest source for the EU, it makes up 5% of EU imports (DRC is the no. 1 source). Rwanda is also listed as the 3rd largest producer of Tantalum.
For Europe, ‘access to and affordability of mineral raw materials are crucial for the sound functioning of the EU's economy. Sectors such as construction, chemicals, automotive, aerospace, machinery and equipment sectors which provide a total value added of € 1 324 billion and employment for some 30 million people all depend on access to raw materials’.
Also according to the Commission’s communication in 2008, ‘The EU is highly dependent on imports of “high-tech” metals such as cobalt, platinum, rare earths, and titanium. Though often needed only in tiny quantities, these metals are increasingly essential to the development of technologically sophisticated products’.
A look at the raw materials documents also reveals that the EU is threatened by the appetite of the emerging economies in absorbing raw materials and these countries closer links to Africa. There is fear that Europe will somehow be marginalised. The Commission 2011 document notes that
‘The years 2002 to 2008 were marked by a major shift in demand for raw materials, driven by strong global economic growth, particularly in emerging countries such as China. This increase in demand will be reinforced by the further rapid industrialisation and urbanisation in countries such as China, India, and Brazil’.
The Commission has also noted in 2008 that
‘Emerging countries are also pursuing strategies towards resource-rich countries with the apparent aim of securing privileged access to raw materials. For example, China and India have substantially increased their economic engagement with Africa in recent years; in the case of China this includes major infrastructure projects and active involvement in exploration and extraction activities in countries such as Zambia (copper), Democratic Republic of Congo (copper, cobalt), South Africa (iron ore), Zimbabwe (platinum) and Gabon, Equatorial Guinea and Cameroon (timber).
With these concerns, the EU says that ‘Access to primary and secondary raw materials should become a priority in EU trade and regulatory policy. Trade and regulatory policy can improve access to raw materials in the following ways.
– The EU should promote new rules and agreements on sustainable access to raw materials where necessary, and ensure compliance with international commitments at multilateral and at bilateral level, including In this WTO accession negotiations, Free Trade Agreements, regulatory dialogue and non-preferential agreements. In this context the Commission will reinforce its work towards achieving stronger disciplines on export restrictions and improved regulation against subsidies at WTO level.
–The EU will take vigorous action to challenge measures which violate WTO or bilateral rules, using all mechanisms and instruments available, including enforcement through the use of dispute settlement. More generally, the EU will act against the protectionist use of export restrictions by third countries. In determining its actions, the EU will take as priority those export restrictions that pose the greatest problems for EU user industries or give their domestic downstream industries an unfair competitive advantage on international markets’
From the above, we can clearly see the EU’s interests – in East Africa, and also more broadly in Sub-Saharan Africa. It is no wonder that despite the issue of export taxes being extremely controversial in all the EPA negotiations, the EU has not changed its position that no new such negotiations should be introduced or existing ones increased. There may be narrow exceptions, but our policy space will be curbed.
As you all know, export taxes are very important for encouraging our industries to diversify.
Access to raw materials is also closely linked to the Services agenda. The EU continues to be interested in prying open our services markets. In the Cariforum EPA, Caribbean countries were asked for 65-75% liberalization in their services sectors and subsectors. These investment liberalization commitments allow EU companies to get easier and sustained access to these raw materials.
Costs and Benefits
Some work by the South Centre shows that for many of our countries, the tariff revenue losses are significant, and could even be larger than the margin of preferences foregone if we do not sign the EPA.
Tariff revenue losses per year, based on recent trade figures, would be to the tune of EUR 138.4 million. In contrast import duties on all Kenyan exports under GSP amount to EUR 43.8 million,according to the Commission proposal to remove countries from the Market Access Regulation 1528/2007. This would even be lower if Kenya, just as Cape Verde, would apply for GSP+. (In that case, only a few products would be charged duties, mainly pineapple juice).
That is, for Kenya, only just the tariff revenue losses are larger than the additional duties that Kenyan products would face if they lose their preferences (eg. flowers; and fish). The calculations are indicative, but this is well-worth sitting up and taking note of. As we say in Swahili: Careful is a good way to go.
EPA and WTO Compatibility
Mostly, when this issue is brought up, we think of how much liberalization we need to have within the EPA to make it WTO compatible. Worse still, we define the WTO’s Article XXIV on ‘Substantially all trade’ to mean what the EU says – at least 80% of tariff lines or trade should be brought to zero.
What about defining WTO compatibility from an EAC viewpoint? What would this mean? From our perspective, this would mean embedding the WTO flexibilities EAC countries enjoy within the EPA. This will mean several things:
There should be no Singapore issues – they are not in the WTO.
There should be no services commitments by Africa or EAC beyond what they do at WTO – services liberalization is completely voluntary in the WTO. Countries liberalise as much or little as they wish, at their own timing.
There must not be any TRIPS plus commitments
On goods what is not required in WTO (i.e. export taxes,
MFN clause, standstill clause etc) should not be required in the EPA.
MFN clause, standstill clause etc) should not be required in the EPA.
Furthermore, on goods, LDCs and Kenya and other African countries in the EPA negotiations should not do more than what Doha requires. In the Doha negotiations, LDCs need not liberalise, and Kenya has many flexibilities.
Alternatives for the EAC
Making the EPA compatible to WTO from our perspective may or may not be well received by the EU. If it is not well received, nevertheless, we need to firmly stand our ground and approach the negotiations from having complete clarity about what is in our interests.
If we decide to drop options 1 (Kenya signing the EPA alone) and option 2 (EAC collectively signs the EPA), do we have alternatives?
Since about 2000, the intra-African market has surpassed the EU market as the biggest export market for EAC countries. EAC’s total exports to the EU amounted to USD 2.5 billion 2008, whilst exports to Africa came to about USD 3.2 billion.
When one looks at EAC’s manufactured exports, the importance of the intra-African market becomes even more apparent. In value terms, manufactured exports amount to USD 164 million to the EU compared to USD 1.8 billion to the rest of Africa (UNCTADstats for 2009 trade). It is therefore clear that for our EAC countries to diversify and industrialise, this internal EAC and African market provides the best opportunity. In contrast, the bulk of our exports to the EU are primary commodities with nil or low levels of processing eg. minerals, horticulture, fish etc.
Comparing EAC Exports of Different Categories of Products to EU and to Africa
Study by the Center shows that the EAC already has a ‘hubs and spokes’ trade relation to the EU. Only 6% of our total exports to the EU are in the form of manufactured processed goods whilst 94% of exports are primary products.
What these statistics show is that this is not in fact a second best option, but the best option for EAC countries. If we sign the EPA (and other sub-regions do so too), we would be giving up the better option we have before us – which allows for real industrialization - rather than this continuation of primary product exports.
AUC Trade Ministers’ Trade Preferences Proposal
At the Trade Ministers’ meeting in Accra, December 2011, ministers adopted an AUC trade preferences proposal ‘Proposal for a Common and Enhanced Trade Preference System for Least Developed Countries (LDCs) and Low Income Countries (LICs) It calls upon international partners to extend duty free quota free treatment to LDCs and LDC regions in order to support and promote regional integration. (This approach is fully WTO-compatible.) ‘LDC regions’ are regions where the majority of members are LDCs.
Applied to the EU, this would imply the EU providing the Everything But Arms (EBA) scheme to EAC and other sub-Saharan African regions. This proposal now needs all our collective support.
The WTO Negotiations
In the interest of time, my comments here will be relatively brief:
1) The Doha Round negotiations were conceived not with development in mind, but with the market access interests of developed countries in mind. This explains why, in the 10 years of negotiations, the large majority of progress has been made in the areas of market access.
2) Right now, our developed country partners think that ‘the world has changed’. They now want emerging economies to take the same level of commitments as they do. They do not therefore want the Doha Round concluded based on the existing mandate (which provides developing countries some little flexibilities). For us, we must keep the unity between developing countries. If India and China are treated as developed countries, it will not be long before the non-LDCs in Africa are also treated as developed countries. Some of us have higher GDPs than China and India.
3) We hear that now the developed countries want to get rid of the Doha Round, harvest only some issues of interest to them (and avoid the hard issues such as agricultural subsidies) and bring in new issues, investment, competition, climate change.
The best strategy for the time being in the WTO, in order to avoid the introduction of investment and competition, is to continue emphasizing that the Doha Round must be completed before these Singapore issues can even be considered.
(There is a clear Decision by the General Council on 1 August 2004 on these issues (investment, competition and government procurement), that ‘no work towards negotiations on any of these issues will take place within the WTO during the Doha Round.’ (Para 1g, WT/L/579, 1 Aug 2004)).
4) If there are efforts to pursue a faster track of negotiations on some issues as opposed to others, this faster track must prioritize development issues in the Doha Round – Special and Differential Treatment and Implementation issues (rebalancing the Uruguay Round imbalances).
5) In the medium to longer term, we need to bring our collective wisdom to the issue of how we can shape the multilateral trading system, so that EAC and Africa’s industrialization and food security efforts can be enhanced. The rules of the WTO must be scrutinized to support these goals. But we must provide the push together; as the Baganda say: What is looked for by many will have a finder. And an unpleasant matter should be seen from an unpleasant viewpoint.
Conclusion
I hope that my intervention has been sufficiently open-ended to allow for robust exchanges and implementable recommendations to the ongoing discussions concerning EPAs, FTAs, Regional Integration processes, bilateral and plurilateral agreements. I am compelled to conclude with the final observation of the South Commission in their Report:
“In mobilizing all its latent power, the South has first to ensure that its economies are self-fueling and that their growth is not simply a by-product of growth in the North. The South needs to expand its presence in Northern markets, for which purpose it needs improved access and the role-back of protectionism, which is now often directed specifically at products of considerable interest to the South in terms of export. But the emerging development patterns of the North clearly suggest that the Northern locomotive economies will not pull the train of Southern economies at a pace that will satisfy its passengers – the people of the South. The locomotive power has to be generated to the maximum extent possible within the economies of the South themselves.”
As Mwalimu would often say: It can be done; Play your part!
Thank you for your attention.
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