FALL-OUT FROM EPA NEGOTIATIONS Africa on the brink of disintegration by Tetteh Hormeku: African Trade Agenda, Third World Network, Volume 3 Number 1 31 May 2009 Pressures in the negotiations for the Economic Partnership Agreements (EPAs) with the European Union have, over the past two weeks, pushed two more regional economic groupings in Africa to the brink of disintegration. This adds to the two other regions which have already been under stress since the beginning of 2008. On June 4 in Brussels, the EU signed an interim economic partnership agreement with Botswana, Lesotho, Mozambique and Swaziland against the wishes of Angola, Namibia, and South Africa. This has made imminent an acrimonious break-up of Africa's oldest customs union, the Southern African Customs Union (SACU). Such an eventuality also raises doubts over the merger, scheduled for next year, of SACU and the Common Market of Eastern and Southern Africa (COMESA) into a single customs union under the Southern African Development Community (SADC). On its part, the Economic Community of West African States (ECOWAS) is facing the unwelcome prospect of another key member country, Ghana, giving in to pressure to go it alone in a partnership agreement with the European Union. The sub-regional grouping concluded in May that disagreements between it and the EU meant that the June deadline for concluding its comprehensive EPA could not be met. After the signature of a similar stand-alone agreement between Cote d'Ivoire and the EU, a decision by Ghana to sign its own EPA with the EU would undermine the region's attempt to have a common agreement with the European Union which meets the differential development levels and needs of countries in the region. As the ECOWAS Commission President, Ibn Chambas warns, West Africa would feel the pain if they fail to have a common agreement. "Our region will have different trade agreements with the European Union that will adversely affect our regional integration process", he stated. Meanwhile, the decision on June 8 by the Common Market of Eastern and Southern Africa (COMESA) to adopt a common external tariff is set to run the gauntlet of the contradictions generated by the grouplets into which the community has split around the EPAs. Each of the two grouplets is working out its own tariff arrangement with the EU. Experts believe that this situation will lead to the same tensions among member countries over tariff revenue which have now exploded in SACU (see below) And in Central Africa, resentment still persists over Cameroon's failed bid to foist its bilateral interim EPA with the EU on the rest of the region. In a word, in all the regional economic communities which are meant to serve as the building blocks of Africa's economic integration, the corrosive potential of the EPAs is coming into effect at a frightening speed. All this is a far cry from the high-minded declarations with which all parties opened the negotiations in 2000 - with claims that the EPAs would be instruments for deepening Africa's regional integration. Reacting to the signature of the interim agreement by the four Southern African countries on June 4, South Africa declared that it would tighten its border controls with Botswana, Lesotho and Swaziland (who, together with South Africa and Namibia, form SACU). The country also raised the need for reassessing the distribution among the member countries of revenues from the customs revenue pool. South Africa's actions are legally supported under SACU rules which prohibit members from striking new trade deals with third parties without the consent of the other members. South African Trade Minister Rob Davis said that tightening border controls was necessary to prevent European goods enjoying easier rules of origin or lower tariff levels in the signatory countries from entering South Africa as a result of the SACU regime. The Minister was particularly concerned with the textile sector, which the country is keen to protect. Here changes in rules of origin could, in the view of the Minster, lead to European products entering the South African market without undergoing any more transformation than the addition of buttons or change of labels. "We would not be allowing them to come into the SA market, and if that means that we have to introduce border controls issues with Botswana, Lesotho and Swaziland and they have to do likewise, then so be it," the Minister is reported to have said. Review of the distribution of the customs revenue would be necessary because the countries which have signed the interim agreement will be letting goods into the community at a lower customs rate, thereby reducing their contribution to the customs revenue pool. This will logically affect their share of the pool. Reduction of the revenue could devastate the treasuries of the countries concerned. Lesotho earns about 60% of its state revenue through the SACU revenue-sharing arrangement; while Swaziland earns as high as 70%. Compensating for such loss through taxation could lead to a doubling of VAT rates and the tripling of corporate taxes. Even relatively affluent Botswana earns about a third of revenue from customs transfers. Diamond on which the country heavily depends is also hit by the global crisis. On Wednesday June 3, the African Development Bank extended its biggest ever loan facility, of $1.5 billion loan to Botswana to help the country cope with the financial crisis. The country may still be in discussion with the World Bank for similar support. Clearly for these countries, the cost of the signing the IEPAs is getting to crisis proportions. The other members of SACU (South Africa and Namibia), together with Angola (the other member of the Southern African configuration negotiating EPA with the EU), refused to sign the interim agreement with the European Union because the EU was unwilling to integrate a memorandum of understanding reached by the parties as a legally binding part of the agreement. Though by a different route, ECOWAS seems headed in the same direction as SACU. The ECOWAS region as a whole is locked in disagreement with the EU over fundamental elements of the EPA. Key among these differences is the percentage of European goods that the region is prepared to allow in duty free entry, as well as the period over which such liberalisation should take place. While the EU insists on 80% being allowed in duty-free entry over a period of 15 years, West Africa insists on 60% over a period of 25 years. Other issues of conflict concern the Most Favoured Nation Clause, by which the EU is demanding any favourable treatment that the region subsequently grants other major economies should be automatically extended to the EU, as well as how to deal with issues such as services, investment and intellectual property. West Africa's fundamental disagreement with the EU over these issues was affirmed at the May 12-16 meeting of the EPA Ministerial Monitoring Committee in Abuja, Nigeria, which concluded in view of this that the June deadline was not realistic. The region's insistence on 60% of tariff liberalisation is meant to cope with the needs of countries as diverse as the Gambia and Nigeria. For small Gambia, which depends heavily on import revenue, and which has very little by way of export capacity, the scope of tariff liberalisation is critical since the effect will be one-sided destruction of its revenue, with nothing to gain in return by way of exports. Nigeria represents about 60% percent of the region's market and its manufacturing capacity and potential, and yet exports little more than petroleum products to the EU. Thus it is keen to protect its economy from being a dumping ground for cheap European goods with devastating consequences for the manufacturing sector and its future. Maintaining the regional balance has been under strain since December 2007 when, under what observers have described as undue and sometimes illegal bilateral pressure from the EU, Cote d'Ivoire and Ghana agreed interim EPAs with the European Union. The terms of these agreements were contrary to the West African common position. Both of them provided for 80% of tariff liberalisation for EU goods over a period of 15 years. The deals also accepted other controversial EU demands such as MFN and export taxes. Both countries have looked to the subsequent conclusion of an ECOWAS-wide agreement as a means for alleviating some of the onerous terms of their interim agreements. Especially in the case of Ghana which, unlike Cote d'Ivoire has still not signed the interim agreement it initialled in 2007, the prospect of a better ECOWAS deal has served as means for the new government to avoid having to sign and implement a deal agreed by an earlier regime, and whose terms seem to contradict the policy options and perspectives for which it was voted into power. The new government has faced mounting pressure since it assumed office in January from the EU to sign the interim deal. The passing of the June deadline for the ECOWAS-wide deal has brought the prospect of Ghana succumbing to EU pressure a step closer. Such a development would not only unravel the efforts so far by the ECOWAS Commission and key member countries like Nigeria and Senegal to reconcile the pressures on Cote d'Ivoire and Ghana within a collective regional perspective. Furthermore, if Ghana succumbs, then with Cote d'Ivoire having already signed its interim EPA, the second and third largest economies in the region will be open to influx of duty-free EU goods. Nigeria's concern over the effects of EU goods on its domestic market would then inevitably increase. Experts worry that Nigeria's response will be a legitimate resort to a practice it has used in the past: restricting entry of identified goods into its market, in an attempt to stem the inflow of cheap EU goods. The last time it applied a similar measure, Ghanaian manufactures felt more than an unwelcome pinch in uncomfortable places. Indeed on some calculations, over two-thirds of manufacturing jobs in Ghana are in enterprises whose major export market is Nigeria. In addition, differential tariff regimes between the EU and Ghana, the EU and Cote d'Ivoire, and between the EU and the other countries of West Africa pose undue complication and actual dangers to the application of the ECOWAS common external tariff which have just been adopted, especially over the question of revenue sharing and the question of equitable support for small and vulnerable economies within the zone that this implies. A similar but more advanced situation confronts COMESA. The region has just adopted a common external tariff. However, as a result of the interim EPAs, the member countries are now split into two groups, EAC and the ESA, each of which has different tariff arrangements with the EU. For both regions, the emerging acrimony in SACU over tariff revenue and its sharing may be a mirror of their future disintegration. The possibility of such a future is itself evidence that the far higher cost of the EU's push to conclude EPAs at all cost is the fate of Africa, its countries and people and their individual and collective needs. Namibian Industry Minister Hage Geingob spoke for many when he denounced the EU's methods and approaches which led to Botswana, Lesotho, Mozambique and Swaziland breaking ranks with the rest of SACU. "We might be small, but we are still a sovereign state. You cannot smoke cigars in boardrooms in Brussels and bulldoze us," he said. For EU Trade Commissioner Baroness Ashton, on the other hand, the agreement which came into being through splitting a once solid regional grouping in two was "a vote of confidence in the process that we have put in motion to build a strong and lasting economic relationship". All par for the course of getting a good deal for Europe.