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Fears at talks as Europe pushes for free trade in services

The Nation (Nairobi) | 16 August 2008

Fears At Talks As Europe Pushes for Free Trade in Services

By Kaburu Mugambi

Transnational corporations could be granted unfettered access to Kenya’s banking and telecommunications sectors if trade talks taking place in Antananarivo, Madagascar, favour Europe.

If the envisaged reciprocal Europe-ACP economic system reaches an unrestrained agreement on services, a firm may just enter Nairobi and lawfully demand an operation licence. It may not matter what impact that could have on established businesses and national interests.

Kenya’s civil society has over the years raised the red flag over the intentions of the instigators and the possible impact on African Caribbean and Pacific (ACP) states. Reciprocal Economic Partnership Agreements (EPA) were initially supposed to be in place last year.

Cariforum, the Caribbean cluster, will on September 2 be the first of the former European colonies to thumb a full EPA at Bridgetown, Barbados.

Nearer home in Madagascar, the EPA negotiations between eastern and southern Africa (Esa) countries and the European Union will enter the most critical stage this week as the two partners seek consensus on what is referred to in trade-speak as trade in services.

The meeting runs from Wednesday to Friday in the East African island. Talks on trade in services are sensitive because there are fears across Africa that they are meant to compel countries to free up trade in services such as banking and telecoms in return for access to the heavily protected European market. Some feel African countries are not ready for reciprocity-based services liberalisation.

South Africa has taken a hard stance on trade-related issues, more so trade in services. Her position is that there is no legal obligation contained in the Cotonou pact — which on June 23, 2000 extended preferences spelt out under the 1975 Lome Agreement — to broaden the EPA negotiations to include trade in services. Instead of binding commitments, South Africa is only in favour of concluding cooperative arrangements.

Kenya, alongside 76 ACP countries currently enjoy preferential access for their agricultural produce into the EU market without being required to allow in duty-free European imports.

However, this preference to ACP countries by EU is not compatible with World Trade Organisation (WTO) rules. As a result, EPA was proposed as a tool to appease the WTO without hurting the ACP-EU relationship.

The new trade agreement should be signed by the end of the year otherwise the countries will lose the duty-free access to the EU market. But recently, the EU agreed to extend the Generalised System of Preference, which would much soften the blow of duty escalation.

South Africa is negotiating with the EU under Southern Africa Development Community configuration while Kenya is under Eastern and Southern Africa, or Esa. Other Esa members are Burundi, Comoros, DR Congo, Djibouti, Eritrea, Ethiopia, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Uganda, Zambia and Zimbabwe.

South Africa gets support from Zambia’s former Commerce, Trade and Industry minister Dipak Patel. In a report titled ACP/EU Economic Partnership Agreements (EPAs): Boom or Doom for Zambia? Mr Patel emphasises that Article XXIV of GATT (predecessor of WTO) only concerns the liberalisation of merchandise trade.

"Therefore, nothing in the WTO would require EPAs to cover trade in services and trade related disciplines on investment, competition, government procurement or intellectual property," says the report released in March 2007.

Some of key wish-list points for the ACP in the EPA are enhanced development assistance, aid for trade, level playing field, removal of agricultural subsidies and simple and beneficial rules of origin.

Esa negotiations to date have involved discussions between countries on development aspects (including how to reduce supply-side constraints to production and reduce the cost of doing business) and trade aspects (including a tariff phase-down and how this could be done by countries that are not yet in a customs union).

Talks have also touched on how one can address food security issues within the context of an EPA, trade in services issues, and whether to include the so-called new issues or Singapore issues of investment, trade facilitation, competition policy and government procurement.

The Singapore issues, earlier proposed under the discredited Multilateral Investment Guarantee Agreement, were central to the collapse of the WTO talks in Doha 2001.

"But here a word of caution for ACP — if, as it looks likely at present, the majority of LDCs [least developed countries] accept ’WTO-plus’ provisions in the EPAs in areas such as services, competition and investment policies, it will be very hard to sustain resistance to such measures at the WTO," Mr Patel observes.

Ms Joy Kategekwa of South Centre, an intergovernmental organisation of developing countries, says that Esa countries are not ready for reciprocal-based services liberalisation with EU.

Rather EU should avail financial and technical assistance for meeting capacity constraints in Esa countries. Indeed, EU has committed itself to enhancing financing but critics charge that the net effect of the said expansion is nil.

She observes that for Esa countries, services and trade contribute an average of 50 per cent to gross domestic product.

Esa countries export only 0.5 per cent of world exports in commercial services, according the WTO figures, slightly more than South Africa alone and slightly less than the share of Egypt.

Europe is Africa’s main trading partner for commercial services — more than half went to Europe in 2003. Africa is a minor trading partner for the EU with 6.6 per cent of imports sourced from Africa in 2003. Important sectors are transport, travel, tourism.

"EU is obligated to strengthen ACP capacity in supply of services especially, labour, business, distribution, finance, tourism, culture and construction and related engineering services to enhance competitiveness," Ms Kategekwa says in her Services in EPA Negotiations: Implications for Esa Countries.