Guardian | Tuesday, May 26, 2009

ECOWAS, EU free trade agreement on a cliff hanger

By Oghogho Obayuwana

There were strong indications last week that the free trade agreement between Economic Community of West African States (ECOWAS) and the European Union may not be signed before its subsisting deadline-June 30th 2009 because of the need to protect the collective regional interest of ECOWAS States.

The issues of tariffs, of unequal playing trade field, financing and imposed conditions had dominated discussions last week as they met in Abuja.

Before the end of their meeting, it was certain to the Ministers of the Economic Community of West African States (ECOWAS) that the much-touted free trade as embedded in the Economic Partnership Agreement (EPA) may not be signed by its subsisting deadline-June 30th 2009.

Essentially, the free trade as envisaged by the EPA is based on the principles of reciprocity, which would ’tentatively’ increase Foreign Direct Investment (FDI) and improve access for West African exports to the EU market.

While the contentious issues revolve around supply side constraints, infrastructural facilities, capacity building, regional integration and adjustment cost of liberalization, the sub-region now wants a financing plan to be presented by the European Union (EU) prior to the signing of the agreement.

Among the critical unresolved issues standing ominously on the path of the agreement are the 0.5 percent community levy, which the EU wants, removed whereas, it constitutes the financial livewire of ECOWAS. The EU had also insisted that the Most Favoured Nations (MFN) arrangement craved by ECOWAS is against the spirit of the EPA.

The EPA negotiations between the EU, ECOWAS and African Caribbean and Pacific (ACP) countries are supposed to lead to an agreement creating a free trade zone between the regions. Currently, two states-Ghana and Cote’D’Ivoire have partial (interim) agreements with the EU pending the time a common trade architecture would have been designed by all parties to the terms.

Aside from the financing plan, these ministers, the "wise men" of the sub-region also urged regional negotiators to secure unequivocal commitment from the European Commission and EU Member States to contribute to the funding of a development programme to ameliorate the effects of the agreement on the West African community.

Specifically, Ministerial Monitoring Committee (MMC) recommended that such contribution to the EPA Development Programme (EPADP) should be "adequate and accessible" beyond the commitment already made in the European Development Fund (EDF).

Diplomatic watchers are already seeing the demands of the MMC as fresh bottlenecks that can re-direct the sail of negotiations that started years ago since they were raised after appraising the deliberations of the preceding experts’ meeting on the EPA agreement, which held from the 12th to 14th of this month.

Drawing conclusions from that meeting, both the President of the ECOWAS Commission Dr. Mohammed Ibn Chambas as well as the Chairman of the MMC and Minister of Commerce and industry Chief Achike Udenwa called for answers to posers that have arisen from the negative consequences which the bail out plans (the global meltdown) intended to stimulate the economies of the developed countries now pose for African regional economies.

The MMC, which comprises ECOWAS ministers of trade and finance also called for the "rapid mobilisation of resources required to implement priority projects" that will improve the competitiveness of the regional economy as it opens its markets to EU goods.

On the issue of the liberalisation of market access for European goods, an earlier position reached taken July 2007 was reiterated: That only between 60 and 70 per cent of the regional economy should be affected over a transition period of 25 to 30 years preceded by a five to seven year period of moratorium. They also urged the ECOWAS Commission to ensure linkages between the market access and the commitment expected from the EC on the financing of the development package.

And so, less than five weeks to the deadline for an agreement signing, the ministers are still insisting that a fifth band for a Common External Tariff that has been agreed for the region should be re-negotiated with the WTO under the leadership of the ECOWAS and UEMOA Commissions which should also develop a regional methodology to determine the 5th band products and their re-categorisation.

It is not surprising that negotiators from West Africa are trying to protect the local industry of the various countries, this is elementary economics. Riding on this crest the president of the ECOWAS commission Mohammed Ibn Chambas highlighted other challenges to the agreement to include the attainment of a concrete position on the sources of funding the EPA development programme as well as the emerging global financial/economic crisis and its impact on the region in the light of the present status and the future of the EPAs.

He said "Financing the adjustment costs and fiscal dislocations arising from the implementation of EPAs, realizing that in majority of our member states import duties constitute an important source of government revenue and increased liberalization of trade will imply loss of revenue. Member states may therefore have to make fiscal adjustments which might not however make up totally for the loss in revenue from import duties especially in countries where import duties are a major source of government revenue and where there are constraints to enlarging the tax base, especially through the introduction of or increase in VAT."

Other challenges that clearly now need the gauntlet mentioned include from the conclusion of the experts on ground are;

*The fears over the unfolding EU enlargement and the alignment of the interim EPAs of Cote D’Ivoire and Ghana with the regional EPA framework

*Trade negotiations between some member states and third parties (eg the American Growth and Opportunities Act (AGOA); and

*Concerns about the regional integration process (eg the ECOWAS CET) which are expected to result in the establishment of customs unions.

But on the other hand, the EU has always believed that the EPA agreement can be concluded in June this year. The Head of delegation, European Union (EU) Commission in Nigeria Dennis Thieulin said early this month that faithful implementation of provisions of the European Development Fund (EDF)’s regional strategy for West Africa can help realize the goal of rapid development of the sub-region when the free trade zone as envisaged by EPA comes on stream.

But even as the positions already taken by the EU on the negotiations remain affirmed by their negotiators, Thieulin maintains individual nations need to also keep in perspective its political dialogue with the EU.

Through this instrumentality (dialogue) for instance, the EU has been able to work out a development cooperation programme for Nigeria worth 580 million Euros. In the 10th EDF, it is the largest grant to any member nation of the African Caribbean and Pacific (ACP) countries under the Cotonou Partnership Agreement.

In December last year, the EU shut its door on Nigeria on the Generalised System of Preference Plus (GSP+) and blamed the action on the failure of the federal government to ratify the United Nations (UN) Convention on the Prevention and Punishment of the Crime of Genocide as well as inability to provide sufficient relevant domestic legislation and measures to implement all the global body’s conventions.

The GSP+ is a special arrangement established to offer additional trade preferences to the standard GSP scheme to vulnerable countries that ratify and effectively implement a broad number of international Conventions in the fields of human rights, core labour standards, sustainable development and good governance. It is a critical aspect of the EU’s trade regime as it negotiates the Economic Partnership Agreement (EPA) with a number of African and pacific countries.

Pakistan and Gabon are the two other countries whose applications alongside Nigeria’s have not been granted. But the EU commission in its comprehensive response to The Guardian’s inquiry in Abuja maintained there was no political undertone to the decision.

In order to strengthen ECOWAS capacity to monitor and negotiate trade regulations and agreement from a position of strength, its Economic Policy Analysis Unit (EPAU) got a grant of $1.9 million last month.

Courtesy of the African Capacity Building Foundation (ACBF), the grant will enable the sub-regional community operationalize its EPAU unit-long vilified for inactivity. The EPAU has the critical duty of ensuring macroeconomic surveillance and research as well as the evaluation of growth mileage in West Africa.

Signing the grant, the Commissioner for Administration and Finance, Dr Ada Okwuosa noted that the ACBF money represents about 55 percent of the total cost of the establishment of the EPAU which stands at $3.5 million. She also acknowledged the assistance the commission had already received in the areas of trade negotiation capacity and statistical capacity building.

She said then "the establishment of the EPAU is predicated on the need to bridge institutional gap and to realize the objectives of the macro-economic policy programme of the commission as articulated in the ECOWAS commission’s strategic plan 2007-2010. The overall objective of the programme is to facilitate the harmonisation of ECOWAS member states’ economic and financial policies with a view to attaining monetary integration, private sector development and sustained growth"

The $1,912,000 grant was approved as part the foundation’s contribution to the US $3,500,000 estimated cost of operating the EPAU.

The balance of the cost will be shared between the ECOWAS Commission ($500,000) and the other development partners ($1,088,000) who also contribute to the ECOWAS Pool Fund.

March this year, experts at the ECOWAS Common Investments Market stakeholders workshop warned of looming trade agreement consequences for West Africa while calling for the harmonisation of investment code, trade tariffs.

By their reckoning, if swift steps are not taken, the West African market may end up being obfuscated by a poorly negotiated Economic Partnership Agreement EPA with the EU

Besides, they contended that the sub-region was in dire need of a harmonization of its investment codes if it is to stand any chance of realizing the economic growth components of the millennium Development Goals (MDGs).

The experts also warned about a nascent form of colonization and the effects of "de-industrialization"- a new coinage which indicates lack of sustainable industrial growth because West Africa’s negotiation from a point weakness.

Till date the sub-region has only three functioning stock exchanges- Ghana, Cote d’Ivoire and Nigeria. Even though the directors of the exchanges had already started intense consultations in a bid to shore up a harmonization drive, the infrastructural challenge in the whole of the region were identified as temporary barriers to any fast tracking in this regard.

The experts noted that there was no real evidence that a multilateral investment framework will lead to greater foreign investment for the poorest and most marginalized countries.

In this regard, Professor Paul Kuruk, of the Stamford University and consultant for ECOWAS noted, "by contrast there is an extensive literature indicating that an international investment agreement will not lead to increased FDI flows to the poorest countries. As a matter of fact such non tariff barriers could limit market access for African exporters even after the conclusion of the EPAs because it is likely that stringent rules of origin limit the number of exports that can receive preferential treatment"

He said further "While West African exporters continue to face ever increasing sanitary and phyto - sanitary standards (SPS) making it very hard for West African exporters to break into European market. The EPAs may restrict the ability of West African governments to use tariff policy to encourage small enterprises to move up the value chain into new manufacturing and processing industries,"

It is feared that these factors would notably lead to deindustrialization, a fact the EU has never denied. It however continues to maintain that cutting tariffs could lead to increased trade which could counter the drop caused by the loss of revenue gotten from tariffs. But this may only happen if West Africa can secure exports which have suffered years of price decline.

Now, the European Commission is also being accused of paying lip service to the importance of the integration process, a fact supported by evidences of EU putting pressures on individual countries to sign the EPA outside the collective regional interests, with interim EPAs initialed by Cote d’ivoire and Ghana bearing serious repercussions on the regional integration process.

Speaking with reporters during a breakaway session of the workshop, Wilson Krofah, President Ghana National Chamber of Commerce and Industry noted that it was impossible to turn around on the agreement.

He warned: "We should only sign the EPA after the various obstacles have been overcome because the West African markets are still very weak"

"We are not very competitive and so we need to try and improve our competitiveness before we can open up our markets completely to Europe. If we do that now we will never be industrialized."

By his reckoning, the sub region’s investment weaknesses have been laid bare. "So it is therefore up to the governments to correct the weaknesses because whether we like it or not these goods from outside will find its way into our market because of globalization. So we need to strengthen ourselves."

It is perhaps with all of this in mind that the Chairman of the MMC, Udenwa concluded last week that signing the EPA on the 30th of June is "no longer realistic"

He told The Guardian categorically "That date is no longer realistic. It is not possible. There are issues still to be sorted out. But it is really not in our place to say it is possible. The ECOWAS heads of state will meet on the 22nd of June. EPA is about market liberalisation so that European goods can come to Nigeria for example, uninhibited.

He went on to ask salient questions "The fears that we are having is that this thing (negotiations) is between two unequal partners. The Market access. What do we have? The terms remain scary in terms of the time table, tariff structure, tariff proposal, rules of origin-when does an item constitute as originating from where? What are the steps that will make our industry uncompetitive? Development what is the infrastructural development that we have? Too small!"

According to him, there are obligations on our own part and theirs. It’s a two-way affair. On the 7th (of June) is the meeting of the negotiators. Want the two negotiators to meet. The global economic crisis has also heightened our fears. What is the safeguard? They have lower personnel cost, we have higher overheads... Now, we are saying: What amount of funds do you have when you say ’we will help you develop your infrastructure?’