Trade links between Europe and Africa so far have been under the COTONOU agreement which gave African, Caribbean and Pacific (ACP) member countries access to the EU markets in order to promote their market competitiveness within the international economy.

The trade was based on non reciprocal preferences. However, the objectives of the preferential terms did not meet the expectations of the ACPs who were recording the diminishing import figures at the international stage. In order to solve this problem, together with the pressure from the WTO[i], the two blocs signed a binding agreement in 2001 in Benin (COTONOU) that launched an Economic Partnership Agreement (EPA) with enthusiastic ACP member countries. It was to be wrapped up in 2007; some countries met the time frame while majority of them signed provisional agreements, others initiated the process in order not to interrupt the trade. However, the trade links between the European Union and African countries through regional groupings, under the framework of Economic Partnership Agreement (EPAs) took effect in most countries in January 2008. It replaces the preferential trade treatment granted by the EU under the Lomé convention and COTONOU agreement. EPA indicates good results to Africa’s regional organizations.

An EPA objective surpasses the normal trade relations between the EU and Africa. They are devised towards creating trade amongst various sub regional blocs in Africa with the purpose of its incorporation within the global economy. There is a great potential in Africa, however the continent has not been doing well in improving inter regional trade because of an overlapping membership in numerous trade agreements.

Regional integration is the principal aim of the EPA deal; its proper implementation will eliminate the intra-regional trade barriers in the existing customs union and free trade agreements. Apart from the Southern African Development Community (SADC), all Africa’s regional arrangements contain internal barriers to trade like limiting rules of origin and other restrictions that hamper trade and safeguard existing businesses.

The EU commenced negotiations with West Africa in October 2003, leading to the implementation of a roadmap in Accra on 4th August 2004 – the negotiations that would permit most of the EU products to gain access to West African market. While the negotiations are still taking place, the EPAs have rejuvenated the reality of regional economic integration. Ken Ukaoha, the President of National Association of Nigerian Traders (NANT), reiterated at the conference held in Abuja in August that before the negotiations went underway, the West African region was in an “apparent comatose” in regards to integration. Not much was happening there apart from fighting and conflict resolution. The negotiations have led to a rising union of member states’ macroeconomic policies, as well as a more developed performance on a common external Tariff.

In the lake region, the East African Community (EAC) EPA framework that has been temporarily signed has facilitated the smooth process of integration within the region. In fact, all the EAC member states have initiated the process. The EAC is now closer to sign the EPA agreement after some of the most contentious issues, for instance, development support halted for about three years was finally ironed out. The EU consented on giving financial support to development programs in East Africa. There has also been a consensus on the development requirements connected with the EPAs in advancing sustained growth, reinforcing integration and promoting structural changes that eventually will augment production in the region.

There has been a considerable development within SADC. Four of its members (Botswana, Lesotho, Mozambique and Swaziland) became a signatory to the interim EPA. This development has resulted in a discussion on the integration projects in the region. However, there lacked consensus in some of the major issues like economic development, export taxes, as well as most favored nations were a drawback in concluding the negotiations.

Implications

Evaluating the impact of EPAs on Africa’s economy is not clear-cut considering the contentious issues that are still under negotiation. The EU is pushing forward the EPA framework in the negotiations which seems to create distress on the impact it will have on Africa’s economy towards poverty eradication, regional integration and economic development.

Under EPA, the EU expects Africa to liberalize a considerable component of their trade through reciprocity, African countries are supposed to lower and remove tariffs up to 80%-98% on its EU import for a period of 12 years[ii]. An assessment done by the United Nations Economic Commission for Africa (UNECA) in 2004 on the implications of EPAs in Africa predicted that the total removal of tariffs on the EU import would provoke public revenue losses in the continent to an average of USD 2.9 billion[iii]. This assessment is especially appalling for ECOWAS that has a fiscal loss of USD 980 million. On the other hand, removing tariffs will create a direct competition between the EU companies and the African domestic producers. Most of African producers will not have the aptitude of competing with the EU import on a reciprocity level due to supply-side constraints. The agricultural sector also will be badly affected due to inexpensive and mostly highly subsidized agricultural commodities in the EU. Moreover, it will pose a negative impact on African countries whose government budgets depend largely on tariff revenues, especially those who import a lot from the EU[iv], hence creating impediment in financing development projects. The end result is that most of African countries will face a constraint in reimbursement for the loss of revenues stimulated by the EPA.

Considering the difference in the structure of African economies and their EU counterparts in regards to intra-regional trade and attainment of integration, the method of reciprocity that is based on EPAs conditions is likely to have its ramifications on Africa’s exports trade and overall economic activities in the continent. On the other hand, African exports that are currently enjoying duty free access to the EU markets and endure supply constraints, will not considerably top up their trade in the EU market, whereas the EU exporters will expand their shares on the African market. Consequently, Africa would probably experience trade imbalances that may lead to a dwindling intra-regional trade at the expense of Africa-EU trade.

EPA has the capability of reorganizing regional organizations’ projects and improves the reliability of regional integration. Conversely, if the existing limitation that results from contradicting and overlying regional trade programs is not adequately tackled prior to African countries implementing EPA, then employing free trade agreement with the EU may lead to destabilizing the progress of regional markets. In a situation where the ongoing negotiations are deemed to fail in countering the development efforts of Africa, another deal must be made in order to maintain persistent access to the EU market.

Africa requires an organization that would provide an ideal economic understanding of significant policy questions to the negotiators. Such organization should create an emphasis on what the agreement is on, for instance, if it is prudent for African countries to open up their markets for competition. Such organization should also present unbiased and consistent information that could result in baffling circumstances. With the ongoing negotiations, it is with high hope that the EPA framework will cater for both the EU and Africa’s economic development.

[i] Preferences to ACP member countries were not commensurate with the "enabling clause" (GATT decision, 1979), that consented preferential treatment of developing countries, as they discriminated among developing countries on the basis of non-objective criteria.

[ii]SADC-EPA are to eliminate tariffs on 86% of imports from EU within 8 years, by 2016; Comoros 98%, Madagascar89.9%, Mauritius 96.6%, Seychelles 97.7% and Zimbabwe 87%, in the East South Africa ESA(ESA) group are to eliminate their duties within 14 years, by 2022. The East African Community are to eliminate duties on 80% of the value of imports within this period and 64% within the first two years of EPA. Ghana is to eliminate duty on 80.5% of the tariff lines within this period and Cote d’Ivoire on 88.7% within the period.

[iii] Regional meeting on Economic Partnership Agreement. 29th September 2005.

http://www.uneca.org/tfed/meetings/mombasa/index.htm

[iv] Most of the COMESA member states largely depends on customs duties for budgetary resources. Countries that suffer the most from the elimination of tariff reductions are Kenya, Sudan, Mauritius, Ethiopia, DRC and Seychelles.