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Synopsis

ECONOMIC PARTNERSHIP AGREEMENT

Background to the EPA

In early 2008, the nations of the European Union entered into full or interim Economic Partnership Agreements with Africa, the Caribbean nations, and the Pacific Islands. These agreements are designed to dismantle trade barriers between Europe and these countries and enhance economic development. You may recall that the ACP countries received what was then referred to as preferential treatment on the European markets. The constant clamour over many years by Latin American countries for so called equal treatment meant that Europe had to redesign its trade relations with the African, Caribbean and Pacific countries. Against that background the EPA was born.

The agreements aim to eliminate tariffs and non-tariff barriers to trade. The intention is to allow goods from ACP nations’ greater access to consumer markets in Europe.

The six geographic regions that comprise the ACP countries are the island nations of the Caribbean, central Africa, southeast Africa, western Africa, southern Africa and the Pacific islands. These regions' chief exports to the EU include diamonds, mineral oil, palm oil, cocoa, timber, sugar, aluminum and textiles.

The EU officially began EPA talks with the ACP nations in September 2002. The agreements focused on replacing the trade arrangements that existed at the time. The trade system at the time, while intended to make the ACP nations more competitive and diversify their economies, fell short of expectations. The European Commission reported that the ACP nations' share of total imports to the EU actually declined from 6.7 percent in 1976 to less than 3 percent by 1999.

According to researchers at the University of Gottingen in Germany, EPAs strive to create free-trade zones between the EU and the ACP nations, in accordance with World Trade Organization principles. However, the researchers noted that the agreements represent an approach to achieving more general economic development in the ACP nations as well. Besides free trade in goods, EPAs also permit trade in services and address such development issues as investment, political and economic stability, and the overall business climate.

Gottingen researchers examined the effects of interim EPAs--in particular, the impact of tariff reductions--between the EU and the four African regions. Researchers suggested that gains in trade and consumption would compensate for lost tariff revenues. Their analysis suggested positive impacts in four African nations: Botswana, Cameroon, Mozambique and Namibia. Meanwhile, they found gains of near zero for Ivory Coast, Kenya and Ghana. The economies of Tanzania and Uganda showed small losses from lost tariff revenues, but the study's authors suggested that these two countries had potential for gains through full trade liberalization.

Gottingen researchers suggested that for ACP nations to realize the full benefits of EPAs, they should identify goods and economic sectors that would suffer negative effects and exclude them from trade liberalization. The need to grow industries that are in their infancy or to protect industries that are important sources of government revenues could be grounds for exclusion from trade liberalization deals.

The Department for International Development reported that since 1976, trade agreements between the EU and ACP allowed ACP goods access to European markets, but protected ACP producers from European competition. This kind of one-way access, allowing ACP producers to export but protecting them from EU competition in their home countries, violates World Trade Organization (WTO) rules. WTO rules state that developed regions such as the EU can apply one-way access only to all developing countries in the world or only to the poorest nations. Some developing nations outside the ACP have challenged the EU for not complying with this rule. Consequently, the WTO gave the EU and ACP until the end of the 2007 to comply. Economic Partnership Agreements will comply with WTO rules by opening previously protected ACP markets to goods from Europe.

Economic Partnership Agreements represent liberalized trade between the EU and the ACP, enabling the ACP nations to export more goods to European consumer markets and opening the ACP to more imported goods from the EU. Proponents of the agreements, such as the European Commission’s General Directorate of Trade, contend that the increase in imports will provide cheaper raw materials from Europe and will promote economic diversification in the ACP. Many ACP nations depend too heavily on a limited number of commodities and lack diversified economies.

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