EPA Update
By Melissa Julian, ECDPM
This is the longer, more detailed version of the TNI EPA Update in the January - February 2007 issue of Trade Negotiations Insights
Summary
* All-ACP level discussions
* Africa Union (AU) Level Discussions
* West Africa (ECOWAS)
* Central Africa (CEMAC)
* Eastern and Southern Africa (ESA)
* Southern Africa Development Community (SADC)
* Caribbean (CARIFORUM)
* Pacific
2007 is a critical year for EPA negotiations. On 31 December, the WTO waiver for the ACP-EU Cotonou Partnership Agreement’s (CPA) trade preferences expires. Preliminary indications from reviews of negotiations on the EPAs to replace the waiver indicate that there has been much progress in, for example, agreeing frameworks and scope and in efforts to increase and improve aid support and its linkages to trade liberalisation commitments. But much work remains to be done, including in building capacity for the negotiation and implementation of EPAs and the actual negotiation of tariff liberalisation and EPA texts. While the ACP and EC remain committed to concluding negotiations this year, more time may be necessary to conclude EPAs that will deliver development objectives.
To progress in EPA negotiations, agreement is necessary in areas where there is now fundamental divergence of views. A key issue relates to the transition period and product coverage for reciprocal market access. EC indications are that their interpretation will be for calling for approximately 10-12 years for 90% of trade with some exclusions and simpler, still being defined, rules of origin. The ACP is asking for up to 25 years, much less coverage, 100% market access to the EU and improved rules of origin. The current World Trade Organisation (WTO) trade talks’ suspension also impedes EPA conclusion in this area as WTO rules could change.
A second key issue relates to how to deal with development issues in EPAs. The EC position is that rules in trade-related areas and gradual trade liberalisation within a single regional economic space combined with support based on priority needs in parallel to EPA reform commitments will lead to economic diversification and transformation, deeper regional integration, larger markets, investment, economic growth and development. The ACP in some cases are against including trade-related rules in EPAs until there is further regional integration and capacity to negotiate and implement these. They also want the EPA text to include development benchmarks and additional finance with effective implementation mechanisms to support increasing competitiveness and productivity, improving infrastructure and addressing transition and adjustment costs of tariff liberalisation/falling customs revenues to governments from EPA implementation to ensure they are able to benefit from market access before liberalising trade with the EU.
Regional and all ACP-EU EPA discussions, including on the EPA review (see Events section of this TNI) will seek to address these issues in the coming months.
All-ACP Level Discussions
A group of ACP EPA Chief Negotiators and Ministers met with the German Minister of Development Co-operation (now EU President) and UK Ministers in October to seek their support for ACP positions in the EPA negotiations. The EU Member States stressed the importance of the timely implementation of the comprehensive review of the EPA negotiations and it was agreed to hold a full meeting between ACP Ministers and their EU counterparts in the margins of the meeting of EU Ministers for Development Cooperation in March to further discuss these issues ahead of the Joint ACP-EU Council on the EPA Reviews to be held in June.
ACP Heads of Government meeting in December adopted a declaration which reiterated that EPAs should allow development policy space and be properly sequenced and progressive. They called for ACP needs to be accompanied by adequate and effective supportive measures that address supply-side constraints, improve competitiveness, and strengthen the capacity to trade to enable ACP States to benefit from EPAs. They also called on the EC to identify alternative trade arrangements equivalent to existing situation for non-LDC ACP States not in a position to enter into an EPA.
Africa Union (AU) Level Discussions
AU Trade Ministers meeting on 16 January adopted a declaration expressing concern that at this advanced stage of the EPA negotiations, Africa’s priorities to ensure that EPAs take into account African countries’ concerns such as the cost of adjustment and building of the supply capacities, market access, including flexibilities related to product coverage and transitional periods as well as financing of trade-related infrastructure to ensure regional integration, have not been positively and adequately addressed by the EC. They call on the EC to show flexibility and to positively and adequately respond to key concerns of Africa and for the EC and EU Member States to provide additional resources in accordance with commitments, paying attention to the development and financing needs of Africa in building competitiveness and addressing supply side and infrastructure constraints. The reiterated the call for an EPA Adjustment Facility to cover social development, economic reforms, private sector development and institutional development. Ministers also urged all EPA parties to ensure that there is no disruption of trade if the period of EPA negotiations is extended.
West Africa (ECOWAS)
A meeting of ECOWAS and EC negotiators and the enlarged Regional Preparatory Task Force (RPTF) (EU and other development partners) held from 13-16 November discussed the region’s concerns on the impact of EPAs on their production sectors and development aid to accompany EPAs. Participants agreed on almost all of the text of the report of Group 5 on production sectors and the report on the EPA reference framework. Negotiators also had a discussion on the first structure of the EPA text. To increase effectiveness of support, it was decided to establish a partnership for supporting ECOWAS in the definition of a programme for increasing the competitiveness of industries. It will be accompanied by a regional and national action plans. The United Nations Industrial Development Organisation (UNIDO) will develop this in the framework of the initiative for the strengthening of African production capacity. The EU, EC and other partners will also contribute. A conference of donors will be held to reinforce coordination and additionality of support for EPA implementation. The meeting could discuss the establishment of a regional EPA fund and other mechanisms to coordinate support for EPA implementation.
A meeting of the West African EPA Ministerial Follow Up Committee held from 28-30 November adopted the ECOWAS report on the EPA Review. The review calls for the December 31 2007 EPA negotiating deadline to be extended 3 years to allow the effective preparation and completion of EPA negotiations and implementation. The review specifies these areas in detail.
Discussions at the meeting of the enlarged RPTF on 14 December focussed on the UNIDO programme for reinforcement of productive capacities. The programme will concentrate in the first instance on recommendations from Group 5 on restructuring and levelling up industries, taking account of the anticipated impact of EPAs in specific sectors. Results should be available in May and will be the basis of a restitution seminar to be organised by the EC. Participants also agreed to conduct a regional EPA impact competitiveness and levelling up study and the region was encouraged to develop the concept and modalities of a regional EPA fund for EPA implementation. The region, with EC support, will organise a donors’ conference when the fund is created. The EC also provided information on indicative EPA allocation programming in the 10th EDF RIP representing some 1.2 billion euro for 2008-2013.
A meeting of ECOWAS-EC EPA experts and senior officials was also held in December where ECOWAS officially informed the EC of its decision to propose delaying conclusion of EPA negations to 2010. The EC indicated it did not agree with this delay arguing that technical work can be accelerated and completed within the current deadline. The EC said that considering the ineffectiveness and diminishing importance of trade preferences, that EPAs were a better option than EBA or GSP, which would be what ECOWAS get if no EPA is agreed at end of 2007. It would also mean West Africa losing the benefits of services liberalisation and trade-related rules and investment which would come from that, because these areas are only in EPAs. The EC also argues that progress in the EPA negotiations is necessary to be able to programme the 10th Regional EDF. A joint review report needs to be agreed by Chief Negotiators to feed into the all-ACP process and joint Ministerial Trade Committee to be held at the end of February.
Negotiators adopted the reports from technical working groups on intellectual property and trade in services to be agreed now by Chief Negotiators. They also advanced discussions on the report on sectors of production with a view to preparing a regional approach for a trade liberalisation scheme and definition of accompanying measures for EPA implementation. Divergence still exists, however, on some points with the EC wanting to limit measures of implementation and strengthening competitiveness to industries while West Africa calls for all productive sectors to be dealt with.
There were also advances towards agreeing the EPA Reference Framework with almost all texts agreed including on the net impact of liberalisation on fiscal receipts. There is still divergence on improving EU market access for West Africa in relation to the question of taking into account sensitive European products in the framework of reciprocal market opening and on financing accompanying measures of the EPA.
While no common structure for the EPA framework was agreed, the parties still agreed to start work on the EPA text at technical level while continuing work on the common structure. The aim is in January to start work on the approach to liberalisation and have experts, senior officials and chief negotiators meet and agree the EPA by 31 July.
On 19 January, the ECOWAS Summit of Heads of State and Government confirmed the call for a delay in concluding the EPA negotiations.
Senior EU and West African EPA negotiators meeting from 23 -26 January, failed to reach agreement on a joint EPA review document due to West Africa’s call for extension of the negotiating deadline. They were also unable to agree on outstanding issues in the EPA Reference Framework for the negotiations in relation to West Africa’s call to include tasks and measures to be completed in order for a successful conclusion and implementation of an EPA that would contribute both to poverty reduction and to the economic development of countries in the region. These issues have therefore been referred to the meeting of Chief EPA Negotiators scheduled for 5 February.
There was also disagreement about the extent of market access that the European Union was prepared to offer West Africa, and whether the EU should be allowed to rely on the notion of sensitive products in defining its market access offer and therefore erode current EBA preferences. Another issue concerned the scope of EU’s responsibility in relation to the “net fiscal” costs of tariff liberalisation attendant upon the implementation of an EPA with the West African wanting the EU to meet the full net costs, since West Africa is meeting the other fiscal costs not subject to negotiations.
Central Africa (CEMAC)
CEMAC-EU EPA negotiations have been blocked since July due to differences on approaches to dealing with the definition, content and modalities for facilitating the levelling up of production and increasing competitivity of economies and enterprises to benefit from EPAs and on support for implementation of EPAs.
CEMAC EPA Ministers and National Authorising Officers met on 22 November and adopted a declaration calling for dialogue with the EU on appropriate measures to take account of CEMAC development priorities with a view to concluding EPAs. Ministers called on the EU to recognise the necessity of engaging in negotiations on the reinforcement of capacities that will translate in the improvement of the basic infrastructure and levelling up of economies. They also called for the creation of a specific facility to support EPAs and the effective implementation of RPTF recommendations into project and programmes of support.
Ministers and NAOs then met with senior DG Trade and Development officials and EU Member States’ representatives on 24 November to discuss these issues and provide orientations for the continuation of EPA negotiations. CEMAC Ministers were disappointed that the DG Development Director General’s presentation only reiterated the DG Trade position focussing on trade and investment rules as the key facets for economic operators and investors to promote regional integration, economic growth and the battle against poverty, noting that the 10th EDF and additional EU Aid for Trade resources agreed in October are to aid this process. The presentation, and EU Member States attending, added nothing new on the issues of CEMAC concern which could break the negotiations deadlock.
The EC presented an informal reflection document on reinforcing productive capacities and levelling up in Central Africa. The paper sets out how trade policy and aid for trade can help improve capacity to increase quality and quantity of goods and services produced and exporter by CEMAC by supporting regional integration and implementation of regional policies and reforms. CEMAC Ministers asked the EU to formally transmit their reflection document the Chief EPA negotiators
On financing the partnership, Ministers said that the implementation of the EPA will necessitate mobilisation of long term resources beyond the 2013 10th EDF and that NIPs and RIPS were inappropriate instruments to support EPA adjustment measures.
On the transition period, CEMAC argues that taking account of its weak economic and social structures, that the EU proposition of 10-12 years doesn’t not correspond to an amount of time in which economies of the region could adapt and respond and make necessary adjustment for the EPA. They propose a period of 25-30 years of transition.
CEMAC Ministers expressed their concern that DG Trade does not have a mandate to negotiate development questions and provide additional resources. The EC promised to raise the issue with the Commissioners for Trade and Development and seek a meeting of the Ministers with the two Commissioners.
The two sides expressed their wish to restart technical negotiations. They recognise much still remains to be completed, but will accelerate work with a view to respecting the end of year EPA deadline.
East and Southern Africa (ESA)
No joint EPA negotiating sessions have been held since the September launch of text based negotiations as ESA awaited the detailed EC reply to proposals in its draft EPA text put forward at that meeting. The EC indicated then that the text was a good basis for negotiations and included many useful provisions, for example on customs and trade facilitation. They, however, disagreed with several ESA proposals in the text in relation to the content and scope of development and market access provisions (see previous EPA Update). The EC transmitted to ESA a more detailed reply to its proposals at the end of January. Sources indicate that the EC agrees to include a horizontal development chapter stating strategic objectives for the support to implementation of the EPA and provisions in specific chapters that take into account ESA cooperation needs. The EC, however, rejects detailed cooperation provisions and ESA calls for additional funds for EPA implementation support to be included in the EPA. The EC agrees on the inclusion of a review clause to accelerate implementation of tariff-phase down, but not on linking ESA trade liberalisation to the achievement of development benchmarks, implementation of the ESA regional integration agenda and the release of resources by the EU as requested by ESA. The EC is also against ESA proposals for non-reciprocity in recourse to trade defence measures and the use of countervailing duties on EC products covered by the Common Agricultural Policy. The EC also wants to exclude certain sensitive agricultural products in the EPA. The EC indicates specific sectors to be covered in the EPA. For example, the services proposal includes establishment, e-commerce and specific services sectoral coverage. The EC also calls for inclusion of both cooperation and rules for effective protection of intellectual property rights. The EC has also made specific drafting proposals for a text on trade facilitation, based on the ESA EPA proposals
The ESA EPA Regional Negotiating Forum met from 6-10 November to review the results of the first text based negotiating session and decided that the negotiating session originally scheduled for November would be postponed against the background that substantive comments from the EC on the ESA draft had not yet been agreed. The RNF also agreed that the terms of reference of the RPTF have to be reviewed to take into account the needs assessments, and the programming of EPA related development assistance resources beyond the end of the EPA negotiations. The RNF was also presented with the draft findings of the EPA Review
The results of the RNF discussions were transmitted to a meeting of ESA EPA Ministers held on 14 November. Ministers noted their concern that the EU continues to reject ESA proposals to link trade reforms with development indicators. They called on the EC to make specific commitments to provide, in line with its stated donor commitments, additional, and more easily accessible, financial resources to help address development needs identified in ESAs’ development matrices. They further called for development indicators, safeguard measures, adequate transition periods for EPA implementation, asymmetry, variable geometry, and indicators to monitor and evaluate implementation of EPAs to be included in the EPA. They declared that “as cross-cutting and sectoral issues, development is a priority for the ESA region and must remain a key element in EP A negotiations with EU. If this condition is not acceptable to the European party, continuation of negotiations in other areas would be compromised and will have to cease.” They further indicated that, in light of delays in negotiations and provision of EU support to prepare and implement EPAs and the suspension of the WTO negotiations, it may be necessary to seek an extension of the current WTO waiver for Cotonou trade preferences to allow more time to complete the EPA negotiations. These conclusions were reaffirmed the following day at the Summit of the COMESA Authority of Heads of State and Government.
Southern Africa Development Community (SADC)
The SADC-EC Regional Preparatory Task Force (RPTF) met on 14 November. Participants noted that inputs needed from EPA negotiations to be able to specify support for the establishment and implementation of the SADC Customs Union and EPAs in programming the 10th EDF’s SADC’s Regional Indicative Programme (RIP) are delayed as SADC awaits the EC’s response to its EPA proposals. There is concern that this delay could affect implementation of projects as funds will not be rolled over from the previous EDFs. Participants agreed to hold a high, possibly Ministerial, level RPTF meeting in February which would involve National/Regional Authorising Officers and principal negotiators from both sides to see if the programming process can be accelerated.
On 28 November, the EC put forward to EU Member States for their approval proposals to modify its SADC EPA negotiating mandate. The proposals are in response to the SADC-South Africa proposal put to the EC last March which envisage: the inclusion of South Africa into the EC-SADC EPA; that Mozambique, Angola, Tanzania (MAT) and Lesotho be granted non-reciprocal EBA market access to the EU on a contractual basis; extension of EBA equivalence to all SADC countries, including South Africa, in return for extension of to the EU of South Africa’s Trade Development Cooperation Agreement’s (TDCA) market access to all members of Southern Africa Customs Union (SACU) (subject to increases of currently applicable TDCA duties on a number of products to accommodate Botswana, Lesotho, Namibia and Swaziland (BLNS) concerns); and that no binding commitments be made under EPAs in trade related areas.
The EC proposes accepting South Africa in the SADC EPA, but, because South African competitiveness would be detrimental to some of the EC’s most sensitive sectors, to differentiate between its market access offers to SA and other SADC countries. The TDCA would be used as the baseline for market access negotiations and commitments in the SADC EPA.
The EC rejects SADC’s request that EBA be contractualised on a non-reciprocal basis in the EPA on the grounds that it would not be WTO-compatible. MAT could, however, remain standard non-contractual EBA beneficiaries and be associated to the EPA initially only on the basis of non-tariff provisions, exempted from commitments on trade in goods, subject to future revisions.
To preserve the coherence of the SADC region with separate EU trade regimes, a rigorous system of control for rules of origin and an autonomous safeguard mechanism which will automatically apply in case of a trade surge linked to circumvention to protect EU markets will be established.
The EC argues that trade-related commitments are essential for promoting diversification and development and must be part of the EEPA if SADC want improved access to the EU market and support for EPA implementation.
EU Member States agreement on the EC proposal is expected in February for official presentation to SADC. The EU is also now preparing exchange of offers and requests, including tariff line exclusions and offensive interests, including in trade related areas. EPA negotiations could then proceed on this basis. However, given the delay in negotiations, there is concern that the negotiations will not be completed by the end of 2007 and that consequently BLNS countries will face a re-imposition of GSP duties on major exports. Cotonou trade preferences may need to be temporarily extended until EPA negotiations can be completed.
Initial indications from SADC are that the proposals go against the EC’s recognition of the importance of market access for development and the need to promote regional integration in Southern Africa as well as its commitment to build on the acquis and to extend EBA equivalent access to all ACP countries. SADC is likely to reject the proposed linkage of improved market access for the BLNS to the reopening of negotiations in trade related areas. Many sensitive products would be liberalised in MAT with major adjustment challenges if they were to enter a SADC EPA constructed on the basis of the existing tariff elimination commitments set out in the EU SA TDCA. SADC is expected to call for the use of pre-emptive safeguard provisions in the EPA allowing the BLNS countries to exclude sensitive products and rapidly invoke safeguard duties should EU imports increase and a threat of market disruption emerges. They will also want rules of origin which encourage greater use of South African originating inputs in value-added processing in the BLNS and MAT countries for export to the EU under more favourable market access conditions, so as to encourage greater flows of regional investment resources in to these less developed regions of the SADC. They are also likely to request adjustment related financial support provisions and provisions on support to addressing supply side constraints with a view to assisting MAT countries in establishing the foundations for subsequent full accession to the SADC-EU EPA.
EPA observers are noting possible broader ACP implications of the EC’s SADC EPA proposals. Firstly, that it sets a precedent for the EC to seek a revision of its negotiating mandate from Council. The ACP have been calling for EC EPA mandates to be revised to allow negotiation of development issues in the EPA. Also, the EC’s acknowledgement that the competitiveness of South African warrants the application of several trade regimes within one region may strengthen EPA regions arguments to have similar regimes in their own regions. The EC to date has resisted such proposals on the grounds that it would negatively effect regional integration processes and sustainable development.
Caribbean (CARIFORUM)
CARIFORUM and EC Principal and Ministerial EPA Negotiators met at the end of November. They noted the significant progress made in negotiations in agreeing the general structure and scope for the EPA and towards establishing a consolidated text as the basis for the final phase of the negotiations in areas such as customs and trade facilitation, technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures. Divergence of views continues, however, on some fundamental issues. The EC maintains that CARIFORUM collective EPA commitments must be taken where possible while CARIFORUM’s position is that it currently has no legal status to assume region-wide EPA commitments so its individual Member States must make EPA commitments.
Further negotiations are also required on tariff liberalisation - both the approach and actual exchange of requests and offers on tariff lines. The EC proposes to harmonise most CARIFORUM tariffs and treat significant tariff lines on a case by case basis in liberalisation schedules which would be based on applied tariffs and regionally applied. CARIFORUM proposes national schedules of items bound at zero duty and a common exclusion list at the commencement of the liberalization process as well as a set products that would be subject to phased reduction of duties for tariff liberalisation, with an initial transition period during which no tariff reduction would be introduced. The EC accepted that CARIFORUM development needs might warrant trade liberalisation periods of up to 25 years for sensitive products. CARIFORUM also calls on the EU to offer full duty and quota free access though recognising the EU will have some sensitive products as well. CARIFORUM also proposes special safeguard clauses to address trade problems which only it would be able to use. The EC says safeguards should be available to both sides.
Progress was made in negotiations on development issues with agreement to include a development chapter and CARIFORUM’s development needs in each relevant discipline in the EPA. There is, however, continuing divergence on the content and operationalisation of cooperation activities for EPA implementation particularly with regard to CARIFORUM’s call for binding financial commitments beyond the EDF to be included in the EPA to support its implementation. The two sides also agreed to negotiate an EPA text to ensure discussions on post-Cotonou development support after 2020.
CARIFORUM and the EC agreed to establish an EPA Council mandated to implement and review the EPA to ensure it achieves its stated developmental objectives.
Ministers instructed the negotiating groups to work with the RPTF to identify specific priority needs and match these with a package of development cooperation activities aiming at proper implementation of the EPA.
The meeting endorsed the joint EPA review text which sets out progress and issues to be resolved noting that the negotiating process could be completed within the timeframe envisaged.
Pacific
A letter, leaked to the international press in October, from Senior EU EPA Negotiators to the Pacific Chief EPA Negotiator revealed major divergence of views in the EPA negotiations. The letter says the Pacific’s proposed draft legal EPA text, which calls for a general EPA agreement which includes sections on services and investment for all-Pacific signing and an annex on goods to be signed by interested Pacific Member States, could form the basis for an overall EPA structure for the region, but that it would have to undergo substantial amendment before it can become a mutually agreeable EPA. Specifically, the EC indicated it would not be possible to negotiate a separate fisheries agreement outside the EPA as suggested by the Pacific, but that fisheries should be fit into the natural resources management section of the EPA. The EC also rejected the Pacific’s proposals to include development cooperation finance in EPAs since this is part of the Cotonou agreement which should be linked to EPAs and dependent on the level of EPA commitments the Pacific will make. On the Pacific’s Mode 4 temporary movement of labour proposals in the services sector, the EC says ambitions go far beyond the possible offers that EC will be able to make and much falls under the EU Member States competence. The 10th EDF covers human resource development, including training, which could help the Pacific exploit any future arrangements made under Mode 4 with specific EU Member States. With regard to market access to the EU, the EC says it aims to go beyond current market access, achieving full market access to the greatest extent possible, while recognising the need to address the import regime for a few sensitive products. The Pacific EPA Chief Negotiator reportedly replied to this letter reiterating the reasons behind the Pacific’s maintenance of its positions.
A Joint Pacific ACP Fisheries and Trade Ministers meeting held on 14 November endorsed the legal text of a draft Multilateral Fisheries Partnership Agreement to be negotiated with the EU as part of an overall EPA. They also discussed the fishing offer to be put to the EU. In agreeing this regional approach, Ministers also noted the rights of individual Pacific States to negotiate bilateral fisheries agreements with the EU. Ministers stressed that the basic rationale for pursuing a regional FPA with the EU was to secure greater benefits from the region’s fisheries resources than was possible through negotiating on a bilateral basis. Ministers stressed the importance of attracting investment for the regional growth of the industry and in this regard the importance of maintaining EU fisheries preferences and amending the EU rules of origin to improve the region’s market access for fisheries products to the EU. Ministers also reiterated their endorsement of rules of origin based on a change in tariff sub-heading at the six-digit level. This was required for the region to benefit in a meaningful way from a trade in goods agreement facilitating growth of the Pacific’s manufacturing sector. Formal texts on these issues will be elaborated to table formally as negotiating documents with the EU.
Pacific ACP Trade Ministers meeting on 16 November discussed the perceived failure of the EU to respond substantively and positively to the PACP non-papers which have been submitted to negotiations. Reiterating the region's commitment to conclude a genuine, development-oriented EPA, They agreed to intensify both technical and political interventions in the EPA negotiations to move the process forward. Consideration and guidance was also given to continue work on the Pacific ACP-EU Goods and Services Offers and Demands work that was well underway. Ministers also agreed to seek additional resources to meet the additional costs of EPA adjustment and the establishment of an EPA Adjustment Facility. They noted the urgent need to identify specific national level projects to enable each PACP to adjust to and benefit from an EPA. They requested the convening of a meeting of Trade Ministers, National Authorising Officers and the Regional Authorising Officer to consider trade-related needs bearing in mind the ongoing 10th EDF programming exercise.
A military coup in Fiji at the end of last year resulted in the ousting of Fiji Foreign Minister Kaliopate Tavola, who was also the Chief Pacific EPA Negotiator. Minister Joachim Keil, of Samoa has replaced him on an interim basis, but there is a possibility that Mr. Tavola may continue to be associated with the negotiations, perhaps as an independent consultant for the Pacific negotiating team.