EPA Update
By Melissa Julian, ECDPM
This is the longer, more detailed version of the TNI EPA Update in the November - December 2006 issue of Trade Negotiations Insights
Summary
* EU Responds to ACP concerns…
* …But is it Enough?
* African Union
* Central Africa
* West Africa
* Eastern and Southern Africa (ESA)
* SADC
* Caribbean
* Pacific
A fundamental divergence of view in all EPA negotiations relates to the ACP's call for the EU to make binding commitment in the legal text of each EPA for additional resources beyond the 10th European Development Fund (EDF) to effectively cover EPA related costs for reforms, capacity building, improving competitiveness and implementation of the agreements. The EC has maintained that it cannot include development finance in the EPA itself since ACP and EU agreed this aspect within the Cotonou Agreement and has no mandate to negotiating funding issues in an EPA. Any additional funding would have to come from EU Member States or other donors. The EU is committed, however, to supporting poverty alleviation in developing countries, increasing aid (including aid for trade) and aid effectiveness and to monitoring EPAs for development objectives. And the linkages between the trade and development agendas are increasingly being made both in the multilateral context and in relation to the WTO and EPA negotiations. The WTO round's suspension and the EPA review and scheduled negotiation deadlines are helping to move EPAs further up national political agendas.
EU Ministers for Development and Trade meeting jointly for the first time ever in October, adopted conclusions which clearly link Aid for Trade to EPA assistance. The Council urged the EC and EU Member States to operationalise their existing commitments on trade related assistance to developing countries – the commitment of Member States to strive to increase their collective spending with a view to reaching € 1 billion per year by 2010, bringing the contribution of the EU as a whole, including the Community contribution, to € 2 billion per year by 2010. The Council also underlined the need to ensure that a substantial share of the Community and Member States' trade related assistance commitment be devoted to the ACP countries, as additional to EDF resources (the € 1 billion bilateral contributions of the Member States are additional to EDF resources). They invited the Member States and the Commission to prepare in 2007 a Joint EU Aid for Trade Strategy to effectively do this.
In terms of the scope of such trade-related support, the € 2 billion pledge is explicitly and exclusively for trade policy and regulations and trade development programmes. The Council also welcomes the on-going support to other categories of Aid for Trade, namely productive capacities and infrastructure, and is committed to continue and strengthen this support, and address trade-related economic adjustment, in response to needs as prioritised by ACP countries.
The preferred delivery mechanisms for support will be existing nationally and regionally owned financing mechanisms and the Council calls on the ACP to mainstream trade into their national strategies as a basis for demand-driven alignment of Aid for Trade.
The Council also encouraged the improved functioning of Regional Preparatory Task Forces (RPTFs) to enhance the link between the EPA process and the EPA-related support and that the institutional arrangements to be agreed for EPAs should include an appropriate and transparent monitoring mechanism to follow the impact of EPAs in ACP countries and regions. This would allow effective monitoring of the development and trade challenges from the start of implementation of the EPAs.
Ministers also launched discussions, with the EC Trade Commissioner, on EPA policy issues such as market access, trade liberalisation transition periods, regional integration, trade related issues, reforms and rules. (Mandelson intervention to GAERC and UK government letter to the EC implying pressure from EC on the ACP to open markets and negotiate TRI and a lack of EC response to ACP concerns)
Ministers considered the forthcoming EPA Review of crucial importance to make up the balance so far saying it is vital that it is based on a thorough analysis of the development dimension of the EPAs in the negotiations as they stand. This will be necessary to establish the viability of the planned timetable and to assess the substance of the EPAs as they are emerging in the negotiations.
A joint meeting of EU Foreign and Development Ministers also adopted conclusions on infrastructure support, governance and aid effectiveness which are key to EPAs development success. (See also here)
All eyes are now on the ACP to see if the Council conclusions are sufficient to unblock EPA negotiations. Is it enough additional money? (the ACP have called for upwards of € 9.2 billion euros for a 10 year period). Is it legally binding enough? Does it sufficiently address supply side constraints? Will the lack of a specific EPA Facility be acceptable considering the difficulty the ACP often have in mainstreaming trade policy in to national development policies? What about the other development aspects the ACP have called for such as proper sequencing of market building and market access commitments, holistic development approaches, transition periods, etc.?
The likely focus in the coming months, in addition to EPA trade liberalisation negotiations, will be on identifying specific needs at national level, negotiating these with the EU and on exploring how to ensure the effective delivery and use of EU commitments.
The EC and the Commission of the African Union met in October, followed by a meeting of the EU - Africa Ministerial Troika Meeting.
Ministers reaffirmed that EPA's should serve as an instrument for development, poverty reduction and to reinforce the economic integration process in Africa and Africa 's integration in the global economy. Conclusions from the meetings noted the AU Summit decision on the coordinating role of the Commission of the African Union with the Regional Economic Communities (RECs) to ensure optimal synergy and harmonization of programmes and policies within and among the RECs in relation to EPAs. They agreed that the rationalisation of the RECs and the EPA negotiations are mutually re-enforcing processes, which will facilitate both regional economic integration and the utilisation of the regional envelopes foreseen under the 10th EDF.
Ministers also welcomed the capacity building component on regional integration for the AUC included in the € 55 million grant provided to the African Union.
There continued to be little progress in the negotiations between Central Africa and the EU in September and October. The main divergences continue to be the issues of reinforcement of production capacity and the inclusion of financing mechanisms in the EPAs (see previous EPA Update-footnote). All meetings have been postponed since the joint technical group meeting in July which discussed these issues. Sources indicate that Central Africa will not pass on to the next phase of negotiations on market access as long as the issue of reinforcement of production capacities is not settled.
Some of the EPA impact studies for Central Africa have been posted on the internet. See here
Or relevance for EPA negotiations, an OECD regional forum on maximising the developmental benefits of trade facilitation was held in Cameroon in September to e xchange lessons learned from practical experiences with trade facilitation reforms and donor assistance for the latter.
The West Africa EPA Ministerial Monitoring Committee, composed of Ministers of Commerce of West African Member States, met at the beginning of October to discuss progress in EPA negotiations. (See the main reports from meeting).
Ministers considered the results of the regional validation seminar on the report on the sectors of production and the EPA reference framework held at the end of July. The reports include information on regional integration, trade, the situation of production sectors, ways to improve competitivity and mobilisation of resources for implementation of the EPA. Ministers agreed to present the documents to the EU with a view to their joint adoption. A working group was also established to continue gathering information to input into the report. To determine sensitive and strategic products, the group will organise a regional technical seminar this year to define these with a view to determining national, and a regional, lists to be validated by another workshop in June 2007. Regional secretariats will elaborate the process of formulating programmes to improve productivity and competitivity. The report is intended to be integrated into the EPA reference framework and regularly updated throughout the negotiating and implementation of EPAs.
Ministers also considered the results of the validation seminar on the regional framework for harmonisation of competition and investment policies held at the end of September. Texts include fundamental principles and justifications for regional policies in these areas, including in relation to strengthening capacity for implementation. Overcoming past divergences, ministers agreed to accelerate progress in the harmonisation of existing frameworks for investment and competition in the region and to formulate a common intra-regional framework on competition and investment as means to enhance regional integration and improve competitiveness of the regional economy and that can be used as the basis of EPA negotiations on these issues with the EU. It does not, however, appear that West Africa is as yet prepared to negotiate or have binding commitments thereupon.
With regard to implementation of the EPA review, Ministers requested that regional secretariats present terms of reference to Member States as soon as possible and that Member States provide information by the end of October which would serve as the draft structure for a joint report to be discussed by the joint Contact Group the first week of November and then completed for discussion of a draft report with EU at experts and senior official and ministers level the last week of November. They also called for a more participatory approach to the EPA process in order to ensure adequate coverage of the region's interests.
On EPA financing, the regional secretariats presented a document on the implementation of recommendations in the negotiations and on a donor matrix on support in areas of EPA negotiations and asked that this be continually updated. They stressed the importance of integrating EPAs in national and regional development strategies and programmes. They asked the secretariats to identify regional development needs especially in relation to fiscal adjustment costs.
Ministers also reviewed progress in the EPA negotiations and made suggestions to help move the process forward. Stressing the importance of the development dimension, they insisted on the need to eliminate supply-related constraints alongside liberalisation. They called for accompanying measures to address supply-related constraints in relation to anticipated positive effects of the EPA in terms of structural transformation, job creation and sustained growth. They reiterated their call for the EU to make binding commitments on financing the costs of fiscal and economic adjustments and to address supply side constraints and increase economic competitiveness. They also called for more effective disbursement mechanisms for resources. They called for the secretariats and Member States to formulate programmes to this effect. Finally they called for Heads of Government to make interventions with the EU on these issues.
They insisted on the need to have a flexible timeframe and provide more time to negotiate and noted that they may have their Heads of Government ask for more time to prepare and complete the negotiations.
Ministers mandated the negotiators to proceed to the next phase of negotiations, in order to commence discussion on the overall structure of the agreement and the EPA reference framework while at the same time completing the outstanding issues in the current phase of negotiations (on production capacities, etc.).
The scheduled RPTF meeting was postponed due to the inability of key stakeholders to attend.
The Ministers also underscored the need for impact studies and projection of the costs of adjustment. A ll countries, except Liberia , have completed or are completing these studies. Some of these are posted here. Consultants are currently defining sensitive products at the regional level.
Ministers also adopted a negotiating calendar to the end of the year.
Eastern and Southern Africa (ESA)
The first session of text based negotiations between ESA and the EC senior officials/ambassadorial level negotiators was held in September. The meeting reviewed the draft EPA text submitted by ESA in August (which covers development cooperation, market access, services, agriculture, fisheries and trade related issues) and the comments presented by the EC on this.
The EC accepted much of the ESA draft text as the basis for further negotiations, including objectives and principles relating to the development aspect of the EPA . The EU, however, rejected proposals in the development chapter to include financial commitments for EPA implementation support maintaining that this should be included instead in the 10 th EDF programming exercise and in other development programming. ESA maintained that, based on their regional development matrix which sets out needs to implement EPAs at some €10bn , that additional resources to the 10 th EDF will be necessary. They also argued that an EPA development co-operation mechanism is necessary because the Cotonou Agreement expires in 2020, while EPAs will carry on infinitely.
The EC also rejected ESA proposals to include development benchmarks in an EPA monitoring mechanism arguing that the mechanism should focus on follow up to mutual commitments aimed at accelerating or extending liberalisation.
Both sides agreed that market access should be based on asymmetry and the progressive and gradual liberalisation (with safeguards) of ESA markets and that the EPA should aim at achieving full market access for ESA countries into the EU. The EC and ESA differed on ESA proposals seeking guarantees that current levels of market access for LDCs under EBA arrangements, as well as commodity preferences will be maintained under EPA.. ESA also stressed that the level of commitments and ambition on market access to be linked to EU delivery on the development dimension on EPAs.
The Senior Officials/ Ambassador s negotiation session was followed by Technical discussions at experts level to consider the EC comments and draft EPA text in detail.
In September, an experts' meeting was held on speeding up the establishment of the COMESA Customs Union. The trade policy to be observed within the Customs Union and a Common External Tariff (CET) structure were the items at the top of the agenda. A special COMESA Customs Union ministerial task force meeting followed the experts meeting to review progress made so far towards the launch of the Customs Union in 2008. The harmonisation programme of the various national tariffs to that of the Common External Tariff also featured amongst the discussions, according to a COMESA statement. The transformation of the COMESA Free Trade Area (FTA) into a Customs Union is expected to open up a bigger market for the region ' s exporters.
The EC and EU Member States continue to consider SADC's proposed framework for the EPA negotiations presented in March, which if accepted would require a change in the EU negotiating mandate to include South Africa as a negotiating partner in the EPA. The EU is also considering the EC's mandate for the review of the South Africa Trade and Development Cooperation Agreement (TDCA). (For an outline of the SADC proposal and the EU's initial comments see previous EPA updates in TNI Vol 5 No.2 and TNI Vol.5 No.3). The official position on both is not expected until November. Sources indicate that discussions amongst EU Member States are focussed on the tariff treatment to be provided to South Africa , via the TDCA or a SADC EPA, considering its level of competitiveness in relation to other SADC members. The EU is also exploring the WTO compatibility of the proposed contractualisation of EBA market access for Angola , Mozambique and Tanzania . Finally, trade related issues are seen by the EC as essential to the development component of EPAs, making the SADC proposal to exclude them from negotiations not acceptable. SADC EPA countries believe negotiations in these areas are at best premature due to lack of regional common policies in these areass
Negotiations are effectively on hold since the EU response and SADC subsequent approval will provide the point of departure for future negotiations. SADC EPA officials indicate that they are frustrated by this long delay considering the short time left to negotiate EPAs. In this regard the EC regrets SADC decision to suspend technical negotiations until the EU response is provided.
SADC EPA Technical and Senior officials met at the end of September to further elaborate on its EPA strategic framework proposals which they continue to do in line with the proposal put to the EU. While SADC EPA has included and seems willing to include development aspects in parts of the framework relating to SPS, TBT, Rules of Origin and trade facilitation, so far discussions did not take place on how to integrate development issues into the legal text of the EPA and relate them to liberalisation commitments. SADC EPA is also working on the outline of the 10 th EDF regional indicative plan which is likely to include support for the implementation of EPAs.
An extraordinary SADC summit on regional integration was held in October to discuss Regional, Economic and Political Integration in SADC. The summit focussed on the current status of implementation of the SADC Free Trade Area in terms of the main activities required to complete the FTA by 2008 and a customs union by 2010 as planned for in the Regional Indicative Strategic Development Plan. Requirements for achieving a SADC Customs Union were also considered.
CARIFORUM and EU Technical and Principal Negotiators met at the end of September. Considerable progress was made in converging approaches to development issues. Both sides agreed the EPA would contain horizontal provisions on development cooperation and an outline of potential areas for cooperation in the various disciplines which would be regularly reviewed. On the content of the horizontal chapter, CARIFORUM put forwarded proposals for it to include elements in relation to regional integration, sustainable development, EC development funding and cooperation in international fora. The EC welcomed the proposal, but not the specific reference to EC development support which they said should not be a permanent provision in the EPA. The EC noted that a substantial increase of the Caribbean regional allocation and possibilities of further support to EPA both at regional and national level are envisaged.
In response to CARIFORUM negotiators call for EC recognition of the various ongoing CARIFORUM regional integration processes, the EC has dropped its call for a CARIFORUM customs union as the basis for assuming EPA commitments. But the EC continues to stress the importance of deeper regional integration as a means to development and says that the level of EU development support will depend on the region's efforts towards a single “seamless economic space”. CARIFORUM maintains that it will assume EPA commitments in a manner reflective of its current regional integration processes. When region-wide regimes are established, these would then constitute CARIFORUM commitments to the EC.
The EC put forward a new proposal on trade liberalisation which calls for harmonising tariff rates for the majority of tariff lines and for whether and how to harmonise the remaining lines to be decided on a case by case basis. Market access negotiations would then determine the coverage, phasing and timing of liberalisation. CARIFORUM indicated that it was prepared to review the use of the bound rates as the base rates on which its trade liberalisation commitments would be framed. CARIFORUM restated that it planned to submit national and a region-wide list of products to be excluded from trade liberalisation and for a transitional period of 25 years.
CARIFORUM reiterated its call for EC commitments to support agricultural development focussing on improving competitiveness in response to preference erosion. The EC stressed the need to limit the investment of public resources in competitive sectors.
The EC informed that it is preparing its market access offer and that the orientation is towards improved CARIFORUM access through duty and quota free access. On export subsidies, the EC agreed that its approach is not to apply such measures with respect to its exports to CARIFORUM.
The two sides agreed to establish a Services and Investment sub-group to examine Caribbean trade capacity needs and proposals in this area in order complement the negotiations of market access and regulation in trade in services. The EC also confirmed its intention to offer CARIFORUM improved access to its markets in the trade of services.
On trade related issues, CARIFORUM restated the absence of a mandate to negotiate good governance in taxation issues within the context of EPAs. The EC stated that its intention was to establish disciplines on trade and investment distorting tax regimes.
The EC reiterated its ambition to engage on market access issues in government procurement, but CARIFORUM maintains that negotiations on transparency should first be concluded before discussions begin on market access.
CARIFORUM called for dispute settlement to be able to be initiated on either a region-wide or national basis. The EC argued that such an approach would diminish the developmental impact of the new trading arrangement.
Both sides agreed that the RPTF's work had not progressed in a satisfactory manner. It was agreed that it would be useful for technical negotiators, together with donors and RAO/NAOs, to simultaneously craft EPA rules and commitments and identify the prioritised EPA support needs at regional and national level. CARIFORUM linked its EPA commitments to the timely delivery of EU development support.
The outline for the Cotonou Article 37.4 review of CARIFORUM-EC negotiations of an EPA was also agreed.
Intensive EPA preparations have continued in the Pacific, with three straight months of consultations taking place in national capitals and completed in October. The national consultations have focussed mainly on assisting PACP countries in identifying their offensive and defensive market access interests with respect to trade in services under the EPA (goods having been the focus of consultations completed earlier in the year). While the consultations reportedly proceeded well, the lack of experience for many countries in the region with GATS-based rules on services highlighted the need for providing national officials and other stakeholders the time for working through the complex issues.
In early October, a video-conference was held between EC and Pacific ACP (PACP) senior officials. Despite tangible advances on technical aspects of the Pacific's position in recent months, persistent divergences between the negotiating parties have presented obstacles to making significant progress in the talks. Discussions focussed on the PACP's draft “non-paper” EPA text on services and the EC's tabled “non-paper” proposal on services and investment. The EC's paper is based on the new EC approach to services (including investment) and is laid out in a draft template meant for the new ambitious bilateral negotiations that the EU is about to launch with the emerging economies. The PACP felt the EC text was too extensive for the Pacific and did not take sufficient account of the regions' specific circumstances and requirements. The EC noted that this is the basis from which to negotiate a specific agreement with the Pacific. The EC reiterated that it would not negotiate on Mode 4 in the manner requested by the PACP, but requested the PACP put forward a more detailed formal request on this.
The parties also discussed the recent UN ESCAP study on the potential costs of adjusting to a Pacific EPA (170 million euro for the first 5 years). The PACP stressed the need for a binding commitment in EPAs for the provision of additional EU resources, via effective delivery mechanisms, to help address the impact of EPA adjustment and implementation costs. The EC felt the study overestimated EPA costs and did not take into account the benefits and dynamic wealth creating effects that would arise from EPAs. They also stressed that substantial financial resources were available under the 10th EDF and from EU and other donors bilateral trade support programmes. Noting the presence of few EU bilateral donors in the region, the Pacific underscored their view that the resources of the 10th EDF were inadequate to address EPA adjustment costs – representing a 60% per capita decrease in EDF funding since 1980-85. The EC reiterated their stance that development funding issues could not be included in the EPA itself since this is already agreed within the Cotonou Agreement. They also called on the PACP to clearly identify and prioritise their financial needs.
Pacific Islands Heads of State met at the end of October. They welcomed the progress made in implementing the Pacific Plan for regional integration and calling for translating the regional initiatives being developed into plans and follow-up actions at the national level. Leaders agreed on a number of key commitments in order to move the Plan forward in the next twelve months. Leaders also emphasised the need to conclude the domestic arrangements required for them to trade under the Pacific Island Countries Trade Agreement (PICTA).
Meeting just prior to the end-October Pacific Islands Forum Heads of State meeting. Pacific ACP Leaders noted that the EPA negotiations were entering a critical stage and that special treatment was required to account for the region's unique characteristics. They called for substantial additional and binding resources required to fund the adjustment and development costs of implementing the EPA, noting however the progress in the programming of the 10th EDF PRIP and the proposal to focus on the two sectors of Human Resources Development and Natural Resources.
Papua New Guinea's Prime Minister Sir Michael Somare indicated to the press that the EC has agreed with the Pacific's proposed ‘Master Agreement' which would contain the general principles, development assistance provisions to which all PACP countries would be a signatory, and four subsidiary agreements - in trade in goods, services, investment and fisheries – to which individual PACP countries could sign on to in accordance with their national interests. He said, however, that the EC response to PACP position papers has been “less than satisfactory”.
In light of this, the Joint Pacific ACP EC Technical Working Group Meeting, which had been tentatively scheduled for end-October, was postponed until the EC provides a comprehensive written reply to the PACP EPA draft text.
Euro 1.2 million (F$2.6 million) Technical Co-operation Facility project - -The four-year programme will be implemented immediately by the Pacific Islands Forum Secretariat. The main objective of the project is to improve the implementation of the National and Regional Indicative Programmes, facilitating better co-ordination, strengthening linkages to meet objectives of country and regional strategy papers. The Technical Cooperation Facility will also assist the region implement the 10 th EDF. In particular, it can and will provide the necessary technical assistance to help design EDF 10 programmes at both country and regional level,” he said.
PACP sources indicate that they will continue to push in the EPAs for reasonable arrangements in the key areas of rules of origin, Mode IV, fisheries, sugar and adjustment assistance. But they indicate that there is an impression in the region that the EC is not serious and not dedicating resources to ensure EPAs are tailored to specific needs in the Pacific.