Economic Partnership Agreements: Development Challenges for Southern Africa

1. Economic Partnership Agreements: Development Challenges for Southern Africa Paul Kalenga Trade Law Centre for Southern Africa

2. INTRODUCTION • ACP/EU towards WTO-compatible EPAs • Unprecedented reciprocal market access • North-South PTAs – a fertile area for analysis • TDCA between EU & South Africa still in its infancy • Development impacts remain ambiguous • Limitations and potential to deliver on development promose • Impact lies in their proper design, sequencing and effective implementation • Development challenges facing Southern Africa • Promotion of regional trade integration agenda • Improve market access: agricultural & non-agricultural • Deal with adjustment costs • Address supply-side constraints • Ensure WTO compatibility/ Doha Development Agenda

3. Cotonou Agreement • EPAs are comprehensive FTAs • Replacing current non-reciprocal trade preferences with reciprocal WTO compatible arrangements by 2008 • WTO waiver lapses on 31 December 2007 • Options to EPAs: EBA GSP for the LDCs, Standard GSP for the non-LDCs • All ACP-EU phase of EPA negotiations: agreed to negotiate regional EPAs • Principles: flexibility, asymmetry and preservation and improvement of the Cotonou aquis • Two-pronged approach: inter-regional integratiobn (EU/ACP regions); intra-regional integration (trade liberalisation within ACP regional groupings) • Progressive removal of trade towards FTA in accordance with WTO rules (reciprocity, ‘substantial all trade’ • Article XXIV of the GATT, 1994 > TDCA

4. Regional Trading Arrangements (RTAs) & EPAs • Eastern and Southern Africa (ESA) EPA configuration • SADC configuration • TDCA and the BLNS countries • East African Community • COMESA • Multiple and overlapping membership • EBA for LDCs • Significant challlenges to the potential content and implementation of the EPAs • Undermine or enhance regional integration

5. WHY THE EPA APPROACH? • Trade Preferences have a limited impact amidst supply-side constraints • Despite non-reciprocal trade preferences that the ACP countries have enjoyed in the EU market over the years they have not been able to take full advantage of such market access • Steady decline in the ACP share of total EU imports from 6.7% in 1976 to only 3% in 2002 • ACP share in world exports have also declined from 3.4% in 1976 to 1.9% in 2000. Furthermore, ACP share in developing countries exports has fallen from 13.3% in 1976 to a mere 3.7% in 2000 • Trade preferences have not led to the diversification of ACP economies and have failed to halt their increasingly marginalization in world trade. • EPAs are intended to redress this by looking closer at the supply side of the ACP economies

6. WHY THE EPA APPROACH? • Preference margins are being eroded • WTO waiver is not likely to be extended after 2007 • Importance of South-South integration: dynamic effects such as economies of scale, the importance of locking-in of intra-regional trade liberalization

7. KEY CHALLENGES FOR SOUTHERN AFRICA Dealing with adjustment costs: loss of government revenue and competition from EU products amidst weak economic structure and lack of competitiveness Enhancing Market Access: Higher MFN tariffs in the EU, especially in labour-intensive sectors such as agriculture, textiles and clothing and food processing Dealing with SPS measures and technical regulations CAP Reform issues Rules of Origin Promoting Regional Trade Agenda

8. TDCA Lessons • Fears and concerns on the potential adverse impact of the TDCA in South Africa – still contained and manageable • The importance of appropriate design & implementation • South Africa was guided by clear strategic economic priorities and balanced pragmatism • A good national governance process but also commitment towards global economic integration • What about other SADC countries? • Different governance contexts, diverse economic interests, diverse external levels of protection • Weaker trade policy & negotiation capacities • Reactive and wait-and-see attitude at national levels

9. CONCLUSIONS • EPAs an attempt to use regional integration to assist ACP countries to deal with many of the trade-related and supply-side problems that constrain their access to global markets • Is this a suitable instrument? – far from clear • Process appears irreversible • The need to focus on effective negotiations towards a desired outcome • There are costs and benefits, the need for proper design and effective implementation • Locking in regional integration initiatives and enhancing trade policy convergence • Challenge to the EU: recognizing adjustment costs, phase-in reciprocity without causing hardships, sequencing and transitional development assistance • Policy reforms in the EU – especially in agriculture, rules of origin, standards and technical regulations