EU Trade Policy with third countries

1. EU Trade Policy with third countries Implications for Africa Isabelle Ramdoo Deputy Programme Manager Trade and Economic Governance ECDPM 25 – 26 July 2013 Libreville Gabon

2. Structure of Presentation • EU Trade Policy • With whom and where? • For What? 2. New geopolitics of EU Trade Policy 3. Implications of EU trade policy with third countries on EU-Africa relations • Agreements signed • Current negotiations 4. What then for Africa? ECDPM

3. 1 Overview: Where EU is going and why? State of play: EU in a changing world 1.1 Changing geopolitics and centres of gravity moving East a. Share of GDP is declining and projected to be dwarfed by emerging countries b. Share of global trade is still important, but is also projected to decline c. Exacerbated by the 2008-09 financial and economic crisis Trade patterns moved from a country specialisation(primary commodities for the South and manufactures for the North) to intra-firm/network specialisationin tasks, giving the South considerable advantage in the production of manufactures ECDPM

4. Participation of developing countries in global services trade rose from 19 to 24% during the same period. • The rise of the emerging economies: Brazil, Russia, India, China, and South Africa– now economic and political actors (members of G20). Together, they account for more than 40% of the world population (market) and approximately 17% of the value of world GDP (purchasing power). • THEREFORE: URGENT need of growth to preserve its industries and growth. For this change in logic and change in focus. Trade is core component of Europe 2020 strategy. ECDPM

5. a. Share of EU GDP is declining and projected to be dwarfed by emerging economies Today EU and US dominate the world Tomorrow China and the emerging countries will dominate ECDPM

6. b. Still a major trading block BUT share is also declining Share of World Trade in 2010 Share of World Trade in 2030 ECDPM

7. 1.1 Change of logic and change of focus. • After imposing a moratorium on negotiating new PTAs from 1999-2006, the EU in 2007 began negotiating a new generation of more ambitious or comprehensive FTAs. • 2006 Global Europe strategy: the EU targeted a number of larger countries and regions for negotiations, including South Korea, India, Canada, and the Association of South East Asian Nations (ASEAN). • 2010 Trade, Growth and World Affairs: Renewed policy to strengthen EU’s institutional setting to make EU’s trade voice louder and clearer. Purpose: complete trade deals on the table and engage in ambitious negotiations with strategic partners ECDPM

8. Key objectives of 2010 renewed strategy: EU will: • Pursue and conclude current negotiations; • Deepen strategic partnerships; • Take trade policy forward, including by supporting its SMEs in going global Its trade agreements are expected to be: 1. Big enough to have an impact on EU economies; 2. Have to be big enough NOW because need for growth is urgent (hence the rush to sign PTAs with main partners) 3. PTAs must be BOLD to trigger changes in Europe (to trigger regulatory reforms in key sectors) ECDPM

9. Some Facts:EU current FTAs – Where? ECDPM

10. But EU’s Major markets NOT covered yet! ECDPM

11. Neither are EU Major investment partners!! ECDPM

12. Status of EU FTAs and their share of EU trade (%), 2009: What is really covered? ECDPM

13. EU Trade with main trading partners, 2009 ECDPM

14. Now: Clear market access outreach strategy Strategy differ if EU is next exporter OR not importer Fuel and minerals: net importer: that’s why they push for fair access Manuf and services net exporter: that’s why they push for aggressive MA (extensive trade liberalisation) ECDPM

15. 2. The new geopolitics of EU Trade Policy EU’s trade policy is grouped into four categories : 1. FTAs with strategic partners: Countries where EU’s objective is to neutralise potential discrimination against EU exports and investments: • Signed so far: South Korea (2011), Chile, South Africa. • Completed with Singapore in Dec 2012 • Nego started with Trans-Atlantic Agreement with US (June 2013), Canada (2009), Japan (March 2013); Thailand (May 2013) • No discussions yet with China and Russia. 2. Agreements with geographically close neighboursfor which the EU is prepared to offer accession or some slightly looser relationship. These include EFTA, Turkey, Central and Western European countries and West Balkans (Association Agreements for potential future EU countries) ECDPM

16. 3. Agreements designed primarily to foster stability around the EU borders – Mediterranean countries, Gulf States, Ukraine 4. Agreements with a historical and development focus – this is the case of EPAs In addition, EU provides autonomous preferences to developing countries and LDCs under its Generalised System of Preferences (GSP) and Everything but Arms (EBA). The current GSP covers 176 countries. GSP:number of countries have been reduced to about 80. All high income and upper middle income countries (eg. China, Brazil, Malaysia, Gulf states) removed. New GSP will start in 2014. ECDPM

17. Economic Partnership Agreements: Today, 36 ACP countries have some sort of EPA. They are: 16 Caribbean countries (Haiti did not sign); 2 Pacific countries (Fiji and Papua New Guinea) 2 West African countries (Ivory Coast and Ghana) 1 Central African country (Cameroun) 5 Eastern and Southern African countries (Mauritius, Seychelles, Madagascar, Zambia, Zimbabwe) 5 SADC countries (Mozambique, Botswana, Lesotho, Swaziland, Namibia) 5 East African countries (Kenya, Burundi, Rwanda, Uganda, Tanzania) All of them have duty free and quota free market access to EU. But MAR1528 Deadline on 1st October 2014. Only countries that sign, ratify and start implementing their EPAs will continue to benefit from EPA Market Access conditions. ECDPM

18. Overview of Bilateral FTAs – Agreements signed • To date, EU has signed the following agreements: • A customs union with Turkey • A European Free Trade Agreement (EFTA) with neighbouring European countries, which are not part of the EU (Switzerland, Liechtenstein, Iceland, Norway). • Stabilisation and Association Agreements with former Eastern European countries (Macedonia, Croatia, Albania, Montenegro, Bosnia, Serbia) • Association agreements with Mediterranean countries (Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia) in 2000. Agadir Agreement among Tunisia, Morocco, Egypt and Jordan (FTA). Launched DCTFA Negotiations started in April 2013 with Morocco. • Free Trade Agreements with Mexico (1999), Chile (2002), S Korea (2012), Singapore (2012 0 signed but not yet applied) • EPAs with ESA, Cariforum, PNG (2008) • Trade and Development Cooperation Agreement, South Africa (1999) • Preferential agreements with Peru – Columbia (2012); Central America with Panama, Guatemala, Costa Rica, El Salvador, Honduras, Nicaragua (2012) ; These 2 agreements are not yet into force ECDPM

19. FTAs under negotiations – strategic partnerships • US: Negotiations for a Transatlantic Trade and Investment Partnership (TTIP) started in July 2013 • India – a high potential economy, with rising middle class (markets) and rising GDP (purchasing power). Negotiations are quite slow. • ASEAN(Indonesia, Malaysia, Philippines, Singapore, Philippines, Thailand, Vietnam, Cambodia, Laos, Myanmar): Third largest trading partner of EU. Negotiations for FTA have started with Malaysiain 2010, with Thailand in 2012 and with Vietnamin 2012. • Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE). Negotiations were re-launched in 2002 • MERCOSUR - Argentina, Brazil, Paraguay and Uruguay – first EU’s market for agriculture (19.8% of total EU imports). Negotiations difficult (8 rounds) • Canada: Started in May 2009, Quite advanced, but yet to be concluded. • Japan: Negotiations launched in April 2013 ECDPM

20. 3. Overview of EU FTA’s with key partners How will Africa be affected? ECDPM

21. Implications for Africa/ACP Africa/ACP countries are covered by multiple (5) regimes: • LDCs are covered by EBA: DFQF with stricter RoO compared to countries with FTA (except for some textile products where they have ST) • GSP – with trade preferences for a no. of products; with stricter RoO • EPA – only 4 countries (ESA) currently applying the EPAs; some others have signed but not ratified; others have initialed but not signed; • South Africa – TDCA • North Africa: Euromed Agreement; some have started to negotiate DCFTA Given different rules in these agreements, cummulation of RoO is made difficult and countries face competing MA towards EU (varying degree of openness for their products; Not conducive to intra-regional trade because cannot be used as a lever to build regional markets. ECDPM

22. Impact of EU’s trade agreements on Africa • Erosion of preferences: Europe has tariff peaks on a number of products of interest to Africa. This is expected to be eliminated, causing African business to have to compete more to access EU • Beyond tariffs, erosion of preferences due to partners’ improved RoO; non-tariff measures are also tackled (eg. Standards); • Trade diversion: better market access condition, with relatively easier procedures is expected to divert trade away from Africa; • Services and investments: The new generation of agreements is not only about trade. But massively about inter-related investments and services given the high degree of inter-dependence among those economies. Expected to deepen further investment in these sectors if access to markets are improved ECDPM

23. Erosion of preferences: Main exports from African regions to EU ECDPM

24. But also beef, tobacco, furniture EPA Market Access: duty free and quota free EBA Market Access: duty free and quota free GSP Market Access (see table below) ECDPM

25. 1. EU Med Agreements Coverage: Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Tunisia, Palestine, Turkey, Syria (not signed) • Cover essentially trade in goods, being complemented with a number of additional negotiations to open up additional agricultural trade; Duty-free access to the EU for Med industrial products and around 80% of agricultural produce Common rules to allow cumulation of origin within the Euromed and beyond. Regional convention on PanEuroMed preferential rules of origin agreed in 2011 However: proper implementation of the requires complete South-South FTA network ECDPM

26. Key products of interest to Africa 1. Textile and clothing (shirts, tshirts, pulls, trousers, yarn) • Tunisia, Morocco and Egypt are important producers of T&C: DFQF • RoO: single transformation for fabric; double transformation for Apparel • Cummulation: Jordan, Morocco, Egypt and Tunisia have an FTA: allows them bilateral, diagonal and full cumulation 2. Fisheries: • Tunisia and Morocco produce preserved, fresh and chilled fish products, DFQF, except for Egypt on Tuna (duty 20.5%) 3. Other important products include nuts (almonds, cashew) and citrus fruits (oranges, lime, grapefruits etc). All enjoy DFQF ECDPM

27. Preference erosion Key products which will where margins of preferences will be eroded ECDPM

28. 2. Agreements with Latin American countries 4 Agreements: • EU - Mexico (1st generation – not full FTA) – entered into force in 2000 • EU – Chile (1st generation – not full FTA), entered into force in 2003 • EU – Central American countries (2nd generation, more comprehensive). Signed in 2012, expected to enter in force in 2nd half of 2013 (69% lib immediately; 96% in 10 years; 100% in 15 yrs) • EU – Peru – Columbia (2nd generation, more comprehensive) in force since 1st March 2013 with Peru, Columbia being finalised ECDPM

29. Key elements of Agreements • EU – Mexico: does not cover all agricultural products but covers goods. Mex is an important producer of textiles • EU – Chile : do not cover all agricultural products • EU – CA and EU-Peru-Columbia: DFQF (they already GSP+ countries) Rules of origin for EU-CA and EU Peru-Columbia: • Bilateral Cumulation; • Diagonal cumulation between: EU, Columbia and Peru on the one hand; and Costa Rica; El Salvador, Guatemala; Honduras; Nicaragua; Panama and Venezuela; or at the request of C and P for materials originating from Central America, Latin America and Caribbean countries if: Products are sufficiently worked; RoO are identical in these countries; Countries have signed a customs cooperation agreement + certification and verification of status ECDPM

30. Preference erosion 1. Fish and fish product 2. Fruits: bananas, pineapples, mangoes (origin: Central America, Peru) 3. Coffee, tea (origin: Columbia, Central America) ECDPM

31. 4. Cocoa and cocoa products (origin mainly Ecuador, Peru) 5. Textiles products (origin: Mexico, Central America) ECDPM

32. 6. Other potential exports to EU 7. Nuts ECDPM

33. 3. EU – South Korea • South Korea signed an FTA with the EU in 2011. This FTA is considered as the most advanced trade agreement the EU has signed so far. S. Korea does not benefit from full duty free and quota free market access to the EU. • On average, S. Korea is not a large trading partner to the EU: EU’s share of imports from S. Korea represents 2% of its total imports and EU’s share of exports to Korea also represents 2% of total EU export. • However, for specific sectors, such as automobile and machinery, S. Korea is an important player ECDPM

34. ECDPM

35. Overview of preferences granted to S. Korea in selected products • Textile products: South Korea is not a major exporter of textiles to the EU. Main markets are in Asia – Mainly Japan and China • FTA will provide DFQF EU market. However, RoO are quite strict for textile products (double stage transformation – value tolerance 8 – 10% of the weight of basic materials used) Fish and fish products – S. Korea exports mainly prepared and preserved fish to EU (15.5% of its total exports go to EU). No DFQF; derogation; RoO: vessel and crew requirement; value tolerance 10% of ex-works price) ECDPM

36. Beef, fresh, chilled and frozen (no DFQF, but 50% lib) ECDPM

37. EU current FTA negotiations and potential impact on Africa ECDPM

38. 1. EU–US Trans-Atlantic Trade & Investment Partnership US represents 16% of the total trade of EU, mostly in industrial pdts ECDPM

39. Composition of trade and tariffs ECDPM

40. Key issues to watch out for Africa • Discussions on agriculture: • EU regulations against GMO crops; • Restrictions on import of beef, chicken that are fed with ractopamine, an additive that promotes the growth of lean muscles in livestock; • Other food safety rules in EU 2. NTMs linked to investment and procurement restrictions (in the US buy-America; in EU support to SMEs) 3. RoO are likely to be very flexible to foster integration of global value chains ECDPM

41. 2. Other EU trade partners: Which regimes apply? • State of play of EU trade policy: • India, Thailand, Malaysia, Vietnam: Currently negotiating FTAs • Philippines: Considering negotiating FTAs (not started yet) • Pakistan: Special incentive ECDPM

42. a. India: currently negotiating an FTA Why? • An important partner for the EU, a high potential emerging economy • Middle class is rising (currently 150 million, expected to reach 600 million in 2020) – HUGE market potential for EU products Current state of play: • India is a beneficiary of the EU's GSP scheme. In 2010, around 85% of Indian exports to the EU entered under a zero or a preferential tariff. But average tariffs is high in India for EU products (31.8 % for agric and 10.1% for industrial products) • FTA launched in 2007 - expected to cover 25% of world population and 30% of world GDP ECDPM

43. EU not expected to provide DFQF – will liberalise 95% of its market (with an exclusion list of 226 products, mostly chemicals, petrochemicals, plastics, ceramics and glassware. • India expected to liberalise 90%, with an exclusion list of about 150 agricultural goods (including dairy products, sugar, fruits and vegetables, meat products, fish and fish products) and 250 manufactured products such as some textiles and clothing, textile machinery, cars, and wines and spirits. Key challenges: India is inflexible on tariffs on automobiles (peak of 60%); access to wines and spirit; want to exclude products where EU has subsidies (dairies). • Concerns regarding clauses on human rights, social and environmental; labourstandards. • Strict requirements on Intellectual Property Rights issues from EU, which may curtail the production of cheap generic drugs, especially AIDS drugs which India exports to Africa. • Concerns in Services – movement of people, liberalisation of services such as professional services ECDPM

44. India exports under the Generalised system of preferences. Big producer of textiles Rate of duty applied to Indian textile products GSP preferences are suspendedfor yarn and fabric because the value of EU imports from India for 3 consecutive years exceeded 14.5% of total EU imports of yarn and fabric from all GSP countries. Here India pays the normal tariff (non-preferential). RoO: GSP Rules apply: double transformation ECDPM

45. b. Viet Nam EU signed a Partnership and Cooperation Agreement with Vietnam in June 2012. This is a political agreement. Negotiations have started on a FTA in June 2012. Main Vietnamese textile products are cotton pullovers, t-shirts (cotton, man made and trousers. Vietnam is not an LDC and benefits from GSP Scheme. ECDPM

46. c. Thailand and Philippines Important producer of numerous textile products and fisheries ECDPM

47. Rules of origin 1. Fish fillets: Wholly obtained 2. Tuna, skipjacks and prepared fish: all materials from fresh fish are wholly obtained Value tolerance: 15% ex-works price Derogations: No derogations Vessels: Registration and flag requirements; Either 50% owned by nationals or owned by company with head office in country or EU + at least 50% ownership Possibility to use Regional cumulation to vessels of different beneficiary countries (product will have origin of country which flag the vessels) ECDPM

48. d. Pakistan (Special arrangement) • Pakistan is an important partner for the EU, although trade and investment remain below its potential. • In 2011, after a severe flood resulting in a serious impact on Pakistan's economy, EC agreed on a package of measures to assist in the recovery of Pakistan's economy. • One element of this package is the granting of 2 years unilateral trade preferences on a number of goods (75 products) imported into the EU from Pakistan. Duty free for 55 products; tariff rate quotas for 20 products • Most products are textile products. These include yarns, fabric and apparel – but most products on interest to Africa are NOT INCLUDED. The normal GSP applies to these products and Pakistan pays the same duties as Vietnam above. ECDPM

49. With the exception of wool pullovers, Pakistan’s main market for textiles products is in fact the US, with the EU representing less than 25% of Pakistan’s exports ECDPM

50. What then for Africa? ECDPM