Business Daily (Nairobi)
James Thuo Gathii
15 November 2007
opinion
In an editorial on Thursday November 1st 2007, Peter Mandelson, the EU Trade Commissioner and Louis Michel the EU Development Commissioner wrote an opinion piece titled Nobody is Forcing Free Trade on Africa. That piece strongly advocated using free trade to help African, Caribbean and Pacific build stronger economies. There is certainly no doubt that these countries want stronger economies and free trade is certainly one way to build stronger economies.
Their editorial is welcome since these top EU officials now acknowledge that some ACP regions will need more time than the end of this year to conclude new trade agreements with the EU.
These new trade agreements, known as Economic Partnership Agreements, (EPAs), between ACP countries, on the one hand, and the EU on the other, will replace the current preferential trading arrangements. Under these preferential trading arrangements, ACP countries enjoy duty free access for some of their exports to the EU.
These privileged access is not shared by non-ACP developing countries. However, since the WTO waiver allowing the EU to extend this preferential access to the end of this year, the EU and ACP countries committed themselves in the Cotonou Agreement of 2000 to negotiate Economic Partnership Agreements (EPAs) by the end of 2007.
The commitment by the EU and ACP countries in 2000 to negotiate EPAs was premised on several understandings.
First, that EPAs would open up European markets to agricultural products from ACP countries in the same way that ACP countries would open their economies up to those trade items that the EU has a comparative advantage over ACP countries.
This was a necessary assumption since for more than the last 50 years, trade liberalisation in industrial products far out paced liberalisation in agriculture.
In other words, global trade was rigged in favour of industrial products and against agriculture. Industrialised economies like the EU benefited both from their comparative advantage in industrial products and for their agricultural produce - a feat that these countries achieved by highly protecting their agricultural sectors from low cost producers in developing countries.
For example, huge subsidies to high cost EU sugar producers has hurt low cost ACP sugar producers. The EU also subsidises its cotton farmers thereby adversely affecting over 10 million lower cost cotton farmers in West and Central Africa.
The US is a bigger culprit here since it not only has bigger cotton subsidies, but these subsidies have been found to be inconsistent with the rules of the World Trade Organization (WTO), by its highest judicial organ, the Appellate Body.
The EU argues its cotton subsides are much lower than those of the US and that it is the biggest buyer of African cotton. This is exactly where the problem here is. The EU buys African cotton at rock bottom prices because subsidies to cotton farmers in the EU and in the US have depressed the cost of African cotton.
These prices would be much higher for African farmers whose cotton would command the biggest share of the global cotton market in a genuine free trade regime. Today, cotton from the US commands world markets although the US is a higher cost producer of cotton than African countries that produce cotton.
In short, those countries in West and Central Africa that produce cotton would be much better off in a genuinely free trade regime than in the current regime that is woefully rigged in favour of developed countries like those in the EU.
In fact, many economists have shown that such a free trade regime would be much more beneficial to developing countries than all the assistance they receive from developed countries. Unfortunately, EPAs are not addressing the distortions in global trade.
A second premise upon which EPAs were to be negotiated under Article 36 of the Cotonou Agreement was that barriers to trade between EU and ACP countries would be progressively removed.
In other words, EPAs would not suddenly unleash the forces of demand and supply on 1st January 2008. There was a recognition that technologically advanced industrial economies cannot be expected to compete on a level playing field with poor and agrarian societies.
Thus, as much as ACP countries aim to break dependence on trade preferences and commodity trade as the EU brass argued in their opinion piece, ACP countries cannot forget how big economies like the EU keep their markets inaccessible using sanitary and phytosanitary standards.
These standards undermine the preferential access and will undermine any free trade regime that will come into force under the EPAs. For example, the EU has imposed stringent chemical residue content limits in flower and other exports from ACP countries like Kenya.
These limits have not only increased the cost of production but increasingly made the EU market inaccessible especially for small scale farmers who may not be able to afford alternatives to mythl bromide which the EU hates to have traces of in produce entering the EU.
In the meantime, the state of California in the US has been putting up a brave fight to permit it to continue using mythl bromide as farmers in the ACP are forced to abandon using it and in the process losing their share of the EU market.
While the EU has every right to impose whatever sanitary or phytosanitary standards it decides, WTO rules require it to ensure that those standards are based on a scientific justification and a risk assessment showing they pose risks to human, animal or plant health.
ACP countries do not have the resources the US has to challenge EU sanitary and phytosanitary standards as the US has done successfully.
This is a second example of how rigged the application of trade rules are in favour of developed economies and against poor countries. It is notable that among the over 70 ACP countries are 44 of the poorest countries in the world.
Each of these country's share of global trade is much less than one per cent.
Thus, it seems foolhardy to imagine that for these poorest of poorest countries any amount of transition time to trade on a level playing field with the EU will come some day soon.
This is just the stark reality that even Mandelson and Michel concur with. The Cotonou Agreement and the WTO Agreements contemplated this challenge.
One of the ways in which the Cotonou Agreement sought to address this problem of size was to negotiate trade agreements among six regions of the ACP countries.
Thus rather than negotiate bilaterally, the EU is negotiating with six ACP regions. Building regional markets is certainly an important way of overcoming the small size of individual ACP economies.
Yet, even these regions are nowhere near as muscular as the market power that the EU wields.
Take the Central African region as an example. It includes war torn countries like the Democratic Republic of Congo, Central African Republic and Chad. These countries also have the least capacity to negotiate a complex trade agreement with the EU. Yet, there is word that the Central African Region is one of those most likely to complete an EPA with the EU soon.
On its part, the primary trade treaty of the WTO sought to address this problem of unevenness in the trading relationships between rich and poor countries through the principle of special and differential treatment.
This is the principle that allows the trade preferences that are due to be eliminated by EPAs. Under this principle, developed countries are exempted from the requirement that every time they open their market to a developing country, they have to automatically extend the same advantage to all WTO member countries.
While Mandelson and Michel argue that it is non-ACP developing countries that are loudly protesting EU preferences to ACP countries, they conveniently forget to tell us the big pressure of EU interest groups -including EU farmers and big business -will benefit enormously once the EPAs come into effect.
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Could you please list the Developed and Developing countries of Africa? Without all of the explanation, I just need to know what countries are Developed and Developing. I can't find it anywhere else on Google. Thankyou.
-Jesslyn