The New Times (Kigali)

9 February 2014

East Africa: Is EAC At Gunpoint Over EU Trade Agreement?

It failed again in January; they will have to try once more in March.

On January 30, ministers from the East Africa Community (EAC) partner states flew to Brussels to meet the European commissioner for trade to conclude three days of negotiations on the Economic Partnership Agreement (EPA) with Europe.

But according to a statement from the EAC secretariat in Dae es Salaam, the negotiations didn't yield much compounding the concerns of the region's private sector especially in Kenya where a multi-million dollar horticulture sector stands to lose most with more delays.

The region's negotiation team was led by Phyllis Kandie, chairperson of the EAC Council of Ministers with Secretary General Dr. Richard Sezibera representing the EAC secretariat while the EU delegation was led by the trade commissioner Karel De Gucht.

But according to Richard Owora, EAC's head of corporate communications and public affairs, after three days of intense negotiations from January 28 to 30th, the parties failed to agree on the most important matters.

"Consensus was not reached by both parties on Article 15 (Duties and Taxes on Exports) and on Article 16 (Most Favoured Nation), both parties therefore agreed that another ministerial meeting, to be preceded by technical and senior officials meetings, be held in March 2014 in the EAC region to work towards the conclusion of the EPA negotiation process," said Owora in a statement.

Both Parties also failed to reach an agreement on rules of origin and agriculture demanding that further discussions be held at the technical and senior officials' level to iron out the sticky issues.

Agreement was reached on the lesser issues regarding the chapter on institutional arrangements and dispute settlement and how their final provisions will be formulated but nothing was said of the article regarding the relations with the Cotonou Agreement.

The Cotonou Agreement is a partnership accord between developing countries and the EU and since 2000, it has been the framework for the EU's relations with at least 79 countries from Africa, the Caribbean and the Pacific (ACP).

The question is how does the EAC and EU deal with ACP members in harmony with the pending EPA agreement? Moreover, EAC member states are actually beneficiaries of the ACP arrangement entered on individual basis during years when the integration was in limbo. Today as members of EAC, these countries, including Rwanda must make clear their choices or lose their benefits under ACP.

It's an issue which put EAC partner states in a heated disagreement mid-last year when Kenya wanted to go ahead and reaffirm its individual arrangement with the EU in a bid to save market for its flowers in Europe.

Can an agreement be reached in March?

The answer to that lies in the origin of the EAC-EPA framework and the sticky issues that have delayed a final signature from both parties.

The year 2002 is when the first phase of the EPA negotiations started in Brussels with Europe seeking to reach agreement with countries under the ACP relationship but in 2003, negotiations were brought down to regional level to incorporate integration efforts of ACP members.

At that level, East African countries belonged to the Eastern and Southern Africa (ESA) region and they chose to negotiate under a six-phase approach incorporating issues of sustainable development, market access, fisheries, agriculture, fisheries and trade in services.

Given the complications of the negotiations, not a lot was achieved at that level and because of that, signing of a comprehensive EPA that was expected to be done by end of 2007 didn't materialise.

The main reason why ESA regional members failed to reach an agreement with EU by the 2007 deadline was the fact that around that time, the EAC was in rejuvenated shape explaining why that same year, Kenya, Uganda, Tanzania, Rwanda and Burundi divorced from the ESA grouping and crafted their own EPA Framework with the EU in November 2007.

From that time, the EAC started negotiating in its capacity as an integrated region on behalf of its members and it's the reason why Kenya came under intense scrutiny last year when it neared the brink of signing an individual agreement with European Union, a move that would have undermined the regional efforts to negotiate as a block.

In fact there's a legislative process underway by the East African Legislative Assembly (EALA) to create a Joint Trade Negotiations Act that once in force would bar EAC members from negotiating trade agreements individually.

A trade agreement with Europe is definitely important because the EU continues to be EAC's largest trading partner, accounting for about 20% of EAC exports as of 2009 with the region's main exports to European countries being agricultural products such as coffee, tea, spices, flowers, fish and fish products. Kenya's booming flower sector also ensured that horticultural products accounted for 72% of EAC total exports to EU in 2008, according to the EAC trade reports.

Meanwhile, mechanical and electrical machinery, vehicles and pharmaceuticals are the main products the EAC imports from Europe.

Gunpoint agreements

However, despite this mutual benefit between Europe and EAC, the EPA framework has struggled to be accepted by both parties.

It had been envisaged that the Framework Agreement would be signed by June 2010 but this didn't happen because of contentious issues such as the Most Favoured Nation (MFN) and matters regarding export taxes.

A new deadline for the conclusion of a comprehensive EPA was set for July 31, 2012 but that too wasn't met and it had to be postponed.

There's a strong feeling among experts in East Africa that by insisting on the inclusion of the MFN, the EU is holding the region at gunpoint to accept a clause that would legally tie their hands regarding who to trade with besides Europe.

Under international trade, Most Favoured Nation means the country which is the recipient of this treatment must, nominally, receive equal trade advantages such as low tariffs and high import quotas, as the "most favoured nation" by the country granting such treatment.

Understand it this way; that though reciprocal, incase EAC reached a separate agreement with another trading partner such as China, any benefits in such an arrangement given to China would also be claimable by Europe, a tricky situation for the region to pledge.

It partly explains why an agreement couldn't be reached last month because Europe seems to be holding the region at ransom over this sticky issue.

Michael Baingana, a consultant hired by the East African Business Council (EABC) to study provisions of the agreement, recently submitted his notes to the region's private sector body and made it clear that the EAC should resist being forced into signing anything that they would regret at later stages.

For instance, the EU negotiating team holds that upon entry into force of the EPA agreements, the EAC partner states should not introduce new tariffs or raise existing ones and that, tariffs so eliminated must not be re-introduced at some later date.

"The private sector view on this is that our negotiators should stick to principles, and maintain EAC's position on redrafting the clause to allow flexibility. The principle of flexibility of policies is important for our economies and businesses. We need to persist even if the EU has shown reluctance to allow for future tariff modifications," advises Baingana.

On the issue of MFN, Baingana argues that "the private sector wants the clause on the 'Most Favoured Nation' status removed, or reformulated, to allow opportunities for the EAC to expand trade with other partners."

These are issues that are going to make or break the negotiations in March when EU negotiators come to East Africa.

Will they allow the region freedom to do business with other trade partners? Can they relax their demands on export tariffs? Will the EAC give in to pressure and sign at gunpoint? Who needs this agreement more?

The EAC negotiators are under considerable pressure given that the EU under its Market Access Regulation of 2007, African ACP members were given up to last month to address their EPA statuses or risk losing their trade benefits mainly the duty-and-quota-free market.

Speaking on behalf of the region's private sector, the EABC is now urging the EAC to lobby the EU to postpone that deadline until the EPA is signed.

The irony is, as ACP member countries, the Most Favoured Nation rule is not applied and they're allowed to trade with anyone outside the EU yet under the EAC negotiations, Europe wants stringent measures to limit the region's trade partners, a move many regard as selfish.

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