Ethiopia and EPA Negotiation 2008 - FES Ethiopia

2008
Ethiopia and EPA Negotiation
Review and Key Issues Ahead
Final Report
Friedrich-Ebert-Stiftung
Addis Ababa Office
Mamo E. Mihretu
15 June 2008

Contents
Acronyms ................................................................................................................................. 3
1. Reasons for Replacing the Cotonou Partnership Agreement with EPAs ..................... 4
1.1 WTO Rules.................................................................................................................... 4
1.2 Weakness of Unilateral Preferences.......................................................................... 5
1.3 Europe’s Attempt to maintain its Influence over ACP countries ............................ 6
2. Legal Basis under Cotonou for EPA Negotiations .......................................................... 6
3. Review of the Negotiation............................................................................................... 8
4. Content of the Interim EPAs........................................................................................... 11
5. Ethiopia’s Main Concerns with the Interim EPAs .......................................................... 16
5.1 The MFN Provisions in the Interim EPAs................................................................ 16
5.2 Regional Integration ............................................................................................ 17
5.3 Export Tax.............................................................................................................. 19
5.4 Scope of Liberalisation ........................................................................................ 20
5.5 Prohibition of the Use of Quantitative Restrictions............................................. 20
5.6 Implementation of the Customs Valuation Agreement ................................... 21
5.7 Definition of Customs Duty .................................................................................. 23
5.8 Precedence that the Interim EPAs set to the legality of other preferences ... 24
5.9 Development Cooperation ................................................................................ 24
6. The EPA Interim Agreement and a way forward for Ethiopia..................................... 26
6.1 Initialling/ acceding to Development Chapter of the Interim EPA ...................... 27
6.2 EBA as a permanent solution................................................................................... 28
6.3 Concluding a Full EPA .............................................................................................. 36
7. Conclusion: Key Issues Ahead ....................................................................................... 43
7.1 Trade in Services Issues............................................................................................. 44
7.2 Government Procurement....................................................................................... 46
7.3 Investment................................................................................................................. 47
7.4 Competition Policy ................................................................................................... 48
7.5 Development Cooperation ..................................................................................... 50
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References ............................................................................................................................. 51
Annex 1: Comparison of the EAC Interim Agreement and the ESA Interim Agreement. 53
1.1 The main areas of difference between the Interim Agreements of ESA and EAC. 54
1.2 Summary.................................................................................................................... 58
Acronyms
ACP
AfT
AGOA
CARIFORUM
CEMAC
Centrale
CET
COMESA
CPA
EAC
EBA
EC
ECDPM
ECOWAS
EDF
EPA
ESA
EU
FTA
GATT
GSP
IA
LDC
MFN
ODI
RoO
SACU
SADC
SDT
TDCA
Agreement
TNI
UEMOA
African, Caribbean and Pacific
Aid for Trade
(United States) Africa Growth Opportunity Act
Caribbean Forum
Communauté Économique et Monétaire de l'Afrique
Common external tariff
Common Market for Eastern and Southern Africa
Cotonou Partnership Agreement
East African Community
Everything but Arms
European Community
European Centre for Development Policy Management
Economic Community of West African States
European Development Fund
Economic Partnership Agreement
Eastern and Southern Africa
European Union
Free-trade agreement
General Agreement on Tariffs and Trade
Generalised System of Preferences
Interim EPA Agreement
Least developed country
Most favoured nation
Overseas Development Institute
Rules of origin
Southern African Customs Union
Southern Africa Development Community
Special and differential treatment
(EU–South Africa) Trade, Development and Co-operation
Trade Negotiation Insights
Union Economique et Monétaire Ouest Africaine
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WTO
World Trade Organization
1. Reasons for Replacing the Cotonou Partnership
Agreement with EPAs
Through a succession of preferential trade deals—signed first in Yaoundé,
Cameroon, in 1963; then in Lomé, Togo, in 1975; and finally in Cotonou, Benin, in
2000—the European Union (EU) and its predecessor have kept their markets
open to countries in Africa, the Caribbean and the Pacific islands (ACP). The
Lomé and Cotonou conventions gave the ACP countries privileged access to
the EU market and development aid without asking much in return.
Under the Economic Partnership Agreements, this relationship would be
changed. The following are the main reasons for replacing the Cotonou
Partnership Agreement with EPAs.
1.1 WTO Rules
Under the WTO rules, two categories of unilateral preference are allowed
without waivers. First, there is the Generalized System of Preference (GSP) under
the Enabling Clause of the GATT which, to be legal, must be available to all
developing countries. Since a number of GSP beneficiaries are advance
developing countries whose exports compete with production in the preference
granting country, product coverage under GSP is limited and the preference is
less generous. Second, there is a preference system uniquely available to LDCs
which is more generous as LDCs are rarely considered competitive threats. 1
Unlike most GSP programs, preference system to LDCs often includes all or
almost all products in the tariff schedule. The EBA initiative is such a program and
extends immediate duty-free and quota free treatment to almost all products.
1 Bangladesh, an LDC, is competitive in trade in textile and clothing, however. As such, it is
treated with caution when developed countries extend preferential treatment to LDCs.
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Unilateral preference programs not falling within these two categories require a
waiver to be consistent with WTO rules. Preference under Cotonou Partnership
Agreement did not fall under either category. They were not generalized and
non-discriminatory since beneficiary status was closed to all countries that were
not former European dependencies and /or were not located within Africa, the
Caribbean or the Pacific. As such it didn’t qualify under GSP. Beneficiaries status
went beyond least developed countries since many of the beneficiaries were
non-LDCs. Thus, when the Cotonou Partnership Agreement was signed in 2000,
an understanding was reached the Lome - Cotonou Preference would be
replaced by December 31, 2007 with EPAs, consistent with GATT Article XXIV.
Article XXIV allows countries to maintain reciprocal “preferential” access for
members of a Free Trade Agreement (FTA) provided that duties are eliminated
on substantially all products traded among the members of the FTA within a
reasonable period of time.
1.2 Weakness of Unilateral Preferences
Another reason why the Cotonou Partnership Agreement needed to be
replaced, at least according to the European Union, was the failure of the
Lome- Cotonou preferential schemes to prompt diversification, competitiveness
and growth in ACP countries although the schemes made it possible for 97% of
exports from these countries to enter the EU free of customs duty. The European
Commission argues that unilateral preferences did not tackle the main
development problems in ACP countries. This is reflected in the share 2 and the
composition of EU imports from ACP countries: in 2002, only 3% of EU imports
originated from ACP against 6.7% in 1976. 65% of these imports consisted of raw
materials. Also, only ten products made up for nearly 60% of EU imports from
ACP. 3 On the other hand, some Asian countries, like China and South Korea,
have shown spectacular growth over this period, due partly to the dynamism of
their exports to the EU, without benefitting from a similarly advantageous trading
regime. The declared objective of economic and trade cooperation is,
therefore, “fostering the smooth and gradual integration of the ACP States into
the world economy, with due regard for their political choices and
development priorities, thereby promoting their sustainable development and
contributing to poverty eradication in the ACP countries”. 4
2 Critics rightly argue that although the share of ACP exports to EU might decline, the volume
has actually increased. Contrary to the common perception, recent studies showed that the
trade effect of Lome – Cotonou Preference was positive. The share of ACP exports has declined
not because the ACP’s export declined but because Asian exporters have done much better.
3 European Commission: Economic Partnership Agreements: Means and Objective(2005)
4 Article 34 of the Cotonou Partnership Agreement
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1.3 Europe’s Attempt to maintain its Influence over ACP countries
The Europeans are increasingly worried that they are losing both trade and
influence in particular on African continent to competition from resourcehungry,
developing countries such as China and India. 5 African trade with China
has increased to more than $50 billion over the past five years. China is now the
third biggest trading partner on the African continent. Even though Africa
remains a minor partner for China, representing only 3% of Chinese global
exports and 3.7% of its imports, the Asian giant replaced Germany as the
continent’s biggest supplier in 2005. 6 America has also been recruiting new
allies in Africa in its fight against Islamist terrorism on the continent.
At the beginning of the negotiation, no European officially admitted that one of
the objectives behind the Economic Partnership Agreement is the feeling on
Europe’s part that it is “missing out”. It is now clear that the Interim Economic
Partnership Agreements are an explicit counterpoint to deepening China-Africa
and China-India trade relationship. Louis Michel, European Commissioner for
Development, has recently stated that Europe’s generosity in terms of aid for
development did not mean that it would allow its partner countries to grant
more favourable treatment to its commercial rivals; “we are generous, but not
naïve”, he said. 7 This also explains European Union’s determination to include
the unprecedented MFN clause in a bilateral free trade agreement, despite
African countries resistance saying that the clause is both politically and
strategically unacceptable. As we shall see in section 4, the MFN clause in the
Interim EPAS requires ACP countries to extend automatically to the EU any
preference that they might ‘one day’ grant others. This is a pre-emptive
measure on the part of the EU to counter better trade deals between
developing countries - particularly India, Brazil, China and the African nations.
2. Legal Basis under Cotonou for EPA Negotiations
The legal basis for the Economic Partnership Agreement negotiation is inscribed
in the Cotonou Partnership Agreement (CPA) concluded in 2000. It therefore
useful to go back and examine the original intent of EPA as demonstrated in the
5 “Africa and Europe: A desperate suitor”, The Economist, December 6,2007
6 Cheikh Tidiane Dièye and Victoria Hanson, MFN provisions in EPAs: a threat to South-South
trade? TNI, Volume 7. Number 2 / March 2008
7 www.ipsnews.net/news.asp?idnews=40762 , Quoted in Cheikh Tidiane Dièye and Victoria
Hanson, MFN provisions in EPAs: a threat to South-South trade? TNI, Volume 7. Number 2 / March
2008
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Cotonou Agreement. The Cotonou Agreement did two important things with
respect to trade (1) it extended the lifetime of the non-reciprocal preferential
trade arrangements of Lomé IV for a transitional period of eight years, ending on
31 December 2007; 8 and (2) it set out an agenda for the negotiation of new
trading arrangements, called EPAs, that will replace the Lomé IV trade provisions
beginning 1 January 2008. 9
As for the substances of the EPAs, Article 37(7) of the agreement provides that
“negotiations of the economic partnership agreements shall aim notably at
establishing the timetable for the progressive removal of barriers to trade
between the Parties, in accordance with the relevant WTO rules. On the
Community side, trade liberalisation shall build on the acquis and shall aim at
improving current market access for the ACP countries through inter alia, a
review of the rules of origin. Negotiations shall take account of the level of
development and the socio-economic impact of trade measures on ACP
countries, and their capacity to adapt and adjust their economies to the
liberalisation process. Negotiations will therefore be as flexible as possible in
establishing the duration of a sufficient transitional period, the final product
coverage, taking into account sensitive sectors, and the degree of asymmetry
in terms of timetable for tariff dismantlement, while remaining in conformity with
WTO rules then prevailing.”
ACP countries, however, are under no obligation to conclude an EPA. In
addition, the incentives to conclude the negotiations for ACP LDCs are curbed
due to the availability of market access through the Everything-But-Arms (EBA)
initiative. LDCs benefit from EBA under the EU Generalized System of Preferences
(GSP) which gives LDC products duty-free quota-free market access to the EU
8 See Articles 36:3 cum 37:1 of Cotonou Agreement. Article 36:3 provides: “In order to facilitate
the transition to the new trading arrangements, the non-reciprocal trade preferences applied
under the Fourth ACP-EC Convention shall be maintained during the preparatory period for all
ACP countries, under the conditions defined in Annex V to this Agreement.” Article 37:1 provides:
“Economic partnership agreements shall be negotiated during the preparatory period which
shall end by 31 December 2007 at the latest. Formal negotiations of the new trading
arrangements shall start in September 2002 and the new trading arrangements shall enter into
force by 1 January 2008, unless earlier dates are agreed between the Parties.” The 4th WTO
Ministerial Conference granted a waiver covering this period. See WTO, WT/MIN (01)/15, 14 Dec.
2001, para. 1.
9 Article 37:1 of the Cotonou Agreement
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market, in line with the provisions made by CPA Article 37(9). 10 This regime,
available to ACP LDCs, guarantees nominal access to the EU, superior to access
available under the Lomé/Cotonou preferential regime. For non-LDC ACP
countries that are not in a position to conclude an EPA, “alternative possibilities”
will be examined “in order to provide these countries with a new framework for
trade which is equivalent to their existing situation and in conformity with WTO
rules” (CPA Article 37(6)). EPAs are therefore an integral part of the Cotonou
approach. The Cotonou Agreement considers EPAs as the main instrument of
economic and trade co-operation closely linked to the political and
development finance aspects of the agreement. The objectives and principles
of EPAs are also set out in detail in the Agreement. EPAs are considered to be an
instrument for development by strengthening regional integration and improving
the business environment in a credible and sustainable way. 11
3. Review of the Negotiation
The negotiations on Economic Partnership Agreements (EPAs) were launched in
Brussels on 27 September 2002. At the opening session an agreement was
reached to sequence the negotiations in two phases. The first phase, at an all-
ACP-EC level, addressed issues of interest to all regions. The second phase, at
the level of ACP countries and regions, addressed regional- specific issues and
commitments.
The all ACP level negotiations were concluded at an ACP-EC ministerial meeting
of 2nd October 2003 with a joint report 12 that provided a point of reference for
negotiations with six regional groupings of ACP states and noted areas of
convergence and divergence. There was broad convergence on the overall
objectives and structures of the EPA and issues such as WTO compatibility,
services and market access. The main divergence was over requests for
additional financial resources over and above the European Development Fund
(EDF) provisions and the sequencing of support to build capacity for the
10 This is not to say that Article 37(9) of the CPA makes EBA contractual and legal. Some
observers have argued that in practice, however, the EBA regime might not be superior to the
Lomé/Cotonou regime due to more restrictive rules of origin. See San Bilal, Concluding EPAs:
Legal and Institutional Issues, 7 May 2007.
11 See European Commission: Economic Partnership Agreements: Means and Objective(2005)
12 Joint Report on the aIl-ACP — EC phase of EPA negotiations, Brussels, 2 October 2003
ACP/00/1 18/03 Rev. 1,ACP-EC/NG/NP/43
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egional trade arrangements envisaged by an EPA. In line with the provisions in
Article 37:3 of the Cotonou Agreement, both sides agreed that EPAs need to be
accompanied by appropriate development support measures in order to allow
ACP countries and regions to maximize the benefits they should be deriving from
EPAs.
Negotiations on the ESA-EC EPA began formally on 7 February 2004 in Mauritius
with the adoption of the official roadmap for the talks. The ESA side consists of
Burundi, Comoros, Djibouti, DR Congo, Eritrea, Ethiopia, Kenya, Madagascar,
Malawi, Mauritius, Rwanda, Seychelles, Sudan, Uganda, Zambia and Zimbabwe.
Europe is the most important trade and investment partner for the ESA region as
a whole as well as for nearly all the countries in the region.
The ESA region opted to negotiate in six clusters, these being: Development
Issues, Market Access, Agriculture, Fisheries, Trade in Services, and Trade-Related
Issues. Negotiations with EC are conducted at the level of Ministers and level of
Ambassadors. The ESA group has selected six Ambassadors (based in Brussels)
and six Ministers to lead the negotiation at the two levels. Ethiopia was an
Ambassadorial Lead Spokesperson for Development Issues, and Ministerial
Alternate spokesperson for Agriculture cluster.
At the beginning of the negotiation, the negotiators had an ambitious vision
and agenda. There was a sincere hope that the EPAs would give ESA countries
the chance to reduce poverty by reforming their infrastructure and adjusting
their production capacities. Moreover, the negotiation was considered as an
instrument for the creation of bigger regional markets that will ultimately
stimulate trade and investment. Over the years, however, more pragmatic
considerations, such as making the Cotonou Partnership Agreement compatible
with WTO rules and preventing trade disruptions, replaced the original ambitious
visions and objectives of the EPA agenda. Most ESA countries engaged in EPA
negotiations with reluctance, minimalist and mercantilist approach. The prime
objective had been to maintain their preferential market access to the EU while
making minimal commitments in terms of opening markets or regulatory reforms.
Understandably most ESA countries perceived EPAs, not as an opportunity but
as cost to be paid to continue to export to the Europe. If anything, WTO
compatible preferential regimes for LDCs such as EBA served as perverse
incentives not to fully engage in the EPA negotiations.
The final shape of the EPA negotiation emerged only in the last few months of
2007. The EPA negotiations in Brussels during November 2007 resulted in the
irrevocable split of the ESA group. After the negotiations in Madagascar it
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ecame apparent that there would be no ESA region market access offer and
therefore different groups determined to make their own market access offers to
the EC. The EC obliged with this and agreed that individual market access offers
could be made. In time this has lead to the EAC group leaving the ESA
configuration and almost all the countries of the ESA group making individual
market access offers to the EC. The Horn states did not make a market access
offer to the EC.
The EC offered an interim agreement (IA) to those countries willing to sign, to
avoid market access disruption. This was due to the fact that it was clear that
the full EPA would not be completed by the end of 2007. The IA was open to all
ESA countries and they were invited to initial the agreement. For the full remit of
the IA to come into effect the ESA states would have to make individual market
access offers that the EC agrees to. The offering of the IA and the acceptance
of the individual market access offers from ESA states and groups of ESA states
threatens to have a major impact on the negotiations that are due to continue
in 2008.
The EAC group along with Tanzania from SADC configuration initialled the IA,
including Tanzania, and is now expected to complete the full EPA by the end of
2008. This has large consequences for the region, as the group has arguably
acted outside of the negotiating mandate as agreed at the COMESA Heads of
State meeting in 2003 at Khartoum. Therefore, the first major issue to determine is
what the ESA configuration means at the moment. The EAC states, excluding
Tanzania, had agreed to negotiate the EPA within the ESA configuration, as they
have now gone alone it appears that the ESA configuration may no longer be a
“legal entity”. It may be necessary to agree a new configuration. The fact
remains for Ethiopia that the loss of the EAC means that the countries that
remain in the configuration, excluding the Horn countries, are geographically
distant and in reality little trade occurs between these countries and Ethiopia.
For 2008 the main task should include to review the configuration and determine
its viability. Further the signing of the IA by some countries and not others within
the region demonstrates that the region is not unified. The establishment of some
form of unity between the remaining parties is necessary otherwise the region
will not be able to negotiate an EPA beyond individual agreements. The long
term implications of the split in ESA could have negative impacts on the
COMESA configuration, due to the individual nature of the EAC group’s offer to
the EC. Section 5 will examine this issue a little deeper.
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4. Content of the Interim EPAs
As of December, 2008, the European Union has concluded an Interim EPA with
countries in Central Africa, East African Community, East and South Africa, West
Africa, South Africa Development Community, the Caribbean Region and the
Pacific Region. All the Interim EPAs outline the scope of the agreement, issues to
be negotiated under rendezvous clauses, development cooperation provisions,
the period and scope of liberalization.
One exception to this general rule is the Caribbean region. All the 15
CARIFORUM countries with the Caribbean Region have concluded a full
regional EPA covering all subjects, including services, rules, trade in goods and
development support.
A common factor in all the Interim EPAs is the extension of full duty and quota
free market access on the EU side except rice (which will be liberalized in 2010)
and sugar( which will not be liberalized until 2015) and an asymmetric
liberalization schedule on the ACP side. The East African Community was able to
negotiate a transition period of 25 years within which about 82% of the trade
volume will be liberalized. On the other hand, the ESA countries come up with a
separate country- specific liberalization schedule for more than 80% of trade
volume with a transition period of 15 years.
The Interim EPAs have liberal rules of origin for a number of important ACP
exports such as for agriculture, fisheries and textiles. For textiles in particular while
EBA and Cotonou required multiple transformations, the EPAs however only
require a single transformation to be eligible.
The EU hopes to deepen and expand the interim EPA into full ones by the end of
2008 13 . The rendezvous clauses outline the issues to be negotiated in the
comprehensive EPAs. They will include rules governing services, investment,
government procurement, trade rules and development. The Caribbean Region
is considered as an example for what can possibly be achieved although, as
the EU admits, what goes into the final agreement with others will depend on
the different regional capacities and circumstances. The EU feels that the socalled
“Singapore” issues-the questions of investment, competition and
government procurement- as well as services are Cotonou issues too and as
such should be addressed to attract investment. The EU Trade Commissioner,
Peter Mandelson, promised that he would not use the final stage of negotiations
13 It should be noted here that the exact deadline of the negotiation is not the same for all
regions. In the case of EAC, July 2008 is the deadline while in the case of ESA the deadline is
December 31, 2008.
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to “crowbar” the so- called Singapore Issues into the final deals. 14 It is clear,
however, the European Union would want see the liberalization of the service
sector.
3.1 Outcome of the ESA configuration EPA Negotiation
The EU originally expected to conclude separate EPAs with the Regional
Economic Communities (RECs). The declared objective of the EPAs was to give
new impetus to advancing the regional integration agenda. When the EU was
unable to reach agreement with any of them, it decided to negotiate interim
agreements with any country or economic grouping willing to conclude before
the end of 2007. Although signing an individual agreement seems unthinkable at
the start of negotiation, it is now the order of the day. 15
The EU concluded a full Economic Partnership Agreement (EPAs) with the
Caribbean covering goods, services, investment, trade rules and development.
In the Pacific, the EU has an interim agreement with the two countries that
account for almost all trade with the EU – Papua New Guinea and Fiji. Other
non-LDCs in the region have minimal goods trade with the EU and so did not
seek WTO compatible interim agreements at this stage. The aim is to agree a full
regional EPA covering the whole region in 2008. 16
Within sub-Saharan Africa a high proportion of non-LDCs than LDC initialed the
agreement. Ten of the thirteen non-LDCs concluded interim EPAs, the three
exceptions being Congo (Brazzaville), Gabon and Nigeria. Of the 25 SSA LDCs,
only eight initialed interim EPAs. The reason for this difference was that these
LDCs were eligible for duty-free treatment under the EBAs, which of course, did
not require duty liberalization by beneficiary countries. The three non-LDC
countries, i.e., Congo, Gabon and Nigeria, who did not conclude interim EPAs,
were relegated to the GSP list and thus they do not have the duty-free access
into Europe for a number of agricultural products and garments available under
the EPAs. 17 Also, the rules of origin are more restrictive since provisions on third
14 Peter Mendelson, Speech to the European Parliament Development Committee, Brussels, 28
January 2008.
15 See section 5 below for the discussion whether the decision to sign individual agreements will
obstruct regional integration or not.
16 European Commission, EU-ACP Economic Partnership Agreements: State of Play and Key
Issues for 2008
17 Two months after losing preferential access to EU markets, Nigerian cocoa producers and
processors face millions of dollars in losses, as the effects of poor infrastructure and high
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country inputs in such key areas as agriculture, fisheries and apparel are allowed
under the EPAs but not under GSP.
In this paper, our main focus is the ESA configuration, to which Ethiopia is a
member. Five Eastern and Southern African countries (Kenya, Uganda,
Tanzania, Burundi, and Rwanda) signed an Interim EPA in the framework of the
East African Community and the Indian Ocean states and Zimbabwe signed as
ESA configuration.
See table 1 for the outcome of the ESA configuration EPA negotiation.
Table 1 Outcome of the ESA Configuration EPA Negotiation
Non-LDC
Countries
EAC Interim EPA Kenya
ESA Interim EPA
Mauritius,
Seychelles,
Zimbabwe
LDCs
Tanzania,
Uganda,
Burundi,
Rwanda
Comoros,
Madagascar
Volume of
Trade
Liberalized
80(15Years),
82( 25Yrs)
80-98(15
Yrs) 18
Exclusions
Agricultural
products,
wines and
spirits,
chemicals,
plastics,
wood
based
paper,
textiles and
clothing,
footwear,
glassware
Live animals
and meat,
edible
products of
animal
origin, fats,
edible
preparations
and
beverages,
operating costs are compounded by higher tariffs and competition from neighbouring countries
that retained duty-free access to Europe. See Jean Boyle, Nigerian cocoa processors to lose
millions, TNI, Volume 7. Number 2 / March 2008. One would assume that Congo and Gabon did
not sign the Interim EPA given oil, their largest exports, never wants for takers.
18 Comoros, Madagascar and Zimbabwe has agreed to liberalize 80% of their trade within 15
years transition period while Mauritius 96% of its trade and Comoros 96% of its trade will be
liberalized within the same period.
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No Interim EPA
Djibouti,
Somalia,
Eritrea,
Ethiopia,
Sudan,
Malawi,
chemicals,
plastics and
rubber
articles of
leather and
fur skins, iron
& steel and
consumer
electronic
goods 19
Both EAC and ESA Interim Agreements remain open for others for accession and
include a commitment to the conclusion of a comprehensive EPA in 2008 (by
July 2008 in the case of the EAC and December 31 st 2008 in the case of ESA
countries). Zambia is a unique case. It has initialled the ESA framework
agreement in order to benefit from provisions on fisheries and development
cooperation. However, no market access offer was agreed upon between the
country and the EU. Zambia has been exporting to the EU under the EBA regime
since 1st January 2008. Malawi is expected to join the ESA EPA in 2008, although
the Malawian civil societies have called on the government to rely on the EBA
arrangement.
An interesting question that arises here is: why are the East African LDCs sign the
Interim EPA? Along Lesotho, Mozambique, Madagascar and Comoros, the EAC
LDCs are the only LDCs that chose to join the agreement, liberalizing further than
the 80% liberalization the EU felt is necessary to defend the Interim agreements
at WTO. The East African LDCs, i.e., Uganda, Tanzania, Rwanda, Burundi have
already committed to have a common external trade regime under the East
African Community. If, under EPAs, the East African Community has different
trading regimes with the EU with Kenya signing the Interim EPA as a developing
country and the rest maintain the EBA preference, then such a situation would
undermine the foundation of Community and lead to its demise. The East
19 This is a slight variation of excluded products for other Indian Ocean signatory countries.
Zimbabwe’s excluded products included: products of animal origin, cereals, beverages paper,
plastics and rubber, textiles and clothing, footwear, glass and ceramics, consumer electronic
and vehicles.
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African LDCs signed the Interim EPA along with Kenya in order not undermine
the integrity of the Eastern African Community. If each country had entered into
a different deal with the EU, the Customs Union would have splintered and
considering that the community is still at a relatively nascent stage, it is possible
that the Customs Union would have survived such a fragmentation. 20 For
Uganda at least, there is also a belief that “EBA has no commercial sense for
exporters given their high degree of association with Kenyan firms’’ 21 and hence
the decision to sign the Interim EPA with the rest of the East African Community
members.
For LDCs such as Lesotho and Madagascar, the reason for signing might be the
desire to benefit from the more generous rules of origin in textile export and to
reserve the right to incorporate Far East fabrics in selling to Europe as they have
been doing to the United States.
Both the EAC and ESA Interim Agreements effectively remove all quantitative
restrictions, and grant duty free access in all products except sugar. In the EAC
context the principal beneficiary of this is Kenya, with the elimination of residual
duties and import restrictions on fruit and vegetable exports- a development
that will help facilitate investment flows into those sectors. 22 All the other EAC
member countries, given their LDC status, enjoy these tariff preferences under
the EBA initiative. In the ESA context, the conclusion of the Interim EPA ensures
continued duty-free access to the EU market for Mauritius, Seychelles and
Zimbabwe and also removes all remaining residual tariff barriers, with potential
benefits for Mauritius and Zimbabwe in attracting investment in fruit and
vegetables. In the case of Zimbabwe, it also sees the removal of quantitative
limits on beef exports. 23 With regard to transitional arrangements for sugar, under
the EAC agreement an additional tariff-rate quota with zero duty of 15,000 tones
is to be opened for marketing year 2008/2009, with a guarantee of prices
equivalent to those paid under the Sugar Protocol. For ESA interim EPA members
an additional quota of 75,000 tonnes has been made available, although it is
not clear how this will be allocated at the national level. 24
20 Babajide Sodipo, The EAC interim EPA and Rwanda, TNI, Volume 7. Number 2 / March 2008
21 Kirk Haywood, Uganda’s EPA: getting the process ‘right, TNI, Volume 7. Number 2 / March
2008
22 Agritrade, EPA Negotiations, Eastern and Southern Africa: Executive Brief ( January,2008)
23 Ibid
24 The Sugar issues will be analyzed and expanded in the full paper.
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5. Ethiopia’s Main Concerns with the Interim EPAs
Annex one highlights article by article the main areas of difference between the
ESA and EAC Interim Agreements. It also tries to indicate Ethiopia’s preferred
position if Ethiopia were to accede to either of the Interim EPAs. In this section,
we will outline the main concerns of Ethiopia in the Interim Economic Partnership
Agreement.
5.1 The MFN Provisions in the Interim EPAs
The MFN clause in the Interim Agreements (Article 15 of the EAC EPA and Article
16 of the ESA EPA) requires that any ACP country which has concluded a deal
with the European Union must automatically extend to the EU “any more
favourable treatment” (for example, deeper market access) that the region or
any of its member states grants to any other major trading economy in future
free trade agreements (FTA). Under the terms of the regional MFN clause
included in the ESA text, a ‘major trading economy’ is defined as any
developed country which accounts for more than 1% of world merchandise
exports, or groups of countries which collectively account for over 1.5%. This will
naturally create a serious impediment to additional negotiations that the EPA
signatories might wish to negotiate with other countries. This has been
denounced by a number of developing countries such as Brazil 25 who saw it as
putting in place a European strategy aimed at maintaining and increasing its
market position at the cost of ACP countries and their other trading partners.
Indeed it ties the hands of the EPA signatory countries and discourages them in
effect not to give other countries such as China, Brazil, India and US any better
treatment than what is available to the EU under the Interim EPA.
This clause will be a disincentive to South-South trade as other “major trading
countries” would be reluctant to make a concession in exchange of
concessions that will be extended to the EU. This requirement will also undermine
25 In February 5 of the WTO General Council meeting in Geneva, Brazil has raised serious
concerns that a clause in the Economic Partnership Agreements (EPAs) between the European
Union (EU) and African, Caribbean and Pacific (ACP) countries could pose a serious threat to
improving trade between developing nations. See Cheikh Tidiane Dièye and Victoria Hanson,
MFN provisions in EPAs: a threat to South-South trade? TNI, Volume 7. Number 2 / March 2008.
The Brazilian Ambassador also informed COMESA Secretariat that his country had, within the
framework of the WTO, initiated the process to have these MFN provisions in EPAs removed. See
e-COMESA newsletter, Issue #126 - Friday 28 th March 2008
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the policy space of developing countries and curtail their negotiation rights in
the future bilateral negotiations.
True, the MFN clause is the cornerstone of the principle of non-discrimination
that underlies the multilateral trading system and as such is accepted by WTO
members as it makes sense within this context. However, it has no place in the
EPAs as the latter are by definition discriminatory in nature. The MFN requirement
also contradicts the principal objective of the ‘Enabling Clause’, which is to
increase trade between developing countries on a preferential basis. Although
it is difficult to say that the requirement is a violation of the letter of the Enabling
Clause 26 , the spirit and objective of the Enabling Clause has been significantly
undermined.
It is now clear that-regardless of its declared objectives- the EU has a clear
offensive market access interest and clearly plans to preempt the increasing
dominance of big developing countries such as China, India, Brazil and Russia in
Africa. 27 South Africa is opposed to the inclusion of the MFN Clause in the
Interim EPA although the Commission has already offered some flexibility on
this.” 28 Despite the fierce resistance, the EU trade commissioner says he is not
going to re-open what has already been negotiated.
It is now clear to see that the EU’s claim that its only goal in the EPA is to seek
compatibility with the WTO and to encourage integration within ACP regions is
at best half-truth and at worst preposterous.
5.2 Regional Integration
26 The EU indeed argues that the Enabling Clause permits trade preferences among developing
countries, but it contains nothing that prohibits the extension of such preferences to other WTO
members.
27 Dieye and Hanson recently quoted Louis Michel, European Commissioner for Development,
as saying that Europe’s generosity in terms of aid for development did not mean that it would
allow its partner countries to grant more favourable treatment to its commercial rivals; “we are
generous, but not naïve”.
28 www.europeanvoice.com/current/articles.asp?id=30042 So says Rob Davies, South African
Deputy Minister for Trade and Industry: “According to this [MFN] clause, tariffs on EU products
cannot be higher than the levies imposed on goods from developing countries. EPAs thus
prevent other developing countries from having an advantage in bringing their goods on the
markets of developing nations…..[T]his would lock us into a primary relationship with the EU for
ever more. It would be an unacceptable limit on our sovereignty.”
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When the EPA project is proposed, one of the principal declared objectives was
to eradicate poverty by reforming the economies and institutions of ACP
countries and adjusting their infrastructure and production capacities. EPAs are
also meant to create bigger markets and stimulate, support and anchor
regional integration. The Interim Agreements, however, betray the main EPA
justification of strengthening regional integration. Within ESA configuration, the
East African Community (EAC) concluded an agreement independently of the
Eastern and Southern Africa (ESA) group. Most of the Horn LDCs within the ESA
chose not sign the Interim EPA, and only five ESA countries sign EPA as ESA.
Separate deals with EAC and some members of the ESA region have effectively
split the region and have caused much tension between neighbours. In addition
to this, the ESA signatories and other ACP countries submitted separate and unharmonized
tariff liberalization schedule and exclusion list, not agreed as a
region, which essentially will commit them to liberalisaing to the EU before they
have decided what to liberalise with each other. Only the East African
Community concluded an agreement on behalf of its members. COMESA
clearly is in a deep trouble.
The agreements have detrimental impact on regional economic integration in
other regions too. Within SADAC, the South African Customs Union (SACU)
members initialed as a group minus its largest and most influential member,
South Africa. The divide in Central and West Africa is also evident to see.
Cameroon, Ghana and the Ivory Coast concluded interim deals to avoid
market disruption. But they were given no support from their respective regional
groupings - not even at the technical level - to conclude better deals. 29 On the
contrary, they stand accused of compromising regional solidarity. CEMAC and
UEMOA are established customs unions, while ECOWAS is a customs union in the
making. This means that member countries are supposed to adopt a single
external trade regime. Here, the challenge will be to move from country specific
deals to regional ones.
It is clear that the Interim EPAs will have the impact of obstructing regional
integration; however, the European Commission’s Trade Commissioner seems to
29 San Bilal, EPA deals as stepping stones or stumbling blocks? TNI, Volume 7. Number 1 /
February 2008
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have the audacity to claim otherwise. He said the Interim EPAs removed the
division between neighbors in East Africa, SADC and the Caribbean. 30
5.3 Export Tax
The European Union has insisted on the removal of export taxes and prohibition
of their introduction in the Interim Agreements, with some limited carve outs.
Article 15 of the ESA text provides that “for the duration of the Agreement, the
parties shall not institute any new duties or taxes on or in connection with the
exportation of goods to the other party in excess of those imposed on like
products destined for internal sale.” ESA countries are required to list products
that are to be exempt from this article in an Annex. Interestingly, the EAC
Interim Agreement has broad caveats for exemption: to foster development of
domestic industries and to maintain currency stability. In the SADC text no new
export taxes are to be introduced, and those existing will not be increased
(Article 24) except for specific circumstances and after ‘consultation with the EC
Party’. The EC’s insistence on the inclusion of a clause in EPAs is a red line for
Namibia, and one of the principle reasons for their reluctance in initialling the
SADC EPA.
There is admittedly an argument about the wisdom of using export taxes. 31
However, that is a decision to be made by the countries themselves and as such
developing countries should have the policy freedom. There is no legal
requirement in the WTO that prohibits the use of export taxes although export
prohibition is disciplined under Article XI of GATT. It is generally accepted that
export taxes are the preferred instrument among the various policy options to
restrict exports as they are transparent and simple to administer. In Ethiopian
context, the prohibition of use of export tax can be problematic. Ethiopia used
to have export tax on coffee. However, it has been eliminated. On January,
2008, the Ethiopian government has replaced the export ban on raw hides and
skins with 150% export tax. The law also imposed 20% export tax on the export of
wet blue cow hides, a 10% export tax on pickled sheep skins and a 5% on export
of wet blue goat skins. The objective is to encourage value addition.
30 This might be true in the case of EAC where Tanzania has moved away from SADC and joined
EAC. However, this is an exception. The sad reality remains that the ESA region is in disarray.
31 See for example, Roberta Piermartini, The Role of Export Taxes in the Field of Primary
Commodities, WTO Discussion Paper, Geneva, 2004.
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Lifting the export tax will considerably undermine the production capacity of
Ethiopian tanneries. All the tanneries are currently working under their full
capacity because of the critical shortage of raw hides and skins. Lifting the
export tax while there is this evident shortage of supply will lead to closure of
more than half of the tanneries. Similarly, eliminating the export tax would arrest
the transition to export of value added products.
5.4 Scope of Liberalisation
Free Trade Agreements by definition restrict states’ freedom to manoeuvre –
that is their intention. Countries choose between the advantages of constraints
to other countries’ policy freedom and the disadvantages of constraints on their
own when they negotiate any trade deal. Arguably, the single largest loss of
policy space that takes place when each country joins an FTA or the WTO is the
loss of freedom to impose custom duties or vary them, as the case may be.
However, this doesn’t mean there are no flexibilities. For instance, in the current
Doha negotiations LDCs are exempted from having to make any market access
concessions. Under the Interim EPAs, countries are required to allow a minimum
of 80% of EU imports to enter duty free with a period of 25 years. For the ESA
countries, the transitional period is only 15 years. In the EAC Interim EPA-which
includes four LDCs, 82% of the region’s import from EU will be liberalised. 62% will
be liberalised within 2 years, and 80% within 15 years and only the final 2% within
25 years. There is no justification or even claim that these concessions are
designed to be consistent with the countries development needs. The EC’s one
–size- fits –all approach of requiring liberalisation of a minimum of 80% of import
from EU within a transition period of 25 years doesn’t even make a distinction
between LDCs and developing countries. The market access commitments in
the interim EPAs are out of proportion to what is being requested of LDCs in the
Doha Round although admittedly the Doha Round is not a free trade
negotiation.
Obviously, as the scope of the liberalisation widens the revenue loss from tariff
collection increases. This is significant given the stage of development of most
of these counties. This will be an added burden given the weakness and
administrative difficulty in collecting o internal taxes and will affect the
government’s expenditure for other objectives such as health and education.
5.5 Prohibition of the Use of Quantitative Restrictions
Article 17 of the ESA Interim Agreement provides that “except as specified in the
Annexes, all prohibitions or restrictions in trade on the importation, exportation or
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sale for export between the parties other than customs duties, taxes, fees and
other charges whether made effective through quotas, import or export licenses
or other measures, shall be eliminated upon the entry into force of this
Agreement. No new measures shall be introduced.” This provision is directly
copied from Article XI of GATT. However, unlike GATT, this provision doesn’t
exhaustively list the possible exceptions such quantitative restriction that might
be taken to prevent or relieve critical shortages of foodstuffs or other essential
products. The GATT provision also allows other exceptions. On this particular
issues, The EAC text is better as it includes a paragraph stipulating that the
prohibitions on quantitative restrictions shall not extend to export restrictions in
place to address food shortages.
The Ethiopian government currently maintains a number of restrictions both on
import and export trade. Export of cereals, for example, is prohibited to prevent
shortage of foodstuff and to fight inflation. Importation of a number of items
such used clothing; denatured alcohol, organic fertilsers, and seeds with
terminator gene technology are prohibited. The government might also want to
maintain this policy flexibility to introduce measures of similar nature in the future.
The exception that Article 17 of the ESA text provides doesn’t seem enough to
accommodate this.
5.6 Implementation of the Customs Valuation Agreement
Article 24 of both the EAC and ESA text provide that Article VII of the GATT 1994
and the Agreement on the implementation of Article VII of the GATT 1994 shall
govern customs valuation rules applied to reciprocal trade between the Parties.
According to the Customs Valuation Agreement, customs value is deemed to
be the price actually paid for a good with the invoice value considered as a
true representation of this value. However, is not acceptable in cases where it is
deemed that the invoice value does not reflect the actual value of the good.
The Customs Valuation Agreement expressly prohibits the following valuation
methods: (a) the selling price in the country of importation of goods produced in
such country; (b) a system which provides for the acceptance for customs
purposes of the higher of two alternative values; (c) the price of goods on the
domestic market of the country of exportation; (d) the cost of production other
than computed values which have been determined for identical or similar
goods in accordance with the provisions of Article 6; (e) the price of the goods
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for export to a country other than the country of importation; (f) minimum
customs values; or (g) arbitrary or fictitious values.
Article 20 (1) allows developing countries to delay the full implementation of
CVA for a maximum period 5 years after acceding to WTO. Article 20 (2) allows
a further 3 years delay to implement the computed method of valuation under
article 6. Paragraph 2 allows developing countries which are using officially
established minimum values to continue using these values on a limited and
transitional basis by way of reservation. Despite the SD&T that is available under
the Customs Valuation in terms of longer timeframe for the implementation of
the agreement and easing of the rules of the Customs Valuation Agreement (for
example, the request to reverse the order of fourth and fifth method; right to
value imported goods on unit price of goods sold at home after undergoing
processing), both the ESA and EAC text seems to require the automatic
application of the Customs Valuation Agreement.
This can be very problematic for Ethiopia as the country has a long way to go
towards CVA implementation. Implementing the CVA agreement might help in
bringing about a fair, uniform, and neutral system for the valuation of goods for
customs purposes. However, it also requires accompanying reforms in customs
regulations, procedures, better compliance, trade facilitation, modernized
customs authority and enhanced human resource capacity both in the
government and private sector. This requires hard work and will not certainly
come about immediately after the signing of the Interim EPA. There is also a big
concern that if the CVA is automatically implemented, there will be lowered
protection levels for domestic producers and reduction in customs revenues due
to under invoicing.
It is important, however, to note that under-invoicing is not a major problem with
regard to imports coming from the European Union. Most of the imports coming
from UAE and China are significantly and fraudulently under-invoiced to reduce
the amount of duties that will be imposed on the goods by the Ethiopian
Customs Authority. These reflect the weak domestic tax administration of UAE
and China that allow exporter to declare a low value for exported goods. To
address the problem of fraudulent under-invoicing the National Bank of Ethiopia,
in the recently revised bill presented to the Parliament, proposed that any
manipulated import and export documents presented to the government for
tax purposes would lead to severe punishment of up to 25 years rigorous
imprisonment. The revised law further states that apart from confiscating the
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goods involved in the fraud and imprisonment of the suspect, the person
involved in the tax evasion would pay up to three fold of the amount he/she
had tried to evade. 32 Although the incidence of under-invoicing is not high with
regard to imports coming from the EU, implementing the Customs Valuation
Agreement automatically will be problematic as Ethiopia cannot be expected
to have two different valuation regimes for imports coming from the EU and third
countries.
5.7 Definition of Customs Duty
Article 7 of the ESA Interim Agreement and Article 6 of the EAC Interim
Agreement provides that “for the purposes of elimination of customs duties on
imports, a customs duty shall include any duty or charge of any kind imposed on
or in connection with the importation of goods, including any form of surtax or
surcharge in connection with such importation.” This implies that the definition of
customs duty that is subject to tariff reduction and elimination include not only
normal customs duty but also other duties and charges. Last year, the Ethiopian
government has introduced 10% surtax on all goods imported into Ethiopia
except fertilizers, petroleum and lubricants, motor vehicles for freight and
passengers and special purpose motor vehicles, aircraft spacecraft and
investment goods. The Interim Agreements will lead to not only the reduction of
normal customs duties but also the elimination of other duties and charges. This
will considerably undermine the flexibility the government can potentially have
in quickly raising funds in extraordinary circumstances.
A related concern for Ethiopia is the standstill provision under Article 14 of the
ESA EPA that requires the parties not to increase their applied customs duties on
products imported from the other party. This provision has a far-reaching
consequence on Ethiopia’s future bound tariff rate offer in WTO accession
negotiation context. It is expected that Ethiopia would, in its accession
negotiation, bind its tariff rate at a far higher rate than the current applied tariff
rate to retain some policy flexibilities to increase tariff in case of surge in import.
The standstill provision will significantly undermine the possibility of binding tariff
at a higher rate.
32 See Capital, a Business Weekly, 8 June 2008.
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5.8 Precedence that the Interim EPAs set to the legality of other preferences
The interim EPAs have a very serious albeit a long term implications for other
preferences and in particular the current 39 beneficiaries of AGOA. The main
argument of the European Union against the continuation of the non-reciprocal
preference under Cotonou was that it was consistent with WTO rules prohibiting
preferential schemes that were geographically limited and that included non-
LDCs. This situation is similar to AGOA which without any WTO rule change, could
be challenged. In addition, US exporters will certainly start complaining about
the continued extension of unilateral preferences to countries which are
discriminating against their exports. Until now, the US business community has
provided support to AGOA. When they see preference being extended to the
European Union, they might also start requesting reciprocity.
5.9 Development Cooperation
Development cooperation is the central objective in Ethiopia’s negotiation with
the European Union. That has been the positions of nearly all countries in the ESA
configuration. Given the preference that is available under EBA, development
assistance is the single most important incentive for LDCs to continue in the
negotiation. Despite that, development cooperation provisions, both financial
and non-financial, are hardly developed and often absent in the Interim EPAs.
EAC has one article that states broad areas of cooperation - such as sustained
growth, regional integration, fostering structural transformation, addressing
supply capacity, etc. The EAC also spells out funding will come from the EDF, Aid
for Trade and the EU General Budget. Perhaps because of the limited
development cooperation clause, the ESA text takes development cooperation
as one of the issues that will be negotiated under the rendezvous clause. ESA
has 16 dedicated articles on specific development cooperation aspects. There
is very little in terms of attention being paid to development needs in the EAC
text. Development chapter in the ESA text includes a desire to support a matrix
of regional needs (infrastructure, upgrading productive sectors, regional
integration, trade policy & regulation, adjustment costs), possibly via a regional
fund. The ESA text has little of financial value and is not considered to be as one
item in the inbuilt agenda that will be negotiated under the rendezvous clause.
Compared to the EAC text, the areas covered make it more comprehensive.
No binding link is made between the implementation of trade reforms and
financial assistance from EU. The details of development cooperation
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instruments remain to be negotiated at a later stage. Other instruments cited
such as EDF are not linked in a binding manner to the interim agreements. In
fact development assistance explicitly excluded from the remit of the interim
EPA dispute settlement mechanism.
In the context of the ongoing comprehensive EPA negotiation, the EC has
reacted on the proposal submitted by the ESA on the subjects of development
cooperation strategy, development benchmarks, and the costed development
matrix.
On the issue of development cooperation strategy, the EC stressed that that the
most binding Strategy would be the Regional Strategy Paper/Regional
Indicative Programme (RSP/RIP) that is being finalized with the ESA region under
the 10 th EDF (€645 million). According to EC, it is “in this strategy that the ESA-IO
Regional Organisations (ROs) involved (COMESA, EAC, IGAD and IOC) articulate
their own strategies for Regional Integration and where the EC responds.” The
RIP, once signed, will constitute the EC financial commitment to support the
regional integration strategies of the four Regional Organisations for which EPA
implementation is one of the elements, but not the only one.
The EC is also highly skeptical of the concept of development benchmarks and
recommended re-thinking completely what is to be measured with these DBs,
limiting the number of indicators to key ones that can directly be connected
with EPA implementation.
With regard to the costed development matrix of the ESA region amounting
more than €8 billion, the EU said it recognises that it is important for the region to
come up with an indication of the resources needed, especially when other
development partners (in addition to EC with its EDF funds) would be called to
support the ESA regional integration strategies. However, the EC wants to know
the what criteria that has been used for the selection of projects at national
level; the process of ‘filtering’ that has been applied by the ESA negotiators to
screen the various submissions made by individual member countries, to ensure
that projects listed have a genuine regional nature and the method by which
financial gaps have been calculated. Given the polarized position of the parties
on development cooperation, the issue seems to be one of the sticking point of
the negotiation.
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6. The EPA Interim Agreement and a way forward for
Ethiopia
The Interim Agreement (IA) of the EPA has been initialled by all countries in the
ESA region except for the countries of the Horn of Africa and Malawi. As
discussed before, the EAC group has split from the ESA region and has signed its
own EPA. The ESA group is therefore fragmented and does not represent a
coherent geographical entity, the EAC have created a hole in the middle of the
region between the Horn and the Southern states. This leaves Ethiopia facing a
decision on whether to initial the IA or to stay out of the IA and focus on
negotiating the EPA, which is due to be completed by the end of 2008. The
alternatives available to Ethiopia will be considered and the consequences of
each alternative contemplated. In the immediate period that Ethiopia does not
sign or accede to the IA the EBA regime will be available for exports, but the
long term viability of the EBA regime is doubtful.
So what are the other options for Ethiopia?
At present, Ethiopia has a number of options in relation to trade with the EU:
These are acceding to the Interim EPA; waiting and signing the full EPA on an
individual basis, as part of ESA, as an associate of the EAC or as part of a new
Horn Initiative grouping; alternatively the choice of not signing - resulting in the
utilisation of the EBA regime.
In relation to the above choices the position of Ethiopia must be considered in
the terms of what would be missed if there was no signing of the Interim EPA or
the comprehensive EPA, and also to determine whether it might be beneficial to
wait before committing to a particular regime.
The trade option of concluding the full EPA must be considered, even if some of
the provisions remain politically sensitive in the Ethiopian context. In this context
it must be considered under which grouping the EPA could be signed, in this
respect there are a number of options open to Ethiopia. This is especially true in
respect to the fact that the make -up of the ESA group has been considerably
altered with the withdrawal of the EAC configuration. This report will also
consider the value of the EBA regime as a long term trading arrangement for
Ethiopia.
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6.1 Initialling/ acceding to Development Chapter of the Interim EPA
The legal implication of signing the Interim EPA has not been clear. There are
conflicting views of what the process of initialling the IA actually means. There is
no article in the IA that explicitly states what the effect of signing the IA means.
However, there are a number of articles that throw light on to the meaning of
initialling the agreement. For example, Article 6.1 of the ESA IA states that the
trade in goods section will be limited to those countries who make a market
access offer. Article 6.4 states that a signatory state that wants to make a
market access offer may do so subject to approval from the EPA committee.
These two articles taken together infer that a country may initial the IA and not
make a market access offer.
This would give meaning to Article 4 (f), which states that the development
cooperation aspects are open to LDCs that are not in a position to conclude a
tariff offer with the EC. Therefore taking these three articles it can be determined
that a state may sign the IA and not make a market access offer. It would be
eligible for any cooperation under the development cooperation chapters, but
none of the articles of chapter two (trade in goods) would be applicable to that
state.
Essentially initialling the IA will not offer any particular development aid to
Ethiopia in the short term; this is because the development cooperation section
will not have any real meaning in the year that the IA is supposed to be valid.
Most of the extra development aid will be available after the signing of the full
EPA, for example Aid for Trade is unlikely to come on line before 2010. Therefore
whilst initialling the IA does not require any market access offer, it may not offer
anything tangible in terms of development within the operation of the IA.
The assumption that the IA will operate for just one year may also be
challenged. Whilst Article 3.2 states that the full EPA will be completed by 31
December 2008, Article 62.9 States that application of the IA is until the full EPA
enters into force. The application of the full EPA might be later than the end of
2008, in fact the precedent of the negotiations that have occurred so far in the
EPA process suggest that the full EPA will not be completed by the end of 2008.
This might be all the likely case given the absence of any extra pressure this time
to conclude the negotiation before the expiry of the waiver. Therefore, the IA
may run longer than the expected one year, it can be seen that Article 62.9 of
the ESA Agreement is a caveat in case the negotiations are not completed. In
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this case Ethiopia may want to consider the effects of not initialling; as if the IA is
extended in duration it would be unwise to miss out on any EPA related
development aid. This is especially true if initialling the IA does not ‘cost’
anything in terms of market liberalisation.
If the IA is to be extended in duration it could also be beneficial to consider
submitting a market access offer to take advantage of the considerably better
rules of origin available under the IA. The rules of origin available under the EBA
regime is based on a much more inflexible and punitive approach, relying on
value addition and the threat of preference removal if documents are
considered to be inaccurate. The benefits to neighbouring countries industries in
the long term, which operate under the IA regime, over the EBA regime could
have a considerable impact on certain Ethiopian economic sectors such as
textiles.
In the case that the IA is extended there is nothing to stop Ethiopia signing the IA
and making a market access offer. Article 4 (g) states that LDCs can submit tariff
offers after the signing of the IA on the same or flexible conditions. This allows for
the flexibility that may be needed to conclude a market access offer that is in
Ethiopia’s interest. It is also worth noting that Article 62.7 & 8 allow denunciation
of the IA in writing with one months notice. Therefore if the IA was considered to
be failing the interests of Ethiopia, it could easily be rejected and Ethiopia could
withdraw quickly from the treaty.
The IA therefore can easily be signed and the trade chapters joined later with
little impact on the Ethiopian economy in the short term. However, it would allow
Ethiopia to take advantage of any development cooperation that may be
available in the short term. It would also allow Ethiopia to consider making a
market access offer in the course of the IA, which may be beneficial in the long
run. Access to the European market for Ethiopian goods is still important with 30%
of exports going to the EU.
6.2 EBA as a permanent solution
This option assumes that Ethiopia will sign neither the Interim nor the
comprehensive EPA. Not-signing means that Ethiopia will be trading with the EU
under the EBA regime. Therefore the EBA regime has to be examined for its
value to trade and development and its long term viability.
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The EBA regime provides duty free and quota free market access for all goods
from Ethiopia, with the exception of arms and ammunition. Under EBA, trade in
commodities such as sugar, rice and banana will be liberalized under a
transitional period. 33 This is a unilateral undertaking and is offered to all LDCs, its
terms are free to be changed by the EC at any time without consultation.
The EBA initiative is granted under the enabling clause of the GATT rules that
allow developed countries to have favourable preference systems for LDCs
without reciprocity. The critical difference between the EBA initiative and the
EPAs- and the Cotonou Partnership Agreement for that matter- in terms of trade
is that the EBA initiative is non- discriminatory as its preferences are accessible
globally to all least developed countries (LDCs) while the EPAs are just for ACP
countries. Further, EPAs envisage a wider level of cooperation other than just
trade.
Because of its generalized and non-discriminatory nature, the EBA initiative is
compatible with the WTO rules. Unlike the Cotonou Preference, compatibility
with WTO rules therefore is not an issue when it comes to the EBA Initiative.
If Ethiopia decides to opt out of EPA and retain the EBA preference, the decision
has some consequences in terms of future trade development and potential
development assistance.
6.2.1 EBA and Rules of Origin
Preferential market access under EBA is granted only when the conditions for
granting them are fulfilled. One obvious condition is the requirement that the
goods must originate from the countries that benefit from the preference
regime. The criteria which establish the origin of goods are mainly those that
33 Imports of sugar will only be liberalized by the year 2009.To be more precise, tariffs on rice
exported by LDCs will be reduced by 20% on September 1 st 2006,by 50% on September 1 st
2007,by 80% on September 1 st 2008 and will be eliminated no later than September 1 st 2009.For
rice and sugar, until duties are completely eliminated, a global duty-free quota is open for every
marketing year .The initial quotas for the 2001/2002 marketing year are fixed at 2517 tons for rice
and 74517 tons for sugar. For every subsequent marketing year, these quotas will be increased
by 15% in relation to the previous marketing year. Tariffs on sugar will be reduced by 20% on July
1 st 2006, by 50% on July 1 st 2007, by 80% on July 1 st 2008 and eliminated no later than July 1 st
2009.Tariffs on bananas are reduced by 20% per year starting from January 1 st 2002 and
eliminated no later than January 1 st 2006.The European Union will however carefully monitor
importations and in the case of massive increases could apply safeguard measures.
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distinguish the” products entirely obtained in a country” from the “processed
products.” 34
One of the glaring weaknesses of the EBA scheme compared to the Interim EPA
and the Cotonou Partnership Agreement is its restrictive rules of origin. The EBA
regime is weak in different aspects of rules of origin.
First, the cumulation rules under EBA are more restrictive than the rules under the
Interim EPA. Under the EBA, cumulation can occur with the European Union and
other beneficiary EBA countries while under the Interim EPA cumulation is
allowed with ACP states, the EU and its OCTs and neighbouring developing
countries that are not ACP countries. It is possible that a country that signed an
Interim EPA using materials from other countries qualify for duty –free access to
the EU market under the Interim EPA but not under the EBA scheme. Therefore
there is more flexibility in the Interim EPA than there is in the EBA regime.
In reality, however, the value of cumulation is not that apparent for Ethiopia, as
there is little evidence that Ethiopia uses much material from other ACP
countries in its manufacturing processes. In fact the EU is probably a more
important trade partner for the purposes of cumulation and this is allowed under
all regimes. Moreover, rules of origin will not be a major issue for importers and
exporters that are presently engaged in trade of primary agricultural products
34 The key concepts of rules of origin are the following.
Products entirely obtained in a country. Goods entirely obtained in a country largely refers to
agricultural and food processing products such as vegetables, live animals and goods that are
manufactured in the country exclusively from agricultural products and their derivatives.
Processed products. When products are obtained in the country and contain goods which have
not been “entirely” obtained there, it raises the question of knowing whether these obtained
products must be considered as originating products or not. The criterion retained is the sufficient
“working” or processing of materials which were not entirely obtained there. The working or
processing conditions depend on the different protocols. These conditions appeal mainly to the
criteria for tariff position change but also to the added value or the undertaking of a specific
working.
Cumulation rules. Within the framework of a bilateral preferential regime where products
obtained from one of the contracting parties contain materials which are not entirely obtained
there but utilize materials originating from the other party, the latter are considered as
originating materials when they are incorporated in an obtained product. This principle is called
the “bilateral cumulation.” Only materials not originating from the zone constituted by the two
countries are considered for sufficient characteristic, or lack of, of the working or processing.
Beyond the bilateral cumulation, there are enlarged systems of cumulation which include
several country zones named “diagonal cumulation”.
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etween the EU and Ethiopia as these products are wholly obtained from
Ethiopia and will not be impacted by stringent rules of origin. In considering the
cumulation aspect at the current level of economic development in Ethiopia it is
not clear that the IA offers much to the economy.
This is an economic picture of the status quo and it does not mean that the rules
of origin are irrelevant for would be exporters in other sectors. Given that
Ethiopia has plans under its Industrial Development Strategy to develop its
economy and particularly its manufacturing sector the value of cumulation
should not be under estimated. Ethiopia may well need to source materials from
other countries in the ACP region once industrial growth is consolidated.
Therefore the long term benefit of the cumulation available in the Interim should
not be underestimated.
Secondly, with regard to specific rules of origin relating to the textile sector, the
Interim Agreement offers more flexibility in particular regarding the type of yarn
that can be used to manufacture textile products. According to the European
Union, improved rules of origin means such as so-called “tolerance rules” in
sourcing in the textiles and clothing sector means no longer apply. 35 This was not
the case under the CPA and under the GSP (including EBA) rules there is a
requirement of a 30% value addition to gain originating status. Largely because
the improved rules of origin there is a potential gain in the textile sector for
countries that signed the Interim EPA, both LDCs and developing countries alike.
For Ethiopia the textile industry is not yet a significant industry in terms of exports,
especially to Europe. Ethiopian global textile export was only USD 7 million,
USD11 million and USD 12 million in 2005, 2006 and 2007 respectively. 36 However,
under GSP (including EBA) it is unlikely that the industry will be able to penetrate
the European market more than it did under the CPA regime. This will throw into
question the future of the textile industry in terms of accessing the European
market. The issue will potentially be more important in light of the fact that
regional competitors in the textile industry, such as Kenya, will benefit from the
improved rules.
The review of the rules of origin under the Interim EPA and the EBA regime
presents a clear conclusion for the Ethiopian government. The rules of origin
35 Interim EPAs: Questions and Answers, European Commission, 27 March 2008,
http://trade.ec.europa.eu
36 Ethiopian Ministry of Trade and Industry, Ethiopian Export Performance by Commodity. The
Ethiopian textile sector’s export performance is quite low in spite of EPA type rules of origin under
preferential schemes such as AGOA.
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under the Interim EPAs are considerably better for development goals than the
rules under the GSP regime. The Interim EPA has as generous cumulation rules as
the CPA; the Interim EPA has more flexible specific rules for each product under
the HS code system than the CPA – especially with regards to textiles; and in
relation to the general provisions of non-originating material.
The GSP regime (EBA included) on the other hand has a very limited cumulation
provision that appears to limit the use of cumulation to the EU, and potentially
some COMESA countries. The specific provisions for the HS code products are
focused on value addition at about 30% for LDCs. In the general rules there is no
overall specific regime for non-originating materials, instead this is done on a
product by product basis and is complicated by the requirement that the
weight of non-originating material also needs to be considered. The penalties
are more severe leading to the suspension of benefits for the country under the
scheme. This will put much more pressure on the customs authority to ensure
that the declarations of exporters are correct. 37
6.2.2 EBA and Development Cooperation
One of the most contentious issues during the EPA negotiation was the
availability of additional EU financing to the support the implementation of the
Interim EPAs. The European Union refused to negotiate development resources
support as part of EPAs and didn’t give any legally binding guarantees of any
kind in the Interim EPAs. 38 However, all the Interim EPAs (except the one with the
EAC) have comprehensive but wholly non-binding provisions for development
cooperation, mentioned in each and every chapter as well as in a section on
development cooperation.
In the long run, the Interim EPA might offer development cooperation and
potentially development financing above the EDF depending on the
forthcoming negotiations. The EBA does not have a development component
or a commitment to development financing. This means that in the long run the
Interim EPA might potentially offer more than the EBA in terms of development.
The additional funding might not be surprising given the specific needs that arise
for those countries that sign the Interim EPA. But again the question is at what
37 The assessment and Comparison of Rules of Origin under EBA and Interim EPA is made based
on a study by James Watson.
38 Christopher Stevens et al, “The New EPAs: Comparative Analysis of their Content and the
Challenges for 2008”, ODI and ECDPM 31 March 20008.
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cost. It should also be noted that the ACP-EU development assistance
relationship is regulated under the Cotonou Partnership Agreement and
channeled through EDF, and EPAs only replace the trade chapter, not the
whole Cotonou Agreement. The availability of funds under EDF will not be
affected because a country doesn’t sign an Interim EPA. Moreover, the
European Union has never threatened to make access to more and better aid
resources conditional upon signing a trade agreement to date.
6.2.3 Other Limitations of the EBA Regime
A. Lack of Security of Access
The Everything But Arms is a unilateral measure taken by the European Union. As
such it can be withdrawn any time. This unilateral nature might have affected
the expected Foreign Direct Investment flows deriving from the more generous
market access opportunities.
Moreover, the safeguard clause under the EBA (and GSP) is potentially more
easily triggered than the one under the ACP agreements. The EBA clause only
requires that an imported product originating from one of the GSP beneficiaries”
cause(s) or threaten(s) to cause serious difficulties to a Community producer of
like or directly competing products”. The corresponding regulation in the
Cotonou Agreement calls for imports” in such increased quantities and under
such conditions as to cause or threaten to cause serious injury to its domestic
producers of like or directly competitive products”. The provision of the Cotonou
Agreement further provides for “serious disturbances in any sector of the
economy or difficulties which could bring about serious deterioration in the
economic situation of the region” as alternative scenarios equally justifying the
application of safeguard measures. Unlike the GSP safeguard scheme, the
Cotonou rules do not expressly define the factors to be taken into account
when examining “serious difficulties”. Also unlike the GSP rules, the Cotonou
Agreement does not provide for temporary withdrawal of the preferential
arrangements in the case of” criminal” activities or the infringement of certain
rules. Similarly the EBA regime can be suspended if the customs declarations of
exporters are found to be incorrect. This inflexible nature doesn’t make it friendly
to economic development in LDCs.
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B. Stringent Administrative requirements
In addition to the rules of origin, the other limitation that constrained the
effectiveness of the EBA scheme is the administrative requirements.
When EBA entered into force, ACP countries were expected to react to the new
incentives provided by increased market access. However, the majority of ACP
countries continued to export under the now-expired ACP trade preferences.
The under utilization is because of a small Cotonou /EBA preferential margin as
well as an entrenched use of ACP administrative forms. Different formalities
apply to the benefit of trade preferences under the CPA and EBA initiatives. In
fact, in order to benefit from now expired CPA trade preferences, the certificate
of origin "Form EUR I" is required as under the previous Lomé Conventions.
Conversely, as the EBA is an amendment to the EU GSP scheme, in order to
benefit from the EBA, the GSP certificate of origin "Form A" has to be used.
The European Union issued a notice to economic operators in LDCs exporting
products to the EU as soon as the trade measures provided for in Annex V to the
ACP-EC Partnership Agreement expired on January 1, 2008. 39 The EC said that all
products exported from LDCs and arriving in the European Union after 31
December 2007 and wishing from tariff preferences would need to be
accompanied by the relevant proof of origin, which includes a certificate of
origin. The relevant rule in case of Ethiopia is the GSP certificate of origin, which
includes the combined declaration and certificate “Form A”. The
communication from EC also made it clear that origin of certificate used under
the trade regime set out in Annex V of the Cotonou Agreement (“EUR1”
certificates) will no longer be valid after 31 December 2007.The EU warned that
if the right certificate of origin is not immediately available for any reason or
shipments are already in transit, an appropriate guarantee covering any MFN
duties payable may be lodged by importers with the EU customs authorities to
allow the products concerned to enter EU markets.
The changing administrative requirement might affect the performance of
African LDCs export under the EBA scheme. There are reports of some
temporary disruption to exports in Zambia while exporters adjusted to the
39 European Commission, DG for Trade, Notice to Economic Operators in [ LDCs] Exporting
Products to the EU, 21.12.2007 (Brussels)
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different documentation requirements required under EBA. 40 In Ethiopia, the
Ethiopian Customs Authority has started granting certificate “Form A” to
exporters to the European Union. So far no problem has been reported to the
Authority regarding payment of MFN tariff associated with non-compliance with
formality requirement.
C. Concluding Note
If the Ethiopian government decided not sign either the Interim or
Comprehensive Economic Partnership Agreement and use the EBA scheme
(what I call the EBA strategy), the government should at the same time turn its
attention to other markets for exports such as China and India.
There is already a positive external environment. Over the past years, trade
between Africa and Asia has grown tremendously while trade with Europe has
decreased. The fear that the EU is losing its foothold on the African continent is
incidentally one of the principal objectives of the EPA agenda. The India’s
commercial ties with Africa have grown as the India-Africa trade volume has
increased by 285 percent to 25 billion USD in the last four years. This has raised
Africa’s share in India global trade from 5.8 percent in 2002/03 to 8 percent in
2006-7, according to the survey conducted by the Federation of Indian
Chambers of Commerce and Industry. 41 On April 9, 2008, the India-Africa Forum
Summit adopted the Delhi Declaration and the Africa-India Framework for
Cooperation which among other things unilaterally opens Indian market for
goods from Africa through a duty free preference schemes for the 50 Least
Developed Countries including Ethiopia. Although closer examination of the
scheme is necessary, the preference regime allow the duty free import of
cotton, cocoa, aluminum ores, cooper ores, cashew nuts, cane sugar, readymade
garments, fish filets, etc.
Similarly, African –Chinese trade has increased five-fold over the past five years
to reach over 50 billion USD last year. In November 2006, China hosted a Sino-
Africa summit and extended a preferential market access to imports coming
from most African countries. In China’s relationship with Africa, there is no
carping about human rights and bad government. It is straight commercial and
investment dealings without paternalism, lectures and strings attached. For
40 Christopher Stevens et al, “The New EPAs: Comparative Analysis of their Content and the
Challenges for 2008”, ODI and ECDPM 31 March 2008, p.68
41 http://news.xinhuanet.com/english/2008-04/08/content_7939210.htm
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African governments with mercantilist sentiments this approach is particularly
seductive compared to situation where they are being dictated to by others.
The EBA strategy should, in addition to focusing on the EU as a trading partner,
aim at nurturing and extending trade relationship with all emerging economies
such as India, Russia, Brazil and China. The emerging economies, due to their
industralisation, offer least developed countries higher prices for natural
resources although one might question if the commodity boom is lasting. For
mercantilist governments, relationship with these emerging economies is
particularly attractive as they don’t force LDCs to lower their tariffs. In sum, it is
important for Ethiopia to keep working on these relationships.
6.3 Concluding a Full EPA
Concluding a Full EPA in line with Cotonou Partnership Agreement is the
declared objective of all the parties in the EPA negotiation. However, there is no
agreed definition about the range of issues that will be covered by the Full EPA.
In January 2008 Staff Working Paper, EC clearly outlined that the goal is to put in
place the elements of a comprehensive trade package that supports
economic growth and regional integration by including trade in services, rules
that promote investment and development assistance. 42
While the Interim EPA limits itself to a WTO compatible agenda of negotiating a
deal only on trade in goods, the nature of the Full EPA goes beyond trade in
goods issues. It is a comprehensive WTO-compatible FTA, covering trade in
goods and liberalization of trade in services, trade related issues (investment,
competition, government procurement, intellectual property rights, trade and
environment) and development issues. It will also build on the duty and quotafree
access to the EU market for all products (with transition periods for rice and
sugar), the improved rules of origin, and opening up of ESA markets to imports
from the EU agreed under the Interim EPA. It is hoped that the Full EPA will
include provisions on development cooperation. The EC itself said that the Full
EPA will follow up on EU commitments on Aid for Trade by concluding the 10 th
EDF regional programmes and delivering on EU commitments under Aid for
Trade.
This is an ambitious package; yet it is doable. The Caribbean has already
concluded a Full EPA. The ESA Group held a technical meeting in Lilongwe,
Malawi from 14 April-21 April to discuss a range of issues in preparation for the
42 EC, EU-ACP Economic Partnership Agreements: State of Play and Key Issues for 2008, P.5
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negotiation on the Full EPA with EC. The ESA Group meeting technical discussion
was focused on the issue of market access, services and trade related issues.
The market access meeting tried to advance negotiations on trade facilitation,
SPS, TBT and some of the contentious issues in the Interim text on trade in goods.
The objectives of the technical meeting on trade in services is to build consensus
on the importance of services in the EPA context, review of positions of other
regions and EC proposals on trade in services in the EPA context. On trade
related issues, the approach is to discuss capacity building, technical assistance
and where appropriate rules on the issues of government procurement,
competition policy, intellectual property rights and investment. Most importantly,
this meeting will be followed by the 13 th Summit of COMESA and the 10 th ESA
Council and ESA technical meeting and ESA-EC negotiators meeting in mid-
May. EPA will be a major subject of consideration in these meetings, in particular
the progress of negotiations and our regional integration agenda, and avoid
discord between EPA and regional integration.
The EAC also held similar discussion with EC in Brussels in April. 43 This shows there is
already fragmentation within the regions as EAC and most of the ESA countries
part ways in continuing the negotiation with EC. Kenya, however, is participating
in both the ESA and EAC negotiation with the EU. Their participation in both
configurations will mean that the Kenyans tend to have a broader and deeper
perspective in the negotiations although they weren’t chosen to chair any of
the technical groups. Uganda, on the other hand, had written the COMESA
Secretariat that it had withdrawn from the ESA configuration. It is hoped the
COMESA summit will address this problem of negotiation configuration. One
possible way resolving the configuration problem can be the simple restoration
of the ESA configuration. This approach, however, will mean that the different
liberalization schedules of the ESA signatories and EAC be aligned and
harmonized. It will also mean that it should be acceptable to the non-signatories
who will be party to the full EPA.
In addition, all ESA members, including the EAC countries, might try to
coordinate and harmonise their positions in the negotiation of a comprehensive
EPA with the EU. More recently, EAC Ministers tabled a proposal to their SADC
and ESA partners which aim to create a larger trading bloc encompassing
COMESA and SADC ‘in order to eliminate friction amongst
states over deals signed with partners outside the continent’. 44 While it is too
early to tell whether and when this will materialise, a tripartite summit among
43 Author’s discussion with EAC negotiators in Lilongwe, Malawi, 20 April 2008
44
Ministers propose bigger East African trading bloc, Allan Odhiambo, Business Daily Africa, 13 February 2008,
http://www.bdafrica.com/index.php?option=com_content&task=view&id=5847&Itemid=5813
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COMESA, EAC and SADAC might be a good approach in ensuring the regional
coherence.
In the mean time, the only realistic option that is available for Ethiopia is to
continue the negotiations under the ESA configuration and consider various
options of configurations for signing when the negotiation of the full EPA is
concluded. Let us now consider the various options that are available to
Ethiopia in signing the Full EPA.
6.3.1 Membership in the EAC EPA
The EAC-EU EPA is unique in a number of respects. It is the first region-to –region,
south-North free trade agreement. 45 EAC is the only African region in which all
signatories have identical schedules. The reduction commitment of the EAC
signatories is based on reductions from EAC CET. The EAC Customs Union
commenced on January 1 2005. This economic union with its Common External
Tariff (CET) strengthened the reasons for the EAC group to negotiate with the
EU. 46 The EAC-EU EPA was difficult to achieve for a while because Kenya,
Uganda, Rwanda and Burundi configured under Eastern and Southern Africa
(ESA) and Tanzania joined the Southern African Development Community
(SADC) in 2003. However, efforts to negotiate as EAC bloc bore fruit on October
11 2007, when trade ministers resolved that the EAC countries should offer a joint
market access offer on trade in goods to the European Commission. In EAC
Brainstorming Session for the Permanent Secretaries on EAC Brainstorming
session for the Permanent Secretaries on EAC-EPA configuration on 13 th August
2007 in Arusha, it was decided that : (a) EAC Partner States being a Customs
union should sign one Economic Partnership Agreement (EPA), (b) the
configuration will be open to others who are willing and able to comply with the
provision of the EAC Customs Union of the EAC Partner States as is (c) taking into
consideration the sensitivities of EAC Partner States, the best vehicle for this is to
negotiate an EAC plus (EAC+) EPA configuration (d)there will be linkages with
both the ESA and SADC-EPA configurations by joint negotiations of certain
aspects of EPAs as will be agreed between EAC and existing EPA regional
configurations.
45 It is not clear from the EAC-EC Interim EPA if the EAC as a customs union in addition to the
member states is bound by the Interim EPA.
46 Peter Kiguta, The EAC Interim Agreement: An overview, TNI,7-2
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The final outcome of the EAC-EC EPA that emerged by December 2007 was
consistent with the decision of the permanent secretaries of the EAC region in
their 13 th August Brainstorming Session. This speaks for the excellent skills of the
EAC negotiators. Only in the case of EAC have all members joined the EPA and
accepted identical liberalization schedules. The Interim EAC EPA will be
instrumental in reinforcing the existing regional integration initiative among these
countries.
Would it be feasible for Ethiopia to join the EAC EPA?
It is true that the ESA grouping has little to offer Ethiopia without the EAC
countries as the other island and southern African countries are not major trade
partners of Ethiopia. Membership in the EAC comprehensive EPA might be one
option that needs to be explored. This may be desirable in respect to the trade
relationship, which is greater with Kenya than any other ESA state, excluding the
Horn countries.
There are significant drawbacks to this option. First, the EAC signatories will make
the EAC configuration open to others only if the new countries are willing and
able to comply with the provision of the EAC Customs Union of the EAC Partner
States as is. 47 This means that membership in the EAC EPA will have double
consequences. First, Ethiopia will be required to implements certain obligations
such as the EAC-CET that emanate from EAC customs union. Considering the
advanced stage of regional integration that EAC at present is in, this can be
particularly onerous for Ethiopia and unrealistic given the time line. Second,
there are other significant obligations that arise from the Full EPA itself. The other
drawback of this approach is that Ethiopia’s minimal or no involvement in EAC
EPA negotiation. The EAC Secretariat plays the role of co-ordination of EPA
negotiation process within EAC, with strong support for negotiation from Partner
States including Ambassadors from Brussels and technical experts from Partner
States. EAC is also seeking funding to support EAC-EPA negotiation process. The
EAC Secretariat has also assigned an officer competent on EPA issues to
coordinate the office and offer technical support to Partner States. That Ethiopia
is not a member of the EAC configuration means that it will not have the
opportunity to have a say in the EAC EPA negotiation. Given this, it will be
difficult for Ethiopia to be signatory of an Agreement that it doesn’t participate
47 Meeting Report, Brainstorming Session for the Permanent Secretaries on EAC Brainstorming
session for the Permanent Secretaries on EAC-EPA configuration, 13 th August 2007, Arusha,
Tanzania.
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in negotiating. However, Ethiopia should keep the EAC EPA as option and
accede to it once it is finalized if it feels that its interest is well-reflected.
6.3.2 Membership in ESA EPA
After December 2007, the ESA region has been splintered into countries that sign
EPA and those that don’t. Comoros, Madagascar, Mauritius, Seychelles and
Zimbabwe intialled the Interim EPA as ESA while five others (Kenya, Uganda,
Rwanda, Burundi along with Tanzania from SADC) signed the interim EPA as EAC
EPA grouping. The remaining LDCs (Ethiopia, Eritrea, Djibouti, Malawi, Sudan and
Zambia) refused to sign EPA and continue to export under EBA regime. Congo
has also joined CEMAC and the IOC might form their own configuration.
In considering Ethiopia’s possible membership in the ESA configuration, we
should make a distinction between two scenarios. The first scenario is the ESA
configuration that is composed of only the current signatories of the ESA
agreement i.e., Comoros, Madagascar, Mauritius, Seychelles and Zimbabwe.
The second is the ESA configuration that includes not only ESA signatories, nonsignatories
but also EAC partner states.
In the first case, Ethiopia doesn’t clearly have much trade with the most of the
Indian Ocean Countries (Comoros, Madagascar, Mauritius, and Seychelles) and
the only other signatory, i.e., Zimbabwe. If the ESA configuration continues as
fractured as it is now and countries continue to retreat toward their natural
configuration, then the only benefit of the ESA configuration for Ethiopia would
be logistical. In other words, ESA will be beneficial in facilitating the negotiation
process with EU and in providing the forum to share notes and experiences with
other countries. Indeed, in the absence of the EAC countries, ESA will be left with
mainly least developed countries and island state that would be reluctant to
champion the regional integration agenda. Given the bargaining power of a
collective group over the individual it would be perhaps wiser for Ethiopia to
remain in the ESA grouping during the negotiation process. The final decision of
how to sign can be made after the negotiation is finalized.
In the second scenario, it is assumed that the ESA region would be the
successful conclusion of a comprehensive ESA-EC EPA, to which all countries in
the configuration, including the EAC Member States, would adhere. It also
assumes the existence strong political will among EAC countries and all ESA
countries. At the moment, it is very difficult to imagine how this ‘spaghetti bowl’
of different national and regional liberalization commitments and exclusion list
could be knitted into two regional integration groupings comprising all southern
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and eastern African countries. Harmonization of liberalization schedules
between ESA and EAC will certainly challenging. Added to this, it is not clear if
non-signatories ESA countries would endorse either the ESA or EAC liberalization
schedules. If these challenges can be addressed in a manner that take into
account Ethiopia’s specific interests in particular with development assistance,
this option would be a realistically beneficial and acceptable position for
Ethiopia. This approach will strengthen regional markets that play an important
role in supporting economic diversification, given especially domestic markets
are small and fragmented in most ESA countries.
6.3.3 Membership in the Horn Initiative Grouping
Another alternative that is open to Ethiopia is signing in a Horn Initiative
grouping. If Ethiopia manages to complete a well negotiated, well balanced,
comprehensive development oriented EPA that addresses development
concerns, focus on enhancing supply-side capacities, aid fiscal reforms, and
resolve important issues such as the EU’s restrictive Rules of Origin in adequate
manner, then the text can be signed together with other countries in the Horn of
Africa. This is contingent on the other countries being politically open to such a
suggestion; given the tensions in the region this may be difficult if not impossible.
The benefit in negotiating EPAs with Djibouti and Sudan and Eritrea is the
similarity of the economic status of these countries. All of these countries are
least developed countries and are beneficiaries of the Everything But Arms
Scheme. Moreover, negotiating Free Trade Agreement and ultimately Customs
Union with these countries will practically be easier as Ethiopia has a de facto
Free Trade Agreement with Djibouti and Sudan. Moreover Ethiopia’s bilateral
trade in Africa is largely with these two countries.
This option has a better chance of creating a bigger market and helping
regional integration than the unwieldy ESA as the latter is far from integrated
regional market and given the slow progress towards effective integration. Also
if ESA’s integration effort doesn’t succeed, then the final EPA will be a single
country EPA which undermines the standard economic gains from regional
integration. On other hand a FTA with Djibouti and Sudan has a better chance
of being transformed into a customs union in light of a close trade cooperation
agreements existing among the three countries and their geographic proximity.
If EAC and ESA countries fail to harmonize their integration agenda, Ethiopia will
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e left with no viable choice within ESA configuration but to align itself with its
neighbors in the Horn of Africa.
The most significant drawback of this option is that fact that the region is one of
the most politically unstable in the world. There is a political tension within all
countries in the Horn of Africa. The current relationship between Ethiopia and
Eritrea is as bad as it gets. Without political stability, the integration would be
shallow and its benefit minimal. Ethiopia must also explore if it is wise to align
itself to the Horn countries, which for most part are politically unstable.
6.3.4 Concluding EPA on an individual Basis
Given the fact that different countries have made different decisions and have
different interests, another possible option for Ethiopia to take is to sign the full
EPA on an individual basis. Already, the precedent is set by other countries. In
West Africa, Côte d’Ivoire and Ghana intialled the Interim EAP individually to
avoid market disruption after the Cotonou Partnership Agreement expired by
the end of 2007.
The significant drawback of this approach for Ethiopia would be it is limited
effect in strengthening regional integration processes with the region. EPAs
should contribute to the establishment of effective regional markets in the ACP,
thus attracting and stimulating both domestic and foreign investment, a
necessary condition for sustainable development. This will happen only if a
regional grouping is a party to EPA. Cognizant of the is fact, the West African
countries plan to replace the interim EPAs signed by Ghana and Côte d’Ivoire
by a comprehensive regional EPA.
A comprehensive EPA for Ethiopia should not only address tariff barriers, but also
non-tariff and technical barriers to trade, as well as a number of trade related
‘behind-the-border’ measures.. This broad coverage will provide greater, more
effective market access and market integration, thus increasing the benefits
from trade. With a comprehensive coverage, EPAs should contribute to locking
in policy reforms in the ACP, thereby increasing the relevance and credibility of
the regional integration process of the ACP regions, as well as facilitating their
integration into the world economy. Ethiopia’s objective should be to negotiate
a comprehensive and development friendly EPA that addresses both the border
measures and regulatory issues and will help in creating the right environment
for attracting and stimulating both domestic and foreign investment. These
objectives might be sacrificed if Ethiopia signs EPA on an individual basis.
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7. Conclusion: Key Issues Ahead
The current negotiations for a comprehensive EPA require better preparation
given the fact that most of the issues that are up for negotiation are
controversial and given the short time-framework for finalizing the negotiations.
Negotiators should at all times be mindful of the implications of EPAs for regional
integration efforts. Bilateral EPAs, bilateral schedules of tariff liberalization
commitments and other specific issues on the negotiating table will lead most
regions in further fragmentation of countries into categories of countries with
EPAs and without within regional economic communities.
Ethiopia should have a two track work process in the current negotiation while
focusing on the continuation of the negotiations. This two track work process
relates both to the contentious issues identified in this paper and the pending
negotiation of trade in services and new generation issues such as investment,
government procurement, competition policy and the like.
First, Ethiopia should prioritize the controversial issues in the interim EPAs as
starting points of the on-going negotiations. It should also try to build consensus
among all countries within ESA on the need to open negotiation on these
contentious issues. Recent declarations by European Trade Commissioner Peter
Mandelson suggest that he does not want to reopen and renegotiate interim
deals. On 14 April 2008, in a speech to members of the European Parliament
International Trade Committee, Commissioner Peter Mandelson ruled out "any
suggestion of renegotiating the agreements already initialled". 48 Any
renegotiation would constitute "a new threat of legal uncertainty to the
agreements but would also be a disaster for the ACP countries", according to
Mr. Mandelson, who restated his goal of concluding "full EPAs with
comprehensive regional coverage" in the six geographical regions.
Ethiopia should argue that it be allowed to import any provision agreed to by
the EU in another interim or full EPA, into a final EPA it will sign. Ethiopia should
also argue that the declaration made by Commissioner Mandelson shouldn’t be
made applicable to countries that didn’t sign the Interim EPA. Ethiopia’s case is
unique compared to signatories asnon-signatory it is not going back on the
48
http://www.europarl.europa.eu/news/expert/infopress_page/026-26533-108-04-16-
903-20080414IPR26532-17-04-2008-2008-false/default_en.htm
43 | P a g e

commitment that entered. It should at least exempt itself from the application of
the contentious issues in a separate protocol at the time of signing the final EPA.
The second element in Ethiopia two track process approach is its preparation
and the position that it will take in the negotiation in trade in services,
development cooperation, agriculture and the so-called new generation issues
such as investment, government procurement, and competition policy.
The Commission has drawn up a list of what it hopes to achieve with each
region involved in the EPA talks. These issues are listed in the Interim EPAs as
issues to be negotiated under rendezvous clause. For other Eastern and
Southern African countries, the Commission is eyeing a deal relating to the rules
of origin (which deal with the use of imported ingredients in the manufacturing
of goods or processing of food), services, competition, intellectual property and
agriculture. Critics argue that the new generation issues are not merely there
because of some altruistic desire to assist our regions to become attractive
investment destinations, but rather are linked to global strategies to promote
offensive interest of European companies across the world, by addressing
behind the tariff, regulatory issues judged necessary to make market access
real. 49
It is possible to gauge from the CARIFORUM-EU Economic Partnership
Agreement, which is the only comprehensive EPA so far, what EU’s interests are
in trade in services, competition policy, government procurement, investment
and intellectual property rights. While the issues need separate analysis than
possible here, the following are some of the central negotiation points.
7.1 Trade in Services Issues
The CARIFORUM text includes services and investment provisions include
reciprocal but asymmetrical commitments, with gradual and effective market
opening, consistent with WTO rules, taking into account the level of
development of the CARIFORUM countries. The Agreement includes a
regulatory framework for mutual recognition of requirements, qualifications,
licences and other regulations; and specific provisions recognizing the
49 See , for example, welcoming Remarks at Commonwealth Secretariat/ ACP Secretariat
Conference,
“Evaluating EPA’s: The way forward for the ACP” Cape Town, 7 – 8th April 2008 by Dr. Rob
Davies,
Deputy Minister of Trade & Industry, South Africa
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importance of technical cooperation and assistance in order to complement
the liberalization of services and establishment. 50
CARIFORUM countries made significant commitments in trade in services.
CARIFORUM countries have also made significant offers, in particular in exportoriented
and infrastructure sectors key for their development, such as
telecommunications, transport, tourism, manufacturing and environmental
services. 51
The EC will certainly push Ethiopia to make concessions and open up some of
Ethiopia’s service sector. 52 Services negotiations will be sensitive for Ethiopia
given the fact that some of the major service sectors are either government
monopolies or are closed to foreign investors. Let us just consider the implication
of commitments on key infrastructural areas of financial services and
telecommunication service sectors briefly.
Financial services liberalization generally refers to the removal of discriminatory
quantitative or qualitative regulations that discriminate against foreign and
domestic financial services providers by limiting market entry or commercial
presence. Thus, to a significantly higher extent than trade in goods, the
liberalization of trade in services requires the amendment of domestic legal and
regulatory provisions. In the context of EPA negotiation, if the experience of
CARIFORUM countries is anything to go by, the EC might demand that Ethiopia
opens its financial services sector to foreign Service providers from European
Union at least to a certain extent. Such opening could take place in any of the
following modes of supply: (a) by allowing Ethiopians to purchase financial
services in Europe – either by "long-distance" purchase, i.e. by physically
remaining in Ethiopia (the so-called Mode 1 of trade in services, "cross-border
supply") or by actually traveling to the European country where the provider is
located ("consumption abroad", Mode 2), (b) by allowing European firms to
establish financial institutions in Ethiopia ("commercial presence", Mode 3), (c)
by allowing individual persons to travel to Ethiopia and sell financial services
("presence of natural persons", Mode 4). Considering the fact that financial
services currently are completely closed to foreign participation in Ethiopia, it is
50
DG Trade, CARIFORUM-EU Economic Partnership Agreement: An Overview, April 2008
51 See Title II of the CARIFORUM-EU Economic Partnership Agreement.
52 The WTO Service Sectoral Classification (also called MTN.GNS/W/120) lists the following broad
service sectors: 1. Business services 2. Communication services 3. Construction and related
engineering services 4. Distribution services 5. Educational services 6. Environmental services 7.
Financial services 8. Health-related and social services 9. Tourism and travel-related services 10.
Recreational, cultural, and sporting services. 11. Transport services 12. Other services not
included elsewhere. Within these broad sectors, there are numerous sub-sectors.
45 | P a g e

highly likely that Ethiopia’s negotiators will show considerable reluctance in
opening up competition in financial service trade and in particular in
establishment-related, commercial presence mode of supply.
If we take the CARIFORUM-EU EPA as a guide, it is certain that Ethiopia will also
entertain requests from EU to open up a significant portion of its
telecommunication sector to competition. Ethiopia is one of the few countries in
Africa that still has a single provider of voice, Internet, and telex/telegraph
services. The Ethiopian Telecommunications Corporation (ETC) is the sole
provider of these services. The government is relatively firm in not considering
multiple telecommunications providers, but occasionally outlines specific reform
measures that would make the ETC more efficient. It seems clear, however, that
there is little interest on Ethiopia’s side in opening up telecommunications to
competition. The government maintains as a priority achieving 100 percent
penetration of the telephone network through massive infrastructure projects
Opening the international telephone calls and cellular services market to
competition is seen as undermining ETC’s ability to cross-subsidize the financing
necessary to achieve its goal of universal access.
In the context of EPA, Ethiopia could face some negotiating challenges in most
services sectors as there is currently little appetite in opening up the key
bservice sectors to foreign participations. The most likely position that the
Ethiopia government will take is GATS- style progressive liberalization approach
that is based on positive list approach where the Ethiopian government retain
the freedom to choose the sectors to be liberalized and the extent of their
liberalization.
7.2 Government Procurement
In WTO context the Agreement on Government Procurement is a plurialteral
trade agreement that WTO members are free either to agree to be bound it or
not. As is well known, transparency in public procurement is one of the issues
that were removed from the Doha Development Agenda (DDA) negotiating
table.
Most ACP countries including Ethiopia has no offensive interest in government
procurement opening in the EU market as they have limited or no capacity to
supply such markets. The procurement provisions in the EPAs are therefore
important to the extent they relate to the reform process in ACP states and the
creation of regional procurement markets in the ACP regions. EPA rules based
on the CARIFORM – EC model would have two broad effects: one resulting from
46 | P a g e

the framework rules on procurement procedures and transparency; and
another from the liberalisation provisions envisaged in Chapter 3.
The CARIFORM-EC Economic Partnership Agreement has elaborate provisions
that might reduce the ‘policy space’ available to use preferential procurement
for development or infant industry strategies. Most developing countries use
some form of preferential purchasing to favour specified categories of
producers. These policies are often of considerable political and economic
importance for ACP governments. For example, Botswana also uses preferential
government purchasing to promote economic empowerment. Other ACP
states use preferential purchasing to favour small or medium sized companies or
national producers a part of industrial development strategies and employment
generation. 53
Unlike the CARIFORUM-EC EPA, other EU bilateral FTAs with developing countries
deal government procurement in a limited way. The EU – Morocco FTA has only
one short article (Art 41) that sets out the aim of progressive liberalisation of
procurement markets. This will have no effect until the EU – Morocco Association
Council takes specific action to add some flesh to the provisions. This approach
to developing countries was established with the Trade Development and
Cooperation Agreement (TDCA) between the EU and South Africa negotiated
in 1995. The same is true for the EU – Egypt Euromed Association agreement of
2003, which has just the one short article (Art 38) setting out liberalisation as an
objective.
Much of rule-making in public procurement is about increasing transparency.
FTAs that enhance transparency in public procurement are likely to improve
contract award procedures and enhance competition in the sector.
Liberalisation commitments do however; provide preferential access for FTA
partners. Given this, Ethiopia’s approach to the issue of government
procurement would be limited to recognizing the value of transparency in
government procurement (without making actual liberalization commitment)
and to ask technical assistance in drafting laws, procedures, training officials
and exchange of experiences.
7.3 Investment
53
See Stephen Woolcock, Public Procurement and the Economic Partnership Agreement,
Paper for The High Level Technical Meeting EPAs: The Way Forward for the ACP Cape Town,
South Africa, 7-8 April 2008
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The EC, as can be seen from the CARIFORUM EPA text, makes a clear link
between investment and services. The Service and investment provisions in the
CARIFORUM EPA text include reciprocal but asymmetrical commitments, with
gradual and effective market opening, consistent with WTO rules, taking into
account the level of development of the CARIFORUM countries. 54
Broadly, provisions on investment in international (trade) agreements including
EU’s can be divided into four categories: (1) Investment promotion (2)
Investment protection such as the liberalisation of current payments and
capital movements and guarantees of investors’ property rights, (3) Market
access for foreign investors and the restrictions that are potentially
encountered when entering a market (known as ‘pre-admission provisions’) (4)
‘Post-admission provisions’ on the regulatory treatment of foreign investors once
they are established in the host country. 55
In context of EPA, the EU wants to emphasis in investment chapter on provisions
that define EU investor’s rights with respect to entry and establishment in certain
economic sectors in the ACP countries. This negotiation approach of the EU is
rejected by most ACP countries. For Ethiopia, when it comes to negotiation in
the investment chapter, a wise approach would be to focus only on investment
promotion where EU and Ethiopia try to stimulate reciprocal investment flows by
means of information exchange, regulatory coordination, investment promotion
machineries or technical assistance.
7.4 Competition Policy
Putting in place stronger rules with respect to competition policy is one of the
major trade policy objectives of the EU. The EU perceives the lack of strong
competition policies in many of its overseas markets as something which is
detrimental to EU trade interests. 56
The competition law chapter of the CARIFORUM-EU Agreement identifies the
types of anticompetitive conduct that are prohibited as they affect trade
between the Parties. These only cover restrictive agreements and abuse of a
dominant position. They do not cover mergers and state aid, the other two large
areas of EU competition law enforcement activities, but in the light of the very
different development level between the Parties, it was considered that such
inclusion was not necessary at this stage. In addition, mergers issues are not
54
DG Trade, CARIFORUM-EU Economic Partnership Agreement: An Overview, April 2008
55
Stefan Szepesi, Comparing EU free trade agreements: Investment, ECDPM InBrief6D, July 2004
56 South Centre, Analysis of Competition Chapters in EU FTAs, May 2008
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addressed since most of the CARIFORUM countries do not have merger control
rules and so far mergers have not been prominent in the economies of this
region. 57 The CARIFORUM has stated that any EPA commitments on competition
policy on the part of CARIFORUM must be predicated on first strengthening
institutional capacities of the relevant regional body and for the development
and implementation of regional policies and strategies on competition.
The Ethiopian Competition Policy regime is at a nascent stage. The government
of Ethiopia issued a competition related legislation called the Trade Practices
Proclamation No.329/2003 only in 2003.This legislation states that the
Government is committed to “[establishing] a system that is conducive for the
promotion of a competitive environment, by regulating anticompetitive
practices in order to maximize economic efficiency and social welfare.” It
prohibits anticompetitive behavior and unfair or deceptive conduct by one
competitor against another; authorizes regulation of prices for basic goods and
services in times of shortage; and requires disclosure on labels of basic consumer
information such as weights and measures. The law also provides for the
creation of two implementing institutions, the Trade Practices Commission and
the Trade Practices Secretariat.
Aspects of the law and institutions, however, make it difficult to use them as
effective tools for
enhancing consumer welfare. 58 First, the law has disparate goals—prohibiting
anticompetitive
conduct, regulating unfair and deceptive conduct between individual
competitors, prohibiting
importation of goods at prices that are below wholesale in the country of
production, regulating prices for basic goods and services, and regulating
product labeling—that divert enforcement from the most harmful
anticompetitive conduct and dilute limited enforcement resources. Second, the
Commission has no staff of its own and virtually no budget. The Trade Practices
Secretariat does have a small staff of approximately five, but it has a clerical,
non-investigative, and non-prosecutorial function. Third, legal and economic
training in competition policy and law enforcement at the university level does
not exist.
Given this, Ethiopia’s negotiation strategy should focus on flexible provisions and
should focus more on cooperation modalities than on substantive rules.
Ethiopia should also argue that commitments on competition policy must be
57
DG Trade, CARIFORUM-EU Economic Partnership Agreement: An Overview, April 2008
58
See Booz Allen Hamilton, Ethiopia Commercial Law & Institutional Reform and Trade
Diagnostic, January 2007, p. 57 for more discussion on Ethiopian Competition law regime.
49 | P a g e

predicated on first strengthening institutional capacities of the relevant national
body and for the development and implementation of national policies and
strategies on competition.
7.5 Development Cooperation
The principal objective of the Economic Partnership Agreement is supposed to
promote sustainable development. However, in most Interim EPAs the
development component of has taken a back seat to the trade and investment
liberalization component. Perhaps the most important issue that Ethiopia should
spend its negotiation capital on is binding development cooperation provisions.
A development chapter should also have the following key elements: shared
understanding of development including references to overcoming major
trade-related constraints and achieving certain satisfactory living standards
within given time frames; shared unequivocal commitments to putting
development at the centre of the EPA and the understanding that all provisions
of the EPA are about and should support development; clear commitments on
adequate resources with clear obligations on the European Community and the
member states; and an appreciable indication at some length of areas of
cooperation and interventions with a clear prioritisation of regional integration,
infrastructure, regional and global competitiveness, diversification and value
addition, investment generation and industrialisation, and references to key
international instruments on development and aid. 59
59
Economic Commission for Africa, North-South FTAs After all? A Comprehensive and Critical
Analysis of the Interim Economic Partnership Agreements, April 2008, p.6
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References
1. Agritrade, EPA Negotiations, Eastern and Southern Africa: Executive Brief,
January, 2008
2. Booz Allen Hamilton, Ethiopia Commercial Law & Institutional Reform and
Trade Diagnostic, January 2007,
3. Babajide Sodipo, The EAC interim EPA and Rwanda, TNI, Volume 7,
Number 2 / March 2008
4. CARIFORUM-EU Economic Partnership Agreement
5. Cheikh Tidiane Dieye and Victoria Hanson, MFN Provisions in EPAs: a Threat
to South-South Trade, TNI, Volume 7, Number 2/ March 2008
6. Christopher Stevens et al, “The New EPAs: Comparative Analysis of their
Content and the Challenges for 2008”, ODI and ECDPM 31 March 2008
51 | P a g e

7. Economic Commission for Africa, North-South FTAs After all? A
Comprehensive and Critical Analysis of the Interim Economic Partnership
Agreements, April 2008
8. European Commission, DG Trade, CARIFORUM-EU Economic Partnership
Agreement: An Overview, April 2008
9. European Commission, Interim EPAs: Questions and Answers, 27 March
2008
10. European Commission, EU-ACP Economic Partnership Agreements: State
of Play and Key Issues for 2008
11. European Commission: Economic Partnership Agreements: Means and
Objective, 2005
12. European Commission, DG for Trade, Notice to Economic Operators in [
LDCs] Exporting Products to the EU, 2007,Brussels
13. Jean Boyle, Nigerian cocoa processors to lose millions, TNI, Volume 7.
Number 2 / March 2008
14. Kirk Haywood, Uganda’s EPA: getting the process ‘right, TNI, Volume 7.
Number 2 / March 2008
15. Meeting Report, Brainstorming Session for the Permanent Secretaries on
EAC Brainstorming session for the Permanent Secretaries on EAC-EPA
configuration, 13 th August 2007, Arusha, Tanzania.
16. Peter Mendelson, Speech to the European Parliament Development
Committee, Brussels, 28 January 2008
17. Peter Kiguta, The EAC Interim Agreement: An overview, TNI, 7-2, March
2008
18. Peter Mandelson, Remarks in EC’s Seminar On Economic Partnership
Agreement, 17 April 2008
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19. Roberta Piermartini, The Role of Export Taxes in the Field of Primary
Commodities, WTO Discussion Paper, Geneva, 2004
20. San Bilal, Concluding EPAs: Legal and Institutional Issues, ECDPM, 7 May
2007
21. San Bilal, EPA deals as stepping stones or stumbling blocks? TNI, Volume 7.
Number 1 / February 2008
22. Stefan Szepesi, Comparing EU free trade agreements: Investment, ECDPM
InBrief6D, July 2004
23. Stephen Woolcock, Public Procurement and the Economic Partnership
Agreement, Paper for The High Level Technical Meeting EPAs: The Way
Forward for the ACP Cape Town, South Africa, 7-8 April 2008
24. South Centre, Analysis of Competition Chapters in EU FTAs, May 2008
25. The Economist, “Africa and Europe: A desperate suitor”, December 6,
2007
Annex 1: Comparison of the EAC Interim Agreement
and the ESA Interim Agreement
The table below highlights the main areas of difference between the ESA and EAC
Interim Agreements. The text should also be expanded to include the main provisions in
the CARIFORUM EPA. It focuses on the areas of difference, where an area is not
mentioned it can be taken to indicate that the contents of the agreements are the
same.
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1.1 The main areas of difference between the Interim Agreements of ESA
and EAC 60
Article Number ESA Text EAC Text Comment
General EPA
Objectives
Article 2 a
Specific
objectives of
this Agreement
Article 3.1 b)
Article 3.2
Principles
Article 4 c
Article 4 d, e, f,
TRADE REGIME
FOR GOODS
Objectives
Article 5 b)
Contains references to
the CPA and the MDGs
No such text or
references
The deadline for
negotiations is 31-12-08
Calls for asymmetry in
the liberalisation of
trade.
d - spells out special
and differential
treatment for LDCs
e - allows variable
geometry in the region
f - the inclusiveness of
development
cooperation for all ESA
states
the promotion of trade
between the Parties
and the acceleration
of export led growth to
enable the integration
of ESA countries into
the global economy;
No such references
To facilitate
continuation of trade
by the EAC Partner
States under terms no
less favourable than
those under the
Cotonou Agreement;
The deadline for
negotiations is 31-07-09
States emphatically
that asymmetry will be
in favour of the EAC.
These issues are not
reflected in the EAC
text.
Not included in the
EAC text.
The EAC text focuses
mainly on the
establishment of a
strengthened and strategic
trade and development
partnership consistent with
the objective of sustainable
development
This is a basic ideal of
negotiating the EPA and
should be included in the
ESA text.
The negotiations for the full
EPA will be given more time
in EAC. We should try to
understand why.
This should be clearly
stated in the ESA text too.
The ESA text is better suited
to Ethiopia's needs.
The ESA text more reflects
the needs of Ethiopia.
60 This section is largely based on the work done by James Watson on the main difference
between ESA and EAC text.
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Scope of
Application
Article 6
Classification
of goods
Article 7
Standstill
Article 14
Circulation of
goods
Article 14 EAC
Duties and
taxes on
exports
Article 15
More
favourable
treatment
resulting from
economic
integration
agreements
Article 16
Prohibition of
quantitative
restrictions
Article 17
National
treatment on
Lays out the obligations
of the parties under the
trade in goods section.
Goods will be classified
under the COMESA
classification (Article 8
ESA text)
ESA simply agree not to
increase their tariffs on
EC goods.
Not in ESA text
ESA are required to list
products that are to be
exempt from this article
in an Annex.
ESA are only allowed to
have regional
integration agreements
with African countries
that are exempt from
extension to the EC.
There are no caveats
listed in the ESA text.
ESA include
exemptions from
Not included in EAC
The EAC states will use
the HS system.
EAC agree to do so,
but have built in a
caveat for antidumping
and
safeguards. (article 13
EAC)
EAC allow customs
duties to be collected
only once on EC goods
imported into the EAC.
EAC have broad
caveats for exemption:
to foster development
of domestic industries
and to maintain
currency stability.
EAC have a similar
exemption but also
they do not have to
give equally favourable
terms to the EC when
they sign trade
agreements with the
ACP countries.
The EAC text includes a
paragraph 2, this
stipulates that the
prohibitions on
quantitive restrictions
shall not extend to
export restrictions in
place to address food
shortages.
The EAC text does not
contain any such
The inclusion is necessary
in ESA given that not all
countries have initialled or
even made market access
offers.
The problem is that the
Interim Agreement seems
to be giving legal standing
to the COMESA
classification. This has not
been agreed to by the
Ethiopian government.
The caveats should be built
into the ESA text too - they
add value.
This should be kept out for
the purposes of Ethiopia.
The EAC exemptions should
be included in the ESA text.
This gives more leeway and
is not so prescriptive.
The exemption for ACP
countries in the EAC text
should be extended to the
ESA text, otherwise the ESA
text is more restrictive.
The EAC text could be
considered worthwhile and
therefore could be brought
to the ESA text.
The ESA text is more suited
to the needs of Ethiopia.
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internal
taxation and
regulation
Article 18.6
Bilateral
safeguards
Article 21.5 b)
Economic and
Development
Cooperation
Fisheries
national treatment for
infant industries and
also more broadly for
development needs.
There is a bias in favour
of LDCs - so that they
can apply safeguards
to protect infant
industries for 15 years
instead of 10 years.
ESA has 16 dedicated
articles on specific
development
cooperation aspects.
The texts are identical
caveats.
There is no distinction
between LDCs and
non-LDCs in the EAC
text.
EAC has one article
that states broad areas
of cooperation - such
as sustained growth,
regional integration,
fostering structural
transformation,
addressing supply
capacity, etc.
Paragraph 2 also spells
out funding will come
from the EDF, Aid for
Trade and the EU
General Budget.
The ESA text better reflects
the needs of Ethiopia.
There is very little in terms of
attention being paid to
development needs in the
EAC text. The ESA text has
little of financial value
either but the areas
covered make it more
comprehensive.
AREAS FOR
FUTURE
NEGOTIATIONS
Rendez-vous
Clause
Article 53 ESA,
Article 37 EAC
DISPUTE
AVOIDANCE
AND
SETTLEMENT,
INSTITUTIONAL
AND FINAL
PROVISIONS
General
exception
clause
Article 40 EAC,
Article 56 ESA
g) mentions current
payments and capital
payments
i) mentions good
governance
No extra paragraph.
Neither of these areas
are included in the EAC
text for future
negotiations.
Paragraph h) gives an
extra exemption to the
EAC countries. This is
where practices are
inconsistent with
Articles 17 on National
Treatment, provided
that the difference in
treatment is aimed at
ensuring the effective
or equitable imposition
or collection of direct
taxes in respect of
Ethiopia may wish to review
the content of the future
negotiations very carefully
as it includes TRI and
services. The inclusion of
these topics may not be
commensurate with the
ambitions of Ethiopia.
This allows an exemption in
relation to tax policy,
perhaps this should be
included in the ESA text.
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Relations
between this
Agreement
and the
comprehensive
Economic
Partnership
Agreement
Article 43 EAC,
Article 59 ESA
Special
Committee on
Customs
Cooperation
Article 48 EAC
Accession
Article 50 EAC
Article 66 ESA
Amendments
Article 68 ESA
In case there is any
inconsistency between
the comprehensive
EPA and this Interim
Agreement, the
comprehensive EPA
shall prevail to the
extent of such
inconsistency.
This does not exist in the
ESA text
In ESA the EPA
committee will
determine who enters
the agreement and
under what conditions.
This elaborates the
possibilities for
amending the
agreement
Annex 1.4 ESA is awarded 75,000
extra tonnes of sugar
for export in the
2008/09 season.
Annex on
Development
Matrix
Annex on rules
of origin and
liberalisation
schedules of
countries
The liberalisation
schedules are not
attached to the ESA
agreement
economic activities.
This Agreement shall
remain in force until the
comprehensive EPA
enters into force.
The article establishes a
committee with
specific responsibility
for customs
cooperation.
In the EAC agreement
a country can become
a member of the EAC
and automatically
become a member of
the Interim Agreement.
Does not exist in EAC
text.
EAC is awarded 15,000
tonnes.
This does not exist in the
EAC text.
The rules of origin
annex is not attached
to the EAC agreement.
These are the full texts of
each article and show that
there is a difference in
understanding of what
could be happening in the
different regions. ESA seem
to have a wider caveat for
not implementing the full
EPA.
It is not clear why one has
not been set up in the ESA
text, it would be beneficial
as it would support
structural transformation of
customs procedures.
There is more flexibility in
the EAC agreement and
there is no role for the EPA
committee to stipulate
conditions as there is in
ESA. The EAC text may
better reflect the needs of
Ethiopia.
It is better to have such an
article to allow renegotiation
of controversial
areas.
This is not such an
important issue for Ethiopia.
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1.2 Summary
The texts are very different in some areas and are similar in others, for example
the fisheries section is identical - as is the protocol on mutual administrative
assistance in customs matters. However, on other areas the texts are
fundamentally different, for example the EAC text has no development matrix
and only one article of two paragraphs on development cooperation. Therefore
on these issues there can be seen to be significant convergence and conversely
significant divergence.
The areas of objectives and trade in goods provide the most interesting areas of
divergence. Overall the variations between the two agreements make it difficult
to determine which is better. It should be possible from the analysis above to
identify areas where the ESA agreement can be strengthened with parts of the
EAC text. In this way the following EAC articles might be suggested for inclusion
in the ESA text: Article 3.1 b) ensuring that the agreement is at least as good as
the CPA; Article 4 c emphatic statement that asymmetry is in favour of
EAC;Article 7: remove the reference to the COMESA classification;Article 14 add
the caveats against the standstill clause ;Article 15 add the caveats for export
taxes as well as keep the annex ;Article 16 broadens the categories of countries
that can be included in trade deals to ACP instead of just Africa.
These are the main areas that could be addressed in the ESA text that would
make it a stronger text for the needs of Ethiopia. If Ethiopia is going to sign the
Interim Agreement this list of articles provisions should be the starting point for
working on amendments to the agreement. This could make the agreement
more reflective of Ethiopian interests. The Interim Agreement for ESA with the
'cherry picked' additions from the EAC agreement would be a more suitable
agreement for Ethiopia, if Ethiopia finally decides to sign the comprehensive
EPA.
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