A world apart over partnership deals

They may not have the name-calling associated with the World Trade Organization (WTO) talks or the pomp and ceremony of bilateral trade deals, but the agreements the EU is negotiating with the developing world are proving controversial.

With just over a year to the deadline for these economic partnership agreements (EPAs) to be in place, EU development and trade ministers are to be briefed on Monday (16 October) on how the European Commission’s negotiations are going.

It would seem at present that both sides are very far apart. The Commission says the EPAs are an important instrument of development co-operation which will bring developing countries into the world economy. Non-governmental organisations (NGOs) and many developing countries have slammed them as deals being struck on an unequal basis which would force open vulnerable markets and result in massive losses of revenue for poor countries.

The origin of the EPAs arises out of criticism of preferential trade agreements that the EU has had with the developing countries of Africa, the Caribbean and Pacific (ACP). The current negotiations are taking place between the EU and six regional groupings with the aim of creating a free trade area.

One of the main reasons why the EPAs are criticised is the loss of revenue incurred by developing countries when they have to dismantle tariffs on imports. Some countries would be hit worse than others, and left with less money to spend on vital needs such as education and health.

"In the worst-case scenario, Gambia and Cape Verde stand to lose nearly 20% of total government revenue while Ghana and Senegal can be expected to face a decline in revenue of 10%-11%," says a recent Oxfam report.

The Commission says developing countries will not be expected to tear down tariffs immediately but will use "the maximum transition period that is allowed by WTO standards". Whether the Commission can agree to a 25-year transition period with an initial ten-year pause before tariffs are reduced, as one developing country diplomat suggested, is another matter.

Appeals from developing countries for money to offset this loss have received little interest from the EU side. "We don’t like the logic of compensation," says one Commission official. Developing countries may, however, see this as less of a sticking point if ministers on Monday deliver on commitments made under the aid-for-trade scheme whereby €2 billion was pledged in return for trade reform.

Others believe that the final agreements will allow developing countries to maintain tariffs on some products. They argue that, in any case, reducing tariffs will not necessarily mean loss of revenue. "It’s not necessarily the case that if you decrease tariffs there will be a loss in revenue because imports should increase, as happened in India," says Peter Draper, a fellow at the European Centre for International Political Economy, a think-tank. He adds that these imports will not displace vulnerable industry because often these goods are not being produced domestically.

The Commission is adamant that these rules are important for economic development. "In trade facilitation there is no use in reducing tariffs if you are keeping in place customs procedures. It complicates things and slows things down and can be an open door for corruption," says the Commission official.

But NGOs and developing countries are especially worried about the pace of liberalisation that the EU expects. The general trade strategy announced last week by Trade Commissioner Peter Mandelson has been read by some as showing the true intentions of the EU with regards to the opening up of developing countries’ economies for European investors. "Liberalisation might be good in some areas in certain conditions but we need programmes with conditions attached to put ACPs in a position to benefit from liberalisation," says Mariano Iossa, food and trade policy adviser with ActionAid International.

"African governments need to be careful about opening up too quickly and too widely," agrees Draper.

The months ahead will be crucial for reaching agreement on EPAs and should see both sides reaching for a compromise. But in the drive for liberalisation the needs of vulnerable economies must be kept in mind, says one diplomat. "We can liberalise over a long time but the EU must allow us time and according to our own regional integration agenda."

They may not have the name-calling associated with the World Trade Organization (WTO) talks or the pomp and ceremony of bilateral trade deals, but the agreements the EU is negotiating with the developing world are proving controversial.