Notes from the African Diaspora: an economist's views on the EU-Africa Summit in Lisbon

Introduction

The following analysis of the recently concluded EU-Africa Summit in Lisbon is rather lengthy so I will try to keep this introduction short. The editorial was authored by an Angolan economist and economic historian, Ana F. Santana, who lives and works in London. I have admired Ana’s writing online about Africa and African issues for several months and she has just celebrated her 1st anniversary as a certified global blogger & citizen journalist at her personal blog “Koluki”.

Toward the end of November I received a request for an article about the EU-Africa Summit 2007 from Jörg Wolf* in Berlin. I responded to Jörg’s request “that I had just the right person to write that article for his prestigious organization” if she would be willing and had the time to do it. Fortunately Ana accepted the invitation and I had effectively passed a “hot potato” on to someone I felt was better qualified to write about this historic and important meeting of African and European leaders. Jörg was also delighted to have Ana’s contribution, adding a new and different perspective on transcontinental issues in contrast to the predominately European viewpoints on the summit published in the European press and aired on TV and radio news programs.

*Jörg is the co-author of the Atlantic Review blog and Editor-In-Chief for the Atlantic Community, a new “open think tank” focusing on transatlantic issues and dialogues between North America and Europe. Some of my readers may remember Jörg from our collaboration on the very popular March/April 2007 series about Black and African History in Germany and Europe.

Ana’s editorial is the product of what I term “a beautiful mind”, knowledge and opinions from a well-educated, hard-working, young woman interested and engaged in world affairs. Through her writing online Ana is helping to create a better world by freely sharing her knowledge and skills with others around the globe. Ana earned a MSc. degree in Economic History and Development Economics from the prestigious London School of Economics. A short bio with more information about Ana F. Santana can be found at the Atlantic Community and Die Welt Online websites.

It is an honor for me to be able to present Ana’s full editorial at Jewels in the Jungle. A shorter version of the article titled “EU-Africa Summit: Trade Disagreements Hinder Better Partnership” can be found at the Atlantic Community Policy Workshops and in the Debatte section of Die Welt Online, a leading German newspaper and flagship publication of the Axel Springer Verlag.


THE EU-AFRICA LISBON SUMMIT AND THE FUTURE OF AFRICA
by Ana F. Santana
December 14, 2007

In spite of the high-pitched controversy surrounding the contentious issues of Zimbabwe and Sudan, the 2nd EU-Africa Summit held in Lisbon over the weekend ended with the signing by the leaders of both continents of a “Africa-EU Strategic Partnership” pledging "to move away from a traditional donor-recipient relationship and forge a real partnership characterised by equality and the pursuit of common objectives." Prime Minister of Portugal, Jose Socrates, ended the event on a positive note stating that the two continents have opened a new chapter in their relations. "What is important is that we met each other face to face on an equal setting in a new spirit. I think I can say the idea that has been expressed most often is that this summit represents the turning of a page in history," he said. However, the apparent fallout over the EU-ACP Economic Partnership Agreements (EPAs) seems to suggest that, if a page in history was indeed turned it might not have been clearly towards a brighter future for either the EU/Africa relations or the African economies in general.

In fact, in a UK Overseas Development Institute (ODI) Briefing Paper of June this year “Economic Partnership Agreements: What happens in 2008?”, Researcher Christopher Stevens predicted that if the EC Commission remained in what he termed its “retreat into negotiation mode” and did not engage in frank and open debate of the available options to the anticipated failure to meet the December 31st deadline for the establishment of EPAs, one potential casualty would be the Lisbon Euro–Africa Summit: “European leaders may find themselves facing hostile African partners, concerned over their fate a month hence and, possibly, knowing that export orders have been cancelled by importers fearful of paying GSP duties. The EU bears a heavy responsibility to ensure that its trade policy is coherent with its other policies on development and on Africa,” he wrote.

In line with prevailing international trade rules, the unilateral preferences under Lome and Cotonou required a WTO waiver, which is not expected to be extended beyond 2007. The current EU/ACP system of non-reciprocal preferences was expected to then be replaced by the EPAs leading over time to WTO-compatible full trade reciprocity in line with the provisions of Article XXIV of the GATT which requires such agreements to cover “substantially all trade”, include all sectors and be implemented over a transition period of 10 to 12 years. In this context, African Regional Economic Communities (RECs) engaged in EPAs negotiations with the EU aimed at agreeing on the principles, objectives, structures and sequencing of joint road maps for the establishment of such partnerships. Generally, the period from mid to end 2004 was set for priority setting and preparations for the substantive negotiations planned to take place from January 2005 to June 2007. The last stage was for the finalisation of the agreements, which were expected to be signed by December 2007 and enter into force on the 1st of January 2008.

However, judging by last weekend’s post-Summit headlines, Stevens may have seen his prophecy fulfilled. In fact, while Senegalese President Abdoulaye Wade is reported to have stormed out of the meeting stating that "It's clear that Africa rejects the EPAs. We are not talking any more about EPAs, we've rejected them ... we're going to meet to see what we can put in place of the EPAs", European Commission President Jose Manuel Durao Barroso emphasised that Brussels was not pressuring African countries over trade, but warned that if no more interim deals take place by the end of the year to avoid trade disruption, "the preferential agreement will no more be applicable from Jan. 1, 2008." Barroso’s position seems to be somewhat at odds with that espoused by Chancellor Merkel, who stated that “the Dec. 31 deadline is not fixed in stone and an EU Summit scheduled for Friday will look again if Europe can be more flexible.” It was also openly questioned by African Union Commission President Alpha Oumar Konare, who criticised the few interim trade deals already signed: "Our dearest hope is that the interim accords don't tie down the rest (of the countries) and complicate things afterwards. If we build our partnership on the weakness of unity in Africa we'll have problems."

In the above-referenced paper, the ODI put forward five options, without exclusion of other possibilities, classifying the first two as ‘undesirable’ and the other three as ‘problematic’:

1. to replace Cotonou in January 2008 with the EU’s ‘next best’ trade regime whilst negotiations continue
2. to agree without negotiation detailed schedules prepared by one party to the EPA talks
3. to seek an extension of the WTO waiver
4. to create a better ‘fallback, interim regime’ for the ACP than exists at present
5. to agree on EPA agreements that establish the key principles but leave the details to further negotiation.

On the strength of the above statements by Wade, Barroso, and Konare which seem to rule out options 2 and 5, it could be anticipated that the most likely scenario would be the implementation of option 1, whose implications would be dire for African economies.

Quoting again from the ODI paper, “according to the statements made by the European Commission officials, this (option 1) will be the default option. The Commission accepts that it would be a bad outcome; ODI research has quantified the scale of the damage. Unless positive action is taken to avoid this, officials say, from January 2008 the EU will apply to imports from the ACP the tariffs set by the regime that applies to all developing countries: the Generalised System of Preferences (GSP). (…) ODI calculates that the new tariffs of 10% or less would result in the transfer from the ACP states to the European treasuries of some €156 million per year (equivalent, for example, to 2.6 times EuropeAid’s commitments to health projects in all ACP states in 2005). When tariffs of over 10% and specific duties are included, the EU’s tax take would be much greater. (…) But in such cases these high taxes will often not be paid – for the simple reason that ACP exports will collapse.” However, Chancellor Merkel’s suggestion of a possible more flexible stance by the EU could also lead to adoption of options 3 or 4, i.e. to seek a further extension of the WTO waiver about to expire, or to create a better ‘fallback interim regime’ for the ACP, problematic as these might prove to be.

TREATING AFRICA AS ONE?

Whatever the outcome of the current deadlock, there are at least two sets of constraints both the EU and African States must address if the “Africa-EU Strategic Partnership” adopted by the Lisbon Summit is to be successfully implemented and any mutual benefits are to be reaped from the relationship between the two continents in years to come. These constraints arise, on the one hand, from the EU institutional approach to Africa and, on the other, using Konare’s words, from “the weakness of unity in Africa.” The graphs below illustrate the issues: the one on the left is extracted from the European Commission – DG Development presentation entitled “EU-Africa Partnership: Lisbon and Beyond” (PDF file), while the one on the right depicts the overlapping African Regional Economic Communities (RECs).

See Graph 1: Present EU Trade Partnership Zones for Africa
See Graph 2: African RECs (Regional Economic Communities)

It would seem that little needs to be added to these graphs to make the point that neither Africa can be treated “as one”, as desirable as this may be as a long-term goal, nor deeper and wider economic integration can take place on the continent for as long as all the existing RECs are not adequately rationalised, with or without EPAs and independently of the African states possible options for new preferential partners among the BRIC’s, notably China, as it is becoming increasingly apparent. There is, nevertheless, a little more to be said about these graphs.

On the one hand, the experience of the Trade, Development and Cooperation Agreement with South Africa (TDCA), signed in March 1999 and whose negotiations took place at a moment when the Lomé Convention was itself about to expire and the EU was seeking to devise a new instrument to replace it, amidst an established consensus among European policy-makers and business leaders against the principle of non-reciprocal trade concessions to the ACP, showed that even within the minimalist approach to Africa “as one” there are spillover effects from FTAs (Free Trade Agreements) which cannot be minimised in an integrated regional and global context.

In effect, the role of South Africa as the strongest economic partner within the Southern African Customs Union (SACU), which also includes Botswana, Lesotho, Namibia and Swaziland (BLNS) – all also members of the Southern Africa Development Community, SADC – meant that the TDCA was extended, without consultation with the BLNS, to these countries as a de facto FTA with the EU. This implied a number of adjustment costs for those countries, including those arising from opportunities for adverse free-riding, trade deflection and huge losses of fiscal revenue without adequate compensation, which were further aggravated by the bitter experience of the US-sponsored AGOA projects in countries such as Lesotho, once changes in the global trade legal framework led to the sudden retreat of new industry operators such as India and China from their markets.

On the other hand, the same TDCA experience may give substance to the fears expressed by Konare in relation to the ‘interim accords’ in the context of EPAs or, more accurately Free Trade Agreement negotiations. A crucial issue for African economies in this context is that some countries’ are heavily dependent upon import tariffs as a source of government revenue, which is also on the basis of the formation on the continent of so many overlapping RECs and the reluctance by some African leaders to engage in serious efforts towards their rationalisation, thus allowing the surviving ones to perform as building rather than stumbling blocks in the path of the construction of an effective African integrated economy.

However, such fears can be allayed on the assumption that – given the sub-optimal nature of tariffs as a basis for budgetary income due to their distortionary effects, of which an induced bias against exports is particularly pernicious for the economy as a whole – it is advisable that African countries pay particular attention to the modalities of fiscal reform that can enable the broadening of their tax bases so that they can progressively diminish dependence on trade tariff revenues. This effort can be complemented by gains to be derived from the asymmetric rate at which tariffs are expected to be lowered under EPAs, which by stimulating higher volumes of trade can be revenue neutral, because while less revenue is generated on each imported item, a higher volume of products is expected to be traded, leaving the total revenue collected unaltered or even increased.

‘LOOKING BACK IN ANGER’?

The EPAs negotiations were expected to be essentially about striking the right balance between costs and benefits for Africa so that its long-term development goals, including the Millennium Development Goals by 2015, are not jeopardized in the process. To this aim, African countries were expected to ensure that key issues such as the duration of transition periods, the final product coverage included in full trade liberalisation, the sensitive sectors and products excluded from the scope of liberalisation and the degree of asymmetry in the extent of duty free access granted to African exports were adequately dealt with in the negotiation table. All this while not losing sight of the fact that, however important trade is for African economies, it is not a panacea for all of the continent’s economic development needs.

Hence the need to complement the EPAs with complementary policies, such as human resource development, strengthening the institutional and regulatory framework, developing appropriate macroeconomic, environmental and social policies, promoting administrative, institutional and legal reforms and adopting adequate supply-side measures, such as private sector development, improving labour productivity and infrastructure development. All these elements seem to be covered by the “Africa-EU Strategic Partnership” now adopted in Lisbon, which, alongside policy priorities in all the other mentioned areas, sets the following priorities for Trade and Regional Integration:

1. Support the African Integration Agenda
2. Strengthen African Capacities in the area of Rules, Standards and Quality Control
3. Implement the EU-Africa Infrastructure Partnership

So there seems to be no need to ‘look back in anger’. However, there is certainly a need to look ahead with realistic and cautious optimism. This may entail the assumption that the currently stalled negotiations on EPAs are to be pursued beyond the December 31st of this year unless something as dramatic and far-fetched as the “dissolution of the WTO and the return of the world trading system to bilateralism” suggested earlier this year by American presidential candidate Dennis Kucinich, takes place in the interim. There is, in fact, scope for the EU to seek a new waiver from the WTO, not only using the Cotonou Agreement precedent in that respect (it was delayed for two years to allow negotiations to be concluded), but also resorting to Paragraph 29 of the Doha Declaration, which mandates negotiations aimed at “clarifying and improving disciplines and procedures under the existing WTO provisions applying to regional trade agreements. The negotiations shall take into account the developmental aspects of regional trade agreements.”

THE CHALLENGES AHEAD FOR AFRICA

Africa is faced with the challenge of simultaneously liberalising its markets in the context of EPAs and pursuing a path towards deeper regional integration as provided for by the Abuja Treaty, against a backdrop of overlapping memberships of regional groupings by most Member States. This daunting scenario, while certainly calling for heightened efforts in the long-running process of rationalisation of the existing RECs and the streamlining of their mandates, should also motivate African states to invest even more of their best political, diplomatic and technical efforts in concerting negotiating positions vis-à-vis the EU and, as far as possible, harmonise the means and objectives to be achieved in each EPA configuration, so as to eliminate the possibility of disruption of the African common development agenda spearheaded by the AU.

While it is true that the establishment of different Customs Unions (CUs) between some Member States – in this respect it should be noted that although the establishment of CUs is not compulsory for the agreements on EPAs, which are essentially free trade agreements (FTAs), they have been presented as the preferred trade arrangement by the EU – will constitute a structural divisory line between African economic spaces (because it is not technically possible for a country to simultaneously belong to more than one CU). It might also be true that the extent to which these different CUs will impact the interface between joint economic development prospects on the continent will depend on the levels at which the respective common external tariffs are set.

Given the significant similarities in the composition of the bulk of the continent’s trade flows with the EU, not only there is scope for Africa to come up at the end of the different negotiating processes with compatible common tariff nomenclatures and external tariffs that may serve the continent’s common development agenda but, as a result of the establishment of FTAs and CUs, the expected expansion of Africa’s internal markets and the increased specialization and diversification of its economic bases according to specific comparative advantages should in fact enhance economic complementarities and increase intra-regional trade, thus bringing African economies closer and more integrated than ever before. This may eventually bring the continent to a stage where it may envisage the unification of the different Customs Unions and evolve together towards larger integrated Regional Common Markets progressively covering the entire continent.

CONCLUSION

Reinforcing regional integration leads to fostering expanded market opportunities, thus addressing the current limitations posed by Africa’s mostly small and segmented markets, which are too expensive and un-competitive, and attracting investment, creating employment and increasing the continent population’s average income levels through increased economic growth rates. In order to maximise the synergies between the EPAs negotiations and the widening and deepening of economic and social integration in Africa, there is need for a broad framework that can address all sectors and issues relevant to both processes, particularly in the areas of trade in goods, services, rules, enforcement mechanisms and policy coordination and harmonisation.

The materialisation of all these objectives is a prerequisite for African economies to progressively evolve along a macroeconomic framework of increasingly synchronised business cycles, convergence of inflation and interest rates, exchange rate flexibility, financial markets integration, multilateral trade openness and income convergence, all of which are expected to ultimately lead to the emergence of a fully operational African Economic Union, which will certainly be a convenient partner for the EU in a “real relationship of equals” capable of “turning a page in history” as purported by the ‘Africa-EU Strategic Partnership’ just adopted at the Lisbon Summit.

Ana F. Santana is an Angolan professional presently based in London. She holds an MSc in Economic History and Development Economics from the London School of Economics and Political Science. Ana has worked extensively in the Southern Africa region as an Economic Consultant on Trade Policy, as a Policy Adviser, and as a Research Coordinator and Trainer. Ana’s personal blog “Koluki” is located at http://koluki.blogspot.com/

Editor’s Note: links to external websites added to original article to help clarify terms and references. Yep Ana, I tweaked the original just a wee little bit too...:-)

ENDE

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