EAC discord over EU trade deal poses snags
Last week, Tanzanian legislators advised President John Magufuli’s administration not to sign the proposed Economic Partnership Agreement (EPA) with the European Union (EU) because many of the provisions of the new trading arrangements are not in the best future interests of the country.
This was soon after some academicians from the University of Dar es Salaam presented a case that basically said signing and ratification of the EPA will jeopardize Tanzania’s industrialisation vision.
The problem for the EU is that World Trade Organisation no longer approves of exclusive trade deals that it used to have with the African Caribbean and Pacific (ACP) countries. Consequently EPA is based on the concept of reciprocity. You scratch my back and I scratch yours meaning a balanced trading regime without tariffs on either side. But EU is giving up to nearly 15 years before all tariffs must go.
The other problem for the EU is that it would like to finish once and for all with the EPAS so that it can concentrate on the more convoluted task of Britain’s exit from the EU.
Rwanda and Kenya have already signed the EPA, but to make the deal binding, the rest of the East African Community member states must follow suit.
The complication for Kenya is as a developing country, its exports to the EU will be taxed unless the EAC sign as a bloc. However as least developed countries (LDCS), Burundi, Rwanda, Tanzania and Uganda can still export to the EU duty-free under the ‘Everything but Arms’ (EBA) provisions that ensure preferential treatment. EBA is part of EU generalized system preference which entered in 2001 and has no time limit.
The other complication for Kenya is that its lucrative horticultural industry may lose its competitive advantage because South Africa, (along with Botswana, Lesotho, Namibia, and Swaziland) have already signed. In fact, lobbying by Kenya’s horticulture and floriculture representative was intense in the run-up to the signing the agreement in Brussels in September.
The loss of import duties and export taxes will also reduce the governments’ revenue since these trade taxes are a large part of their income.
According to the European Commission (EU Secretariat) in Brussels, the EU-EAC EPA covers trade in goods and development cooperation. It also contains an extensive chapter on fisheries – aiming mainly to reinforce cooperation on the sustainable use of resources - and provides further negotiations on services and trade-related rules in the future.
The Commission believes the proposed deal is balanced and fully in line with the EAC Common External Tariff. It bans unjustified or discriminatory restrictions on imports and exports, which contributes to the EAC’S efforts to eradicate non-tariff barriers (NTBS) in intra-eac trade. It supports the EAC’S ambitious regional integration project and has what it takes to foster development.
Exports to the EU from East African Community are dominated by coffee, cut-flowers, tea, tobacco, fish and vegetables while imports from the EU into the EAC are dominated by machinery and mechanical appliances, equipment and parts, vehicles and pharmaceutical products.
The European Commission has emphasised that 20% of domestic African products will remain protected in the long-term. In return the EPA spells out the need for African countries to open up to 83% of their markets to European imports. At the same time tariffs and fees are planned to be gradually eliminated mostly on the part of the EAC.
Still regional manufacturers insist they cannot compete with the financial clout and production scale of European firms interested in selling to the EAC even if regional governments are allowed to impose import duty up to another 10 or 15 years ahead.
Under the EPA, the EAC members will also have to open up their services, financial, investment, and government procurement regimes.
Since many local manufacturing inputs are imported the other sensitive issue is Rules of Origin. These determine the extent to which a country can use imported parts, materials or ingredients in its exports without facing higher tariffs. This is a time when EAC unanimity has to be genuine.