INVOLVEMENT OF FAMILY FARMERS IN THE MID TERM REVIEW OF THE ECONOMIC PARTNERSHIP AGREEMENTS (EPAS)

EAFF Diagnostic Study and Advocacy on EPA INVOLVEMENT OF FAMILY FARMERS IN THE MID TERM REVIEW OF THE ECONOMIC PARTNERSHIP AGREEMENTS (EPAS) By East...
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EAFF Diagnostic Study and Advocacy on EPA

INVOLVEMENT OF FAMILY FARMERS IN THE MID TERM REVIEW OF THE ECONOMIC PARTNERSHIP AGREEMENTS (EPAS)

By Eastern Africa Farmers Federation P. O. Box 13747-00800 Raphta Road, Westlands, Nairobi Tel/Fax: 254-020-4451691 e-mail: [email protected]

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EAFF Diagnostic Study and Advocacy on EPA

List of Abbreviations ACP Africa Caribbean and Pacific Countries ARD EAC Agricultural and Rural Development Policy CET Common External Tariff COMESA Common Market of East and Southern Africa CPA Cotonou Partnership Agreements=EU ACP Partnership Agreements CSO Civil Society Organisations DDA WTO Doha Development Agenda EAC CU East African Community Customs Union EAC East African Community EAFF Eastern Africa Farmers Federation EBA Everything But Arms EC European Commission ECA Economic Commission for Africa ECDPM European Centre for Development Policy Management EDF European Development Fund EPA Economic Partnership Agreements ESA Eastern and Southern Africa Configurations EU European Union FAO United Nation’s Food and Agricultural Organisations FO Farmers’ Organization GDP Gross Domestic Product GSP Generalised System of Preferences IFAD International Fund for Agricultural Development IGAD Inter Governmental Authority on Development IOC Indian Ocean Commission KENFAP Kenya National Federation of Agricultural Producers KEPLOTRADE Kenya Post Lome Trade Programmes LDC Least Developed Country MDG Millennium Development Goals MFN Most Favoured Nation MTTI Uganda Ministry of Trade Tourism and Industries NGO Non Governmental Organisation NTB Non Tariffs Barriers PO Peasants producer organisations RNF Regional Negotiating Forum RTA Regional Trade Agreement SADC South Africa Development Cooperation UNECA United Nations Economic Commission for Africa UNFFE Uganda National Farmers Federation UPTOP Uganda Programme for Trade Opportunities WTO World Trade Organisation AGOA African Growth and Opportunity Act NDTPF National Development and Trade Policy Forum SEATINI Southern and Eastern African Trade, Information and Negotiations Institute IITC Inter Institutional Trade Committee TCCIA Tanzania Chamber of Commerce Industry and Agriculture MVIWATA Mtandao wa Vikundi Vya Wakulima wa Tanzania INGABO Syndicat Rwandais des Agricultuers et Eleveurs IMBARAGA Syndicat des agri-eleveurs du Rwanda

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EAFF Diagnostic Study and Advocacy on EPA

Acknowledgements The Board of Directors of the EAFF are grateful to the International Fund for Agricultural Development (IFAD) for the financial and technical assistance extended towards the study “Involvement of family farmers in the mid term review of the Economic Partnership Agreements (EPAs)”. Without these support, the production of this diagnostic study together with the accompanying communication document and advocacy strategy paper would have bee difficult. EAFF also extends appreciation to the ESA EPA negotiators notably officials from COMESA, Kenya KEPTLOTRADE, Ministry of Trade and Cooperatives Tanzania, Ministry of Trade Uganda who provided basic information regarding the status of EPA negotiations which is the heart of this study. EAFF acknowledges the contribution of family farmers organisations such as UNFFE of Uganda, KENFAP of Kenya, MVIWATA of Tanzania, INGABO and IMBARAGA of Rwanda and whose inputs were essential in the finalising the section of the report dealing with food security and the involvement of farmers organisations in the EPA process. Consultant: Mr. Julius Peter Moto e-mail: [email protected]

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EAFF Diagnostic Study and Advocacy on EPA

Executive Summary ................................................................................................................. 5 1 Chapter 1: Historical background of EPA.......................................................................... 9 2 Chapter 2. State of play in the EPAs. ............................................................................... 11 2.1 Review of the negotiation process between the EU and the region ......................... 12 2.2 Presentation of the negotiation structure .................................................................. 14 3 Chapter 3: Main challenges of EPA for agriculture, trade and development................... 18 3.1 General framework of what is at stake in the EPA .................................................. 18 3.2 The peculiarities of the countries (major export products to the EU, major import products), --NB: emphasis on East African Region. ............................................................ 20 3.3 Coexistence or not of LDC and non LDCs; ............................................................. 22 3.4 The major issues at stake in the EPA negotiation, as perceived by peasant farmers’ organisations......................................................................................................................... 24 3.5 Challenges facing ESA-EPA as we approach text based negotiations .................... 29 3.6 Has there been any negotiation with the peasant farmers’ organisations and the entire stakeholders of the agricultural sector on the protection / liberalisation of the sector? 31 3.7 Were peasant farmers’ organisations involved in the elaboration of the levelling programmes and their implementation? ............................................................................... 33 3.8 EPA’s perspective versus regional integration process............................................ 36 4 Chapter 4: Evaluation of existing impact assessment studies .......................................... 38 4.1 The current state of the impact studies..................................................................... 38 5 Chapter 5: Proposals and recommendations .................................................................... 39 5.1 Do we envisage an extension in the negotiation deadline? ...................................... 39 5.2 Must EPA signature be tied to the achievement of concrete results? ...................... 40 5.3 Communication document ....................................................................................... 40 6 References Used In The Study ......................................................................................... 41

List of Annexes Annex 1:Areas of Congruence and Divergences All ACP EU Phase of negotiation and overall comments up to the 9th RNF level............................................................................................ 43 Annex 2:Second phase of negotiation ...................................................................................... 48 Annex 3:Phase 3 points of divergence and congruence EU and ESA ..................................... 51 Annex 4:Situations of the ESA Countries and farming systems and characteristics of farmers. .................................................................................................................................................. 53 Annex 5:Summary of Impact Studies ...................................................................................... 70 Annex 6:Alternative Proposals to EPAs .................................................................................. 87 Annex 7:EAFF Communication and advocacy strategy ........................................................ 100

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EAFF Diagnostic Study and Advocacy on EPA

Executive Summary This study was made possible through IFAD funding. It was done by EAFF in consultation with ESA EPA negotiators. Useful information was obtained from the Impact studies done for Uganda, Kenya and Tanzania and also for the region. Under the Trade and Economic pillars, the CPA established the agenda for Economic Partnership Agreements (EPAs), based on a progressive and reciprocal removal of trade barriers between ACP countries and the EU. EPA is not just about trade but encompasses development dimensions as critical in the conclusion of EPA between the EU and the ACP. The DG Development of the EU was not in the picture of negotiations, with the DG Trade playing the lead role on the part of the EU. COMESA stresses that development should be at the centre of the negotiations and that, if we are to make effective use of market access the EU DG Development should be formally more involved in the EPA negotiations. Despite the agreements on key negotiating issues during the All ACP-EU negotiating phase, the key areas of divergence emerged. These gaps of divergence have continued to become wider and wider as the text based negotiations are underway. These divergences are: • •

• • • • • • • • •

EPAs is not just about trade, it should be viewed as an important link to activate the CPA. There is gross misinterpretation of development e.g. EC believes that development is about market access and ESA believes it is the amount of extra funding that can be obtained from EPA for adjustments costs, supply side projects, and revenue compensations. EC Position is that the EPA financing will only be dealt with in EDF programming (i.e. 10th EDF) and not within the EPA itself ie through the national and regional indicative programmes. EC not ready to finance 100% of development costs and suggest that extra money should come from donors i.e. 50% EC and 50% donors. ESA asking for 9.2billion Euros for EPAs of which 4.9 billion are to cover regional issues of rules, regulation and policy (not infrastructure) through a separate EPA facility NOT through the EDF. For ESA group, EPA negotiations have torn apart the RECs with member countries as regional positions are not taken into the negotiations e.g regional agricultural and cross the border investments. Safeguarding of preferences and preferential access have been rejected by the EC. Alternative possibilities not yet tabled for considerations. Concerning the product coverage, the EC referred to the WTO criterion of “90%+” of trade as an expression of its general ambition for long term coverage of reciprocal trade liberalization. Liberalisation of agricultural sectors should depend on the implementation of effective reforms to EU subsidies under the CAP. EC rejected to ESA proposal of safeguarding the Commodity protocols and maintenance of preference. - Fisheries have been brought into the EPA at the insistence of the EU, whereas ESA had wanted this as a separate agreement. - On services, no divergence detected but growing concerns not to push it too fast despite that fact that both sides have developed services text. 5

EAFF Diagnostic Study and Advocacy on EPA

-

-

-

-

Divergence on the scope and coverage of the issues; and on sequencing of EPA negotiations with both WTO negotiations and the building of requisite capacity in ACP States to deal with trade related subjects. Divergence on the rules aspects of the trade-related areas should not be the subject of EPA negotiations before agreement is reached on how to treat these issues at a multilateral level, particularly in the WTO. For the ACP side, additional resources are required to cater for adjustments costs that would result from the implementation of EPAs and to ensure that resources currently available under EDF are not diverted. For the EC, resources available for the financing of development co-operation have been agreed in the framework of the Cotonou Agreement. The ACP position is that the non-execution clause should not apply to EPAs and should be confined to political cooperation. The key concern is whether to make use of the WTO DSB or rely on bilateral dispute settlement considering the development aid the EU gives to ACP countries.

Other points of divergence identified •

• •

ESA challenge and risk is how to make EPA WTO compatible when the DOHA outcome is unknown. It is difficult to agree on market access issues and trade in services. Like wise, the dispute settlement is likely to be pegged on the DTO DSBs rather than bilateral. On classification of good, the EU is insisting on the basis of the harmonised system (2002) while ESA side assert that classification shall be in terms of the COMESA common Tariff Nomenclature. Standstill/Moratorium period EC seeks immediate establishment of free trade area while ESA proposes a ten-year moratorium period.

For farmers’ organisations in ESA group of countries, the on going EPA negotiations should be considered at the backdrop of the globalisation and world wide liberalisations for free trade. Farmers must be aware that in all agreements, the pattern of product coverage of liberalised imports into the EU reflects the degree of EU Common Agricultural Policy reforms and the risk, or existence, of internal surpluses for the respective products. Existing notable surpluses increase EU interest in improving its access to the markets of the contracting partner. The EU CAP reforms has meant high domestic support prices for EU farmers hence increased incentives for investing in agricultural sector in EU. Relatively high food prices within EU countries have been another impact of the CAP. The CPA the privileged the position of the ACP countries in terms of duty-free imports has changed, for the worse. Considering the CAP commodity regimes, the opportunities for ESA group of countries lie in those commodities not directly or substantially supported by EU-CAP e.g. textile plants, olive oil, fishery products, dried fodder and dried vegetables, oilseeds, etc, and in those where quotas are negotiable under the CPA. The EU trade preferences are uneven across countries, but the Least Developed Countries, as well as African and Caribbean countries, benefit from very large preferences. As result,

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EAFF Diagnostic Study and Advocacy on EPA

African countries could be squeezed out the EU market by more efficient producers such as the US or Argentina. For most of the ESA countries, the non-reciprocal trade preferences accorded through the CPA are very significant. In the EPA negotiation, it has been noted by Heads of state this way. The unilateral EBA initiative by the EU might be of some help to ESA less developing countries. The effect of the EU Enlargement on ACP States in general lies in competition for development support in the sense that involves substantial financial support for Eastern European countries that is meant to improve the Eastern European Countries’ industry and commerce so that they can meet EU standards and compete with its industries. To benefit from EPAs, the ESA countries regardless of their levels of economic developments need to address the supply side constraints and promote investments in value addition in new agricultural development plans. During the Khartoum ESA RNF meeting, it emerged that the ESA countries are now facing an uphill task of remaining united under the ESA configuration. Most of the ESA countries cannot pick up the real trade challenges that face them. EPA negotiations are driven mainly by the Ministries responsible for Trade with ad-hoc involvement of Non state actors, notably the farmers organisations. The export bound agriculture organisations participated in the national clusters. The farmers organisations can participate in the EPA process through empowering their Regional Farmers organisations to back up the participation of member platforms by providing information, events, studies, issues to be raised. Regional farmers organisations should be assisted to participate in Regional Negotiating Forums, through an official observer status for follow up on issues affecting farmers and agribusinesses. Farmers organisations trade policy capacities require strengthening to be able to professionally engage the Government negotiators on all matters relating to agricultural trade policy. Farmers organisations opine that a formal support be extended by donors for activities regarding trade policy. Impact studies conducted for COMESA region revealed increase in EU trade, trade diversion affecting Intra COMESA trade, and Regional Integration; increase of the welfare but significant revenue shortfalls, as also indicated for individual countries. There are huge potential revenue losses, decline in inter regional trade, increase in consumer welfare identified for individual countries. The impact studies do not cover in adequate detail the perceived effect of EPAs on food security for the ESA countries. Farmers organizations strongly recommend a speedy resumption of WTO talks as a number of issues bringing divergences in the EPA can be best addressed in a multilateral trading systems. Farmers organizations strongly recommend that, all free trade negotiations should be tied to improvements in most of the critical thresholds interalia supply side constraints, existing trade regimes, regionalism, positions of the ACP countries at the WTO negotiations, and capacity issues.

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EAFF Diagnostic Study and Advocacy on EPA

The suspension of negotiations under the WTO presents several challenges for the global trading environment and in particular developing countries especially the ACP. Although informal discussions are currently under way in Geneva and other fora to help restart the negotiations, nothing has as yet been decided. If the negotiations do not restart by early 2007, then the chances of concluding the round in the near future will be highly uncertain. One possible reason for this is because the fast-track authority granted to the US President to enter into and conclude trade agreements with other countries will expire in June 2007. Although the stalemate has given ACP countries time to reflect on their specific interest in the negotiations and to develop more concrete approaches, the failure to resume negotiations would imply that some of the issues of concern for them, such as, reductions in high levels of domestic support and export subsidies provided to developed country (EU) farmers will remain, as these trade distorting support measures can only be disciplined within the WTO framework. Meanwhile, many developing countries are currently engaged in negotiating bilateral trade agreements with developed as well as developing countries/regions. The compatibility of these bilateral agreements with WTO rules remains uncertain and is likely to result in developing countries agreeing to WTO-plus commitments at the bilateral level. Furthermore, for the countries of the ACP states that are currently engaged in negotiations with the EU for Economic Partnership Agreement (EPA), a waiver has been requested on their behalf to the WTO to amend the rules governing reciprocity, symmetry and the transition period for opening up their markets to the EU. The EPA is expected to come into effect on 1st January 2008. Failure of resumption of WTO negotiations could make the outcome of the EPA uncertain.

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EAFF Diagnostic Study and Advocacy on EPA

1 Chapter 1: Historical background of EPA. The European Union (EU) and 79 ACP countries signed the ACP-EU Partnership Agreement. On June 23rd 2000. This agreement is popularly known as the Cotonou Partnership Agreement (CPA). It succeeded the Lome IV Convention. Under the Lomé Convention, the EU extended nonreciprocal preferential trade benefits to the ACP countries. The preferential trade regime under the CPA is incompatible with the basic principles of the WTO since it discriminates between developing countries (violating Article I, the MFN principle of non-discrimination) and offers non-reciprocal preferences (violating Article XXIV, the principle of non-reciprocity). Indeed, these two principles (non- discrimination and nonreciprocity) constitute the basis on which the CPA trade provisions leading to an EPA are based. Under the Trade and Economic pillars, the CPA established the agenda for Economic Partnership Agreements (EPAs), based on a progressive and reciprocal removal of trade barriers between ACP countries and the EU. Under EPAs, with 15.2 billion euros from the European Development Fund (EDF) and 10 billion euros from outstanding funds from previous EDFs, the EU will support the ACP governments’ efforts to create a supportive macroeconomic framework which support the growth of the private sector, and improve both the quality and coverage of social services. Hence, EPA is not just about trade but also development. It shall look at nontrade concerns such as food security, rural development and poverty eradication. These concerns are major issues affecting the rural producers in ACP regions. The development dimension is critical in the conclusion of EPA between the EU and the ACP. It shall consider items like agricultural diversification in favour of crops and livestock which have prospects for better terms of trade and where farmers have a comparative advantage in their production. Making the trade arrangements between the EU and the ACP countries would imply that their trade liberalisation efforts should be WTO compatible, hence it will inevitably lead to continued tariff cuts. EPAs entail further cuts and eventual elimination of tariffs. Wholesale cuts in tariffs, however, are not likely to take place as the ACP member countries seek to consolidate or at least protect their sensitive industries. Farmers organizations should have a voice in EPA because they represent the interest of small-scale rural producers who constitute the majority of the ACP countries’ population and the main sector suffering poverty and hunger and constitute, at the same time, the backbone of the economies of these countries. Meeting their needs and supporting their strategies is hence key to achieving both the development and the poverty reduction objectives of the EPAs. Since the time of the signature of the Cotonou Partnership Agreement in 2000 the importance of stakeholder participation has been repeated underscored by many actors, including the ACP-EU Joint Parliamentary Assembly, the European Commission, the European Parliament, the Council of the EU, the African Union, and numerous rural producers’ and civil society organizations1. Despite this consensus, effective and systematic procedures to ensure such participation have not yet been developed and applied. 1

See, for example, the ACP-EU JPA Cape Town Declaration of 2002 (ACP-EU/3382/02/fin), the European Parliament resolution on the development impact of EPAs (2005/2162(INI)), the CEC staff Working Document

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EAFF Diagnostic Study and Advocacy on EPA

The EPA negotiations between the EU and the ESA Group of countries are organised in three phases hence: i.

Phase I:

Setting of priorities and negotiating procedures (March-August 2004). This phase of ESA EPA negotiation looked at the negotiating structures e.g the RPTF, RNF, NDPTF, composition of negotiators, terms of reference, rules of procedures, work programmes and funding mechanisms. ii.

Phase II:

Substantive Negotiations took place from Sept.2004 to Dec.2005. It covered all issues relevant for the EPA. A common understanding on the general framework for the negotiations was arrived at. The phase also determined a tentative list of priority issues and the phasing of the negotiations during this Phase. The meeting came up with a 3rd Draft EPA text. Though text finally considered the development dimensions, the DG Development of the EU was not in the picture of negotiations, with the DG Trade playing the lead role on the part of the EU. iii.

Phase III:

Continuation and Finalization of Negotiations (Jan. 2006 to Dec. 2007). During this Phase, substantive negotiations has continued. There are areas of congruence and divergence between the EU and the ESA group which is faced with a serious problem of remaining intact as a group. Necessary laws were supposed to be enacted in this phase prior to the conclusion of EPA in January 2008. The study is organised in 5 chapters. Chapter 2 presents the state of play in the EPAs including the achievement of the various Lome/Cotonou Accords, details of how the negotiations were organised, key issues relevant to FOs, key issues of concern for the ESA region, and link with the WTO processes. Chapter 3 presents the main challenges of EPA for agriculture, trade and development and the roles the FOs can play in overcoming these issues. It also tackles reciprocity, preference erosion, CAP reforms, EU enlargement, EU other trade agreements, benefits of regional integration in the region. Chapter 4 evaluates the existing impact assessment studies and what can be concluded from them in terms of EPA benefits and costs. Chapter 5 presents the EPAs proposals and recommendations. Also dealt with is the EAFF communication and advocacy strategy.

on the Trade and Development aspects of EPA Negotiations (SEC(2005) 1459), the General Affairs and External Relations Council conclusions on the EPAs of 10 April 2006, the Bamako Declaration on the EPAs issued by ROPPA, CNOP and ACDIC on 17 April 2005 during the 9th session of the ACP-EU JPA, the final declaration of the ACP Civil society Forum (19-21 April 2006),

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EAFF Diagnostic Study and Advocacy on EPA

2

Chapter 2. State of play in the EPAs.

The table below links EPAs to WTO processes. Negotiation Issues identified in EPAs Market access for agricultural products

Market access for nonagricultural products

Liberalisation of the services

Trade-Related Aspects of Intellectual Property Agreement (TRIPS)

Investment

Compatibility of EPAs and WTO Multilateral Trade Negotiations EPAs Trade Directives WTO Doha Work Compatibility Remarks Programme for Trade Negotiations Gradual and flexible Calls for phasing out Gradual and flexible manner of opening up all forms of export opening up to allow for for agricultural products subsidies and non-reciprocal for EU taking into account the substantial reductions agricultural exports as development and socio- in trade distorting envisaged under the ACPeconomic impacts on domestic support and EU trade relations, be ESA countries and their flexibility in rules promoted. levels of classifications application to COMESA exports interest Gradual and flexible Reduction and Compatible, as flexibility opening of trade for non- eventual elimination in commitments is agricultural products of tariffs on products envisaged under the EPAs taking into account of export interest as ESA will demand for development and socio‘less than full reciprocity’ economic impacts on in trade of non-agricultural ESA goods (NAMA) just as under the WTO Doha Agenda. EU wants to see services Flexible liberalisation Sensitive services could be “negotiations to begin in of service sector exempted to make EPAs all sectors within the GATS and WTO compatible, framework however, the inclusion of all services in EPA negotiating directives undermines ESA flexibility under the WTO GATS Article V and Cotonou Agreement Build upon the Cotonou Ensure widest EU commitment to agreement covering flexibility by Cotonou agreement makes “patents, including governments to protect TRIPS WTO compatible patents for bio- public health and technological inventions natural life forms that and plant varieties or are not patented other effective sui generis systems”. Promoting the Uganda does not have EPAs negotiations are not establishment of an the capacity to compatible with WTO investment framework meaningfully multilateral trade based on principles of negotiate an negotiations as developing non-discrimination, investment countries have resisted transparency and Agreement, as they negotiations of an investment stability and on the grapple with existing agreement. general principles of the WTO and the protection. expanded Doha work

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EAFF Diagnostic Study and Advocacy on EPA

Inclusion in EPAs to promote full transparency in procurement rules while taking into account LDCs development needs

Government Procurement

programme Inclusion of public procurement in EPAs negotiations is not compatible with WTO negotiations

EPA should stick itself to transparency in government procurement, while allowing for flexibility in applications taking into account ESA’s development needs

2.1 Review of the negotiation process between the EU and the region Prior to the processes discussed below, there was an ALL EU ACP phase of negotiations. A summary of convergence and divergence is presented in Annex 1. During the 8th Summit of COMESA Authority of Heads of State and Government held in Khartoum, Sudan on 17th March 2003 a decision was made on the establishment of the ESA configuration for the purpose of negotiation of an Economic Partnership Agreement ( EPA) with the European Union. Following this decision, a number of milestones were achieved and are presented below. ESA-EC Negotiation road map The ESA Group launched negotiations with EC on 7th February 2004. The road map for ESAEC negotiations has spelt three phases for the negotiations as follows: Phase I: Setting of priorities and negotiating procedures (March-August 2004) Phase II: Substantive Negotiations (Sept.2004 to Dec.2005) Phase III: Continuation and Finalization of Negotiations (Jan. 2006 to Dec. 2007) The NDTPF of each country works through six clusters identified in the road map: agriculture, market access, development, fisheries, services and trade related issues. Phase

I

-

Setting

of

Priorities

(March

-

August

2004)

At the beginning of the period, the ESA proceeded and organised itself according to the agreed negotiating structure. The NDTPFs held their first meeting(s) to agree on composition, rules of procedures, terms of reference, work programmes and funding mechanisms. The RNF met to agree on rules of procedure, finalise its work programme (issues and phasing of the next Phase) and agree on the composition of the technical teams to support the Lead Ambassadorial Spokespersons. To ensure co-ordination takes place, a Regional Preparatory Task Force (RPTF) was established. It was recommended that the RNF be mandated to prepare the Terms of Reference of the RPTF and determine its composition and functions. In the road map it was agreed that the first Regional Preparatory Task Force meeting should prepare the first meeting at the ambassadorial/senior level. Preparations should entail, on the

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EAFF Diagnostic Study and Advocacy on EPA

one hand, a clarification of the general framework for the negotiations (with reference to the first all-ACP – EC phase of negotiations) in order to reach a common understanding on this. The Regional Preparatory Task Force was created to ensure coordination between the ESA group and the EC at technical level. It is not a decision making body but one which supports the negotiations through the official negotiating structures. Regarding a tentative list of priorities, their identification and phasing in the negotiations should be based on the regional integration agenda of the ESA countries, which serves as a reference point for the negotiations. A tentative list of priority issues will be first to identify in which areas and sectors of national economies and the regional economy capacity should be built and, secondly, to identify the regional priorities necessary to strengthen and build upon the existing regional integration process. Priority issues included: the steps which need to be taken to integrate the region (both intra- and inter-regionally), and in this context gradual liberalisation towards the EU including the establishment of a sensitive list of imports and the introduction of a special safeguard clause; the improvement of existing market access to the EU, notably regarding agriculture and fisheries; rules of origin; SPS measures and technical regulations and standards and how to deal with them in the regional context and vis-à-vis the EU; trade in services; and trade-related issues. Phase

II

-

Substantive

Negotiations

(September

2004

to

December

2005)

In this Phase, substantive negotiations took place and covered all issues relevant for the EPA. This Phase of the negotiations were prepared by a meeting at ambassadorial/senior level in July 2004 which aimed at achieve a common understanding on the general framework for the negotiations and determine a tentative list of priority issues and the phasing of the negotiations during this Phase. The key areas of congruence and divergence between the EU and ESA are summarised in Annex 2.

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EAFF Diagnostic Study and Advocacy on EPA

Phase 2007)

III

-

Continuation

and

Finalisation

(January

2006

to

December

The major points of divergence and congruence are presented in Annex 3. 2.2

Presentation of the negotiation structure

Who does the negotiation? The parties to EPAs are the nation states in east and southern Africa. As regards the EAC, COMESA, IGAD and IOC which are the upcoming regional integration organizations, they are not part of EPAs. In the Joint ACP EC Report, the ACP side indicated that the parties to the EPAs will be the ACP states. As regards the regional integration organizations, their capacity to be part of the EPAs will depend on the mandate entrusted them by the member-states which must not lose sight of the fact that it is they who are committed to the WTO, and that the regional groupings are not members of the organization. It was agreed that the definition of Parties to the EPAs would depend, on the one hand, on the provisions of all the relevant legal texts, in particular the constitutive acts of the regions concerned and, on the other hand, on the final outcome of the negotiations and the coverage of the EPAs and the activities of the European Convention.2 The negotiations are being conducted in accordance to the procedures agreed upon by the ACP Group. The ACP countries are conducting the negotiations in two phases as follows:The first Phase, which is the All-ACP level, began in September 2002 with the launch of negotiations on the objectives and the principles of the EPAs as well as issues of common interest to all ACP states. The second phase, which began in 2003, is at the regional level. This phase is dealing mainly with tariff negotiations and other negotiation and commitments at national or regional level, as well as issues specific to ACP countries or regions. The ACP region has configured itself into six distinct regional groups under which negotiations with the EU are taking place. These regional groups are as follows: East and Southern Africa (ESA), Southern Africa Development Cooperation (SADC), Economic Commission of West African States (ECOWAS), Central Africa Monetary Union (CEMAC), The Caribbean and Pacific. In Eastern Africa, Burundi, Rwanda, Kenya and Uganda are negotiating EPAs with the EU under the ESA configuration. The decision for these eastern Africa countries to negotiate EPAs under the ESA configuration was arrived at after two years of consultations, which culminated in the decision by Heads of States in favour of this configuration. Tanzania is negotiating EPA under the SADC.

2

Joint Report ACP EU, Page 79.

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EAFF Diagnostic Study and Advocacy on EPA

ESA-EPA Negotiation mechanism Presently ESA configuration has 16 members, which include: Burundi, Comoros, DR Congo, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Uganda, Zambia and Zimbabwe. There are indications that Congo DR has decamped ESA to negotiate EPAs under CEMAC. Despite this indication, Congo DR is still being represented in ESA meetings. ESA-EC EPA Negotiating Structure The ESA negotiating structure comprises of the ESA Council of Ministers, Committee of ESA Ambassadors, and Regional Negotiation Forum (RNF) – where regional negotiating positions are prepared by all ESA member States; and the National Development and Trade Policy Forum (NDTPF). The negotiation is coordinated by RNF comprised of negotiators from the 16 countries in the ESA configuration. The RNF is the body that prepares negotiating briefs for use by the Lead Ambassadorial spokespersons. It is composed of three representatives of each NDTPF (NDTPF chair, a representative from the public sector, and one from the Non State Actor), the six lead spokespersons for each of the negotiating sectors at Ambassadorial level from Brussels, one representative from ACP secretariat, upto 2 representatives from the secretariats of the EAC, COMESA(secretariat), IOC, IGAD. Other participants and resource persons were to be authorised by the chairperson, who is the most senior delegate of the NDTPF of the country holding the chair of COMESA at the time of the meeting. The NDTPF is multi-sectoral (agriculture, trade, investment, services, etc) and representative of the public and private sectors and Non-State Actors (NSAs) involved in trade and development work. The function of the NDTPF is to determine what the optimal development and trade negotiating position for the country should be and to prepare briefs outlining these positions, which are then used by the representatives of the country in the RNF in preparation of the ESA position for the negotiations with the EC. The Negotiations with the EC are taking place at two levels – Ministerial and Ambassadorial levels – as illustrated in the flow chart below. ESA Negotiations with the EC are led by Lead Minister at Ministerial level and Lead Ambassador at Ambassadorial level. On the EC side negotiations are being lead by Lead spokesperson (Commissioner – DG Trade) at Ministerial level and Senior Official (DG Trade) Ambassadorial level.

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EAFF Diagnostic Study and Advocacy on EPA

The ESA-EC negotiating structure Council of ESA Ministers

Committee of ESA Ambassadors

Lead Ministers/ Spokespersons

Negotiations

Lead Ambassadors/Senior Officials

Negotiations

REGIONAL NEGOTIATING FORUM

Commissioner of DG Trade

EC Negotiator (Director DG Trade)

Regional Organisation Secretariats, EPA Working Group and NSAs

National Development and Trade Policy Forum

Key Issue in the structure above As noted earlier, EPAs is not just about trade. It shall address development dimensions towards the achievements of the CPA primary objective of poverty eradication. It is observed that the DG Development is not in the negotiating structure moreover, the DG is more conversant with policies issues and resources meant for development than the DG trade. Allocation of the role of lead Ministerial Spokesperson and Lead Ambassadorial Spokespersons in the six clusters is as follows. Ministerial level Cluster Development issues Market Access Agriculture Fisheries Trade in Services Trade Related Issues

Ministerial Spokespersons Sudan Mauritius/Rwanda Malawi Madagascar Zimbabwe Kenya

Lead Ministerial Alternate Spokespersons DR Congo Burundi and Zambia Uganda and Ethiopia Seychelles and Djibouti Rwanda and Djibouti Djibouti

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EAFF Diagnostic Study and Advocacy on EPA

Ambassadorial level Cluster

Ambassadorial Spokespersons

Development Issues Market Access Agriculture Fisheries Trade in Services Trade Related Areas

Ethiopia Kenya Mauritius Eritrea Malawi Sudan

Lead Ambassadorial Alternate Spokespersons Zambia and Burundi Zimbabwe and Uganda Zimbabwe and Madagascar Seychelles and Madagascar Rwanda and Uganda DR Congo and Burundi

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EAFF Diagnostic Study and Advocacy on EPA

3 3.1

Chapter 3: Main challenges of EPA for agriculture, trade and development General framework of what is at stake in the EPA A. GENERAL COMESA TRADE

On the global scene, trade between COMESA and the rest of the world was represented by the EU with 25%, USA 9%, ASEAN 18%, Africa 15%, COMESA intratrade 8%, others 23% (2004). The EU is by far the largest market destination for most products originating from the ESA configuration. ESA CONFIGURATION TRADE FIGURES (constant 2004) Country

Burundi Comoros DR. Congo Djibouti Eritrea Ethiopia Kenya Malawi Madagascar Mauritius Rwanda Seychelles Sudan Uganda Zambia Zimbabwe

Surface area (sq. km)

Population, total (millions)

27,830 2,230 2,344,860 23,200 117,600 1,104,300 580,370 118,480 587,040 2,040 26,340 450 2,505,810 241,040 752,610 390,760

7.3 0.6 54.8 0.7 4.5 70.0 32.4 11.2 17.3 1.2 8.4 0.1 34.4 25.9 10.5 13.2

GDP current US$

657.2 366.5 6,570.5 663.1 924.6 8,076.9 15,600.3 1,812.9 4,364.0 6,056.1 1,845.0 703.5 19,559.0 6833.3 5,388.6 8,304.5

GDP per capita US$ millions 89 596 120 927 207 115 481 162 252 4,907 219 8,306 569 264 511 631

GDP growth (annual %)

Total exports

5.50 1.91 6.30 3.00 1.77 13.37 2.10 3.83 5.25 4.20 5.66 -2.00 6.00 5.73 4.65 ..

81.0 7.9 1,413.0 41.0 35.0 333.1 2,015.5 693.6 1,003.4 1,613.8 80.5 169.3 2,034.5 602.8 1,604.5 1,697.3

Total imports

173.0 63.0 1,873.0 275.0 650.0 1,384.7 4,411.3 694.0 1,714.7 2,761.7 165.3 409.0 3,743.6 1,762.3 2,184.3 1730.6

Net Importers/E xporters

-92 -55.1 -460 -234 -615 -1051.6 -2395.8 -0.4 -711.3 -1147.9 -84.8 -239.7 -1709.1 -1159.5 -579.8 -33.3

Source: COMESA merchandise trade database The important information from table above is that all the countries are net importers in agricultural products. Besides, there is a trade imbalance between the EU and the rest of the world, with imports figures greater than export figures, hence the imbalance. B. COMESA TRADE WITH EU The EU as a single market has been the major market destination for the Eastern and Southern African states especially primary minerals and agricultural products such as tea, sugar, fruit+ vegetables, coffee, flowers, and tobacco including fish. However, the commodities face ever declining market prices. If at all there is any rise in the export value for agricultural product, it can be attributed to increase in volume of the product exported. Agricultural commodities are of critical importance to the economies of the COMESA/ESA configurations. The table below presents the performance of agricultural sector exports to the EU 25, and also the agricultural import performance against the total imports and export for the years 1999 to 2005. External Trade Relations for COMESA (including Egypt) member states (mio Euros) Exports to EU25 1999 2000 2001 2002

2003

2004

2005

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EAFF Diagnostic Study and Advocacy on EPA

Agricultural products (Cap 01-24) Total Exports to EU25 % of total exports Imports from EU25 Agricultural products (Cap 01-24) Total Imports from EU25 % of total imports Total Trade Balance

3,155.10 9,010.60 35% 1999 1,413.80 13,441.10 11% -4,430.50

3,119.20 11,098.30 28% 2000 1,667.30 13,761.90 12% -2,663.60

3,283.30 11,543.80 28% 2001 1,481.20 13,496.50 11% -1,952.70

3,328.40 11,723.20 28% 2002 1,517.30 12,467.60 12% -744.40

3,076.50 10,043.10 31% 2003 1,484.40 12,966.60 11% -2,923.50

3,128.30 10,377.00 30% 2004 1,503.20 13,868.30 11% -3,491.30

3,316.50 12,958.80 26% 2005 1,563.90 16,105.50 10% -3,146.70

Source: Eurostat The agricultural exports are represented by dependency on a narrow agricultural export base and on the EU market . This is a risk for most of these countries. These crops include coffee, cocoa, cotton, cashewnuts, fruits+vegetables, cut flowers. The structure of imports is even more stable than exports. On the other hand, the imports of agricultural products rose from billion Euros 1.4 in 1999 to billion Euros 1.5 in 2005 representing on average 11% of the total imports from the EU. The EU trade records of 2005 show that the bulk of COMESA imports from the EU are complete industrial plants (27.7%), frozen fish excluding fish fillets (16.9%), wheat & meslin (12.6%), milk & cream (7.4%), motor vehicles (4%) and machines. This pattern has been the trend for the last 25 years. Over the same period, export trade performance has been fluctuating for most countries due to continuing fall of prices of most primary products over the period. For example, over the period, Kenya’s export climbed from Euros 717 million to Euros 833 million while its agricultural imports from the EU rose from Euros 46 million to Euros 51 million. During the period 1999 to 2005, the trade balance between the EU and COMESA has been in favour of the EU25. This is due to the fact that the bulk of exports from COMESA are primary commodities which fetch low export prices compared to finished products like foods and machinery which fetch high export prices from the EU. The total exports from COMESA to the EU rose from Euros billion 9 in 1999 to Euros billion 12.9 and this is represented by agricultural export worth billion Euros 3.1 in 1999 to billion Euros 3.3 in 2005. On the other hand, the imports from the EU rose from billion Euros 13.4 in 1999 to billion Euros 16.1 in 2005. Out of this, agricultural imports averaged 11% of the total imports. C. COUNTRY TRADE TRENDS The breakdown of the imports by country reveal that food imports from the EU has been rising steadily in some countries over the period. For instance Zambia imported Euros 2 million worth of food items from the EU in 1999. The figure has climbed to about Euros million 3 by 2005. Mauritius imported Euros 58.5 million worth of food from the EU in 1999 as compared to Euros 87.4 million imported in 2005. Whereas, the Rwanda’s food import from the EU has been declining from Euros 13.7 million in 1999 to Euros 4.5 million in 2005. The figure is expected to fall further in 2006. Djibouti exhibited a similar pattern when its food imports declined from million Euros 65.3 in 1999 to million Euros 26.1 in 2005. Its exports fell from million Euros 2.2 in 1999 to million Euros 0.5 in 2005.

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EAFF Diagnostic Study and Advocacy on EPA

3.2

The peculiarities of the countries (major export products to the EU, major import products), --NB: emphasis on East African Region.

For Uganda, the EBA initiative builds upon the existing preferential treatment already granted since 1975 under the Lome Convention. Under this arrangement, nearly all exports from Uganda are entering the EU markets duty free, although in some cases this was managed through a quota system. With EBA, duty free access is granted, but without quota limitations. This is a substantial improvement, although Uganda over the last 25 years has never reached its quota limits. The EU is Uganda’s largest trading partner with more than one third of Uganda’s exports consumed in EU markets. Over the last thirteen years, the fifteen EU Member States had an annual average negative trade balance (importing more Ugandan products than exporting EU products to Uganda) of about $ 90 million. Only neighbouring countries or countries from the region such as Burundi, Congo, Sudan, DRC and Ethiopia do, to a lesser extent, import more from Uganda than they export. The other major developed countries such as the US, South Africa, Japan and Australia are net exporters, by far, to Uganda. Switzerland also has a negative trade balance with Uganda, mainly due to the coffee imported by this country but which is afterwards partly re-exported (30-40%) to the European Union. Over the period from 1988 to 2001 trade patterns have changed quite a lot with nontraditional exports gaining over traditional ones. During these 13 years, fish and tobacco have taken a substantial part of the products exported from Uganda to the EU, increasing respectively from $24,000 to $61 million for fish and fishery products and from $89,000 to $31 million for tobacco. Coffee and tea still represent the major share of the trade flows between Uganda and the EU. This share stands now at 36% instead of 90%, which means that much diversification has taken place. This is confirmed by products falling outside these large categories that have also increased significantly their share of the trade. These other products exported to the EU are mainly gold, vegetables and cocoa. The evaluation of the trade pattern between 1988 and 2001 clearly shows that due to the opening of the European markets, Ugandan exporters have been in a position to diversify their exports to the EU. Only the deterioration of the terms of trade has been an obstacle to the increase in value of the overall exports from Uganda to the EU.

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EAFF Diagnostic Study and Advocacy on EPA

External Trade Relations for Uganda (mio Euros) Exports to EU25 1999 2000 Agricultural products (Cap 0124) 285.5 237.5 Total Exports to EU25 322.8 285.6 % of total exports 88% 83% Imports from EU25 1999 2000 Agricultural products (Cap 0124) 11 19.2 Total Imports from EU25 174.8 200.4 % of total imports 6% 10%

2001

2002

2003

2004

2005

236.4 266.5 89% 2001

237.4 280 85% 2002

227 253.5 90% 2003

229 262.6 87% 2004

281 301 93% 2005

14.4 196.1 7%

12.6 203.1 6%

12.2 211.9 6%

12.7 222.8 6%

14.2 259.8 5%

The European Union is the number two destination market for Kenyan exports, after COMESA. In 2004, the share of Kenya 's total exports to the EU was 26%. Preferential market access to the EU under the LOME IV trade arrangement has been instrumental to Kenya 's penetration to the EU market. Under this arrangement, about 98% of Kenya 's products have benefited from duty free market access. Among the products, which have attracted some duty, include selected agricultural and agro-processed products. External Trade Relations for Kenya (mio Euros) Exports to EU25 1999 2000 Agricultural products (Cap 0124) 717.7 743.3 Total Exports to EU25 847 844.1 % of total exports 85% 88% Imports from EU25 1999 2000 Agricultural products (Cap 0124) 46.3 51.7 Total Imports from EU25 902.3 939.5 % of total imports 5% 6%

2001

2002

2003

2004

2005

778.2 938.7 83% 2001

768.2 864.7 89% 2002

737.5 808.6 91% 2003

783.7 873.3 90% 2004

833.2 952 88% 2005

50.6 1,044.20 5%

42.6 927.1 5%

42.1 797 5%

47.3 940.7 5%

50.9 962.5 5%

Source: Eurostat Kenya heavily relies on the EU market for well over 85% of its flowers and horticulture products sold fresh to the EU supermarkets. The EPA is perceived to pose significant challenges for some of Kenya 's major food commodities such as wheat, rice, sugar, dairy, maize and even meat and meat products. The challenge arises primarily from the EU subsidy on agricultural products. It is however important to note that the EC, through the WTO process has undertaken to eliminate subsidies by 2013 and has offered to fast track the reduction for products of export interest to ESA region within the framework of EPA. Tanzania is one of the Least Developed countries. The country has a per capita GDP of $ 210. The Tanzania economy depends on agriculture, which accounts for over 50% of its GDP. The sector provides 75% of exports and employs about 85% of the total work force. Tanzania's GDP growth rate currently at 4.9%, has averaged 3.5% for the past four decades, with population growing at an average of 3% per year, consequently registering a per capita increase of 0.7%.

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EAFF Diagnostic Study and Advocacy on EPA

The principal exports are coffee, cotton, cashew nuts, tea, sisal, tobacco, clove pyrethrum and minerals. Major destinations for Tanzania’s exports are India, Britain, Germany, Netherlands and Japan. Region wise 30% of Tanzania’s exports are destined for Europe with another 30% going to India, Japan and other Asian countries. African countries led by Kenya and Zimbabwe account for 20%, and the United States of America account for 5%, while Latin America and the rest of the world account for 10% of the total exports. External Trade Relations for Tanzania (mio Euros) Exports to EU25 1999 2000 Agricultural products (Cap 0124) 163.6 271.5 Total Exports to EU25 246.2 421.3 % of total exports 66% 64% Imports from EU25 1999 2000 Agricultural products (Cap 0124) 18.7 24.4 Total Imports from EU25 313.3 342.8 % of total imports 6% 7%

2001

2002

2003

2004

2005

254.8 420.2 61% 2001

252.8 442 57% 2002

240 623 39% 2003

230.1 677.2 34% 2004

268.6 318.8 84% 2005

22 413.9 5%

25.7 384.7 7%

24.7 407.5 6%

25.6 443.8 6%

29.7 527 6%

Source: Eurostat This is the country that shows the highest yearly fluctuations of exports and a steady increase of agricultural imports. The Tanzania’s agricultural exports to the EU declined in 2003 and 2004. It rose very sharply in 2005 with agriculture recording 84% of its total exports to the EU. Although Tanzania has a large number of livestock, there are no significant export of animal products such as meat and animal fat. This is due to lack of meat canning and packaging industries. 3.3

Coexistence or not of LDC and non LDCs;

Comparison between LDC and non LDC, Comparison of land locked and non land locked countries. Annex 4 presents the economic situations of the 14 ESA countries. It also describes the farming systems obtaining in these countries. Of the countries in the ESA, four countries are classified as non LDCs (i.e Kenya, Mauritius, Zimbabwe and Sychelles) and 12 countries are classified as LDCs (i.e. Zambia, Burundi, Ethiopia, Malawi, Rwanda, Uganda, Madagascar, DR. Congo, Djibouti, Eritrea, Sudan and Comoros). Out of these Zambia, Burundi, Ethiopia, Malawi, Rwanda, Uganda are land locked. While Comoros and Mauritius are Small Island Developing States. These LDCs countries make 87% of the total population of ESA. Under the Cotonou Partnership Agreements, these LDCs countries are not obliged to sign an EPA with the EU due to the Special and Differential treatment for the LDCs under the WTO rules. They are characterised by weak institutional framework, poor infrastructure and insufficient skills. LDCs are not at all that linked up to international trade; where they are, they depend on one or two crops like coffee, cocoa and cotton. Intra-regional trade or cross border trade is characterised by trade in small volumes of primary food staples, due to inadequate market 22

EAFF Diagnostic Study and Advocacy on EPA

information. Generally, these crops are exported in primary or intermediate states. In fact, LDCs are weak and can't express themselves in institutions like the WTO and bilateral trade talks. Under the WTO Rules, the LDCs enjoy the right to non-reciprocal trade preferences and this right is recognized by the EU under its unilateral Everything But Arms (EBAs) which grants duty-free access into the European market for nearly all LDC exports. EBAs only excludes, arms and munitions. But this EBAs is not free of non tariff barriers under the EU CAP reform, hence some access for rice, bananas and sugar are affected. As a result, available data show that LDCs have benefited less from EBAs, than the non-LDCs under another preferential trade regime. With this option of LDCs not to negotiate an EPA with the EU, a major policy challenge has arisen of how the future trade arrangement between the EU and the ESA countries will be structured so as to accommodate the needs and rights of the LDCs. For the non-LDCs under the ESA group, the Cotonou Partnership Agreements provides that “in 2004, the community will assess the situation of the non-LDCs which, if after consultations with the Community decide that they are not in a position to enter into economic partnership agreements, will examine all alternative possibilities, 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”3. However, from the ESA-EU Joint Road Map of 2004, no alternative was provided hence a shift in policy. Improved access to the exports market notably to the EU single market can lead to export diversification on the part of the EA economies. This is due to the opportunities facing the EA economies. The ESA countries have a historical link to the EU single market. All of them have preferential access to the EU market under the Lomé and Cotonou agreements and under the ‘Everything But Arms’ (EBA) agreement Uganda an Tanzania enjoys preferential access since they are classified as least developed African countries. Kenya does not qualify under the EBAs because it is classified as a developing country. Under the US African Growth and Opportunity Act (AGOA), these countries enjoy preferential market access to the US. However, preference erosion is around the corner as the EU and USA lower their MFN or non-preferential tariffs, and as the number of other countries gaining access to such preferences increases. It is a do or die decision for EA countries to negotiate a continued or improved market access to these markets. In the case of Uganda’s position in the EU market, the EBA agreement offers some protection for the existing preferences received under the current Lomé/Cotonou provision. A number of commodity protocols e.g. sugar, beef & veal shall cease to exist by December 2007 to make trade relations compatible with the WTO regulations. Once these preferences cease, they shall not be renegotiated.

3

ACP-EU Partnership Agreement Chapter 2 Article 37 (6)

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EAFF Diagnostic Study and Advocacy on EPA

3.4

The major issues at stake in the EPA negotiation, as perceived by peasant farmers’ organisations

For farmers’ organisations in ESA group of countries, the on going EPA negotiations should be considered at the backdrop of the globalisation and world wide liberalisations for free trade. This should be looked at within the Uruguay rounds which led to the Doha Development agenda and the current stalled WTO talks. Farmers organizations view development as an ultimate product of efforts geared towards the improvement and modernisation of agriculture. It should range from all activities when a farmer makes selection for stocking materials to the time when s/he counts the money after marketing of his/her products. It goes without saying that both agri product and market development issues should be taken care of when policies are made for up scaling agriculture. 3.4.1

CAP Reforms

Farmers must be aware that in all agreements, the pattern of product coverage of liberalised imports into the EU reflects the degree of EU Common Agricultural Policy (CAP)4 reforms and the risk, or existence, of internal surpluses for the respective products. Here, three general rules apply: High domestic protection leads to a low willingness for tariff reduction, as this could undermine high domestic prices. High domestic protection supplemented by risks of internal surpluses leads to additional restrictions on imports by not extending Tariff Restricting Quotas Existing notable surpluses increase EU interest in improving its access to the markets of the contracting partner. Certain CAP benefits were extended to ACP producers such as high prices based on prices paid to European producers. The current benefits of these protocols and in particular those of rum, bananas, beef and veal have diminished due to phenomena external to EU-ACP negotiations such as WTO-related interventions and agreements between the EU and the US involving rum and bananas. In the case of sugar, there has been an irreversible reduction in the support to export prices and this means that ACP exporters to the EU will not get the benefits of high prices as they were used to in the past.

3.4.1.1 Effects/impacts of the CAP within EU countries The EU CAP reforms has meant high domestic support prices for EU farmers hence increased incentives for investing in agricultural sector in EU. The effect is a significant productivity increases, and given slow pattern of consumption due to low population growth rate within the (enlarged) EU countries, the region has become one of the world's largest net exporters of wheat, sugar, beef, pork, poultry, and dairy products, and processed coffee re-exported from EU. 4

The CAP is primarily a price management system that supports the income of EU farmers in two ways: (a) Authorities buy the surplus supply of products when market prices threaten to fall below agreed minimum (intervention) prices; and (b) the CAP applies tariffs at the borders of the EU so that imports of most price-supported commodities cannot be sold in the EU below the desired internal market price set by EU authorities.

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EAFF Diagnostic Study and Advocacy on EPA

Relatively high food prices within EU countries have been another impact of the CAP. High budgetary outlays, in the tune USD 50 billion per year and accounting for about 50% of the EU budget, has been supporting EU agriculture. This meant a fundamental competition for development aid for developing countries. Arable crops (grains, oilseeds, and protein crops) account for the greatest share of expenditures in the CAP, followed by meat, poultry, and eggs. With the shift away from price support (funded by consumers) in favor of direct payments (funded through the budget), arable crops and beef have commanded a larger share of EU expenditures on agricultural support.

3.4.1.2 Effects/impacts of the CAP on ESA countries Antecedent to World War II when there was severe food shortage and hyper inflation in Europe, CAP was formulated to protect European farmers not African farmers. To the extent that European farmers (despite the fact that European agriculture is now only a small part of the economy) continue to demand higher prices and incomes from their politicians, there will be little the Sub Sahara Africa farmers can do to change matters in their favour. Twenty-five years of the EU-ACP cooperation (e.g. Lome I-IV Conventions) have done little to address economic decline in the South. In a related way, WTO was established on 1st January 1995 with the expectation that it would lead to higher standards of living through gains from trade. Poverty levels have increased and the stark reality is that ESA group of countries is worse off today than it was in 1995. Many blame unfair trade policies for the continuing poverty. Although policy reforms have reduced support prices for several commodities, the EU still maintains high border protection. In February 2001, the EU made a bold decision to open its markets to virtually all goods, apart from weapons, from the least developed countries under EBA trade arrangements. However, after heavy lobbying from European farmers, the proposals were watered down and thus one finds that key exports from the South such as rice, sugar and bananas are still subject to quotas until 2006 or 2009. Moreover, in the new EU-ACP, the privileged position of the ACP countries in terms of duty-free imports has changed, for the worse. Considering the CAP commodity regimes reviewed below, the opportunities for ESA group of countries lie in those commodities not directly or substantially supported by EU-CAP e.g. textile plants, olive oil, fishery products, dried fodder and dried vegetables, oilseeds, etc, and in those where quotas are negotiable under the EU-ACP Agreement.

3.4.1.3 EU-CAP Commodity regimes -

Dairy products: The Agenda 2000 reform has delayed cuts in dairy support prices until after 2005/06. The products covered by the CAP dairy regime include fresh, concentrated and powdered milk; cream; butter; cheese and curd. Target prices are set

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EAFF Diagnostic Study and Advocacy on EPA

-

-

-

-

-

annually. Support mechanisms include tariffs and tariff rate quotas on imports, subsidies on exports, and intervention buying of surpluses. Beef and veal: The beef and veal regime relies on a price support system to keep EU market prices close to a common price level. Support mechanisms include intervention buying and direct payments, tariffs and tariff rate quotas on imports and export subsidies. Some direct payments are tied to measures aimed at getting producers to observe maximum stocking rates (livestock units per hectare) to qualify for payments. The support price for beef is being reduced by 20 percent over 3 years beginning in 2000. The support price cut will be partially offset by higher direct payments. Grains: All grain produced within and imported into EU countries are covered by the grain regime. Support mechanisms include a mixture of price supports, direct payments, and supply controls. The 1992 reforms reduced intervention prices by about one-third, and were cut by an additional 15 percent under Agenda 2000. To compensate farmers for reduced prices, compensatory payments are made on a perhectare basis. To qualify for these payments, large-scale farmers must remove a percentage of their arable cropland from production. The set-aside rate in 1999/00 and 2000/01 was 10 percent. Oilseeds: The EU is far from being self-sufficient in oilseeds. There is a zero tariff on oilseeds and meal and a low or nominal tariff on vegetable oil other than olive oil. Compensatory payments are made to growers of rapeseed, sunflower seed, and soybeans, but there is no price support. Sugar: Sugar production in the EU is supported through a mixture of price supports and supply controls. Intervention buying of the processed products (raw or white sugar) supports the price of the raw commodity (mostly sugar beets). Support is limited by a production quota. Producers also pay to dispose of surpluses (the "coresponsibility levy"). Imports are restricted by tariff rate quotas, most of which are allocated to beneficiaries of preferential access agreements (African, Caribbean, and Pacific countries, under the Lome Convention; India, under a similar arrangement) and high over-quota tariffs. Exports of part of the surplus production (so-called "A" and "B" sugar) are exported with subsidy, while the remaining "C" quota sugar is exported at the world market price. Fruits and vegetables: The CAP fruit and vegetable regime includes all fruit and vegetables grown in the EU. However the regime does not include potatoes, peas and beans for fodder, wine grapes, olives, and bananas, for which separate arrangements operate. Market prices are supported by a system of compensation for withdrawal of produce from the market. Tariffs are the principal means of import protection. Processors of some products also receive processing subsidies to help defray the costs of buying EU products.

EU Strategic (sensitive) agricultural products High domestic protection Bovine animals and beef Domestic swine Poultry Dairy Cereals Sugar Some fruits and vegetables Olive oil Citrus fruit and grapes Flowers

High domestic protection with notable surpluses Meat

Dairy Cereals Sugar

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EAFF Diagnostic Study and Advocacy on EPA

From the perspectives of peasant farmers’ organisations, farmers shall suffer greatly in terms of loss of farm enterprises for not traditional commodities like maize, wheat, poultry products, dairy products, sugar, fruits and vegetables. Already, the small subsistence farmers are complaining that once borders are opened, they shall not survive. They shall not have sufficient muscles to face the EU farmers/exporter because they do not have sufficient capacity to produce marketable volumes of desired quality. EU farmers are heavily subsidised and they are capable of producing the above commodities in surplus, while ESA farmers are not. How shall farmers compete face to face wit more efficient producers? The key concern is that farmers interest are not ably represented in the meetings. Meetings are driven by state actors especially Ministries responsible for trade without appropriate mechanism of representing the farmers interest. The characteristics of each country has a bearing on the how the EU agricultural policy reform affects it. We have seen that most of the ESA countries are net importers of both agricultural and other products, for most commodities protected by EU CAP. Also LDCS enjoy duty free, quota free access to the EU market under the EBAs while other non-LDCs enjoy preferential access to the EU markets. The EU reforms affect these countries differently.

3.4.2 Preference erosion Many agricultural tariffs are very high in the EU (roughly 100% for beef and dairy products, and more than 200% for sugar, for example). However, many developing countries can export under preferential regimes, with lower or zero tariffs. The preferences are uneven across countries, but the Least Developed Countries, as well as African and Caribbean countries, benefit from very large preferences. These preferences are a significant source of income, since the beneficiary countries can sell their products in the EU at a much higher price than the world one. If tariffs are further reduced in the Doha Development Round, the value of preferences will also be reduced. For example, the average tariff faced by US exports of beverages and tobacco to the EU is presently 23.5%, while the one faced by African exports is 2.2%. One suggested structure of tariff reductions in the Doha Round would mean little change for Africa, while the tariffs faced by US exports would fall to 7.7%. The preference margin for Africa would be only 6.7% instead of 21.3%. As result, African countries could be squeezed out the EU market by more efficient producers such as the US or Argentina. The erosion of preferences, whether due to multilateral tariff reductions or unilateral reform of the Common Agricultural Policy (e.g. reform of the sugar sector), will result in significant losses for Least Developed and for African and Caribbean countries. Preference erosion is not a good reason to stop the trend towards multilateral liberalization, but how to offset the adverse effects for the affected countries needs specific consideration, including possible compensation. Some studies suggest that ACP countries could lose more than 2 billion dollars from preference erosion, and that the benefits of the Everything But Arms agreement for poorest countries could become close to zero. Other studies are less pessimistic, suggesting that the aggregate losses will be small and only noteworthy for a small number of countries.

3.4.3 Reciprocity

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EAFF Diagnostic Study and Advocacy on EPA

Besides development dimensions, EPA negotiation is all about the introduction of reciprocal trade relationship between the ACP and the EU. Due to the level of their economic development, reciprocity will have far reaching economic and fiscal implications on the ESA countries depending on the extent and asymmetry of product coverage and the timetable of phasing out of tariff elimination. During the Lome Days, many ACP leaders noted with concern that reciprocal trade arrengement between the EU and ACP was unequitable. The Guyanese Minister of Foreign Affairs, Ramphal, had this to say: “Reciprocity between those who are unequal in economic strength is a contradiction in terms. In contemporary international economic relations, Aristotle’s dictum that ‘justice requires equality between equals must surely mean between those who those who are unequal in economic strength. Equity itself demands non-reciprocity.”5 According to the ESA EPA draft text, a 10 year moratorium is being proposed for tariff phase out, and open way for full reciprocity. Different products contribute differently to government revenues depending on tariffs. ESA countries should be thinking of how they shall be treating different products based on the significance of these products to government revenue, domestic industries, employment, environment protection and food security. If this is done, it shall enable ESA countries to map up strategies of defending national and regional interests for the agricultural sector and market access issues in the wake of a free trade agreement with the EU. From history, the ESA countries have not effectively utilised trade preferences and protocols offered by the EU as a result of un addressed supply side constraints. With EPA coming in force, these preferences shall be phased out (to make the trade regime compatible with the WTO rules) and yet most ESA countries are still riddled with the supply side problems which shall make them unable to access the EU markets under the new trading platforms.

3.4.4 Non-reciprocal trade preferences For most of the ESA countries, the non-reciprocal trade preferences accorded through the Cotonou Partnership Agreement are very significant. In the EPA negotiation, it has been noted by Heads of state this way. There is need to find a most appropriate transition out of this regime, the WTO-waiver of which is due to expire on January 1, 2008. The EPA text suggest a 10 year moratorium during which the adjustments would have been made. It is not likely that the adjustments would be attained within 10 years. A much longer transition period is expected in practice for a full reciprocity trade with the EU. The unilateral EBA initiative by the EU might be of some help to ESA less developing countries. Given their specialization in raw agricultural products, most of which are produced using few traded intermediates and thus not inhibited by rules of origin, EBAs shall prove vital regime for ESA countries. For the non-LDCs in ESA (i.e Kenya, Zimbabwe, Mauritius and Seychelles), the strongest dependence to EU preferences lies in the Cotonou agreement, and there is need to find the most appropriate regime for trade with the EU. Ironically due to ROO, they are prevented from sourcing raw materials from the LDCs. 5

D. Wadada Nabudere: Essays on the theory and practice of imperialism, Onyx Press, London.

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EAFF Diagnostic Study and Advocacy on EPA

3.4.5 Effect of EU Enlargement on ACP States in general The European Community provides financial support for the ACP countries' efforts to reform and rebuild their economies and to strengthen their economic competitiveness. Over the years, the EU is by far the world’s largest assistance programs providing technical expertise and investment support. The fear naturally is that much needed financial and technical assistance needed by the ACP countries are being diverted to the Eastern and Central countries. Perhaps the single most important lesson for ESA– EU EPA from the EU Eastward expansion is that the expansion involves substantial financial support for Eastern European countries that is meant to improve the Eastern European Countries’ industry and commerce so that they can meet EU standards and compete with its industries. Enlargement of the EU could ultimately turn out to be beneficial to the ACP states in general because of differences of their respective geographical and climatic endowments that encourage specialization and complementarities. In this respect, the EU enlargement could be looked at positively as offering the ACP a larger market especially in products like coffee and tea amongst other tropical products. Unfortunately, the second and third enlargements of the Community have weakened the very fabric of the ACP-EC relationship. The second enlargement saw Spain and Portugal pushing for a closer EC-Latin America relationship as well as their concern about southern Mediterranean states. While the enlargement of the EU to include Sweden, Finland and Austria reflected the change in political-strategic interest of the EC. Sweden and Finland have their own interests to protect in the Baltic States and Eastern and Central Europe. As such enlargement of the EU has resulted in major rethink of ACP-EU relations with the result that the ACP States have become less the preferred partners compared to other developing countries and the forthcoming enlargement could further weaken the fabric of the relationship. Another challenge facing ACP States in general is the negative impact on development cooperation that is due to slow and bureaucratic tradition for providing development aid and establishing development co-operation policies. To benefit from EPAs, the ESA countries regardless of their levels of economic developments need to address the supply side constraints and promote investments in value addition in new agricultural development plans. Another reason on EU enlargement is unfair competition for markets of the crops listed in the CAP which can also be produced in ESA regions. 3.5

Challenges

facing

ESA-EPA

as

we

approach

text

based

negotiations

During the Khartoum ESA RNF meeting, it emerged that the ESA countries are now facing an uphill task of remaining united under the ESA configuration. The main challenge is holding together as ESA. Specific national interests are now emerging and threatening the unity of ESA.

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EAFF Diagnostic Study and Advocacy on EPA

i.

The first example relates to Congo DRC, which now attends the Central Africa EPA configuration, and it is still in the ESA group. When asked to give a definite position of the country, the representative requested time to consult the capital which information will be relayed after the election.

ii.

A second example relates to Mauritius on the issue of binding the Sugar Quota. Mauritius insists that unless the ESA EPA bounds the sugar quota it has nothing to do with ESA group and it may reconsider joining the SADC Configuration.

iii.

A third example relates to the Fisheries Development Framework (FDF). The FDF primarily pertains to the Tuna fishing stock. Originally, the thinking within ESA was that the Tuna stock is migratory and hence a common regional framework would guarantee equity amongst the ESA countries. Presently, Seychelles and Mauritius have concluded bilateral agreements with the EC and the ESA-EC Fisheries framework is in a stalemate.

iv.

The other challenge facing the ESA configuration is the capacity to negotiate. Most of the ESA countries cannot pick up the real trade challenges that face them. National consensus and positions on issues have not been developed. Most participating countries attend meetings repeat general issues as if it is like reciting a poem.

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EAFF Diagnostic Study and Advocacy on EPA

3.6

3.6.1

Has there been any negotiation with the peasant farmers’ organisations and the entire stakeholders of the agricultural sector on the protection / liberalisation of the sector? Level of preparedness and overall consultation process

In a Joint EU Government of Uganda Annual Report 2005, the EU notes that the level of preparation and awareness of the EPA remains limited outside the Ministry of Tourism Trade and Industry (MTTI). The National Development and Trade Policy Forum (NDTPF) was formed and holds meetings under the leadership of the MTTI, however, the level of debate and effective consultation remains weak.6 The report further notes that the NDTPF organises meetings under a loosely formed Inter Institutional Trade Committee (IITC). The IITC capacity itself to engage was severely handicapped by the limited level of understanding of WTO issues. Regarding the negotiation with the entire stakeholders of agricultural sector on the sector, there are good initiatives by the civil society who get together to apply for EDF funds. A typical example is the Uganda’s CSOs which in 2001, organised themselves in the interim Cotonou Steering Committee. Since 2003 this has developed to a permanent network based Civil Society Steering Committee (CSSC) chaired by the Uganda National NGO Forum. The Interim Support Programme 2003/2004 to Non-State Actors under STABEX has supported the preparation of the 9th EDF project and strengthened the advocacy role of the civil society. It has also increased the understanding of the Cotonou Agreement by the non state actors. There is an on-going 9th EDF Civil Society Capacity Programme (8M€) aimed to support and build capacity of civil society organisations (CSOs) in Uganda, and thus making them reliable development partners who could potentially be used as service providers.7 It is not uncommon to find that ESA EPA negotiations are driven by the Government Ministries responsible for trade. There is, however, little consultation with the private sector and exporters for agricultural products. Support for Uganda’s trade negotiation is not vey well directed. In the Impact Assessment Study of EPA in Uganda’s economy, it was recommended that a capacity building programme for Uganda be designed or Government ensure that the current UPTOP program focuses more on capacity building in preparations of EPA negotiations8. However, this has not been done and Uganda’s participation in the EPA process is not comprehensive in the interest of the stakeholders of Uganda’s economy. In Kenya, the Ministry of Trade and Industry is leading the Kenya-EU post Lome Trade negotiations and that is why there is a fair level of consultation through an institutional mechanism called the Kenya-European Union Post Lome Trade Negotiations (KEPLOTRADE) stakeholders’ forum which was established in 2001. KEPLOTRADE is charged with technical issues regarding the EPA negotiations in the country. Its membership is comprised of government ministries, public institutions, private sector and civil society groups. The purpose is to have all stakeholders participate actively in preparation for the negotiations. The forum works through six clusters: agriculture, market access, development, 6

Uganda- European Commission, Joint Annual Report 2005, pg 8. Uganda- European Commission, Joint Annual Report 2005, pg 22. 8 Study of the impact and sustainability of Economic Partnership Agreement for the economy of Uganda. 7

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EAFF Diagnostic Study and Advocacy on EPA

fisheries, services and trade related issues. All preparations for EPA negotiations are being facilitated through KEPLOTRADE. The first phase of the programme, which comes to an end on 30th September 2006 had an overall budget (including an increment to support its extension) of Euro2,090,000 funded from reallocated STABEX FMO 1992/93 transfers. The overall objective of KEPLOTRADE is to contribute to the timely establishment of an Economic Partnership Agreement between Kenya (under regional configuration) and the EU. A second phase of the program is planned to start in October in order to support the country in conclusion of the negotiations and implementation of EPAs in 2008 and part of 2009. In preparation for negotiations, over 35 analytical studies, including EPAs impact assessment on Kenyan economy have been undertaken. These studies have assisted in Kenya’s formulation of negotiating positions in all the six clusters and effective participation in regional negotiations of EPAs. There have been efforts towards building requisite capacity to cope with the capacity requirements of EPAs. This has involved training of over 100 public and private sector and civil society organizations’ officials on negotiation skills, computers and computer accessories. EPAs’ awareness creation publicity forums at Provincial level and among media house and Chief Executives of lead companies and Parastatals in the trade sector have been undertaken. In Tanzania, the EU provided support for EPAs trade negotiations to the Government of Tanzania with a budget of 180,000 USD United States Dollars. This support was initially misplaced in the Ministry of Finance secured funds to conduct a national impact assessment study of an Economic Partnership Agreement (EPA) with the European Union (EU), which is aimed at establishing the rationale, modality and implications of Tanzania’s engagement with EPA negotiations.32 At the time of application for funds from the EU, February 2003, the Ministry of Finance was leading on all issues relating to EPAs. However, as of November 2003, the responsibility was transferred to the focal point on trade, MIT. Kenya Government has established this KEPLOTRADE and is effectively handling EPA negotiations. However, from the interviews with the stakeholders, it was apparent that consultations and participation is generally driven by Ministries of Trade with little participation by the Ministries responsible for Agriculture and also by the non state actors (NSA)9, especially the rural producers.

3.6.2 How are civil society stakeholders involved in it? The stakeholders are organised under some kind of CSO coalition where they meet and share information on how to go about the EPA negotiations. It is not sure whether the issues they raise are taken into considerations. The Civil society involvement is rather on an ad-hoc basis. It order to ensure active participation of NGOs and non-state sector, it was agreed that selected NGOs in the trade and development arenas be invited to the RNF. For this matter SEATINI has been invited to attend the RNFs on behalf of the non state actors or NGOs. However, during the 2nd RNF 9

Draft field report on the mid term review of the EPA process.

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EAFF Diagnostic Study and Advocacy on EPA

meeting held at Entebbe, Uganda from 19th-21st July 2004, the CSOs issued a statement calling for more NGOs to be substantive members of the RNF. The state of affairs to date have remained the same though with only SEATINI representing the non state actors.

3.6.3 What is the role of the peasant farmers’ organisations at national and regional levels? Peasant farmers’ organisations have played little role in the negotiation process both at national and regional process although they are catered for under the Non state actors in the CPA. The reasons cited are lack of transparency, lack of information on the subject matter and the EPA process is mainly driven by state actors especially the Ministries responsible for Trade. Ministries of Agriculture are not very active in the EPA process compared to their involvement in the WTO.

3.6.4 How the farmers organisations can participate on EPA process In the diagnostic study, it was discovered that the EPA process are driven by State actors and some CSOs who may mis-represent the interests of the family farmers. The farmers organisations are not in the picture due to lack of information and transparency in the entire process. The farmers organisations can participate in the EPA process through the following means:

3.7

i.

Participation of the family farmers should take shape through the member platforms which should be assisted to profile farmers positions to engage the national negotiators in the National clusters and dedicated sessions on agriculture, fisheries and development.

ii.

Regional Farmers organisations should back up the participation of member platforms by providing information, events, studies, issues to be raised.

iii.

Regional farmers organisations should be assisted to participate in Regional Negotiating Forums, through an official observer status for follow up on issues affecting farmers and agribusinesses.

iv.

Farmers organisations trade policy capacities require strengthening to be able to professionally engage the Government negotiators.

Were peasant farmers’ organisations involved in the elaboration of the levelling programmes and their implementation?

One important observation during the study was that most family farmers do not understand what EPAs is all about. Besides, there is no effort at present to inform them on how EPAs are being negotiated. The main implication for small holder agriculture is an eminent loss of livelihoods if the supply side constrains are not addressed within the development aspects of cooperation.

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EAFF Diagnostic Study and Advocacy on EPA

The peasants farmers’ organisations and their networks are generally considered under the non state actors in the CPA. There are international CSOs/NGOs working on trade policy. These CSOs give forth ideas and help stakeholders articulate issues, they forward ideas to national ESA negotiating teams coordinated under the Ministry of Trade. However, there are some CSOs who are just fighting for space and they may not represent the felt interest on the farmers. EAFF is playing a leading role in coordinating national platform membership for Eastern Africa. Its members are comprised of peasant farmers’ organisations in Uganda, Kenya, Rwanda, Tanzania and DR Congo. Kenya National Federation of Agricultural Producers (KENFAP), a farmers organisation in Kenya and member of EAFF, has been involved in the on going EPAs negotiations in attending various meeting where discussions on the agreements have been held. E.g. The Econews has been holding a series of meeting where the first draft ESA text was discussed to look at the various impacts of the agreement to the economies of the ESA countries and KENFAP attended. In these meeting the CSOs came together to look at the Kigali draft and come up with comments on the impacts of EPAs in various sectors. It was agreed that the draft has be amended/and or other alternatives explored as provided for in CPA. On the 18th August 2006, KEPLOTRADE under the Kenya Ministry of Trade convened a meeting to discuss the EPA text before the Khartoum meeting which was to be held from 19th to 26th Aug 2006. The Uganda National Farmers Federation (UNFFE), a member platform of EAFF, has not been very involved in EPA process compared to the World Trade Organisation (WTO) negotiations. On the WTO, UNFFE participated in the preparation of farmers position on Agreement on Agriculture (AoA) and they got a feed back on the Doha Development Agenda (DDA) round of talks. UNFFE indicated that there is a small initiative under the Private Sector Foundation Uganda (PSFU) but admitted that not much is going on as far as EPA is concerned. A representative from UNFFE attended one of the ESA meetings in 2005, Lusaka Zambia where the key issues agreed upon were market access and competition policy. Since then peasants farmers’ organisations in Uganda haven not been informed at all and they are not aware of any on going programme of negotiations. They are involved in the WTO activities under the IITC where tangible recommendations were made by the farmers. In Rwanda, INGABO which is an EAFF platform is completely not aware of the EPA processes hence they have not been involved in the on going trade negotiations especially in EPAs negotiations. INGABO have neither been informed nor consulted . However, INGABO has some knowledge on WTO since they attended some meetings organised by some CSOs in Rwanda. The IMBARAGA Association of Rwanda, a member platform of EAFF, is generally not aware of what EPA is all about although they are a bit knowledgeable on the WTO. Of recent IMBARAGA Association is getting to learn that there is a group negotiating EPA in the Ministry of Trade. In Tanzania, MVIWATA farmers organisation platform, there is little awareness on the EPA processes mainly on the technical staff level. MVIWATA participated in the CSO meeting together with KENFAP. Participation in meetings do not guarantee the actual involvement of the peasant farmers’ organisations.

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EAFF Diagnostic Study and Advocacy on EPA

However in Tanzania, the large commercial farmers organised under the Tanzania Chamber of Commerce Industry and Agriculture (TCCIA) has been involved in the WTO and EPA processes. TCCIA is based in Dar-es-salaam. In as far as agriculture is concerned, they are advocates for the commercial estates responsible for coffee, sisal and tea. In Tanzania, agricultural sector is composed of small and larger scale farmers. Small scale farmers are significant in the production of food hence food security, farm incomes and rural employment. Negotiating positions of small and large scale farmers is affected by the degree of their organisations. To the extent, the large farm organisations are members of the TCCIA and they are involved in trade negotiations at the WTO, EPA and EAC levels because they are in agro export sector of the economy hence they are affected directly by SPS measures and others rules of origin. The views of these big farmers are heard e.g. Market access, prices, poor infrastructure. The small family farmers are not involved should join hands with those involved through representation in their networks. The non participation and subsequent involvement of the Peasants farmers’ organisations are attributed to the lack of information and awareness on the EPAs processes to the stakeholders. When the CPA was concluded, there was a bit of information on the CPA but the subsequent negotiations dwelling on EPAs many people were kept in the dark hence they could not participate even together with other CSOs in the country. From the point of view of the farmers organizations, development should be an ultimate product of efforts geared towards comprehensive modernization of agriculture. It should range from all activities when a farmer makes selection for stocking materials to the time when s/he counts the money after marketing of his/her products. It goes without saying that both agri product and market development issues should be taken care of when policies are made for up scaling agriculture. Another reason for the poor involvement of CSOs and peasant farmers organisations is lack of transparency on the entire processes. A CSO called the Southern & Eastern African Trade, Information & Negotiations Institute (SEATINI), noted on many occasions that the transparency of EPA negotiations is still problematic in many ACP countries. During an International Policy dialogue at the ECDPM Hq, it argued that more time is needed for strengthening civil society contribution to regional and national debates on EPAs. It stressed that NGOs should ask ACP Governments to consider alternatives to EPAs, the establishment of appropriate monitoring mechanisms and the importance of maintaining policy space for economic development when committing to international obligations10. Although some Peasants farmers’ organisations have been involved in ad-hoc discussions by being invited to meetings the process has been pushed more by the State Actors notably Ministry of Trade than by the Non State Actors (NSA) and these means that the views of the peasants farmers’ organisations might not be incorporated given that even in the State Actors, it is mainly the Ministries responsible for Trade. Ministries of agriculture are not very actively involved in the EPA processes. They are active on WTO processes. For e.g. in Kenya during the in the last KEPLOTRADE meeting of 18th August 2006, the Ministry of Agriculture was not represented although among the items discussed were fisheries and the agriculture chapters. These are worrying as issues regarding agriculture may not be well captured in the process. 10

ECDPM Plenary session on the International Policy Dialogue, the Netherlands.

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EAFF Diagnostic Study and Advocacy on EPA

Farmers organisations assert that within the dedicated sessions of agriculture, cross cutting issues pertaining to women participation in agriculture, environment conservation, HIV/AIDS, poverty eradication and good governance should be addressed as part and parcel of fundamental issues which affect agriculture in developing countries in the light of the sweeping changes being brought about by globalization. Changes in patterns of production and marketing is so rapid and governments should spare no efforts in addressing the gaps identified by the farmers for increased productivity. On the other hand, the private sector championed by the manufacturers appear to have an insight into the EPA processes. According to the East African Business Council (EABC), an umbrella body for the private sector in East Africa, GTZ through its project called Strengthening Regional Business Organisations has been supporting the process. EABC is planning a high level workshop in October 2006 on EPA for the private sector. It is noted that agriculture is not within their scope. Farmers organisations opine that a similar support of trade policy activities be extended to farmers by the donors. 3.8

EPA’s perspective versus regional integration process

There is debate that the EPA negotiations will divide the region and hamper regional integration. Kenya, Uganda and Tanzania have separate integration goals in COMESA, EAC, IOC, IGAD and SADC. The EPA negotiations are posing major challenge for Governments in East Africa just like in other ACP countries. In east Africa, what has happened is that, with the EAC whose members are all members of the larger COMESA, Tanzania state has pulled out of the COMESA process and has instead joined the SADC regional economic block. While there is no problem between COMESA, IGAD and IOC (i.e. they do not wish to have in place separate customs union), plans are underway to deepen integration towards customs union for COMESA, EAC and SADC. The EAC signed a protocol establishing the customs union on 2nd March 2004 and the entry into force in January 2005 after the member states had ratified and deposited the instruments with the Secretary General. The COMESA has 11 members states in a Free Trade Area, with at least two additional members expected to join in 2006. Trade records for the COMESA FTA for the year 2000-2005 was at 13.9% (20% for 2005 alone). While trade with COMESA and the rest of the world grew by 8.3% over the same period. This increase in trade is expected to rise further when COMESA launches its common market and customs union by focusing on the COMESA Common Investment Area, the Regional Investment Agency and the protocol on the Free Movement of Persons11. Work is underway to attain a common external tariff by 2008 according to the Joint Road Map. Before this is attained, trade policy framework must be in place and goods of economic importance should be identified, sensitive products and exemptions to set the stage for negotiations of target rates of the CET on intermediate and final goods. These should have been in place by June 2006. But this is not to be. A high ranking official indicated that if a Customs Union is to be attained for COMESA, it could do so by the year 2010. Reforms are behind schedule. While regional integration should be understood within the context of economic, political, social, institutional and cultural dimensions, the member states should show ownership of the 11

COMESA Annual Report 2005, page 15.

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EAFF Diagnostic Study and Advocacy on EPA

process without undue interference or interventions by the external actors. For this reason, regional integration should be supported and complemented by EPAs. EPAs should make RECs institutions strong. But the way it is EPA negotiations shall contribute to weakening the regional blocks despite their internal weaknesses which existed even before EPA negotiations like multiple, overlapping membership of regional integrations with serious problems of coherence; diversity of countries within the same region; capacity constraints in terms of human, institutional, productive resources; insufficient implementation of rules and other common decisions taken at the regional level by member states; lack of monitoring for the regional processes; difficulties with governance and the related problem of credibility of regional integration. As stated in the text the EAC, whose scattered members are now active negotiators in the EPA, does not have an official position on the EPA process moreover negotiations have reached a decisive stage. It plans to make an official position, just like it did during the Hong Kong Ministerial. This might be late. Rwanda and Burundi application for membership has not been considered and they may not become members by the end of 2006. Might they join other larger economic grouping to the detriment of the growth of the EAC? There should be a distinction between making commitments to rules and implementation of those rules, and capacity constraints should always be taken into account. -

free trade in goods, should be implemented first policies could be covered simultaneously by RI and EPAs, e.g. SPS, TBT, services and some areas of investments; and finally EPA commitments could exist without any necessity of prior regional framework, e.g. some areas of investment or competition policies.

Conclusion of this part A lot of structural problems abound the current EPA negations. The ESA grouping was based on unrealistic political decisions rather than economic thereby building on work done by the regional integration. Whereas, the signing of EPA is not tagged to customs unions or regional economic blocks, the later should be given due considerations to play in the EPA processes since these are important building blocks for creating an African Union. A clear and predictable regional economic grouping with unified rules and procedures of regional investment promotion, free movement of goods and services and overall customs administration and management should be the rule rather than an exception. The calendar of activities and reforms should be reconsidered to take into account the required reforms and regional integration processes.

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EAFF Diagnostic Study and Advocacy on EPA

4

Chapter 4: Evaluation of existing impact assessment studies

4.1

The current state of the impact studies

The CPA stipulates that ‘no country will be worse off on entering into EPAs than what it was before EPAs’. Thus any revealed negative impacts will be taken care of through a negotiated position that leaves the country better off with EPAs. To facilitate the EPA negotiations impact studies have been done for Uganda and Kenya. UNECA has developed impact assessments for COMESA. Individual countries have also conducted impact assessment studies. Annex 5 presents a summary of the impact assessment on revenues and welfare in COMESA. The annex also presents key summaries from the impact assessments done for Kenya, Uganda and Tanzania. The limitations for the studies: -

The studies used partial equilibrium analyses without taking into account the sectorbased interactions.

-

The studies conducted for country cases had different methodologies and approaches, hence making them very difficult to comprehend.

-

The results so obtained and benefit-costs are not consistent thereby creating confusion amongst the regions.

-

The perceived impacts of EPAs on agriculture and food security is not done, and yet the sector is quite significant in terms of foreign trade, employment, poverty eradication and rural development.

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EAFF Diagnostic Study and Advocacy on EPA

5

Chapter 5: Proposals and recommendations

5.1

Do we envisage an extension in the negotiation deadline?

The ESA group is on schedule following the processes undertaken so far. However, during an ESA – EC EPA Brainstorming Meeting held from 12th-13th May, Nairobi, the COMESA secretariat asserts that the ESA group is running behind schedule with a few months, but this was not a big problem. The reason advanced for this is that the individual member states should organize themselves, carry out studies, build capacity, and also deal with problems with difficulties in accessing funds for trade negotiation support. COMESA stresses that development should be at the center of the negotiations and that, if we are to make effective use of market access the EU DG Development should be formally more involved in the EPA negotiations. Serious delays are not expected if the ESA group going by the Joint Road Map. This was also pointed out by Mr. David S.O. Nalo, Permanent Secretary in Kenya’s Ministry of Trade and Industry that “the negotiations between the EC and ESA is on schedule according to the road map which was scheduled in 2004. Formal negotiations in five out of six clusters are at an advanced stage, with both sides having had several areas of convergence…”12. One of the work programme in the Joint Road Map is the preparations for a formal EPA review under the Art 37.4 of the CPA. ESA region was preparing to undertake its own review based on the joint ACP EU Terms of Reference. Indicative timeframe for the review exercise is September 2006 to October 2006. The TOR as issued shall guide the process of the review. A special dedicated RNF shall consider the report on the review prior to its being submitted as input to the All ACP review. One of the sub activities in the work programme is the enactment of new laws to facilitate EPA at the ESA country levels are expected to take place January 2006 to December 2007. This is a critical area which could bring delays in the calendar. Enactment of Laws is quite a lengthy process hence countries would not have finalised the new laws. It is noted that the ACP-EU EPAs negotiations are taking place within the same timeframe with that of the DDA, although the new WTO MFN rules are likely to be in place well before key elements of any post 2007 agreement between the EU and the ACP. This implies that the starting point for the negotiations for ESA should therefore be based upon an appreciation of the possible outcomes of the Doha round of multilateral trade negotiations. An extension in the negotiation deadline is envisaged though it is stated that the negotiation is within reasonable delay time. This is because of un accomplished institutional changes required to enable ACP countries to benefit from EPAs. The changes will require a considerable amount of time on the part of ESA Governments and EA in particular. A well monitored time table for institutional changes envisaged should be brought to bear with the on going EPA negotiations and its implementation through the 10 – 12 years of preparations for tariff phase down in the draft ESA EPA text. 12

The East African newspaper September 4th-10th, 2006 page 15.

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5.2 Must EPA signature be tied to the achievement of concrete results? The signature of EPAs should be tied to achievements of concrete results notably development benchmarks which facilitate free trade among the ESA countries (COMESA) and the rest of the world, in this case the EU. Annex 6 presents farmers analysis of current trade regime and recommendations. It also presents the alternative proposals to EPAs. The stalled DDA negotiations should be rekindled since the main issues should be resolved multilaterally. These issues are mainly market access/entry in agriculture, domestic support and NAMA, and differences between the major participants, namely the EU and the USA, as with other countries. There are indications that talks may start again. According to BRIDGES Weekly Trade News Digest Vol. 10, Number 29 “Since the talks broke down in late July, trade ministers and heads of state from around the world have insisted that they are committed to getting the talks started again. However, little has been discussed in the way of specific new concessions that could spur the resumption of negotiations.” Also, the “Finance Ministers from around the world as well as the heads of the World Bank and the International Monetary Fund called for resuscitating the struggling Doha Round negotiations, during the global financial institutions' 13-20 September annual meetings in Singapore” as reported in the BRIDGES Weekly Trade News Digest Vol. 10, Number 30. Tying the EPA towards a positive conclusion of the DDA would be the best deal ever reached by the ACP. Should the DDA fail totally, a suitable alternative should be reached between the EU and the ACP states. Farmers organizations would like a speedy resumption of WTO talks as a number of issues bringing divergences in the EPA can best be addressed in a multilateral trading systems. 5.3

Communication document

Annex 7 presents the EAFF communication and advocacy strategy.

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6

REFERENCES USED IN THE STUDY -

-

-

-

ACP Negotiating Guidelines, 2002 BRIDGES Weekly Trade News Digest Vol. 10, Number 30. BRIDGES Weekly Trade News Digest Vol. 10, Number 29 COMESA Annual Report, 2004 & 2005. CONCLUSIONS OF THE 24th MEETING OF ACP EU ECONOMIC AND SOCIAL INTEREST GROUPS, Brussels, 28-30 June 2005 Conclusions of the ESA-EU EPA Oct 2005 on the 2nd Ambassadorial/Senior Officials’ Negotiating Session on Development, Fisheries, Agriculture and Market Access Lusaka, Zambia, 24-25 October 2005. Decision n°2/LXXXIII/06 of the 83rd session of the ACP Council of Ministers (Port Moresby – 28/31 May 2006). Draft field report on the mid term review of the EPA process: EAFF Report document Draft joint report on the all ACP – EU phase of EPA negotiations (ACP/00/118/03 Rev. 1 2nd October 2003. ENARPRI, Review of Trade Agreements and Issues, Working Paper No. 3, 2003 ENARPRI_Review_of_EU_trade_agreements.pdf EU Uganda annual report 2005. Joint Report ACP EC, page 113. KEPLOTRADE magazines 2005/06 Negotiating mandate; ESA-EU EPA Final Version, 2004. Stevens, C. and Kennan, J., Comparative Study of G8 Preferential Access Schemes for Africa, Report commissioned by the UK Department for International Development, 2004 Stevens Kennan G8 Prefs Final Report2004.doc Stevens, C., Creating a Development Friendly EU Trade Policy, IDS Briefing Paper 2005 Stevens Development friendly EU trade policy.pdf Study of the impact and sustainability of Economic Partnership Agreement for the economy of Uganda. Study of the impact and sustainability of Economic Partnership Agreement for the economy of Kenya. Tangermann, S. The Future of Preferential Trade Arrangements for Developing Countries and the Current Round of WTO Negotiations on Agriculture, FAO, Rome, 2002. Trade Negotiations Insights (May-June 2006, Vol. 5, No. 3) Uganda- European Commission, Joint Annual Report 2005, pg 8, pg 22.

Other Websites visited : http://www.acpsec.org/en/epa/index.htm http://ec.europa.eu/comm/development/body/cotonou/index_en.htm http://ec.europa.eu/trade issues/bilateral/regions/acp/regneten.htm http://www.euacpepa.org http://www.ecdpm.org/

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http://www.ictsd.org/ http://www.acp-eu-trade.org/ http://www.odi.org.uk/publications/briefing/briefingpapers/index.html www.uneca.org

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Annex 1 : Areas of Congruence and Divergences All ACP EU Phase of negotiation and overall comments up to the 9th RNF level. Areas of Congruence

Remarks

Objectives of EPAs as spelt out in the CPA

Both parties concurred that the overall objectives of EPAs shall be the sustainable development of ACP countries, their smooth and gradual integration into the global economy and eradication of poverty. They further concurred that the specific objectives of EPAs shall be to promote sustained growth; increase the production and supply capacity of the ACP countries; foster the structural transformation of the ACP economies and their diversification; and support regional integration.

Principles 1. Instruments for development

-

-

EPAs must be instruments for development that contribute to foster “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”, and not ends in themselves. EPAs should directly contribute to the development of the ACP countries, by seeking to enlarge their markets and by improving the predictability and transparency of the regulatory framework for trade, thereby creating the conditions for increasing investment and mobilizing private sector initiatives and thus enhancing the supply capacity of the ACP States.

Divergences and Overall comments up to the 9th RNF level. EPAs is not just about trade, it should be viewed as an important link to activate the CPA.

-

-

-

-

-

EPAs should be economically and socially sustainable.

There is gross misinterpretation of development e.g. EC believes that development is about market access and ESA believes it is the amount of extra funding that can be obtained from EPA for adjustments costs, supply side projects, and revenue compensations. EC Position is that the EPA financing will only be dealt with in EDF programming (i.e. 10th EDF) and not within the EPA itself ie through the national and regional indicative programmes. EC not ready to finance 100% of development costs and suggest that extra money should come from donors i.e. 50% EC and 50% donors. ESA asking for 9.2billion Euros for EPAs of which 4.9 billion are to cover regional issues of rules, regulation and policy (not infrastructure) through a separate EPA facility NOT through the EDF.

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2.

Regional integration

EPAs must support regional integration initiatives existing within the ACP and not undermine them. EPAs will therefore need to be based on the integration objectives of the regions concerned. EPAs should also contribute to reinforcing regional integration, in particular by contributing to the regional harmonisation of rules. In this perspective, EPAs’ first emphasis should be to consolidate ACP markets, before fostering trade integration with the EC.

-

For ESA group, EPA negotiations have torn apart the RECs with member countries as regional positions are not taken into the negotiations e.g regional agricultural and cross the border investments.

3.

Preservation of the acquis

There is an agreement that EPAs will maintain and improve the current level of preferential market access into the EC for ACP exports. Concerning the commodity protocols, both sides agree that, in conformity with Article 36:4 of the Cotonou Agreement, they would review them in the context of the new trading arrangements, in particular as regards their compatibility with WTO rules, with a view to safeguarding the benefits derived therefrom, bearing in mind the special legal status of the Sugar Protocol. As regards non-LDC ACP countries, which would not be in a position to enter into EPAs, both sides concurred that, in accordance with Article 37:6 of the Cotonou Agreement, the EC will assess their situation and will examine all alternative possibilities, 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.

-

Safeguarding of preferences and preferential access have been rejected by the EC.

-

Alternative possibilities not yet tabled for considerations.

4.

WTO compatibility

-

Parties agreed that EPAs must be compatible with WTO rules then prevailing and will need to take account of the evolutionary nature of relevant WTO rules, in particular in the context of the Doha Development Agenda. Both sides agreed to cooperate closely in the context of the WTO with a view to defending the arrangements reached, in particular with regard to the degree of flexibility then available.

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5.

Special and differential treatment

Market Access



special and differential treatment should be provided to all ACP States, and in particular to LDCs and vulnerable small, landlocked and island countries.

The CPA principles of flexibility, asymmetry, and preservation and improvement of the Cotonou acquis, will guide the market access negotiations. Regarding access to ACP markets, both sides concurred that EPA product coverage and the length of transitional periods needed to be defined in detail at regional level, taking account of the specificity of the regions concerned.

Concerning the product coverage, the EC referred to the WTO criterion of “90%+” of trade as an expression of its general ambition for long term coverage of reciprocal trade liberalization.

Transitional period: to the length of the transition periods, the EC referred to the general WTO parameters which would be pursued with flexibility and could be adapted in the light of specific economic, social and environmental needs and constraints of the countries and regions concerned, as well as of their capacity to adapt their economies to the liberalization process. • appropriate safeguard measures should be developed at the regional level in the context of EPAs for both industrial and agricultural products. Continuous evaluation of the adjustment process, which EPAs would require with a view to adjusting the liberalization programme, should any serious problems occur in the ACP states. C. Agriculture and fisheries agreements

Agriculture and fisheries have been discussed with regard to market access issues as well as their wider developmental importance. - agreed that addressing issues such as the PMDT (processing, marketing, distribution and transport) would be essential. - Both sides agreed on the need for EPA negotiations to address SPS issues, as well as the impact of EC export refunds on a case by case basis. With regard to SPS issues, the EC concurred with the ACP’s recommendation of supporting the development of national and regional capacities, as appropriate, including testing and certification institutions, as one of the best immediate ways forward and recognized the utility of developing a coordination and consultation mechanism on SPS issues within EPAs as requested by the ACP. It is understood that existing or future national or regional capacities in this area

-

Liberalisation of agricultural sectors should depend on the implementation of effective reforms to EU subsidies under the CAP.

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should be used as widely (even beyond national or regional boundaries) as would be economically feasible. -

-

D. Services

-

-

-

-

Agreed to safeguard the commodity Protocols as provided for under Article 36(4) of the Cotonou Agreement. -

EC rejected to ESA proposal of safeguarding the Commodity protocols and maintenance of preference.

-

Fisheries have been brought into the EPA at the insistence of the EU, whereas ESA had wanted this as a separate agreement.

Agreed to negotiate regional fisheries agreements separately.

discussed with regard to market access issues as well as their wider developmental importance. There has been convergence of views on the importance of a vibrant service sector for the development of the economies of ACP countries and regions and on the need to strengthen this sector in these countries and regions. There was no firm obligation under the Cotonou Agreement to liberalize trade in services in the context of EPAs. services liberalisation within EPAs should be progressive, in principle based on the positive list approach and adapted to the level of development of the ACP countries and regions concerned both in overall terms and in terms of their services sectors and sub-sectors and to their specific constraints, and should be underpinned by the principles of special and differential treatment, asymmetry and positive regional discrimination.

No divergence detected but growing concerns not to push it too fast despite that fact that both sides have developed services text.

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E. Trade-Related Issues

-

-

-

-

-

F. Development support for EPAs

-

-

Both sides concurred on the importance of trade-related issues. e.g tariffs, other “behind the border issues” had become serious barriers to trade. issues such as standards, sanitary, veterinary or phytosanitary rules or rules for the protection of consumers, needed to be addressed, so as to ensure that, even where these measures had been introduced for valid reasons, they did not result in high costs and become practical obstacles to trade. agreed that well functioning infrastructure and institutions, and appropriate regulatory systems were two necessary ingredients for the success of any trading economy, and that they were complementary. ACP side maintained that there is a need to build adequate legal and institutional capacities in ACP countries and regions, before any disciplines in these areas can be negotiated. agreed to enhance their cooperation in all areas relevant to trade and to strengthen the ACP capacity to handle these areas including where necessary improving and supporting the institutional frameworks. EPAs need to be accompanied by appropriate development support measures EPAs and development support measures must be complementary and mutually supportive. EPAs therefore need to be mainstreamed into the development policies of the ACP countries and regions and fully integrated into the development cooperation policies of the EC. Capacity building and infrastructure development are important requirements for EPAs to contribute to the sustainable development of ACP countries. Industrial development and enhancing regional integration are equally important.

-

Divergence on the scope and coverage of the issues; and on sequencing of EPA negotiations with both WTO negotiations and the building of requisite capacity in ACP States to deal with trade related subjects.

-

Divergence on the rules aspects of the trade-related areas should not be the subject of EPA negotiations before agreement is reached on how to treat these issues at a multilateral level, particularly in the WTO.

-

For the ACP side, additional resources are required to cater for adjustments costs that would result from the implementation of EPAs and to ensure that resources currently available under EDF are not diverted. For the EC, resources available for the financing of development cooperation have been agreed in the framework of the Cotonou Agreement.

-

G. Other issues (a) Nonexecution clause

The EC has signified its intention to have the nonexecution clause contained in Articles 96 and 97 of the Cotonou Agreement included in EPAs.

The ACP position is that the nonexecution clause should not apply to EPAs and should be confined to political cooperation.

(b) Dispute settlement procedures

Both sides agreed that this issue should be examined further at a later stage.

The key concern is whether to make use of the WTO DSB or rely on bilateral dispute settlement considering the development aid the EU gives to ACP countries.

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Annex 2Second phase of negotiation Issue Development cluster

Congruence - EPAs should be a key instrument for achieving development objectives of the ESA countries and that development should bethe core of EPA negotiations. - the key principles of EPAs namely that an EPA should serve as an instrument for development.

Divergence ESA Group emphasized that development should be treated as a stand-alone as well as cross-cutting issue. EU insist that EPA should focus on trade as an instrument for development. i. ii.

overall development issues are covered in the Cotonou Agreement. Who should address it.

Overlap of regional integration initiatives was an issue for economic operators and has to be addressed to make regional integration and the EPA credible.

Regional integration through contributing to regional market Building by strengthening regional integration through making it credible to local and foreign economic operators, which would result in a larger market that can trigger economic activities and development for increased flow of goods within the ESA region and creating a single regional market. It was agreed on building intra ESA trade and investment before liberalisation with the EU.

Agreed to have a dedicated session in development between ESA and the EU, co chaired by DG Development to discuss intervention areas and implementation mechanisms including sequencing in January 2006. Despite this agreement, the DG Development has not been active in the negotiation especially on the development cluster.

Fisheries cluster

bilateral fisheries agreements not to be negotiated in EPAs. Deep water fisheries to be governed under a separate agreement.

EU accepted inland fisheries as part of work in progress, notably with respect to the regional aspects of it. E.g Lakes, rivers water bodies.

Agriculture cluster

agreed that agriculture was an important sector to the economies of ESA countries

Agriculture negotiations should take into account the conclusions of the all-ACP-EU phase of the EPA negotiations. Arguments were in favour of the establishment of a regional preference for agricultural, industrial goods and services. In this context it

ESA group stressed that sustainable development aspects of the fisheries cluster should be reflected in the development component, and stated that inland and marine fisheries would be negotiated together in one cluster. protection and maintenance of preference margins as an important tool for fisheries development.

The technical discussions on export refunds under Article 54 of Cotonou, value addition to commodities and possible approaches to address the effects of CAP Reform and export subsidies on ESA countries. some of the areas required further clarification and discussion at the technical level, such as variable geometry, export refunds, preference benefits. How to treat the non LDCs preferences in the context of regional CET. Defining a common external tariff was an important feature

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Market access

was stressed that a regional preference is directly linked to the establishment of a CET.

in coming up with a sensitive list of products.

Develop ESA capacities in SPS in order for the region to benefit from market access opportunities.

Additional funding not expected.

The main issues raised by the ESA group under Market Access Rules of Origin (ROO)

-

-

-

Tariffs: focus should be the removal of intraregional impediments to trade and addressing of supply side constraints. Tariff reduction or elimination would pose due to revenue loss and increased competition to local industries. Technical Barriers To Trade (TBTs) The EU was willing to provide technical assistance to ESA countries to build capacity to meet EU standards and other requirements. Safeguards EU said that there was need to strike a balance between simplicity of safeguard measures and avoiding discretionary decision making which would endanger stability and predictability for investors.

-

-

The current ROO were provided under the Cotonou but had proved to be a stumbling block and neither helped in the building of the required industrial capacity nor helped in ESA’s quest to take advantage of opportunities under LOME and Cotonou. ESA group wanted to see that certain provisions under the Cotonou, such as derogation, are maintained; the principle of asymmetry between EU and ESA, in the determination of product origin. ESA position on ROO will be based on the all ACP position on the subject EU sceptical whether these issues would lead to development of trade, production and regional integration. Concern over preference erosion due to MFN tariff liberalization. There is need for both sides to collaborate at the WTO on this issue. EU asserts that variable geometry could pose problems for building a regional market.

-

EU safety standards as demanded by the consumers.

On the issue of Safeguards the ESA group recognised the need for agreeing on a mechanism to address the problem of import surges and given the difficulties of imposing antidumping duties and provision of proof of dumping it was suggested that a trigger mechanism be set which would trigger response from the importing country.

Key challenge in negotiating market access: The key challenge in the negotiations relates to the following aspects of the market access which could affect agriculture.  Determination of the COMESA CET which ESA are offering the EC as a starting point. The key challenge here is finalization of the work on CET, basically determining the applicable CET rate for intermediate and finished products. The members States have agreed on a range of 10-15% for intermediate products and 20%40% for finished products. The remaining work is to determine a single rate in both cases.  Developing of the regional sensitive list of products. So far 10 out 16 countries have submitted their national lists. The regional list of sensitive products is yet to be agreed upon by the ESA group. Regional phase-in schedules for non sensitive products for purposes of gradual liberalization of the ESA market in relation to the EU markets.  Developing protocols on safeguards, TBT and rules of origin. The region is optimistic that these protocols will be developed by end of September 2006. However, this is quite an unrealistic time frame given the work load to the work programme. By the time of writing this report, there was no evidence of work in progress on the protocols.  For ESA to complete the work on sensitive products and targeted development, information on EC products benefiting from export subsidies and domestic support will need to be accessed and analyzed. Although subsidies and domestic support are 49

EAFF Diagnostic Study and Advocacy on EPA

issues being dealt with at multilateral level, it is important to recognize the negative impact of these subsidies and domestic support in terms of unfair competition if such products were to access and enter the ESA market. This negative impact renders this subject relevant to ESA’s determination of the exclusion list. This information will also be useful in ESA’s innovative identification of programs targeting enhancement of the competitiveness of similar products which ESA aims to export to the EC. It is therefore important that ESA formally obtains the information on subsidies and domestic support from the EC for purposes of analysis and reflection.

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Annex 3 : Phase 3 points of divergence and congruence EU and ESA Points of divergence Areas EPA adjustment costs - relating to preparations liberalisation. - required for implementation of EPAs.

Transition period

EC ESA EU reluctant to deal with the Stressed the strong need to the issue of adjustment costs. update the ACP economies, for especially their production structure, hence more resources the needed. the Stressed that other development Other development partners are partners or donors should be not party to the EPA. interested in financing some adjustment costs. Want a transition period based on the availability of the necessary funds for upgrading the ACP economies. -implementation of the EPAs should be dependent on the availability of funds

KEY AREAS OF DIVERGENCE BETWEEN EC and ESA ON NAMA ISSUES By the conclusion of the 8th RNF, there were various areas of potential divergence between the EC and the ESA group. These relate to: Divergence Phase down period Tariff elimination

Standstill/ Moratorium period Additionality of funds in order to implement the development dimension of EPA.

EC intimated a maximum of 15 years The Community shall provide full duty free quota free market access for all products originating in the ESA region from 1 January 2008

ESA ESA proposes 25 years.

EC seeks immediate establishment of free trade area there is no more funding other than the 10th EDF. Multilateral donors should be invited to take up some development components of the ESA program.

ESA proposes a tenyear moratorium period. Requesting for a special EPA facility to be established in addition to the 10th EDF, which has 22.4 billion Euros.

Exports from the ESA into the Community shall be exempted from internal taxes, including value added tax and excise duty and fees or other charges of equivalent effect to customs duties.

Remarks For products in Annex xxx i.e finished goods The benefits of the benefits under existing commodity protocols should be taken into account.

The implication is what is in the ESA-EPA text cannot be implemented due to the resource gap. The ESA countries are of the view that donors cannot be invited at this stage since no negotiations have been held with them. Other donors are not party to EPAs.

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Stalemate in Doha Round

the

market access

Trade in services

Classification goods

of

EPAs must be WTO plus and WTO compatible.

ESA challenge and risk is how to make EPA WTO compatible when the DOHA outcome is unknown.

full liberalization and all duties must be removed more commitments and deeper liberalizations particularly on communication services.

Hold the DDA views of developing countries

EU is insisting on the basis of the harmonised system (2002)

On the ESA side, classification shall be in terms of the COMESA common Tariff Nomenclature Sensitive list should be as long and inclusive as possible.

Sensitive products Products will be excluded from liberalisation.

Substantially all trade

Regional preferences

ESA not obliged to extend these to the EU.

Hold the DDA views of developing countries

The EC countries are pushing for text-based negotiations in ESA while the same EC is contributing to the deadlock at WTO.

Free trade shall work against the competitiveness of ESA countries.

An all inclusive WTO criteria should be applied to country specificities.

ESA countries maintain regional preferences among themselves.

NB: Other points of major divergence are also discussed in Annex 1.

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Annex 4 :Situations

of the ESA Countries and farming systems and characteristics of

farmers.

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7

1. Situation of the other ESA members

There is lack of the sustainability impact assessment studies of EPAs for most of the ESA countries. Attempts are being made to finalise the studies for the ESA countries which have not yet done so. The other matter is that these studies are not for public use. It has been rather hard to obtain the impact assessment studies. However, the scenario obtained for East Africa provides a birds eye view of the possible effects of EPAs on the economies of the ESA countries, given that the economies of these countries are similar. A brief description of the economies of the other ESA countries are presented as follows.

i.

Djibouti

Djibouti is one of the Eastern Africa states, its population is 486,530 (July 2006 est.), bordering the Gulf of Aden and the Red Sea, between Eritrea and Somalia. The economy is based on service activities connected with the country's strategic location and status as a free trade zone in northeast Africa. Over 66% of the population live in the capital city and 24% are nomadic pastoralists. Scanty rainfall limits crop production to fruits and vegetables, and most food must be imported. Djibouti provides services as both a transit port for the region and an international transhipment and refuelling center. Djibouti has few natural resources and little industry. Government revenue base is quite narrow, hence the country is heavily dependent on foreign assistance to help support its balance of payments and to finance development projects. An unemployment rate of at least 50% continues to be a major problem. Faced with a multitude of economic difficulties, the government has fallen in arrears on long-term external debt and has been struggling to meet the stipulations of foreign aid donors. Agriculture in Djibouti is very limited, due to acute water shortages in rural areas. The key agricultural products are fruits especially tomatoes, vegetables; goats, sheep, camels, animal hides. Other cash crops grown are date palms along the coastal line. The average contribution of agriculture to the Gross Domestic Product is below 4%. Acute famine and malnutrition in Djibouti have created a reliance on the distribution of food aid for millions of its people. The country imports over 95% of its grain and food requirements. It is a net food importing less developing country prone to prolonged draught. In 1995, the Government of Djibouti launched the first census of agriculture of the country. Nomadic livestock was excluded and it revealed the following farming systems. Land holdings vary from 0.1ha to over 1ha. The majority of land holders were men holding less than 1ha of land.

ii.

Eritrea

The country is just emerging from the shocks of war with neighboring Ethiopia. The war not only drained resources needed for the development of Eritrea. Ethiopia was hit harder given its landlocked ness. Eritrea’s economy is largely based on subsistence agriculture, which employs 80% of the population but currently may contribute as little as 22% to GDP. Export crops include coffee, cotton, fruit, hides, and meat, but farmers are largely dependent on rain-

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fed agriculture, and growth in this and other sectors is hampered by lack of rain and inadequate water storage. Erratic rainfall and the delayed demobilization of agriculturalists from the military kept cereal production well below normal, holding down growth in 20022004. The country's agricultural products include sorghum, wheat, corn, cotton, coffee, and tobacco. In the livestock sector, cattle, sheep, goats, and camels are raised, and hides are produced. There is a fishing industry and some pearl fisheries remain in the Dahlak Archipelago. The country's natural resources include gold, copper, potash, zinc, iron, and salt, but they have not yet been exploited. Offshore oil exploration was begun in the mid-1990s. Eritrea has little manufacturing beyond food processing, textiles, and building materials. Many Eritreans work outside the country, and their remittances substantially augment the GDP. Imports (consumer goods, machinery, and petroleum products) greatly exceed the value of exports (livestock, sorghum, and textiles). The country's main trading partners are Ethiopia, Saudi Arabia, Sudan, and Italy. The southern part of the country is made up of a low, largely desert coastal strip c.30 mi (50 km) wide; in N Eritrea there is a narrower, level coastal zone adjoining a ruggedly mountainous inland plateau (3,000–8,000 ft/914–2,438 m high). Most of the country supports only a sparse population of pastoral nomads. The central plateau, however, has many fertile valleys where settled agriculture is pursued. iii.

Ethiopia

The economy of Ethiopia is based on agriculture, which accounts for half of gross domestic product (GDP), 60% of exports, and 80% of total employment. The major agricultural export crop is coffee, providing 65%-75% of Ethiopia's foreign exchange earnings. Coffee is critical to the Ethiopian economy and it accounts for the bulk of Ethiopia’s foreign exchange earnings. More than 15 million people (25% of the population) derive their livelihood from the coffee sector. Other exports include live animals, hides, gold, pulses, oilseeds, and qat (a leafy shrub which has psychotropic qualities when chewed). . Ethiopia's agriculture is plagued by periodic drought, soil degradation caused by overgrazing, deforestation, high population density, high levels of taxation and poor infrastructure (making it difficult and expensive to get goods to market). Yet agriculture is the country's most promising resource. A potential exists for self-sufficiency in grains and for export development in livestock, grains, vegetables, and fruits. As many as 4.6 million people need food assistance annually. Ethiopia is landlocked country punctuated by mountainous terrain and the lack of good roads and sufficient vehicles make land transportation difficult. It depended on Eritrean sea ports until the war disrupted the cooperation hence it has to use sea ports of Djibouti and the war torn Somalia. Subsistence smallholder farms traverse the Ethiopian farming landscape, with varying degrees of land holdings ranging from of 1.5ha to 2.5ha under crops. Livestock are kept alongside the crops. Grazing pressure is very high with high density of animals per grazing land leading to overgrazing. During dry seasons and prolonged draught, the conditions of animals deteriorate and fetch lower market prices. Agriculture activities in whatever form are affected by deforestation; overgrazing; soil erosion; desertification; water shortages in some areas from water-intensive farming and poor management.

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Dependent on a few vulnerable crops for its foreign exchange earnings and reliant on imported oil, Ethiopia lacks sufficient foreign exchange. Djibouti, Eritrea and Ethiopia are collectively known as the Horn of Africa. All of them are members of IGAD which heavily rely on food aid donations to solve perennial famine which affect over 25 million people. iv.

Sudan

Sudan, the largest country in Africa has a total land area of more than 2.4 million km2. It is endowed with rich natural resources and could potentially become a major agricultural producer, yet it is one of the poorest countries in the world. Decades of civil strife and poor economic management have held back the Sudan’s economy and widened the gap in economic and social development between north and south, and between urban and rural areas. In the rural and southern regions there is a lack of infrastructure and extreme poverty has become widespread, made worse by drought and famine. Large parts of the country are dependent on humanitarian aid and a barter economy. The Sudan has a predominantly agricultural economy: cotton, sesame and livestock are among its main exports. Agriculture accounts for around 40 per cent of Sudan's gross domestic product (GDP), accounts for more than 95% if the country’s export earnings and employs nearly 70% of the total population which are mostly rural. Nomadic herders and smallholder farmers coexist alongside recently established mechanized farms. About 60 per cent of all crop production depends on irrigation, and 33 per cent is rain fed. Subsistence farming is a predominant farming system characterised by small land holdings averaging 1ha.

About one-third of the total area of Africa's largest country is suitable for agricultural development. Abundant rainfall in the south permits both agriculture and grazing grounds for the large herds owned by nomadic tribes. In the north, along the banks of the Nile and other rivers, irrigation farming prevails. Of an estimated 16.9 million hectares (41.8 million acres) of arable landing 1998, about 1.9 million hectares (4.7 million acres) were irrigated. Principal cash crops are cotton, sesame, peanuts, sugarcane, dates, citrus fruits, mangoes, coffee, and tobacco; the principal subsistence crops are sorghum, millet, wheat, beans, cowpeas, pulses, corn, and barley. Cotton is the principal export crop and an integral part of the country's economy. In 2001, agricultural products accounted for 21.9% of imports and 19.2% of exports; there was an agricultural trade deficit of $24.5 million. Government regional development schemes have played a decisive part in the economy since the 1920s. The Gezirah Scheme, located between the Blue and White Niles near their confluence at Khartoum, is the world's largest under a single management and provides a substantial portion of foreign exchange and government revenue. This storage irrigation project, which covers 840,000 hectares (more than two million acres) but has an additional potential of two million hectares (5 million acres), dates back to 1911 and was put into operation by a British firm. After the expiration of the firm's contract with the Sudanese government in 1950, the land was leased to tenant farmers, who numbered over 100,000 in 1987. They manage the scheme jointly with the government through the Gezirah Board. In 1992, the public and private agricultural sectors invested heavily in land preparations, pesticides, and related inputs. Agricultural funding for such projects comes from the World Bank, the African Development Bank, and the International Fund for Agricultural

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Development. However, completion of these projects has been complicated by debtrepayment problems. In spite of efforts to improve Sudan's agricultural resources, famine conditions have existed in southern Sudan since 1986. Inadequate rains, a poor distribution infrastructure, and civil war have hampered relief efforts. v.

Comoros

Comoros is comprised of three little islands in the Indian Ocean, namely Mwali, Njazidja and Nzwani. It is located off the north-eastern coast of Madagascar. With a hot and humid climate along the coasts, and a cool and dry climate in the mountains, the main the main economic strengths are based in agriculture where the main crop is spices. Maritime fishing is also significant. Agriculture, including fishing, hunting, and forestry, contributes 40% of the country’s GDP, employs 80% of the labor force, and provides most of the exports. The country is not selfsufficient in food production. The main staple food crop is rice grains and it accounts for the largest percentage of its imports. The population living below poverty line is 60% (2002 est.) The principal agricultural products are in order of significance vanilla, cloves, perfume essences, copra, coconuts (which are produced for exports) bananas and cassava (tapioca). Its key export partners are the US, France, Singapore, Turkey and Germany. Subsistence farming is the key system of farming where farmers grow a number of crops on the farm yard.

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vi.

Rwanda

The Republic of Rwanda is a land locked country in the middle of east-central Africa. It is also classified as a less developing country. It is surrounded by the Democratic Republic of the Congo, Uganda, Tanzania, and Burundi. Agriculture is the main economic activities in this on 46% of its arable land: The main crops produced are coffee, tea, pyrethrum , bananas, beans, sorghum, potatoes; livestock. Agriculture employs 90% of the total labour force who are mainly rural dwellers. Production takes place is small land holdings ranging from less than 0.5 ha to 1.5ha on average with the proportions declining in the slopes of the mountainous areas. The presence of large scale commercial farming is un noticed hence the bulk of Rwanda’s production is done mainly by family farmers who organise themselves in farming groups. There is emergence of intensive farming due to shortage of arable land. Rwanda is the most densily populated country in Africa. In 2005, Rwanda’s exports was projected at $98 million f.o.b. and the principal products were coffee, tea, hides, tin ore. On the other hand it imported $243 million f.o.b. (2005 est.) mainly foodstuffs, machinery and equipment, steel, petroleum products, cement and construction material. Major trading partners: Indonesia, China, Germany, Kenya, Belgium, Uganda, France (2004). vii.

Burundi

Burundi is a landlocked, resource-poor country with an underdeveloped manufacturing sector. The economy is predominantly agricultural with more than 94% of the population dependent on subsistence agriculture which is responsible for the production of coffee, cotton, tea, corn, sorghum, sweet potatoes, bananas, manioc (tapioca); beef, milk and hides. Production takes place on small fragmented land holdings ranging from less than 0.5ha to 1.5ha. Agricultural sector contributes 47% to the country’s Gross Domestic Product followed industries which contributes 21% to GDP. Economic growth depends on coffee and tea exports, which account for 90% of foreign exchange earnings. The ability to pay for imports, therefore, rests primarily on weather conditions and international coffee and tea prices. Food, medicine, and electricity remain in short supply. Political stability and the end of the civil war have improved aid flows and economic activity has increased, but underlying weaknesses - a high poverty rate, poor education rates, a weak legal system, and low administrative capacity - risk undermining planned economic reforms. viii.

Mauritius

Sugar production was the backbone of the Mauritian economy until the Government decided to embark on a diversification program. Meanwhile, the cost of production of sugar has gone up and a restructuring of this sector has become necessary. Increased mechanisation, better yield, good management and energy production from bagasse, form part of a new development in this sector. Different types of special sugars and tea are also produced for the export market. The agro industry has also witnessed an increase in the production of flowers and fruits. A variety of anthuriums, andreanums and other flowers grown on the island are exported towards Europe, Asia, Australia and the United States. The European Union imports mangoes, pineapples, lichis and bananas grown in Mauritius. The high cost of freight has driven entrepreneurs to process fruits and vegetables for the export market.

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ix.

Malawi

Malawi is a land locked country, bordered by Zambia, Mozambique and Tanzania. It is among the world's least developed countries. The economy is predominately agricultural with about 90% of the population living in rural areas. Agriculture accounts for 45% of GDP and 90% of export revenues. The principal agricultural products are tobacco sugarcane cotton tea corn potatoes cassava (tapioca) sorghum pulses and cattle goats. The majority of its population is involved in subsistence agriculture. The principal crops are corn, cotton, millet, rice, peanuts, cassava, and potatoes. Tobacco, tea, sugarcane, and tung oil are produced on large estates. With the aid of foreign investment, Malawi has instituted a variety of agricultural development programs. Large numbers of poultry, goats, cattle, and pigs are raised. There are small fishing and forest products industries. Deforestation has become a problem as the growing population uses more wood (the major energy source) and woodland is cleared for farms. Practically no minerals are extracted, but there are unexploited deposits of bauxite, uranium, and coal. Malawi's few manufactures are limited to basic goods, such as processed food and beverages, lumber, textiles, construction materials, and small consumer goods. Leading imports are foodstuffs, petroleum products, manufactured consumer goods, and transport equipment; the principal exports are tobacco, tea, sugar, coffee, peanuts, and forest products. The chief trade partners are South Africa, Germany, the United States, and Japan. Most of the country's foreign trade is conducted via Salima, a port on Lake Nyasa, which is connected by rail with the seaport of Nacala in Mozambique. Malawi is a member of the Southern African Development Community. Farm families own a relatively small plot of land to grow food and hence they are unable to use techniques such as crop rotation. Over time this has reduced the quality of the soil and the size of the harvest. In recent years, Malawi's poverty has been exacerbated by real income losses resulting from adverse terms of trade as the prices of its exports ( e.g. tobacco) have fallen, while prices for key imports ( e.g. oil) have risen. Malawi's economy is critically dependent on agriculture, which accounts for over 90% of exports and 40% of GDP. 85% of the population live in rural areas and of that the majority are subsistence farmers. Industrial development is limited. Tobacco is the principal export (accounting for around 60% of export earnings), making Malawi vulnerable to weak tobacco prices. Tea, sugar, coffee and cotton are also important. Maize - the staple diet and domestic crop - is largely produced by small, quasi-subsistence peasant holdings which occupy much of the farmland. Maize production has been inadequate in recent years creating the need for maize imports. Food security does not exist, even during good harvests. In addition to pressures from rapid population growth, agricultural development has been hampered by recurring droughts, poor resource management and environmental degradation (deforestation, land degradation, water pollution etc). The small holder subsistence type of farming systems characterises the agricultural production. There is an increasing number of rural labourers getting casual employment in large commercial farming enterprises, notably in tobacco sector which offer higher wages to complement household incomes.

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x.

Madagascar

The economy of Madagascar is dominated by agriculture, which employs three-fourths of the population. Agriculture, livestock and forestry contribute 32 percent of GDP, industry 13 percent (with food industry, energy, and beverages industry as main sub-sectors), and services about 55 percent. Over the last three decades, growth rates have averaged only 0.4 percent each year. With population growth rates of about 3 percent, per capita incomes have declined sharply. Agriculture sector has seen slow response to reforms introduced by the Government. Farming systems are to a large extent determined by irrigation and cultivation on slash and burn. The farming systems are based on lowland, irrigated, rice Animal breeding is of a traditional type, but zebus play an important role in soil fertility management and soil preparation. Land pressure is a common problem among the community and farmers look for new land in forests and valley bottoms for growing rice. Due to falling world market prices for coffee, farmers are replacing coffee tree plantations with sugar cane used to make local rum, which provide needed income. xi.

Seychelles

Seychelles is a small island non less developing country in the Indian Ocean archipelago. It is a member of COMESA and IOC. The country depends heavily on its tourism industry which employs about 30% of its labour force and provides more than 70% of hard currency earnings. Maritime fishing is also a big undertaking. There is a recent trend in promoting the development of farming, fishing, and small-scale manufacturing to diversify the volatile tourist sector. Agriculture contributes 3.2 % to the GDP compared to manufacturing 30.4% and services: 66.5%. The principal exports are mainly fish and canned tuna. The country imports manufactured goods, food items, petroleum products, tobacco, beverages, machinery and transportation equipment. The combined employment in agriculture, forestry, and fishing is 10% of the total labour force. The main crops produced are coconuts, cinnamon, vanilla, sweet potatoes, cassava (tapioca), bananas, chickens and tropical fruit. The agriculture sectors is affected by the acute shortage of arable land with decent soil (only 400 hectares - about 1000 acres or 1.5 sq miles) and extreme rainfall patterns throughout the year. The government provides great assistance to the industry by having reduced import taxes and duties on agricultural equipment and fertilizers and by eliminating income taxes for registered farmers. Currently, tea and products to support the tourism industry (fruits, vegetables, poultry and pork) are doing well. Other foodstuffs, including rice, are imported. Cinnamon, vanilla, copra and tobacco are not doing as well due to world market conditions. Together, agriculture and fishing contribute about 3.5% of the GDP.

xii.

DR Congo

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The Congo's mineral wealth is the mainstay of the economy, but the development of the mining industry has occurred at the expense of commercial agriculture. The economy's growth spurted under Belgian control in the 1950s, slowed considerably during the country's post independence troubles in the early 1960s, accelerated again in the late 1960s when political stability returned, and has generally declined since the 1970s, when the nationalization of major industries resulted in a reduction of private investment. Since the early 1990s much of the economy has been in a state of collapse. Although only 3% of the nation's land area is arable, a substantial part of the labor force is engaged as subsistence farmers. The principal food crops are cassava, yams, corn, rice, peanuts, plantains, and pulses. Rubber, coffee, cotton, tea, sugarcane, and palm products are produced commercially, primarily for export. Although agricultural production satisfied domestic demands before independence, the Congo has become dependent on food imports. Goats, sheep, and cattle are raised. Primary agricultural products constitute the bulk of agricultural exports. These commodities are vulnerable to sudden changes in world prices. The key agricultural exports are coffee, palm products, and rubber. The leading imports are consumer goods, machinery, transport equipment, and foodstuffs. The country's principal trade partners are Belgium, the United States, France, Germany, and South Africa. The Congo is a member of the Southern African Development Community. xiii.

Zambia

Zambia is a less developed land locked country surrounded by DR Congo, Zimbabwe, Malawi and Tanzania. It is prone to sever draught every two years. The main staple crop is maize grain whose harvest was good in 2005. Other agricultural outputs are sorghum, rice, peanuts, sunflower seed, vegetables, flowers, tobacco, cotton, sugarcane, cassava (tapioca), coffee; cattle, goats, pigs, poultry, milk, eggs and hides. Agriculture sector ranks third contributing 22% to GDP after industry 30% and service sector 50%. Agriculture employs 85% of Zambia’s mostly rural population. The Head quarters of COMESA is in Lusaka Zambia. The small scale sector with land holding less than 5ha is predominant in Zambia. Other sectors are the emerging commercial farmers with land holding of more than 20ha. The family farmers in the small-scale sector are very important for national food supply. Its main function is to supply crops for staple foodstuffs, predominantly maize for maize meal, locally referred to as shima. Market supply of livestock comes principally from the commercial sector. The co-existence of subsistence alongside the market-related small-scale agriculture, and commercial livestock production for wider markets and crop production for livestock feeding is the description of Zambia’s farming system. However, the predominant agriculture type within the small-scale sector is clearly crop-dominated. The crop farming system is responsible for the production of grains notable sorghum and maize which are significant for Zambia’s food security. Farm labour force is dominated by women. During very bad years of poor harvest due to prolonged drought, maize grains are imported from Uganda and Tanzania.

xiv.

Zimbabwe

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Zimbabwe is a less developed land locked country with huge fiscal deficit and suffering from hyper-inflation of over 800% despite the recent currency reforms. The government's land reform program, characterized by chaos and violence, damaged the commercial farming sector, the traditional source of exports and foreign exchange and the provider of 400,000 jobs, turning Zimbabwe into a net importer of food products. As per the year 2005, agriculture contributes 17.9% to the GDP while industry and services contribute 24.3% and 58% respectively. Agriculture employs 66% of the nations labour force who produce mainly corn, cotton, tobacco, wheat, coffee, sugarcane, peanuts; sheep, goats and pigs. Domestic production of food is insufficient to feed a huge number of hungry population. The US and the EU has been providing food aid on humanitarian grounds. Before the recent land allocation, farming systems in Zimbabwe varied from commercial farming tending towards monoculture to communal farming whereby framers have a mixture of farm enterprises. The organized farming systems has collapsed and this has led to serious food security problems for the country. Commercial farming systems existed in the dry savannas and was characterized by large private tenure with a small human population. The main enterprise was livestock. This is no longer the case with livestock population depleted due to mismanagement. Communal farming systems belonged to families for arable farming and settlement. Land is communally owned with very few titled land due to corruption. The recent land policy has tended to fragment land holdings such that there would be less distinction between commercial faming and communal farming. This has led to less food and cash crop production with a resultant loss of income both at the household and government.

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2.

Food security and developing agriculture

While widespread food insecurity is viewed as detrimental to sustainable growth in the ESA region, enhancing growth in agricultural productivity for increased agri-trade is an urgent need for Eastern Africa because of its important contribution to the regions economic development. The majority of the ESA group belongs to COMESA with 11 members under a free trade agreements and a customs union planned for 2008. The economic importance if the agriculture sector is very crucial for the development of the ESA region. The agriculture sector alone accounts for 33% of COMESA’s Gross Domestic Product, employs 80 percent of the population who mainly live in the rural areas, contributes 65 percent to export earnings and is a major source of raw materials for the region’s industry. Agriculture sector, therefore, is considered fundamental to developing COMESA’s infant economy. Of course, there is a strong realisation that there can be an increased benefits from agricultural trade and gain shares in the world markets if it strengthens its domestic agricultural markets and focuses its efforts on improving its agricultural trade environment. During the period 11th-18th September 2006, East African Farmers Federation (EAFF) conducted a sensitisation seminar on the East African Customs Union (what it is, its implications for agriculture, challenges faced etc) for farmers in East Africa and one of the aspects raised was the issue of marketable volume to sustain the market demand in the region, and as a matter of fact, agriculture in the region is rain-fed and the farmers called for investments in irrigation infrastructure to enable them produced all the year round. Other challenges which impede increased agricultural productivity should be addressed in order to stimulate trade. The EAC and COMESA regional approach aims at creating trade linkages, which shall create wider economic spaces that will enhance trade development and growth for the region. Even before considering international trade regimes, a regional approach to agricultural improvement should dwell on institutional and information linkages and joint border investments that should translate to improved trade performance within the region and mirror growth in the international markets. While efforts are being made to improve the share of inter-regional trade and accessing international markets , the greatest challenge is increasing agricultural productivity in the ESA region. Characterized by small size of land holdings, use of rudimentary farm tools, inadequate application of modern agronomy and livestock husbandry on the one part and relying on rain fed agriculture coupled with prolonged drought or recurrent drought, generally there is low agricultural products that could sustain the domestic food requirements for countries located in the eastern part of ESA region. Armed conflict in the horn of Africa, eastern part of the DR Congo, Darfur region of Sudan, and northern part of Uganda has led to displacement of millions the rural population who are mostly farmers. The war like situation can not allow farmers to settle down for farming or keeping livestock. The net effect is chronic shortage of food at household levels and for the nations affected by prolonged droughts. The inadequate supply of food is reflected in the nature of trade across borders. There is limited volumes of commodities traded, mostly single commodities, and in their primary states are exchanged. This is largely true for example between Rwanda and her neighbours

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Kenya, Uganda and Burundi, Zambia with her neighbours Zimbabwe, Malawi and the Democratic Republic of Congo. The effect of this that the region imports large quantities of wheat, soybeans, rice and maize particularly in its eastern parts, to meet the food deficits. Humanitarian assistance notably from the World Food Programme, European Union, USAID etc has been helping the worst hit areas with maize flour, beans and cooking oil. Demand for these commodities food stuff is further projected to double over the next 10 years. Although this is a potential area for trade opportunity in staple food crops, the key challenge remains for the ESA governments to address the root causes of food insecurity and hence explore the possibilities of increasing production in these tradable commodities to gain shares in the international grain markets. In the long run, access to a rules based, fair international markets is important for the region as the wider economic space and competitiveness it offers stimulates product development, induced growth in productivity and consequentially improves the region’s food security. A large part of the ESA region is severely affected by systemic drought that leads to food insecurity for a large number of people in rural areas. The proposed EPA with the EU and the ESA group dwells so much on exports with little attention given to staple food crops production. Food crops like maize, beans, millet, sorghum, bananas, cassava, rice, sweet potatoes, potatoes, tropical fruits and vegetables are important for domestic nutrition. These crops are significant in regional trade and across the border trade. EPA is export led and sufficient attention should be given towards ensuring adequate food production, processing and trade thereby ensuring food sovereignty at home and in the region. The solutions to food insecurity should be in the realm of development context of EPA and trade agreements reached by the Governments and other trading partners. The causes of food insecurity are broad and requires broad national policies to address the problem. These national policies should be given priority and it should be mainstreamed in trade policy agenda of ESA states. There are significant threat of food insecurity for some of the Eastern Africa countries notably Ethiopia, Somalia, Djibouti and North Eastern part of Kenya bordering Somalia. This is mainly due to long periods of drought in the area. Some countries in the ESA group, e.g Zambia face severe drought after every two years and this has a direct bearing on food soverignnity for the country which has to import food consignments to offset the deficit. During the study, EAF paid a visit to an organisation called Programme Against Malnutrition (PAM) in Zambia. It was discovered that the Government of Zambia has partnered with the civil society organisation in the design, implementation and monitoring of food security programmes for the benefit of the food insecure farmers and citizenry. The Republic of Zambia faces severe drought every two years and the effects of such is food insecurity for the poor households. PAM receives grants from the Government of Zambia. It buys food security packs (i.e. food security pack is composed of drought resistant cassava cuttings, grains and bean seeds and fertilisers for the farming system) and distributes the pack to rural farm communities at the beginning of the rains. The rural community are selected using a predetermined criteria and their activities are strictly monitored. After the harvest, the farmers pay back an agreed percentage of their harvest in kind to a local body comprised of church leaders, elected leaders, opinion leaders, Government officers and farmers leaders. The body sells the repayments and the proceeds are used to buy new food security pack to be granted to a new set of beneficiaries. This has been proved to be a sustainable way of fighting food insecurity in addition to contributing to increased household incomes. 64

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This approach can be replicated by Governments in Eastern Africa working together with farmers organisations. However, major efforts are needed to improve the quality of government intervention, which too often has been dogged by corruption, slow decision making and weak capacity. Governments and donors must ensure that resources are translated into concrete benefits for Africa’s poor and hungry. This will require a major role for local civil society organisations in monitoring aid flows and speaking out when things go wrong. Averting food crisis require tackling the causes of hunger among the poor rural communities which engage in agriculture as the main source of livelihood. Smallholders farmers, nomadic pastoralists, and women are particularly vulnerable to hunger due to marginalisation and neglect. The MDGs to which Governments and donor communities have committed themselves to, must therefore deliver rural policies which are participatory in nature to ensure that these groups of people do not suffer beyond the current level of subsistence life of less than $1 a day. In relation to the subject under study, significant market reforms championed by the International Monetary Fund and the World Bank, were introduced from the 1980s. The donor community backed the policies. Market reforms cannot deliver food security for the disadvantaged rural communities. The total absence of deliberate Government Intervention led to serious food insecurity among the rural insecurity. Stamping out food insecurity require a commitment from the part of the Government which should go beyond the investment in infrastructure to prices stabilisation, provision of time credit in kind to farmers e.g. food security packs (which include cutting materials, seeds, fertilisers, pesticides), implements, packing materials etc. to farmers who are unable to apply for formal loans from commercial banks, ploughs, farm power e.g (oxen or donkeys) to facilitate increased and timely opening of land, irrigation infrastructure at convenient places where farmers can easily water their livestock and tap water for irrigation. Unfair international trade rules is one of the main causes of food insecurity. Governments should not sign trade rules which hurt and destroy rural livelihoods. They must act to stabilise the volatile commodity prices which create such hardship for African producers. The EU and the USA are powerful trading blocks who distort international trade through enormous subsidies they provide to their farmers and industrialists with the result that they over produce at cost lower than the market rate. While they do this, they are forcing African countries to open up their market for them to dump their subsidised farm produce in the African market. And yet the World Bank and the International Monetary Fund had dictated terms that markets should be liberalised for the African countries to get loans and aid. Dumped goods are priced at lower than the market cost. Consumers shall find the products cheaper and of higher value. They shall shift preference to the EU products and stop to buy local product. The consequence would be reduced household incomes and poverty which is one of the causes of food insecurity. The EU and the USA are very quick in provision of emergency food aid once disaster hits. Whereas, this is one of the means of off-loading their excess food store to save many lives through reduction of hunger, emergency food aid cannot be a substitute for the long-term development programmes and structural reforms needed to tackle the root causes of food crises.

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International trade in agricultural products can both enhance and harm food security in Africa. On the positive side, imports allow food-deficit countries to meet the needs of their population, while exports such as cotton and coffee can give farmers valuable cash income to supplement their food production. Although the limited prospects for some exports suggest that African farmers may need to focus on supplying food staples to their domestic and regional markets, the unfair policies pursued by industrialised countries make agricultural trade far less beneficial that it should be, and are often a negative influence. Rural poverty in Eastern Africa is made worse by dependence on the export of a small number of agricultural commodities e.g coffee, fish, sisal, tea, flowers, fruits and vegetables. Many of these crops are facing declining world prices, hence a declining terms of trade are experienced at the export market and at the farm gate. This means that a farmer has to sell several bags of his crop to raise funds to meet domestic requirements which are mainly food, medication and school expenses. In 2002–2003, for example, a collapse in coffee prices contributed to the Ethiopian food crisis that same year. Part of the problem is that the IMF and World Bank have actively promoted export-led growth throughout the developing world, not least to pay debt obligations, which has led to increased supply and global price falls in crops like cocoa, sugar and coffee. Countries also find it hard to move into the manufacture and sale of processed products, which would have more stable prices, due to rich-country trade barriers. It is no accident that Germany is a major exporter of processed coffee and prohibitive tariff barriers drive away potential exporters of processed coffee from developing countries. Although there has been welcome progress from the EU and Canada in providing improved market access for exports from the least-developed countries, many of which are in subSaharan Africa, the industrialised world still maintains significant tariff and non-tariff barriers, such as excessively high food-safety standards. According to a World Bank study, nine African countries could lose $670 million in exports of dried fruit and nuts, due to an EU standard that, in reality, provides no significant health benefits to consumers. At the same time, IMF loan conditionality during the 1980s and 1990s obliged many African countries to cut duties and quotas on imported agricultural products, thus increasing imports and reducing prices on the domestic market. While this may have some benefit for urban lowincome families if price reductions are passed on to consumers, it can undermine domestic production of staple crops and aggravate rural poverty. Rich countries and international agribusinesses largely reject measures to stabilise the volatile commodity prices that create such hardship for African producers. At the same time, in a remarkable display of double standards, in trade negotiations at the WTO, the industrialised countries, notably the EU and USA, have so far failed to offer sufficient cuts in their farm subsidies, have maintained excessively high levels of protection, and have refused to grant poor countries the flexibility to defend low-income farmers from cheap imports. This behaviour stands in stark contrast to their oft-stated commitments to reduce poverty and hunger in Africa. 8

3. Categorisation of farmers

Studies undertaken assessing the impact of the Doha Round on developing countries show that sub-Sahara’s low productivity small scale farming is largely not competitive on the global 66

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market, and thus even in those countries which export some crops, the majority of small-scale farmers livelihoods are hurt by the types of reforms presented in the Doha round. EPAs are likely to go further than the Doha round with liberalisation that is required as part of an EPA adversely affecting independent small-scale farmers rather than agribusiness. Furthermore any possible benefits offered such as improved rules of origin, SPS requirements or investment in agro processing within an EPA are unlikely to be captured by small-scale farmers, rather by richer agribusiness. At the very least, resources and the relevant technology, should, as a priority, be made available to small-scale farmers to ensure food security and improvements in the quality of food produced. Small scale subsistence farmers and national or regional agricultural industries could be faced with increased competition from the EU from agricultural commodities such as maize, wheat, cereal, milk and milk products, rice, sugar, flour, even meat and meat products and cotton. 4. Description of farming systems and importance of family agriculture in the different countries In Sudan, the sector represents a mixture of subsistence farming and the production of crops for export. Crop cultivation has traditionally been divided between a modern, market-oriented sector comprising mechanised, large-scale irrigated and rainfed farming (mainly in central Sudan), while subsistence farming follows traditional practices carried out in parts of the country where rainfall or other water sources were sufficient for cultivation. Investment has been made over the years in mechanised, irrigated and rainfed cultivation, with their combined areas accounting for roughly two-thirds of Sudan's cultivated land. Early emphasis on cotton growing on irrigated land has decreased; although it remains the most important crop in Sudan, peanuts, wheat and sugarcane have become major crops, with large amounts of sesame also being grown. Rainfed mechanised farming has continued to produce most sorghum and short-fiber cotton, while increased production in both sectors has meant increased domestic supplies and greater export potential. The raising of livestock has continued in the traditional sector. With raising providing employment opportunities for so many people, modernisation proposals have been based on improving existing practices and marketing for export, as opposed to adopting modern ranching methods, which require fewer workers. Livestock contributes 45 per cent of total agricultural production Fishing has traditionally been carried out by the traditional sector for subsistence. An unknown number of smaller operations have also used the country's reservoirs in the more populated central region and the rivers to catch fish for sale locally and in nearby urban centres. Family agriculture is at the center stage of the agricultural production in eastern Africa whereby farming is done on small holder scales. Instead of monoculture stands of traditional crops like coffee, tea, sugarcane or sisal a typical farm-stead in eastern Africa produces different crops and vegetables, and rears livestock. The benefits derived from such a farming systems are:

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-

Combining several production components decreases the risk element which agriculture entails. If one component fails, the other can provide the critical mass for survival; e.g the declining prices of coffee means a declining income for the farmer. But this is offset by other enterprises on the farm.

-

The different components interact in a symbiotic and synergetic manner, enhancing overall production, optimising resource use and thus providing for the subsistence needs of the household. Trees provide shade for crops and livestock while producing fruit; livestock manure is used as a fertilizer and crop by-products are fed to animals.

Countries like Rwanda and Burundi has got limited land resources hence high population densities on the arable land. This has got a proportional effect on the agricultural production countrywide. For this reason, family farmers have started to use land intensively using farm yard manure and green manure more than before due to the high population density, which gets worse with annual increase in population. These systems, particularly the homestead (compound) farming, involve the combination of food, fodder and tree crops. to a certain extent these systems can satisfy the multiple needs of the subsistence farmers living under several risks and constraints. However, they cannot cope with the expanding food demand of the rapidly increasing population. Some multipurpose, low-input technologies and agro forestry approaches have been designed to improve the productivity of these traditional systems; these include inter/mixed cropping systems and rotations, alley cropping with leguminous trees and shrubs, use of planted fallow , planting tree legumes on anti-erosive lines, mixed farming, community forestry and woodlots, and tree planting on farm/field boundaries. In the ESA region, a few commercial farms exist for commercially oriented crops e.g. coffee, tea, sisal, pineapples, cut flowers, cane sugar and tobacco. The commercial farmers are capable of hiring large numbers of farm labour for planting, weeding, harvest management, processing, and using mechanisation and inorganic fertilisers to boost the land productivity. The commercial farmers are responsible for the bulk of agricultural foreign exchange. Some farms allow for contract farming to out growers to farm the crops on family farms and sell the crops at a fore agreed prices to the commercial farm. Large processors and exporters of some of these crops contract farmers to grow the crops and it buys the crops from the farmers. E.g Tobacco growers in Uganda and Kenya are contracted by a large firm called the British American Tobacco company (BAT) which provides a range of services to farmers including agro forestry, opening of land, provision of seeds, extension services and marketing of the leaves. Farmers grow these contracted crops alongside the cultivation of other crops notably staples and livestock husbandry as a means to diversify risks. 9

5. Other social characteristics: -

The primary farm producer/labourer is the usually the woman who toils much of her time of the day on the farm and preparing food for the family. The female farmers is the lead producer of both food and cash crops, yet they play a limited role when it comes to marketing of the crops and budgeting for the family. These roles are dominated by males/husbands.

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-

There is an increasing effort to produce sufficient quantities of food to sustain an ever increasing population on a fixed quantity of land, facing declining productivity.

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Annex 5Summary of Impact Studies

ECONOMIC AND WELFARE IMPACT OF THE ESA-EPA The UNECA has conducted a regional economic and welfare impact of the ESA EPA. The impact study used the partial equilibrium analyses. It assumed total Liberalisation between each COMESA Country and EU25 (ESA 16 supported by COMESA Secretariat). The study gave an idea of the scale of the adjustments that COMESA countries will be confronted with in case of a dismantlement of all their Tariffs. The study revealed: -

Increase of EU Trade; Trade diversion affecting Intra COMESA trade, and Regional Integration, Increase of the welfare but significant revenue shortfalls, as also indicated for individual countries.

1. Increase of EU Trade: -

As a whole, EU countries could increase their exports to COMESA countries by US$1,15 billions Main winners, Great Britain (21,7%), followed by France (19%). Together, these two countries plus Germany (15,6%), Italy (12,4%) and Belgium (9,4%) = 72% of the increase of EU Export to COMESA Main winners of EU25 and ESA EPA

United Kingdom

3%

12%

France

22%

Germany

9%

Italy Netherlands Belgium

7%

19% 12%

16%

Spain Others

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The EU exports to individual countries under ESA EPA The individual countries share of EU exports depend on the level of development of the ESA country. The EU Exports increases to ESA countries under EPA beyond the current level. In effect, its trade with Kenya shall rise to 23%, EU exports to Mauritius, Sudan and Ethiopia increase by 18%, 14% and 12% respectively. These countries shall experience severe trade imbalances where, their import share shall continue to rise year after year due to increased consumer welfare in total preference for EU products. Increased consumerism of foreign products and foods leads to a decline in growth of local industries and agricultural sector.

Rwanda B urundi Eritrea

23%

4%

M adagascar

5%

Seychelles Uganda Zambia DR Co ngo

5% 18%

7% 14%

12%

Zimbabwe Djibo uti M alawi Ethio pia So udan M auricius Kenya

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2.

Trade diversion versus trade creation

Trade diversion represents the level of trade that is diverted from the rest of the world, particularly the COMESA countries, to the benefit of EU producers and markets. In a free trade arena, inefficient producers operating in an unfair ground stand to lose. The market forces favour the most efficient producers and suppliers. In the case of the EU ESA EPA, the most efficient producers of the EU are favoured in comparison to the most efficient producers from the rest of the world. From the study, -

close to 5.8% of the diverted trade involves intra-COMESA trade. Full liberalisation within the context of an EPA would contradict regional integration through a major decrease of intra-regional trade (-5.8%). 10% of the trade diverted would take place within the CEDEAO region against 2% within the SADC region and only 1% within the CEMAC region.

Key issue: Trade diversion shall affect the intra-COMESA trade under EPA and so shall be the case under the EAC. Regional integration efforts shall be thwarted along the way. The mitigation efforts should be to improve of the supply side constraints and institutional structures which support trade in a FTA while improving on revenue bases for these countries. 3.

Revenue Impacts -

The majority of COMESA countries to a large extent depends on customs duties for budgetary resources.

-

This dependence, with relation to the tariff earnings runs the risk of becoming a major constraint for the financing of development activities.

-

In terms of their absolute values, countries that suffer the most from the elimination of tariffs reductions are Kenya, Sudan, Mauritius, Ethiopia, DRC and Seychelles.

-

Most of the COMESA countries will have problems to compensate rapidly the loss of revenue induced by the EPA.

72

-20

D

Bu ru nd i

-

R Et C hi op ia Er it r ea D ji b ou Ke ti M ad n ya ag as ca M r al a M wi au ri t R ius w a Se nd yc a h Zi ell e m s ba bw e Su da n U ga nd a Za m bi a

Millions US dollars

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Perceived Revenue Losses:

0

-40

-60

-80

-100

-120

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3.2

Revenues Losses in relation to national GDPs

In terms of revenue losses in relation to GDP, Djibouti, Seychelles, Burundi, Mauritius, Eriterea, Kenya and Ethiopia are the most affected with margins highly significant of COMESA’s 0.55%.

Revenue Losses/GDP Country (%) Djibouti 5.66 Seychelles 3.54 Burundi 1.17 Mauritius 1.17 Eritrée 0.80 Kenya 0.69 Ethiopia 0.68 Malawi 0.39 DRC 0.37 Soudan 0.37 Rwanda 0.31 Zambie 0.29 Zimbabwe 0.26 Madagascar 0.18 Ouganda 0.14 Total Comesa 0.55 Stand.dev 1.52

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3.3

Revenues Losses in relation to Budgetary resources

The perceived revenue losses to budgetary resources the most countries affected are Djibouti, Seychelles, Burundi, and DR Congo. These are highly significant for the COMESA as a whole, 3.16%. Key issue:

-

The EU is reluctant to compensate these losses. These countries should put in place appropriate adjustment mechanisms and fiscal reforms to offset these loses. Notable among which should be investment in value addition in agricultural sector, for increase in VAT bases. Revenues Losses/Budget ary resources Country (%) Djibouti 16.55 Seychelles 8.06 Burundi 5.80 Mauritius 5.69 DRC 4.62 Ethiopia 3.47 Kenya 3.29 Eritrea 3.14 Soudan 2.85 Rwanda 2.37 Malawi 1.79 Madagascar 1.70 Zambia 1.63 Uganda 1.13 Zimbabwe 0.94 Total Comesa 3.16 Stand.dev 3.95

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4.

Welfare Impact

-

Trade liberalisation generally has positive effects on welfare. However, measuring Welfare impacts is not a easy task Difficulties in assessing welfare impacts have been emphasized by empirical research (Public choice theory). Changes in welfare are identified through consumer surplus.

-

Consummer Surplus 70.000 60.000

US$ Millions

50.000 40.000 30.000 20.000 10.000

5.

m bi a Za

an

ga nd a U

Su d

r M al aw i M au ri t iu s R w an da Se yc he ll e s Zi m ba bw e

ga sc a

M ad a

ji b ou ti Ke ny a

D

a

re a Er it

C R D

io pi Et h

Bu r

un di

0.000

East African consumers benefit from the full reciprocity of the EPA However, there is no assessment of the producers surplus Welfare gains depend on a large part on the level of trade creation Not surprisingly, Mauritius and Kenya have largest gains But, uncompetitive COMESA firms will be hit by EU competitors

Recommendation from the Study

COMESA countries could benefit from the EPA if:  Implementation schedule is long enough to allow for internal adjustments  Fiscal Reform,  Industrial Diversification  Agricultural Intensification and diversification  Take advantage from the DDA  And compensate the adjustments costs that a such liberalization would entail  Full reciprocity is preceded by deeper regional integration,  Some level of asymmetry is maintained,  Appropriate domestic policies are needed for countries to reap the benefits  Given the enormous development challenges facing African countries, concerted efforts are needed at the national, regional, and international level to make trade work for the region  Diversification of African Economies

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 Most countries in the region export mainly primary commodities and so are concerned that liberalizing trade will expose them to external shocks and increase macroeconomic instability.

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KENYA EPA STUDY SUMMARY In preparation for negotiation of EPA, Kenya has undertaken an impact assessment, with a view to establishing: Macro and socio-economic effects of EPAs; Effects of EPAs on industry and agriculture, Impact of EPA on Kenya's position in the regional market and implications of the EPA on Kenya's continued access to the EU market. Some of the key results of the impact assessment can be grouped into macro, socioeconomic, and effects of EPA on the industrial and agricultural sectors. Macro impacts From a macro and socio-economic perspective, the study reveals that potential gains will be: lower prices for consumers of imported goods and capital and intermediate goods sourced from the EU. The analysis indicates that 34% of consumer goods imports are sourced from the EU, 17% of motor vehicles, 58% of machinery and equipment and 22% of imported intermediate inputs. Thus elimination of the tariff will imply price reduction for Kenyan consumers. The EU is the largest single source of Kenya 's imports of intermediate inputs, machinery and capital equipment. It is therefore expected that that liberalization through EPA will increase competitiveness of Kenyan industries through cheaper intermediate inputs and capital equipment. Trade is also projected to increase as a result of opportunities for enhancement of regional trade under EPAs as well as increased market penetration in the EU market. Already Kenya is a major player and beneficiary of the COMESA market in terms of exports and re-exports. The implication of all these is that there will be expanded trade between Kenya and ESA member countries. This is likely to boost Kenya’s export earnings from COMESA beyond the current level of KShs.77 billion annually. In essence a concluded EPA negotiation between ESA and EU will increase south-south trade for Kenya as well as volume of trade between Kenya and the EU. The potential losses will be through loss in revenue and displacement of import competing goods in the local and regional markets when the EU gets tariff free access in the region. One of the key negative impacts of EPAs will be revenue loss, which assuming a 100% liberalization of the Kenyan market to EU products, is estimated at KShs6bn. This loss is equivalent to a 2% reduction of government revenue as a share of GDP and 1.5% of import duties as a share of total government revenue. Kenya’s domination of the EU horticultural market is already being threatened by Egypt. Total potential revenue loss, assuming 100% product coverage in the Free Trade Area (FTA) with the EU, is estimated at Ksh 9.5 billions. After adjusting for the leakages, the revenue loss translates to a 3% reduction in revenue as a share of Gross Domestic Product (GDP) and a 2% reduction of import duty as a share in total government revenue. These estimates are based on the 2003/2004 tariff book, which had six tariff bands and tariff on finished products ranging between 35% and 60%. If the revenue losses associated with the coming into force of the East African Customs Union on 1 st January 2005 , with a three-tariff band of 0%, 10% and 25% were to be taken into account, the revenue loss as a result of EPAs would be much lower than estimated. Similarly, the overall impact of EPAs on welfare, which is based on the 2003/2004 data, is estimated at -0.1% of GDP would perhaps turn into positive. In addition, the loss will be even much lower because the product FTA product coverage with the EC will be at less than 100%. In determining FTA product coverage revenue loss will be certainly one of the key parameters to be considered.

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Impacts on Agriculture

On Agriculture, the study findings suggest that the EU-ESA Partnership Agreement will be beneficial to Kenya 's exports of agricultural exports to the EU. Exports of horticultural products, coffee and tea will at worst remain the same or at best substantially increase, especially if the EU withdraws subsidies extended to its farmers and zero rates tariffs on products that are currently attracting duty under the ACP-EU trade regime. To benefit from this, Kenya must build its capacity in adding value to the commodities that are currently exported in bulk. For instance, attaining a value addition level of 50% for Kenya tea exports would increase export earnings by more than Ksh 12 billion (using 2003 export figures).

Assuming a 100% liberalization of the Kenyan market, competition from EU imports would also pose threat to domestic agricultural and industrial sector, leading to spiral effect on negative impact on employment and industrial and agricultural development. The overall impact of EPAs on welfare is estimated at -0.05%. In preservation of the intent of Cotonou Agreement that ‘no country will be worse of than it currently is’ after conclusion of an EPA, Kenya is pursuing the following strategies in order to address the projected negative impact. iv.

v.

vi. vii.

viii.

ix.

Deepening linkage with the region market in various fields where ESA, in pursuit of an EPA with the EC is charting regional positions geared towards regional preferences for the sake of enhancing intra-regional trade in goods and services in support of economic growth and development. Seeking a 100% duty free and quota free EU market access for all agricultural and non agricultural products under simplified rules of origin regime. This seeks to safeguard and enhance current preferential market access in the EC. Negotiating simplified rules of origin that are supportive of agricultural and industrial development, laying emphasis on value addition for agricultural products. Excluding some products from the Free Trade Area (FTA) with the EU on the basis of their sensitivity to the economy. Exclusion list is the means by which the Government is addressing the welfare loss and threats posed by EPAs on Agriculture and Industry as well as agricultural and industrial development aspirations of Kenya and ESA region. The Government in consultation with the private sector has already come up with the negative list for agricultural and non-agricultural products that will be excluded under EPAs. Among the criteria applied in the selection of these products are employment, revenue, rural development and regional market potential. In view of the exclusion list product coverage in liberalization of the Kenyan market, as well as that of ESA will be for limited products. These products access to the regional market at zero duty will be over a long phase-in period to mitigate revenue and welfare losses. The long phase-in period is also being negotiated to allow for capacity building for industries and agricultural sub-sectors that are likely to face competition from the EU. Proposal for a comprehensive infrastructural and non infrastructural development program to address infrastructural and non infrastructural constraints that have been singled out as inhibiting industrial and agricultural competitiveness. The funding of this program is foreseen under the 10th EDF and other funding modalities that are foreseen in the EPAs.

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x.

xi.

xii.

Negotiating for improved predictability of ESA’s and EU’s trade regulatory requirements such as SPS requirements and Product Quality Standards through a negotiated protocol on SPS management; and a capacity building program for trade facilitation institutions such as KEPHIS, KEBS, Department of Veterinary, Customs Department, etc. Hedging the regional market (for products where Kenya has a demonstrated export potential) from EU products through regionally negotiated EPAs, where Kenya is articulating her interests in the regional market. Integrating marine and inland fisheries in EPAs. This is expected to unlock a huge potential for Kenya marine fisheries, which if fully exploited is expected to rival current dominance of her inland fisheries exports, to the benefit of Kenya’s overall economic development.

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SUMMARY OF THE REVENUE IMPACT STUDY FOR TANZANIA An analysis of the potential effects of EPAs on Tanzania was carried out using a partial equilibrium approach under three scenarios where different tariff reductions of 50%, 80% and 100% are assumed. Simulations on revenue loss are based on the average of the 1999 and 2000 imports from the EU. Other than the tariff reduction effects on revenue, an assessment of the potential efficiency gains of EPAs is difficult to make especially when trade dynamics are not modelled. Import competition and balance of payments (BOP) pressures during Economic Reform Programme (ERP) in 1986 ushered a new era where tariffs increasingly became an instrument of commercial policy. The unprecedented increase in import demand also presented another problem that needed to be managed through a tariff policy. As a result, the general reduction in tariffs during the ERP era has now been reversed in order to address the industrialisation, BOP and import demand realities in an uncontrolled economy. The current high levels of trade between Tanzania and the EU suggest that imports from the EU are an important source of government revenue that is likely to be lost once EPAs are concluded. Import tariff contribute to more than 28% of Tanzania’s annual rvenue. The extent to which current levels of tariffs will be reduced and the agreed trade coverage will have important effects on revenue. Apart from the revenue considerations, the Tanzania government needs to be clear about its policy directions especially when the liberalisation effects of ERP are taken into account. General Tariff Structure, 1999 Product Category

Tariff Rate

Manufacturing

6-25

Agricultural

5-25

Source: Ministry of Trade: National Trade Policy Background Papers. The highest MFN duty levied in this selection of products is 30% which is on Umbrellas, walking-sticks, seat-sticks, whips, etc and beverages, spirits and vinegar. It is also noted that most of these commodities only constitute a small share of Tanzania’s imports from the EU. REVENUE LOSSES DUE TO EPA UNDER DIFFERENT SCENARIOS To estimate the revenue loss a partial equilibrium analysis was adopted and a number of assumptions were made. First, the basis of the analysis is the average of 1999 and 2000 import values and current MFN rates. Three baseline scenarios are simulated on the assumption that the agreement covers 90%, 85% and 80% liberalisation of all trade. All trade is defined as the total of trade liberalised jointly by EU and Tanzania. In all three scenarios, it was assumed that the EU will open up 99% of its market given that EU import regime is already open for Tanzania, under EBAs. The other scenarios were as follows:

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In the first simulation where 90% of all trade coverage was assumed, Tanzania would have to liberalise 81% of all imports from the EU and the EU would liberalise 99%. Scenario II assumed that 85% of all trade is liberalised which means the Tanzania opens up 71% of all trade while the EU opens up 99%. Scenarios III assumes 80% of all trade is opened up of which Tanzanai opens up 61% and the EU opens up 99%. Transitional period was assumed to be 12 years and stages of liberalisation for each scenario are as follows:

 50% in 2012  80% in 2016  100% in 2020 In these simulations the tariff rates faced by non-member countries are not varied. Simulations carried out took into account the fact that tariff reductions generate price substitution effects. Assuming that Tanzania has to liberalise 90% of all its imports from the EU it is observed that the first 16 product categories can be excluded from tariff cuts. These product categories contributed about 15.41% in tariff revenue before any tariff adjustments. If it is assumed that Tanzania has to liberalise 80% of all its imports from the EU, it can be observed that the first 32 product categories will be excluded from tariff cuts. These product categories contributed about 24.86% in tariff revenue before any adjustments. The important choice that will have to be made at this stage is whether revenue considerations should override any other economic impacts of EPAs. For instance there could be some product chapters below the cut off point that are considered more important/strategic and requiring the maintenance of the current level of protection that could substitute some product chapter/s of equal value in the excludable product chapters. Assuming 80% all trade coverage and Tanzania having to liberalise 80% of imports from the EU, it is observed that a minimum loss in revenue of 11.50% and a maximum loss of 23.00% will be incurred. On the other hand, if Tanzania liberalises 70% of imports from the EU a minimum 10.59% and a maximum 21.18% in revenue losses will occur. A complete opening of the economy will likely result a minimum revenue loss of 16.65% and a maximum revenue loss of 33.29%. A summary of the revenue simulation results is presented in the table below: Baseline Revenue Simulations Scenario I Scenario II Scenario III 50% Tariff 80% Tariff 100% Tariff Assumption Measure cut cut cut 70% all trade coverage Revenue Loss as % of total -17.94 -21.18 EU liberalize 70% and revenue before tariff cuts -10.59 Tanzania liberalize 70% US$thousands -70911.99 -35455.99 -56729.59 80% all trade coverage, Revenue Loss as % of total EU liberalize 80% and revenue before tariff cuts -11.50 -18.40 -23.00 Tanzania liberalize 80% US$thousands -77013.26 -38506.63 -61610.61

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90% all trade coverage, Revenue Loss as % of total EU liberalize 90% and revenue before tariff cuts Tanzania liberalize 90% US$thousands 100% all trade coverage, Revenue Loss as % of total EU liberalize 100% and revenue before tariff cuts Tanzania liberalize 100% US$thousands

-13.79

-22.07

-27.58

-46177.21

-73883.53

-92354.41

-16.65 -55732.00

-26.64 -89171.16

-33.29 -111463.95

Source: Fiscal impact of a SADC EPA for Tanzania and considerations on plausible compensatory mechanisms for revenue losses. The minimum losses in revenue under the two assumptions, though appearing not large, are quite significant. The estimated loss of revenue envisaged in scenarios III amounts to US$ 111.46m which translates into TShs89.17 billion at the June 2000 exchange rate of US$1.00 to TShs800. Remedial measures 1. Improving collection rates

-

Duty-free allowances

Cross-border trading and private cross-border shopping has since become a common activity among most African countries. We submit quantification of the values/volumes of goods brought into the country through cross-border informal shopping activities is necessary. Multiple claims of duty-free allowances by those that frequent regional countries may be unavoidable especially when electronic capturing of travel data does not exist. Close monitoring of travel data is required to establish commercial cross-border activity.

-

Lowering tax rates

High tax rates encourage tax evasion and tax avoidance. Dealing with such problems requires a lot of tax effort that invariably increases the cost of collecting taxes. Tax compliance may be improved by a reduction in tax rates and this may raise the revenue realised.

-

VAT exemptions and zero rating

Tanzania introduced value-added tax (VAT) in 1998. Informal sector trade that used to escape the tax net through exemptions is no longer excluded. However, the numerous exemptions and zero rating of some product could be avoided through lowering of the VAT rate.

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2. Broadening the tax base No longer an easy task after the introduction of VAT. A detailed study on tax incidence is necessary to establish new sources of tax revenue. Widening of the income tax base should target inclusion of the informal sector into the tax bracket, especially given that this sector of late is employing more people than the formal sector. 3. Economic and trade expansion Growing tax revenue through increased economic activity is dependent on product competitiveness, the economic policy environment, technology and global economic trends. This alternative is probably the most sustainable in the long-run. Clear policies that promote and support economic activity are necessary and this calls for a wellthought out strategy on how Tanzania wants to integrate itself into the global economy.

-

Temporary budgetary support and targeted support schemes

Short-term budgetary support may be necessary at the beginning. Expenditure cuts may be unavoidable and thus vulnerable groups would need to be identified and supported through targeted schemes within the wider context of poverty reduction strategies. Recommendations The study recommended that: 1. Tanzania must seek a phase-in period of not less than 12 years Having suffered significant de-industrialization due to Economic Recovery Programme in 1986 and the decline in the prices of unprocessed goods on the international market, Tanzania needs to carefully reorient its economy by taking into account the harsh economic realities it is facing in the COMESA and SADC region. Unless the country’s capacity to produce is improved, custom duty revenues will eventually fall as the country’s capacity to import is negatively affected. 2. Agreed trade coverage must be reasonable to avoid excessive revenue losses High levels of trade coverage will result in excessive revenue losses that will impact on government’s ability to allocate resources to infrastructure development and capital projects and thus impact negatively on the country’s competitiveness. 3. Secure Trade Capacity Building Assistance Africa has lost a significant number of its skilled and high-level trained manpower. This loss of manpower has to be replaced ensure that standards for exports are met. In the

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short to medium term, the EU should provide Tanzania with resources for external skills sourcing if export revenues are not to get a knock. Summary of Impact assessment study for Uganda by sector

Sector Agriculture

Benefit - Improved market access to the EU market for agricultural exports if supply and competitiveness constraints are addressed and joint investment ventures ensured - The legal framework of EPA will make it difficult for Uganda to reverse any trade liberalization process making it more attractive to investors, which will result into increased foreign investments

Local Protected Industries

-

-

Fiscal Revenue

-

Private Sector Development

Consumers

-

Civil Society Organizations

-

-

Stimulates competition, as local industries are exposed to competition, which forces them to be more efficient by reducing costs of production and improving quality of their products. Cheaper imported intermediate and capital goods from EU will benefit local processors and manufacturers

Cost - Intensified competition for the EU market, as products from various countries will be competing in a large, but limited market. However, due to uncompetitiveness and supply constraints, Uganda agricultural exporters will lose the EU market to low cost producers who supply quality products - As EU moves away from price to income support of EU farmers, the EU exporters will become more competitive to the extent of dominating the regional and local markets resulting in loss of employment and income in Uganda - Locally protected industries will face competition from imported duty free products from the EU resulting into loss of employment and de-industrialisation

Increased revenue to government in import taxes as Uganda’s consumers demand more EU products

Loss of revenue due to elimination of tariffs on EU imports and the substitution of imports from the rest of world with EU imports, which may disrupt the implementation of government programs

Growth of private sector as an engine of development as a result into increased resources available from the EPAs Increased choice of cheaper products arising from decreased costs of local products and EU imports Civil society organisations will be empowered to play an active role in the planning of national development strategies and trade negotiation process Civil society organisations will access financial resources to carry out capacity building.

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Sector EPA Performance

Regional Trade

Benefit - Allocation of funds will be based on performance and not needs, thus, if Uganda utilisation of EPA will be rewarded resulting into increased revenue. - Development of better trade negotiation skills which will assist Uganda in regional and multilateral trade negotiations - Strengthened regional trading as members states increased trading amongst themselves

Cost - Allocation of funds will be based on performance and not needs, thus if Uganda failure to utilise the EPA will result into loss of revenue. - Limited capacity to negotiate for favourable trade arrangements negate EPA benefits

-

Weakened regional trading as members states increase trade relations with EU countries rather than amongst themselves

Conclusions From the above analysis, the following conclusions and made: 1. The Doha development agenda provides special and differential treatment to developing countries as priority issues to be tackled on a fast track. The EU is pushing for negotiating frameworks and reciprocity of Non Agriculture Market Access (NAMA), although nonreciprocity is still allowed under WTO DWP. The insistence of negotiating frameworks of NAMA by the EU will harm the interests of LDCs like Uganda given their fragile industrial base. This will have consequences not only on employment, but could also permanently damage Uganda’s future development prospects. 2. The maintenance of high agricultural subsidies by EU reduces the competitiveness of Uganda’s agricultural exports in world markets. This has increased rural unemployment and deprives subsistence farmers of their livelihoods as domestic prices continue to drop. It is against this background that Uganda should continue to advocate for the reduction of agricultural subsides even under the EPA negotiations. The negotiations must be based on agriculture modalities and not frameworks in accordance with the Doha Declaration mandate. 3. The so-called “New” or “Singapore” issues relating to investment, competition, transparency in government procurement and trade facilitation only serve the interests of the EU multi-lateral corporations at the expense of domestic enterprises, and should therefore be dropped from the already overloaded WTO agenda. The Doha declaration had asked for modalities in the Singapore issues to be agreed upon by explicit consensus at the fifth WTO Ministerial Conference. Since no agreement was reached at the 5th Ministerial Conference the mandate of Singapore issues has expired. They are not part of the single undertaking of WTO and the legitimacy of negotiating the Singapore issues even with the EPA negotiating agenda should be dropped.

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Annex 6: Alternative Proposals to EPAs

1. Background EAFF is mandated to get involved in the trade policy negotiations and this mandate is spelt out in its constitution. Specifically, EAFF objectives among others are: -

-

Provide capacity to farmers organizations of the region to ensure that they are professional in providing services to the membership and are able to lobby and carry out their advocacy work. Be a voice of farmers of Eastern Africa on issues that are Sub-Regional in nature and are of interest to them. Promote regional integration through information exchange and trade

EAFF would like, at all times to make an input into any trade issues in the region. It is for this reason that it mobilized position of its membership on WTO issues on Trade Agreement on Agriculture, before the Hong Kong Ministerial Conference in Hong Kong in December 2005. The EAFF packaged farmers positions on issues of concern on the Agreement on Agriculture under negotiation at WTO. EAFF sought input from other stakeholders in Food Security in the region before the Hong Kong conference to enable it strengthen the farmers position. The President of the EAFF, Mr. Philip Kiriro attended the Hong Kong Ministerial Conference and had the opportunity to lobby the negotiators of the region to take on board the issues of concern to farmers during the negotiations. The EAFF has been trying to reach out to the EPAs negotiators in the ESA region in particular and Africa in general. EAFF managed to get them to brief leaders of farmer member platforms on the status and progress which the negotiators were making. Now that the negotiations are at the ESA regional level, EAFF has already expressed its desire to the leadership of the process to participate fully. EAFF has therefore embarked on the process of Mid-Term review that will enable it to package their perspectives on EPAs at the EA level which shall be merged with the regional farmers perspectives from West Africa, East Africa and Central Africa. Whereas the EPA negotiations have reached an advanced and decisive stage, many stakeholders especially the Non state actors, and in particular the farmers organisations have not been informed, involved nor engaged in the process. Moreover, the rural producers shall be the first to be affected by the negative impacts of EPA already highlighted in the impact studies and also expressed by the farmers during the mini-study. From the study, it was found out that the concerned stakeholder have not been involved the process. Effective participation by concerned stakeholders throughout all phases of the EPA process is unanimously considered to be a necessary condition for the EPAs to succeed in attaining their objectives.

The EA countries need to combine measures to enhance the productive capacity of their enterprise sectors with measures to facilitate cross-border trade, thereby further reducing the cost of conducting trade among the member states of the EAC in a bid to promote trade among themselves.

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Even before thinking about EPA which is a free trade agreement with the EU, a lot of work is still required under the EA CU regarding the implementation of the CET and the new customs management act established in June 2006. Trade is EA is not fully liberalised and this could affect the intended objectives under EPA since free trade function well when trade is fully liberalised between the parties. At present, EA companies and notably farmers just can not compete since they are unable to produce goods and services at a cost and high quality specified and required by the consumers in the EU market. They also need to have efficient mechanisms in place to ensure that these goods and services can reach the markets within the time and cost required to stay competitive. This is so because of numerous supply side constraints which have to be addressed in preparation for future trade. 2.

Analysis of Trading Agreements by Farmers

On the 6th September 2006, the farmers leaders of Eastern Africa attended a seminar organised by EAFF and facilitated by a senior official from the Kenya Ministry of Trade, KEPLOTRADE project and EAFF Programme Officer Trade, Mr. Julius Moto. The farmers were sensitised on the status of EPAs. A presentation was made on the findings from the informal study of the mid-term review of the EPA process being conducted by EAFF for eastern Africa. The farmers raised the following concerns and subsequently made some recommendations to the proposal to EPA, which have been found useful in this study. 2.1

Differences exist

Participants raised concern that EPAs between the EU and Eastern Africa countries is that between unequal partners. Whilst the EU is developed, having a sophisticated economy and strong financial base, most countries in the ESA group are classified as LDCs. In east Africa countries are at different levels of socio-economic developments. Kenya is classified as a developing country, while Uganda and Tanzania (which is negotiating EPAs under the SADC configuration) are classified as less developing countries and enjoy the right to the existing non-reciprocal trade preferences to the EU alongside EBAs initiative. Under the EU's Generalised System of Preferences (GSP) scheme covers all manufactured exports and some agricultural and food exports from developing countries. Although the coverage of agri-food exports has been gradually extended, all products covered by a CAP regime are excluded. Least developed countries enjoy more favorable GSP preferences than other developing countries. Since the introduction of the Everything But Arms (EBA) initiative in February 2001, all products from the least developed countries now have full duty-free access without quotas to the EU market. Apart from arms and ammunition which are the only permanentlyexcluded products, transition periods have been put in place for three sensitive agricultural products, namely, bananas, rice and sugar. They will be eligible for unlimited duty-free access starting January 2006, July 2009 and September 2009, respectively. In the meantime, limited tariff-free quotas are made available for rice and sugar exports from the least developed countries.

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The significance of the EBA is that it extends duty-free access to those agricultural products which were otherwise excluded from the GSP. Notwithstanding, Kenya, Uganda and Tanzania are member states of the East African Community. Kenya and Uganda are members of COMESA with Tanzania pulling out recently. All of these are members of IGAD. With multiple memberships to regional economic groupings, problems of decision making are facing the EU and these countries in ways which accommodate the diversity which exists in the region. As such, economic benefits in the suggested EPAs will accrue to the developed partner, the EU. Eastern Africa countries on the other hand risk losing forward and backward linkage enterprises that are in production. This has been pointed out in the impact studies for Uganda and Kenya. Generally speaking, the ACP countries have voiced concern that they are not equal and they may lose revenue and poverty shall be in the rise. Through out the negotiations leading to the signing of the Lome Convention, the ACP states emphasized that they were not equal to the EEC. The voice of the Lome days are coming back in the Contonou days as exemplified by the following voices: The Guyanese Minister of Foreign Affairs, Ramphal, had this to say: “Reciprocity between those who are unequal in economic strength is a contradiction in terms. In contemporary international economic relations, Aristotle’s dictum that ‘justice requires equality between equals must surely mean between those who those who are unequal in economic strength. Equity itself demands non-reciprocity.”13

‘We are extremely wary of these EPAs because income is going to fall dramatically in a country like Mali. If we sign EPAs and our income drops by 20 or 30 per cent, it seems we are going around in circles. We have a lot of misgivings... it may lead to revolution.’ Amadou Ali Niangadou, Malian MP, Joint Parliamentary Assembly, Brussels, 5 February 2005. ‘I am more convinced that EPAs stand to knock us back. EPAs stand to harm us... it will only benefit our European partners. The ACP must sit up and look at this issue critically.’Kwame Osei-Prempeh, Ghanaian MP, Joint Parliamentary Assembly, Brussels, 5 February 2005 Despite the differences, an agreement is foreseen in December 2007 as noted from the progress of the ESA Road Map for the EPA negotiations. This was also pointed out by Mr. David S.O. Nalo, Permanent Secretary in Kenya’s Ministry of Trade and Industry that “the negotiations between the EC and ESA is on schedule according to the road map which was scheduled in 2004. Formal negotiations in five out of six clusters are at an advanced stage, with both sides having had several areas of convergence…”14.

13 14

D. Wadada Nabudere: Essays on the theory and practice of imperialism, Onyx Press, London. The East African newspaper September 4th-10th, 2006 page 15.

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2.2

Reciprocity

EPA negotiation is all about the introduction of reciprocal trade relationship between the ACP and the EU. Due to the level of their economic development, reciprocity will have far reaching economic and fiscal implications on the ESA countries depending on the extent and asymmetry of product coverage and the timetable of phasing out of tariff elimination. According to the ESA EPA draft text, a 10 year moratorium is being proposed for tariff phase out. Different products contribute differently to government revenues depending on tariffs. ESA countries should be thinking of how they shall be treating different products based on the significance of these products to government revenue, domestic industries, employment, environment protection and food security. If this is done, it shall enable ESA countries to map up strategies of defending national and regional interests for the agricultural sector and market access issues in the wake of a free trade agreement with the EU. From history, the ESA countries have not effectively utilised trade preferences and protocols offered by the EU as a result of un addressed supply side constraints. With EPA coming in force, these preferences shall be phased out (to make the trade regime compatible with the WTO rules) and yet most ESA countries are still riddled with the supply side problems which shall make them unable to access the EU markets under the new trading platforms. 10 2.3

Price fluctuation

During the recent past, Governments adopted the policy of trade liberalization following advice from the World Bank and the International Monetary Fund. Prices of agricultural products which used to be guaranteed by Governments continue to fall and the terms of trade as subsequently fallen for producers of primary agricultural products. With the introduction of free trade as a result of EPA, farmers welfare shall be grossly reduced. Farmers shall suffer. One farmer quoted that “…infact there is nothing to negotiate”. Who shall guarantee the prices of agricultural commodities? 11 2.4

Loss of Government Revenue

Governments derive a considerable amount of revenue from customs tariff levied on imported goods. Under EPAs, proposal are that ther shall be a gradual reduction of tariff rates and this shall significantly reduce government revenue. This will worsen poverty since less money will the channelled to social sectors such as education, health and infrastructure development. Further income will be lost due to preference erosion for commodities under the Lome protocols (sugar, rice, beef and bananas). The cost of adjustment would be high and there is no feasible mechanism for compensation by the EU of loss of revenue incurred by Eastern Africa countries. 2.5

Supply and demand side constraints

There are profound constraints which affect supply and demand. These constraints range from the unreliable provision of public utilities (costly and erratic electricity and water supply) and

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poor public infrastructure (run down pot holed roads and inefficient slow , railways) through weak institutional and policy frameworks (leading to fluctuating exchange rates and high inflation and interest rates) to low labour productivity (arising from in appropriate education, health and housing provisions). Without addressing the problem of supply side constraints in East Africa, farmers in this region will lose out on EPAs. Farmers organisations and the private sector should be strengthened to lobby national governments, regional economic groupings (e.g EAC and COMESA) and the EU for increased investment in the development of utilities, infrastructure, labour productivity, institutional framework and pro-poor policy formulation. 2.6 EPAs vs regional Integration efforts The ESA configuration of countries are already engaged in regional integration processes into blocks for economic, development, political and social objectives. It is not uncommon to find countries with multiple memberships. However, they are classified differently in relation to the EU. While some are LDCs others are DCS. Under the EBAs initiative, DCs are not favoured and yet these countries are close to one another. EPA may thus not encourage regionalism. EPAs are being imposed on a process that was already taking place. Furthermore regional energies, resources and systems are being employed for the agreement of EPAs rather than into existing regional processes such as COMESA or the EAC e.g. COMESA’s development of its own investment strategy and development priorities could be undermined by an agreement in EPA on investment. The actual process of agreeing a product list of goods excluded from liberalisation with the EU within the ESA block will be extremely difficult, as there is little natural overlap based on current tariff levels of ESA countries. There may also be unintended consequences of an ESA regional block that is not harmonized fully with COMESA or EAC countries in terms of border controls and smuggling of goods that fall between different EPA blocks and therefore different liberalization schedules. According to the EAC Hq., the EAC is not formally involved in the EPA negotiations and hence it is not part of the ESA configuration. EAC notes that its partner sates are scattered. EAC attends the RNF as an observer and there is no official position as yet though the EU has been urging the EAC to get involved in the process. EAC is part of the Inter Regional Coordinating Committee which is charged with the responsibility of programming the 10th EDF which has started recently. At present, COMESA holds the 9th EDF for regional programming on behalf of EAC, IOC and IGAD. The EPA negotiations are distorting what has already been done and taking Governments back to colonial era. E.g The parties to the SADC trade protocol have split into two groups (South Africa and BLSN); 16 of the states in SADC and COMESA are negotiating as ESA and the rest of SADC (Angola, Mozambique and Tanzania) are negotiating a different EPA. The three EAC states are split between these groups also. It is apparent that EPA seems to be eroding the efforts of regional market integration in ESA and yet from the CPA, EPAs is meant to promote regionalism and stimulate economic growth

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of ACP. Why hasn’t the EAC been regarded as an important partner moreover EAC is already implementing a customs union with a common external tariff implementing a customs union since January 2005. COMESA plans to have in place a customs union with a common external tariff by January 2008. The United Republic of Tanzania recently pulled out of COMESA. There are so many issues of congruent still outstanding especially on the rules of origin between COMESA, SADC and EAC. Within an EPA, the EU exporters shall fully penetrate both the COMESA and the EAC market because of the advanced market development of the EU which is now a single market compared to COMESA and EAC. While EAC is already implementing a customs union and pushing towards (fast tracking a political federation), COMESA is yet to reach a customs union. The regional market shall face competition from EU under EPA (and USA under AGOA). As it is now, trade shall be in favour of the EU. Trade under EPA may not usher in the much needed inter regional trade and development of the ESA regions. An EPA will make ESA more dependent on agricultural export markets to the EU, rather than the development of domestic or regional markets in agriculture. 2.7

Non-Tariff Barriers to trade (SPS, TBT)

The farmers maintain that there are mandatory standards which vary from one EU member state to another. These standards are non tarrif barrier to trade despite the decline of tariff and quota restriction. The standards can be categorized into mandatory and voluntary. Mandatory standards tend to be very strict and difficult to fulfil by farmers in East Africa. They include SPS measures, particularly Maximum Residual Levels (MRLs) and pesticide regulations and TBT. EU regulations and sovereign member states regulations often run parallel to each other, creating significant confusion for Eastern Africa farmers who would want to export to the EU. The exporters find it difficult to understand and fulfil various import requirements for the different EU member states. In addition to mandatory standards, participants were worried that supermarkets in the EU have developed their own standards, which are an extra hurdle for farmers in East Africa. A farmer leader from Uganda asserted that “while agreements are negotiated by Governments you may access the market but when it comes to actual exporting you fail to enter the market due to the emergence of voluntary standards, which are closely accompanied by very strict certification and accreditation systems.” Of the voluntary standards, the most common ones are EUREPGAP, British Retail Consortium’s (BRC), Milieu Programma Sierteelt (MPS), ISO 14001/EMS and ISO 9001. MPS in particular, is extremely important for Eastern Africa flower growers who supply the Dutch Auctions (MPS has certified between 70 and 80 percent of all flowers in the Dutch auctions). In practice, the voluntary standards are de facto mandatory requirements for producers considering that EU supply chains (supermarkets and consumers) have enormous power and influence. Non-compliance with their standards certainly results in products being denied entry into the EU market. The most affected commodities in East Africa are horticultural products (flowers, fresh vegetables and fruits), fish and meat. Sanitary and Phytosanitary measures have long been the constraining factors to accessing international agricultural markets. The ESA states have been subjected to a trading structure that allows minimal exports into the foreign markets. Trade is governed by a circus of rules and regulations and the region is constantly reminded of the WTO science based approach to

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trade. The region has lost a big share in the world market and this has been particularly due to the compromised food quality standards of Member States and failure of the countries to develop their SPS strategies to capture trade in the foreign markets. 2.8

High cost of compliance with the standards

A major challenge for Eastern Africa farmers and producers is that both mandatory and voluntary standards and regulations are difficult and expensive to comply with. Complying with the standards entails increased costs of production, mainly due to extra costs for upgrading production facilities and systems, monitoring and certification. Small-scale farmers are particularly affected since they do not have enough financial and technical resources required to attain the standards, hence the need to extend technical and financial support towards the goal of attaining acceptable standards. Other issues 2.9 The institutional challenge of EPAs Institutional challenges faced by the ACP countries ‘with weak institutions are unlikely to benefit from trade’ and there is a ‘need for institutional reforms to ensure a pro-development outcome of the EPAs’15. Institutional constraints will greatly increase adjustment costs arising from EPAs: indeed ‘countries with excessive regulations cannot take advantage of trade … in these countries trade-induced adjustment costs may exceed the welfare gains’. Three key areas of institutional constraints (out of 17) are identified as critical – market-entry regulations, labour-market regulations and paying taxes. The article notes that ‘institutional reforms are unlikely to survive or be successfully implemented if they are established only in response to external pressures like an EPA and are designed and implemented without involving all stakeholders. The article raises the question ‘whether the time-frames for trade liberalisation and required institutional reforms do really match’ and points out that ‘there is an obvious risk of overstraining ACP countries by an overly tight time-schedule for negotiations and implementation’. 2.10 Poor communication From the study, it was evident that there is inadequate communication between Government negotiators and primary stakeholders representing the interests of the rural producers. Even obtaining any information from line Ministires was a problem. Besides, there is little or poor information on official websites on Governments of ESAs countries. Therefore, the non state actors find it difficult to obtain timely information to enable them intervene in the processes. There is absence of scheduled country meetings and calendars for continuous consultations on the EPA processes. If there is any critical event up coming, it is not announced early or in good time to allow for sufficient preparations by the stakeholders. Notices of meetings should be given in good time to concerned parties.

15

Trade Negotiations Insights (May-June 2006, Vol. 5, No. 3)

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4.

Alternatives to EPA

4.1

Legal commitment to alternatives

A provision is made under the CPA for assessing the situation of non-least developed countries which decide that they are not in a position to enter into EPAs and for examining “all alternative possibilities, 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”16. In addition, the CPA commits the EU to examine “all alternative possibilities, in order to provide these countries with new framework for trade which is equivalent to their existing situation”17. While it is agreed that “the parties will regularly review the progress of the preparations and negotiations and, will in 2006 carry out a formal and comprehensive review of the arrangements planned for all countries” it is stipulated that this review is intended to simply “ensure that no further time is needed for preparations or negotiations”.18 For the case of least developed countries, the EU has committed it self to starting in 2000: “a process which by the end of multilateral trade negotiations and at the least 2005 will allow duty free access for essentially all products from all LDC.”19 This has been the case with EBAs. 4.2

Proposals to alternatives to EPAs

From literature and consultations, there are two important alternatives for the future relations between the Eastern Africa EU trade cooperation arrangements beyond January 1st 2008, should the EPA negotiations not be concluded due to various factors examined. In addition, under the dedicated session on agriculture the 8th RNF agreed: -

that the ESA Secretariat liaises with the Economic Commission for Africa (ECA) to finalise the study of the EBA as an alternative to EPA for LDCs. The Secretariat would complete as soon as possible the brief on the GSP+/GSP E as an alternative to EPA.

Also, under the dedicated session on market access, the 8th RNF agreed that the ESA Secretariat expedite the completion of the study on the implications of the current GSP and extended GSP-E under EPAs. It can therefore be deduced that there are two plausible alternative proposals, viz: -

The progressive introduction of reciprocity in trade relations with the EU and An extension of non-reciprocal preferences.

These are presented briefly below.

16

The Cotonou Agreement, Part 3, Title II, Chapter 2, Article 36.6 The Cotonou Partnership Agreement, Part 3, Title II, Chapter 2, Article 37.6 18 The Cononou Agreement, Part 3, Title II, Chapter 2, Article37.4 19 CPA, Chapter 2, Article 37.9 17

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4.2.1 New Enhanced Economic Agreements Under this option, the ESA countries, and in particular the East African countries, would choose to enter into a reciprocal trade arrangement with the EU regionally or individually BUT phasing in of reciprocity should be done according to achievement of some basic development thresholds in ACP countries and in combination with timeframes. The thresholds mainly relate to the achievement of redressing the supply side constraints which range from the unreliable provision of public utilities and poor public infrastructure through weak institutional and policy frameworks to low labour productivity. Reciprocity should not be based on time frames alone. The starting point is that on one hand, ACP countries are carrying out autonomous trade liberalisation measures as part of economic reforms, regional integration and WTO and they have agreed to all conditions including “essential elements” that are key to macro-economic performance while on the other hand they face serious capacity problems to enable them compete with the EU in a free trade arrangements. In other words, a meaningful EPA that guarantees a win win situation should be tied to improvements in most of the critical thresholds such as human development index, debt servicing, poverty indices, shift in commodity dependence etc. Development assistance from the EU for ACP to achieve development some of the thresholds are needed to enable the ACP states to eventually compete with EU firms under conditions of free trade. The advantage of tying phasing in or timeframe of reciprocity to development thresholds is a possibility of ‘early harvest’ in terms of fuller reciprocity in favour of the EU if they provide more aid. In other words, introduction of reciprocity according to achievements of certain developmental thresholds would mean that if these or some of the thresholds are achieved sooner than the deadline then there is a possibility of ‘early harvest’ in terms of reciprocating in favour of the EU. There is also a possibility to combine the thresholds and time frame, which would address the concerns of both parties. In such and approach, ACP countries would not seek long transitional period since the landmark for reciprocity will be thresholds. Further, the EU has to pay a price for the market access they are seeking in the ACP since by accepting reciprocity the ACP are also paying for maintaining the current market access conditions in the EU. The outcome is a win-win situation in which the EU secures market access and the ACP gets support to address their development constraints than merely opening up. 12 4.2.2

Reversion to Standard GSP Scheme

Enhanced GSP treatment As with the current GSP scheme, any scheme would be extended unilaterally by the EU. As a consequence, this option would impose no negotiating burden on ACP governments. However, this does not mean that ACP governments could play no role in influencing the scope of any enhanced GSP scheme. Indeed, all current indications are that ACP governments would need to actively and strongly lobby EU member states governments for the introduction of an enhanced GSP scheme to Lome’ equivalent levels.

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It suggests that governments of non least developed ACP countries could enjoy Lome’ equivalent unilaterally on a non-reciprocal basis. Therefore, the present regime for EU market access should be maintained and combined with a major technical assistance programme in the agriculture fields and an upgrading of the production capacity.

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5.

Recommendations

The following recommendations have been made, following the issues and divegences emerging from the EPA negotiations, to guarantees a win win situation hence time should not be the issue to force the weak ESA countries to negotiate an EPA with the mighty EU. Therefore, all free trade negotiations should be tied to improvements in most of the critical thresholds interalia supply side constraints, existing trade regimes, regionalism, positions of the ACP countries at the WTO negotiations, and capacity issues. Development and Investment concerns -

-

From the study, it was evident that an EPA would functionate well when the supply side contraints relating production and trade are addressed by the ESA region, other wise without it the market forces will not work against the interests of the family farmers. Investments in infrastructure (economic & social), institutions and liberalisations measures should bear mind the felt needs of the majority of the population not the needs of the minority middle class, in order to ensure continuity of livelihoods and food security for the household economies.

Existing trade regimes -

-

The existing trade regimes for LDCs and non LDCs should be maintained although there are evidence that the economic benefits have not accrued much to the LDCs. This is as a result of the development concerns above. The development aspects should be the score line for an EPA. These trade regimes should be augmented further with key development targets monitored by all stakholders using technical assistance from successful cases around the world.

Regional Integration efforts -

-

The ESA group of countries are so diverse, unequal, fragmented, fragile agrarian economies with multiple memberships for countries in a number of regional integration efforts in their early stages of formation, to which much resources have been committed over time. Serious problems of coherence/agreements on tariff rates based on sensitive list of products are bound to emerge. Moreover, the list of sensitive list should be as long as possible taking into account the enterprise formation and growth in ESA countries. An EPA with the EU should be postponed to a future date to allow for the integration of regional economic blocks in Africa to take shape. These regional bodies are building blocks for an African Union and the road maps agreed at various stages should not be interrupted (e.g COMESA’s customs union) albeit their weaknesses.

Relations with the WTO -

The EPA should not bring in the issues under contentious debate in the Doha Development Agenda at the WTO. Such topics like government procurement, investments should be negotiated at the WTO level not at bilateral levels.

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-

-

-

-

The ESA group should work together with other ACP countries to negotiate fair rules based multilateral trade regimes especially the ultimate revision to the Article XXIV of the GATT which frames the formation of free trade areas. The suspension of negotiations under the WTO presents several challenges for the global trading environment and in particular developing countries especially the ACP. Although informal discussions are currently under way in Geneva and other fora to help restart the negotiations, nothing has as yet been decided. If the negotiations do not restart by early 2007, then the chances of concluding the round in the near future will be highly uncertain. One possible reason for this is because the fast-track authority granted to the US President to enter into and conclude trade agreements with other countries will expire in June 2007. Although the stalemate has given ACP countries time to reflect on their specific interest in the negotiations and to develop more concrete approaches, the failure to resume negotiations would imply that some of the issues of concern for them, such as, reductions in high levels of domestic support and export subsidies provided to developed country (EU) farmers will remain, as these trade distorting support measures can only be disciplined within the WTO framework. Meanwhile, many developing countries are currently engaged in negotiating bilateral trade agreements with developed as well as developing countries/regions. The compatibility of these bilateral agreements with WTO rules remains uncertain and is likely to result in developing countries agreeing to WTO-plus commitments at the bilateral level. Furthermore, for the countries of the ACP states that are currently engaged in negotiations with the EU for Economic Partnership Agreement (EPA), a waiver has been requested on their behalf to the WTO to amend the rules governing reciprocity, symmetry and the transition period for opening up their markets to the EU. The EPA is expected to come into effect on 1st January 2008. Failure of resumption of WTO negotiations could make the outcome of the EPA uncertain.

Capacity building for effective participation -

Regional farmers organisations should be assisted to participate in Regional Negotiating Forums, through an official observer status for follow up on issues affecting farmers and agribusinesses. The number of representation and strength should be increased.

-

Farmers organisations trade policy capacities require strengthening to be able to professionally engage the Government negotiators on all matters relating to trade policy formulation, negotiations and reviews.

Capacity building on SPS Issues A system should be put in place that will enable producers and traders in the ESA region to trade with one another and with countries outside the region without any hindrances resulting from concerns of risk arising from animal and plant diseases. This system shall entail building harmonizing and strengthening the SPS capacities of the member states.

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6.

Conclusions

International and regional trade practices should be part and parcel of an overall economic development and improvement strategy for Uganda, Kenya and Tanzania and other countries currently negotiating EPAs with the EU. The development scope of the EPA text should be the kingpin in the success of EPAs. It should be noted that EPA shall be a free trade area where there shall be free movement of goods, services and natural persons among the parties in the agreement, in this case the EU and the Eastern Africa Countries. The EU is an advanced single market on the one part and east African Countries is not yet a single market on the other part. Due to their low levels of socio-economic developments characterised by structural shortcomings, the East African states are likely to lose considerably in terms of Government revenue, employment, enterprise development for upstream and down stream activities for various sectors of the economy, food security and food sovereignty. These imminent losses have already been pointed out by the country specific impact assessment studies. During the EPA trade negotiations, the ESA countries should be granted Special and Differential Treatment coupled with a considerable period to realise the development indicators. For this condition to obtain, there should be necessary conditions in terms of a strengthened macro-economic environment and functional institutions before liberalisation is fully implemented. The institutional changes required to enable ACP countries to benefit from EPAs will require a considerable amount of time and suggest a need to rethink the time-line for the implementation of EPAs. Perhaps more time and comitted action than this being proposed is required. These actions should be funded and supported unconditionally by the donor community notably the EU in this context. There have been outcries that accessing the EDF and STABEX funds has been difficult hence the intended objectives were not realised in time. Given the unfacilitative bureaucracy and lengthy if not complex procedures surrounding the EDF facilities, the disbursement of support often discouraged rather than promoted the opportunities for the poor. There should be simplified procedures to administer these facilities if the intended objectives are to be realised, if not, the rural producers and infant industries of the ACP are doomed.

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Annex 7 : EAFF Communication and advocacy strategy Background In August 2006, IFAD supported farmers organizations in Africa towards a research on the “Involvement of family farmers in the mid term review of the Economic Partnership Agreements (EPAs)”. For East Africa, EAFF did the study from which this communication and advocacy documents have been coined. The purpose of this document is: 1. To communicate to you in a formal manner about the current status of EPA negotiations. 2. To provide the basic facts about EPAs. 3. To provide you to possible alternatives to EPAs. 4. To raise awareness among all agricultural stakeholders that “a lot of work is still required” to make agriculture trade competitive in the region. 5. Present recommendations for actions. -

The current status of EPA negotiations.

Kenya and Uganda are negotiating EPA under the ESA group. ESA EPA negotiations has reached a critical and decisive stage. The 8th Regional Negotiating Forum met in Khartoum 19th-22nd August and came up with the 4th Draft ESA EPA text, which formed the basis for the text based negotiations 28-29th September 2006. Although development concerns are pencilled in the 4th Draft ESA EPA text compared to the 3rd Draft, there is no guarantee that the investments shall be made on indicators. The EU has changed its position and is not making firm commitments to the agreed positions at the ALL ACP EU joint positions. ii. The hidden agenda on EPAs. EPA is a trade pillar under the Trade and Economic Pillar of the ACP-EU Partnership agreement, also known as the Cotonou Agreement, signed in June 2000 in Cotonou. In EPAs fundamental transformation shall occur to an historical trade regime between the EU and the ACP states, including the Eastern African countries. EPAs is basically a free trade area whereby east African states are expected to open up their borders, liberalise trade and give way for competition in reciprocity to the EU firms and agribusinesses. Under the forerunners to Cotonou (called the Lomé Conventions), the EU allowed ACP countries preferential access to the EU market, without having to open their economies in return. The EU now wants to get rid of this deal, claiming that it is not compatible with WTO

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rules. As part of EPAs the EU is pushing for faster and deeper liberalisation than at the WTO – including from the poorest countries (who are normally exempt at the WTO). Plus the so-called ‘New Issues namely: Government Procurement, Competition, Investments and Trade Facilitation’ - which campaigners and developing country governments managed to limit at the WTO – are firmly part of the EU’s plans for EPAs. These include talks to open up investment, public procurement and competition policy which could severely limit the ability of poorer countries to support their own small producers or require foreign companies to use local materials or local labour. These tools have been used throughout history for the richer countries to develop and developing countries should not be prevented to do so with the new trade relations. Progress on the negotiations to date suggests that EPAs will be little more than Free Trade Areas between the EU and EA countries. From the impact assessments studies (which have not been made very public!), there are vivid evidence to show that EPAs will worsen poverty and stifle development of the EA states. The EU as a partner in the CPA agreement is not easily willing to finance the adjustment costs due to trade liberalisations, a fact worsened by the difficulty in accessing the EDF funds. For these reasons they should not be allowed to continue in their present form. iii. Possible alternatives to EPA Prior to the WTO Ministerial Conference held in Cancun, Mexico from 10 to 14 September, 2003, the Ministers of Trade of the Member States of the African Union (AU) met in Grand Baie, Mauritius, from 19 to 20 June, 2003 recognised in the Grand-Baie Declaration (June 20th, 2003), "the vital importance of long standing preferences for African countries", and subsequently expressed in three occasions their concerns about the erosion of preferences. The SSA countries are experiencing erosion of preferences and this shall become worse with the coming in force of EPAs and its associated trade liberalization. The multilateral liberalisation of trade shall raise serious concerns about the erosion of these preferences and its possible consequences. This and other reasons should prompt policy makers to advance alternatives while addressing the shortfalls which could affect the proposed trade regime with the EU. Besides, aa provision is made under the CPA for assessing the situation of non-least developed countries which decide that they are not in a position to enter into EPAs and for examining “all alternative possibilities, 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”20. During the occasion of opening the ACP-EU Council of Ministers’ meeting, Thursday 6th May 2004 at the Gaborone International Conference Centre; the chief host had this to say:

"The ACP Group still maintains, that the existing ACP/EU trade arrangements are equal to none ….You will understand, therefore, if we are apprehensive about the proposed Economic Partnership Agreements (EPAs), which are currently being negotiated. This is in spite of repeated EU assurances that the Economic Partnership Agreements would not disadvantage any ACP country. 20

The Cotonou Agreement, Part 3, Title II, Chapter 2, Article 36.6

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“We fear that our economies will not be able to withstand the pressures associated with liberalization, as prescribed by the World Trade Organisation (WTO). This therefore challenges us all as partners to ensure, that the outcome of the ongoing EPA negotiations does not leave ACP countries more vulnerable to the vagaries of globalisation and liberalisation, thus further marginalising their economies." President Mogae of Botswana, Chief Host. Therefore, from literature and consultations, there are two important alternatives for the future relations between the Eastern Africa EU trade cooperation arrangements beyond January 1st 2008, should the EPA negotiations not be concluded due to various unfavourable factors examined in the study. These are: i. ii.

The progressive introduction of reciprocity in trade relations with the EU and An extension of non-reciprocal preferences.

A brief explanation is provided below: -

New Enhanced Economic Agreements

Under this option, the ESA countries, and in particular the East African countries, would choose to enter into a reciprocal trade arrangement with the EU regionally or individually BUT phasing in of reciprocity is done according to achievement of some basic development thresholds in these countries and in combination with timeframes. The thresholds mainly relate to the achievement of redressing the supply side constraints which range from the unreliable provision of public utilities and poor public infrastructure through weak institutional and policy frameworks to low labour productivity. Reciprocity should not be based on time frames alone. The starting point is that on one hand, ACP countries are carrying out autonomous trade liberalisation measures as part of economic reforms, regional integration and WTO and they have agreed to all conditions including “essential elements” that are key to macro-economic performance while on the other hand they face serious capacity problems to enable them compete with the EU in a free trade arrangements. In other words, a meaningful EPA that guarantees a win to win situation should be tied to improvements in most of the critical thresholds such as human development index, debt servicing, poverty indices, shift in commodity dependence etc. Development assistance from the EU for ACP to achieve development some of the thresholds are needed to enable the ACP states to eventually compete with EU firms under conditions of free trade. The advantage of tying phasing in or timeframe of reciprocity to development thresholds is a possibility of ‘early harvest’ in terms of fuller reciprocity in favour of the EU if they provide more aid. In other words, introduction of reciprocity according to achievements of certain developmental thresholds would mean that if these or some of the thresholds are achieved sooner than the deadline then there is a possibility of ‘early harvest’ in terms of reciprocating in favour of the EU.

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There is also a possibility to combine the thresholds and time frame, which would address the concerns of both parties in the agreement. In such and approach, ACP countries would not seek long transitional period since the landmark for reciprocity will be thresholds. Further, the EU has to pay a price for the market access they are seeking in the ACP since by accepting reciprocity the ACP are also paying for maintaining the current market access conditions in the EU. The outcome is a win-win situation in which the EU secures market access and the ACP gets support to address their development constraints than merely opening up. -

Reversion to Standard GSP Scheme

Enhanced GSP treatment As with the current GSP scheme, any scheme would be extended unilaterally by the EU. As a consequence, this option would impose no negotiating burden on ACP governments. However, this does not mean that ACP governments could play no role in influencing the scope of any enhanced GSP scheme. Indeed, all current indications are that ACP governments would need to actively and strongly lobby EU member states governments for the introduction of an enhanced GSP scheme to Lome’ equivalent levels. It suggests that governments of non least developed ACP countries could enjoy Lome’ equivalent unilaterally on a non-reciprocal basis. Therefore, the present regime for EU market access should be maintained and combined with a major technical assistance programme in the agriculture fields and an upgrading of the production capacity. Seeks to raise awareness among all agricultural stakeholders that “a lot of work is a. still required” to make agriculture trade competitive in the region. “A lot of work is still required” to address the supply side constraints, which is should be a necessary condition for EPAs to function well. It is interesting to note that these constraints is affecting intra-regional trade i.e. trade among the member states of the EAC is recorded at

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