Economic Partnership Agreements and Regional Integration Paul Kalenga

1. Economic Partnership Agreements and Regional Integration Paul Kalenga Tralac Annual Trade Law Conference 11 November 2004

2. Introduction • Two pronged approach: • Trade liberalization between the African, Caribbean and Pacific (ACP) States and the European Union (EU) (inter-regional integration); • Trade liberalization within the ACP regional groupings (intra-regional integration). • ACP Member States can also enter into EPAs with the EU, either individually or collectively. • The door is also left open for opting for the Everything But Arms (EBA) GSP for the LDCs[1] or the standard GSP for the non-LDCs. • [1] Least developed countries are entitled to non-reciprocal trade preferences under WTO rules and the EU has recognized this through EBA, which grants complete duty and quota free access to the EU market for all originating products, except arms and munitions, and for a transitional period sugar, rice and bananas.

3. Introduction (continued) • However, it appears that the EPA option is the EC’s preferred option and should incorporate free trade areas (FTAs) mainly between regional groupings of ACP States and the EU. • In its pronouncements, the European Commission (EC) argues for the need to lock in the regional integration agendas into the EPAs so as to increase the impact and credibility of regional integration initiatives – as a way to address the supply-side constraints that are key culprits for the less effectiveness of the unilateral trade preferences. • While the EC displays clarity of its EPA objectives, setting political rhetoric aside, the ACP – especially our region – does not appear to demonstrate sufficient clarity of their trade negotiation agenda and the gains to be derived from the process.

4. State of Play • September 2002, the EU and ACP States launched EPA negotiations to be concluded no later than beginning of 2008 • Should set out the timetable for the progressive removal of barriers to trade between them and enhance co-operation in areas relevant to trade in accordance to WTO rules • These should be based on the principles enshrined in the Cotonou Agreement – flexibility, asymmetry, and preservation and improvement of the aquis • In Eastern and Southern Africa – two regional groupings launched negotiations with the EU – the ESA group (consisting of Comesa+) and the SADC configuration (consisting of the BLNS, Angola, Mozambique and Tanzania. South Africa has observer status as part of the SADC configuration

5. Regional Integration Initiatives in Eastern and Southern Africa – A recognized policy challenge • multiple and overlapping membership poses significant challenges to the potential content and implementation of the EPAs, particularly as this relates to the principle of reciprocity. - COMESA – the FTA process (partial in force) and Custom Union (2004 – 2014) - SADC- the FTA process by 2008 and Custom Union (2010-) - EAC – part of COMESA but Custom Union (2004) • SACU – functioning Customs Union – new Agreement – concluding FTAs with third parties • The role of South Africa in the regional integration process – especially complications arising from its Trade and Development Co-operation Agreement (TDCA) with the EU. • The TDCA is currently being reviewed and it may be important to consider its wider regional implications on the evolution of a coherent basis for the region’s integration with the EU beyond 2008.

6. Overlapping Issues • Whereas there is a commitment towards achieving free trade areas (FTAs) and Customs Unions (CUs), there are implementation problems on intra-regional tariff phase downs; divergent economic interests, missing convergence in external tariff levels; diverse sensitivity towards tariff revenue losses; variable regulatory frameworks in the services sector and no clear-cut schedules for intra-regional liberalization of service imports. • Clearly, these challenges will complicate the developing of common negotiating positions, especially on tariff phase down schedules and services liberalization. Rationalization is imperative! • The existence of LDCs, which are permitted non-reciprocal trade preferences under WTO rules, and therefore EBA beneficiaries, creates different trade negotiating incentives.

7. Some Options • BLNS and the TDCA - BLNS cannot offer different market access to the EU other than those already granted within the TDCA context, without undermining the integrity of the customs union, and hence regional integration: • Are there possibilities to address this complication in the current TDCA review ? • Does this mean that BLNS cannot negotiate an EPA? What about improved market access into the EU – rules of origin issues, etc? What about Angola, Tanzania & Mozambique? - LDC status – do not need to reciprocate, hence EBA-type market access, but face same issues related to improvement of market access into the EU like the BLNS and other countries in the region Emerging debate of Angola, Tanzania & Mozambique joining SACU? – a rather complex issue \

8. Options • Enhance the integrity of SACU as an existing customs union • Generate a political commitment never seen so far towards intra-regional liberalization of trade in both goods and services, at least by 2008, such that substantial all intra-regional trade is duty free • A bold move towards the harmonization of their external tariff and trade policies in a rationalized fashion • Proper sequencing and rationalization of trade liberalization processes (intra-regional versus liberalization with the EU) such that a coherent basis for the region’s trade relations with the EU is established • The need for more technical work and more strategic political discussions

9. Domestic Policy Reform & Regional Integration • Inclusive domestic policy processes - to ensure effective implementation and sustainability of policy commitments - drawing lessons from TDCA experience • Accelerating regional and global integration – rationalization of a variety of RTAs, fast-tracking liberalization (goods & services), harmonization of external trade policies through convergence in external tariff levels within a MFN-based framework • Recognizing the danger of partial liberalization towards the EU, especially when MFN tariff structures are still high and distorted as this can mean implicit transfers of tariff revenues to EU suppliers without consumer welfare gains for the region

10. Domestic Policy Reform & Regional Integration • Dealing with adjustment costs arising from tariff revenue losses, especially those countries that are heavily dependent on this source (distribution of costs & benefits) – fiscal policy reforms; external debts, institutional capacity strengthening, transitional budgetary support by the EU for heavily affected countries • MFN- based service liberalization, preferably to accompany intra-regional services liberalization, especially in certain priority areas such as transportation, telecommunications, finance so as to attract investment by the most efficient service providers • Regulatory reforms in the services sector – more focus on the regulatory environment

11. Conclusions • EPA is an attempt to use existing regional integration schemes to assist ACP countries to deal with many of the trade-related and supply-side problems that constrain their access to global markets. • Whether these are the most suitable instruments to achieve intended goals is far from clear. This will depend on the extent to which EPAS will successfully lock- in regional trade integration initiatives and effectively enhancing trade policy convergence in Southern Africa. • This is more of a political process rather than proper economics! Thanks!