EPAs: Why we expect Tanzania to change heart

Presidents Kenyatta of Kenya and JMagufuli of Tanzania:
Working at Cross Purposes on EPAs

ACCORDING  to press reports, the European Union has announced that it is “encouraging” Tanzania to sign the much maligned Economic Partnership Agreements, EPAs.

Tanzania is being “encouraged” because she has been a reluctant bride in the proposed marriage even terming it “colonial.”

Experts in Diplomatese, the language used by diplomats, say that the word “encouraging” hides the real show. The meetings to encourage one to take certain desired action are bare knuckled events where all deck s are laid on the table. And they leave no doubt at all about the potential dangers of not taking the action. Even the public pronouncement by the EU diplomats, say diplomatic experts, is an ominous warning that Tanzania is expected to behave.

That is why the experts expect a Tanzanian about- turn on EPAs. The country is reluctant to sign the dotted lines saying that EPAs are a threat to her industrialization goals. But since she has been “encouraged,” experts expect a change of heart in the near future.

 Tanzania is in a weak position, the major reason for her reluctance to sign the deal is to protect her tax revenue base. For this reason she prefers to be an LDC riding on the generosity of the EU. She exports to the EU market under a preferential arrangement called Everything But Arms, EBAs. However, this is an arrangement tossed to the Least Developed Countries by the EU owing to her generosity.It can be withdrawn without much ado.

 Secondly, Tanzania no longer qualifies for such handouts. The country is no longer an LDC given that its economy posted robust growth for a decade raising its per capita income from a measly $350 in the early 2000s to $950 in 2015.  In fact she may have hit the lower echelons of a middle income country by now.

 Kenya was considered a developed country when its GDP per capita was $600. This means that Tanzania should long have been weaned out of EBAs. It seems like the bureaucrats in Europe have just “discovered” this fact and could soon become tightfisted.

That would leave Tanzania with no preferential arrangement to export to EU. Her exports would thus be locked out of the bloc. Can she afford such a risk?

To be fair  we should ask:  what is wrong with EPAs in Tanzania's eyes?

 An extensive review of Papers, presentations and commentaries revealed that the intense bashing EPAs has suffered in the hands of Tanzanian critics, is not wholly justified.

Contrary to critics view, the arrangement is not an imposition of the European will on poor and hapless African, Caribbean and Pacific group countries.

EPAs are negotiated agreements that are binding on both parties. It is an all-inclusive process where all stakeholders in a country or region are extensively consulted. Consequently, the agreements are the result of a transparent and inclusive process whose aim is to enhance economic development and poverty reduction in ACP countries.

Economic Partnership Agreements are an attempt to create a free trade Area (FTA) between the European Union and the ACP Countries. They grant exports from ACP countries duty-free and quota free-access to the European Union market in a secure, long-term and predictable manner.

 EAC member states initialed the framework for EPAs negotiations in November 2007. That initialization allowed the EAC members to continue exporting to the EU on preferential terms as they negotiated the EPAs.

 An evaluation of the impact of the initialed framework by the Uganda’s Ministry of Tourism Trade and Industry shows that; Uganda’s tariff free exports into EU have increased. It gleefully reported that Uganda can now export meat and other livestock products tariff free. These products previously attracted taxes ranging from 9.6 Euro per 100kg to 176.8 Euro. “Now,” says the report, such products do “not attract any taxes when exported to the EU.”

The key feature of EPAs is reciprocity. This is to say that, EU exports into ACP group should also be granted duty free access into ACP group markets, including into EAC states. This is why Critics fear that EPAs are being used to open the ACP group markets to European products.

Far from it, EPAs are based on the principle of asymmetry which calls for a phased out removal of all trade barriers established between the EU and the ACP countries since 1975. The phase-down period is 25 years from the date the EPAs are signed.

Before the entry of EPAs, trade relationship between EU and ACP group were governed by the Cotonou agreement. This trade regime, which expired on December 31, 2007, allowed ACP group exports into the EU market duty free. Its expiry without an alternative arrangement would have closed the EU market for ACP- and especially EAC -exports.

And Uganda would not have diversified her exports to the EU to include” meat and other livestock products.”

 Cotonou was discriminatory in that, while EU exports were charged duty in the ACP group markets, the latter exported tariff free.  This arrangement contravened the WTO rules. Therefore it was illegal in the eyes of WTO members who vigorously protested against such discrimination.

EPAs were thus initiated in order to comply with the WTO rules which bar non-reciprocal and discriminating preferential trade Agreements. They were also designed to keep the EU markets open for ACP countries on preferential terms.

The market would have been lost if EU fully complied with WTO rules of taxing all imports into its market. This would have been a major blow to the economies of ACP countries, including East Africa.

The EU market absorbs more than 20 percent of East Africa’s exports, making it the largest trading partner. This is the size of market the expiry of Cotonou agreement would have blocked. And the effects in terms of foreign exchange generation and employment in the East Africa would have been devastating.

In addition to allowing duty-free and Quota free exports to EU, the agreements also encourages the creation of regional free trade areas within the ACP. Such regional blocs, RTAs, among them EA Common Market,  to liberalize trade among them thus creating a large market for their weak industries.

Regional trading blocs also synchronise their economic policies and structures so that investment in the blocs becomes predictable. In effect EPAs will also increase trade and economic co-operation within ACP group.

The 120 million people -five Country, East African Community, EAC, is one such Regional trading bloc. It has witnessed increased trade between the countries. Some reports indicate that such trade has yet to reach full potential meaning that the regional has room to expand its trade with itself and reap the full benefits.

In the frame work, East Africa has offered to liberalize 82% of imports from the EU over a twenty five (25) year period. Initially, it was to grant duty free access to 64% of exports in 2010; 16% between 2015– 2023; and 2% between 2020 –2033 if the agreement was signed before 2010.   

This has been the bone of contention with critics accusing the EU of plotting to kill the ACP economies by flooding them with EU’s products.

 However, the Ugandan evaluation  among other sources indicates that a large proportion of 64 per cent that is offered initially is already liberalized by EAC’s common External tariff, CET. These imports fall into the category of raw materials and Capital goods, which are zero rated in the East Africa Community.

The paper indicates that the local business community is the beneficiary for it imports either raw materials or Capital goods as inputs for their production process. That they are tax-free means that the business community’s financial burden has been reduced.

In addition, nearly one fifth of EAC products will never be liberalised forever. This is because they are critical to basic survival in the region. Some of the products on the Sensitive Products list include: live animals; meat and edible meat offal; fish and other marine products; dairy produce; natural honey; cut flowers and ornamental foliage; edible fruit and nuts; peel of citrus fruits or melons; coffee, tea and cereals among others.

 To ensure that ACP countries do not negotiate away family jewels, EPAs have a rendezvous clause which allows countries to refuse to negotiate certain aspects of EPAs until they understood them.