June 7, 2009

Another Shift in Deadline

By Franklin Alli
The Economic Partnership Agreement (EPA) between Nigeria, 15 other West African States, and the European Union (EU) may not come into effect this month, Franklin Alli reports.

Nigeria has expressed doubts about its readiness to sign the Economic Partnership Agreement (EPA) this month with the European Union (EU). The doubts were expressed by the Nigeria’s Minister of Commerce and Industry, Chief Achike Udenwa, during a one-day Ministerial Monitoring Committee on Negotiation of the Economic Partnership Agreement (EPA) between West Africa and the European Union (EU) held recently.

The implementation of the EPA was scheduled to begin in 2008 with a transitory period of 12 years, through to 2020. Nigeria and other ECOWAS member states are expected to liberalise up to 80 per cent of their trade with the EU under the agreement.

Stakeholders ranging from manufacturers, labour union, the civil society organisations, otherwise called non-state actors have expressed fears that entering the agreement would have a significant negative impact on industries, government revenue, investment, competition and things like that.

Against this backdrop, Udenwa said that the June deadline may not be feasible as conditions that must be on the ground for the overall development of the country and the region are not yet in place.

He drew attention to contentious issues that needed to be settled before the conclusion of the EPA such as development issues, supply-side constraints, infrastructure facilities, capacity building, regional integration and adjustment cost of liberalization.

He noted that the negotiation was between two unequal parties, the EU on one side and the African, Caribbean and Pacific, ACP, countries on the other side.

He identified certain tasks that needed to be tackled as a precondition for the signing of a developmental focused EPA as follows:

Joint definition of the EPA support measures and their funding by the European Commission Formulation of the market access schedule for the two parties; and Preparation of the text of the Agreement.

The Minister said the EPA was therefore not just a trade agreement but also a development – focused partnership whose primary objectives are: the deepening of the regional integration process, improvement of competitiveness of African, Caribbean and Pacific (ACP) products; capacity building; upgrading of ACP’s production sectors, giving priority to developmental and poverty eradication.

The President ECOWAS Commission, Dr. Mohammed Ibn Chambas also identified some of the challenges being currently faced by the region as it approached the concluding phase of the EPA negotiations within the next 45 days to include among others:

·    Attainment of a concrete position on the sources of funding the EPA Development Programme
·    Financing the adjustment costs and fiscal dislocations arising from the implementation of EPAs, realizing that the majority of our member states, import duties constitute an important source of government revenue and increased liberalization of trade will imply loss of revenue.  Member States may therefore have to make fiscal adjustments which might not, however, make up totally for the loss in revenue from import duties, especially in countries where import duties are a major source of government revenue and where there are constraints to enlarging the tax base, especially through the introduction of or increase in VAT.

·    the Emerging Global Finance/Economic Crises and its impact on the region in the light of the present status and future of the EPAs;

·    negotiations at the WTO (the outcomes of the Doha development Agenda (DDA) – while the EPA negotiations are being pursued, we need to ensure that the final outcome is based on the rights and obligations that would emerge from the Doha Negotiations on article GATT XXIV; (AU, 2009);
·    Our regional integration processes (e.g. the ECOWAS CET) which are expected to result in the establishment of customs union.

Peter Mandelson, EU Trade Commissioner, said Nigeria is not being forced into anything. When signing the Cotonou Agreement, Nigeria agreed to negotiate an EPA.  More importantly, if Nigeria comes to the conclusion that the costs outweigh the benefits, then Nigeria can choose not to sign.

Similarly, Nigeria Labour Congress (NLC), in a position statement warned that signing any EPA with the EU would open the nation’s economy to 90 per cent full liberalization for trade with EU countries and would further destroy the domestic base of Nigerian industries and harm developmental aspirations.

President of NLC, Comrade Abdulwaheed Omar, said: “We wish to restate our earlier opposition to Nigeria and other West African countries signing any EPA with the EU. We urge the Nigerian government to lead other countries in the sub-region to resist the arm-twisting strategies of the EU to force us into signing an agreement that is patently against our social and economic interests.”

EU Trade Commissioner, Peter Mandelson, however, allayed stakeholders’ concerns on various issues raised. On loss of large amounts in tariff revenue, he acknowledged that trade liberalisation will lead to lower tariffs and therefore a possible loss of revenue.

He argued that in response, the EU will be contributing to funds specifically designed to absorb the impact of this loss of revenue.  In the case of Nigeria, tariff revenue is a small part of national income (5-6 per cent). Lower tariffs also mean that the incentive for smuggling is reduced, leading to an increase in official imports, partly compensating for revenue loss.
Furthermore, liberalisation towards Europe will have a long transitions period, giving time for other forms of revenue to be developed such as VAT and companies tax.  It should also be remembered that one of the main aims of the EPA is to generate trade, although tariffs will be lower in the transitions to fully liberalised trade, the amount of trade on which it is charged will be higher.

It is true that opening up borders will allow more foreign made goods to be imported.  However, EU exports to Nigeria and Nigerian products are very complementary, insofar as few exports by the EU are also produced by Nigeria.  There is thus little competition between EU products and Nigerian products.

In fact, local industry should benefit from cheaper input. In addition, the EU is not seeking full reciprocity in market opening, and new market access requested would be subject to flexible and long transition periods.

Trade liberalisation for European goods will have a long transition period – at least, 12 years and probably more – so it will be many years before Nigerian goods will have to compete with European imports. WTO rules also allow for protection for sensitive industries and products. In return, the EU will be offering full market access on all products with immediate effect.
The EU stands ready to support the negotiation and implementation of the EPA in the West African region. The EU is already providing development assistance under its existing regional programme, much of which is focused on regional economic integration.  “Our new programme, which commenced since 2008, has doubled available funding to 478 million Euros (about N6.5 billion) over five years,” Mandelson said.

In addition, he said, there will be a topping up to the focal sector.  Globally, two billion Euros per year in aid for trade has been pledged by the European Commission and EU member states, a substantial part of which will go to the ACP countries negotiating EPA.  These funds will be additional to the European Development Fund, EDF.

Nigeria’s industries will face more competition from other West African States, and some industries will have difficulties to meet the new requirements. There could thus be job losses, at least in short term.  However, there will be the possibility to exclude a number of Nigerian sensitive products from the scope of liberalisation.  In addition, the EU will be contributing to a programme for upgrading competitiveness of the sectors concerned by the EPA. Nigerian firms will become more efficient through competition, and bigger through access to larger markets and investment.

The transition period of the EPA should allow them to become bigger and more efficient in their regional markets, before being exposed to the full force of global markets.  Bigger, better regulated markets will also increase investment – more capital means more growth and more jobs.

Nigerian Trade Policy expert, Olumuyiwa Alaba, believes Nigeria should open up to the EU, but place restriction on sensitive products and sector such as agriculture. According to him, recent experience suggests that the faster growing developing countries in East Asia particularly, have been those selling their goods abroad.

China, for example, has achieved economic growth of some eight per cent for 20 years, lifting over 200 million people out of poverty.  While Asia was the poorest continent on the planet 40 years ago, twice as poor as Africa is today Asia has the fastest growing economy and is twice as rich as Africa today.

Alaba said, all these point to the fact that given the enabling environment to unrestricted access to the market is beneficial in various ways, including employment and income generation, production efficiency technology transfer and improved capacity to compete in the international market.