By Dr Clive Thomas
Collateral damage of the EPAs
Beyond the three markers (signposts) of the roadmap sketched in last week’s column, there are a number of economic, legal and other technical considerations, which are vital ingredients for forging a successful way forward in 2008 and beyond. The first of these is that an important study (Bouêt et al, 2007) has established for the EPAs that when subjected to the customary multi-sector, multi-region/country (computable general equilibrium model) assessment of trade policy effects, the data show that full implementation (2035) of the EPAs as proposed by the EU, yield an increase of EU exports to the ACP countries of 29.4 billion euros but a decline of 6.5 billion euros for the rest-of-the-world’s exports to the ACP. These are substantial trade-diversion effects and if only partially true, will produce substantial distortions and welfare losses to the ACP as a result of the large subsidies and economic rents implicit to the ACP granting substantial bilateral preferences to the EC. This would be unacceptable to the ACP and the rest-of-the-world.
Secondly, apart from the substantial collateral damage to non-EU suppliers, the data also imply significant welfare losses to individuals and firms consuming EU supplies under the EPAs. Facing restricted competition (because of tariff and non-tariff barriers on non-EU suppliers), EU firms can in theory, subsidize inefficiency in their sales to CARIFORUM markets, capture economic rents, or do a mixture of both.
Thirdly, under the WTO rules, tariff offers are based on bound rates. Under the EPA they are based on applied rates. The former gives developing countries greater flexibility as there is “tariff water” between the bound and applied rates. Reduction in tariff water and with it reduced uncertainty is treated as a liberalisation measure under the WTO rules. Some EPA bound rates are high. In the Caribbean these mainly range around 90-110 per cent and 60-80 per cent, respectively for agriculture and NAMA products. Applied rates range around 15-25 and 6-11 per cent, respectively.
Fourthly, despite urgings in and out of the negotiating arenas, the EU has yet to provide economic calculations of the differential value of the margin of preferences between its offers at the WTO and in the EPAs. The fear is that, despite platitudinous claims about the development dimension of the EPAs and a new partnership of equals, the margin-economic value of the two may be close to parity.
Legal considerations
A fifth technical consideration addresses legal issues. Throughout the negotiations there was no concerted attempt to think through and formulate a WTO compatible arrangement other than the EPA. Two “think-tanks,” the Groupe d’Economie Mundiale (GEM) based in Paris and the International Food Policy Research Institute (IFPRI) concerned about the substantial huge trade diversion effects of the six ACP-EU EPAs, formulated options within the WTO legal framework to secure multilateral liberalisation and so modify the massive trade diversion effects to the EU, reduce welfare losses to the ACP countries, and still provide efficiency benefits of liberalization for the ACP (See Bouêt et al 2007 and Messerlin et al 2007). This is the basis for their Plan A+ proposal.
Basically such alternatives have an important point of legal departure. For the market access offers of the EPAs, WTO-compatibility rests on Article XXIV of the GATT, which requires substantial coverage of all trade and for services under the GATS a similar requirement, as measured by such factors as the number of sectors, the proportion that would be liberalized, and so forth.
The Enabling Clause (November 28, 1979) authorizes, however, granting preferences to developing countries and LDCs, (which is the basis of the EBA and GSP preferential arrangements.) Developed countries can, however, grant preferences beyond the GSP to countries “similarly-situated.” This is the basis for the Africa Growth Opportunity Act and the Caribbean Basin Initiative being acceptable as WTO-compatible.
Based on the Appellate Body Report on the EC-India Panel on EC Preferential Tariffs, April 7, 2004 para-173, it is pointed out that WTO members can go beyond GSP offers of preferential market access to developing countries based on their being “similarly- situated” (Bouêt et al, 2007). It is suggested that small vulnerable economies could qualify as such. Given their standing in SIDS, the United Nations and the WTO, there seems to be a strong a priori case, as this category of countries share similar developmental, financial, and trade needs as the panel ruling indicates.
It is proposed that those ACP regions still negotiating EPAs, should make their access offers multilateral, that is, to all WTO members in exchange for reduced preferential market access offers to the EU in their EPAs. Given the estimated magnitude of trade diversion, such an offer is shown to be significant to non-EU suppliers. Through multilateralizing the offer ACP countries would find that the scope for EU capture of economic rents and/or passing through inefficiencies to their consumers is reduced.
Such an approach would mean “rebalancing” market access offers between the EU and non-EU suppliers. (Messerlin et al 2007) It would test the EU’s commitment to 1) multilateralism and 2) supporting the development objectives of the ACP countries through broad-based liberalisation.
A concrete example is worked out in the study referred to, based on the tariff rates and market access offers of NAMA, at the level recognized by the WTO chair (Messerlin 2007). The results indicate that a substantial reduction of bound tariffs combined with modest reductions on applied tariffs, using the Swiss measure, would produce generous offerings at the WTO, which may thus qualify for multilateral negotiations.
Such approaches rely heavily on all-ACP solidarity. They are also based on securing the political commitment mentioned earlier in which the EU lets provisions in any EPA be imported into others if it is so desired.
I had intended to make this the final article in the series, but space has run out. Next week I shall make some brief concluding reflections.
