Why Rwanda should delay signing EU agreements

Within the next three months, under the umbrella organisation called the Eastern and Southern African (ESA) region, Rwanda must sign the Economic Partnership Agreement (EPAs) with the European Union (EU), if negotiations conclude positively.

Within the next three months, under the umbrella organisation called the Eastern and Southern African (ESA) region, Rwanda must sign the Economic Partnership Agreement (EPAs) with the European Union (EU), if negotiations conclude positively.

The agreements, according to the EU, create free trade with Africa, the Caribbean and Pacific countries (ACP). EPA negotiations launched in 2002 between the 77 states in the ACP and the EU have emerged as one of the most formidable challenges for the former.

In order to continue enjoying duty-free access to Europe’s markets, Africa has been told to open its own markets in return. According to the schedule for negotiations, EPAs are supposed to take effect in January 2008.

When the EPA negotiations were launched, civil society organisations all over Africa, the Caribbean, the Pacific and Europe, warned the EPAs were anti-developmental.

They pointed out the EPAs posed a threat – not only to local producers and industries, food sovereignty, essential public services, and the regional integration of African countries – but also to the right and capacity in general of African countries to develop their economies according to the needs of their people and their own national, regional and continental priorities.

The European Union continues aggressively to pursue its agenda for the opening up of ACP economies across the board for the free entry of European goods and free operation of European investors.

FTAs (Free Trade Agreements) entail reciprocal arrangements and concessions among parties, thus leading to further liberalisation. In the EPAs being negotiated, the EU wants to go beyond trade in goods to other areas including investment, competition, government procurement, and services.

According to SEATINI, an African non-government organisation, the EU is demanding that ACP countries (Rwanda inclusive), eliminate all duties up to 80 per cent of agricultural and industrial products imported from Europe.

EU says governments in the ACP should allow European investors free access to any sectors of their economies, and that these governments should not give preferences to domestic investors over European.
What Rwanda needs

Rwanda, and the other 15 ESA partner states in the trade arrangement with the EU, need market access and market entry, support for modernisation of agriculture, employment opportunities for citizens, increased domestic savings and increased export earnings.

The others are actual investments, but not rules on investment dictated by partners and reduced dependency on foreign aid.

On the other hand, the EU wants markets for their products, sources of raw materials, employment for its citizens (issue of services), protected investment opportunities in Africa, a continued political relationship and control and competition versus China, USA, Japan and even India.

The negotiations between the two trading blocs are hovering around development issues, market access, agriculture, fisheries, trade in services and other trade-related issues.
Theoretical assumptions

It is assumed under agriculture there will be improved market access to the EU market for agricultural exports, should the supply and competitiveness constraints be addressed and joint investment ventures ensured.

The legal framework of an EPA will make it difficult for Rwanda to reverse any trade liberalisation process, making it more attractive to investors, which will result in increased foreign investments.

Further, the agreements will stimulate 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 the EU would also benefit local processors and manufacturers.
In addition, revenue to the government in import taxes will increase.

As Rwanda’s consumers demand more EU products, the private sector would grow as there would be an increased choice of cheaper products arising from decreased costs of local products and EU imports.

Not all is gold

In its report released last month in Kampala, SEATINI is skeptical EU’s present focus would enhance Africa’s trade.
The trade activists emphasise African countries would not meet the standards required by the EU.

“That alone implies that products from Africa would eventually fail to make it to Europe,” the SEATINI-Uganda Chief, Jane Nalunga, says.

Elly Twineyo, the Executive Director of the African Centre for Trade and Development in Uganda, confirms there would be intensified competition for the EU market, as products from various countries will be competing in a large, but limited market.

In that respect, due to lack of competitiveness and supply constraints, Rwanda’s agricultural exporters (and other countries) will most likely 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,” Twineyo argues.

He also claims locally protected industries will face competition from imported duty-free products from the EU, resulting in loss of employment and de-industrialization.

“Loss of employment due to possible counterfeit products is also expected because many ESA countries lack strong law enforcement institutions,” Twineyo says.

“Opening without law enforcement results in ‘leakages’ into our economy.” He further supports his position the agreements would lead to a severe loss of revenue due to elimination of tariffs on EU imports and the substitution of imports from the rest of world with EU imports.

“This may disrupt the implementation of government programme,” he says.
Can’t compete

Farmers in Rwanda, a landlocked country with very meager resources and limited facilities, may not afford a level ground to compete with their European counterparts who have enormous subsidy support from their governments that will remain in place until 2013.

EU farmers also access cheap and affordable credit (favorable lending rates of 2-4 per cent against over 30 per cent faced by African farmers).

In addition, favourable road networks, marketing systems and other infrastructures including those relating to standardisation, help EU farmers to be more productive and competitive than their African counter parts.

Twineyo points out importation of higher value-added agriculture products – as required under the EPAs – will hamper efforts and the feasibility of value-addition locally.

He concludes opening trade with the EU will increase competition in the ESA markets, with potential adverse effects on local producers and firms with limited capacity to compete with EU products because of supply-side constraints.
EU still needed

Although a cross-section of trade analysts say otherwise about the Economic Partnership Agreements (in their present format), Rwanda and Africa in general, still need to improve trade with EU.

EU is the region’s main trading partner, accounting for 34 per cent of total Eastern Southern Africa (Rwanda is a member) exports in 2003; 23 per cent of the total ESA imports in 2003.

About 50 per cent of trade taxes come from EU imports, representing about 10-15 per cent of total government revenues.

Losing revenue from EU imports means the region would lose about five to seven per cent of government revenue in moving to a free trade agreement.
Way to go

A consensus could be reached (between EU and Africa) the trade activists suggest, if the negotiations shift to “trade in goods agreement (market access, entry)” platform and that trade rules – as demanded by EU – be done away with. They instead say emphasis be put on cooperation.

Nalunga observes contrary to their position on the economic agreements with Africa, EU should offer more aid to Africa so the continent improves its infrastructure.

To justify the need for additional resources under EPA and support in the various interventions areas, the ESA group has developed a regional development matrix based on national submissions by 16 ESA countries.

ESA has identified the resource gap in the regional development matrix to be over Euro 10billion.
Ready for EPAs?

If Rwanda is to say it is ready for EPAs with EU, then it should consider what Jeffery D. Sachs (2005) says in ‘The End of poverty, how we can make it happen in our life time.’

“When the preconditions of basic infrastructure (roads, power, and ports) and human capital (health and education) are in place, markets are powerful engines of development,” he says.

But in Rwanda, none of what Sachs says is at a favourable level.

Sachs adds: “Without those preconditions, markets can cruelly bypass large parts of the world, leaving them impoverished and suffering without respite. Collective action, through effective government provision of health, education, infrastructure, as well as foreign assistance when needed, underpins economic success”. Former British Premier, Tony Blair agrees.

“The challenge is clear - can we make trade work for all of us; or do we continue with a system with 2 billion locked out of prosperity and denied a chance to work their way out of poverty?”

In reality, it is agreeable and prudent that Rwanda and other ACP member states suspend EPAs with EU until the concerns are addressed.

As Nalunga stated, Rwanda does not lose a lot at the present level of partnership with EU. It should re-enforce its trade in the regional trading blocs including the East African Community and Comesa.

The writer is The New Times reporter based in Kampala