Economic Partnership Agreements: Development Challenges for Southern Africa Paul Kalenga Trade Law Centre for Southern Africa

2 INTRODUCTION  ACP/EU towards WTO-compatible EPAs  Unprecedented reciprocal market access  North-South PTAs – a fertile area for analysis  TDCA between EU & South Africa still in its infancy  Development impacts remain ambiguous  Limitations and potential to deliver on development promose  Impact lies in their proper design, sequencing and effective implementation  Development challenges facing Southern Africa - Promotion of regional trade integration agenda - Improve market access: agricultural & non-agricultural - Deal with adjustment costs - Address supply-side constraints - Ensure WTO compatibility/ Doha Development Agenda

3 Cotonou Agreement  EPAs are comprehensive FTAs  Replacing current non-reciprocal trade preferences with reciprocal WTO compatible arrangements by 2008  WTO waiver lapses on 31 December 2007  Options to EPAs: EBA GSP for the LDCs, Standard GSP for the non- LDCs  All ACP-EU phase of EPA negotiations: agreed to negotiate regional EPAs  Principles: flexibility, asymmetry and preservation and improvement of the Cotonou aquis  Two-pronged approach: inter-regional integratiobn (EU/ACP regions); intra-regional integration (trade liberalisation within ACP regional groupings)  Progressive removal of trade towards FTA in accordance with WTO rules (reciprocity, ‘substantial all trade’  Article XXIV of the GATT, 1994 > TDCA

4 Regional Trading Arrangements (RTAs) & EPAs  Eastern and Southern Africa (ESA) EPA configuration  SADC configuration  TDCA and the BLNS countries  East African Community  COMESA  Multiple and overlapping membership  EBA for LDCs  Significant challlenges to the potential content and implementation of the EPAs  Undermine or enhance regional integration

5 WHY THE EPA APPROACH?  Trade Preferences have a limited impact amidst supply-side constraints  Despite non-reciprocal trade preferences that the ACP countries have enjoyed in the EU market over the years they have not been able to take full advantage of such market access  Steady decline in the ACP share of total EU imports from 6.7% in 1976 to only 3% in 2002  ACP share in world exports have also declined from 3.4% in 1976 to 1.9% in Furthermore, ACP share in developing countries exports has fallen from 13.3% in 1976 to a mere 3.7% in 2000  Trade preferences have not led to the diversification of ACP economies and have failed to halt their increasingly marginalization in world trade.  EPAs are intended to redress this by looking closer at the supply side of the ACP economies

6 WHY THE EPA APPROACH?  Preference margins are being eroded  WTO waiver is not likely to be extended after 2007  Importance of South-South integration: dynamic effects such as economies of scale, the importance of locking-in of intra-regional trade liberalization

7 KEY CHALLENGES FOR SOUTHERN AFRICA Dealing with adjustment costs: loss of government revenue and competition from EU products amidst weak economic structure and lack of competitiveness Enhancing Market Access: Higher MFN tariffs in the EU, especially in labour-intensive sectors such as agriculture, textiles and clothing and food processing Dealing with SPS measures and technical regulations CAP Reform issues Rules of Origin Promoting Regional Trade Agenda

8 TDCA Lessons  Fears and concerns on the potential adverse impact of the TDCA in South Africa – still contained and manageable  The importance of appropriate design & implementation  South Africa was guided by clear strategic economic priorities and balanced pragmatism  A good national governance process but also commitment towards global economic integration  What about other SADC countries?  Different governance contexts, diverse economic interests, diverse external levels of protection  Weaker trade policy & negotiation capacities  Reactive and wait-and-see attitude at national levels

9 CONCLUSIONS  EPAs an attempt to use regional integration to assist ACP countries to deal with many of the trade-related and supply-side problems that constrain their access to global markets  Is this a suitable instrument? – far from clear  Process appears irreversible  The need to focus on effective negotiations towards a desired outcome  There are costs and benefits, the need for proper design and effective implementation  Locking in regional integration initiatives and enhancing trade policy convergence  Challenge to the EU: recognizing adjustment costs, phase-in reciprocity without causing hardships, sequencing and transitional development assistance  Policy reforms in the EU – especially in agriculture, rules of origin, standards and technical regulations

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