Countries in southern Africa are members of more than one regional economic organisation:
The Southern African Customs Union (SACU), which is the world's oldest custom union, was founded in 1910. Its origins are integral to apartheid, in that apartheid South Africa used the union to maintain dominance over its immediate neighbours – Botswana, Lesotho, Swaziland and (later) Namibia (the BLNS countries). Thatlegacy still weighs heavily on SACU, expressed by some current trade negotiations which are with South Africa only, largely ignoring the economic interests of the BLNS, such as the recent talks for the US-SACU FTA and the already implemented TDCA (EU-South Africa Trade Development and Co-operation Agreement).
The Southern African Development Community (SADC),2 formed in 1980, in an explicit effort to limit the economic impact of apartheid South Africa on its neighbours. At the time, South Africa regularly attacked regional economic targets from ports to railways to fuel depots (Martin & Johnson, 1986). This origin is one reason why reducing trade barriers is only one of the many goals of SADC for regional cooperation. After majority rule, South Africa became a member.
Some members of SADC are also members of COMESA (the Common Market for Eastern and Southern Africa), and for the purposes of the EPA negotiations, most of these countries have detached themselves from SADC and are negotiating within the ‘ESA configuration’.
This paper is organised in four parts, focusing on agriculture in the trade agreements, as this is the major source of exports from southern Africa to the EU, although it is much less so for the US, which continues to import mainly oil and minerals (see Appendix, p. 245). Agriculture is also the sector most highly protected by both the EU and the US. The first section provides some background on the consequences of the neoliberal policies that have been forced on Africa since 1980, the importance of trade with Africa to the EU and the US, and the policies they are now pursuing. Part two discusses the current barriers to agricultural trade set up by the EU and US, in spite of highly publicised trade initiatives, and we continue in part three to discuss how barriers to escaping agricultural dependence remain for southern Africa. The conclusion discusses the way forward.
I. The Impact of Trade Liberalisation on Africa
In 1981 the World Bank published Accelerated Development in Sub-Saharan Africa: An Agenda for Action, usually known as the ‘Berg Report’. This was the first statement in relation to Africa of the ‘neoliberal’ orthodoxy, and the forerunner of almost universal ‘structural adjustment’ which resulted in the opening of African economies (not that many were completely closed), the rolling-back of the state, and the ending of aspirations to industrialise. The following quarter of a century, far from being the bright future the West offered Africa ‘if only it mended its ways’, made the preceding decades seem almost a golden age.
The failure of structural adjustment and its (partial) recantation by the World Bank has been much discussed (see for example Williams, 1994). Our purpose here is to focus on Western policies of the last ten years. Having opened up Africa and aborted its attempts to follow the economic-nationalist policies3 which had succeeded in the newly industrialised countries, and are now bearing fruit in India and China, the West now offers Africa a permanent role as ‘hewers of wood and drawers of water’ (i.e. exporters of agricultural and mineral commodities); free trade may well achievethis goal, as it will cause further specialisation in areas of existing comparative advantage (although this will again prove fruitless in cases where Western subsidisation of these very commodities continues) and prevent attempts to change comparative advantage in the way the NICs did.
We begin with the conclusion of the Uruguay Round in 1995 and the establishment of the WTO with an agenda to bring agriculture into the trade-liberalisation project. More than one study predicted that Africa would be the sole continent losing its share of the global market with trade liberalisation, and they were right:
The growth of international trade has done little to slow the marginalisation of sub-Saharan Africa. While [global] trade has risen as a share of [global] GDP – from 40% to 55% since 1990 – the region's share (excluding South Africa) of world exports has fallen to 0.3%. The share ofworld exports of Sub-Saharan Africa, with 689 million people, is less than one-half that of Belgium, with 10 million people.
If Africa enjoyed the same share of world exports today as it did in 1980, its exports today would be some $119 billion higher (in constant dollars). That is equivalent to about five times aid flows and budget savings from debt-service relief provided by high-income countries in 2002 (UNDP, 2005:117).
Accounting for only 0.3% of global exports, the continent is no longer on the trading map. Sub-Saharan Africa's share of total imports into Europe was 5.1% in 1963 but only 1.6% in 2001; for North America (Canada, Mexico and US), the decline was from 3.8% to 2.0% (Gibbon & Ponte, 2005 :40).
Trade Profiles
One of the major differences between the EU and US in relation to southern Africa is that the EU figures more prominently as an exporter to southern Africa than does the US. It is the largest exporter to the SADC region, accounting for 32% of imports in 2002, compared to only 9% for the US. The EU takes some 34% of exports compared to 36% for the US. In 2003, trade between the EU and SADC members (excluding South Africa) totalled €7,382 million consisting of €4,526.4 in imports from SADC countries into the EU and €2,855.6 million in EU exports to SADC countries. Five products accounted for fully 86% of exports to the EU, namely: diamonds and gold (47.3%), oil (19.1%), aluminium (10.4%), and fisheries products (10%). The main EU exports in 2003 were machines and appliances (29.5%) transport materials (24.3%), food industry products and drink (8%), non-precious metals (7.7%), and chemical products (6.8%) (http://agricta1.cta.int/index.php/en/content/view/full/2494).
Similarly oil and minerals account for 75-80% of US imports from southern Africa. Unprocessed minerals comprise two-thirds of total southern African regional exports; for some countries, one mineral defines the exports: Angola – oil (86% of total exports); Botswana – diamonds (88.2%); Namibia – uranium (24%) and diamonds (40%); Zambia – copper (84%) (US Department of Commerce 2006:11-12).
For the US, the two major southern African trading exporters are Angola and South Africa, with Angola providing 17% of total sub-Saharan exports (almost entirely oil) and South Africa providing 18% (platinum, diamonds) (Robinson-Morgan, 2004:10). Even these few statistics reveal the core problem of southern Africa: exporting mainly primary, unprocessed commodities. Although exports of manufactures have increased, the growth rate does not compete with manufacturing exports of other developing regions. Trapped as primary-commodity exporters for decades, southern Africa suffers the burden of falling commodity prices and remains vulnerable to market vagaries:
Price volatility arising mainly from supply shocks and the secular decline in real commodity prices and the attendant terms-of-trade losses have exacted heavy costs (UNCTAD, 2003:ii).
From ‘Trade Not Aid’ to ‘Aid For Trade’
From the early 1990s, and related to the demise of the Soviet Union, the US drastically reduced its development aid around the globe and changed its policy to promote ‘trade not aid’. It defended the policy change as transforming aid dependency into trade choices. As a strong promoter of global trade liberalisation, US government policy closely follows neoliberal theories that more open markets provide economies of scale, reduce prices of goods through competition, and encourage cross-border investments, creating jobs. This multiplier effect promotes economic growth for individual national economies and for the world economy, and the only ‘losers’ are those governments who refuse to open up their economies.
Applying these theories to Africa ignores the structural constraints which preclude economies from fully responding to new trade opportunities: insufficient or delayed arrival of inputs affects the capacity of exporters to respond to the global market: transaction costs and transport costs are much higher per unit of output in Africa than in most other places. For example, the density of rural roads in Africa is about 55 kms per square km, compared to more than 800 in India. Lack of roads, bridges, and collection depots explain why small farmers in Africa receive only about 1020% of the export price for their goods (Diao & Hazell, 2003). Such structural constraints diminish or even eliminate market incentives.
Advocates for increasing developing countries' capacities to exploit new markets call for ‘aid for trade’, or financing to build infrastructure and administrative efficiency. One analysis for the OECD emphasises that 'market access is not the most important factor constraining export growth in many developing countries (Hoekman & Prowse 2005:16). The authors give a list of areas where financial and technical support are essential if a developing country is to export profitably the commodities in which it has comparative advantage. What appears to be emerging across neoliberal theorists and their critics is a consensus that lowering tariffs and quotas is only the first step toward raising revenue from trade, not just increasing the volume of trade. But we would say that it should only be the second step after supplyside constraints have been addressed.
Trade & Development
Over the last decade, free trade policy analysts have emphasised the high correlation between trade and development: trade will bring development and development increases trade; so one reason to promote a global market is development. The EU refers to its EPA initiative as an ‘instrument for development’.
The US officially named its first major initiative toward the continent, ‘The African Trade and Development Act’, more colloquially known as AGOA (Africa Growth and Opportunity Act). Any country that fulfilled the conditionalities could ship 6,400 products tariff-free into the vast US consumer market. According to the promises, with increased jobs and profits, mainly from production in textiles, almost everyone in the exporting country would benefit.
Yet we must now challenge this correlation, for trade is not automatically bringing development, and naming trade as the prime instrument for development obscures the competition inherent in trade. What US and EU corporations are pursuing is economic self-interest, with the support of their governments. The goal of the government/corporate trade partnerships is to take full advantage of emerging markets, before other developed countries can successfully compete. However, immediate competition is only the most obvious aspect of global trading. A longerterm goal of the US is to change the production structures of African economies, not just their trade laws. In agriculture, the US pursues trade policies that advance largescale, industrial agriculture. The corporations are working to change reliance on saved seed to dependence on commercial hybrids and GMOs (genetically modified organisms), patented to bring high profits. They advance increased yields of one or two staple crops as the guarantor of food security, and such monoculture requires fertilisers and pesticides, available from US agribusiness. The US Trade and Development Act (AGOA) calls for a two-year study to examine ways to ‘improve the flow of American farming techniques and practices to African farmers’ including use of ‘modern farming equipment’ and ‘crop maximisation practices’ (US Congress, 2000: Section 130).
Rather than offering ‘development’ to poorer countries, both the EU and US are pursuing expanded markets for corporate profit. The two have different strategies and tactics for pursuing their self-interests. Frustrated with not advancing its policies more successfully within the WTO, US trade negotiations over the last five years demonstrate that it is attempting to circumvent the WTO by aggressively advancing free trade agreements with selected countries or regions. The first FTA partners seem to be not those whose trade matters so much to the US, but governments who will agree to American terms (e.g. Morocco, Singapore, Chile). These FTAs, not WTO principles, then become the model for other negotiations. A clear difference, to be analysed later, is the intellectual property terms in the FTAs, in contrast to the TRIPs (trade-related intellectual property rights) agreement in the WTO. TRIPs was to be rewritten by 2000 to extend private intellectual property rights over bacteria to all plants and living organisms. Organising by South countries blocked this extension, with the Africa Union unanimously voting against any patents on life in 1999. However, the FTAs follow US law in requiring the most stringent patents on life on the planet. The US government sees the FTAs as a muchpreferred alternative to the WTO, which affords too many opportunities for coalitions and bargaining under a transparency spotlight.
The EU has used the pretext of WTO non-preferential treatment for the abandonment of a keystone of the Lomé agreement with the African, Caribbean and Pacific countries (ACP, former colonies of Europe), the principle of non-reciprocity. Following the Cotonou agreement it initiated discussions for so-called economic partnership agreements (EPAs). These are to be fully reciprocal free trade areas (although with differential time-scales for tariff reductions); it did not even consider the option of seeking derogation in the WTO (as achieved under Lomé). Using specious statistical arguments, the EU claimed that non-reciprocity had been a failure according to global trade figures (ignoring the fact that most ACP production was in primary commodities that are of declining importance on the world market and furthermore with falling prices, so that ‘failure’ was built in). Where ACPs had a chance to initiate industrial production (Zimbabwe, Mauritius), non-reciprocity had been a huge success.
The EPAs, will apply to all ACP countries,5 not just those in southern Africa. Formal negotiations began in 2004, and agreements are scheduled to be signed by the end of 2007. The discussions are quite open, with ACP countries vigorously opposing certain provisions, and a ‘Stop EPAs’ movement gathering strength amongst NGOs.
In contrast, the US's pursuit of free trade agreements (FTAs) has been conducted in secret negotiations, with the terms not being released until the document has been signed (Chile, Central America, Singapore). The negotiations are often on ‘fast track’, with serious delays occurring only after the documents are made public. For the SACU FTA, while labour unions and other NGOs were told that they are not stakeholders and therefore, could not have access to the negotiations or its records, US corporations were integral to the consultations. Discussion of the US/SACU FTA for this paper, therefore, cannot be based on the negotiating documents, for they remain secret. Previous work has been done, however, on the Chile and CAFTA (Central American Free Trade Agreement) and a formal comparison of several US FTAs reveals that many provisions are exactly the same (Verbeck, 2004). The US/ SACU FTA working group of about 30 civic organisations6 employed this fact as a way of advancing debate and transparency about the provisions while negotiations were in process. In alliance with civic organisations in southern Africa, including the powerful COSATU (Congress of South African Trade Unions), they were able to expose some of the terms of the negotiations, and this was a factor in the talks breaking down in April 2006. South Africa walked away, but the US trade representatives were not willing to acknowledge defeat and declared that negotiations would continue over the long-term.7
It seems that both the EU and the US want free trade with their own clients, while denying it to each other (and Japan). This is not multilateralism according to the WTO, but more like old-fashioned colonial empires, inside which of course, there was ‘free trade’.
II. Trade Barriers to Agricultural Products
After ten years of WTO administrative rule, the EU and US continue to ignore the intent of the WTO in the agricultural sector. Although they may appear to follow the letter of the law, their policies are to advance the prospects for production and trade of their agribusinesses, even where they have no comparative advantage.
The overall producer-support estimate (PSE) in the EU was 32% of farm receipts in 2005, much worse than in the US at 16% (though Japan, Korea, Norway and Switzerland were worse still at 56%, 63%, 64% and 68% respectively) (OECD/FAO, 2006).
Given its chronic trade deficit, the US government does all it can to increase exports in its two leading trade sectors, armaments and agriculture. Agricultural exports are key to domestic economic security, for more than 1 in 3 acres of US crops are exported in bulk or in value-added form. The US Department of Agriculture reported in 1993:
Because the domestic market absorbs a smaller and smaller share of production, US agriculture must compete more and more effectively with other countries for a share of the world market – or else accept a reduction of productive capacity (Watkins, 1999:36).
In May 2002, President Bush signed a $190 billion farm bill that extends for ten years, providing subsidies to guarantee 80% of qualified farmers' income, no matter what they grow (New York Times, 18 October and 2 November 2001). As explained by Senator Kent Conrad of North Dakota,
I know there are people who have cogent arguments that our farm policy encourages over production, but that misses the larger reality. We're engaged in a trade war, and it's not pretty New York Times, 16 November 2001).
In poorer countries where two-thirds of the people still live on farms, America's grain subsidies are seen as the equivalent of a declaration of war (Becker, 2002).
The agricultural provisions of US FTAs require full opening of agricultural markets from countries in the South, including their staple crops. White maize is an exception for the Central American FTA, but tariffs must be eliminated on all agricultural imports to Central America over 5-15 years. The US-Chile FTA preserves the right to continue subsidies if a third-party subsidy still exists, which translates into saying that EU Common Agricultural Policy (CAP) subsidies permit continued US subsidies to its own agriculture, creating a major disadvantage for Chilean farmers. Farmers' rights to save seed are annulled in both the Central America and Chile FTAs with the US.
With its agricultural production highly subsidised, the US then engages in dumping on the world market. The most notorious case, now declared illegal by the WTO, was US government financing of 20,000 cotton farmers which reached $4.7 billion in 2005, about three times the value of US aid to all of Africa. When world cotton prices hit a 50-year low in 2001, losses attributed to US subsidies were estimated at 1-3% of GDP for Burkina Faso and Mali, in addition to losses of income for millions of smallholder cotton producers (UNDP, 2005:131). After the WTO ruling in 2006, the US promised to reduce the subsidies, but before the end of the year, Brazil was asking the WTO's dispute settlement board to begin a compliance review, raising the question whether the US had implemented any corrective measures at all (WTO, 2006:1).
For the US in southern Africa, the dumping most often occurs under the banner of food aid. With 60-75% of its maize being genetically modified (GM), the US has lost global markets. For example, US maize exports to the EU fell from $426 million in 1995 to $1 million in 1999 (Patel, 2002:5). Therefore, the US ships unlabelled GM maize as food aid to southern Africa, making the chain of subsidies long: the US government offers subsidies for R&D of chemical companies that are advancing GM seed; then it finances the farmers to grow the seed; then it buys the GM crop to use as food aid for needy countries. Such extensive state involvement is reminiscent of Soviet agricultural practice, rather than a free-market economy.
In a similar way, the results of CAP reform in Europe and the new ‘single farm payment system’ is strongly reminiscent of Gosplan. Amidst the rhetoric that EU farms can now respond to world market signals instead of the old subsidy-inflated price levels, farmers know that, just as in the US, their income depends primarily not on how much they sell of most commodities, but on how well they follow requirements to produce agreed amounts to improve quality, to maintain and improve the environment, to raise safety standards etc. All are highly laudable aims, but in no way subject to market disciplines. Farmers also know that if new directives (rising food safety standards in particular) raise their costs in a way that threatens their competitiveness, they can expect to be paid further handsome subsidies. This is a potential source of major non-tariff barriers to imports from third countries. The overall situation can be judged from a statement of the former EU Trade Commissioner Pascal Lamy (now director-general of the WTO):
If farming had to go by the principle of the international division of labour … five million of Europe's six million farmers would go to the wall. That is not acceptable and it is not what our European civilisation is about (Lamy, 2002).
Average tariffs among industrialised countries are low (4-8%), but tariffs on agriculture are high. Tariffs on major agricultural staples, for example, often exceed 100% … [and they] are more than 30% of many food-industry products (World Bank 2001:2).
The Overall Aim of CAP Reform
The ultimate aim of CAP reform is to create a situation in which all internal EU prices are brought into line with international prices, with EU agricultural production feeding a globally oriented food and drink industry, increasingly specialising in high-value quality food and drink products. As European agriculture is on average inefficient by world standards, a switch from price support to income support (similar to that in the US system) has become essential in the face of the WTO prohibition of the former. The latter – with the agreement of the US – escapes for the time-being, being deemed to be in a ‘green box’ of non-trade-distorting support, but remains under challenge from more-efficient producers.
Under the new European model of agriculture which the process of CAP reform is promoting, prices will be progressively reduced as price support is gradually replaced by programmes of direct aid to farmers, which are increasingly decoupled from production. The deployment of this support will be linked to ‘crosscompliance’ requirements and other measures designed to shift European food-and-agricultural production away from bulk commodities towards increasingly specialised and differentiated higher-value quality food products.
If this transition can be brought about, it will result in a fundamental shift in the orientation of European agriculture. European agricultural production will no longer be aimed at ensuring European food security, with incidental surpluses being exported with the help of publicly financed export refunds. Instead, it will be geared towards providing primary agricultural inputs into a European food and drink industry oriented towards competitively serving world markets. This process is already substantially under way with food and drink constituting the single largest manufacturing value-added sub-sector within the EU. However, this more ‘competitive’ food and drink industry will remain dependent upon the continued provision of large and more efficiently deployed volumes of public aid to the basic system of agricultural production.
There are two key aspects of the process that will need to be addressed directly in the EPA negotiations (although the EC is likely to resist substantive consideration). These are the direct consequences of CAP reform and the implications of the EU's growing emphasis on food safety.
CAP Reform & the Consequences for Southern African Agriculture
Since 1992 across a range of sectors, the EU has begun to shift from systems of price support to systems of direct aid to farmers. This is intended to reduce the internal price of EU agricultural products, without undermining farm incomes. Lower EU prices have generally served to:
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Reduce the gap between EU and world market prices;
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Reduce the need for export refunds;
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Reduce the need for and costs of public storage;
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Boost consumption;
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Reduce ‘surpluses’ (by boosting domestic consumption and export possibilities).
Reform, by lowering EU prices and closing the gap with world market prices has also greatly reduced the need for export refunds. In the arable sector, export-refund expenditures fell from €3,733 million in 1991 to a mere €99.3 million in 2002, a remarkable 97.3% decrease. However this was simply because such payments were no longer needed to the same extent. When the value of the euro increased dramatically against the US dollar (widening the price gap between euro and US dollar-denominated world market prices), export-refund allocations for cereals were again increased to meet the needs arising. From an African perspective this process of reform, and its falling EU market prices, is having two important negative effects:
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Rendering the EU market less attractive for basic temperate agricultural exports from ACP countries;
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Enhancing the price competitiveness of EU exports to ACP markets.
The impact of CAP reform in southern Africa in terms of the erosion of the value of traditional trade preferences can most vividly be illustrated by the likely impact of current proposals for EU sugar-sector reform on the annual income earned from raw sugar exports to the EU. In July 2004 the EC proposed to abolish the intervention price for sugar and replace it by a ‘reference price’ one-third lower. This will lead to a fall in the EU sugar price from €632 per tonne to €422 per tonne and a fall in the price offered for ACP raw sugar from €523.7 per tonne to €329 per tonne. Total losses to southern African exporters fall under two main headings which are set out in Tables 1 and 2 (over).
| Sugar-protocol quota (tonnes raw sugar equivalent) | Current earnings at (€) 523.70/t | Earnings 2009/10 & after (€) | Income losses from reform (€)m | |
|---|---|---|---|---|
| Malawi | 22,635.2 | 11,854,063 | 7,582,798 | −4.2713 |
| Mauritius | 533,728.3 | 279,513,490 | 178,798,967 | −100.7145 |
| Swaziland | 128,091.8 | 67,081,701 | 42,910,769 | −24.1709 |
| Tanzania | 11,071.8 | 5,798,327 | 3,709,069 | −2.0893 |
| Zimbabwe | 32,853.0 | 17,205,139 | 11,005,770 | −6.1994 |
| Country | SPS sugar exports(t) | Current earnings (at €523.70/t) | Earnings after stage 1 reform (at €329.0/t) | Income losses from reform |
|---|---|---|---|---|
| Malawi | 22,635.2 | 11,854,063 | 7,582,798 | −4.2713 |
| Mauritius | 533,728.3 | 279,513,490 | 178,798,967 | −100.7145 |
| Swaziland | 128,091.8 | 67,081,701 | 42,910,769 | −24.1709 |
| Tanzania | 11,071.8 | 5,798,327 | 3,709,069 | −2.0893 |
| Zimbabwe | 32,853.0 | 17,205,139 | 11,005,770 | −6.1994 |
To these need to be added the income losses for least developed country (LDC) sugar exporters under the EBA (Everything but Arms – open entry to EU market for all LDCs). Thus, the first phase of sugar-sector reform will lead to total annual income losses to southern African sugar exporters of a minimum of about €155 million, to which potential income losses for EBA sugar exporters should be added. This follows the trend already established in the beef sector, where CAP reform has caused prices of southern African beef marketed into Europe to fall by between 28 and 30% over a three-year period.
Food Safety: The New EU Priority Issue
In the 1990s Europe was plagued by a series of food safety scares, largely arising from over-intensification of agricultural production. These ranged from the BSE (‘mad cow’) crisis in the UK to the dioxin-contamination scandal in Belgium. As a consequence of these shocks to the EU's agriculture and food industry, the EC began in 2000 to work on a comprehensive new policy designed to guarantee food safety from ‘farm to fork’.
This new more comprehensive approach involved the adoption (1 January 2002) of an integrated approach to food safety covering all sectors of the food chain, including feed production, primary production (on the farm), food processing, storage, transport and retail sale. Most recently the EC has submitted, and the EU Council is in the process of approving, a food-and-feed control regulation. In addressing the executive directors of the World Bank, (then) Commissioner Byrne rather ominously noted:
unless there is a serious effort to also strengthen the capacity of developing countries to meet the food safety standards of the developed world, the opportunities presented by trade liberalisation in the food area may prove illusory.
These problems need to be clearly situated in the context of the importance to southern African countries of the EU market for food and agricultural-product exports. On average about 30% of exports by these countries are food and agricultural products, ranging from a high of 98.6% for Malawi to a low of 1.0% for the DRC. All of these exports will potentially be impacted on by various dimensions of the EU's new food safety policy.
Unless producers can meet the basic food safety standards and governments in southern Africa can establish systems to credibly verify and certify compliance, at a cost which is economically sustainable, then future exports from the SADC region to the EU could be severely disrupted. This issue is of such profound importance that it has to be a central focus of discussions in EPA negotiations, regardless of the configuration for such negotiations.
The provision of financial assistance to all producers and processors along with financial assistance to building institutional capacity for certification and verification would be wholly consistent with internal EU practice where, under a variety of financial instruments, in the region of €3-4 billion each year is being made available to European producers to support the implementation of new food safety standards within the EU. Whether the EC departments dealing with EPA negotiations, the wider EC, and the EU as a whole are open to answering these serious questions is far from certain. While senior Commission officials have been strong on rhetoric acknowledging the need for such support, they have yet to translate their words into support on a scale commensurate with the size of the challenge faced.
III. Barriers to Escaping Agricultural Dependence
The FTAs of the US and the EPAs of the EU bring new problems to the international trade regimes for southern Africa. In the name of reciprocity, both approaches leave the burden of adjustment to the weaker economies. To cover ‘substantially all trade’, the EU EPAs require removal of almost all tariffs and customs duties, with no provisions for a country like Lesotho, that would lose about 50% of its government revenue. One study found that the three-quarters of the ACP countries would lose 40% or more of tax revenue, with one-third losing over 60% (Stevens & Kennan, 2005). How a government in a developing country could regain such revenues with newly-devised tax systems is not fully discussed, making the EPAs look like another policy instrument to reduce the role of government in developing countries.
The US makes little effort to meet reciprocity in exchange, but rather, is quite direct in stating that any existing preferences could be lost if the FTA under negotiation is not ratified. The US trade representative used this tactic during the Central American FTA negotiations and also threatened the closure of AGOA preferences to SACU if they terminated negotiations (in this case the tactic did not work). This demand for full opening of agricultural markets applies only to others in the FTA, for the US continues its own agricultural subsidies. The US used to allow a ‘positive list’ giving generic reference to categories like ‘all cereals’ to be exempt from the trade regime; now it requires a ‘negative list’, with specific itemisation of each product to be exempt. And very few exceptions are made. Chile had to abandon its highly successful agricultural price band or not have access to the US market (which it had been able to maintain with the EU). The price band allowed the Chilean government to stabilise import costs of agricultural staples by adjusting tariffs; depending on the international price of wheat, vegetable oil, sugar or other staples, the tariffs were either increased to defend a floor price or lowered to defend the ceiling price. This major food-security provision is not allowed under the US/Chile FTA. As stated above, ignoring any idea of reciprocity, the US can sustain its full subsidies of agriculture under the same agreement.
A very important concern to southern Africa of both the EPAs and FTAs is the de facto break-up of SADC. Both the EU and the US profess to support regional economic cooperation but then advocate policies that make that goal quite impossible. For example, they both work through South Africa, the dominant power in the region, one often resented by the others: the US/SACU FTA was really an attempt to forge an agreement with South Africa, with the BLNS only as silent partners; similarly the EU TDCA (EU-South Africa Trade Development and Cooperation Agreement) was also mainly with South Africa, with the BLNS hardly participating in discussions. Furthermore, the two negotiations are aspects of the competition between the EU and US to secure dominance in the South African market. This latter goal was very apparent to South Africans as the US-SACU talks broke down:
Observing the US-SACU talks, it is evident they are not about SACU, but American business and competition with Europe. The Americans will no longer cede the African market to their European counterparts … Like old times, the content of policy is shaped by competition against an adversary from outside Africa, Europe (Pheko, 2006: n.p.).
EU Trade Practices Blocking Development
Rules of Origin
One respect in which the US and AGOA has policies superior to the EU's is in the matter of ‘rules of origin’. Even in its EBA facility (which in principle allows dutyfree entry into Europe for almost everything exported from LDCs), rules of origin can be so tight that in practice hardly any manufactured goods (necessarily based on material that a poor country cannot have originated) can enter. But the rules of origin for AGOA are only lenient for LDCs; for developing countries which could challenge the US textile industry, such as South Africa, Mauritius or Zimbabwe, thread and yarn from the US must be used in order to keep duty-free entry of their textiles.
Value-added Food Products
As the prices of cereals, dairy products and sugar fall in the EU (still largely to occur only in the case of the latter), European food manufacturers gain access in Europe to European-produced raw materials at world market prices (often below the price of the most efficient producer because of world over-production, caused in large part by EU and US subsidisation policies). Such value-added food products (such as confectionery, cakes and biscuits and various dairy products) are amongst the most important first-stage manufactures that hitherto purely agricultural producers can move into. It is becoming progressively harder to do so as European companies become more competitive (on the basis of uncompetitively produced inputs) in precisely these products. Free trade would deny developing countries the long-standing right to infant industry protection from more-efficient (because more mature) foreign industries; we now see that it could deny them the right to protect their industries from less efficient (but cheaper because subsidised) producers as well.
Changing European Tastes
A related factor results only in part from concealed subsidies in Europe. With rising incomes and more expensive tastes, the market in some products in Europe is becoming fragmented with, for example in the case of chicken parts, breast meat being demanded more, while legs and especially wings are unwanted. Large quantities of such ‘inferior’ commodities are now being exported, primarily to west Africa, though potentially anywhere, destroying local farmers and dependent processors. The chicken does not even need to be subsidised in Europe; imports of whole chickens from Brazil, a very efficient producer against which African countries could expect to be allowed to protect themselves, are entering Europe, which consumes the breast and exports the wings to Africa. EPAs could deny Africa the right to protect its industries against such imports.
Food Safety
Rising food safety standards in Europe could easily turn into non-tariff barriers (NTBs) against African food exporters. Although good in themselves, higher standards are expensive to implement, so producers in Europe are being subsidised – especially those in the ten recent accession countries – to the extent of billions ofeuros. The EC has, however, also been sympathetic to the plight that higher standards could potentially cause to many traditional food exporters to Europe. Unfortunately, where sympathy to EU producers has resulted in expenditure in billions of euros, for ACP countries the contrast in treatment is blatant, with help in raising standards being an order of less magnitude. This is not a matter that the EC is prepared to discuss in the context of EPA negotiations.
Bilateral Negotiations
Europe's concern for the impact of its policies on development prospects of ACP countries in general, and southern African countries in particular, obviously has its limits. Preference erosion as a consequence of CAP reform has already been discussed, but there is also the more general phenomenon of erosion through both multilateral (through the WTO) and bilateral negotiations, the latter being entirely under the EU's control. In this context, the negotiation of the TDCA with South Africa (see above) ignoring its effects on the BLNS, and indeed the rest of SADC, has set a model for EU trade policy. Currently the EC is negotiating with Egypt, a member of COMESA, despite the EPA negotiations with the ‘ESA configuration’ (containing nearly all the other members of COMESA). Ongoing negotiations with other Mediterranean countries, while not pre-empting regional EPA agreements in the same way, are having the effect of further reducing the value of EU preferences to ACP countries.
US Trade Practices Blocking Development
Although there are many aspects in the FTAs that one could analyse as detrimental to an economy moving from a primary-commodity producer to an exporter of valueadded goods, this discussion will cover just two important ones: IPRs and national treatment. With the most stringent laws in the world protecting intellectual property, the US acts to enforce those laws in other countries via the FTAs. Those engaging in FTA discussions must accept US patent law as their law of the land, including patents over life forms. A second requirement slows considerably the development of generic drugs. Although the corporation must still present its technology to the host country honouring the patent, that information cannot enter the public domain for five years, thus closing off the possibility of developing a generic drug from the patented one. Although the term for patents in the FTAs is the same as the WTO, 20 years, this provision is a major deterrent to sharing basic components of the innovation, even if it serves public health such as the HIV/AIDS pandemic in Africa. Third, FTAs are requiring that there be no restrictions on GMOs, in research, planting seeds, or marketing. For the countries of Central America in CAFTA, it means they cannot exercise their rights in another treaty they have ratified, the Cartagena Biosafety Protocol. This protocol allows import restrictions on products if the government is concerned about the safety of the environment or public health; the government does not have to prove the product is a danger but only decide it may be a potential danger. Such a provision would permit a country to restrict the entry of GM seed, food, or experiments. Not being a member of the Biosafety Protocol treaty, the US demands that the FTA member accept US law over this international law.
These IPR provisions take sovereignty away from national governments in major areas, such as food security and public health. They preclude the possibility of reverse engineering – or taking a patented item and replicating it, except for some small feature. They privatise intellectual property well beyond what has been considered acceptable by the WTO, which does not allow patenting of plants or seeds, permits exceptions to preserve food security, and allows generics for drugs. Yet the US is closing off these avenues in the FTAs, making it very difficult for countries in the South to enter trade at a higher level of technology or of value-added exports. Debated for a decade in the global marketplace, this approach is potentially lethal in a region beset by the HIV/AIDS pandemic. As the NGOs in South Africa, organised to oppose the US-SACU FTA, observed:
US insistence on including ‘TRIPs-plus’ intellectual property rights provisions [in the FTA], and undermining the rights of countries to use public-health flexibility described in the WTO ‘Doha Declaration on the TRIPs Agreement and Public Health’, will have a negative impact on access to AIDS drugs … more than 3,000 people in SADC died of AIDS daily in the course of 2003. This is the equivalent of one 9/11 attack on SADC citizens every single day of the year (Trade Strategy Group, 2006:3).
The most serious concern is that FTA national treatment extends to services, another discussion which has been stalled a long time in the WTO. For example, although NAFTA's provisions explicitly exclude sovereign debt (bonds, loans and other securities guaranteed by a national government) from investor protection, CAFTA includes it. The governments must not offer favourable treatment to domestic over foreign creditors. And all of CAFTA, except Honduras, owe a significant share of public debt to domestic creditors. There are many reasons why a government might want to favour domestic creditors, not the least of which is that they are key to economic recovery. Prioritising domestic debt may be necessary to save the banking system, and often debt includes wages and pensions to state employees, but even they could not claim to be paid first (Caliari, 2005).
Chile had a successful policy of encaje (foreign investors deposited a portion of their investments in the Central Bank), in place since 1991, requiring a non-remunerated reserve requirement of 20% on new foreign credits with maturities of less than one year. Curtailing speculative capital, Chile was shielded from the Mexican economy meltdown of 1995 (Singh, 1999:154, 160). But Chile had to relinquish this policy to sign the US/Chile FTA. Only after an economic emergency begins can the government curtail capital flight, and even then, the corporations can sue for wrongful intent. Taking this policy option away from elected governments reduces sovereignty and makes it more difficult to encourage capital investment for development. As is well known, capital flight can destroy in a day or two a balance-of-payments surplus from commodity trade, built up over decades.
The EU in its EPAs and the US in its FTAs share the same trajectory of pushing the agreements well beyond the domain of trade. They both aim to include services, rather than just exchange of commodities. They liberalise capital flows as much as commodity flows – and only the movement of labour across borders is constrained.
IV. What is to be Done?
In the US
The demise of the US/SACU Free trade Agreement demonstrates that resistance from civic organisations can change the terms for trade. In agriculture, farmers and their supporters in civil society continue to resist, for the trade agreements threaten their very survival, and many governments desire to sustain food sovereignty for their peoples. Working with civil society in southern Africa, the US/SACU Working Group (2006) made public a set of principles that the US government should honour in order to promote development, not dominance, through trade:
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Transparency: direct involvement of the affected communities and civil society groups in both the US and negotiating countries in trade negotiations;
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Labour rights : retention and creation of jobs that respect ILO labour standards;
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Food sovereignty and sustainable agricultural production : protection of selected crops and the ability to privilege small-scale farmers;
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Removal of IPRs from any trade agreements;
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Sovereignty over regulation of foreign investments;
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Sovereignty over decisions about regulation of services and finance.
In Europe
European NGOs are nearly unanimous in opposition to EPAs, and the Commonwealth Secretariat and parliamentary groups in both the UK and France have all delivered devastating analyses of the harm that EPAs would inflict. Insofar as the EC is giving ground in the negotiations, it is not on matters of principle, such as reciprocity (even for LDCs), the exclusion of development aid from a direct role in the EPAs (which must remain about trade), or the exclusion of any consideration of EU farm subsidies from the discussions; rather it is in lengthening the transition period to free trade or reconsidering the list of exclusions (special products, sensitive products). Faced with analyses which show that some governments could lose as much as 50% of their revenue as a result of tariff reductions, they talk of revenue diversification; faced with countries losing much of their export earnings as EU prices fall as part of CAP reform, they offer restructuring aid, implying that viable diversification products exist (and in any case the aid comes after the collapse in export earnings, with livelihoods already destroyed). Perhaps most significant, despite repeated requests, they insist on rigid timetables independent of the success or otherwise of restructuring or investment in addressing supply-side constraints (transport, power, human resource and other deficiencies). If an economy is vulnerable to destruction of its economic potential not because of lack of comparative advantage but because of inability to actually realise the gains from trade because of such constraints, it makes no sense to introduce free trade willynilly; rather, it should be considered once the conditions are in place for it to be helpful rather than harmful. NGOs should continue to forge closer links with civil society organisations in Africa in support of the opposition that is growing in the regions.
In General
A consequence of the breakdown of the current WTO Doha Round negotiations is that a process of consolidation of multilateral trade rules may be replaced by an accumulation of case law as countries, probably led by competitive ones like Brazil, bring challenges to the EU and the US (as in the recent cotton ruling). This could have advantages as well as disadvantages for ACP countries, including those in southern Africa. On the one hand, they may suffer as weak countries with little of the clout of Brazil, so that world trade arrangements will continue to harm them as the EU and the US continue to negotiate bilateral deals. On the other hand, the EU and the US are plainly quite frightened of one set of implications of this process: there will be few barriers to direct challenges to their back-door subsidisation of agriculture if the protection given to them by the WTO-accepted ‘peace clause’ and the device of putting some subsidies into a ‘green box’ are no longer central to a body of accepted rules.
In conclusion we may recall the words of Frederick List, the nineteenth century German economist, writing about Britain's first attempt to enforce free trade:
The ACP, and other developing states, would do well to bear this in mind.