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How Europe’s trade talks with poor former colonies became mired in mistrust

17 December 2007

Early in 2005, just a few weeks after taking office as European Union trade commissioner, Peter Mandelson set out a grandiose ambition: to “put trade at the service of development”

Before him lay the chance to help assuage Europe’s post-colonial guilt. Special EU trade deals with half the world’s developing countries, which expire at the end of this year, needed to be renewed. Brussels could therefore take the opportunity to open its markets more to its former colonies and use aid to help them export.

But with less than three weeks to go, it has not quite worked out that way. The neatly stitched together regional deals that the EU envisaged have disintegrated into a thing of shreds and patches. At the EU-Africa summit last weekend, some African leaders reiterated complaints that have been made for months – that Brussels has acted in the interests of its exporters rather than the world’s poor, rushed developing countries into premature liberalisation and, in some of the more heated contributions to the debate, acted with imperial arrogance.

The episode illustrates the difficulties of realising Mr Mandelson’s ambition. Conflict and confusion abound when blindingly complex and politically sensitive trade agreements are negotiated among dozens of countries frequently ill-prepared for such talks and with sharply varying interests.

The 79 countries of the African-Caribbean-Pacific (ACP) grouping, mainly former European colonies, have for decades enjoyed preferential access to European markets a legacy of imperial trade arrangements. They face lower frequently zero tariffs selling into the EU than those encountered by most other developing countries. For some producers, such as Namibian and Botswana cattle farmers, this preferential treatment is the difference between being able to sell into the European market at all and being swamped by more efficient producers from the likes of Brazil and Argentina.

But the latest iteration of these deals, the Cotonou agreement (named after the main city in the west African state of Benin), turned out to be against World Trade Organisation rules as it discriminated between developing countries and did not require the ACP countries to lower their tariffs in return. A waiver from those rules expires at the end of 2007, after which they will be vulnerable to legal challenge in the WTO.

The European Commission, the EU’s executive arm, saw the chance to reform the programmes with new “economic partnership agreements” (EPAs) in a way that, it said, would help the ACP countries compete in the world economy.

For the reality is that the Cotonou preferences have not stemmed the ACPs’ relative decline as world trading powers. The ACPs’ share of the EU market fell from 6.7 per cent to 2.8 per cent between 1976 and 1999, and from 14.8 per cent to 4.1 per cent of the EU’s trade with developing countries. Many remain locked into colonial-style relationships whereby they provide Europe with basic commodities – oil and other minerals, fish, tea, coffee and cocoa beans – and receive vehicles, machinery and other manufactured goods in return. One-third of EU imports from ACPs come from relatively prosperous South Africa; another fifth is oil and gas from Nigeria.

Many of the former colonies’ problems, particularly in Africa, derive not from lack of access to western consumers but from the absence of much to sell and the small and fractured local markets that prevent their companies achieving economies of scale. Poor infrastructure, corrupt customs officials and high tariffs and other trade barriers make it often easier and cheaper for Africans to ship their products to Rotterdam or Harwich than to each other.

The EU’s plan was for the ACP to break into six regional groupings, which would liberalise trade among themselves. They would then sign collective deals that gradually – over as long as 25 years – lowered trade barriers against the EU. In return, they would gain enhanced, almost completely free access to the EU market, a privilege currently enjoyed only by the very poorest, least-developed countries (LDCs) under a separate scheme, and laxer “rules of origin” the arcane but highly influential restrictions that prevent countries using inputs imported from elsewhere in production.

But both the depth and breadth of the plan have had to be scaled back. Resistance to plans for service sector liberalisation and rules governing foreign investment in the ACPs mean the deals being done cover only goods, at least for now. The EU has been reduced to scrambling around signing pacts with sub-groups of countries and individual governments.

A fierce debate has developed over whether these trade deals will do much to help the ACP countries or, because ACP governments are required to open their own markets to European goods in return, the pacts merely represent traditional EU “mercantilist” export promotion. Is all of this, in other words, a continuation of the colonial relationship rather than an attempt to escape from it?

A deal signed with Brussels by five east African countries two weeks ago, for example, would see 82 per cent of their tariffs against EU exports cut, and 64 per cent of the total within two years. Luis Morago of Oxfam’s Brussels office says this rapid liberalisation will retard, not encourage, African nations from breaking free from their colonial dependence on commodities. The European approach has “essentially forced the east Africans to choose between guaranteeing markets for their agricultural exports today and maintaining a degree of protection to promote future industrial growth – which all developed countries have done in the past”, he adds.

An alliance of academics and analysts has joined in, arguing that, in the words of Susan Sechler, senior fellow at the German Marshall Fund think-tank, the EPAs represent a “huge market grab”.

Economic modeling conducted at Sciences-Po, the Parisian university, and the International Food Policy Research Institute in Washington suggests that the ACPs would lose from the deals. “The EPAs would result in massive trade diversion in favour of the EU and away from the third-country WTO members in whose name the ‘Cotonou problem’ is supposedly being addressed,” Ms Sechler says.

A wide variety of European exports, ranging from beef to processed goods such as beverages and clothing, would gain preferential access to ACP markets and displace lower-cost competition from both rich and poor countries. Because those European companies would be shielded from competition from elsewhere, they could keep prices high. Thus, she says, ACP consumers and industries would be deprived of low-cost goods while their governments saw precious tax revenue shrink because of lower tariffs.

The preferred solution of the Sciences-Po academics would be for the ACP to remain within WTO rules by reducing tariffs by less against a wider range of countries an idea the EU has briskly dismissed as of merely “academic interest”.

Suspicions of European self-interest were also aroused by the initial attempt to put services and investment rules a traditional obsession of European exporters into the deals. The doubts were exacerbated by the EU’s pushing of a so-called most favoured nation clause insisting that the ACP countries could not have higher tariffs against the EU than against any other trading partner with which it subsequently signed a pact.

But as with most trade pacts, it is the small print that has the biggest impact: which specific tariffs ACP countries will cut and when. The EU says the pace of liberalisation will be set by the countries themselves. And some experts who have worked closely with ACP countries are sceptical that those nations will have to do much liberalising as a result of the agreements.

Chris Stevens, a fellow at the Overseas Development Institute think-tank in London, says development campaigners are exaggerating. The pacts signed so far, he says, appear to be “loose, face-saving deals”. In the east Africa deal, for example, the EU says that the tariffs to be cut within two years are already at zero. The countries will have another 15 years to cut almost all the remainder and the tariffs they will be allowed to keep high indefinitely should enable them to shield most of their vulnerable producers.

For southern Africa, Mr Stevens’ initial calculation is that Botswana, Lesotho and Swaziland will be cutting just 0.5 per cent of actual tariffs faster as a result of the EU deal than they were going to anyway under an existing regional agreement.

As for agreeing to cap tariffs into the future, he says that the ACPs, given the long grace periods they have before cutting tariffs on their most sensitive goods, could even quit the pacts without doing much harm. As time goes on, the value of these preferences are in any case likely to be eroded as the EU continues to reduce its tariffs against other developing countries as part of multilateral or bilateral deals.

Whatever the substance of the deals turns out to be, the process has undoubtedly soured relations between the EU and at least some of its former colonies, adding more tension to already highly politicised relationships.

As well as asking for tariff cuts almost across the board, the EU has attracted criticism for warning that those ACP countries failing to sign a new agreement by December 31 will be forced on to a much less generous preference scheme available to a wider range of developing countries. That would mean some tariffs jumping sharply.

The EU insists its hands are tied by the WTO deadline for the current deal to expire and WTO rules saying that special preference deals need to liberalise “substantially all” trade – which in practice the EU interprets to mean a minimum of 80 per cent.

But since there is a dearth of case law, no one knows what degree of liberalisation would survive legal challenge. Some regard the EU’s insistence on the end-year deadline rather than, say, extending existing privileges for a temporary period, as aggressive and unjustified brinkmanship. The WTO disputes process takes years, so the spectre of the current agreements being mown down in a hail of hostile litigation on January 1 is unlikely.

In this atmosphere, anything can become politicised. One contentious issue is the aid that Louis Michel, EU development commissioner, has pro­mised to help ACP nations build their economies and replace lost tariff revenue. For the Commission, this is the very essence of joined-up policy, marrying aid harmoniously with trade. For development campaigners, it is little short of bribery.

Some of the negotiators who have already signed agreements, such as the Kenyans, say they have been put under no undue pressure. Others feel differently. A statement circulated recently by the National Association of Nigerian Traders, a private sector group set up to advise the Nigerian government on EPAs, said that Mr Mandelson and Mr Michel were attempting to bully the ACPs. “Nigeria appears to be the only country within the ACP bloc that can sit and stand tall before any other, colonial headmasters inclusive,” it said. “Several times within the lifespan of the EPA negotiations, the duo of Peter Mandelson and Louis Michel have continued to treat even the ACP ministers as if they were offending schoolchildren”.

EU officials fiercely reject such accusations. “If all of Africa has rejected EPAs, why are we getting people signing?” Mr Mandelson asked this week. Separately, in a letter to the Financial Times published on Wednesday, he said: “We have more work to do next year, but I am glad to say we are making significant progress.”

Some blame western development campaigners and members of the European parliament such as Britain’s Glenys Kinnock, who have taken up the ACPs’ cause, for raising unrealistic expectations and putting pressure on countries to hold out for better terms after the deadline. “The idea that the EU was going to flout WTO rules was pie in the sky,” says one “The allegation that the EU is arm-twisting poor countries is a very easy one to make – and NGOs [non-governmental organisations] have made it. It’s very hard for negotiators to work when you are being told you are being taken for a ride by Europe. These [countries] do not need NGOs to defend their interests for them,” says another.

The rows seem set to run on well into next year, when more of the detail of the deals will have to be worked out. Where the explosive politics of international development, trade and post-colonialism intersect, what look like neat plans on paper often turn out to be a great deal more complex and contentious on the ground.

Source: By Alan Beattie and Andrew Bounds

Published: December 12 2007 20:02