Economic Partnership Agreements in East Africa

BDI-EABC JOINT DECLARATION ON EAC-EU ECONOMIC PARTNERSHIP AGREEMENT (EPA) The Economic Partnership Agreements (EPAs) between the African, Caribbean, Pacific States and the European Union (EU) follow the unilateral trade preferences granted to the ACP-states.

Unlike bilateral treaties offering preferential market access to African experts, the EPAs will be compliant to the World Trade Organisation (WTO) and will offer regions like the East African Community (EAC) long term import tax and quotas free access to the European market. The EPAs are more than mere free trade agreements – they are designed as development oriented free trade areas building on regional integration.

The EPAs have been negotiated between the EU and the different regions of the African, Caribbean and Pacific States (ACP) from 2002 to 2014. The treaties aim to provide the ACP states with a long-term tariff free access to the European market. Unlike alternative agreements, they are compliant to the international regulations of the WTO. Implementing the EPAs will lead to planning security for African exporters and will increase investments. Although their implementation will come with two risks for the East African Community – of international competition of formerly protected industries and of revenue loss for governments due to the omission of import taxes – the East African Business Council (EABC) together with the Federation of German Industries (BDI) suggest that: ▪

Careful measures are being taken to reduce the risks and to benefit from the increase of long term opportunities for African producers.

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The EPAs are signed and implemented by the countries of the EAC as soon as possible.

STATE OF PLAY ON EAC-EU EPA The EAC and the EU concluded its negotiations on the EPA after 12 years of protracted negotiation between EAC Partner States and the EU, the EPA was initialled in October 2014.

The EPA is expected to govern trade relations between the EAC Partner States (Burundi, Kenya, Rwanda, Tanzania and Uganda) and 27 EU Member states which are parties to the Agreement.

Due to disagreements among the EAC Partner States, the Agreement could not be signed by all EAC Partner States as a bloc. On 1st September 2016, Kenya and Rwanda signed while other EAC Partner States raised concerned that EPA could lead to revenue loss and deindustrialization. The backtracking on the EPAs has created uncertainty on long trade relations between EAC Partner States and EU Member States.

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To date, no firm and collective decision has been made on signing of the EPAs by the EAC Partner States as a bloc. The delayed implementation leads to insecurities for investors and the potential risks of taxes imposed on East African producers exporting to the EU. BENEFITS OF EAC-EU EPAs: EPAs like many other trade agreements have both benefits and costs to both parties. The key benefits of EPAs to EAC Partner States include: ▪

EU providing 100 percent Duty-Free Quota-Free (DFQF) market access to EAC exports to EU markets (except arms) immediately after signing of the Agreement;

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EAC offering 82.6 percent market access to EU exports over a 25-year period under three phases as follow: - 65.4 percent of EU-exports to the EAC are already at zero percent due to the Most Favourite Nation (MFN) regulation (in line with the EAC Common External Tariff) – this category involves raw materials and capital goods; - 14.3 percent will be liberalized in the 15 years after the entry into force (7 during the first year’s moratorium) – the contain intermediate inputs attracting 10 percent of EU-exports to the EAC; - and finally, 2.9 percent to liberalise in 25 years (12 years moratorium) goods attracting 25 percent which are finished products;

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17.4 percent of EAC imports from the EU are permanently excluded from liberalization – this include sensitive list of products which are mainly agricultural products;

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Application of asymmetric specific Rules of Origin which offer simple rules to EAC products and stringent rules to EU products.

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EU commitment to remove export subsidies for all agricultural products destined for the EAC market;

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The EAC Partner States can modify the customs duty to preserve the prospect for the wider African regional integration processes;

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The EAC Partner States can impose export taxes under three circumstances: to foster the development of the domestic industry; maintain currency stability and to protect revenue, food security and environment;

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On bilateral safeguard, EAC Partner States can protect their infant industry for up to 15 years after Agreement enters into force;

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The Agreement contains a package of Development Cooperation aims at assisting EAC Partner States to implement the EPA

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In general, the EPA is expected to create some level of predictability and transparency in the trade regime between EU and EAC since the agreement is negotiated between

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the two parties, unlike Everything but Arms (EBA) and Generalized System of Preference (GSP) which are unilateral schemes.

POTENTIAL RISKS OF THE EPAs â–Ş

The EAC market access offer to EU of 82.6 percent puts the industry of the EAC region under pressure since the EAC region may not favourably compete with a more technologically advanced and competitive EU. In the past, import substitution policies and protection lead to a decrease in competitiveness of companies. The opening of the markets will lead to an increase of pressure on local producers which will lead to an increase of competitiveness, if steered carefully. In the end, local consumers will benefit from increased quality and lower prices.

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The process of liberalization under the EPAs will lead to potential import tariff revenue loss to the EAC Partner States. But: it is the African consumer or even producer importing inputs that pay the tax, not the exporter. Additionally, the EU is offering a development cooperation package to compensate for the loss.

BDI-EABC RECOMMENDATIONS While the risks of implementing the EPA exist, the advantages are clear: Only this Agreement contains long term free market access for the East African producers to the European market.

Currently, Tanzania, Burundi, and Rwanda still profit from the Everything but Arms Treaty. As soon as they lose their status as least developed countries, which i.e. Tanzania might do due to the export of the large gas reserves, they lose this status. Then, the preferential treatment of African countries will be against international WTO regulation.

To implement the agreement and ensure that the potential benefits of the agreements are utilized, the EABC and the BDI recommend: 1. To resume negotiations. The current standstill leads to insecurities and inhibits investments.

2. To take collective action and sign the EPAs as a bloc. The signing of EPAs by individual EAC Partner State rather than EAC bloc would be divisive and could undermine the EAC Customs Union and Common Market.

3. To identify and protect the key industrial sectors by using the waivers provided for in the Agreement to ensure that the EPAs do not lead to deindustrialization in the EAC region.

4. For EAC Partner States to look for avenues to strengthen the weak provisions on compensation of tariff revenue.

5. To increase regional competitiveness, the EAC Partner States should put in place a practical development strategy that will aim at improving production capacities and

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remove supply-side constraints over the period of liberalization under EPA. EAC Partner States should emphasise building capacity to compete over time.

6. For the EAC region to consider value addition for its products to increase competitiveness and raise the value of returns from exports of these products.

7. For the EAC Private Sector and EU Private Sector to work together in addressing competitive challenges of EAC companies through match making, more investment in the EAC region and technological transfer.

BDI-EABC PARTNERSHIP PROJECT The partnership project between the EABC and the BDI aims at improving EABC’s policy advocacy for a deepened regional economic integration in the framework of the EAC. Since 2015, the EABC and the BDI have collaborated to ensure the effective representation of private sector interests within the EAC decision making framework. This includes making the benefits of regional economic integration more tangible and visible for companies.

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