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Will EPAs Foster the Integration of Africa Into World Trade?

Published online by Cambridge University Press:  20 September 2010

Aniekan Iboro Ukpe
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Abstract

New Economic Partnership Agreements were intended to replace the non-reciprocal EU-African, Caribbean and Pacific trade relationship by 1 January 2008, in a bid to further the development of African, Caribbean and Pacific countries under a WTO-compatible framework. African countries and regions failed to conclude any EPAs by that date due to scepticism about the deeper trade implications of EPAs. However, in a move that has seen the disintegration of Africa's EPA negotiating groups and compromised regional integration across the continent, many African countries broke ranks to initial bilateral goods-only Interim Agreements with the EU as a first step towards concluding full EPAs. Exploring an alternative approach to concluding EPAs, this article underscores the point that the Interim Agreements, although seemingly preserving market access preferences for some African countries, are already having devastating effects on regional integration, the very basis of Africa's development strategy.

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Type
Research Article
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Journal of African Law , Volume 54 , Issue 2 , October 2010, pp. 212 - 231
Copyright
Copyright © School of Oriental and African Studies 2010

INTRODUCTION

The Marrakesh Agreement establishing the World Trade Organization (WTO Agreement) emphasizes the integration of developing countries into the global trading system as one of its objectives.Footnote 1 The European Union (EU) initiated “positive efforts” to achieve this, such as the global system of preferences (GSP) to grant developing countries enhanced access to its market and in effect help strengthen trade capacities in these countries. Also, under a trade cooperation arrangement spanning nearly three decades, the EU gave unilateral preferential market access to all African, Caribbean and Pacific states under the successive Lomé Conventions.Footnote 2 In June 2000, the last of the Lomé Conventions lapsed and, in an attempt to move their relationship towards WTO-compatibility while still preserving trade preferences, the EU and African, Caribbean and Pacific countries signed the Cotonou Partnership Agreement (Cotonou Agreement), which provided for the negotiation of free trade agreements in the form of economic partnership agreements (EPAs).

In envisaging EPAs as a replacement for the non-reciprocal preferential trade regime, the Cotonou Agreement provided that EPAs would be negotiated during a preparatory period ending by 31 December 2007 at the latest.Footnote 3 Though no definition was given, the EPA as conceived is expected to facilitate the integration of African, Caribbean and Pacific countries into the global trading system, with an increase in their level and volume of trade.Footnote 4 However, by 1 January 2008 African countries and region had failed to conclude any EPAs, largely as a result of scepticism about the deeper trade implications of EPAs and the non-implementation of the EPA preparatory programme.Footnote 5 Rather, in a move that has seen the disintegration of Africa's EPA negotiating groups, many African countries broke ranks to initial bilateral goods-only interim agreements (interim EPAs) with the EU as a first step towards concluding full EPAs.

This article examines the state of play of the EPA negotiations against the backdrop of the last-minute initialled interim EPAs and their implications for Africa's regional integration agenda. It argues that, although the interim EPAs may well preserve market access preferences, they are already having devastating effects on regional integration: the very basis of Africa's development strategy.Footnote 6 The article describes the socio-economic conflagration of states within Africa as a background to the entire EPA process. It examines Africa's EPA groupings vis-à-vis its existing regional economic communities (REC). Building upon this, the article focuses on West Africa as a case in point to demonstrate how interim EPAs are already undermining Africa's development strategy, before exploring an alternative approach to concluding EPAs that would be compatible with the regional integration processes of Africa's RECs. In its conclusion, the article underscores the point that the on-going EPA negotiations will not further the integration of African countries into world trade.

REGIONAL CONFIGURATION IN AFRICA

A conference of newly independent African countries noted that the small size and fragmentation of post-colonial African markets would constitute major obstacles to the region's overall development.Footnote 7 Forging closer economic ties among independent African states was consequently adopted as an objective that would support the continent's development.Footnote 8 Consequently, a regional approach was adopted, which would see different regions build on sub-regional cooperation arrangements to achieve geographically wider forms of cooperation.Footnote 9

On this basis and with the approval of the conference of heads of states and governments, the UN Economic Commission for Africa divided the continent into four regions: Eastern and Southern; Central; West; and North. African states were thus encouraged to forge and strengthen regional economic groupings and promote the harmonization of all such groupings towards the gradual establishment of a continent-wide African Economic Community (AEC).Footnote 10 Accordingly, the African Union (AU) subsequently endorsed eight of the multiple RECs existing in Africa to be the building blocks of Africa's integration agenda.Footnote 11

The LDCs and non-LDCs

The predominance of less developed countries (LDCs) within Africa introduces some complexities for the EPA negotiations so far as regional integration is concerned.Footnote 12 LDCs are low-income countries suffering from long-term growth handicaps, particularly low human resources and severe structural weakness. Some of the LDCs are presently war-torn and suffering from internal conflicts, and so are more concerned with restoring peace and revamping their local economies than with regional issues. The UN has recognized this group as representing the weakest segment of humanity as they lack the capacity to develop their highly vulnerable economies.Footnote 13 The 1979 Enabling ClauseFootnote 14 is perhaps the clearest indication of the acceptance of this list by the WTO / General Agreement on Tariffs and Trade (GATT) system.

In 2001, the EU adopted the Everything But Arms initiativeFootnote 15 as part of the GSP scheme. Under this initiative, LDCs are granted non-reciprocal duty free and quota free access to the EU market for all products except arms and munitions.Footnote 16 Non-LDCs that failed to initial the interim EPAs now resort to the GSP for their exports. The problem here lies in the fact that the GSP, which incorporates the Everything But Arms initiative, is a non-binding, unilateral measure. Accordingly, the EU reserves the right to withdraw or modify the initiative at any time, thus leaving the measure highly insecure. In designing such unilateral measures as the GSPs, donors exclusively determine the eligibility of recipients and products under them, as well as the rules and exceptions of the scheme. Strict rules of origin in the GSP is another daunting challenge which Everything But Arms beneficiaries face. Huge structural and supply incapacities in LDCs continue to ensure that they cannot meet rules of origin requirements for exports of importance to them, such as industrial and agricultural products. Consequently, they cannot fully utilize the EU's duty free quota free access offer.

Nevertheless, the majority of LDCs in Africa have resorted to the Everything But Arms initiative, rejecting the interim EPAs as not offering them anything better. In fact, all the LDCs in Central and West Africa have rejected the interim EPAs, although some non-LDCs (Cameroon, Côte d'Ivoire and Ghana) went on to initial the agreements and thus set the stage for a grave twist in regional integration dynamics. The LDCs may resort to erecting new trade barriers at their borders if they are going to check the influx of EU goods through the Cameroonian, Ivorian or Ghanaian markets. This is a scenario that will play out in all the EPA groupings where there are LDCs who have not initialled an interim EPA but whose non-LDC neighbours have. Without this measure, the LDCs would indirectly be engaging in reciprocal trade with the EU, circumventing the purpose behind the Everything But Arms initiative.Footnote 17

THE EPA NEGOTIATING GROUPS IN AFRICA

The EPA negotiations as far as Africa is concerned were originally carried on between the EU and four African groupings: Central Africa (CEMAC); Eastern and Southern Africa (ESA/COMESA); West Africa (ECOWAS/West African Economic and Monetary Union – UEMOA); and Southern Africa (SADC). It should be noted that membership of the EPA negotiating groups is not the same as membership of the AU recognized RECs. On 23 November 2007, the EAC EPA group formally split from the ESA and SADC EPA groups to form a separate negotiating group.Footnote 18 Instructively too, the SADC EPA group does not comprise all the member states of the SADC REC. The SADC EPA group consists of Angola, Botswana, Lesotho, Mozambique, Namibia and Swaziland. Some other SADC REC members (Madagascar, Malawi, Mauritius, Zambia and Zimbabwe) are in the ESA EPA group; Tanzania is in the new EAC EPA group; and Democratic Republic of Congo, a member of both the SADC AND COMESA RECs, is negotiating under the CEMAC EPA group. Incidentally, Angola belongs to the ECCAS REC, while Rwanda, a COMESA member, has only recently withdrawn its membership from ECCAS while negotiating under the EAC EPA group. South Africa is only an observer in the SADC EPA group as it already has a free trade agreement with the EU and, for similar reasons, Egypt and Libya, though members of COMESA, are not negotiating the EPA.

In Central Africa, the situation is rather distasteful. CEMAC, rather than ECCAS which is recognized by the AU, is negotiating the EPA on behalf of the region.Footnote 19 To this extent, some uncertainty belies the relationship between the two RECs as far as regional integration dynamics are concerned. In West Africa, although ECOWAS, being the recognized REC, is supposedly in charge of the negotiations, UEMOA is also a recognized co-driver in the negotiations.Footnote 20

Effectively, the EPA groupings are designed as parallel arrangements to the RECs that are the building blocks of the AEC. The EU has carried on negotiations separately with all the groupings on the basis of distinct roadmaps jointly agreed between it and the different negotiating groups. While the EU has been talking to all the groups, the groups have never talked to each other but instead have carried on with some kind of competitive spirit and virtually no coordination among them. Noteworthy, however, is the fact that, despite their separate negotiating mandates, the prioritization of regional integration is common to all the groups.Footnote 21

The Central Africa configuration

Although the CEMAC group along with West Africa failed to initial any regional agreement with the EU, Cameroon, one of the non-LDCs in the group, broke ranks and unilaterally initialled an interim EPA with the EU on 17 December 2007. The other two non-LDCs in the group, the Democratic Republic of Congo and Gabon, rejected any such agreement. A daunting challenge in this region is the fact that the EPA is being negotiated with CEMAC rather than ECCAS, the recognized REC. This could see the members of the CEMAC EPA group more committed to furthering their economic interest under the EPA than with the broader regional integration objectives of ECCAS. Also, any common external tariffFootnote 22 reached in the context of the EPA already seems to compromise the position of the non-CEMAC members as far as ECCAS's ultimate goal of creating a Central African common market is concerned.Footnote 23 The situation may mean that any future ECCAS common external tariff will have to be the same as that which any CEMAC EPA group member has already agreed with the EU.

Another threat to the ECCAS regional integration process lies in the fact that one of its members, Angola, is grouped under the SADC EPA group, with the real likelihood of conflicting EU-CEMAC and EU-SADC EPA obligations arising in the same REC. This further complicates the problem of overlapping REC membership in the region.

The West Africa configuration

The existence of the UEMOA and non-UEMOA groupings within ECOWAS constitutes the greatest threat to regional integration initiatives, as efforts at integration are divided between the two sub-groupings, with each competing for supremacy within the region. As noted earlier, the breaking away of Ghana and Côte d'Ivoire from the regional EPA negotiating group to initial bilateral interim EPAs with the EU already jeopardizes ECOWAS's integration process. The case of West Africa is particularly unfortunate having regard to the fact that this is one region where all the EPA group members, except Mauritania, also constitute the ECOWAS REC, thus making ECOWAS comparatively the most homogeneous REC in Africa.Footnote 24

The Eastern and Southern Africa configuration

The EPA negotiations in this region have further widened the divide in the different splinter groupings existing in COMESA. First, the EPA is being negotiated with a very heterogeneous mix of Eastern and Southern African states (as opposed to a REC) rather than with COMESA, the largest REC in the region. This is perhaps due to the fact that the ESA EPA group involves a considerable number of members of other AU recognized RECs, like the Arab Maghreb Union and SADC, while the regional integration dynamics are made even more complex by the presence of two other official RECs within the geographic region: the Inter-Governmental Authority for Development and EAC. The present configuration of the EPA negotiations effectively dissuades attention from the strengthening of any of the three recognized RECs within the region.

Secondly, the complete break of the EAC countries to form a separate EPA group makes more complex the harmonization of the EAC REC with a unified COMESA customs union as planned, having regard to the tariff offer of the EAC group compared with the multiple offers by other ESA countries. With the exception of six LDCs, the other ESA countries had concluded a common ESA interim EPA with the EU, but based on separate tariff offers and exclusion lists. It is not clear how the different common external tariffs would be reconciled against a possibly different COMESA tariff.

The SADC configuration

On 23 November 2007, Botswana, Lesotho, Mozambique and Swaziland initialled an EU-SADC interim EPA, which Namibia initialled subsequently.Footnote 25 Angola is yet to initial the agreement. South Africa has rejected the interim EPA outright, preferring to continue exporting under its Trade and Development Cooperation Agreement with the EU. This situation portends grave implications for the implementation of the SADC interim EPA and the eventual conclusion of a comprehensive EPA, as South Africa forms the South African Customs Union (SACU) with Botswana, Lesotho, Namibia and Swaziland. While SADC plans to become a free trade area (FTA) by the end of 2008 and a customs union by 2010, it is not clear how its members would harmonize their policies and tariffs in the face of the multiple memberships of its members in preferential trade agreements, made more complex by the fragmentation of the region due to the EPA negotiations.

HOW EPAs CAN FRUSTRATE DEVELOPMENT: THE CASE OF WEST AFRICA

It should be emphasized that West Africa is only used here as a case study. The subsequent analyses are valid in all the other EPA negotiating groups.

Despite ECOWAS rejecting the interim EPAs, the EU went on to conclude bilateral interim EPAs with Côte d'Ivoire and Ghana.Footnote 26 Nigeria, the only other non-LDC in the region, resorts to the GSP for its exports, while all the other non-LDCs now export under the Everything But Arms initiative. Ordinarily, by virtue of Côte d'Ivoire's membership of the UEMOA Customs Union, all the other UEMOA countries (all of which are LDCs) may have to become party to such an interim EPA if their customs union is to remain effective. Being party to the agreement could either be de jure or de facto, as in the EU-South Africa Trade and Development Cooperation Agreement where, although South Africa is the only signatory from SACU, the agreement has a clear impact on other SACU members, forcing them to reduce tariffs on EU imports at the rate agreed by South Africa, effectively making them de facto members.

These piecemeal interim EPAs pose serious challenges for the conclusion of a full EPA at a unified ECOWAS level. First, as explained earlier, those countries that rejected the interim EPAs may resort to erecting new barriers against their neighbours in order to prevent the influx of EU goods through their borders with these neighbouring countries. However, maintaining trade barriers within the region runs counter to and is capable of frustrating the economic integration objectives of ECOWAS and the AEC. Ordinarily, it would be a breach of its ECOWAS Treaty obligation if say Benin erected barriers against imports from Ghana in a bid to check the incidental influx of EU goods.Footnote 27 A close observation of the integration depth across African RECs would reveal that countries are yet to submit their individual sovereignty to any regional body or its court, despite undertaking regional treaty obligations. Thus, notwithstanding the existence of the ECOWAS court, Ghana may not even be able to sue Benin effectively for breach of obligation as these West African countries, like other African countries, see themselves neither bound to appear before regional courts nor bound by their judgments.Footnote 28 Reinforcing this point is the fact that even Ghana unilaterally initialling the interim EPA is a breach of its ECOWAS Treaty obligations. Not even advanced customs unions like UEMOA and SACU that expressly affirm supra-nationality over members have been able to hold their members to treaty obligations.Footnote 29

Secondly, the different liberalization schedules and exclusion lists already agreed to by both Côte d'Ivoire and Ghana respectively do not in any way represent a harmonized ECOWAS position. While Africa has generally pushed for an exclusion rate of more than 40 per cent, firmly rejecting the 20 per cent exclusion rate inherent in a 90 per cent threshold of all products traded, the two interim EPAs are already based on a 20 per cent exclusion list.Footnote 30 Noteworthy too is that ECOWAS obviously wants a longer transitional period.Footnote 31 How are these scenarios to be reconciled upon the conclusion of a regional EPA? Would it mean the existence of different transitional periods, exclusion rates and sensitive product lists in West Africa? If so, how would those countries which first complete their transitional period relate to their regional neighbours who may not have simultaneously completed their own transitional period? Even where it is understood that Côte d'Ivoire and Ghana will assume a longer transitional period negotiated for a full EPA at the regional level, do the present 15 years transitional period and 20 per cent exclusion rates in their interim EPAs not already prejudice the negotiations? Do their already submitted sensitive product lists not pre-empt and perhaps make more difficult an agreement on a harmonized ECOWAS product list?

Thirdly, the negotiation and expected conclusion of separate rules of origin with Côte d'Ivoire and Ghana as indicated in the two interim EPAs, which again may be different from a negotiated position at a full EPA level, will likely raise new barriers to trade among ECOWAS countries.Footnote 32 For instance, if Ghana adopts a single across-the-board approach based on the value added and Côte d'Ivoire basically sticks with the current product specific rule and yet the other countries subsequently negotiate a single across-the-board approach based on a change in tariff heading, such splinter origin rules will constitute new barriers to intra-regional trade, as what constitutes an originating product on a value added basis may not have originating status under change in tariff heading criteria.

Notwithstanding the present scenario, West Africa still believes in the EPA as an instrument that could ensure its integration into the global trading system and lift its people out of poverty, if done right. Both Côte d'Ivoire and Ghana have re-affirmed their commitment to regional integration and their willingness to continue in regional EPA negotiations with the EU, insisting that their interim EPAs would cease upon the completion of a regional EPA.Footnote 33 Nigeria reflects a true ECOWAS concern in insisting that an EU-ECOWAS EPA reflect the parties' commitments in the Cotonou Agreement, including the deepening of regional integration in West Africa. New complexities in the current state of the EPA negotiations may make it practically unrealistic to demand strict adherence to the letter and spirit of the Cotonou Agreement, particularly article 37.3 which provides for an EPA preparation period aimed at, inter alia, the strengthening of regional organizations and the support of regional trade integration initiatives before an EPA comes into force. With this in mind, this article now proceeds to examine a proactive approach to concluding full WTO-compatible EPAs with the different negotiating groups in a manner that will also be consistent with Africa's regional integration dynamics.

ALTERNATIVE APPROACH TO CONCLUDING A WTO-COMPATIBLE EPA

The main issue so far as an EPA's WTO compatibility is concerned is how to reflect the principle of special and differential treatment in the asymmetrical incidences of trade liberalization between African, Caribbean and Pacific countries and the EU, and whether such agreement can be justified under GATT, article XXIV. This article provides for free trade areas and customs unions as exceptions to the most favoured nation rule in GATT, article I. It allows these regional trade arrangements on preferential but reciprocal terms. Describing the implication of the EPA's WTO-compatibility, the Cotonou Agreement prescribed that it shall be aimed at progressively removing barriers to trade between the parties.Footnote 34 This indicates that the EPA shall take the form of a free trade agreement.Footnote 35

An FTA refers to a group of two or more customs territories in which the duties and other restrictive regulation of commerce are eliminated on substantially all the trade between the members in products originating between them.Footnote 36 In acknowledgement of the fact that FTAs cannot emerge overnight, GATT provides for interim agreements leading to the formation of FTAs; these interim agreements must include a plan and a schedule for the formation of an FTA within a reasonable period.Footnote 37 A clear distinction is intended between these two types of arrangement: only an arrangement which conforms fully with article XXIV:8(b) can be authoritatively referred to as an FTA, while an interim agreement leading to the formation of an FTA would usually include an implementation period and need not meet the requirements of article XXIV:8(b).

The rules and the differences between interim and full agreements

GATT provides that the purpose of a regional trade agreement should be to “facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories”.Footnote 38 Two substantive rules govern the formation of all FTAs: the “substantially all the trade” (SAT) requirement (the internal requirement); and the “not on-the-whole-higher” requirement (the external requirement). The external requirement, providing that duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of the FTA shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the FTA prior to its formation, applies to interim agreements leading to the formation of FTAs as well as to full FTAs.Footnote 39

However, the internal SAT requirement that parties to an FTA eliminate “duties and other restrictive regulations of commerce” with respect to “substantially all the trade” between the FTA members, is different for each type of arrangement. While an interim agreement leading to the formation of an FTA is required to include a plan and a schedule leading to the formation of an FTA within a reasonable length of time, there is no such requirement for a full FTA, which will usually be presumed to already have complied with the SAT requirement.Footnote 40

Notification of an FTA

The notification requirement for an FTA is another area where a distinction can be drawn between a full FTA and an interim agreement leading to the formation of an FTA. GATT, article XXIV:7(a) provides that: “Any contracting party deciding to enter into a … free trade area, or an interim agreement leading to the formation of such… [an] area shall notify the Contracting Parties and shall make available to them such information regarding the proposed union or area as will enable them to make such reports and recommendations to contracting parties as they may deem appropriate.”

All such notifications made under GATT, article XXIV:7(a) are examined by a working party in the light of GATT provisions and paragraph 1 of the 1994 Understanding on the Interpretation of GATT art XXIV (1994 Understanding) and then the working party makes a recommendation to the Committee for Trade in Goods.Footnote 41 It is this committee which then makes appropriate recommendations to all WTO members.Footnote 42 Whereas these provisions do not place a duty on parties to full FTAs to accept the recommendations, the parties to a notified interim agreement leading to the formation of an FTA are under an obligation “not to maintain or put into force, as the case may be such agreement if they are not prepared to modify it in accordance with these recommendations”.Footnote 43 In its report to the committee, the working party is also expected to make appropriate recommendations on the proposed time frame and measures required to complete the formation of the FTA. Paragraph 10 of the 1994 Understanding further requires the working party to recommend a plan and a schedule if an interim agreement leading to the formation of an FTA fails to include one and also obliges the parties not to maintain or put into force such an agreement if they are not prepared to modify it by adopting the recommended plan and schedule. In 1996, the examination of regional trade agreements and presentation of reports to the Committee for Trade in Goods was transferred from the working party to the Committee on Regional Trade Agreements (RTA Committee).Footnote 44

The Transparency Decision and notification

Largely due to the contentious problems of interpreting the provisions of GATT, article XXIV that bugged the RTA Committee in performing its task, the WTO adopted the Decision on a Transparency Mechanism for Regional Trade Agreements (Transparency Decision), which modified the notification and examination procedure.Footnote 45 The WTO Secretariat is now tasked with the duty of producing a factual report on specified data submitted to it by the contracting parties, inter alia in respect of their tariff concessions under the agreement.Footnote 46 The RTA Committee no longer produces a report or recommendation, but only holds single meetings based on written questions submitted earlier, upon which the agreement is then considered.Footnote 47 The Transparency Decision does not distinguish between a full FTA and an interim agreement leading to the formation of an FTA. It simply obligates the parties to provide the Secretariat with detailed and specified data on their agreement within ten weeks of notification.Footnote 48 This data will include tariff concessions under the agreement, describing particularly when the agreement is to be implemented by stages and a full listing of each party's preferential duties to be applied over the transitional period.Footnote 49

Implications of blurring the distinction between a full FTA and an interim agreement leading to the formation of an FTA

As noted, the Transparency Decision fails to distinguish between full FTAs and interim agreements leading to the formation of an FTA, as it simply requires free trade areas to submit to the Secretariat specified data on the agreement within ten weeks of notification. Technically, this sweeping requirement on FTAs is at variance with the provisions of GATT, article XXIV:8 that unmistakeably distinguish full FTAs from interim agreements leading to the formation of FTAs. It is only in respect of such an interim agreement that an implementation period is contemplated. Earlier WTO practice supports this strict adherence to such a distinction, particularly in respect of the notification of the agreements.Footnote 50 However current practice sees conditions that should ordinarily be limited to such interim agreements being extended to apply to full FTAs.Footnote 51 For instance, while the US-Chile free trade agreement was notified as establishing an FTA within the contemplation of GATT, article XXIV, it reserved the option to go beyond the ten year transitional period, reserved only for exceptional cases where a phased implementation is necessary.Footnote 52 Also, interim agreements leading to the formation of FTAs have been described as full FTAs even though they do not meet the requirements of a full FTA.Footnote 53 This practice seems to have been implicitly adopted by the Transparency Decision by its failure to distinguish between full FTAs and interim agreements leading to the formation of FTAs.

It can therefore be said that the requirement for notified interim agreements leading to the formation of FTAs to include a plan and a schedule stating how the agreement will lead to a full FTA within a reasonable length of time is very loosely read, as such conditions are applicable to full FTAs too, at least in practice.Footnote 54 The same loose reading is applicable to the Transparency Decision requirement that the parties to an FTA provide a full listing of each party's preferential duties applied in the year of entry into force of the agreement and, in the case of an agreement to be implemented by stages, a full listing of each party's preferential duties to be applied over the transitional period.Footnote 55 Both requirements would apply separately to any agreement, without distinguishing a full FTA from an interim agreement leading to the formation of an FTA.

It follows that the overriding factor, as far as the WTO compatibility of an agreement is concerned, is whether the agreement will meet the SAT requirement by the end of the transitional period. This is without prejudice to whether it is notified as an interim agreement leading to the formation of an FTA or a full FTA.

The “substantially all the trade” requirement

The Cotonou Agreement provides that negotiations will be as “flexible as possible in establishing the duration of a sufficient transitional period, the final product coverage, taking into account sensitive sectors and the degree of asymmetry in terms of time-table for tariff dismantlement while remaining in conformity with WTO rules then prevailing”.Footnote 56 Asymmetry here means giving the ECOWAS party more rights than corresponding obligations undertaken by them.Footnote 57 As far as asymmetry is concerned, it is of relevance that GATT, article XXIV:7 and paragraph 7 of the 1994 Understanding do not provide for any particular form for an FTA during the transitional period. It is merely sufficient that the agreement is likely to meet the SAT requirement by the end of the transitional period in accordance with GATT, article XXIV:8(b). As long as asymmetries in trade liberalization do not prevent the likelihood of this conclusion in a trade relationship, they are perfectly legitimate during a transitional period. This is particularly so when one of the parties is already fully liberalized.

In attempting a definition of “substantially all the trade”, the WTO Appellate Body noted that: “Neither the GATT contracting parties nor the WTO members have ever reached an agreement on the interpretation of the term ‘substantially’ in this provision. It is clear, though, that ‘substantially all the trade’ is not the same as all the trade, and also that ‘substantially all the trade’ is something considerably more than merely some of the trade.”Footnote 58

The controversy over the meaning of SAT reflects on its measurement, as WTO members do not agree what criteria to use. Some have shown a preference for a quantitative approach that defines SAT in terms of a statistical benchmark, such as a percentage of the trade between the parties.Footnote 59 Following this approach, the EU-South Africa Trade and Development Cooperation Agreement defines SAT to mean at least 90 per cent of the products traded between the two, with the EU expected to liberalize 95 per cent of imports from South Africa, and South Africa liberalizing 86 per cent of its own imports from the EU.Footnote 60 The goods-only interim EPAs have, however, seen the SAT requirement increase to as high as 97.80 per cent and 98.75 per cent of trade between the parties, in the cases of Mauritius and Seychelles respectively.Footnote 61 Other WTO members have shown a preference for a qualitative approach that requires that no major sector be exempted from liberalization.Footnote 62 SAT is thus viewed as preventing the exclusion of any sector where the amount of trade was small before the formation of the regional trade agreement, due to restrictive policies in place.Footnote 63 However, this may not necessarily result in liberalization of trade, particularly if potential trade is already highly protected. On the other hand, the problem with measuring SAT using a quantitative approach is that it does not take into account future trade between the parties. This could mean that the more protection there is at the formation of an FTA, the less liberalization will be required to meet this test. Advantage can therefore easily be taken of SAT, unduly to exclude sensitive sectors such as agriculture and textiles.Footnote 64

Other methods have been suggested, including the use of tariff lines, assessment of origin rules and sector coverage.Footnote 65 It should be noted that the goods-only interim EPAs define SAT not just in terms of the percentage of trade between the parties but also in terms of a certain percentage of tariff lines.Footnote 66 Irrespective of the approach is used to measure SAT, the overriding consideration is whether the barriers on this portion of trade between the parties are eliminated by the end of the transitional period.

Determining reasonable length of time

GATT, article XXIV:5(c) provides for a period of possible transition to liberalize substantially all the trade among members of an FTA. This phased arrangement is very much consistent with the Cotonou Agreement: “any interim agreement referred to in subparagraphs (a) and (b) shall include a plan and schedule for the formation of such … a free-trade area within a reasonable length of time.”Footnote 67

The 1994 Understanding provides that the term “reasonable length of time” in the context of an FTA should not exceed ten years, but a “longer period” may be authorized in exceptional cases.Footnote 68 This however leaves the interpretation of a “longer period” exceeding ten years and what would constitute “exceptional circumstances” open and to be determined on a case-by-case basis. The fact that several regional trade agreements have been allowed to have transitional periods longer than ten years suggests an element of flexibility in the application of the transitional period.Footnote 69 In their defence of the US-Australia free trade agreement that only fully eliminates barriers to Australian beef exports after 18 years, both parties justified the long transitional period on a pragmatic rationale.Footnote 70 The US pointed out that using long transitional periods for difficult products is a successful tool in ensuring robust agreements with maximum coverage, rather than using total exemptions that could eventually result in permanent protection well beyond an 18 year period.Footnote 71 In explaining the justification for a longer transitional period for the US-Chile free trade agreement, the US said:

“Neither GATT Article XXIV nor the 1994 Understanding on Article XXIV require that transition periods be limited to 10 years. Article XXIV does require however, that the agreement eliminate tariffs on substantially all the trade. Focusing therefore on that requirement, the parties worked to negotiate as comprehensive an agreement as possible. In the process of this negotiations … it became clear to each party that a limited number of agricultural products were particularly sensitive and hence would require longer transition periods.”Footnote 72

This underscores the fact that the mere length of a transitional period does not in itself make a free trade agreement WTO-incompatible. The determining factor would be whether the SAT requirement is likely to be met at the end of the transitional period. WTO members have frequently used reasons such as the sensitivity of products to justify a transitional period longer than ten years.Footnote 73 This reason avails, even more, the weak and vulnerable economies in Africa. In the Turkey-Textiles case, the panel had noted that the transitional period of the interim agreement leading to the formation of the European Community-Turkey custom union had generally lasted 35 years.Footnote 74 In defending the long transitional period, Turkey said that, by concluding the custom union as originally scheduled, it had made good use of the long transitional period and had thus diffused criticism that the period was too long to be considered “reasonable”.Footnote 75

The preamble of the WTO Agreement recognizes the need for “positive efforts” designed to ensure that developing countries, and especially LDCs, secure a share in the growth of international trade commensurate with the needs of their economic development. The 20–25 years requested by African countries in order to make structural adjustments before opening up to reciprocal trade with the EU in the context of the EPA would certainly qualify as “positive efforts” in this respect, having regard to the development stages of these countries.Footnote 76 In surmising this point, it should be iterated that the reasonable length of time contemplated by paragraph 3 of the 1994 Understanding can also be read to apply to individual products and thus the option to exceed ten years in exceptional circumstances can be used to justify a longer transitional period for sensitive products, provided the percentage of those products does not infringe the SAT requirement.Footnote 77

Flexibility in the “plan and schedule” requirement

Despite the requirement of GATT, article XXIV:5(c) requiring interim agreements leading to the formation of an FTA to include a detailed plan and schedule on how a full FTA is to be achieved within a reasonable length of time, it is instructive to note that the adequacy of a plan and schedule is actually measured by article XXIV.7(b): “If … the Contracting Parties find that such agreement is not likely to result in the formation of … a free-trade area within the period contemplated by the parties to the agreement or that such period is not a reasonable one, the Contracting Parties shall make recommendations to the parties to the Agreement.” (Emphasis added).

This provision not only underscores the fact that the plan and schedule are merely to enable WTO members to determine whether or not a free trade agreement is likely to meet the SAT requirement within a reasonable transitional period, but very importantly that, once that conclusion is reached, the length of the transitional period matters less. This is not discountenancing the seemingly mandatory wording of paragraph 10 of the 1994 Understanding, requiring a working party to impose a plan and a schedule in appropriate cases. It is however submitted that provisions of the 1994 Understanding are to be read only in such a way as to give effect to the provisions of GATT, article XXIV.Footnote 78 This is consistent with the principle of l'effect utile [effective interpretation]. This general principle of interpretation provides that a treaty should be interpreted in such a manner as to give effect to all the terms of the treaty or, put differently, that one provision of a treaty should not be given an interpretation that will nullify the effect of another provision of the same treaty.Footnote 79 The 1994 Understanding on GATT, article XXIV and GATT itself are part of one and the same treaty: the WTO Agreement. Instructively, WTO appellate bodies have endorsed this principle.Footnote 80 On this basis, it should rightly be held that the provisions of paragraph 10 of the 1994 Understanding are intended to enable the RTA Committee to determine the likelihood that a notified agreement will meet the SAT requirement within a reasonable transitional period. To look at a plan and a schedule alone in determining this, would defeat such intent and purpose. The length of the transitional period requested by African countries is sufficient reason to believe that full liberalization is possible by the end of the period, even though a plan and a schedule may still be under negotiation.Footnote 81 The extra negotiation time could be used to fast track the elimination of inter-REC barriers and streamline the entire EPA negotiations and the different interim EPA texts in line with the economic integration objectives of the AEC.

While it is admitted that this approach may not be immune to dispute settlement proceedings, the chances that such a notified EPA would be challenged by WTO members are slim. First, the fact that only one adopted report of the RTA Committee states conclusively that any existing regional trade agreement is fully WTO compatible lends support to the fluidity in the reading of FTAs and interim agreements leading to the formation of FTAs by WTO members.Footnote 82 Those regional trade agreements on which there are no categorical statements about their WTO compatibility and have no recommendation to the parties are arguably deemed WTO compatible.Footnote 83

Secondly, WTO members would have to wait until the examination of a free trade agreement is concluded by both the RTA Committee and the WTO Secretariat before they can raise any challenge to the free trade agreement, as WTO dispute settlement bodies do not have prior jurisdiction to assess the overall compatibility of a regional trade agreement with the requirements of GATT, article XXIV.Footnote 84 A WTO panel drew a distinction between this prior determination and the determination of whether the WTO dispute settlement procedures can be invoked to challenge a “specific measure” adopted on the occasion of the formation of a regional trade agreement. It held that:

“As to whether panels also have the jurisdiction to assess the overall WTO compatibility of a customs union, we recall that the Appellate Body statedFootnote 85 that the terms of reference of panels must refer explicitly to the ‘measures’ to be examined by panels. We consider that regional trade agreements may contain numerous measures, all of which could potentially be examined by panels, before, during or after the [RTA Committee] examination, if the requirements laid down in the DSU [Understanding on Rules and Procedures Governing the Settlement of Disputes] are met. However, it is arguable that … [a free-trade area] as a whole would logically not be a ‘measure’ as such, subject to challenge under the DSU”.Footnote 86

Although the WTO Appellate Body has held that a WTO member's recourse to dispute settlement proceedings does not in any way prejudice the competency of WTO political organs to carry out their specific tasks,Footnote 87 it is submitted that, in a situation like this, a member must wait for the examination process by the RTA Committee and Secretariat to be concluded for it to have a basis for a request for a panel. A request for a panel to be established must be based on specific measures at issue.Footnote 88 The mere notification of a free trade agreement would not in itself suffice as a specific measure for the purpose of establishing a panel. It is the RTA Committee report (whether or not it makes any recommendation or declaration as to the WTO-compatibility of the notified free trade agreement) which may then suffice as the basis for a specific measure for which a member may request the establishment of a panel. The busy schedule of the RTA Committee and the Secretariat means that there could be a delay of at least one year before such examination is done, allowing the EPA parties more time to work out a detailed plan and a schedule.Footnote 89

CONCLUSION

The race to initial goods-only interim EPAs by 31 December 2007 saw most of the negotiating EPA groups move at an unhealthy competitive speed that has left Africa's RECs more fragmented and has, indeed, lengthened the process of both intra-regional and inter-regional integration among the RECs. These contrasting interim EPAs may lead to similar discord in the eventual conclusion of full EPAs with the EU. It will further undermine the economic integration process in Africa if member states go on to undertake full EPA obligations with the EU that may be inconsistent with the establishment of the AEC and common market. Phasing down tariffs in favour of the EU before the elimination of intra-African trade barriers could disrupt the programme of economic integration under the AEC Treaty as it may not only lead to a continued reduction in intra-African trade but could also reduce the concept of regional integration to mean the mere establishment of a common external tariff by each EPA group vis à vis the EU.

Regional integration can only be meaningful if it facilitates the integration of existing economic blocs in Africa by promoting intra-regional trade and encouraging diversification and the establishment of linkages between production units across the continent, thus effectively creating a larger regional market. The resulting increased productivity and product competitiveness will place Africa on a better footing to participate gainfully in reciprocal inter-regional trade. To the extent that the current EPA process undermines Africa's regional integration initiatives, it will not further the integration of African countries into world trade.

Footnotes

Ibid.
Ibid.

References

1 See the preamble to the WTO Agreement.

2 The conventions were named after the city where they were signed: Lomé I, signed on 28 February 1975; Lomé II, signed on 31 October 1979; Lomé III, signed on 8 December 1984; and Lomé IV, signed on 15 December 1989, all available at: <http://www.acpsec.org/en/treaties.htm> (last accessed 22 August 2007).

3 Cotonou Agreement, art 37.1.

4 Id, arts 34.1, 34.2 and 34.3. Also see the preamble of the WTO Agreement.

5 Id, art 37, particularly (2) and (3). See also “EU rethink on trade threat to ex-colonies” (8 October 2007) The Financial Times at 8.

6 See: the Final Act of Lagos; arts 4(1) and (2) of the Treaty Establishing the African Economic Community (AEC Treaty); and arts 3(c) and (j) of the Constitutive Act of the African Union. The Final Act of Lagos is a summary of The Lagos Plan of Action for the Economic Development of Africa, 1980–2000 (annex I), available at: <http://www.uneca.org/itca/ariportal/docs/lagos_plan.pdf> (last accessed 25 February 2008).

7 See “COMESA”, available at: <http://actrav.itcilo.org/actrav-english/telearn/global/ilo/blokit/comesa.htm> (last accessed 17 June 2010).

8 See particularly para 14(vi) of the Lagos Plan of Action, above at note 6.

9 See “COMESA”, above at note 7.

10 See AEC Treaty, arts 4.2(a) and 6.2.

11 See AU “Decisions and declarations” (AU Assembly, seventh ordinary session, Banjul, The Gambia, 1–2 July 2006), available at: <http://www.africa-union.org/root/au/Conferences/Past/2006/July/summit/doc/Decisions_and_Declarations/Assembly-AU-Dec.pdf> (last accessed 15 February 2008). The eight RECs are the Economic Community of West African States (ECOWAS), Common Market of East and Southern Africa (COMESA), Economic Community of Central African States (ECCAS), Southern African Development Community (SADC), Inter-Governmental Authority for Development, Arab Maghreb Union, Economic Community of Sahelo-Saharian States and the East African Community (EAC).

12 32 of the 53 member states of the AU are classified as LDCs by the UN.

13 See UN “The criteria for the identification of the LDCs”, available at: <http://www.un.org/special-rep/ohrlls/ldc/ldc%20criteria.htm> (last accessed 17 September 2007).

14 GATT decision on differential and more favourable treatment reciprocity and fuller participation of developing countries, 1979.

15 Council reg 416/2001.

16 See council regs 1381/2002 and 1401/2002.

17 Non-LDCs who did not initial the interim EPAs have the same reason to maintain trade barriers against their regional neighbours.

18 Before this split, four of the five EAC countries (Burundi, Kenya, Rwanda and Uganda) were negotiating under the ESA EPA group, while the fifth (Tanzania) was negotiating under the SADC EPA group.

19 ECCAS member states are Angola, Burundi, Cameroon, Central African Republic, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda, and São Tomé and Principe. Six of these (Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea and Gabon) currently make up CEMAC.

20 The eight Franco-phone countries (Benin, Burkina Faso, Côte d'Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo) in the 14 member ECOWAS region formed UEMOA in 1994 to co-exist with ECOWAS.

21 See para 4 of the EU-CEMAC EPA road map, para 4 of the EU-West Africa EPA road map, para 4 of the EU-ESA EPA road map and para 5 of the EU-SADC EPA road map.

22 Usually, when a group of countries form a customs union, they must introduce a common external tariff. This means that the same customs duties, import quotas, preferences and other non-tariff barriers to trade apply to all goods entering the area, regardless of which country within the area they are entering.

23 See art 6 of the Treaty Establishing the Economic Community of Central African States (ECCAS Treaty).

24 See below for the case on West Africa.

25 Namibia initialled the agreement on 12 December 2007.

26 See European Centre for Development Policy Management (ECDPM) “EPA negotiations: Where do we stand?” (20 December 2007) Weekly Updates at 28, available at: <http://www.acp-eu-trade.org/library/files/ECDPM_20-12-07_EPA%20Negotiations%20%20Where%20do%20we%20stand_final.pdf> (last accessed 10 January 2008).

27 See art 5 of the Revised Treaty Establishing the Economic Community of West African States (ECOWAS Treaty).

28 See “Gambia in ECOWAS court again?” (13 May 2008) Africa News.com, available at: <http://www.africanews.com/site/list_messages/18220> (last accessed 17 June 2010).

29 See art 31 of the Treaty Establishing the Southern African Custom Union.

30 M Patel “Economic partnership agreements between the EU and African countries: Potential development implications for Ghana” (report, June 2997) at 16, available at: <http://www.realizingrights.org/pdf/EPAs_between_the_EU_and_African_Countries_Development_Implications_for_Ghana.pdf> (last accessed 22 February 2008).

31 See “Negotiating group on rules – Submission on regional trade agreements” (paper TN/RL/W/155 by the African, Caribbean and Pacific group of states, 28 April 2004).

32 See art 14 of the EU-Côte d'Ivoire interim EPA.

33 See ECOWAS “Summary of conclusions on Economic Partnership Agreement between West Africa and the European Union” (Côte d'Ivoire, Ghana and Nigeria consultation meeting (expert level) Accra, 10 January 2008).

34 Cotonou Agreement, art 36.1.

35 See GATT, art XXIV:5.

36 Id, art XXIV:8(b).

37 See id, art XXIV:5(b) and (c).

38 Id, art XXIV:4.

39 Wang, J “China's regional trade agreements: The law, geopolitics and impact on the multilateral trading system” (2004) 8 Singapore Year Book of International Law and Contributors 119 at 135Google Scholar, available at: <http://law.nus.edu.sg/sybil/downloads/current/jiang.pdf> (last accessed 20 June 2008).

40 Id at 134.

41 See L Bartels “Legal issues relevant to the notification of EPAs under article XXIV GATT” at 2, available at: <http://www.acp-eu-trade.org/library/files/Bartels_EN_261007_Legal-issues-notification.pdf> (last accessed 21 June 2008).

42 See para 7 of the 1994 Understanding.

43 See GATT, art XXIV:7(b). See also Bartels “Legal issues”, above at note 41 at 3; and Wang “China's regional trade agreements”, above at note 39 at 137.

44 WT/L/127 (7 February 1996).

45 WT/L/671 (adopted 14 December 2006). For a detailed discourse on the Transparency Decision and notification of RTAs, see Bartels “Legal issues”, above at note 41.

46 Transparency Decision, para 7(b).

47 Id, at annex, paras 11 and 12.

48 Id, para 7(a).

49 Id, at annex, para 2 (a). See Bartels “Legal issues”, above at note 41 at 15.

50 See WTO Analytical Index (1995, WTO) at 858.

51 See Bartels “Legal issues”, above at note 41 at 5.

52 “Examination of the free trade agreement between the United States and Chile”: WT/REG160/M/1.

53 See “Examination of the interim agreement between the EC and Chile”: WT/REG164/M/1, para 10 and “Examination of the Bulgarian- former Yugoslav Republic of Macedonia FTA”: WT/REG90/M/1, para 7.

54 See Bartels “Legal issues”, above at note 41.

55 Transparency Decision, above at note 46, annex 2.

56 Cotonou Agreement, art 37.7.

57 Desta, M “EC-ACP partnership agreements and WTO compatibility: An experiment in north-south inter-regional agreements?” (2006) 43 Common Market Law Review 1343 at 1372 and 1344Google Scholar.

58 Appellate Body Turkey – Restrictions on Imports and Textile and Clothing Products (Turkey–Textiles): WT/DS34/AB/R, adopted 22 October 1999, para 48.

59 See “Synopsis of ‘systemic’ issues related to regional trade agreements”: WT/REG/W/37, para 54(a).

60 European Commission “Summary of EC-SA bilateral trade relations”, para 3, available at: <http://ec.europa.eu/trade/issues/bilateral/countries/southafrica/index_en.htm> (last accessed 28 August 2007).

61 See ECDPM “EPA negotiations”, above at note 26 at 6 and 7.

62 See “Synopsis”, above at note 59, para 54(b).

63 Ibid.

64 Id, para 54(a).

65 Id, para 55.

66 See European Commission “Update: Interim economic partnership agreements” (December 2007) at 4–5, available at: <http://trade.ec.europa.eu/doclib/docs/2007/november/tradoc_136959.pdf> (last accessed 7 January 2008).

67 See Cotonou Agreement, art 36.1.

68 1994 Understanding, para 3.

69 See South Centre “Revisiting EPAs and WTO compatibility” (analytical notes, July 2005) at 5, available at: <http://www.southcentre.org/index.php?option=com_content&task=view&id=330&Itemid=67> (last accessed 20 August 2008).

70 “Free trade agreement between the United States and Australia – Questions & answers”: WT/REG184/5, para 19. See also Bartels “Legal issues”, above at note 41 at 7.

71 “Free trade agreement” id, para 28.

72 “Free trade agreement between the US and Chile – Questions and replies”: WT/REG160/6 at 2.

73 See RTA Committee “Examination of the EC-Jordan Euro-Mediterranean agreement”: WT/REG14/M/1 (28 April 2004), para 8.

74 Panel report Turkey-Textiles: WT/DS34/R (adopted 31 May 1999), para 6.124.

75 Id, para 4.1.

76 See Patel “Economic partnership agreements”, above at note 30.

77 See “Working party on the North American Free Trade Agreement – Question and replies”: WT/REG4/1, paras 23 and 24.

78 See Bartels, above at note 41 at 10.

79 See Jennings, R (ed) Oppenheim's International Law: Vol 1 – Peace (9th ed, 1996, Oxford University Press) at 255Google Scholar.

80 See Appellate Body report United States – Standards for Reformulated and Conventional Gasoline, (US-Gasoline): WT/DS2/AB/R (adopted 20 May 1996) at 23; and Appellate Body report United States – Restrictions on Imports of Cotton and Man-made Fibre Underwear: WT/DS24/AB/R (adopted 25 February 1997) at 16.

81 Bartels “Legal issues”, above at note 41.

82 See “Synopsis”, above at note 59, para 21.

83 Ibid.

84 Panel report Turkey-Textiles, above at note 74, para 9.52.

85 Appellate Body report Guatemala – Anti-Dumping Investigation Regarding Portland Cement From Mexico (Guatemala – Cement): WT/DS60/AB/R (adopted 25 November 1998), paras 76 and 86.

86 Panel report Turkey-Textiles, above at note 74, para 9.53.

87 Appellate Body report India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products: WT/DS90/AB/R (adopted 22 September 1999), para 97.

88 DSU, art 6.2.

89 See Bartels “Legal issues”, above at note 41.