An EPA secures a predictable trade regime in Ugandan export market
Nahamya SG: EPA Flash News
The trading relationship between Uganda and the European Union is currently guided by the African, Caribbean, and Pacific – European Union (ACP-EU) Partnership Agreement (commonly referred to as the Cotonou Agreement) signed in Cotonou, the capital of Benin, in 2000. Under the Agreement, the EU grants preferential market access – that is lower tariffs than those charged on her other trading partners – for up to 97% of exports from the ACP including Uganda (in virtually all instances, the tariff on ACP exports is zero). This kind of arrangement has been in place since 1975 under what was then called the Lome Conventions. The Agreement is a *non-reciprocal* trading arrangement between the two blocs (that is ACP Member states such as Uganda do not have to give something –for example by opening up her market to EU exports - in return for the trade preferences they receive from the EU). Besides the Cotonou Agreement arrangement, the EU introduced the Everything But Arms (EBA) initiative in March 2001. This was in line with the provisions of Article 37.9 of the Cotonou Agreement. Under the EBA, Least Developed Countries (LDCs) are allowed to access the EU market duty and quota free, except for arms and ammunitions. The EU remains Uganda’s main export destination, accounting for 35.8% of the country’s exports in 2005. Exports to the EU were worth US$249,708,000 of the country’s total domestic exports of US$697,025,000. Most of the country’s fastest growing exports such as fish and fish products, horticultural products and flowers are destined for the European Union. This is not surprising given the trade preferences enjoyed on the EU market. For example, exports of live fish to the EU by Uganda attract zero (0) tariff by virtue of being an ACP member while the EU charges a 16% tariff from other trading partners; for fish fillets Uganda’s exports attract a zero (0) duty while those from non-ACP trading partners of the EU attract 7.5%. With regard to flower exports such as cut flowers and flower buds, Ugandan exports do not pay any tariffs/taxes while exports from non-ACP countries to the EU attract an 8.5% tariff. The country would certainly be interested in consolidating the EU market for her exports by building on the existing preferences and extending them to more than the 97% currently covered. Why the EPAs? The trade cooperation chapter of the Cotonou Agreement which currently guides our trading regime with the EU (that is the regime under which we export to the EU) expires on 31st December 2007. Because of the preferential treatment given by the EU to us and given that we are not giving any favourable treatment to the EU, the current trading regime is not compatible with international trade rules under the World Trade Organization (WTO). This is because the EU discriminates amongst her trading partners, by exempting exports from the ACP from tariffs while exports from other countries which are also WTO Members are made to pay the duties/taxes. International trade rules allow countries to charge exports from selected countries tariffs lower than what they charge others provided the two countries/trading blocs enter a Free Trade Agreement, and provided they do not raise tariffs on non-participating trading partners to levels higher than those previously applied. *Thus, the only legal way that we can have the current preferential treatment on the EU market maintained is to negotiate a WTO compatible agreement. The negotiators of the Cotonou Partnership Agreement envisaged this, and as such provided for the negotiation of WTO-compatible Economic Partnership Agreements. The timeframe for the negotiations is set in the Cotonou Agreement. To ensure that the trading regime under the Cotonou, despite not being compatible with international trading rules, is not challenged in the WTO dispute settlement body by EU’s trading partners that are not being treated in the same way as the ACP countries, permission had to be sought from all the WTO Members. This permission, called a ‘Waiver’, was granted in 2001 and is in force until 31^st December 2007. For a waiver to be granted, the EU had to compensate her trading partners that felt their trading rights were being curtailed by the ACP-EU trading arrangement. Given that the current preferential trading regime expires on 31^st December 2007 and that the waiver also expires at the same time, coupled with the desire to consolidate the country’s main export market, the Authority of the Common Market for Eastern and Southern Africa (COMESA) Heads of States and Governments decided in 2003 that countries from Eastern and Southern Africa that are also members of the ACP should negotiate an EPA as one region. It is because of this that Uganda is currently negotiating an EPA with the EU under the Eastern and Southern Africa (ESA) negotiating configuration. Some may ask ‘why pursue an EPA that is expected to be a reciprocal trade arrangement when you already have the non-reciprocal EBA?’ The answer for this lies in the importance of predictability and transparency as a form of enabling environment for private sector growth. Predictability and transparency are pre-requisites for private sector growth. First, the EBA is unilateral – that is it was not negotiated, but simply given under terms and conditions decided by the EU. This means it can be withdrawn or modified anytime. This kind of situation is not suitable for long-term or even medium term business/investment decision making. For example, a shrewd business person would not get a loan to invest in a business to take advantage of such a market when the expectation is that the net benefits of the investment/business would be positive over say five years! This lack of predictability works against our private sector and continues to undermine its competitiveness and efforts to move to invest in value addition ventures. The choice between EPAs and EBA is therefore a choice between uncertainty and predictability/certainty. Anyone would go for the latter. Secondly, it is important to note that currently both the Cotonou arrangement and the EBA are available to Ugandan exporters to the EU. An examination of the utilization of the two schemes indicates that up to 99.5% of Ugandan exporters to the EU prefer the Cotonou arrangement over the EBA. This is mainly because of the stringent Rules of Origin under EBA as compared to the Cotonou Agreement Rules of Origin (Rules of Origin are terms and conditions which a product being exported must meet in order for it to be treated in a preferential manner, for example by being exempted from paying taxes, in a given trading arrangement). It is therefore prudent to choose an arrangement that builds on the Cotonou arrangement in the form of the EPAs. What are the EPAs? As already indicated, EPAs are an Economic Partnership Agreement that are expected to replace the current trading regime between the EU and the ACP when it ends on 31st December 2007. The EPAs are expected to be WTO compatible, in that an element of reciprocity will be introduced. This means that ACP countries including Uganda will be required to open up in a limited way some of their markets to the EU within international rules governing regional trade agreements. The rules say that the liberalization (removal of tariffs) undertaken should cover substantially /all trade, and that the phase-in of the liberalization can exceed ten years in exceptional circumstances. In the present negotiations, a bloc of largely LDCs (ESA) is negotiating with a bloc of developed countries. This is certainly an exceptional circumstance and we are already assured of a longer phase in period. In fact, there is already consensus between Uganda (and other ESA States) and the European Union that for a number of products the tariff phase-down period will be as long as twenty five years from 2008. This was the general agreement reached in the February 28^th 2007 ESA-EC Ministerial meeting on the EPA negotiations. An examination of trade figures between Uganda and the EU shows that 67.4% of the country’s imports from the EU are already zero rated, that is they do not attract any tariffs when they are imported into the country. Given that at least 97% of Uganda’s exports to the EU are zero-rated, computations indicate that 82.2% of Uganda-EU total trade is already fully liberalized. Indications from the negotiations so far indicate that the total amount of trade to be liberalized will be in the region of 80%. It is therefore illogical for anyone to go around saying Uganda would be faced with de-industrialization, loss of Government revenue, and loss of employment. This cannot happen when you have protected certain sectors by excluding them from any possible liberalization, and have phased-in liberalization in the very few sectors where you may want to liberalize. Amazingly, some CSOs have even gone further and claimed that Uganda stands to lose Ushs 184.1 billion in 2008, Ushs 340 billion in 2012 and Ushs 3888 billion in 2028 in Government revenue. How would the figures for 2008 and 2012 come about when there is no liberalization at all to be carried out in at least the first ten years? It is crystal clear that there will be no revenue loss at all in /at least/ the first ten years of the EPA. In fact, given that the EU is already moving to provide assistance to enable us develop competitive capacity to trade under EPAs, the country could see export growth and hence increased private sector earnings. There has also been a claim that EPAs would lead to loss of cheap generic medicines for HIV/AIDS, and malaria. This claim is certainly much further away from the truth. It is important to note that the availability of cheap generic drugs for HIV/AIDS, malaria, tuberculosis is a result of trade pacts negotiated under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement of the WTO. These pacts have been negotiated by the same people that CSOs are now accusing of plotting to limit availability of cheap generic drugs! This is tantamount to advising people to slowly close the tap that is bringing the little water for their survival. First, the issues being negotiated under the EPAs cannot take away any right conferred upon a WTO Member by the WTO Agreement. EPAs can only add to that right. Second, there are no Intellectual Property Rights rules being discussed in the EPAs. The main issues under negotiations relate to capacity building. It is certainly important that we build our capacity in the enforcement of Intellectual Property Rights so as to be able to, inter alia, stop the importation of counterfeit products into the country. Some industries have already closed due to the availability of counterfeits on the market, and it is our duty as Government to protect our industries from counterfeits. It is certainly an area in which we need to build capacity. Thus, contrary to the claim that EPAs will lead to de-industrialization, they will in fact promote growth of local industries by shielding them from counterfeit goods, hence promoting employment. Another key component of the EPAs is the improvement in Market Access to the EU. While there has been claim that the EPAs will lead to loss of preferential markets in the EU, the opposite is actually true. Preferential market access to the EU for Ugandan products is being improved from the current 97%. Essentially, the EC has already agreed to Uganda’s (and other ESA States’) request for full duty free and quota free market access for all products. The only exception will be arms and ammunitions. This agreement was reached during the ESA-EC Ministerial meeting of 28^th February 2007. By doing this, one is certainly improving the level of preferences in the EU Market. The next step is now to ensure simple and user-friendly rules of origin to ensure that the improved market access is meaningful to the country. What is at Stake for Uganda? To negotiate or not to negotiate an EPA is like being asked to choose either a bird that you already have in your hands or two that are still free in the air. It would be unfortunate if we failed to secure for our private sector a secure and predictable trading regime with their main export market. To leave the private sector to continue guessing the tariff/trade regime they would face in the EU on a perpetual basis is not in the interest of private sector growth. What is at stake therefore is the predictability of the trading regime with Uganda’s main trading partner. We must ensure the predictability of this regime, and Government will not fail the private sector. The possible shocks that normally come with any change have been well anticipated and safeguards will continue to be in-built into the negotiations and ultimately the EPA. Some of the safeguards will include designation of certain products as sensitive and therefore not eligible for tariff reduction (liberalization) when imported into Uganda, longer (up to twenty five years) tariff phase-down/reduction periods for products where tariffs may be reduced, and reservation of the right to restrict imports should they threaten to cause injury to domestic industry. As already indicated, much of Uganda-EU trade is already fully liberalized. This therefore makes the fear of revenue loss, the flooding of the Ugandan market with EU products, de-industrialization an illusion. There is so much at stake for the Ugandan private sector, especially the producers and exporters to the European Union. It is important that as we receive some of these messages from CSOs, we study them further and try as much as possible to seek clarification from relevant authorities.