The EPA-Process

The EPA negotiations between the EU and the ACP countries have been a subject to lively discussion in many fora ever since they where initiated in 2002. Mrs. Bibiane Mbaye has provided a well researched contribution to the debate. Because of the diversity of the ACP countries and the aim of promoting regional integration, the agreements are negotiated in six regional groupings. Mrs. Mbaye's article provides a very interesting in-depth look at the West African process. Particularly her description of thorny issues in the negotiations is of great interest; it is important that she reminds us also on the non-tangible issues in trade and development negotiations, e.g. intellectual property rights.

When commenting Mrs. Mbaye's article, one needs to use plural form instead of singular: after all, there are six different regional EPA-processes rather than one single EPA-process. Unfortunately I have to limit myself to commenting the EPA processes in a more general manner and cannot dive in to issues that are specific to the West Africa region.

The justification for the whole EPA process can be found in promoting far-reaching and sustainable social and economic development in the ACP countries. This is the objective of the whole Cotonou agreement. It has been often argued that ACP countries are former colonies of two EU states; France and the UK, and that the EPAs would thus be a way to ensure market access to businesses coming from there. The historical fact is correct; many of the ACP countries are former colonies of these two countries. But we also have to remember that a majority of the other 23 EU states do not have similar historical linkages, but they are still equally committed to the process. For these other countries there must be more than just compensating for the history or maintaining past commercial and economic linkages.

One could argue that for the participating countries EPAs are an issue of policy coherence. This does not apply to only EU or other industrial countries but also to developing countries, or in this case the ACP countries. The integration of trade related issues in development dialogue requires that trade and development policies are mutually reinforcing. Coherence of development and trade policies need to be promoted both in developing and developed countries. For industrial EU countries the commitments made in Doha, Monterrey and the Cotonou agreement, and more above all in the MDGs clearly illustrate the need and promise for increased coherence of trade and development policies.

In developing countries the national development priorities need to be presented in the national development strategies or PRSPs. Trade related issues are crucial. Therefore it is vital to have trade issues properly incorporated in the PRSPs as well. In countries where PRSPs and other national development strategies are well co-ordinated, trade issues can help meeting the national development strategies.

When discussing the EPAs or trade-related development issues more generally, one has to be humble. Even if trade issues should be included in national development strategies, they are not a panacea. They need to be balanced with other development issues such as education, health, social safety-nets, environment and equity. Market forces and trade are useful tools for meeting the MDGs, but there remains much more than that.

There has been much criticism of the EPA processes and Mrs. Mbaye's article contributes well to that tradition. When analysing the EPA critique and the role of trade in development more generally, a distinction needs to be made on the various dimensions of the critique. First, there is a view that trade liberalisation and economic integration as such is controversial and liberalisation may actually lead to worsening of the poverty situation. There is research and case studies both to support and oppose this view. The emerging consensus is, however, that trade liberalisation helps meeting the development goals but is not enough alone. The actual long-term consequences - both positive and negative - are judged by the various other policy reforms that go with the liberalisation process. It depends also to a large extent on the pre-reform economic structure, geography, (natural) resource endowment, etc.( )

The second line of critique is more linked to the EPAs themselves. One argument is that the original set-up is biased and does not favour meeting the development targets. On the other hand, the double-talk critique claims that what the EU - or Commission to be more precise - does is not fully aligned with the original commitments that were made when the processes were started. This is, in my view, more serious critique and would need to be answered separately for each of the six regions. The Cotonou agreement calls for comprehensive and formal review to be conducted in 2006. For Finland this is of utmost interest, not only as an EU member state but as a country that holds the rotating presidency when the review is made. I sincerely hope that the review will give us additional guidance on how the processes have been implemented and how they have been supporting the original objectives.

It is obvious that the trade and development nexus being developed in the EPAs is not an easy one. The ECA study( ) Mrs. Mbaye refers to makes some interesting observations. Above all, it calls for far reaching regional integration and strengthening of intra-African trade. This would build competitiveness and enable gradual reciprocity. It also highlights the series of policy reforms that will be required for the African countries to benefit from the EPAs. In addition to that, various other studies have emphasised the need for supply-side support. Market access alone will under no circumstances be adequate, but the ACP countries need to have something to export and adequate export infrastructure. This has been discussed with in the EPA negotiations and support has been financed both by the Community and member states' bilateral support.

It is interesting to note, that much of the research emphasises the need to extensive policy reforms that should be aligned with trade liberalisation. This is very much the structure that the EPAs were originally built with. They encompass "traditional" market access issues as well as regional integration and new trade issues. These new issues (e.g. investments, public procurement, competition) are crucial elements in making the national economies competitive in both regional and global economic integration. We have to remember that e.g. any lack competition and transparency in public procurement may lead to corruption and always do lead to higher costs and lower quality of goods and services procured. Actually, rather than promoting national development, lack of competition is a transfer from consumers and tax payers to monopolistic firms. It is true that the regional negotiation parties may be ill-equipped to tackle these new issues. Therefore negotiators should seek innovative ways to address the challenge.

Basically trade as a development issue is very much linked to the question of how to promote pro-poor growth. While it is widely understood that liberalisation should lead to economic growth and - on very average - economic growth is good for poverty reduction, it is equally crucial to analyse the quality of growth. The development impact of various economic policies can be studied through changes in the incomes of the poorest income groups of a society. The basic test is, have the incomes of the poor increased as a result of the policy choices or not. However, particularly if several policy choices are made simultaneously the linkage between any single reform on one hand and incomes changes on the other is not easy to establish. Correlation does not necessarily indicate causality.

In summary, the development impacts of the EPAs are still to be field tested. What is obvious, is that the process will not be easy and many simultaneous and sequenced reforms are needed. Another obvious issue is that the EPAs will remain in the very heart of EU-ACP relationship and that they need to be built on mutual trust and confidence. The EU, both member states and the Commission, is committed to the process as was stated for example in the EPA conclusions approved by the Council in April 2006. EPA support directly or indirectly, intentionally or unintentionally is already part of bilateral development co-operation between individual EU and ACP member states.

What Mrs. Mbaye has well done, has been to raise various salient issue to our knowledge. I sincerely hope, and trust, that these issues will be dealt with in an appropriate manner and that we will not have as gloomy future as her article predicts us.

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Mr. Tuukka Castrén is an development policy adviser in the Ministry for Foreign Affairs of Finland. The views presented in the article are those of the author and should not be attributed to the Ministry.