A Review of the Interim Economic Partnership Agreement between Ghana and the
European Union
1.0
Introduction
The history of Ghana following independence has been characterized by weak political stability
and unrealized economic development aspirations. From the economic perspective, the level of
sustained growth needed to transform the economy and improve the standard of living for
majority of its citizens has not yet been achieved. A review of the factors underpinning the poor
performance of the economy suggests that the needed growth to support economic development
could be achieved if Ghana develops a strong and vibrant export sector that is efficient and also
diversified. Identifying and addressing supply side constraints that impede the development and
expansion of the export sector would be a key to achieving this goal. The main challenge is
dealing with the lack of competitiveness of Ghanaian industries and moving away from an
export sector based largely on cocoa beans.
Historically Europe has been Ghana’s largest trading partner. The volume of Ghana’s exports to
Europe has increased steadily over the years, although the share has steadily declined since
independence. This trend is also characteristic of all the African, Caribbean and Pacific (ACP)
countries, despite the preferential access to the European Union (EU) market they enjoy through
the various accords and agreements. The preferential access to the EU market by the ACP
countries is envisaged as a means for accelerating development through export stimulation in the
newly emerging countries aligned to the European countries. In this regard, the steady decline in
the share of the EU market in the total exports of ACP countries calls for urgent steps to be
taken to counter the constraining factors to trade in these countries.
Among the factors constraining the expansion of the share of EU trade by the ACP countries is
the need for the export portfolio of these countries to be diversified to include a wider range of
products. In recent years, Ghana has demonstrated a competitive advantage in tropical
agricultural products. Expanding the production base of these products as well as seeking the
avenues of promoting value addition through processing could provide the scope of increasing
Ghana’s share in EU trade. Expanding the food processing industry should be an important
component of the industrial policy.
1
If properly harnessed, the Economic Partnership Agreements (EPA) between the EU and the
ACP countries could serve as a platform for achieving accelerated export growth and sustained
economic growth. This paper focuses on the many potential positive benefits that the EPA could
bring to Ghana. Section two through three provides a background to the ACP/EU relation,
focusing on the non-compatibility of the Cotonou Agreement between the EU and the ACP with
the World Trade Organization (WTO) and the heterogeneity of interests among African
countries. We deal with Ghana and the EPA in section four and conclude in section five by
highlighting issues and concerns that need to be addressed by the authorities.
2.0
Background to the ACP/EU Relation
In December 2007, Ghana and the EU initialed an Interim Economic Partnership Agreement
(IEPA) in Accra, which provides a framework for trade in goods only between the two parties.
The IEPA was necessitated by the looming deadline for the previous agreement that governed
trade and aid relations between the ACP countries and the EU. The previous agreement, known
as the Cotonou Agreement, had been in existence since 2000. The Cotonou Agreement was
preceded by four Lome Accords. These agreements set the terms for trade between the EU and
ACP from the post-colonial period of the late 1950s up to 2007. A special feature of these
agreements was their being underpinned by the so-called ‘special relationship’ between the EU
and the ACP Countries, which among other things, sought to grant ACP Countries preferential
access to the EU market.
The origins of the relationship between the EU and the ACP States go back to post-World War
II period, when the European countries saw integration as one of the measures to reduce the
probability of another large-scale war in Europe. The Treaty of Rome constituted the European
Regional Body, with the original six signatories being Germany, Belgium, France, Italy,
Luxemburg and Holland. At the time of signing the Treaty of Rome, an avenue was created for
the cooperation with another group of countries – mainly ex-colonies of signatory countries of
the treaty – known as the Overseas Countries and Territories (OCTS). Because the OCTS
countries were essentially West and Central African Countries with colonial ties to France,
France made it a condition for accession to the Regional Body that this accommodation was
made for its colonies and ex-colonies. An instrument called the Regime of Association was
created in 1957 to serve as a vehicle for transmission of funds for development in the OCTS
under the first European Development Fund (EDF), which was established in 1958.
2
In 1963, the relationship between the 18 newly independent francophone African countries and
the European Economic Commission (EEC) was formalized with the signing of the Yaounde
Convention in Yaounde, Cameroon, establishing the basis for future ACP-EU cooperation. The
objective of this cooperation was accelerated economic development of the newly independent
African countries. To support this objective, the European Development Fund was set up and
earmarked for development and infrastructural projects.
At this stage, the British Commonwealth Countries with colonial and historic ties to the United
Kingdom were not part of this Euro-African partnership, but that changed with the accession of
the UK to the EU in 1973. The partnership was now between an expanding Europe and
countries now including some from Africa, the Caribbean, and Pacific States. The EU made a
distinction among the Commonwealth Countries, excluding the ‘associable’ – countries like
India, deemed too developed to warrant special relations stemming from the partnership. Other
countries in Africa, the Caribbean and Pacific called the ‘non-associable’, considered
underdeveloped, were invited to negotiate with the EU for preferential trade access.
The Georgetown Agreement that created the ACP Group was signed in 1975 between the EU
and 46 ACP countries. This was after the ACP countries had taken a decision in 1973 to renegotiate the Yaounde agreements with the EU as a bloc rather than in regional groupings.
Consequently, the stronger negotiating position won the ACP countries major concessions,
resulting in a non-reciprocal trade agreement as well as compensation mechanisms to offset
losses resulting from commodity price instability. This was a period of substantial world
commodity price instability following the oil crisis in 1973, brought about when the
organization of petroleum exporting countries (OPEC) restricted global oil exports. The EU was
anxious to secure raw material supplies from its former colonies to cushion global commodity
price increases, hence the sweeping concessions to the ACP States. The concessions were also
in response to the United Nations’ (UN) call to rich nations to take steps to address terms of
trade inequalities between themselves and the developing world.
The Lome I Convention that succeeded the two Yaounde Conventions (1963-1969, 1969-1975)
was signed in 1975 and differed from its predecessors in very fundamental ways. The Yaounde
Conventions emphasized reciprocity and non-discrimination, whilst Lome I, and its successors,
were based on non-reciprocal and discriminatory arrangements in favour of the ACP States. The
Yaounde Conventions had as one of its goals the creation of regional partnerships to ensure easy
3
and smooth transition to a free trade area between Europe and Africa. Of course, at the time the
non-European partner countries to the agreement were all African countries so this was not
difficult to envisage. However, this dream evaporated with the Lome I, when the ACP countries
decided to negotiate as a bloc so as to strengthen their bargaining power vis-à-vis the EU.
In subsequent years, events leading to shifts in geo-political alignments, as well as downturns in
the global economy, resulted in the erosion of the bargaining power of the ACP bloc, therefore
subsequent renewals of the Lome convention exhibited less of the spirit of true partnership that
existed in Lome I. Concessions that had been won were rolled back with each renewal leading
up to the Cotonou Agreement which had the termination date of December 2007. Nonetheless,
the subsequent weakening of the original terms of the Lome conventions could also be attributed
to their incompatibility with the General Agreement on Tariffs and Trade (GATT)1 and its
successor World Trade Organization (WTO) in terms of their being discriminatory and nonreciprocal. The Lome IV convention could only come into force after a waiver had been
obtained from the WTO in 1995.
Non-compatibility of Cotonou Agreement with the WTO
The successive Lome Conventions and the Cotonou Agreements between ACP countries and the
EU, in principle, guaranteed preferential and discriminatory trade terms in favour of the ACP
Countries. As has been noted, Lome IV required a waiver in order to be executed. Similarly, the
Cotonou accord of 2000, which succeeded Lome IV also required an extension of the previous
waiver. The Cotonou Agreement was different from Lome IV in several ways; most significant,
the requirement in Article I of the Cotonou Agreement that there would be an effort for a
gradual integration of ACP countries into the world economy by elimination of preferential
treatment:
“.. to promote and expedite the economic, cultural, and social development of
the ACP states, with a view to contributing to peace and security and to
promoting a stable and democratic political environment. The partnership shall
be centred on the objective of reducing and eventually eradicating poverty
consistent with the objectives of sustainable development and the gradual
integration of the ACP countries into the world economy”.
1
GATT is a United Nations agency to promote trade by the reduction of tariffs and import quotas, while the WTO
is an international organization based in Geneva that monitors and enforces rules governing global trade.
4
The Cotonou Agreement was meant to commence the process of replacing non-reciprocal trade
preferences of the Lome Accord with Regional Trade Agreements (RTAs), which unlike the
Cotonou Agreement would be compatible with WTO rules.
Fundamentally, the Lome Accords, as well as the Cotonou Agreement, violated the rules
regarding reciprocity as stated in Article XXVI of GATT (regarding trade in goods) which
stipulates that trade agreements between two parties must be essentially reciprocal, have
extended coverage and not create new obstacles for trade with third parties. The Lome Accords
and the Cotonou Agreement were based on discriminatory treatments against non-ACP
developing countries on the basis of historical colonial ties with Europe.
These agreements also violated the Enabling Clause (officially called “Decision on Differential
and More Favourable Treatment, Reciprocity and Fuller Participation of Developing
Countries”), which allows for more favourable trade conditions to be applied to a group of
nations defined by economic or development criteria only. One example of these constructs
currently in existence is the classification of ‘developing countries (DC)’, which enjoy the
Generalised System of Preferences (GSP). The GSP has less favourable conditions compared
the Cotonou Agreement or the IEPA. Another classification is the ‘Least Developed Countries
(LDC)’, which enjoys “Everything But Arms (EBA)” preference that guarantees quota-freetariff-free access to the EU market for all goods except for armaments. In addition to these
instruments, there is another classification known as GSP Plus (Appendix 1), which was
specially constructed for the former Eastern European countries of the Soviet Bloc that aspire to
joining the EU. The criteria for beneficiaries include meeting established standards in
governance, corruption, child labour, and environmental protection.
The favourable treatment of ACP countries provided by the EU through the preferential
guarantees in the Lome and Cotonou Agreements also contradicts the WTO principle of ‘Most
Favoured Nation (MFN) Treatment’. The MFN principle is one of the fundamental principles of
the multilateral trading system. Under the WTO agreements, countries cannot normally
discriminate between their trading partners. When special consideration, such as a lower
customs duty rate for one of their products is given to a country the same has to apply for all
WTO member countries. The EU countries and most of the ACP Countries are members of the
WTO and are therefore subject to WTO rules. The violation of WTO rules inherent in the Lome
5
and Cotonou agreements, for example, formed the basis of the so called ‘banana wars’, when
banana producing non-ACP countries, some of which were developing countries, challenged the
favourable treatment given ACP countries by the EU in terms of banana imports. Specifically,
the MFN (Article I of GATT 1947) stipulates “ customs duties and changes of any kind
imposed… by any contracting party to any products originating in … any country shall be
accorded immediately and unconditionally to the like product originating in the territories of all
the contracting parties”. This principle prevents discrimination among member states and
enjoins contracting parties to confer identical treatment to all GATT contracting parties in terms
of import and export modalities.
Consequently, there was a pressing need to replace the Cotonou Agreement with a WTO
compatible agreement and the EU proposed the EPAs as the next best thing that came closest to
the provisions of Cotonou Agreement without violation the WTO rules. Nonetheless, there was
strong opposition to the EPAs in their original form, as they covered non-trade issues like
services and investments. This resulted in a stalemate that would have proved damaging
especially to vulnerable economies within the ACP, states such as Ghana.
Heterogeneity of Interests among African countries
The Cotonou Agreement was by no means renewable or extendable; therefore, countries
governed by the agreement would have reverted to GSP, which applied to all developing
countries. The terms of GSP are, however, much less favourable than those of the Cotonou
Agreement, thus requiring the countries affected to find alternatives that matched the favourable
terms of Cotonou. Moreover, it was agreed upon in principle at the signature of the Cotonou
Agreement that, upon expiration, it could only be replaced by a WTO compatible accord. The
ACP countries were aware that the EU would be unable to obtain further waivers beyond
Cotonou to extend favourable terms of trade to its ex-colonies from among the group of
developing countries. This was implied in the challenge of the regime governing trade in
bananas and the WTO Panel conclusion that the EU’s tariff-free arrangement with the ACP
countries was in contravention of WTO rules. The issue is yet to be resolved as the tariff-free
quotas for bananas, granted under the Interim EPAs is also being challenged on the basis that the
arrangement still favours the ACP States from among the group of developing countries. These
challenges are being mounted by other developing countries that are focused on their own
development and national interest.
6
The expiration of the Cotonou Agreement was, however, bound to have differential impact on
ACP countries within and across regions even in Africa. Countries classified by the UN as LDC,
33 of which are in Africa, even without EPA would still have full tariff-free, quota- free access
to the EU market under its EBA program. These countries also happen to be in the ACP, but the
expiration of the Cotonou Agreement posed no threat to their exports to Europe as the EBA is a
way out for them. In West Africa, 12 of the 15 countries of the regional block, the Economic
Community of West African States (ECOWAS), are classified LDC, with Cote d’Ivoire, Ghana,
and Nigeria classified as non-LDC. Like other oil-producing countries in Africa, Nigeria is
secured by its major export commodity being exempt from tariffs. Thus, for Nigeria, reverting
to GSP would have no significant impact on overall exports to Europe. With respect to Cote
d’Ivoire, being a member of the West African Economic and Monetary Union (UEMOA),2 has
provided a potential exit strategy should ECOWAS not come through with a viable agreement.
ECOWAS was established before UEMOA, but the latter is a better organized union and more
advanced in terms of the depth of integration. UEMOA is also formally and duly recognized by
the WTO as a legitimate customs union with a common currency. It is also recognized as such
by the EU in the EPA negotiations. Cote d’Ivoire, UEMOA’s biggest and most influential
member could therefore obtain derogation from the group in order to negotiate with the EU as
an independent state.
Under these circumstances, Ghana was left in the precarious position of being the only country
in West Africa without a viable alternative to the Cotonou Agreement. With a budding nontraditional export sector and an economic growth strategy based on the expansion of exports,
Ghana would have faced serious economic setbacks if the IEPA was not initialed. Without an
agreement to succeed Cotonou, exports from Ghana would attract tariffs consistent with the
GSP.3 Exports of processed cocoa, horticultural products and tuna, among others, would have
been faced with tariffs that could have threatened the viability of the entire sectors. All of
Africa’s 14 non-LDCs, other than South Africa, that did not initial interim EPAs would have
reverted to the EU’s less favorable GSP in January 2008. Nine of these countries, all of which
initialed interim EPAs, would have faced significant losses of market access if they switched to
GSP status.
2
UEMOA is made up of Francophone countries in West Africa, which use the CFA as common currency.
The GSP which is significantly less favourable than both the Cotonou Agreement and the proposed EPA applies
to all ‘developing countries’ including Ghana, see also Appendix 2).
3
7
Taking into account both avoidance of losses from reverting to GSP status and the likely near
term gains from improved market access under EPAs, the nine countries had significant
immediate market-access incentives to enter into interim EPAs. Botswana, which would have
faced a smaller immediate loss, also entered into an “initial” EPA. The remaining four nonparticipating, non-LDCs are South Africa, which already had a satisfactory and separate preexisting free trade agreement with the EU; and three oil exporters (Nigeria, Gabon, and the
Democratic Republic of Congo), which will lose virtually nothing from the switch from the
Cotonou Agreement to GSP because their principal exports face zero or very low MFN or GSP
tariffs in the EU.
In contrast, LDCs had neither an immediate need nor a strong incentive to enter into IEPAs.
Shifting to the EBA program might possibly cause some limited losses of markets for a few
products in the longer term because of the EBA has slightly more restrictive rules of origin than
the Cotonou Agreements, although not a significant concern for most LDCs. With automatic
eligibility for the EBA arrangement, many LDCs thus had little interest in liberalizing their
imports from the EU to obtain similar market access under EPAs. As a result, the participation
of LDCs in interim EPAs has been quite limited. Only eight of the 33 eligible African LDCs
have signed interim EPAs. Moreover, four of these (Burundi, Rwanda, Tanzania, and Uganda)
are members of the East Africa Community (EAC), which collectively entered as a customs
union into an IEPA under the leadership of Kenya, a non LDC with a strong incentive to sign an
IEPA.
3.0
Ghana’s Interim EPA
The agreement governing the trade relations between Ghana and the EU that was initialed in
December 2007, known as the Interim Economic Partnership Agreement (IEPA) is different
from the original EPA originally proposed by the EU to replace the Cotonou Agreement. This is
because the original agreement guaranteeing privileged access for ACP states to the EU market
was challenged by other non-ACP developing countries. The basis for the challenge was that
ACP countries are ex-colonies of European countries and their delineation by the EU for special
treatment was based on historical ties and therefore not consistent with the WTO.4 Going by
WTO rules, discrimination in favour of some countries may be allowed if the criteria for
selecting those countries are based on economic indicators. By implication, all other countries
that meet the criteria should also enjoy the benefits offered by the country providing the favour.
4
Similarly, the Africa Growth Opportunities Act (AGOA), which is based on favourable terms granted by the USA
to African countries, has also been challenged.
8
The original EPA proposed by the EU was deemed not acceptable by the ACP States; it covered
both trade and non-trade issues such as investments and trade in services which are currently
under negotiations at the WTO. These non-trade contentious issues are all excluded from the
interim-EPA, as a result of the strong opposition to the agreement. In the last quarter of 2007,
Ghana was faced with a major challenge. Because of its location in the West African sub-region,
Ghana had to negotiate its EPA with the EU as part of ECOWAS, but both ECOWAS and the
EU showed no sign of reaching an agreement before the December 2007 expiry date of
Cotonou. In the absence of the agreement, Ghana’s exports to the EU would have faced
increased tariffs. This would have affected the newly emerging export commodities such as
horticultural products as well as processed cocoa. In order to avert this, Ghana proposed a
Market Access Offer based on a goods only agreement to the EU. This agreement was
envisaged as an interim measure until a full EPA was concluded.
The IEPA also raised concern among civil society organizations which feared that Ghana’s trade
regime with the EU would lead to rapid dismantling of tariffs on goods originating from the EU
and thereby precipitate the premature collapse of the export sector. The IEPA deals decisively
with this concern by placing locally produced items in an exclusion list that is free from the
trade agreement. This includes all agricultural produce and products currently manufactured in
Ghana. The agricultural products excluded from this arrangement include tomatoes, chicken,
pepper and all other tropical crops grown in Ghana as identified by the Ministry of Trade. All
products manufactured in Ghana are also excluded from any dismantling arrangement. The
exclusion list represents 20 percent of exports to the EU and places no legal obligation to
remove or reduce tariff on these products. Ghana would dismantle tariffs on 80 percent of
imports from the EU over a 15-year period. The first five years of this period would see no
dismantling whatsoever. In this agreement, the EU grants 100 percent quota and tariff free
access to its market for all products originating in Ghana, except for rice and sugar.
4.0
Interim EPA - Selected Issues and Concerns
Non-traditional export sector
The non-traditional export sector is an emerging sector in the Ghanaian economy with great
potential for growth and expansion. The threat to the sector was in not signing a successor
agreement to the EPA that guarantees the tariff-free access to the EU market under the Cotonou
regime. The expiration and non-replacement of Cotonou would have automatically reverted
9
Ghana to the Generalised System of Preferences (GSP) regime, which is applied to all
developing countries. The terms of the GSP regime are less favourable than Cotonou, with
additional tariffs on horticultural products and processed cocoa among other things. These very
products form a substantial proportion of non-traditional exports from Ghana therefore the threat
was not limited to operators in the sector but also to the very strategy of export-led growth that
Ghana aspires to utilize in the quest for economic prosperity.
Import competing sector
During the process of negotiating the IEPA, industrial producers in Ghana were worried that
removal of import duties on imported goods from the EU would expose them to a level of
competition they would not be able to withstand. The prospect of losing the local market to EU
imports posed a threat to industries and the very existence if an industrial sector in Ghana.
Players in the sector therefore took the position that the EPA should not be considered as a
successor to Cotonou. This position was incompatible with international commitments that
Ghana has signed up to as a member of the WTO. The EPA was modeled on the concept of Free
Trade Area (FTA) as defined by guidelines of international trade. The underlying principle of
any Free Trade Area is that of reciprocity and the lowering of all barriers to trade therefore
fundamentally, trade liberalization cannot be avoided in an FTA. Also, Ghana as a party to the
Cotonou Agreement committed to ensuring that the successor agreement to Cotonou would be
reciprocal.
Perceived threats with EPAs led to the formation of a coalition to articulate the voices of
opposition and to caution Government to resist apparent pressure from the EU to sign. The
coalition was made up of, among others, NGOs, Labor, Industry, and religious bodies. Their
main concerns included the following:
Devastation of the agricultural sector and the impoverishment of the farmers as subsidized
European agricultural produce displace import-competing domestic substitutes. To mitigate
this outcome, agricultural products that are considered sensitive are all in the exclusion list
of the Market Access Offer (MAO). This is a list of items that are excluded from any tariff
liberalization. Ghana is under no legal obligation to reduce or remove tariffs from these
items at anytime.
10
Failure and demise of local enterprises unable to compete against cheaper imports from the
EU. Part of addressing this concern is the five-year grace period provided before dismantling
of tariffs. Local enterprises can use this opportunity to enhance their capacity in order to
improve their competitiveness.
Loss of jobs associated with the demise of local enterprises, and the implications for an
already impoverished population. If local industries are assisted to improve their
competitiveness their productivity would be enhanced and this would lead to increased
employment.
Revenue losses arising from the reduction and or elimination of tariffs on imports from the
EU, and the consequent impairment of the capability of the country to provide essential
services for the people. A strategy of raising revenue from taxes on incomes and profits is
preferable to one of revenue from tariffs on imports. A vibrant economy anchored on an
export base that is competitive in global markets is a better and more sustainable source of
revenue to the country.
Undermining the process of regional integration in the West African (ECOWAS and
UEMOA) sub-region. This concern appears to rest on the presumption that the 12 LDCs that
enjoy the non-reciprocal EBA scheme with the EU may not be willing to give it up for a
more demanding reciprocal EPA. However, the challenges related to regional integration
within the Wet Africa sub region predate the advent of EPAs. The fact that UEMOA came
about long after ECOWAS, yet UEMOA is a customs union, that has been notified to the
WTO is significant in this regard. The difficulties in ECOWAS predate the EPAs and would
need to be addressed anyway.
5.0
Way Forward
In conclusion, there is a need for expedited in Ghana the implementation of comprehensive and
dynamic private sector development strategy, especially in the context of the Economic
Partnership Agreement with the European Union, where Ghana has four clear years to prepare
for the tariff dismantling schedule to commence. The Center for Policy Analysis (CEPA) takes
the position that international trade promotion is the route that Ghana must take on the journey
to macroeconomic stability and shared prosperity. The way to facilitate effective trade would be
to reduce the cost of doing business and improve competitiveness of Ghanaian industries
11
through the application of modern technology and improved capacity. In CEPA’s view, capacity
building should be at several levels from shop floors through management to the bureaucracy.
This can be achieved through comprehensive needs assessments, training, skills upgrade and
skills acquisition. New and advanced technology must be applied in production processes in the
bid to reduce cost of production and enhance competitiveness. The use of modern technology
has the added advantage of attracting investments in new technology-drives sectors that
currently do not exist.
Appendix 1
The Special Incentive arrangement for Sustainable Development
and Good Governance (GSP+)
The EU’s GSP+ is a scheme of special preferences for developing countries that commit to
ratifying and implementing a set of human rights and good governance conventions. The term
GSP+ is frequently used as a short hand for the ‘special incentive arrangement for sustainable
development and good governance’. It is one of three systems of tariff preferences in the EU’s
GSP Regulation (Articles 8-11 of EU Council Regulations 980/2005 of June 27, 2005). The
others are:
The normal GSP system of preferences – GSP (standard) – for all developing countries
‘Everything but Arms’ (EBA) system of preferences for the UN-designated ‘Least
Developed Countries’.
The WTO rules applicable to these three EU systems of preferences are set out in the November
28, 1979 Enabling Clause – Differential and More Favourable Treatment Reciprocity and Fuller
Participation of Developing Countries. The Enabling Clause states that the most favoured nation
obligation in Article 1 of the GATT is not applicable to the grant of preferences by developed
WTO members to developing countries in accordance with the Generalized System of
Preferences as described in the 1971 GSP Decision of the GATT contracting parties. As a result,
preferences granted under the Enabling Clause must be generalized, non-reciprocal and nondiscriminatory.
The GSP+ provides for duty-free treatment of all products falling under the normal GSP.
However, for products on which both ad valorem and specific tariffs are applied, the ad valorem
but not the specific tariffs are eliminated. Again, specific duties on certain confectionery
12
products are limited to 16 percent of their value. Major exceptions from the coverage of the
GSP+ include bananas (except plantain) tubers, manioc and aluminum (see Appendix 3).
The GSP+ was only available to countries that applied by October 31, 2005. This means that the
GSP+ is closed to new applicants and therefore there is no possibility of adding new
beneficiaries until 2009 when a revised GSP comes into effect. This absence of an open
application procedure for all developing countries – could be ruled though not yet challenged
and so ruled to be discriminatory, making the EU in violation of its WTO obligations.
This view is based on a ruling by the WTO Appellate Body on a predecessor to the GSP+ - the
so-called ‘Drugs Arrangement’. A reportedly central feature of the ‘Drugs Arrangement’ was
that it lacked an open application procedure for beneficiaries. The Appellate Body considered
this discriminatory and therefore in violation of EU obligations to the WTO – specifically the
non-discrimination requirement. In the context of the ‘Drugs Arrangement’, the issue was that
according benefits to countries other than the 12 identified beneficiaries would require an
amendment to the Regulation that set it up. By extension the contention is that like the
predecessor ‘Drugs Arrangement’, GSP+ lacks an open application procedure for beneficiaries
and would require an amendment to the Regulation in order for any country other than the
present 15 to enjoy GSP+ benefits. It must be emphasized however that as the present GSP+ is
set out in an EU Council Regulation, any amendment will require a new Council Regulation,
which will take some time – certainly going beyond December 31, 2007 when Cotonou expires.
By a ruling of the WTO Appellate Body, a developed country would not be in violation of the
non-discrimination condition if it grants additional preferences to developing countries that
share a special development need.
The GSP+ is designed to encourage countries to meet certain human rights and good governance
standards. This latter could be interpreted as constituting an appropriate ‘special development
need’ as ruled by the WTO Appellate Body referred to above. In recent times, human rights and
good governance have been increasingly recognized as critical to shared accelerated growth and
economic development. And according to the EU Regulation that set up GSP+ the additional
preferences are granted to compensate for the cost involved in meeting specified human rights
and good governance standards.
13
Accordingly, the GSP+ scheme required that a country:
Ratify and implement a list of sixteen human rights conventions by October 31st 2005, it must
also give an undertaking that it would continue to maintain ratification and accept regular
monitoring and review of implementation. Countries facing ‘specific constitutional constraints’
had until December 31st 2006 to ratify and implement a maximum of two conventions (this was
applied in the case of El Salvador) and ratify and implement at least seven of eleven listed ‘good
governance’ conventions by October 31st 2005 and the remainder by December 31st 2008. It
must also give an undertaking to continue to maintain ratification and accept regular
monitoring and review of implementation.
The GSP+ is only available to a subset of ‘vulnerable’ developing countries. The criterion of
vulnerability is assessed on the basis of the following:
Poverty – A country must not have been classified by the World Bank as a high income
country during three consecutive years,
Non-diversification of exports: A country’s five largest exports must represent more
than 75 percent of its GSP – covered exports to the EU, and
Low proportion of EU imports: A country’s GSP-covered exports to the EU must make
up no more than 1 percent of the EU’s GSP-covered imports.
The first two of the above are standard conditions applicable to any developing country for the
normal GSP. The third serves to restrict the potential beneficiary list. In Africa, this could
make South Africa ineligible for the GSP+.
The GSP+ scheme therefore requires that a country
Ratifies and implements a list of sixteen human rights conventions by October 31, 2005
and gives an undertaking that it would continue to maintain ratification and accept
regular monitoring and review of implementation.
Countries facing ‘specific
constitutional constraints’ has until December 31, 2006 to ratify and implement a
maximum of two conventions.
Ratifies and implements at least seven of eleven listed ‘good governance’ conventions
by October 31, 2005 and the remainder by December 31, 2008, and give an undertaking
to continue to maintain ratification and accept regular monitoring and review of
implementation.
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GSP+ preferences may be withdrawn if the relevant conventions are no longer incorporated into
domestic legislation or being effectively implemented. They may also be withdrawn for reasons
common to the normal GSP.
Except for the UN ILO Convention concerning Minimum Age for Admission to Employment
(No. 138) Ghana has ratified all the specified conventions although incorporation into legislation
and implementation would be another matter. Thus, at least, in principle Ghana could be
considered as eligible for GSP+ preferences. On the other hand, no ACP member state applied
to be considered for GSP+ by the deadline date of October 31, 2005. This was because the
Cotonou preferences they already had were superior. Consequently, the closure data of October
31, 2005 for applications whether this be in violation of EU’s obligations to the WTO or not,
could not be held as having interfered with Ghana’s rights to the GSP+.
In two main reports, the GSP+ is inferior to the preferences granted under both Cotonou, all the
EU’s (even better) duty-free, quota-free market access for countries concluding an EPA. The
first is in the limited coverage of the GSP+, especially on bananas, tuna and manioc. The
second is in its rules of origin, which are inferior to those applicable in Cotonou and, most
likely, the EPAs on matters including the degree of tolerance afforded to non-originating inputs
and cumulating – in which all value additions within the Free Trade Agreement (PTA) member
states would be counted as originating from the member making the application.
Appendix 2
Reasons why Lome and Cotonou did not deliver
During the course of the Lome Conventions and the Cotonou Agreements, the ACP States
actually lost market share in the EU, whilst exporters for other developing countries who did not
have the benefits of preferential treatment were able to increase their market share of the EU.
Compared to developing countries as a whole, the ACP States also recorded a more modest
overall trade performance over the period. Most ACP States were also unable to significantly
diversify their export portfolios, with most still relying on the mainly primary product that they
were exporting at the onset of ACP-EU relations. There was also an overall decline in Foreign
Direct Investment (FDI) for ACP States. FDI to African ACP States doubled to 1.2 percent
between the mid 1980s and early 1990s but this represents a drop from 6 percent to 4 percent of
all FDI to all developing countries excluding China. The FDI destined for Africa was devoted
mainly to the extractive sectors. Yet, the EU market continued to remain relatively important for
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ACP States, accounting for about 40 percent of overall export earnings. The EU market
accounts for 46 percent of export earnings of African countries, compared to 18 percent of
Caribbean countries and 23 percent of Pacific States.
The ACP states, which experienced growth during this period were those that took steps to
diversify their export portfolios to include non-traditional products or benefited from the
protocols. These include Mauritius, Botswana, Cote d’Ivoire and Jamaica. (Note that according
to a World Bank report on EPAs, Botswana, which would have faced a smaller immediate loss
compared to other countries that are more vulnerable to trade distortions with Europe signed an
Interim EPA). The poor performance of ACP States over the period of preferential treatment is
attributed to the following among others;
Lack of infrastructure;
Shortage of entrepreneurship;
Low levels of physical and human capital;
Low levels of saving and investment; and
Under-developed financial sectors.
Economic growth is also underpinned by sound policies that encourage productivity and
efficient resource allocation policies; however, these policies were either non-existent or poorly
structured and implemented in the ACP States. They include;
Macroeconomic stability
Realistic and stable exchange rates
Strong institutions of good governance
Stable and credible import and taxation regimes
Reduced trade protection
Addressing these issues should ensure competitiveness and improved export performance.
Economic policies of Sub-Saharan African countries also suffered from low credibility in the
view of local and foreign economic operators. This is because the countries were generally poor,
weak, and politically unstable and were erratic and unpredictable in their adherence to policies.
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Appendix 3
GATT Article XXIV
Article XXIV of the GATT provides guidelines for the formation of FTAs, and two of such
requirements that informed the market access offer are outlined in paragraphs 5 and 8.
Paragraph 5(c) deals with the timetable for implementation of an FTA and it states:
“…any interim agreement referred to in sub-paragraphs (a) and (b) shall include a plan and
schedule for the formation of such a customs union or of such a free-trade area within a
reasonable length of time.”
What can be termed “reasonable length of time” was further clarified in the Understanding on
the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994 and it
reads:
“The "reasonable length of time" referred to in paragraph 5(c) of Article XXIV should
exceed 10 years only in exceptional cases. In cases where Members parties to an interim
agreement believe that 10 years would be insufficient they shall provide a full
explanation to the Council for Trade in Goods of the need for a longer period.”
In the case of the Interim EPA, the agreed “reasonable length of time” exceeds the stipulated
time in paragraph 5(c) of Article XXIV. The EU has accepted the responsibility for providing
the “full explanation” for exceeding the stipulated period of 10 years to the WTO. Paragraph
8(b) of the same Article XXIV addresses the issue of how much liberalization is required for
FTAs. It states:
“ A free-trade area shall be understood to mean a group of two or more customs
territories in which the duties and other restrictive regulations of commerce (except,
where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are
eliminated on substantially all the trade between the constituent territories in products
originating in such territories.”
There is no further clarification on what exactly is meant by “substantially all trade”, and issues
have been raised about the qualitative as well as quantitative definitions of trade. Does
“substantially all trade” cover an entire sector like agriculture or textiles; and what percentage of
trade can be quantified as substantial?
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These issues are yet to be resolved but, the EU has taken the position that “Substantially All
Trade” means liberalisation of at least 90 percent of existing trade between the members of an
RTA. Moreover, this 90 percent coverage can be split unequally between the two regions
forming the RTA, in order to reflect development asymmetries. With the EU’s FTA with South
Africa for example the EU accepted to liberalise 98% of its trade and South Africa 82 percent.
In the case of the interim-EPA, the EU has liberalized 100 percent (except for rice and sugar) of
its trade. This means that except for these two, all goods originating from Ghana can enter the
EU territories 100 percent quota and tariff free. In turn, Ghana has committed to liberalise 80
percent of duties on imports from the EU over a 15-year period. Duties on the remaining 20
percent are totally excluded from any liberalization.
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