Trade Negotiations Insights • Volume 7 • Number 8 • October 2008

Implications of the CARIFORUM EPA provisions on trade in services: recommendations for Southern Africa

by Nkululeko Khumalo (1)

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After several years of negotiations with the European Commission a number of African, Caribbean and Paciﬁc (ACP) countries initialled Economic Partnership Agreements and interim texts (IEPAs) at the end 2007. The talks were carried out under the terms of the Cotonou Agreement, which seeks to replace the non-reciprocal export preferences that ACP countries have been receiving from the EU, with reciprocal free trade arrangements negotiated at the regional level from January 2008 onwards in order to bring the trade regime in line with WTO rules.

As far as liberalisation in services trade is concerned, only the CARIFORUM countries have negotiated a comprehensive liberalisation framework. As such, it is imperative that the provisions and implications of their EPA text be properly understood, since there is a distinct possibility that the European Commission may seek to secure similar commitments from other ACP groups. This article gives a brief overview of a study that analyses the CARIFORUM EPA provisions on trade in services and looks at their implications in the ongoing EPA negotiations between the European Commission and the Southern African Development Community (SADC) EPA group.

The SADC-EU IEPA

Only Botswana, Lesotho, Mozambique and Swaziland will participate in the second stage of the EPA talks that involve the liberalisation of trade in services. South Africa made it clear from the onset that it will not agree to a deal that includes services trade liberalisation and disciplines on new generation issues like investment. Namibia initialled the IEPA begrudgingly, unhappy with certain provisions on trade in goods, while South Africa refused to take part in the negotiations on services altogether.

In the SADC-European Commission IEPA the parties commit themselves to: negotiate progressive liberalisation with substantial sectoral coverage within a period of three years following the conclusion of the full EPA; prevent any introduction of new and more discriminatory measures to third parties for all services sectors, as speciﬁed in Article V.1.b (ii) of the General Agreement on Trade and Services (GATS); and agree a liberalisation schedule for one service sector in each participating SADC EPA state by December 31 2008. Moreover, the European Commission agreed to support capacity building aimed at strengthening the regulatory framework of the participating SADC EPA states.

The IEPA text is somewhat vague, making it difﬁcult to understand exactly what both parties have committed to. For example, the meaning of “by 31 December 2008 the Parties will complete negotiations on services liberalisation…” is unclear. Does it mean that they would have secured a services liberalisation schedule for SADC EPA states by that date or does it simply mean they would have completed negotiations on the modalities? The text also fails to mention the nature of the corresponding liberalisation commitment from the European Commission.

It is also unclear when the three year period for substantial liberalisation begins – is it at the time of initialling the IEPA or after December 31 2008?

The timelines may well be unrealistic but what seems important for the European Commission is that the agreement ties SADC EPA countries to a speciﬁc liberalisation framework. Furthermore, the provisions of the IEPA are not detailed enough on the ﬂexibilities that will be available to those SADC EPA countries negotiating a services liberalisation chapter.

Obligations under GATS

However, it is signiﬁcant that the parties have committed to respecting each other’s rights and obligations under GATS. This is because the GATS provisions, especially Article XIX (which permits developing countries to open fewer sectors, liberalise fewer types of transactions, progressively extend market access in line with their development situation and attach market access conditions when making access to their markets available to foreign service suppliers) and Article V (which deals with economic integration and provides for more ﬂexible requirements governing regional trade agreements for developing countries) allow for a great deal of ﬂexibility and promote the interest of SADC EPA states - provided the negotiators make maximum use of them.

The EPA talks also provide an opportunity to test the provisions of Article IV of GATS which outlines measures that can be taken to increase the participation of developing countries in world trade. The SADC EPA countries should take the initiative and seek ways in which favourable provisions can be put into operation.

In addition, the provisions of the Cotonou Partnership Agreement are very important in providing the correct context for the talks. They also provide speciﬁc obligations such as the observation of the principle of Special and Differential Treatment.

Where offensive interests are concerned, participating SADCEPA countries would like to use the EPA to: attract investmentfrom the EU, enhance competition in order to boost efﬁciency and supply capacity while improving the business environment and beneﬁt to consumers, build regulatory capacity in order to maximise the beneﬁts of liberalisation and gain market accessto the EU in Mode 4 (temporary movement of independent professionals not linked to commercial presence, semi-skilled and unskilled labour).

All SADC EPA countries are members of the WTO and are involved in the current round of GATS negotiations. Owing to unilateral reforms, the level of GATS commitments made by SADC countries does not reﬂ ect the actual extent of liberalisation in these economies. Regionally, all SADC EPA countries are part of the 14-strong member body and most of them are also members of other regional integration organisations.

Ahead of the game

Compared to other regional economic communities in Eastern and Southern Africa, SADC is the most advanced when it comes to promising liberalisation in services trade. SADC countries aim to liberalise their own service sectors ﬁrst in order to deepen national economic integration, to have coordinated positions vis-à-vis third parties and to improve their participation and inﬂ uence at the multilateral level. In line with this objective SADC countries have recently decided to have a separate Protocol on Trade in Services that is now at a draft stage.

SADC countries have also tried to engage in integration that helps to facilitate both trade in services and goods across the region through various protocols and memoranda of understanding, containing provisions that foster service sector liberalisation and harmonise regulatory regimes.

EPA talks should therefore build on the liberalisation that has been achieved unilaterally and through regional commitments as well as liberalisation under regional instruments - particularly the trade capacity development mechanisms - and multilateral liberalisation under GATS.

However, there is a risk that the EPA negotiations could disrupt the regional integration process depending on the caliber of the services chapter that might be agreed.

Lessons from the CARIFORUM EPA

The case study on the SADC-EPA looks at the potential implications of a CARIFORUM-like EPA chapter on services in three sectors, namely, telecommunications, tourism and ﬁnancial (banking) services on the participating SADC states.

Generally, all four SADC countries analysed are actively engaged in reforming their services sectors primarily as means to assure the supply of quality and affordable services in the domestic market and to attract FDI.

In telecommunications, the EU-CARIFORUM EPA provisions reﬂ ect the GATS Telecommunications Reference Paper (TRP) but in some cases the provisions go beyond TRP obligations. SADC EPA countries may, if appropriate transition times and regulatory capacity building is provided, manage to commit to TRP-type provisions but would all have difﬁculties going beyond that. These countries are at different stages of reform and it would be appropriate for them to undertake commitments that reﬂect these differences.

In ﬁnancial services SADC EPA countries could commit to the level of liberalisation they have undertaken unilaterally, seek compensation for it and link any additional market access to provision of regulatory capacity building and the creation and or strengthening of competition bodies.

In tourism the CARIFORUM text provides for principles of the regulatory framework for all tourism services liberalised. The GATS does not contain any sector-speciﬁc disciplines in tourism, therefore this whole section constitutes “GATS Plus.”

The tourism sector is generally more open than other services sectors. Yet the growth of tourism in Southern Africa is also inhibited by constraints in tourist-originating countries or export markets. This is an area where the CARIFORUM EPA seems to have made a marked improvement to GATS. SADC EPA countries should accept these regulatory provisions that are aimed at the prevention of anti-competitive practices and abuse of dominance in particular by tourism networks. However they would require a lot of capacity building to establish strong competition bodies that are able to discipline strong tourism players and cooperation with the EU would be crucial. Therefore the regulatory burden in this case seems to be acceptable provided assistance is offered.

In all three services sectors the challenge for the SADC EPA countries would be how to establish their speciﬁc needs in the framework of the GATS Article IV, and the CPA leading to transfer of technology and capacity building.

In conclusion, it is clear that the timeframes set in the IEPA text are over-ambitious and SADC countries should not allow themselves to be pressured to make commitments before fully understanding the implications thereof. They should be able to identify their speciﬁc interests which largely lie in trade and regulatory capacity building and ensure the outcomes are in line with their objectives - after all the European Commission has maintained that EPAs represent a development opportunity for ACP countries. Therefore, commitments made by SADC EPA should ideally be ﬁrmly tied and be conditional on the European Commission Party making good on its commitment to support capacity building and their compliance should be measureable and monitored. The trade facilitation negotiations in the Doha Round, whereby commitments are linked to delivery of capacity building support and dispute settlement is tied to such delivery, could be a useful model to explore in this respect.

1. Nkululeko Khumalo is Senior Researcher: Trade Policy, South African Institute of International Affairs (SAIIA).