Trade Negotiations Insights • Volume 7 • Number 9 • November 2008

Nigeria and the challenge of the EPA

by Chibuzo N. Nwoke

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The Economic Partnership Agreements are supposed to strengthen regional cooperation and integration, reduce – and eventually eradicate – poverty, and attain sustainable development in ACP countries. A key principle is that the agreements should be concluded between the EU and ACP regions, rather than with single ACP countries. This implies that regional integration should be enhanced before the conclusion of the EPAs.

Assumed benefits

The champions of the EPA profess free trade, claiming that an underdeveloped country like Nigeria could benefit from its developmental priorities, paving the way for sustainable development and facilitating the country’s integration into the global economy (whatever that means). By allowing duty-free imports of ‘substantially all’ EU goods before 2025, the EPA will reduce the cost of imports from the EU, stimulate the structure of competitive production and thus improve access to EU markets. More concretely, the assumption is that Nigeria would benefit t from (a) the removal of duties on imported inputs - such as machinery, vehicles, chemicals - which would lower manufacturing costs and boost the competitiveness of the Nigerian companies using them, and (b) improved access to EU markets, through the elimination of all duties, which includes better rules of origin on items such as textiles, agricultural and fisheries products.

Unfair trade rules

The most critical constraint preventing Nigeria from attaining such benefits is the assumption that the EPA is about fair trade. As Oxfam rightly observes “if the rules are fair, international trade and investment can be a source of shared prosperity and development. If not, they can be a source of increasing poverty and exclusion.” (2) The rules of the EPA are far from being fair. A 2002 Oxfam report, aptly titled Rigged Rules and Double Standards, points out that the rules of international trade are manipulated in favour of EU countries. Oxfam devised an index to quantify which countries did most damage to ACP countries in international trade. This measured EU protectionism based on its average tariffs, the size of its tariffs in agriculture and textiles and its restrictions on imports from the poorest ACP countries. The measure is called the Double Standard Index (DSI) because “it measures the gap between the free trade principles espoused by EU countries and their actual protectionist policies.” In this measure, the EU “emerges as the worst offender.” Moreover, “the double standards of [EU] governments are most apparent in agriculture.” (3)

Although the EPA is a legal agreement, it must be understood and analysed in a political context. The EPA negotiations exist within a framework of two distinct political groups of vastly unequal power. It is a ‘partnership’ between donors and debtors, between benefactors and consistent dependencies and between former colonial empires and their former colonies. It pits a group of the world’s most advanced economies against a group of the world’s least developed, monocultural and raw material-exporting economies. In such a skewed relationship, it is clear who would drive the negotiations, dictate the rules, enforce them and dole out punishment to partners who breach them. (4) Certain political conditions present in the Cotonou Agreement will - and are - being used against ACP countries during the EPA negotiation process. These include: respect for human rights, democratic principles, rule of law, good governance and anti-corruption. Beyond the ACP’s relative lack of economic and financial resources, these conditions constitute their softest underbelly and greatest source of weakness. Under the provisions of the Cotonou Agreement’s political dialogue mechanism, the EU will certainly use them against a recalcitrant partner.

Implications for Nigeria

In fact, the EU is already using the big stick in the EPA negotiations, assuming the amazing double role of partner and umpire. For example, in November 2007, Nigeria submitted an official request to the European Commission to enable immediate admission for itself and other non-LDC ACP countries to the preferential GSP plus scheme, in the event that no EPA agreement was reached by December 31. That request was, of course, immediately rejected. As a result, come January 1, 2008, ‘recalcitrant’ Nigeria, which, unlike Ghana and Côte d’Ivoire, did not sign the EPA interim agreement, faced higher tariffs under standard GSP, than it did under the Lomé-Cotonou provisions. Consequently, Nigeria’s cocoa butter and cocoa liquor exports to the EU now attract additional 4.3% and 6.3% respectively. (5) About 95% of Nigeria’s cocoa products are exported to the EU alone, because of the higher freight charges to the US and Asian markets. Estimates by the Cocoa Processors Association of Nigeria (COPAN) show that some $5 million had been lost by the end of March 2008. Since December 2007, when Ghana signed the interim EPA, Nigerian beverage factories using cocoa are now relocating their plants to Ghana. (6) Thus, the interim EPA that Ghana and Côte d’Ivoire were made to sign in December 2007 will likely destroy the existing process of regional cooperation and integration.

The results of an impact assessment showed that implementation of the EPA in its present form will represent major challenges for Nigeria. These include massive loss of government revenue, emasculation of the manufacturing industry, devastating employment loses, increase in poverty levels and erosion of policy space. More specifically, the study envisaged an average import tariff revenue loss of around $478 million in 2008, if Nigeria implemented the ’substantially all’ import liberalisation called for. This implies an average 42% loss of total tariff revenue. The impact of this alone would be significant given that it constitutes about 39% of the country’s total non-oil revenue. Expected implications of such a development include drastic reduction in public sector spending or an increase in the level of taxation - two policy options which would damage social and economic infrastructures in the country. (7)

Furthermore, the urgent and substantial import liberalisation promoted by the EPA will reduce capacity in the manufacturing sector as a result of the influx of imported products. Nigeria’s existing unemployment crisis will be exacerbated as firms lay off workers or shut down operations due to poor sales and lack of competitiveness of local products. Small and medium scale enterprises, which mostly constitute the greater proportion of ACP economies, would be asphyxiated. The net effect of the EPA will, therefore, deepen the process of de-industrialisation in Nigeria, with serious consequences for labour and entrenched poverty. Nigeria’s agricultural sector will also be at major risk, due to EU tariff hikes, higher EU tariffs for processed agricultural products. European support and subsidies to its own farmers will frustrate Nigeria’s trade capacity.

One study found that Nigeria alone will account for over 21% of an estimated aggregate revenue loss of over $2 billion that will be incurred by the four African EPA regions in the fi rst year of the EPA’s implementation. Similarly, the country will absorb over 22% of an estimated aggregate EPA-induced trade diversion of $770 million. (8)

In other words, EPA implementation is unlikely to impose any signifi cant costs on the EU. Rather, the EU will gain signifi cantly in terms of its share of ACP imports and in terms of increasing imports by participating EPA countries. In fact, with respect to Nigeria, it was estimated that the EU’s aggregate trade gains would have been worth about $791 million in 2008. This represents about 20% of the EU’s total aggregate trade gain of about $4.1 billion from all four African regional groups. Thus, in relative terms, Nigeria may bear virtually all the burden of adjustment while the EU will capture virtually all the gains of Nigeria’s participation in the proposed West Africa-EU EPA initiative.

EPA strategy undermines ACP development priorities

The critical fault with the EPA strategy is that it runs counter to the interests of participating ACP countries, which are prioritising their own supply response by building capacity and enhancing market access. Thus, the EPA strategy, which imposes urgent and substantial import liberalisation on participating countries before their supply response capacity has been built or suffi ciently strengthened, will be harmful to them. From the standpoint of African countries, the more appropriate EPA strategy - if the rules of trade were fair - would clearly have preserved their market access but also enhanced their export supply response capacity prior to embarking on rapid import liberalisation schemes.

An appropriate strategy would have prioritised a unilateral, intra-African, regional and multilateral import liberalisation scheme above the opening of African domestic markets to the EU on a bilateral and preferential basis. But the (EU’s) EPA strategy contradicts this approach by pushing African countries to open up their markets to EU goods and services faster and more substantially than to goods and services from other African EPA regions and the rest of the world. As noted above, this offensive strategy implies that higher adjustment costs must be borne out over a much shorter time period by African countries (especially Nigeria).

The way forward

As the EPA negotiation process unfolds, African countries should uncompromisingly seek improved market access while vigorously pursuing the enhancement of their supply response capacity. Their specific demands should include: duty and quota-free access for all products, elimination of all domestic support and export subsidies on all products of export interest, exemptions for all exports from EU contingent protection measures, African involvement in setting EU product standards and sanitary and phytosanitary measures, simplified and practical rules of origin. Provision, by the EU, of technical and fi nancial assistance is also needed to establish the infrastructures to meet the established standards, and full EU market access is needed with respect to trade in services, particularly for movement of natural persons of all skill levels.

Furthermore, EPA negotiations must be guided by the principle of sovereign autonomy and consistency with national interest. Nigeria must be wary of Europe’s Aid for Trade strategy. No matter how attractive it may appear, such ‘aid’ cannot replace a truly pro-development EPA, and should, therefore, never be accepted. It may turn out to be a gag on Nigeria to agree to an EPA that is inconsistent with its own national development priorities and strategy. The Aid for Trade option cannot compensate for poorly conceived and hastily drafted provisions of EPAs, which inhibit the ability of ACP countries to promote economic transformation. (9) As such, there is a need to meticulously review contentious EPA issues and clauses to ensure their consistency with national and regional development plans and aspirations. Finally, the time frame for the EPA should be tied to the achievement of basic development thresholds in Nigeria and ECOWAS countries, with the principle of reciprocity only commencing after these thresholds have been reached. Obviously, all of these would constitute a serious challenge to the neo-liberal orientation of the policy making class in Nigeria and the rest of Africa.

1 Prof. Chibuzo N. Nwoke is the Head of the Division of International Economic Relations, Nigerian Institute of International Affairs, Lagos, Nigeria.
2 Oxfam, Rigged Rules and Double Standards: Trade, Globalisation, and the Fight Against Poverty, (Oxford: Oxfam, 2002), www.make-tradefair.com
3 Ibid
4The Relevant Intellectual Orientation for Assessing Impact of EPA on Nigeria, Chibuzo N. Nwoke, Mimeo, Lagos, April 2005.
5 Impact of EPA on Agriculture (Cocoa Processing Industry), Felix Oladunjoye, paper presented at MAN/ NSEG Workshop on Economic Partnership Agreements, Lagos, May 15-16, 2008. Nigeria’s fi sh/ tuna exports will also face similar punitive measures in Europe. petroleum, tuna fi sh is the only important export item from Nigeria to the EU today.
6 Oladunjoye, op. cit.
7 Enterplan, Impact Assessment Final Report: Government of Nigeria, Capacity Building in Support of Preparation of Economic Partnership Agreement (Reading: Enterplan, 2005). www.acp-eu-trade.org/library
8 Economic and Welfare Impacts of the EU-African Economic Partnership Agreement, S. Karingi, et al, ATPC Work in Progress, No. 10, ECA, Addis Ababa, 2005. http://www.uneca.org/atpc/Work%20in%20progress/10.pdf
9 Nigeria in the West Africa-European Union Economic Partnership Agreement: To Be or Not to Be? T. Ademola Oyejide, Mimeo, Abuja, 2006.