Trade Negotiations Insights • Volume 7 • Number 10 • December 2008

Integrating into the global economy

by Aurelie Walker

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Facilitating the smooth and gradual integration of the ACP countries into the global economy is one major objective of the EPA. But trade with the EU alone will not achieve this goal; coherent external trade strategies need to accompany the structural reforms initiated by the EPA to ensure that all development objectives are met.

By concluding EPAs, the benchmark for future free trade agreements (FTAs) that ACP countries and regions will negotiate has been set. Now, third countries, whether developed or developing, will be less likely to accept treatment less favourable than the ACP offers the EU. As trade preferences are eroded multilaterally and competitive advantage overrides traditional export partners, ACP states have an opportunity to learn from each other’s new trading arrangements as they extend preferential market access beyond the EU. While international attention has focused mainly on ACP-EU relations, ACP aid and trade relations with China, India, Japan, Turkey, Latin America, US, Canada, the Arab countries, Australia, and New Zealand are also evolving and demand attention.

The dilemma facing the Pacific: To negotiate or not to negotiate?

The Pacific Agreement for Closer Economic Relations (PACER) is the framework deal signed by all Pacific Island Countries (2) (PICs), Australia, and New Zealand to guide trade relations. Article 6 states that if any PIC “commences formal negotiations for free trade arrangements” with another developed country, then they must commence similar FTA negotiations with Australia and New Zealand.

But PICs are concerned that extending market access to the EU and then to larger neighbours will lead to fiscal revenue loss, disruption of local markets, and an undermining of regional integration. This grouping is still debating whether the initialling of the interim EPA by Fiji and Papua New Guinea actually triggered PACER FTA negotiations. Whilst this legal and political analysis is being made, countries must also consider the economic consequences of not pursuing FTA negotiations. Small island states in particular have more to gain from FTAs in terms of services commitments and accompanying development assistance, rather than market access for trade in goods alone. For instance, negotiations on the temporary movement of workers (mode 4) have been ongoing and schemes such as the 2007 New Zealand Recognised Seasonal Employer Work Visa have already been established. Yet further mode 4 commitments are not likely—except in the context of an FTA.

The New Zealand-China Trade Agreement that came into force 1 October 2008 illustrates this point. Several new immigration policies were agreed as part of the FTA negotiations, including a Chinese Skilled Workers policy. This policy allows Chinese nationals to enter New Zealand for temporary employment as traditional Chinese medicine practitioners, Chinese chefs, Mandarin teaching aides, martial arts coaches, and Chinese tour guides. In these positions under the new provisions, a labour market test is not necessary. In addition, up to one thousand skilled Chinese workers at any time can be employed for up to three years in specific skilled shortage occupations in New Zealand. Although entry will be limited to one hundred workers for each occupation at the same time, the list of occupations ranges from skilled to unskilled sectors.

Whilst China has more to offer New Zealand in terms of market access than the PICs, FTAs provide the necessary framework within which to negotiate concessions beyond market access for goods. As PICs prepare for negotiations with Australia and New Zealand, trade and development cooperation frameworks are also being considered with China, Japan, and the US. Here, for instance, small and vulnerable PICs risk being absorbed into wider trade agreements that they have not negotiated (3) if their interests are not clearly articulated from the outset. But bilateral FTAs could provide the foundations that will protect the PICs from aggressive and powerful trading blocs in the future if they are successfully negotiated along with appropriate development assistance. While the ACP states were not able to develop common positions in the EPA negotiations, sharing negotiating experiences and analysis remains necessary and relevant as the PICs work to integrate into the global economy.

Fostering new relations in Africa

Because of the plethora of preferential trading schemes available to Sub-Saharan Africa, African exports do not require FTAs to gain preferential market access. However, unilateral schemes can be withdrawn at any time and trade rules can be changed without consultation and negotiation. Preferential market access is not safe from challenges in the WTO either. Here lies the advantage of securing preferences through a negotiated bilateral agreement.

With the US, for instance, unilateral preferences are offered through the African Growth and Opportunity Act (AGOA).

This does not mean that the US does not have offensive interests in the African market. Trade and Investment Framework Agreements (TIFA) have been signed with Common Market for Eastern and Southern Africa (4) (COMESA), West African Economic and Monetary Union (5) (UEMOA), and the East African Community (6) (EAC), which provide a base for deepening trade and investment relations.

Negotiations for free trade areas are not being ruled out by the US and African regions need to be prepared. For instance, the US launched negotiations on a free trade agreement with the Southern Africa Customs Union (7) (SACU) in 2003, but talks were suspended in 2006 due to differences over how much to lower trade barriers and other provisions in the proposed agreement. The result was the Trade, Investment, and Development Cooperation Agreement signed in July 2008 that establishes a ‘consultative group’ on trade and investment with best endeavour objectives only. This outcome may be an opportunity gained if SACU can cooperate with CARICOM states on negotiations with the US in the future.

Among the African states, SACU is leading the way in SouthSouth cooperation. SACU concluded a preferential trade agreement with MERCOSUR8 in July 2008 and a framework agreement with India is expected to be concluded in December 2009. Moreover, a trilateral FTA between MERCOSUR-India-SACU has even been proposed. SACU is also considering entering into negotiations with China. While South Africa appears to be driving the agenda and may have the greatest offensive and defensive interests in negotiations, other African regions can learn from the group’s trade strategy as they deepen trade relations with third countries.

The prospect of FTAs between Gulf and African countries is not far off either. Discussions around this possibility will feature prominently at a major conference in Bahrain in December 2008. Among the topics on the agenda include cooperation in the areas of tourism, natural resources, mining, oil and gas, renewable energy, transport, financial services, housing, and telecommunications. This is the first such event that will serve to bring together Gulf and African countries in an effort to strengthen South-South cooperation.

The proposed trilateral FTA between COMESA-EAC-SADC shows that African regions have understood the bargaining power of integrated markets and the appeal for investors. If the EPA process advances regional integration agendas, the possibility of favourable outcomes to future trade negotiations with third countries increases. Regional integration should thus be an immediate objective as countries move to negotiate FTAs and integrate deeper into the global economy.

The Caribbean: Turning attention to traditional trade partners

Following the signing of a full EPA by the Caribbean grouping of states in mid-October 2008, resources once tied up in the EPA negotiations are now freed for other trade agreements in the region. One such example is the CARICOM-Canada Trade and Development Agreement. Initiated in 2001, the text is now back on the negotiating agenda. Interest has also been expressed by CARICOM in negotiating an FTA with the US, Mercosur, and the wider Free Trade Area of the Americas. Currently, the US offers unilateral preferences to seven CARICOM states through the Caribbean Basin Trade Partnership Act, and Canada grants duty-free access to the vast majority of goods that Commonwealth Caribbean countries export to Canada.

For CARICOM countries, regional integration has been identified as a main tool for managing exogenous shocks—the effects of which are amplified on the small and vulnerable island states. It is also a means to bolster bargaining power in trade negotiations. As the Americas are the traditional trade partners of the Caribbean countries, these negotiations will differ markedly from the EPA negotiations with the EU with which there is significantly less trade. Increasing the weight of the bloc in the forthcoming negotiations is imperative: lessons learned from the EPA negotiations show that harmonizing national positions should be made a priority.

Standing in the spotlight on the global economic stage

EPAs have set a precedent for developed countries to replace their unilateral preferences with ACP countries with reciprocal trade agreements. Simultaneously, global preferences are being eroded through the web of trade deals that are being concluded inside and outside of the multilateral trade framework. ACP counties are facing imminent aggressive competition from non-ACP countries for goods and services exports. By implementing the legal and economic reforms resulting from the EPA, actively pursuing the regional integration agendas, and successfully concluding the impending FTA negotiations with appropriate development assistance, countries will have a better chance of economic survival. There is a need for the ACP to make a concerted effort to respond collectively to these challenges in order to achieve the objective of integrating into the global economy.

Notes
1 Aurelie Walker is Programme Officer, Economic and Trade Cooperation Programme for the European Centre for Development Policy Management (ECDPM).
2 The Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, Niue, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, Vanuatu.
3 Trans-Pacific Strategic and Economic Partnership between Brunei, Chile, New Zealand and Singapore is set to expand to include Australia, Peru, and US. This could lay the foundation for the long-term goal of a Free Trade Area of the Asia Pacific (FTAAP).
4 COMESA countries are: Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe.
5 UEOMOA countries are Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.
6 EAC countries are Burundi, Kenya, Rwanda, Tanzania and Uganda. 7 SACU countries are Botswana, Namibia, Lesotho, Swaziland and South Africa. 8 MERCOSUR countries are Argentina, Brazil, Paraguay, Uruguay.