Trade Negotiations Insights • Volume 8 • Number 2 • March 2009

The EU’s cock-eyed approach to trade and governance

by Christina Weller and Karin Ulmer

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The European Union is keen for ACP countries to improve their governance. It has extended the limited co-operation under the Cotonou Partnership Agreement to cover an ambitious agenda including human rights, democracy, and public financial management. (1) There is even evidence that progress towards “good governance” will be a condition for accessing financial support for EPA implementation. (2)

But what if EPAs make it harder for ACP governments to achieve these governance ambitions? How can the EU adopt a coherent approach to trade and governance with regards to the ACP?

Former EU Trade Commissioner Peter Mandelson had no doubt that EPAs – particularly those with a broad agenda – are themselves instruments of good governance. And Mandelson’s view is widely shared: trade agreements are supposed to be good for governance. The World Bank even rates countries’ governance performance against the kind of reforms that trade agreements engender, such as investor protection.

But for developing countries, these claims are not supported by the evidence or their experience. According to a recent Aprodev study, EPAs may even pose significant governance challenges for ACP countries. (3) Below are some key findings from this report.

The EPA negotiating process itself is the first hurdle to overcome in achieving positive outcomes for governance. Key groups, especially poor producers, workers, and small scale farmers continue to face marginalisation from trade talks whilst the EU uses its more dominant position to garner its desired results. In turn, the ability and incentives of ACP governments to ensure accountability to their citizens is reduced. Furthermore, while exportorientated sectors are traditionally well-represented in trade talks and will receive a boost from liberalisation, import-competing sectors tend to be less present. Small and informal enterprises particularly suffer from this exclusion and will face shrinking market shares and tougher competition. This situation may hamper the effective implementation of any trade agreements should citizens resist reforms and if governments are not fully committed to the concessions leveraged.

Trade agreements do not necessarily put in place the right reforms for improved governance. Reducing border tariffs and procurement reforms are usually presented as the prime examples of “good governance” reforms in trade deals; both increase transparency and decrease the scope for governments to take arbitrary actions, including corrupt ones. However, the evidence is considerably more mixed than the arguments suggest. In several countries, the experience has been increased corruption following liberalisation where trade reforms were not accompanied by a focus on state capacity and on tackling private sector corruption.

Trade deals can skew accountability in favour of foreign investors and governments. By definition, they reduce the scope for governments to act by locking them into timetables for reform and giving rights for redress to foreign governments and investors should they default on commitments. This need not be problematic if the trade deal is largely in the public interest and there are rights to flexibility for governments in certain circumstances. However if this is not the case, governments may find they are unable to respond to citizens’ concerns, which can then generate conflicts. For example, a government’s right to select measures to combat environmental damage or promote public health objectives have all been challenged under trade deals. Human rights can also be threatened if extensive liberalisation occurs without the implementation of safety nets to protect the right to adequate food, for example.

Finally, EPAs can have ambiguous impacts on the institutional effectiveness of ACP governments. New regulatory responsibilities, such as those introduced by intellectual property commitments, can strain and divert limited state capacity. Trade deals can also introduce inappropriate external models, such as reforming government procurement to promote efficiency over other development goals. (4)

When the relationship between governance and trade agreements is more ambiguous than supposed, a new approach is needed. Trade agreements cannot promote better governance simply by locking in a set of “good governance” reforms, such as liberalisation. Instead, they must become a coherent part of the quest for improved governance. This means assessing commitments objectively against their impacts on governance and improving the process of negotiations so that governments can pursue the broader interests of their citizens. Finally, it means introducing more flexibility so that governments are better able to respond to citizens’ rights and needs in the face of unanticipated outcomes or shifting circumstances. While there are several approaches to this dilemma advocated by NGOs and governments alike—for instance, Aprodev proposes benchmarking development goals to support inclusive and evidence-based policy-making—above all, if the EU is serious about governance, it must be reflected in its approach to trade agreements and development. It is hoped that the new Trade Commissioner will exercise flexibility and make bold changes to the EU’s negotiating practices.

Authors
Christina Weller is an independent consultant working on trade and private sector development. Karin Ulmer is a Policy Officer, Trade and Gender, at Aprodev.

Notes
1. See ECDPM work on governance for example, www.ecdpm.org/governance.
2. ICCO (2008) Dialogue of the Deaf, www.icco.nl/delivery/icco/en/doc.phtml?p=publications&action=det ails&index=106.
3. APRODEV(2008) Trade and Governance, www.aprodev.net/main/documents/Trade%20&%20 Governance.pdf.
4. See Olivia McDonald, Government procurement, development and World Bank conditionalities, G24 Policy Brief No 20, www.g24.org/pbno20.pdf.