An update on Pacific-EU trade talks

The European Commission had set out its proposals on trade policy for the next decade with effect from January 2014. EU leaders subsequently articulated these proposals and reaffirmed their commitment to a multilateral agenda for trade and development: promoting market access for developing countries through the EU’s Generalized System of Preferences (GSP) and Economic Partnership Agreements (EPAs); sustainable development through liberalization of green goods and services; and more targeted aid for trade.

All sounds great. However, a report from the Overseas Development Institute (ODI) had this to say about the proposals: “Developing countries stand to lose out from trade reforms that are pushing the EU towards more protectionist policies which will hamper the global economy and damage developing countries.”

The ODI assessment is, evidently, a generalization. The impact of these proposals would differ for each developing country or groups of developing countries. This is so since developing countries are treated differently under the various market access schemes offered by the EU especially those offered on a unilateral basis, e.g. GSP, GSP+ and Everything But Arms (EBA). This blog assesses the impact of these proposals on the PACP (Pacific ACP) states that are still in the throes of negotiations on a comprehensive EPA (cEPA).

The connection between the GSP reform and the EPA is one proposal that is attracting a lot of controversy. The EU proposes that, under the GSP, more trade barriers will be imposed on a range of products for countries that have no EPA with the EU. This implies that a country has to negotiate an EPA to avoid increased trade barriers under the GSP. But such an argument lacks lucidity: for if a country is able to negotiate an EPA, there is greater rationale for that country to opt for the trade concessions under the EPA thus cancelling out the need for GSP. This validates the views reflected in the ODI report that this proposal by the EU is essentially to apply pressures on ACP states that have not concluded their EPA negotiations to do so.

Currently, twelve PACP states have no EPA to speak of; only Fiji and PNG have signed onto the iEPA (Interim Economic Partnership Agreement). Assuming that there is no progress on the cEPA, then those PACP states, also beneficiaries of the GSP scheme, will face increased trade barriers, e.g. in the form of increased tariffs. Furthermore, the ODI report pointed out that non-tariff trade barriers (NTB) can also be imposed if, for instance, any of the PACP states excludes European firms from its government procurement system.

Currently, the prospect of concluding a cEPA is in doubt. The EU has imposed a three-year suspension of the negotiations. Clearly, the argument above that the GSP reform is to apply pressure on the PACP states to conclude their EPA expeditiously seems groundless as far as the region is concerned. This can only mean that the suspension imposed is grounded on more serious and substantive issues.

The EU argued that this is done to allow the PACP states to formulate measures for the effective conservation of their fisheries resources. The PACP states, on the other hand, consider such an intervention as unnecessary procrastination and have been calling the EU back to the negotiations. PACP Leaders have now proposed a meeting at the margin of COP21 in Paris later this year when a clear roadmap to the conclusion of the negotiations can be agreed.

The tactic by the EU has generated much speculation – not only on the motive behind the tactic, but also whether a cEPA is still a serious contender to be pursued. From the beginning of the EPA negotiations, it was always understood that if an EPA cannot be concluded then a PACP state, or an ACP state for that matter, can opt for any of the alternative trade arrangements (ATA) on offer including the GSP or the GSP+ for those qualified or the EBA for the LDCs. But the GSP option has just been made difficult by the reform. For those PACP states that have no other option apart from the GSP, they will be worse off. This would represent a breach of trust. Furthermore, the increased tariff and other trade barriers imposed will render the EU market less competitive, especially if EU prices are going to be further depressed by production subsidies that are not curbed under the reform. PACP exports will thus seek alternative destinations.

Doubt on concluding a cEPA has been fueled by pressures being applied on PACP states to sign onto the iEPA and join Fiji and PNG. The reluctance to pursue a cEPA by the EU, implied in such a move, can be considered strategic. By not pursuing a cEPA, the EU thus avoids having to consider the extension of the rules of origin on global sourcing to also include chilled and frozen fisheries products. Such an extension is a principal stance by the PACP states in pursuing a cEPA. The EU and especially their fisheries industry stakeholders, however, have consistently regarded this issue as a red line in the negotiations.

With PNG’s withdrawal from the cEPA negotiations, the country’s choice for the iEPA is clear. This raises many problematic questions. Is there any merit in pursuing a cEPA given the prospect of having two versions of EPA existing side by side in future? Such prospect may not even be negotiable from the EU perspective. From the PACP perspective, the situation is not likely to be conducive for regional integration processes. As such, the EU may use PNG’s withdrawal as a platform to push for either signing onto the iEPA or opting for any of the ATA on offer.

PACP states will have to go back to the drawing board to work out the relative gains of the options they face. Clearly, opting for the iEPA will mean having to shelve plans to develop the countries’ fresh and frozen fisheries industry. Given the importance of fisheries in PACP states, this represents an opportunity foregone. Some PACP states may still sign onto the iEPA for the market access opportunities it offers and especially as an avenue to avoid increased trade barriers proposed under the GSP reform. Some least developed PACP states may opt for the EBA. Those facing increased trade barriers under the reformed GSP may just go back to the drawing board once more.

Image: Workers in a tuna processing plant in Madang (PNG)/ Nancy Sullivan