Reforming EU Rules of Origin Applied to Trade Agreements with Africa
African Initiatives to Promote Local Value-Added Production
At independence most African countries predominantly exported unprocessed primary agricultural or mineral products to the international market, and imported industrial and consumer products from the developed countries. Faced with this situation, many African countries adopted policies that they hoped would promote local beneficiation of their raw materials for their international and domestic markets. This usually involved erecting high tariff barriers against imports of manufactured goods that would compete with local producers of these goods. However, where these policies did result in investment in the chosen sectors (this did not always happen), the domestic products were often sold only on the small domestic market as they were usually not internationally competitive in price or quality. Thus, local consumers bore the cost of these uncompetitive products, very little domestic employment was created, and countries adopting these policies continued to rely on the export of unprocessed primary commodities.
In response to the disappointing results of these policies, African countries began refocussing on efforts to promote regional trade. This resulted in a plethora of Regional Trade Agreements (RTAs) and regional integration initiatives throughout Africa including: CEMAC, COMESA, EAC, ECOWAS, SACU, SADC, and various attempts to include North African countries such as AMU and SEN-SAD. While each of these had their own unique set of RoO, a common feature of all of them is that they allowed cumulation between their member states. Several countries joined more than one of these regional trade organisations simultaneously. The diagram below illustrates the complexities of these overlapping memberships in East and Southern Africa:
However, despite these attempts at creating regional markets, intra-African trade has not grown substantially. Most African countries remain exporters of un-processed or semi-processed primary commodities to the EU and the rest of the world, with very little intra-African trade.
At the continental level, the Organisation of African Unity (later African Union) launched various attempts to create an Africa-wide market. The first of these was the 1980 Lagos Plan of Action aiming at the creation of a single Africa-wide market by 2000. This Plan was superseded by the 1994 Abuja Treaty – which envisaged the creation of an African Economic Community (AEC) by 2028. As a part of this initiative the AU launched the AfCFTA negotiations in mid-2015 which would be the first step towards creating the AEC. Even though not all elements of the AfCFTA had been concluded, the AU decided to activate the AfCFTA from 1 January 2021 – allowing trading under those provisions that had been agreed. The agreed provisions included cumulation with any AfCFTA country. At that time, all AU member countries (except Eritrea) had signed the Agreement and 41 had ratified it.
The Evolution of EU-African Trade Relations
The first Lóme Convention was signed in February 1975, after which there were three further extensions (1979, 1984 and 1990). Under these Agreements the EU granted African, Pacific and Caribbean (ACP) countries non-reciprocal duty and quota free access to the EEC/EU for almost all products. A limited number of products had specific quotas – including bananas, beef and sugar. The banana protocol was challenged at the World Trade Organisation (WTO) in 1997 by the United States as discriminatory against Central American banana producers. As a result of this challenge, the Lomé Conventions were replaced by the Cotonou Agreement in mid-2000. A special dispensation was granted to the EU by the WTO which gave the EU and ACP until 31 December 2007 to conclude WTO compliant reciprocal trade agreements.
The EU, and a group of mostly developing African countries subsequently concluded WTO compliant Economic Partnership Agreements (EPAs). African LDCs that did not sign EPAs continued to benefit from duty free access to the EU through the non-reciprocal Everything But Arms (EBA). Under the Lomé and Cotonou Agreements ACP products were required to meet the test of product specific RoO, and cumulation was allowed with any other ACP or EEC/EU country. In contrast, the cumulation rules that apply to the various EU-African EPAs and EBA do not allow countries to automatically cumulate with countries in other EPAs, or with other EBA countries – this requires case by case approval by the EU.
The EU has a separate arrangement with the North African countries (through their European Neighbourhood Policy (ENP) which does not allow cumulation between the North African and other African countries.
Making EU-African RoO More Supportive of African Value Addition and Continental Initiatives
The AfCFTA is an attempt to increase African value-addition through the creation of a single continental wide market that will facilitate intra-African trade and value-chains. The current multiplicity of EU-African trade agreements (EPAs, EBA and the ENP) fragments the African market and does not allow cumulation between these agreements.
To support Africa’s AfCFTA initiative, facilitate investment in African value chains and increase African value-added trade with the EU – African exporters to the EU should be allowed to cumulate with any other African country and with EU countries.
This is not a “quick fix” solution as implementing this proposal will require (i) negotiating a single set of RoO for trade between the EU and North African countries and the different African EPA countries, and (ii) applying this same set of RoO to the African EBA countries. This will allow all African exporters to the EU to cumulate with inputs from any African country. However, implementing this proposal will not guarantee that the needed investment for boosting African local value-added production based on intra-African value chains will actually materialise. For the latter to occur there is need to simultaneously address the other challenges constraining investment in African value-added production. These challenges vary from country to country, but include inconsistent investment incentive and macroeconomic policies, infrastructural deficiencies and the lack of transparent and functioning legal systems.
Mike Humphrey, Senior Trade Consultant
This op-ed is a synthesis from “Making Rules of Origin More Development Friendly for Africa” a study for GIZ by Mike Humphrey (May 2022) [forthcoming publication]
Photo by James Wiseman on Unsplash
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