The African Union Ten Years After: Solving African Problems with Pan-Africanism and the African Renaissance

CHAPTER 18 - Financing the EU’s Economic Partnership Agreements in Africa. Implications of Alternative Funding Initiatives

315 CHAPTER 18 Financing the EU’s Economic Partnership Agreements in Africa ImplicationsofAlternativeFundingInitiatives Martin Kaggwa INTRODUCTION The Economic Partnership Agreement being negotiated between EU and its former colonies in the Africa, Caribbean and Pacific (ACP) is a continuation of the cooperation between the two parties that dates back to the Treaty of Rome of 1957 that established the European Economic Community.1 The cooperation between the EU and its former colonies has been characterised by the granting of preferential trade arrangement, technical assistance and aid packages by the EU aimed at poverty eradication and fostering of sustainable development in ACP countries.2 Economic Partnership Agreements are presented as development tools that will foster sustainable development and poverty eradication in Africa. The Agreements will mark a new phase in the cooperation between Europe and African countries when they come into effect. Underlying the EPAs is a radical departure from the non-reciprocal trade preferences enshrined in the Lome Conventions (1975–2000) to a reciprocal one. Under the Lome Convention, African countries were given concessions to access EU market without requiring them to open their markets in return. The new trade relationship, proposed under the EPAs, will put competitiveness pressure on African economies particularly since little progress towards globally competitiveness has been made by the majority of countries on the continent in the last decade. The merits and demerits of the EPAs have been widely debated given the fact that the agreements introduce reciprocal preferential trade relationship between unequal parties. Notwithstanding positions taken by different parties on the debate, for African countries to take advantage of the EPAs, they have to undertake costly institution changes and will have to forego revenue that they have hitherto been receiving as import duty on imports from the EU. As such, African countries party to the EPAs will have to find means to fund institutional changes needed to take full advantage of the 316 CHAPTER 18 EPAs. There should also be ways to compensate for resultant national revenue loss, at least in the short term. Recognising institutional challenges that they will face upon the coming into effect of the EPAs, African countries have been demanding substantive funds to address these. Without this substantive funding, they argue, it will not be possible to successfully implement EPAs and as such the agreements will not serve the envisaged developmental role for the continent. In the EPA negotiation, the EU has offered to provide funds to meet institutional change costs that will be necessitated by the commencement of the EPAs. The EU proposes to fund these costs and to compensate for revenues losses under the Aid for Trade, EDF, and EU Budget initiatives. For many African countries, however, the EU’s offer falls short of their expectations of what is needed to make EPAs functional and viable, and ultimately beneficial to signatory countries. Against this background, the paper assesses the efficacy of Aid for Trade, European Development Fund (EDF) and EU Budget funding initiatives to meet EPA implementation costs and to compensate for accompanying revenue losses as being proposed by the EU. It also recommends on an appropriate EPAs funding model. The rest of the paper is organised as follows : section two deals with challenges likely to be experienced by African countries when the EPAs come into effect; viability and appropriateness of funding EPAs under the three proposed initiatives – Aid for Trade, EDF and EU Budget initiatives are critically assessed in section three; section four concludes with recommendations on the appropriate funding model for EPAs. CHALLENGES OF THE COMING IN TO EFFECT OF THE FUNDING EPA The need to fund EPAs ought to be seen in the context of the wider challenges that will be trigged by their coming into effect. The coming into effect of EPAs will pose both institutional and cost challenges that have to be carefully considered and that require remedial measures to be put in place to address or minimise these. This section considers the three main categories of these challenges that will directly emanate from the implementation of EPAs by African countries, that is, competitiveness under a trade regime of reciprocity, adverse structural changes to domestic economies and outright revenues loss. A) COMPETITIVENESS UNDER A RECIPROCITY TRADE REGIME Under the Interim EPA signed by a number of Africa countries, signatory countries committed themselves to reduce and finally remove all tariffs applicable on goods and services coming from the EU. 317...