In June last year, the East African community (EAC) decided wisely to hold off the signing of the Economic Partnership Agreement (EPA) with the European Union. Our negotiators chose to continue the negotiators chose to continue the negotiations, as the package on the table remained highly problematic.
Signing it would have compromised the future development of the EAC region, as well as jeopardized the potential of regional trade and integration.
Although the negotiations have not moved much since last June, the EPA remains on the table and member states seem to be preparing themselves to reengage. In this context, a very basic question must be posed. Does the EAC need the EPA? If an EPA is signed, what are the costs and the benefits, and would the costs outweigh the benefits?
It seems to be conventional wisdom that the EU is the EAC’s main trading partner. This, however, is a misperception. Up-to-date trade statistics show that in fact, the trend for quite a long time has been that EAC exports to the EU (as a percentage of overall trade) is declining. At the same time, EAC export to Africa is on the rise In fact, by 2008, EAC exports to Africa ($ 4 billion) surpassed EAC exports to the EU ($ 2.9 billion).
However, the quantity of export in and of itself is not a satisfactory indicator of development. For the EAC countries to develop, our countries should not be exporting raw materials, but transforming these and exporting a more diversified range of products, particularly manufactured products.
The problem with the EPA is that it is largely a reciprocal trade agreement between EAC countries and a giant economic power house, the EU. Under the EPA, ECA countries would have to bring to zero, tariffs on EU products for 80 per cent of our imports from the EU. The consequences of this are deep and myriad. Opening the bulk of our fragile manufacturing and agricultural sectors to EU imports will mean that EU products will easily out-compete many of our local firms and farms.
The EU will be able to monopolise our local markets in certain products, both within the EAC, and also in other African markets (if they also sign EPAs). The current rise in production and exports we are witnessing in East Africa, will inevitably take a hard beating.
It should be noted that in addition to the elimination of tariffs, EU also wants the EAC to halt any introduction of new export taxes. Export taxes have been used by developed and emerging economies alike to keep primary commodities in the country in order to process them or use them for manufactures. These taxes encourage diversification, rather than the exportation of raw materials
If we sign the EPA, our main utility to Europe will be to sell primary commodities to them, and to reimport these goods once Europe has added value to them. It would be difficult. It would be difficult, if not impossible under these conditions of competing with Europe, for EAC to develop, the EAC to develop and economically diversify.
The dream of regional integration is not an end in itself, but for all of us in EAC, it is primarily to support the development of each of our individual countries, particularly the transformation of our economies. The expanded regional market can be used to jumpstart regional industrialisation processes.
From the trade statistics cited above, this is clearly happening. Unfortunately, this process would be curtailed if the EU is now given preferential access to the regional market.
Mkapa is current chairman of the South Centre and a former President of the United Republic of Tanzania. (1995-2005).
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