Corporate Conquest. Why the UK and its EU partners must stop forcing Economic Partnership Agreements (EPAs) upon developing countries

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September 2006 Corporate Conquest Why the UK and its EU partners must stop forcing Economic Partnership Agreements (EPAs) upon developing countries The European Union is currently negotiating unfair trade
September 2006 Corporate Conquest Why the UK and its EU partners must stop forcing Economic Partnership Agreements (EPAs) upon developing countries The European Union is currently negotiating unfair trade deals with 76 developing countries from the Africa, Caribbean and Pacific region (ACP) behind closed doors. If these Economic Partnership Agreements (EPAs) are ratified, they will have a devastating impact on poor communities and their natural resources. By forcing poor countries' farmers and industries into unfair competition with rich countries, infant industries are set to be destroyed and small farmers driven off their land. In addition, the EU is attempting to include new investment rules that would give European corporations greater rights over poor countries, despite the fact that developing countries have already rejected this at world trade talks. This would pave the way for corporations to exploit natural resources with minimal regulation. The UK and its EU partners have until the end of 2007 to push these deals through. EPA zones in the Africa, Caribbean and Pacific region Eastern and Southern Africa (ESA) Burundi, Comoros, Congo (Democratic Republic of), Djibouti, Eritrea, Ethiopia, Kenya, Malawi, Mauritius, Madagascar, Rwanda, Seychelles, Sudan, Uganda, Zambia, Zimbabwe West Africa (ECOWAS) Benin, Burkina Faso, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Côte d Ivoire, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo Central Africa (CEMAC) Cameroon, Central African Republic, Chad, Congo (Republic of), Equatorial Guinea, Gabon, São Tome and Principe Southern African Development Community (SADC) Angola, Botswana, Lesotho, Mozambique, Namibia, Swaziland, Tanzania Caribbean Community (CARICOM) Antigua and Barbuda, The Bahamas, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, Dominican Republic Pacific Islands Cook Islands, Fiji Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu and Vanuatu 2 EPAs spell disaster for the poor and their environment Not only have the UK government and its EU partners been aggressively pushing unfair trade rules onto developing countries through the World Trade Organisation (WTO), but now they are forcing even more harmful European regional trade deals upon them. Economic Partnership Agreements (EPAs) are Europe s first attempt to carve out free trade areas with mostly former colonies in the Africa, Caribbean and Pacific region (ACP). More than 90 per cent of the population of ACP countries lives in sub-saharan Africa. 1 The ACP countries are split into six regions: four in Africa; one in the Pacific and another in the Caribbean (see box above). The negotiations with these six blocs that are being led by the European Commission (EC) are not transparent and are taking place away from public scrutiny. If these agreements are signed, they will plunge vulnerable communities deeper into poverty and cause lasting damage to their environment. Yet for European corporations this agenda represents a potential bonanza by allowing them to flood Southern markets with heavily subsidised goods whilst opening up precious natural resources for them to exploit with minimal regulation. The UK and its EU partners are pressing for the ACP to open up to 90 per cent of their markets to European corporations which could result in a massive loss of revenue for developing countries. 2 However, the EU is not granting any concessions in return only allowing ACP countries continued preferential access to EU markets. This is grossly unfair and inequitable. The United Nations Secretary-General Kofi Annan has expressed concern over the impact of EPAs on developing countries and their ability to tackle poverty. 3 Since 1976, the EU s political and economic relations with ACP countries have been governed through Lomé conventions. These conventions allowed developing countries preferential access to EU markets whilst giving them policy space to protect their own domestic agriculture and industry. In 2000, the Cotonou Agreement that replaced these conventions continued to allow ACP countries to make their own economic and development decisions. This more development-friendly approach changed dramatically in 2002 when five-year long negotiations on EPAs began. EPAs were designed to be WTO-compatible. The European Commission (EC) which is responsible for negotiating with ACP countries on behalf of EU member states is attempting to force open ACP markets by bringing EPAs in line with WTO rules. The most relevant of these rules is Article 24 4 of the General Agreement on Tariffs and Trade (GATT), a founding document of the WTO. The EC interprets the clauses within this article to mean that 90 per cent of trade in goods between Europe and ACP countries must 1 Food and Agriculture Organization of the United Nations, The Secretariat of the Africa, Caribbean and Pacific Group of States, The Agricultural Dimension of the ACP-EU Economic Partnership Agreements, p.4, 2006 2 The UK s Institute for Development Studies (IDS) has estimated that, from the base scenario of 80 percent liberalisation, three quarters of ACP countries could lose 40 percent of their EU tariff revenue, while over a third may lose as much as 60 percent or more. See Christopher Stevens and Jane Kennan, EU-ACP Economic Partnership Agreements: The Effects of Reciprocity. Institute of Development Studies, Kofi Annan, UN Secretary General Kofi Annan s message to the Fourth Summit 4 3 be liberalised. Europe s position on EPAs is shaped by the concept of reciprocity- that poor countries should compete equally with rich nations without taking into account the huge economic asymmetries that exist between them. This essentially means that developing countries are being given an ultimatum to open up their markets to face direct competition from powerful European business and farmers or have their current preferential access to EU markets repealed. These policies are difficult for poor countries to reject as they are major recipients of EU aid and fear losing this important financial support if they reject EPAs. EPAs are based on WTO rules which are already rigged in favour of its powerful members, but EPAs are potentially more damaging as they re-introduce harmful economic policies that were stopped by developing countries at world trade talks in Cancún in Poor countries expressed most concern over the issue of investment which would give corporations greater rights over their economies. 5 The EU failed to push investment through at the WTO and is now trying to force it through the backdoor with EPAs. The investment deals being proposed by the EU within the EPAs framework are designed to reduce restrictions on foreign direct investment. What this means in practice is the handing over of more rights to foreign corporations to exploit natural resources with minimal government regulation. If these deals are ratified (different countries have different ratification processes) before the end of 2007, they will come into force in Cheap European exports are set to flood developing countries markets and destroy local businesses and farmers that would be unable to compete with these heavily subsidised goods. The European Commission s own impact assessment has predicted that this could lead to the collapse of the manufacturing sector in West Africa. 6 In September 2006, another EU impact assessment stated that EPAs could lead to a strong decrease in public revenues in Central Africa. 7 The ensuing poverty and unemployment would dramatically increase the pressure on natural resources. The negotiations are veiled in secrecy and it is unclear which sectors would be slated for liberalisation. Yet the economies of ACP countries are driven by exploitation of natural resources such as oil, gas, minerals, fish and forest sectors. By forcing open these markets to corporate interests, it is most likely that local communities and their environment will come under threat. Even the EU s own impact assessment states that Central African countries should consider the environmental costs of trade liberalisation such as increased deforestation resulting from timber exports and environmental degradation linked to oil exploration. 8 5 Investment is part of the Singapore Issues or new issues, including public procurement and competition policy, that powerful nations have attempted to include in the Doha. 6 PricewaterhouseCoopers, Sustainability Impact Assessment (SIA) of the EU-ACP Economic Partnership Agreements, 1 October 2003, pp PricewaterhouseCoopers, Sustainability Impact Assessment (SIA) of the EU-ACP Economic Partnership Agreements: Financial Services in Central Africa, 11 September ibid p.34 4 Investment: a Trojan horse for European corporations An investment deal could inflict lasting damage on poor communities and their environment because sectors that have been protected by ACP countries such as oil, gas, forests, fisheries and agriculture may be deregulated and pried open to foreign corporations, severing poor communities from their precious natural resources. Evidence shows how poorly regulated foreign direct investment (FDI) can impact negatively on communities and the environment. For example, in Nigeria where the main economic activity is oil and gas, foreign companies such as Shell have caused long-term damage to the environment through gas flaring and pollution in the Niger Delta. 9 Mining has been a major recipient of foreign direct investment in Africa. During the 1990s when Zambia opened up its copper mines, investment resulted in huge environmental damage. Air pollution, including dust from waste dumps, has led to an increase in bronchial disease for nearby communities and rivers have been polluted. 10 New investment rules would close down ACP government policy space to regulate such corporate abuses and would also increase the likelihood of such abuses taking place. The EU pushed for investment rules that were rejected at world trade talks in It would have minimised developing countries abilities to regulate foreign corporations, opening up sensitive sectors to foreign investors. There has been a trend towards the liberalisation of foreign investment in the last 15 years, yet many developing countries have strengthened their protection of certain sectors. All developing countries have an application or approval process for FDI and there is no unlimited access to all sectors for foreign corporations. 11 Botswana has regulated investment in diamond mining through a joint venture between the Botswana Government and the South African based company DeBeers. The Government has successfully channelled revenue generated into health and education. In other sectors where foreign corporations operate, conditions have been implemented to transfer technology and to ensure the employment nationals in management. 12 Under an EPA investment agreement, these new demands would not be possible. This case highlights how foreign direct investment could bring benefits to developing countries when managed properly. However, when sensitive sectors are opened up and controls on investment are removed, communities are unable to maximise positive benefits to the local population and environment. ACP countries are also unable to minimise negative impacts such as environmental damage from oil, gas and mineral extraction. Regulations are currently in place in African countries to protect sensitive sectors. For example, Ethiopia reserves certain sectors for domestic firms including saw milling and timber making products. Ghana has restrictions on foreign investment for mining, petroleum 9 Friends of the Earth, Behind the Shine: the other Shell report Friends of the Earth, Broken Promises: How Shell s non-compliance with the OECD guidelines harms people and the environment, June Colin Nov Boocock, Environmental Impacts of Foreign Direct Investment in the Mining Sector in sub-saharan Africa, United Nations Conference on Trade and development (UNCTAD), The determinants of liberalization of FDI policy in developing countries: a cross-sectional analysis, , UNCTAD, Investment Policy Review Botswana, and tuna fishing. It also has regulations to ensure that foreign companies provide transfer of technology. In Mozambique, there is a government review process for large agricultural projects and forestry projects allowing policy space to assess potential environmental impacts. Uganda and Tanzania require secondary licenses for foreign investment in mining, fishing, and forestry sectors. Tanzania also prohibits FDI in armaments and hazardous chemicals. 13 If an investment deal came into force in these countries such restrictions would be removed as they would be ruled as discriminatory towards European corporations. This would reduce these governments ability to regulate corporate abuses. Such investment agreements give corporations increased rights to repatriate profits abroad whilst stripping away developing countries ability to regulate foreign investors. In addition, once a sector is opened up, developing countries would be locked into liberalisation commitments for the futureremoving flexibility to repeal the decision. This is particularly concerning for ACP countries as foreign corporations already take advantage of the relative openness of their investment regimes, particularly throughout Africa. Twenty Western corporations, including four UK companies, have brought cases against African, Caribbean and Pacific states. 14 While European corporations are being given more rights to sue poor countries, these countries are having their rights to regulate these companies taken away. ACP countries can expect to have an increasing number of cases brought against them if an investment deal is passed in any of the six regional blocs. Case study 1 The UK water company Biwater 15 is currently suing Tanzania, one of the poorest countries in the world, in response to the Government cancelling a contract with its subsidiary City Water. Two years into a ten-year $102 million water privatisation contract, the company allegedly failed to make even half the required investment or improve services in Dar es Salaam. Campaigners and journalists are requesting that the oral proceedings of this case are open to the public. 16 Case study 2 Another UK corporation Booker 17 sought to hold the poverty-stricken southern American state of Guyana liable over alleged incurred debt. Heavily indebted poor countries expressed concern that foreign creditors have resorted to suing them over debt repayment. 18 After pressure from campaigners the case was dropped in OECD, NEPAD/ OECD Investment Initiative. Investment for African Development: Making it Happen, 25 May Case study 3 A UK company, CDC that is wholly owned by the UK Government s Department for International Development 19 sued the Seychelles over a dispute about loans to upgrade two power stations. 20 Other Western companies include mining, oil and gas corporations have brought cases against some of the poorest states in the world such as the Democratic Republic of Congo and Niger over disputed exploration and exploitation concessions. 21 Agriculture Millions of farmers in ACP countries depend upon agriculture for their livelihoods. Yet the welfare of these farmers and their families is critically threatened by EPAs. Trade liberalisation through EPAs would not only open developing countries to cheap imports, but it would also reduce their ability to support their own farmers. In addition, an investment deal could open up agriculture sectors to EU agri-businesses which would force communities off their land to make way for foreign companies. Friends of the Earth Ghana has warned that EPAs are likely to undermine agricultural sectors. Rice and poultry farmers have already suffered from trade liberalisation and unfair competition from subsidised imports. An increase in cheap EU imports of frozen chicken and cheap rice from the EU would force rice farmers out of work and could lead to the collapse of the poultry industry. 22 Rice is essential for many African countries food security. Studies by the United Nations Environmental Programme highlight that further trade liberalisation threatens small-scale rice farmers and the environment in countries such as Senegal and Nigeria. 23 Such impacts range from soil erosion, the increasing use of pesticides, water pollution and the loss of biodiversity to the destruction of forests as demand for new agricultural land intensifies. Cheap European imports from milk powder and wheat to canned tomatoes and second hand clothes have already flooded African countries at the expense of livelihoods of small farmers and factory workers. In West Africa, EU imports of cereals such as wheat and valued-added farm products such as canned tomatoes depress agro-industries in countries such as 19 CDC aims to fulfil its role as a pioneer for the private sector in developing countries through direct investment and the mobilisation of third party capital from other sources of finance. In this respect CDC is the UK equivalent of the World Bank s private sector arm, the International Finance Corporation, which has been widely criticised for extending the reach of the private sector into public services in developing countries see also the case of Ridgepoint Overseas Development vs. Democratic Republic of Congo at 22 Correspondence for Friends of the Earth Ghana 23 United Nations Environmental Programme, Integrated Assessment of the Impact of Trade Liberalization on the Rice Sector. UNEP Country Projects Round III, A Synthesis Report, 2005, pp.22, United Nations Environmental Programme, Integrated Assessment of the Impact of Trade Liberalization on the Rice Sector: A Country Study on the Nigerian Rice Sector, UNEP, Evaluation intégrée de l impact de la liberalisation du commerce: Une étude de cas sur la filière du riz au Sénégal, Senegal and Ghana. 24 In addition, second-hand clothing from Europe is already depressing West Africa s textile industry using locally grown cotton lint. 25 The most likely scenario under EPAs is that West Africa would be flooded with even more worn clothes destroying the vulnerable textile industry and the livelihoods of poor West African cotton farmers. Past experience shows us that these agricultural sectors need to be protected if they are to survive. The UK and its EU partners are trying to force through the opposite of what is needed for successful economic development. Opening up ACP countries markets would also impact negatively on agriculture indirectly. Cheap EU manufactured imports are set to flood their markets, destroying infant industry and setting in motion a process of deindustrialisation. This would lead to an even greater reliance on primary agricultural products for export, the prices of which have been declining for years. The focus on agriculture for export rather than for domestic consumption may well lead to less sustainable, large-scale farms. These policies would also directly impact upon poor countries ability to generate revenues that could be spent on health (including HIV/Aids treatment), education and tackling environmental problems. Fisheries Fish is one of the main exports of ACP countries and is essential for poorer countries food security. The fishing industry provides livelihoods for millions of people across the globe. Furthermore, developing countries provide 70 per cent of all of the fish consumed by people worldwide, although most of it is channeled to wealthy nations. Ninety per cent of fisherfolk worldwide nearly 40 million people are employed in smallscale artisanal fishing and are responsible for 45 p
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