Economic Partnership Agreements and Food Security: What is at stake for West Africa? Christoph Pannhausen

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Economic Partnership Agreements and Food Security: What is at stake for West Africa? Christoph Pannhausen Christoph Pannhausen, student of Geography, Political Science and Development Economics at Bonn
Economic Partnership Agreements and Food Security: What is at stake for West Africa? Christoph Pannhausen Christoph Pannhausen, student of Geography, Political Science and Development Economics at Bonn University, intern at the German Development Institute (DIE). Deutsches Institut für Entwicklungspolitik ggmbh Tulpenfeld 4, Bonn +49 (0) (0) Table of Contents List of Tables List of Figures Abbreviations Preface Executive Summary 1 Introduction 1 2 The Concept of Food Security and Linkages to Development 3 3 The EPA negotiations between the EU and ACP Background of EPA negotiations Objectives of EPAs 9 4 EPA negotiations between the EU and West Africa CET as a step towards regional integration The ECOWAP as farmers voice? The critical issue of sensitive products and timeframe Participation of non-state actors in the negotiation process Trade-related issues and EPA s development dimension 22 5 Trade effects of EPA Trade Effects of selected products Potential Impacts of Trade Liberalization 29 6 Conclusion/Recommendations 32 Bibliography 34 List of Interviews 39 Annex 41 Tables 41 Figures 52 List of Tables Table 1: Food Security as a priority in the CSS in West Africa 41 Table 2: Rural and Urban population in West Africa 41 Table 3: Table 4: Revenue Implications of an EU-ECOWAS EPA using WITS/SMART model 42 Decline in Import Duties in ECOWAS Countries using three different scenarios, Table 5: West African exports (total and to the EU) 44 Table 6: West African imports (total and from the EU) 44 Table 7: EU exports (total and to West Africa) 44 Table 8: EU imports (total and to West Africa) 44 Table 9: Duties of selected sensitive products 45 Table 10: Trade Effects of EPA for Milk 45 Table 11: Trade Effects of EPA for Poultry 47 Table 12: Trade Effects of EPA for Wheat and Wheat Flour 48 Table 13: Trade Effects of EPA for Processed Tomatoes 49 Table 14: Food Import-Export Ratio in % 50 Table 15: Urban and rural poverty in West Africa 51 List of Figures Figure 1: Underlying causes of food insecurity 3 Figure 2: Pillars of Food Security 4 Figure 3: Share of undernourished people in West African countries (2001) 52 Figure 4: Share of undernourished population in West Africa 52 Figure 5: Absolute number of undernourished people in West Africa 53 Figure 6: Rural and Urban Population in West Africa 53 Figure 7: EPA negotiation structure between the EU and West Africa 54 Figure 8: West African imports from EU (2004) by product group 55 Figure 9: EU imports from West Africa (2004) by product groups 55 Figure 10: EU exports to West Africa in 2004 (agricultural and processed food products) 56 Figure 11: Share of agricultural imports from the EU to West Africa 56 Figure 12: Share of selected food security related imports from the EU to West Africa 57 Figure 13: Milk Production in West Africa in Figure 14: Tomato Production in West Africa in Figure 15: Cereal Production in West Africa in Figure 16: Poultry Meat Production in West Africa in Figure 17: EU exports of milk products to West Africa 59 Figure 18: EU exports of poultry to West Africa 60 Figure 19: EU exports of wheat and wheat flour to West Africa 60 Figure 20: EU exports of processed tomatoes to West Africa 61 Figure 21: Tomato Production in Senegal 61 Abbreviations ACP African, Caribbean, Pacific BMZ German Federal Ministry for Economic Cooperation and Development CAP Common Agricultural Policy CBB Confédération des Betteraviers Belges CET Common External Tariff CNOP Coordination Nationale des Organisations Paysannes du Mali CPE European Farmers Coordination COAG Coordinadora de Agricultores y Ganaderos CSS Country Support Strategy DG Directorate General EBA Everything but Arms EC European Community ECOWAS Economic Community of West African States EDF European Development Fund EPA Economic Partnership Agreement EU European Union FWA Fédération Wallone de l Agriculture GATT General Agreement on Tariffs and Trade GSP Generalized System of Preferences IMF International Monetary Fund MDG Millennium Development Goal MFN Most Favoured Nations PAC WAEMU Common Agricultural Policy PRSP Poverty Reduction Strategy Paper RNC Regional Negotiating Committee ROPPA Réseau des Organisations Paysannes et des Producteurs Agricoles d Afrique de l Ouest ROW Rest of the World RPTF Regional Preparatory Taskforce SIA Sustainability Impact Assessment TWN Third World Network UN United Nations UNCTAD United Nations Conference on Trade and Development WAEMU West African Economic and Monetary Union WHO World Health Organization WITS World Integrated Trade Solutions WTO World Trade Organization Preface Economic Partnership Agreements (EPAs) are enshrined in the Cotonou Partnership Agreement, signed in 2000 between the European Union (EU) and states from Africa, the Caribbean and the Pacific (ACP). They are meant to be an answer to arguably ineffective non-reciprocal trade preferences the EU granted to the ACP over the past 30 years, and to pressure for bringing EU trade relations with ACP countries in line with World Trade Organisation rules. While it is clear that the signing of reciprocal and regional trade agreements has potentially large impact on the ACP, it remains unclear quite how much so. EPAs potentially will redefine the economic framework between the ACP and the by far most important trade partner for a majority among them, the EU. The details of the agreement are not yet clear; they are currently under negotiation. The Cotonou Agreement foresees the start of the implementation period of EPAs in If that deadline is to be met and the agreements must reach the necessary threshold of ratifications to come into force, it is clear that they will be an important if not defining feature of the German EU Presidency in the area of development cooperation in the first half of It therefore seems particularly necessary and timely to look into potential effects on crucial sectors in often economically vulnerable ACP countries. This paper is part of a series of three reports that have been written at DIE at the parallel. During February to April 2006, Clara Weinhardt, Christoph Pannhausen and Tim Seimet have conducted research on the potential impact of Economic Partnership Agreements (EPAs) on food security. The design of the papers created deliberate overlap and aimed at complementarity between the respective foci: While Clara Weinhardt (a student of international relations science at Dresden University) explored the line of argument at the Brussels level, Christoph Pannhausen (a student of Geography, Political Science and Development Economics at Bonn University) and Tim Seimet (a student of business administration science at Marburg University) had a close and critical look at analyses on the impact on Western and Easter/Southern Africa respectively. This triple perspective on EPAs and food security was researched during an internship of the three authors at DIE in Bonn. Their work touches on aspects of two interrelated research areas at DIE: agricultural policy and European cooperation with developing countries. The research is based on literature and some quantitative analysis (in the case of West Africa), but as an important feature, it included interviews with African and European actors in the ongoing EPA negotiations. The interviews were conducted in Brussels in March 2006; a list of interviewees can be found in all three reports. Other than the three authors of these papers, we would particularly like to thank the interviewees in Brussels for their time and openness to discuss the issue of EPAs and food security. In the case of the study on West Africa, particular thanks go to Mr. Busse of the Hamburg Institute on World Economics (HWWA) for the kind transmission of his data. Bonn, September 2006 Dr. Michael Brüntrup and Dr. Sven Grimm Executive Summary Food insecurity and famine still affect more than 800 million people across the globe. In West Africa, about 22 percent of the population is undernourished. As targeted in Goal One of the MDGs, the proportion of undernourished people is aimed to be reduced by 50 percent in EPA negotiations between the EU and West Africa have the objective to establish a trade and economic relationship for development between these two regions. As food security is essential for development, EPA negotiations should take into account the potential impacts on food security in West Africa. According to the World Food Summit in 1996 food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life. Generally, three elements of food security are distinguished: Food availability, food access and food utilization. Today, global agriculture produces sufficient calories and nutrients in order to provide the whole world population with safe food. Availability of food is not the overriding problem, but lack of access to adequate food is paramount to food insecurity. Reducing inequality and fostering pro-poor growth are therefore essential for improved and sustainable livelihoods. However, it is reasonable to separate issues of food security from poverty, as food insecurity entails more aspects than mere income poverty, e.g. price fluctuations, non-functioning markets, intrahousehold distribution and utilization. The Cotonou Agreement, which provides the framework for the EPA negotiations, reflects a policy shift in EU development policy from preferential market access to mutual free trade between the EU and African, Caribbean and Pacific (ACP) regions, in which development is the overriding goal. This shift is partially based on the EU s own commitment to make its trade agreements compatible with the WTO rules. Moreover, the EU has the conviction that the integration of ACP countries into the world economy can be best achieved and strengthened via regional integration. The present system in force of non-reciprocal tariff preferences shall be replaced by reciprocal trade arrangements for all ACP countries. During a transition period ( ), Lomé preferences remain in place while the EU and ACP countries negotiate EPAs that will gradually liberalise substantially all trade between the regions. EPAs should create positive effects for West African development as they are supposed to encourage sustained economic growth, develop the private sector, increase employment and improve access to productive resources. The regional part of EPA negotiations with West Africa is divided into three phases: Phase 1: Economic and commercial integration priorities of the West African region are formulated, an EPA Reference Framework in these areas is established; a programme to enhance competitiveness and an upgrading programme is formulated and implemented. Phase 2: Overall EPA architecture and draft agreement on all trade-related issues are formulated. Phase 3: Negotiations on trade liberalisation and conclusion of the EPA mark the last phase of the negotiation. The second phase of EPA negotiations between the EU and West Africa commenced on October 6 th, The 16 West African countries are represented by delegates from the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (WAEMU), even though Mauritania is not a member of both groupings. It is envisaged to finalize the negotiations in 2007, as the EPA would come into force January 1 st The first benchmark in the negotiation process was the adoption of the Road Map for EPA negotiations on 4 th August It clearly defines the two main objectives of the agreement; first, to promote the deepening of the regional integration process and second, to ensure sustainable economic development in the West African region. Currently (July 2006), the negotiations are pending before the first phase could be finalized due to dissension between the negotiation partners. West Africa demands EU support for the expected adjustment costs in connection with the incorporation of flanking development measures into the negotiations, while the EU rejects to put this topic on the negotiation agenda. Moreover, West Africa refuses to talk about public procurement, investment and competition, known as Singapore Issues from the WTO trade talks (where they have been rejected by developing countries including African countries as topics of negotiation), which the EU would like to take on board. With regards to regional integration efforts in West Africa, a Common External Tariff (CET) for the ECOWAS region was adopted in The CET consists of four tariff lines and is consistent with the CET of WAEMU. A transitional timeframe of three years has been set up, so that by 2008 all ECOWAS countries will apply the same external tariffs. Recently, Nigeria has modified its tariff structure to be more coherent with the CET. As Nigeria has been perceived as the major obstacle for a CET for a long time, the gradual adaptation towards the common tariff is regarded as an important step towards regional integration. The EU perceives the CET as an optimal basis for EPA negotiations as it contributes to deeper regional integration by creating a customs union. The Common Agricultural Policy of ECOWAS (ECOWAP) is another indicator for deeper regional integration through harmonizing sectoral policies. It was adopted by ECOWAS Heads of State and Government in The policy emphasizes the leading role of agriculture in the West African economy and stresses the paramount relevance of efficient and effective family farms as the basis of a modern and sustainable agriculture in West Africa. ECOWAP contains moreover the vision to guarantee food security and secure decent incomes for agricultural workers. However, the adoption of a CET will impose severe problems on farmers of non-waemu members, as in many cases the old tariff lines were higher than the new CET. A drop in tariff rates will most likely result in an enlarged amount of agricultural imports on the markets, which will thereby increasingly compete with domestic and presumably less competitive production. This development runs counter to objectives of ECOWAP to reduce dependence on imports. The situation is likely to be amplified by an EPA as it would result in an abolishment of tariffs for agricultural EU-exports. One option to protect West African agricultural producers is to make use of the possibility to exclude about 20 % of current import values from liberalization, which is an interpretation of the WTO rules of reciprocal market-opening. Thereby, it would be theoretically possible to exclude potential sensitive products. They include poultry, beef, cereals (especially wheat and wheat flour), milk and dairy products, potatoes, edible oils, sugar and processed food products such as pasta and tomato purée. An exclusion of these goods would account for 8.75 % of total imports from the EU, thus still providing space for a considerably large share of other sensitive products. Potential adverse impacts of EPA have been observed by West African non-state actors. Many farmers and rural development stakeholders are profoundly opposed to EPAs in their current form and also perceive the CET as a threat towards their livelihoods. They demand protective measures to be taken against the influx of cheap and subsidized EU exports. Generally participation of advocates for agricultural producers in West Africa is auspicious, as some organizations are deeply involved in the Regional Negotiating Committee (RNC) which is the principal negotiating body on the West African side. Nevertheless, lack of financial and human capacity is a hindrance towards adequately creating awareness of EPA negotiations in the rural areas. However, the issues of sensitive products remain currently unchallenged as the negotiations are pending due to other challenges (see above). The EU focuses hence rather on the importance of trade-related issues that could be beneficial to West Africa than on the question of market access. An analysis for all products at the HS-4 level from Matthias Busse was used to assess the trade effects for selected potential sensitive agricultural products. It is hypothesized that tariffs for the respective products will be down to zero after the EPA has been concluded. Results show that trade creation usually outweighs trade diversion for every examined product. While trade creation is associated with welfare gains, trade diversion basically entails welfare loss. This might lead to the assumption that West African countries will benefit from participating in such an EPA with regards to these products. However, while a gain in consumer surplus is likely, the effects of crowding out of domestic producers would lead to losses in producer surplus. As government revenues will also be adversely affected by preferential trade liberalization, there are some doubts whether these losses will be outweighed by gain in consumer surplus. Net-consumers will generally face lower prices for imported food from the EU, provided that the elimination of tariffs will also be reflected in the price. Food availability would thus be enhanced. However, rural net-consumers might find it increasingly difficult to find employ- ment in the agricultural sector as wage labourers, because production of certain crops will flaw due to reduced price incentives to produce as a result of competition with EU products. Under a preferential trade liberalization scenario net-producers of food will most likely have to cope with stiff competition from the EU in some areas. Prices for some of their products will decrease and therefore reducing their incentives to produce for the market. As the vast majority of West African population depends on agriculture as their main source of income, the effect would be very pronounced. The overriding threat, especially in the short term, is that large shares of the population might have reduced access to food because of reduced incomes from agricultural production and labour. It is moreover questionable whether these people will find employment in other sectors, given the serious obstacles in terms of capacity, infrastructure, size and general lack of competitivity of non-farm sectors in West Africa. Therefore, in order to ensure access to food for net-producers and other vulnerable groups the definition of sensitive products might provide a temporal solution for the most important food products in the region. Hence, the list of sensitive products for West Africa should take into account food security as the paramount selection criteria. At the same time, it must be stressed that protectionist measures do not improve competitiveness of agricultural production. Thus in the long-run, it must be an aim to transform the primary sector of West Africa into an efficient and effective one. EPA could be a new starting point to create an enhancement of competitiveness and to tackle supply-side constraints. West Africa should hence engage in the discussion on the still outstanding Singapore Issues, including investment, as harmonization in this area can facilitate the setup of a more efficient agriculture and a viable agro-industry, thereby contributing to food security. Again, for EPA to be viable in the sense of sustainable development and poverty reduction in West Africa, a long and flexible timeframe seems desirable in order to first make progress with regards to regional economic integration. The issue of short and medium term adjustment costs has been raised by the two negotiating partners as a major point of diverging opinions. As the financial resources of most countries are not sufficient to face the challenges ahead, innovative instruments to support countries in their efforts to achieve the MDGs seem to be necessary, as the EDF should not be diverted from its focal sectors. In order to improve capacity building and information sharing among the West African actors, EU member sta
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