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SUSTAINABILITY IMPACT ASSESSMENT (SIA) OF THE EU-ACP ECONOMIC PARTNERSHIP AGREEMENTS West Africa: Agro-industry West Africa: Agro-industry 2.1 Introduction This sector study assesses the potential
SUSTAINABILITY IMPACT ASSESSMENT (SIA) OF THE EU-ACP ECONOMIC PARTNERSHIP AGREEMENTS West Africa: Agro-industry 10 2. West Africa: Agro-industry 2.1 Introduction This sector study assesses the potential economic, social and environmental impacts of an EPA on the agro-industry sector in West Africa (ECOWAS and Mauritania). It begins by identifying priority trade measures and sustainability variables to be considered. It then explores the sustainability impacts of a baseline scenario, which reflects the current status of regional integration and liberalisation between the EU and West Africa. It considers the sustainability impacts of a full liberalisation scenario from both the EU and West Africa. Then, it examines the sustainability impacts of an EPA scenario that contemplates robust regional integration in conjunction with asymmetric tariff reductions, which fully open the EU market but leave some protections in place in West Africa. Finally it makes policy recommendations to promote positive impacts and mitigate any negative impacts. Negotiations for an EPA between West Africa and the EU were launched in Cotonou on 6 October In August 2004 a revised Road Map for negotiations was agreed which cited overriding objectives for the first year of negotiations (September 2004-September 2005) of improving regional integration and competitiveness of the West African economies. Between 2005 and 2007 the Parties will define the framework for the EPA, present first proposals and complete the negotiations. The choice of agro-industry for this sector study stems from the fact that agriculture generates 30% to 40% of GDP and employs between 60% and 70% of the working population in the region. Because most of the poor are located in rural areas, agriculture plays a key role in poverty alleviation. Agricultural commodities are the second largest exports from West Africa to the EU (behind petroleum oils, gases and other hydrocarbons) yet most are exported with little value added locally. West African countries are missing an opportunity to produce higher value products, provide employment in agro-industry, and enhance incomes both for farmers and workers. While an EPA could present opportunities to develop agro-industry and exports, liberalisation raises concerns about competition with local products and adapting existing production in West Africa to meet EU requirements. 11 Four product areas are used to illustrate potential impacts of an EPA on sustainability in this sector (Table 3). These were chosen based on their importance for sustainability and their potential to reflect different aspects of trade within West Africa and between the EU and West Africa. They reflect a range of challenges and opportunities for West Africa that are also relevant for agro-processing industries in other ACP regions. Table 3. Sub-sectors and products in the Agro-Industry sector study Sub-Sector Fruits and Vegetables Cereals Meat Cotton 2.2 Consultation Specific Commodities/Products Fruits and vegetables include a wide range of products. This study focuses on: Tropical fruits and vegetables for export markets. This includes mangoes, pineapples and green beans. These products are most likely to be impacted by SPS requirements and NTBs as well as trade facilitation and investment, and better market access to the EU for some products (fresh or processed) for non- LDCs. Vegetables produced for the regional market. This includes potatoes, onions and tomatoes. These products are most likely to be impacted by competitiveness concerns, investment, and market access into West African countries. This sub-sector includes wheat and wheat products imported from the EU and local cereals produced in West Africa. These products are most likely to be impacted by competitiveness concerns and complementarities between local and imported products to supply growing urban demand. Market access is important as removing tariff protection in West Africa could increase competition between EU wheat products and local cereals and involve substitution at the consumer level. This sub-sector includes beef and poultry. These are both important for their trade flows and possible effects of substitution at the consumer level. These products are most likely to be impacted by market access issues and the risk of increased competition between local and products from the EU (particularly frozen products). Investment in infrastructure is also important to encourage rudimentary processing facilities (e.g., slaughterhouses, refrigerated warehouses and transportation) to improve competitiveness. This includes cotton yarn and unbleached fabrics (not clothes), representing the first level of transformation of cotton fibres for export to the EU and for the regional textile industry. The main concern is to add value to cotton fibre and encourage the competitive production of semi-finished textile products. The consultation process for this study involved attending relevant meetings to make presentations and exchange information, meeting with experts in the governments and civil society, and dialogue in an electronic discussion. Details of major meetings organised and/or attended by members of the team and a list of individuals interviewed as part of the research and consultation for this study are detailed in Annex 2. 7 Box 1 contains a summary of the results of the consultations. The electronic discussion group was organised in February-March 2005 and included local experts and civil society representatives from the region as well as experts in Europe. 7 There are remaining opportunities that had not yet taken place at time of writing, where the team will present the results of the SIA and obtain any final feedback. These include a meeting of ECOWAS ambassadors in Brussels (date to be announced) and a 3-day regional seminar in Ouagadougou (organised by the Rural Platform for Rural Development and the WAEMU Commission, June 2005). 12 Box 1. Summary of Consultations for West Africa There was an apparent lack of knowledge about the process. There was concern about the potential of import surges and the necessity for capacity building to create opportunities. Discussion on the impact of CAP reform on agricultural trade EU-ACP, and the needs to address supplyside constraints in order to better benefit from the opportunities of EPA. Confirm the interest in WA of yarn & unbleached fabric for export. Main issues are partnership with EU companies (or EUROMED) and rules of origin, which make access to EU markets difficult. AGOA is easier but it is still hard to comply with US market requirements. Lack of information for civil society, fear of impacts and further liberalisation for representatives of regional organisations. Some people proposed increasing the level of the CET. One question raised was whether an EPA would be useful in improving the situation on cotton. Yarn and unbleached fabrics for exports makes sense provided there is a national and regional market which is not the case for the moment (illegal imports and worn clothing). Discussion on poultry and the impact of import surge on economic and social variables. Questioned whether EPAs would make the situation worse. Discussion with representatives of farmers from West Africa on the EPA. There was an apparent lack of knowledge about the negotiations and fear of further liberalisation. Discussion of how to assess impacts of liberalisation and the need to articulate regional integration, building and implementation of agricultural policies, and trade issues. No difficulty for West African exporters of fresh fruits or vegetables meeting EU SPS requirements, given their long history of exporting to the EU. Women are producers and also important traders, at all levels of trade, formal and informal. The EPAs need to be further publicised and explained to all stakeholders in Senegal where there is a fear of the consequences of an unequal agreement whereby countries in the region, would be the losers. Another framework to consider for regional integration would be WAEMU + Ghana and Guinea, with Nigeria treated as a separate entity. Modernising and restructuring existing export companies are necessary but there will be a price to pay by the EU. The main obstacle to exports is the lack of cooling capacities and air freight both regionally and internationally. Senegal has experienced the impact of trade liberalisation through a vibrant and efficient informal sector which contributes to the loss of revenue of the state. If imports of tools and equipment were liberalised the impact would still be positive despite the temporary loss of revenue for the state. Capacity building is necessary to allow the present productive sector to improve its skills and be opened to any possible improvement of competitiveness. 2.3 Relevant Trade Measures The most relevant trade measures for this sector study are market access (for non-ldcs from West Africa, and for the EU), trade facilitation, foreign direct investment (FDI), and SPS and TBT measures Market Access West Africa. WAEMU countries apply a four-level CET on imports, including those from the EU. In non-waemu countries, tariffs differ among countries and products. Current tariffs for selected products relevant for this study are indicated in Table 4. It 13 highlights the differences between the WAEMU CET and the current tariffs for ECOWAS countries that are not members of WAEMU. Since the beginning of 2005, the WAEMU CET has been extended to the full ECOWAS region, and it is already taking into account in the 2005 loi de Finances in Guinea and Nigeria. The implementation of the WAEMU CET will involve a substantial reduction in tariffs for potatoes, wheat flour, and poultry in Ghana, and meat and fruits and vegetables in Nigeria. On the other hand, it will imply an increase in tariffs for Guinea and Gambia. Table 4. Tariffs for Selected Products applied in the ECOWAS area Product WAEMU CET (%) Cape Verde Gambia Ghana Guinea Mauritania Nigeria Fruits and Vegetables Potatoes Tomatoes (fresh or chilled) Onions (fresh or chilled) Tomato concentrate not for retail sale Prepared tomatoes Cereals Cereals (unspecified) Wheat or meslin Prepared cereals Wheat or meslin flour Import prohibition Pasta Bread, cakes, biscuits Meat Meat (unspecified) 2-17 Meat / bovine animal Import prohibition Meat / poultry Import prohibition Cotton Fibre Cotton Yarn Worn Clothing Source: WAEMU website. The Gambia: WTO, Trade Policy Review, 2004; Guinea: WTO. Trade Policy Review, 1999; Nigeria: WTO. Trade Policy Review, 2005; Cape Verde, Ghana and Mauritania: The Impact of ACP/EU Economic Partnership Agreements on ECOWAS Countries: An Empirical Analysis of the Trade and Budget Effects, Busse et al., Non-Tariff Barriers (NTBs). In order to protect domestic production, some countries in West Africa have established specific market access measures (bans, reference prices, added tariffs, seasonal quotas). 8 Specific NTBs relevant for this sector study are presented in Table 5. 9 Table 5. NTBs Imposed by West African Countries Relevant for this Study Sub- Sector Fruits and Vegetables Cereals Market Access Measure Burkina Faso: A national conformity certificate is required for tomato concentrate in order to protect domestic production. Guinea: Imports of potatoes from the EU can be prohibited between February and June to protect domestic production. This measure allowed Guinean producers to raise the competitiveness of their potatoes and they are able to compete with imports, which have been decreasing steadily since The prohibition has not been applied since Mauritania: Seasonal duties are applied to onions and tomatoes. The highest rate is applied during the period when the domestic production is marketed. Senegal: Senegalese tomato concentrate production is protected by the fact that it is the only one sold in the domestic market under a mandatory national standard. Senegal applies a so-called temporary surcharge of 20% on imports of onions and potatoes. Despite its name, there is no indication when and under what conditions the surcharge might be removed. Burkina Faso: a national conformity certificate is required for wheat or meslin flour, biscuits, and pasta to protect domestic production. Furthermore, a price reference is applied for wheat flour (CFAF 225/kg = EUR 0.34/kg). Mali: a price reference is applied for wheat and wheat products (wheat flour: CFAF 232/kg = EUR 0.35/kg; pasta: CFAF 390/kg = EUR 0.59/kg; biscuits: CFAF 980/kg= EUR 1.49/kg). Nigeria: Imports of sorghum, millet and wheat flour, pasta and biscuits have been prohibited since the end of Senegal: A temporary surcharge of 10% is applied on imports of millet and sorghum, and imports of wheat flour are subject to the application of a 10% Taxe conjoncturelle d importation (TCI), as allowed for in WAEMU trade policy. Meat Benin: A ban on chicken imports has been in place since March Burkina Faso: A ban on chicken imports has been in place since end of Mali: Applies a ban on beef and has set up an authorization system for other meats. Nigeria: A ban on imports of frozen poultry has been in place since the end of Senegal: Has used entry prices since The importance of informal trade between some countries (for example, Benin and Niger to Nigeria, Guinea to Sierra Leone and Liberia, Gambia to Senegal) affects the real impact of these measures. WTO. Trade Policy Reviews of Niger (2003), Nigeria (1998), Gambia (2004), Guinea (1999); L Echo des frontières, several issues, LARES; Some countries apply taxes on imported products, exempting local/regional products. This is the case, for example, in Gambia (10% sales tax) and Ghana (12.5% VAT on raw foodstuffs imported from non-ecowas countries). WTO. Trade Policy Reviews of Ghana (2001) and Gambia (2004). 9 Unless otherwise indicated, information on Burkina Faso, Guinea, Mauritania, Senegal, and Mali are taken from WTO Trade Policy Reviews conducted in the following years: Burkina Faso (2004), Guinea (1999), Mauritania (2002), Senegal (2003) and Mali (2004). 10 Diallo A. B., Etude de capitalisation de la filière pomme de terre en Guinée. 11 L Echo des frontières, n 24, oct/dec 2002, LARES and n 26, avril/juin Hermelin, L Echo des frontières, n 24, oct-dec 2002, LARES. 14 FAO, European Union. All countries in West Africa (with the exception of Ivory Coast, Ghana and Nigeria) are LDCs, and benefit from the Everything but Arms (EBA) initiative, which gives them free access to the EU market with respect to the products in this study. For non-ldcs, relevant market access measures in the EU depend on the specific product. No tariffs are applied to fresh fruits and vegetables. Tariffs are applied to mango products which are slightly processed (mango juice and preserved mangos) and to meat products. Tariffs relevant for this study are indicated in Table 6. Table 6. Selected EU Tariffs Applied to West African Products from non-ldcs Fruits and Vegetables Mangoes or pineapples, fresh or dried 0 Pineapple juice 0 Mango preserved by sugar (HS ) EUR 15 per 100 kg Mango juice (HS and HS ) EUR 12.9 per 100 kg. Potatoes 0 Green beans 0 Meat Beef and veal 0% + EUR per 100 kg Poultry From between EUR 6.5 per 100 kg to EUR 11.3 per 100 kg (preferential quota), according to kind of poultry meat (fresh, frozen, cut or whole). There are other policies in the EU that can impact the competitiveness of West African products entering the EU market, including those identified in Table 7. The last reform of the EU s Common Agricultural Policy (CAP), adopted in July 2003, is likely to have few impacts on the EU s trading relationship with West African countries. Under the Uruguay Round s Agreement on Agriculture (URAA), domestic support will become less trade-distorting and export subsidies will be phased out. Table 7. EU agricultural policy measures that affect competitiveness of West Africa markets 15 Sub-Sector Fruits and Vegetables Cereals Meat EU Agricultural Policy Under an EU threshold expressed in terms of quantity of fresh tomatoes, direct aid of EUR per tonne of tomatoes is provided to producer organisations in the EU delivering tomatoes for the production of tomato concentrate. This aid is refunded by the organisation to individual producers. 16 Moreover, export refunds may be provided to permit the export of economically significant quantities of products. Wheat production is subsidised in the EU. Export subsidies had not been applied for a long time, but were reintroduced in early 2005 (due to the appreciation of the euro versus the $US) Beef and veal: Export refunds range from EUR 33.5 per 100 kg to EUR 97 per 100 kg for all ECOWAS countries. Beef production is subsidised in the EU. Poultry: No direct subsidy or market intervention for poultry production. Export subsidies have dropped since the implementation of the URAA Commission Regulation (EC) No 1535/2003 of 29 August 2003: rules for applying CR (EC) No 2201/96. 16 2.3.2 Trade Facilitation The Cotonou Agreement has not defined a specific process to promote trade facilitation per se. However, EPAs aim to remove progressively all barriers to trade between (the Parties) and enhance co-operation in all areas relevant to trade. 17 Problems in West Africa include excessive documentation, insignificant use of information technology, lack of transparency and procedures, and lack of modernized institutions related to customs clearance. Customs officials in West Africa have limited resources and expertise. Ports and airports are favoured as points of debarkation and embarkation while road border crossings are not prioritised, even though road transportation is the main mode of transport in intra- and inter-regional trade. According to the World Bank, the average days required for customs clearance for sea cargo in Africa is 10.1 days compared to 2.1 days in OECD countries; and reducing the customs clearance time by one day can equal a reduction in tariff of 0.5%. The losses suffered by business through delays at the border, complicated and unnecessary documentation and lack of automation are estimated to exceed, in many case, the costs of tariffs. Nigerian authorities estimate that illegal levies increase the cost of imports by up to 45%. 18 Even in WAEMU, where free trade has existed since 1 January 2000 obstacles to intra-regional trade remain. 19 Moreover, all West African countries suffer from very high transportation costs, and those in the land-locked countries are particularly onerous. This not only raises the price of goods for consumers in the region, but it also undermines the competitiveness of prospective exports from West Africa to the EU (and elsewhere). In 1997, average freight costs were approximately 4% of the c.i.f. import values of developed countries and 7.2% of c.i.f. import values of developing countries. For West Africa, the average was about 12.9% but in the land-locked countries in West Africa it was even higher. For example, Mali s freight costs were 29.6%. 20 According to the WTO, countries which have taken concrete steps to harmonize their transport policies and adopt common technical standards and legal principles have experienced a significant overall reduction in transport costs. 21 However, transit transport cooperation takes time and considerable effort to construct. The complexity 17 Art.36 (1) Cotonou Agreement. 18 ITC, Nigeria: an overview of the business challenges of the evolving international trading system. 19 WTO, Trade Policy Review of Mali; Hermelin B., WTO, WTO, and plurilateral nature of transit transport requires an appropriate intergovernmental machinery to monitor and review progress in the implementation of international agreements and programmes. Moreover, maintaining and improving common programmes and arrangements requires considerable financial resources and technical capacity as well as political commitment on the part of governments Foreign Direct Investme
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