Posted: Tuesday 13th May 2014 at 7:36 am

IMANI: the EPA is in alignment with the development agenda of Ghana


As many Ghanaians await the follow up meeting to the meeting with the ECOWAS Heads of State on the subject of the Economic Partnership Agreements (EPA) with the European Union (EU), the position of Ghana and the entire ECOWAS region remains unclear.

As was highlighted in the previous IMANI report http://www.imanighana.com/2014/04/imani-report-evidence-based-support-for-ghana-to-ratify-the-epa/ , the decision of whether to ratify the Regional EPA or not, impacts mostly Ghana, Nigeria and Cote D’Ivoire. Of these three, Nigeria has categorically opposed signing the EPA ‘as is’, and Cote D’Ivoire’s has signed the EPA with a strong indication that it will ratify before the deadline of October 1, 2014.

President Mahama’s Views on the EPA
Ghana’s position on the EPA is clouded with ambiguity, even at the level of the Presidency with vague assurances, such as ‘Ghana will continue to play a facilitating role in the signing of the EPA… , ‘[Ghana] will not hasten to append the country’s signature to the Economic Partnership Agreement (EPA) with the European Union (EU)…any decision that we eventually take, which I [the President] assure you, will be in the best interest of Ghana‘ [ii] #_edn2 , and ‘it will be disastrous if we implement the EPA unilaterally as individual countries…Ghana is in favour of the negotiation of a sub-regional EPA‘ [iii] #_edn1 . #_edn3

Unfortunately, the President has only managed to convey that, Ghana will dance to the tune of the ECOWAS region, whatever the decision may be.

Ghana Needs the EU as a Trade Partner
The overarching criticism against the EPA is that, it is skewed in favor of the EU with some even suggesting exploitation akin to imperialism. The EPA in brief opens up 100% of the EU market to the ECOWAS region (with the exception of sugar and rice in the case of Ghana) in exchange for 75% market access to the ECOWAS region by the EU.

However, giving that, the countries in the ECOWAS region are import driven and less geared for exports, there has been uproar and heated debates over the premature state of our industrial sector to effectively take advantage of the tariff free exports the agreement presents; citing the risk of destroying the budding industrial sector and corresponding financial and job losses.

Simply put however, Ghana needs the EU more than the EU needs Ghana. In 2012, our largest trading partner in total exports was the EU, constituting 48.7% of exports; these exports generally were 0.2% of imports to the EU (2013).

Similarly, EUs exports to Ghana were 0.2% of its total exports (2013), while thistranslates to roughly 21.7% of our total imports (2012). And in the sub region, EU exports to ECOWAS constitute 1.6% of its total exports in 2013. The salient idea here-in is that the gain in removing export tariff to EU is more beneficial to us (Ghana/ECOWAS) than the gain to them in the removal of import tariffs to Ghana and the ECOWAS region.The hard truth is that Ghana is more vulnerable to the EU than it wishes to admit.

Ghana Must Not Blindly Follow Nigeria’s Lead

Ghana cannot align with Nigeria on the EPA because Nigeria’s economy is structured differently from our economy. Nigeria is riding high on its crude oil revenue which is being used in subsidizing its industrial sector to position them competitively for exports.

Our NTEs conversely will be crippled by export tariffs to the EU. Secondly, Nigeria has no external debt pressures from the World Bank or the IMF. Also crucial is that, Nigeria has the largest market in the ECOWAS region with a population of 169million (2012) which is more than half of the 300million market share that the EU brings to the trade table.

Besides that, Nigeria is eligible for the General System of Preferences plus (GSP+) of which Ghana is NOT eligible [iv] #_edn4 .Lastly, regional integration has been sluggish and to the point that presently, Nigeria bans certain products from Ghana even though approved under the ECOWAS Trade Liberalization Scheme (ETLS), in the interest of protecting its market.

It is unwise to blindly align our interests with that of Nigeria without crucially examining the benefits of the EPA to our economy.

NTEs Constitute 90% of the Output of the Manufacturing Sector

The EPA with Ghana affects primarily the exports in the non-traditional sector as exports in the traditional sector already have tariff free access to the EU. 

The Non-Traditional Exports (NTEs) in 2012, made up 17.46% [v] #_edn5 of total exports from Ghana while the traditional exports, which are Cocoa Beans, Logs, Mineral Ore (e.g. Unprocessed gold), Electricity, Fresh fish, Fresh yammake up the rest.

NTEs consist of agricultural products, handicrafts and processed/semi-processed goods. In terms of contributions to GDP, the industrial component of the NTEs, make up 90% of the of total manufacturing sector’s output.

This also means that 90% of the output of the manufacturing sector is exported and between 2007 and 2012, the EU has been the main destination for NTEs at 44% with ECOWAS as the next largest market at 30%.

Ratifying the EPA will be beneficial in lowering cost of production of these products and increasing our competitiveness, not only in ECOWAS and the EU, but in the global market. Between the years 2007 and 2012, Trade with ‘Other Countries’ has more than doubled, from 10% to 20%,which is also the highest recorded growth during that same period.

Thus, it is crucial, thinking ahead that we position ourselves as trade partners in a global world and not to be limited to the ECOWAS region. The EPA provides that foundation that will accelerate the growth of the NTEs and the manufacturing sector.

[Source: Ministry of Trade and Industry, Highlight of NTE 2012 Presentation]

IMANI also proved in its first report ( http://www.imanighana.com/2014/04/imani-report-evidence-based-support-for-ghana-to-ratify-the-epa/ ), that, the bulk of imports from the EU do not have any direct competition with products manufactured in Ghana. 

Rather,’liberalized imports from the EU are mainly goods which are not produced locally, notably inputs used by local industries, such as agricultural inputs, equipment and machinery’ [vi] #_edn6 .

Removing these tariffs will not only protect the NTEs, but it will immediately bolster the productivity of the manufacturing and entire industrial sectors such crude oil, mining and quarrying, construction, etc.

If Ghana rejects the EPA, the next alternative is limited to the General System of Preferences(GSP). While this was partly addressed by IMANI in its first report on the EPA, it is essential to restate the background to the alternatives available to Ghana in lieu of ratifying the IEPA / EPA.

Of the 15 countries in the West African bloc, 12 countries are considered Least Developed Countries (LDCs) and thus enjoy full tariff free, quota free access to European Union (EU) market under the Everything but Arms (EBA) program. Of the remaining three, Nigeria, aside from being secured by its major export commodity also enjoys partial or entire removal of tariffs under the EU’s Generalised Scheme of Preferences (GSP) and Ivory Coast has already indicated that it would ratify the IEPA.

GSP is NOT a viable alternative to EPA
If Ghana decides not to ratify the EPA, it will by default qualify for the EU’s GSP. The GSP grants preferential market access to all developing countries on a restricted number of products at preferential tariff rates.

The GSP is a specific instrument focusing on a single dimension only: tariff preferences for trade in goods. It does not have the ambition or the possibility to tackle other problems faced by developing countries.The GSP undergoes regular reviews to take account of evolutions in international trade patterns, whilst remaining within a stable and predictable framework [vii] #_edn7 .

In the short term, the GSP enables Ghana to continue to benefit from import tariffs from the EU however it’s a narrow perspective to adapt when thinking on a global scale. Conversely, the higher tariff rates under the GSP will make Ghanaian exports to the EU simply uncompetitive. Even at removed tariffs under the EPA, Ghana’s NTE barely competes.  

This development will culminate in loss of market share for NTE companies that export largely to the EU. Against the background that Ivory Coast will ratify the EPA, an option available to companies adversely affected (exporters of fresh bananas and prepared tunas) will be to relocate to that country.

This will inevitably lead to a significant reduction in the NTE sector’s contribution to GDP and tax receipts. As explained earlier, Ghana needs to think in terms of the bigger picture, and in the bigger picture the NTEs are integral to the nation’s industrialization plan.

 
Whilst exporters of fresh bananas and prepared tunas face crippling tariff rates of 19.4% and 20.5% respectively under the GSP, they however face no such dilemma under the EPA with 0% tariff. 

 
Exports total value
(EUR millions)
Tariff rates under the
EPA (%)
Tariffs rates under
GSP (%)

Prepared or Preserved tunas and  skipjack

116
0.0
20.5

Bananas, fresh (excl. plantains)
35
0.0
19.4

Cocoa butter, fat and oil
77
0.0
4.2

Cocoa paste
 
161
0.0
6.1

Cocoa powder
 
30
0.0
2.8

Pineapples
 
34
0.0
2.3
Ghanaian exports to the EU, tariff rates under the EPA and GSP, 2012

[Source: Eurostat and the TARIC databases]
Secondly, the GSP is a unilateral and not a contractual arrangement; as such there are no certainties in place, no room for negotiationsas the scheme undergoes regular amendment and places us at the mercy of the EU. For instance, the new GSP would see over 80 developing countries including Namibia, Botswana, Gabon and Mauritius being removed from it due to their classification as Upper Middle Class countries.

Some of the countries now excluded, may have reasonable average incomes, but nevertheless also have high inequality and widespread poverty. This also highlights another flaw inherent in the GSP as it was not designed to reduce poverty. The EPA however is a contractual and reciprocal trade agreement binding the parties involved over a 20-year period. The EPA also allows for negotiations, so long as terms are WTO compatible and agreeable to both parties.

The GSP focuses entirely on market access and is not development oriented. Within the framework of the scheme, development is considered a complex goal, thus the GSP only seeks to serve as a building block within an adequate political and economic context to contribute towards development.

The central theme of the EPA is not just to make trading relationship between the EU and African, Caribbean and Pacific (ACP) countries ‘WTO compatible’ but also to facilitate development. The original goals of the EPA include the promotion of sustainableeconomic growth and development, the reduction of poverty in the participatingACP countries, and their gradual integration into the world economy, whichwould bolster regional economic integration.

Towards those goals, theintermediate targets are the expansion and diversification of trade as well asincreased domestic and foreign investment. The policy measures for attainingthose goals and targets include import andinvestment liberalization, export promotion and supply-response capacitybuilding.

The ECOWAS countries that are participating in the EPA will have toimplement import and investment liberalization sequentially at two levels, first,within their regional groups and, second, between them and the EU. Theirexports will also be promoted through reciprocal enhancement of market accessopportunities in the intra-regional and EU markets [viii] #_edn8 .

The EU instruments for development cooperation have already been mobilized in order to prepare Ghana for EPA implementation. On – going and future interventions include support for Trade facilitation and National Quality infrastructure. Also, to ensure the success of the EPA, Ghana and the EU aim at creatingfavorable conditions for Ghanaianentrepreneurs through supporting a number of organizations including the Food and Drugs Authority, Ghana Standard Authority and Ghana Exports Promotion Agency.

Conclusion and Recommendations
Ghana must develop an industrialization policy if we are serious about diversifying our exports. That will position us to reap the benefits of the opportunities the EPA presents over the next two decades. As of Febr uary 2014, Nigeria has launched the Nigeria Industrial Revolution Plan (NIRP) and we should follow suit. We cannot achieve any significant, coherent or harmonious industrialization without a policy strategy and implementation plan.

The EPA agreement is for two decades which is an important time for Ghana as we strive towards the attainment of full middle income status. As such, the composition of our exports will change to reflect a more diversified portfolio. Ghana should demand flexibility within the EPA that safeguards the industries of processed and semi-processed commodities. This must improve upon the safeguards already given in the IEPA agreement and should be proactive and less reactive in response.

The EU should not be allowed to subsidize their industries that directly compete with the agricultural sector products amongst others protected via the 25% commodities excluded from tariff free imports from the EU.

Lastly, it is imperative that the ECOWAS region strengthens its ETLS in anticipation of the EPA agreement with the EU. It is important to facilitate the integration and implementation of a Free Trade Area (FTA) in order to enhance trade amongst the regions fifteen countries, a development agenda which has stalled since inception.

References
http://www.ghana.gov.gh/index.php/2012-02-08-08-32-47/general-news/5480-president-mahama-promises-to-facilitate-negotiations-for-epa

[ii] #_ednref2 http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=307976

[iii] #_ednref3 http://spiritfmonline.com/2014-04-02-12-45-34/ghana-news/2017-ghana-will-support-ecowas-position-on-epa-mahama

[iv] #_ednref4 http://trade.ec.europa.eu/doclib/docs/2012/november/tradoc_150043.pdf

[v] #_ednref5
[vi] #_ednref6 http://eeas.europa.eu/delegations/ghana/documents/press_corner/2014/ghana_eu_epa_brochure_15_april_2014_en.pdf

[vii] #_ednref7 The EU’s new Generalised Scheme of Preferences (GSP). Retrieved from http://trade.ec.europa.eu/doclib/docs/2012/december/tradoc_150164.pdf

[viii] #_ednref8 2009 AEC-EU-ECOWAS Economic Partnership Agreement, Nigeria’s role in ensuring development focus and regional integration. Retrieved from http://www.afdb.org/fileadmin/uploads/afdb/Documents/Knowledge/2009AEC-EU-ECOWASEconomicPartnershipAgreementNigeriasRoleinensurnigDevelopment-FocusandRegionalIntegration.pdf

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