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Executive summary
This study describes how proposed ACP-EU trade arrangements - Economic
Partnership Agreements - could impact on the fight against poverty in five ACP
countries: Jamaica, the Dominican Republic, Ghana, Benin and Cameroon. The main
focus of the study is on examining what the different consequences are for people in
the ACP with the removal of tariff barriers to EU products on the one hand, and the
easing of non-tariff barriers to ACP products on the other. It sets benchmarks for a
credible process and outcome of the design of ACP-EU trade arrangements that
advance poverty eradication in the ACP. Its analysis is based on experiences and
forecasts of people from the five countries working in close proximity with people
living in poverty, and with sectors that are key to its eradication.
The conclusions of this analysis are that if EPAs are based on liberalised trade
between the EU and the ACP countries, rather than advance poverty reduction, they
will set back poverty reduction programmes and strategies in the ACP and undermine
the Cotonou Agreement, with regard in particular to the promotion of social sector
funding.
The Cotonou Agreement states that the overall goal of the ACP-EU Partnership is
poverty eradication. It follows that EPAs as an integral part of this partnership should
contribute towards this objective.
The Agreement sets two conditions to be met by EPAs:
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They should progressively remover barriers to trade; and
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They should be WTO compatible.
The EU's starting point in the negotiations has been to interpret WTO compatibility
as reciprocal free trade and the reference to removal of trade barriers as a license to
focus primarily on the ACP dismantling tariff barriers. However, WTO compatibility
cannot be considered as synonymous with reciprocal free trade, chiefly because WTO
rules are currently under negotiation and WTO compatibility could be redefined. This
state of affairs has now been recognised by both the EU and ACP. There is therefore
no reason why the trade arrangements should be shackled to rules that are evolving,
especially if the implications of the rules have been found to run counter to recognised
poverty reduction strategies in the ACP.
Regarding the removal of barriers, to date the negotiations have mainly focused on
tariff barriers. But it is evident that all ACP countries stand to lose huge amounts of
revenue, which could be pumped into social sector programmes, by removing
customs duties on EU imports. This will constrain the implementation of article 25 of
the Cotonou Agreement that aims to promote adequate levels of public spending in
social sectors. The loss of funds is also even more critical considering that the EU
puts the onus on the ACP for any financial adjustments to be made for new trade
arrangements. In addition, the influx of EU products fuelled by massive Common
Agricultural Policy (CAP) subsidies, which will result from the removal of tariff
barriers, will overwhelm ACP economies by putting a lot of poor men and women out
of jobs, and by damaging key export earning sectors in cash strapped and debt
burdened ACP countries.
At the same time, ACP countries are presently unable to overcome a range of nontariff
barriers such as health standards, and rules and regulations, which hinder their
exports to the EU in areas that are vital to the poor in terms of employment and
income generated for the government. In certain cases some of these standards are
questionable in terms of their relation to internationally agreed health standards.
The CAP has also acted as a barrier to exports by restricting certain products from the
market and lowering world prices of ACP countries produce, as have a range of
domestic constraints to export production.
Women, who make up the majority of the poor in ACP countries, are employed at the
lowest end of the trade process and have not benefited from current ACP-EU trade
arrangements. They are likely to suffer further from the disproportionate detrimental
impact that the CAP has in their main area of employment - agriculture.
Country case studies
Extracts from country case studies on Jamaica, Dominican Republic, Cameroon,
Ghana and Benin below, give some examples of how the problem of poverty in the
ACP is aggravated with the maintenance of EU non-tariff barriers that restrict ACP
exports and which will be compounded by the removal of ACP tariff barriers towards
EU exports.
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JAMAICA
"[Opening up of our markets to the EU] would be the last straw to break the camels
back. It would totally wipe out the local dairy farmers." Aubrey Taylor, Chairman of
Jamaica Dairy Farmers Federation (JDFF).
In Jamaica dairy producers, many of which are small poor farmers, have no means of
achieving the health standards set by the EU on dairy products and thus have no
prospect of exporting to the EU. Sugar producers are restricted by the EU sugar
regime in exporting high value processed sugar even though this is crucial to the
survival of an ailing industry, which is still the second largest single employer in
Jamaica and the third largest foreign exchange earner.
To add to these problems EU dairy exports are set to increase their inundation of
Jamaican markets to the detriment of the local dairy industry, if EPAs do not allow
Jamaica to protect its industry. The dairy industry has been identified as strategic to
the development of the entire agriculture sector, which employs the majority of the
poor in Jamaica.
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DOMINICAN REPUBLIC
"In the absence of a protection and support programme for the sector, I don't think I
can survive. Production costs rise everyday and I am at the mercy of middlemen who
pay me whatever they wish for my milk". Dairy farmer from the Dominican Republic.
In the Dominican Republic promising exports in organic products are let down by
difficult and costly processes for certification and import authorisation in the EU.
Organic products have the potential to provide valuable income for small farmers due
to their resistance to commodity price falls. But many individual small poor farmers
find it impossible to meet the costs of certification of organic products.
Like in Jamaica, if EPAs introduce liberalised trade EU dairy products will overrun a
market it already dominates, forcing thousands of dairy farmers out of jobs.
Furthermore, the contribution of revenues from duties on EU imports to total customs
revenue will drop from 13% to just 1.5%. The fall in public revenue that will result,
could limit social sector spending in a country where slow progress on poverty
reduction, even after years of economic growth, has already been attributed to low
public social spending by the United Nations Development Programme (UNDP).
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CAMEROON
"The elimination of the non-reciprocal preference system may threaten the
Government Financial Operations Table and the achievement of the Millennium
Development Goals (...) This situation would have a particularly negative effect on
the national poverty reduction strategy, on basic infrastructure, health and
education." Professor Fouda - Cameroonian academic - on the impact of liberalised
trade with the EU on Cameroon and the Millennium Development Goals.
Cameroonian exporters have been thwarted by a range of EU regulations ranging
from CAP seasonal quotas of French beans, to the chocolate directive that restricts
cocoa fat in chocolate. Through the chocolate directive in particular, which allows EU
chocolate producers to substitute cocoa fat with other fats, Cameroon as a major
cocoa exporter could lose huge amounts of revenue from its cocoa exports.
To add to the country's problems, the dismantling of tariff barriers through an EPA is
likely to put thousands of poultry farmers, amongst others, out of the market and
intensify food insecurity by increasing dependence on foreign imports in a country
where 36% of all children are malnourished. According to analysts, trade
liberalization could worsen the problem of malnutrition.
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GHANA
"It is extremely difficult to figure out how the dumping of cheap poultry parts-like
legs, wings, necks - that have no markets in the EU anyway, could be permitted in the
name of free trade that is supposed to promote competitiveness". Mr Adjei Henaku,
the Executive Secretary of the Ghana Poultry Farmers on opening up of the Ghanaian
market in an EPA.
In Ghana, cocoa, which is the biggest export product to the EU is also restricted by
the chocolate directive. In addition a range of other barriers hold back promising
horticultural exports such as tough rules on banana exports, which aim to determine
the form and size of the fruit. Banana farms have a much higher workforce per hectare
than any other plantations in Ghana and therefore are a critical source of livelihoods
for the poor.
Just as in Cameroon, a huge influx of poultry exports from Europe is expected with
the dismantling of tariff barriers which will augment poverty not only for the poultry
farmers it puts out of work but also the poorest section of Ghanaian society - the
millions of crop farmers (many of which are women) - who are dependent on the
poultry industry. Furthermore, it is estimated that Ghana could lose between 4-7% of
government revenue, if a free trade arrangement is established between West Africa
and the EU. This will reduce possibilities for public investment in social services. Yet
Ghana's poverty reduction strategy calls for greater social spending and a tariff
structure that maximizes revenues and minimizes unfair competition.
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BENIN
"According to a recent study of four West African countries (Benin, Burkina Faso,
Mali and Togo), if no corrective measures are taken the cotton sector could disappear
in the next three years". President Kerekou of Benin in a speech to the European
Parliament in Brussels, September 2003.
In Benin cotton production is key to poverty reduction. American and European
cotton subsidies have contributed to the plummet in world cotton prices over the last
three years. Analysts have established a direct link between prices on cotton and
poverty, whereby a drop in global cotton prices by almost 40% (as was experienced in
2002) increases poverty by 7-8%. This highlights the urgent need for the EU to work
together with the US in eliminating subsidies on cotton. In the long term, an EPA
could help promote the development of a viable textile industry in Benin only if it,
among other things, involves a restriction in EU exports of used textiles. Such an
action coupled with more favourable rules of origin and financial support to the
sector, could contribute to the viability of the cotton industry.
Failing to protect Benin's economy from EU imports will also result in a drop in
custom's revenue for Benin of close to 20%. This is likely to limit public social
spending in a country in which the UNDP has emphasised the urgent need for a
broadening of its tax base and an increase in public social investment if it is to achieve
sustainable human and social development.
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Key Numbers
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15
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The number of years some estimate it would take to restructure the Jamaican sugar
industry if it is to face liberalised trade with the EU
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10 000
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The number of jobs that would be created in the Jamaican dairy industry if it was able
to implement a strategy for milk production, which includes taxing all milk imports at
50%. (Most Jamaicans associate poverty with unemployment)
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6-7
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Percentage of social expenditure in the Dominican Republic - This figure, which is
half of the Latin American average could fall further with the predicted loss of
government revenue in loss of import duty receipts through liberalised trade with the
EU
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20 000
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The number of dairy workers in the Dominican Republic who have lost their jobs in
the last thirty years due to lack of protection of the sector and the high volume of milk
powder imports, of which a significant part comes from the EU
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50.5
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Percentage of Cameroonian population living in poverty
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20-30
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Percentage range of fall in Cameroonian government revenue following reciprocal free
trade with the EU taking into account accumulated job losses, tax shortfalls and lower
growth rates
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20
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Percentage of revenue from cocoa exports that Ghana could lose because of the EU
chocolate directive. Cocoa is the largest export to the EU making up 37% of all exports
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25
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Percentage of Ghanaian industries predicted to survive without import tariff support
following implementation of free trade with the EU
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334 000
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The number of extra individuals that fall below the poverty line following a 40%
reduction in world cotton prices in Benin
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160
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EU subsidies in € per kilo of cotton produced as % of world market price - the highest
rate of subsidies per kilo given to cotton farmers in the world. These subsidies have
contributed to increasing poverty in Benin
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700 million
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The estimated cost in dollars (€ 563 million) for African countries a year due to EU
health standards that are higher than internationally agreed health standards
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35 million
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The estimated costs in pounds (€ 51 million) to African countries per day of the EU
Common Agriculture Policy
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Benchmarks for Poverty Focused Trade Arrangements
Representatives of civil society who were involved in the authoring of this report
strongly believe that the ten-benchmark actions listed below need to be taken up by
the negotiating parties to ensure future ACP-EU trade arrangements are focused on
poverty reduction. Where possible these actions should be authorised by the revised
Cotonou Agreement due in May 2005.
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It is imperative that the ACP and the EU work together in the WTO to obtain
flexibility for trade arrangements that best address poverty.
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New ACP-EU trade arrangements' focus should include removal of EU nontariff
barriers (as opposed to tariff barriers) that have been shown to be
detrimental to poverty reduction.
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The ACP and EU should ensure the protection of all ACP markets that are
vulnerable to EU imports and are crucial to poverty reduction and the
livelihoods of the poor.
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The ACP and the EU should promote further research on the impact of trade
arrangements on women in the different ACP countries upon whose results the
design of EPAs should be based.
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ACP governments should be allowed to develop and pursue their own regional
processes of integration along with the best processes of sequencing for
different sets of negotiations in line with the goals they have set to generate
sustainable development. This should involve a rescheduling of the dates and
deadlines set for the different stages of EPA negotiations in the revised
Cotonou Agreement to allow more time for the ACP to deal with these
processes.
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The EU should fund programmes of assistance, designed to address the
domestic constraints to exports faced in ACP countries. In tandem with the
provision of funds the EU should support and contribute to debt relief in the
ACP.
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EPAs should promote the development of agro-industry in the ACP. This
should involve technology promotion and skill building in the agricultural
manufacturing and services sectors.
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The EU, in the light of its commitment for external policy coherence, should
allow external effects of CAP reform to be fully taken up and addressed in the
negotiations.
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EPAs should support the development of safety nets for producers affected by
the falling advantages of preferences.
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The ACP and the EU should support greater involvement of civil society
groups including producer organisations in EPA discussions and negotiations
in line with the provisions of the Cotonou Agreement.
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