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TWN Info Service on WTO and Trade Issues (Oct08/02)
6 October 2008
Third World Network

Trade: EU's EPAs can spread conditions for finance crisis to South countries
Published in SUNS #6559 dated 2 October 2008

Kuala Lumpur, 30 Sep (Sanya Smith) -- On the eve of the ACP heads of state summit in Accra, a new analysis of the European Union's economic partnership agreements with ACP countries has been released.

The EPAs is one of the topics being discussed at the 6th African, Caribbean and Pacific Summit of Heads of State and Government being held in Accra, Ghana on 30 September to 3 October.

The summit comes at a key time as ACP countries decide whether to sign agreements that they have initialled, re-negotiate them or expand interim goods agreements further.

A preliminary draft of the new paper analyses the initialled EPAs. The paper by the Third World Network, a Malaysian-based NGO, focuses on the development implications of the CARIFORUM- EU EPA because it is the broadest EPA to have been initialled and may be the basis for the EU's negotiations with other ACP countries or regions if they decide to extend their EPAs beyond goods.

The analysis covers the main chapters of the CARIFORUM- EU EPA. Among the conclusions of the analysis are that the provisions on movement of capital and entry of EU providers of financial services may magnify the problem of instability that new financial services generate, and that the developing countries would have to undertake obligations in market access and rules in new areas (investment, government procurement, competition policy) that had been rejected as negotiating topics in the WTO.

The EPA chapter on intellectual property also imposes some provisions with higher obligations than the WTO, and are likely to make medicines more expensive, the cost of manufacturing increase and increase the risk of biopiracy, according to the paper.

DANGERS OF FINANCIAL LIBERALISATION

The paper points out that the EPA can have serious implications for financial fragility in developing countries at a time of financial crisis. The possible magnification of financial instability induced by the EPA include via the mandatory free movement of capital and current payments and an obligation to allow the entry of EU suppliers of new financial services if CARIFORUM states allow their own financial service suppliers to do so and these financial service activities have been liberalised under the EPA.

After reviewing the EPAs requirements for free movement of capital and current payments, the paper concludes that "Given the present global financial crisis, and its lessons on the dangers of deregulation and liberalisation, the dangers of this obligation for extreme financial liberalisation cannot be overstated."

The dangers of liberalisation in the flow of funds is extended by the broad definition and scope of financial services (Article 103), which covers a wide range of activities in insurance and banking, including trade in foreign exchange, derivatives including futures and options, exchange rate instruments, securities and asset management.

On top of this, there is a provision to enable "new financial services". These are defined as new services that a party allows in its own domestic law if these financial service activities have been liberalised under the EPA.

"The current global financial crisis shows up the dangers even to the United States and Europe of introducing new financial services and instruments such as credit derivatives and collateralised debt obligations as well as hedge funds and their activities that are also practised by other financial institutions," says the report.

Although the CARIFORUM- EU EPA does contain some financial liberalisation safeguards, they are inadequate, the paper says. This is because they are too narrow (for example, they cannot be used to limit the movement of current payments, or can only be used if there is also a balance of payments crisis), they can only be used once a financial crisis has occurred (unless it is under Article 240 in which case a balance of payments crisis appears to also be needed) and can only be for six months (unless it is due to balance of payments problems).

SERVICES

The paper reviews the importance of the services to developing countries because it is where local firms have larger participation and are better able to compete (as compared to the manufacturing sector). It highlights the strategic aspects of services, in particular: economically strategic sectors such as finance and distribution; those essential to national economic security (for example, energy and power, telecommunications, transport, postal services and water) and those critical for the public interest and to meet social needs (water, education, health etc).

Drawing on New Zealand academic Professor Jane Kelsey's analysis, the paper observes that although the EPA allows a positive list for services liberalization (where only the sectors listed are liberalized), in practice, the level of sectoral commitments made by CARIFORUM states in the EPA exceeds the controversial benchmarks proposed by the EC in the GATS 2000 negotiations: "more developed" CARIFORUM countries have promised to liberalise 75% of their services sectors and the LDCs 65%.

It points out that the right to regulate has been narrowed further than GATS, universal service provision will be more limited and the wording in special sections on courier, finance, telecommunications, maritime services etc often copies word-for-word the EC sectoral proposals in the GATS 2000 negotiations and the optional Understandings and Reference Papers at the WTO. It notes that there may be gains in Mode 4 market access or tourism for CARIFORUM but these are not as significant as might be hoped for.

The paper recalls that the Singapore issues (investment, government procurement and competition) were rejected by developing countries at the WTO. The analysis begins by highlighting the importance of careful management of foreign investment in order to maximize the benefits for developing countries. The paper notes that there should not be a legally binding agreement for securing establishment rights and national treatment for foreign investment and investors because this would be damaging to the development interests of developing countries.

GOVERNMENT PROCUREMENT

After reviewing the importance of government procurement to many economies, the paper notes the importance of government procurement to stimulate the domestic economy especially during times of recession, or to provide preferences for certain domestic groups or regions which are economically disadvantaged.

The paper comments that therefore, it is important to avoid government procurement as an item in a bilateral trade or economic agreement. This is especially so because the developing countries have fought such a controversial battle to exclude this as a negotiating issue within the current Doha work programme in the WTO.

The paper notes that although the CARIFORUM-EU EPA government procurement chapter does not require the full range of market access, it nevertheless has a market access component. It requires market access for European companies to purchasing by CARIFORUM governments (and vice versa). This occurs for example through the requirement to treat locally established suppliers equally regardless of their degree of foreign affiliation or ownership by Europeans.

COMPETITION

On the competition chapter, the report recalls that the European Union tried to introduce this issue at the WTO in order to prevent advantages or preferences given by government to local firms on the ground that this would reduce "effective market access" for foreign firms and goods.

It also notes that a number of development economists have questioned whether the competition framework currently in place in developed countries suits developing countries. (These economists instead argue that a competition law should suit the level of development such as the policy adopted by Japan in the 1960s and 1970s as it was developing).

The report cites a South Centre fact sheet of April 2008 which noted that the request for the inclusion of competition provisions within the CARIFORUM- EPA as well as the actual language used, were initiatives of the EU Commission.

The competition chapter of the EPA requires specific competition laws to be established within five years of the EPA starting.

It also has an extensive provision on state enterprises. According to the South Centre, this provision "actually grants national treatment to EU nationals in Caribbean domestic markets. Hence, the scope of this measure is much larger than that of WTO rules (WTO-plus), and ensures, in practice, much larger market penetration for EU companies or service providers."

Whilst this only applies to certain state enterprises and only begins five years after the EPA enters into force, it is very broadly drafted because it regulates the monopolies, whatever field they are operating in, whether their activities are in sectors where they have a monopoly or are competitive, or are even non-commercial (such as purchasing gifts to give to charities).

The South Centre notes that "In practice, this prohibits a state enterprise to give preference to a national producer or a national service supplier. This is hence a direct restriction of policy space for the promotion of national productive or supplying capacity... [it] curtails the capacity of developing countries to use the procurement operations of state enterprises to promote their own small and medium enterprises or services suppliers."

In addition, with regard to certain public enterprises, the EPA prohibits any measures that distort trade in goods or services to an extent contrary to the Parties interest. This is a very broad prohibition without public policy safeguards, according to the South Centre. These enterprises are also subject to the competition rules.

INTELLECTUAL PROPERTY

The CARIFORUM-EU EPA has an extensive intellectual property chapter. In a context where most developing countries are net importers of technology, the Center for International Environmental Law notes that providing greater intellectual property protection increases the cost for ACP citizens of accessing knowledge goods in the areas of public health, education and the environment.

The TWN paper notes that the EPA requires stronger intellectual property protection than the WTO's TRIPS Agreement necessitates (even though one CARIFORUM country is not yet a member of the WTO and another is a least developed country and so eligible for the TRIPS transition periods of 2013/2016 and beyond).

After noting that the Cotonou Agreement does not require an intellectual property chapter in an EPA, the paper expresses concern with the objectives and principles of the chapter which could result in even stronger levels of intellectual property protection when a tribunal interprets the EPA.

The paper notes with apprehension the moves towards intra- and inter-regional harmonisation of intellectual property laws in the EPA. In a situation where one of the CARIFORUM countries has signed a US free trade agreement with intellectual property protection much stronger than TRIPS requires ("TRIPS-plus"), intra-regional harmonisation would require the rest of the CARIFORUM countries to harmonise up to that level.

Similarly, inter-regional harmonisation could eventually require CARIFORUM countries to harmonise up to at least some European Union levels of intellectual property protection (which includes up to 11 years of data exclusivity on medicines, providing a monopoly even when there is no patent).

A study commissioned by the German Federal Ministry for Economic Cooperation and Development, written by Sisule Musungu, remarked that "The undertaking by the EC and CARIFORUM countries to move towards a harmonised level of intellectual property protection across their respective regions' should therefore be viewed with extreme caution."

The TWN Paper also highlights the dangers of a regional patent system particularly for countries with small populations such as CARIFORUM countries. (Regional patents would be likely to increase the proportion of technology, including medicines, that is patented and therefore more expensive).

On copyright, the EPA requires CARIFORUM countries to comply with two Internet treaties which according to the South Centre are likely to make it more difficult for CARIFORUM citizens to access information on the Internet. The British Government's 2002 Commission Report on Intellectual Property and Development cautions that "Developing countries should think carefully before joining the WIPO Copyright Treaty".

The paper quotes the South Centre as stating that complying with these treaties will result in developing countries "limiting whatever access they may be able to achieve in the long term. In addition, for those countries that do have some access, the short term costs of access to information will increase substantially... States that have not signed up to the WCT and WPPT should refrain from doing so and those that have, should consider withdrawal."

The patent provisions (which mainly require CARIFORUM countries to join TRIPS-plus treaties) are likely to result in more medicines being patented in CARIFORUM countries which will make them more expensive, the paper points out. Other technology is also more likely to be patented which will increase the cost of manufacturing, the cost of biotechnology research and foreign exchange losses.

There are also TRIPS-plus provisions on trademarks, industrial designs, plant variety protection and geographical indications in the EPA. The detailed TRIPS-plus enforcement provisions have been widely criticised by experts on IP and development. For example, the EPA's border measures provision (which covers both imports and exports and will be expanded to goods suspected of infringing patents) has the potential to interrupt the supply of cheaper generic medicines.

In contrast, in an area where many developing countries have an offensive interest, a study commissioned by the German Federal Ministry for Economic Cooperation and Development concludes: "Overall, therefore, the treatment of genetic resources and traditional knowledge in the EC-CARIFORUM EPA adds little value and offer no major development benefit to CARIFORUM countries."

TRADE IN GOODS

On trade in goods, the TWN paper cites an analysis of tariff lines by the Overseas Development Institute and European Centre for Development Policy Management but also notes the controversy over the EPA's goods most-favoured-nation (MFN) provision at the World Trade Organization (WTO).

Developing countries such as Brazil and India have criticised this MFN provision for undermining the ability to have South-South preferential trade agreements without having to extend them to the European Union. The MFN provision in the EPA requires CARIFORUM countries to extend to the EU any tariff preferences granted to other "major trading economies" (defined as any developed country; or any country or territory accounting for a share of world merchandise exports above 1%; or any group of countries acting individually, collectively or through a free trade agreement accounting collectively for a share of world merchandise exports above 1.5%) after the EPA is signed.

According to the TWN, its paper is an initial draft which will be subject to updating and changes after receiving feedback from readers. A copy can be obtained by contacting twnet@po.jaring.my. +

 


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