New trade agreements offer brighter prospects for cooperation

In 2014 the trade bloc ECOWAS, of which Ghana is a member, approved an economic partnership agreement (EPA) with the EU, one of Ghana’s main trade partners. The deal follows a decade of arduous trade negotiations, with particular concerns about competitiveness. Ghana and Côte d’Ivoire each initialled interim EPAs in 2007, but those agreements are to be replaced by the new one with the regional grouping.

Long Road

It is the final stage in a lengthy process. In 2000 the Cotonou Agreement was signed in Benin and made effective in 2003, forming the basis of EU trade relations with African, Caribbean and Pacific (ACP) countries. Because it gave preferential trade terms to ACP signatories in contravention of World Trade Organisation rules, the deal required a special waiver. After this expired in 2007, all ACP countries not classified as least developed countries (LDCs) had to sign an EPA to maintain favourable trade conditions with the EU.

Ghana’s interim EPA permits duty-free exports to the EU – with the exception of sugar and rice, which will go through a transition period. The EU in turn gains duty-free access to Ghana for 80% of export industries over a 15-year period. It was also agreed that Ghana would keep the right to protect 20% of imports – such as agricultural goods, fish and industrial plastics – and to introduce safeguard tariffs to protect new industries.

Negotiations on a regional EPA for ECOWAS stalled in 2012 when some member countries expressed concern that the agreement would damage their weaker, but still labour-intensive, industries. Another challenge was that many ECOWAS countries are LDCs, meaning they already benefit from the EU’s Everything But Arms programme, EPA or not, thus providing little incentive to sign. Africa has become an increasingly popular destination for foreign investors looking for high returns in a low-growth world, and Ghana has been well positioned to capitalise on that. “Following ratification of the EPA we will see how beneficial is a free trade agreement between a highly developed region and a developing region,” Douglas Zormelo, managing director of Zormelo & Associates, told OBG. “Ghana, for one, must demonstrate a change in attitude and a more aggressive approach to market penetration in Europe.”

Concerns

The prospect of an EPA has raised concerns about imbalance in the trade relationship. With imports from the EU far outweighing exports, many fret that the competitiveness of local industries, especially consumer goods, would be hurt. In 2013 the EU exported €1.72bn of manufactured goods to Ghana but imported only €67m back in. According to the EU Directorate-General for Trade, some 21.7% of Ghana’s imports come from the EU, a level of dependence which, though not unusual for West Africa, is nonetheless high.

Benefits

Other considerations urge Ghana to sign. Though the country already qualifies for low tariffs under the Generalised System of Preferences (GSP) programme, the GSP does not offer tariffs as low as the EPA does, leaving many of its products at a competitive disadvantage. The goals of the GSP are also very limited: it is a tariff programme merely, rather than a more wide-ranging arrangement like an EPA, which provides a full framework for tackling economic problems such as poverty and integrating the target economy with the global one. Should the current agreement be allowed to expire, products that now enter the EU duty-free would be tariffed at between 8% and 12%. This would leave Ghana at a disadvantage to regions and nations that have signed EPAs, such as the Southern African Development Community, the Caribbean Forum and Papua New Guinea. And while the country still depends highly on the EU for factory goods, the trade flows are becoming more balanced. In its trade with the EU, Ghana went from a deficit of €675m in 2010 to a surplus of €555m in 2011, largely on the sale of hydrocarbons, and in 2013 its deficit was only €71m.

Final Deal

As it now stands, the EPA will cover 75% of exports from the region over a 20-year period, with the EU committing €6.5bn in aid to help member states integrate with the global economy. The deal does come with stipulations, though: it prohibits the use of tariffs to promote industrial development, calls for export tariffs to be eliminated and requires ECOWAS to consult with the EU before giving any concessions to a third party with more than 1.5% of global trade. In the end, however, the bloc saw more pros than cons and reached an agreement in late January 2014.

Regional Trade

ECOWAS was formed in 1975 with the signing of the Treaty of Lagos and revised in 1993 to speed economic integration and work towards an EU-style union. Since then, progress has been slow (one member, Mauritania, even left in December 2000), but the bloc has slowly but surely moved towards closer economic, political and monetary integration. Though regional cooperation predates the group – the CFA franc was introduced in 1945 – ECOWAS was new in size and scope, its founding document signed by 15 member states. The 1993 revisions maintained much of the original treaty, but called for measures that would ensure the convertibility of currencies, speed monetary union and promote research on relevant financial innovations. They also established a number of key institutions – the West African Parliament, an Economic and Social Council and an ECOWAS Court of Justice – and discussed mutual security. In 1999 a protocol was signed establishing the ECOWAS Mechanism for Conflict Prevention, Management and Resolution, Peacekeeping and Security, and in 2004, a cooperation agreement was signed between ECOWAS and the West African Economic and Monetary Union.

Slow Progress

As with any regional integration process – not least the EU – progress has been slow. Conflicts, weak institutions and poor infrastructure have thwarted many of the group’s goals. The free movement of people, for example, has been impeded by lack of common language, varying Customs rules and differing currencies. Despite the existence of a common regional passport – the 1979 Document Relating to Free Movement of Persons, Residence and Establishment clearly states that citizens of member states can move to and work in other member states – travel has been difficult in practice. Businesspeople and migrants report harassment, intimidation and the unwarranted impounding of vehicles. Local press in Liberia reported that between Badagry (the exit point from Nigeria and Benin) and Noe (the entry point between Ghana and Côte d’Ivoire) there are 120 border posts and security checkpoints, often requiring individuals to communicate in several official languages and exchange currencies numerous times.

Transport and logistics are a big part of the problem. Poor infrastructure and opaque clearance procedures prolong the time it takes to get a container from one member state to another. According to the World Bank’s Doing Business profile for ECOWAS, in 2013 the average cost to import a container across a border within the union was $2111, while the cost to export was $1598 – though the figures varied widely, from $4500 to import in Nigeria to $895 in The Gambia. The average time for such a transaction was 31 days to import and 26 days to export, which again could vary between 62 days to import in Niger and 14 days in Senegal.

The lost time has a tangible impact on broader economic performance. According to the International Finance Corporation, for each day of delay along an export corridor, a country’s export volumes shrink by 1%. The 2014 report did note that Ghana had helped ease cross-border trade by reducing congestion at its main port. Non-tariff barriers are also a hindrance, including multiple or undeclared border fees, redundant Customs procedures, insurance and capital requirements, and formal and informal checkpoints. ECOWAS is taking steps to tackle these challenges, and has embarked on a range of projects to boost the movement of goods, services and people.

The ECOWAS Free Trade Area is not yet fully functioning. In theory, goods produced in one member state should move into another duty-free. The same goes for goods with 30% local value added. But as in most of Africa, trade between members has been below 10% of total regional trade volumes. Despite having a total population of 300m, ECOWAS members tend to trade more with other countries than among themselves.

A host of technical and practical issues also stand in the way. According to a 2010 document produced for the US Agency for International Development, implementation of the ECOWAS Trade Liberalisation Scheme (ETLS) was inconsistent. Awareness of rules was low, non-adherence among public officials high, and the relevant national laws often ignored. An OECD study of ETLS in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Mali, Niger, Nigeria, Senegal and Togo found the legal documents underpinning the programme were hard to find.