Letter to the Malawi State President Dr. Bingu Wa Mutharika

H.E. The State President Dr. Bingu Wa Mutharika
Office of President and Cabinet
Capital Hill
Lilongwe

15 December 2007

ECONOMIC PARTNERSHIP AGREEMENTS

Your Excellency, allow us to submit our views on the Economic Partnership Agreements under negotiation.

Your Excellency, we realize that the approach of end of December 2007 which has been declared ‘end of the ‘honeymoon’ for the Africa, Caribbean and Pacific (ACP) poor countries’ calls on Malawi to make difficult decisions to sign (or not to sign) the Interim EPAs. These interim EPAs lack the important ingredients that the ACP countries need as they are negotiated in a hurry and only a handful of their provisions were actually negotiated. The EC continued to ignore both suggestions for alternatives and calls for more negotiating time, and instead threatened to raise tariffs on January 1st 2008 on exports from any ACP country that has not initialed an Interim EPA. Surely this is arm-twisting and places immoral pressure on ACP negotiators and governments. It therefore comes without surprise that more and more ACP countries with larger trade with the EU are giving in to the force to lower their expectations regarding what EPAs could deliver and have been pressed to secure any agreement that will provide continued market access.

In early December 2007, the Malawi civil society submitted their position on EPAs for Malawi. In their well researched assessment, they submitted that the EPAs in their current form and process are not going to benefit Malawians nor add value to their ability to get out of poverty and integrate into the global economy. To this effect, they joined hands with the leadership of Africa, which attended the EU-Africa Summit that took place in Lisbon, Portugal from the 8th-9th December 2007, in condemning this Partnership Agreement together.

The African leaders, Your Excellency, in their discussions on trade with the EU underlined the importance of trade and development cooperation to the partnership they share with the EU. They stated that now more than ever, Africa needs economic partnerships that will see its people grow in economic power, and live at a standard commensurate to their dignity as human beings. The leaders were very eloquent in stating that the current Economic Partnership Agreement being negotiated between the EU and African and Caribbean Pacific Countries does not represent an agreement that can benefit their people economically and socially. Specifically they confirmed that

The negotiations as they stand will cause further de-industrialization on the continent as our countries are expected to open to EU exports deeply and broadly.
The EU wants to tie the poor countries into an agreement that reduces the latter’s policy space to consider other perhaps more profitable agreements with other regions like Asia.
Impact assessments are clear on the fact that the EPAs will bring with them a lot of adjustment and economic costs (like loss of revenue) to which the EU is non-committal to support entirely.

What is wrong with the proposed interim EPAs?

The current EPAs have many flaws. Among them:

a) Opening of Markets by ACP countries

The EC agreed in principle to accept offers of tariff liberalisation from ACP countries of 80% over 25 years. However, in these Interim agreements, tariff elimination starts from the entry into force of the agreement (2008) and the elimination of other barriers (export taxes) is not always gradual, and may have to be implemented as early as 2008. Moreover, only a marginal share of trade volume is subject to long implementation periods for tariff elimination. Even for least developed countries the pace of liberalization is very fast.

We also find the EC insisting on the inclusion of a standstill clause which is not required by WTO rules. In the ESA text which Malawi is party to, it is even stricter than the other configurations (SADC and EAC) as it freezes tariffs on all trade between the parties, whether or not these products are subject to liberalization. As a result, even if a product is on the ‘exclusion list’, the tariff on this product cannot be raised after the entry into force of the agreement.

Malawi has been asked to liberalise 80% of all trade with the EU. Our assessment shows that this is too much for Malawi. We are a small and emerging economy with a lot of potential. History tells us that for the EU to reach it’s current scale of economic muscle, it was a combination of policies aimed at boosting local production and local industries and one of such policies is the protection of local industries against unfair foreign competition. At this time the EPAs are eroding our policy and developmental space in this area.

b) There are inadequate safeguard clauses for ACP countries
We just ended another 25 year trade and development agreement with the EU that lasted from 1975 to 2000. In this partnership our exports to the EU dwindled; and supply side constraints remain an issue of our industries. What has changed to make us believe that these next 25 years with EPAs will be any different?
In the absence of tariffs, effective safeguards are the main policy instrument that can be used to protect the agricultural sector and existing industries from import surges, ensure food security, and nurture the development of new ‘infant’ industries. As currently structured in EPAs, the safeguards will not provide adequate protection for ACP producers.

The safeguard clauses in the ESA EPA text are limited by a number of onerous procedures that have impeded their effective use in the context of other trade agreements. In addition, safeguards are of limited duration and any safeguards exceeding one year 'shall contain clear elements progressively leading to their elimination at the end of the set period, at the latest.'

c) Coverage Of EU Market Opening
The commercial gains arising from the Duty Free Quota Free offer itself are limited because of the failure of the EU to substantially improve rules of origin, the retention of transition periods on two key products (sugar and rice) and strict safeguards that limit ACP access to EU markets.

The latest EU offer on Rules Of Origin (Regulation COM (2007) 717 final, November 13 2007), which will be applied until a ‘Full EPA’ comes into force, contains only minor improvements to existing rules but even these are still disputed by several EU Member States. However, cumulation is restricted to those ACP countries that have signed an EPA, potentially destroying production processes that span ACP countries that have not signed. Looking at specific sectors in details, we find that:

Significant improvements are made for textiles and clothing (Product level RoO) but these are partly undermined by provisions on value tolerance (Article 4) which are stricter than under Cotonou.
The requirements for fish (Product level Rules of Origin) remain largely unchanged and continue to form a significant barrier. There are some minor improvements only applicable to the export of fish from the Pacific but in order to benefit, countries are subject to a range of administrative and reporting requirements (Article 4)
No industrial products other than textiles and clothing have seen any change
Unlike Cotonou, the only ACP countries that will benefit from cumulation are those that have concluded a free trade agreement (Article 2 of Title II), potentially destroying exports that rely on inputs from ACP countries that will have not initialled Interim EPAs.
Such an approach could also undermine capacities to add value between countries that are party to and those not party to an EPA, since no cumulation is allowed on rules of origin for exports under different EU preferential regimes

d) Benefits to Malawi?

The Ministry of Trade and Industry and stakeholders in the negotiations through the National Trade and Development Policy Forum (NDTPF) estimated that Malawi would need a capital injection of 5.7 Billion Euros to take care of supply side constraints and other adjustment costs if it could stand a chance of benefiting from the proposed EPA trading framework. Without such an injection, Malawi would remain an exporter of primary commodities with little or no diversification. In other words Malawi would remain the way it is with full exposure to shocks that take place in the commodity market from time to time. The EU’s response to this assessment is a mere 12 million euro donation. Not that we are suggesting the government should beg the EU to sort our problems, but that we are asking them not to cause further problems to the country.

Legality of EPAs in Malawi

Legally, EPAs pose a threat to poor Malawians. Following is excerpt of legal opinion we got on whether the laws of Malawi are conducive for EPAs:

Whether or not the laws of Malawi are conducive for the EPAs to strive is not clear. In Malawi there is the Competition and Fair Trading Act 43 of 1998 (hereinafter referred to as Competition Act) which provide for standards for trading within Malawi and for doing business. Any violation of the competition law for instance will mean that the competition commission will have to investigate and fine any party involved in uncompetitive practices and may also constitute a crime. The Section 32 (2) Competition Act prohibits the following practices
(a) The use of cost pricing to damage, hinder or eliminate competition
(b) Overcharging or undercharging for goods or services purchased or supplied as compared with prices for similar or comparable transactions
These practices are relevant to issues such as the importation of subsidized goods. The import and sell of a subsidized good could amount to undercharging as the cost of the good is lower than its production price. However it would seem that such an importer would not be liable under the Competition Act because section 3 (e) states:
Nothing in this Act shall apply to activities expressly approved or required under a treaty or agreement to which Malawi is a party;
The above section specifically excludes the application of the Competition Act to the EPAs since the EPAs are a treaty.

Another law that could exclude the application of the Competition Act is Article 28 of the Vienna Convention which states that a party cannot refuse to perform its obligations under a Treaty simply because its internal laws do not prohibit it. This article therefore means that even if the EPAs where in conflict with the Competition Act, a State would be prohibited from suing the importer who is undercharging.

The mere fact that the Competition Act does not apply to international trade agreements means that Malawi has to have a law that specifically deals with importation of goods such as an Antidumping and Safeguard Measures law. This law is important to protect the Malawian market from dumping of goods from not just the EU once the EPAs are signed, but from other countries due to liberalization in general. Dumping occurs if a company sells at a lower price in an export market than in its domestic market. If such dumping injures the domestic producers in the importing country, under certain circumstances the importing country authorities may impose anti-dumping duties to offset the effects of the dumping.

The liberalization that will occur from signing an EPA as well as all other trade agreements is bound to lead to an influx of goods within Malawi which could displace local manufacturers. A safeguard measures law also protects local manufacturers by providing that where this influx occurs, Malawi can impose certain restrictions in order to slow down these imports and protect its manufacturers. Protection can be in the form of imposition of higher tariffs on goods that are being dumped onto the Malawian market or for goods which have been entering the Malawian market in such large numbers that they distort the market. A good example is the importation of second hand clothes in Malawi which affected textile clothing manufacturers to the extent that some of them had shut down. If there was a safeguard measures law, these manufacturers would have been protected.

The lack of an Antidumping and Safeguard measures law within Malawi is not per se a problem when it comes to EPAs because the EPA agreements provide for these safety valves. For instance Article 20 of the interim agreement of the 15th of November 2007 provides that
(1) Subject to the provisions of this Article, nothing in this Agreement shall prevent the Signatory ESA States and the EC Party from adopting measures in accordance with Article XIX of the General Agreement on Tariffs and Trade 1994, the Agreement on Safeguards, and Article 5 of the Agreement on Agriculture annexed to the Marrakech Agreement Establishing the World Trade Organization. For the purpose of this Article, origin shall be determined in accordance with the non-preferential rules of origin of the Parties.
(2) Notwithstanding paragraph 1, the EC Party shall, in the light of the overall development objectives of this Agreement and the small size of the economies of the ESA States, exclude imports from any ESA State from any measures taken pursuant to Article XIX of the GATT 1994, the WTO Agreement on Safeguards and Article 5 of the Agreement on Agriculture.
Article 21 of the same agreement also states that
2. Safeguard measures referred to in paragraph 1 above may be taken where a product originating in one Party is being imported into the territory of the other Party in such increased quantities and under such conditions as to cause or threaten to cause:
(a) serious injury to the domestic industry producing like or directly competitive products in the territory of the importing Party;
(b) disturbances in a sector of the economy, particularly where these disturbances produce major social problems, or difficulties which could bring about serious deterioration in the economic situation of the importing Party; or
(c) disturbances in the markets of agricultural like or directly competitive products or mechanisms regulating those markets.
As far as dumping is concerned Article 19 of the Interim Agreement states
(1) Subject to the provisions of this Article, nothing in this Agreement shall prevent the EC Party or Signatory ESA States, whether individually or collectively, from adopting anti-dumping or countervailing measures in accordance with the relevant WTO agreements. For the purpose of this Article, origin shall be determined in accordance with the non-preferential rules of origin of the Parties.

From these provisions it is clear that measures to protect the Malawian market from an influx of goods from EU countries are in place. What is required is first that the public is made aware of these provisions so that the public could notify government about any negative consequences and so that government can take the necessary steps to check these problems.

Secondly, in the absence of an Antidumping and Safeguard Measures law, parliament will have to ratify the EPAs so that there isn’t uncertainty as to whether or not a court within Malawi can apply the antidumping and safeguard clauses of the EPAs in protecting the Malawian market. This will also take away the uncertainty of whether or not the safeguard measures apply. Furthermore by ratifying the EPAs, an individual or entity that has been affected by the importation of goods could sue on its own and will not have to wait for government to actually institute the claim.

In conclusion, the legal opinion states that “though there are laws that make it conducive for EPAs to operate, and even if there aren’t such laws, the EPAs have in built mechanisms that will make them work. However these mechanisms can only be implemented if the institutions tasked with implementing them have the proper capacity as well as the right funding. This will be the main obstacle in implementing the EPAs. If government institutions are not well funded and do not have the right capacity, then it will be hard for the safety measures incorporated in the EPAs to take effect. In these circumstances, it would be best to have additional legislation in our laws that provide that the private sector itself can take these measures on their own and at a court. We could learn from South Africa which has an Anti-dumping legislation which has been applied successfully to protect the South African market.

What options does Malawi have?

1. Malawi already has duty and quota free market access to the EU market under the Everything But Arms (EBA) Agreement without being requested to open up its markets in return.
2. Even without an EPA, Malawi continues to receive development support from our brothers and sisters from the EU through the European Development Fund (EDF) under the Cotonou Partnership Agreement. This is evidenced by the recent signing of the MK90 billion between the two parties.
3. Malawi is now going to sign an EPA with the EU as a single country rather than a bloc of countries as was originally envisaged. The EPAs now are putting Malawian market in direct competition with the European market unnecessarily at a time when we are slowly on the up, with Malawians hopeful of building up the jobs, industries and livelihoods that had been lost in the past through initiatives such as the Structural Adjustment programmes (SAPs) similar to this one.
Consequently the government of Malawi
1. Can ask the WTO members for a waiver allowing the EU to continue granting Malawi duty free access.
2. Needs to consider all alternatives other than having this Free Trade Agreement with a Union whose industry and agriculture sector is far more advanced and heavily subsidised than our own.
3. Conduct a review of Malawi’s position in the negotiations and the EPA process as a whole (as was agreed during the African Union meeting in Ghana).
4. Prioritise in the negotiations the hard working Malawians for their tireless efforts to secure a livelihood through agri-business or entrepreneurship by looking beyond the European Community.

Conclusion: What if the government goes ahead signing the EPAs (interim inclusive)?

If the government goes ahead signing EPAs in this non-developmental agreement, it will be demonstrating that it does not care about the rights of its people. In an ideal situation, as citizens, we could be compelled to challenge the government in court for violating our rights and possibly seeking compensation. But we realise however, that the mere fact that the EPA violates the right to development does not make them invalid and poses irrevocable challenge to the government. The EPA is a Treaty and under Article 27 of the Vienna Convention on The Law of Treaties, Malawi if it signs as party may not invoke the provisions of its internal law as justification for its failure to perform a treaty. Thus, once the EPA is signed Malawi cannot use its internal laws as reason not to comply with the EPA. Hence the government needs to demonstrate it Is prioritising the people, who under no constitution can challenge the EPAs even where the EPAs violate the right to development. Thus the Malawi Government will have to ensure that its acts are not detrimental to the objectives of the EPA that it signs.

Thus by signing on to the EPAs in their current form, the government of Malawi may be tying the citizens into 25 years of acrimony. We, therefore, call on you NOT to sign the agreement in its current form.

Finally, your Excellency, we wish you a Merry 2007 Christmas and Happy and Progressive 2008.

Submitted today 15 December 2007, by


Collins Magalasi
Under the endorsement of

· ActionAid International Malawi (AAIM)
· Malawi Economic Justice Network (MEJN)
· Malawi Health Equity Network (MHEN)
· Maphunziro Foundation
· Manerela
· Institute for Policy Interaction (IPI)
· Centre for Human Rights and Rehabilitation (CHRR)
· National Smallholder Farmers Association of Malawi (NASFAM)
· Joint Oxfam Programme in Malawi
· Youth and Children Shield