We, the members of Civil Society Organizations working on Trade, fiscal and trade related issues in the EAC, would like to present our observations and recommen-dations in respect to stalled EAC-EU EPA signing.

In a letter (ref.no. CDC.12/129/01F/149 dated 5th July 2016) addressed to the Secretary General of the EAC Secretariat, Tanzania indicated that it was halting her signing of the EPA because of “turmoil” that the EU is experiencing following Britain’s exit. Following that, the signing of the EAC-EU EPA which was scheduled for 18th July 2016 during Nairobi did not happen.

We note that His Excellency Yoweri Kaguta Museveni, the president of the Republic of Uganda has also made it clear that the EAC will not sign the EPA until the EAC presidents are fully briefed on it and have discussed it during the forthcoming EAC Summit in August. As Civil Society Organizations working on Trade, fiscal and trade related issues, we welcome the President’s stand on ensuring that the implications of the EPA on EAC economies and regional integration process is first assessed before a decision on its signing is made.

We wish to reiterate the following concerns which we have been raising since the inception of the EPA negotiations:

1. General implications as a result of extensive liberalization

Under the EPA, the EAC is to liberalize 82.6% of its trade with the EU over the period of between 2015 and 2032. This has the following negative implications:

a) Loss of revenue: According to UNECA (2005), the EPA will result into revenue shortfalls estimated at US $ 32,490,659 for Tanzania; $ 9,458,170 for Uganda; $ 5,622,946 for Rwanda; $ 107,281,328 for Kenya and $ 7,664,911 for Burundi. This revenue shortfall has serious implications on the EAC partner states’ ability to mobilize resources for their development. Therefore, this will lead to EAC’s continued reliance on aid and increased indebtedness estimated by the IMF (as a proportion of GDP) to be 55.4% for Kenya, 42.4% for Tanzania, 41.5% for Rwanda and 37.9% for Uganda as of May 2016.

b) EAC Industrialization at risk: According to research using trade data, majority of EAC partner states currently produce and export on 983 tariff lines. According to former Tanzania’s President, Benjamin Mkapa, when the EPA is implemented, 335 of the 983 products that majority of EAC partner states currently produce would be protected in the EPA’s ‘sensitive list’, but 648 tariff lines would be made duty-free; i.e. the existing industries on these 648 tariff lines would have to compete with EU’s imports without the protection of tariffs. Such a high level of liberalisation visà- vis a very competitive partner is likely to put EAC’s existing local industries in jeopardy and discourage the development of new and infant industries.

c) EAC Agricultural production at risk: Para 2 of Article 68 of the EAC-EU EPA indicates that the position of the EU not granting export subsidies for all agricultural products to EAC Partner States shall be reviewed by the EPA Council after 48 months. We are concerned that EAC economies will be more exposed to EU’s dumping of subsidised agricultural products under the EPA because of the much deeper liberalization in the EPA. According to SEATINI (2016), the 82.6% liberalization that the EAC has committed to under the EPA will affect Uganda’s agricultural product including key starch products, including maize, potato, monioc (cassava) will be liberalised from the current Most Favoured Nation rate of 10% to 0%. This will make it difficult for domestic starch manufactures to compete with high quality goods from Europe.

d) Undermining South-South Cooperation: Article 15 of the EAC-EU EPA obliges the EAC to extend to the EU any more favorable treatment resulting from a preferential trade agreement with a major trading economy/country. This will not only circumscribe the EAC’s external trade relations but will also undermine the prospects of South- South trade which the EAC is aspiring to promote. In addition, the clause is contrary to the spirit of the World Trade Organization’s (WTO’s) Enabling Clause that promotes Special and Differential Treatment for developing countries and South- South cooperation.

e) Threatening of regional integration in Africa: There are parallel ongoing regional integration processes in Africa under the different Regional Economic Communities (RECs), the EAC-SADCCOMESA Tripartite Free Trade Area (TFTA) and the Continental Free Trade Area (CFTA). Under Article 40 of the report on the 4th EU-Africa Summit, the EU pledged an EPA that will foster intra-African trade, Africa’s regional integration efforts and the planned CFTA. However, as former AU Chairperson, Dr. H.E. Dr. Nkosazana Dlamini-Zuma indicated, there are still misgivings on the implications of the EPA on Africa’s development, and as to whether the EPA will be a tool for structural transformation and sustainable development in Africa. This is based on grounds that African countries may end up granting more favourable treatment to a number of EU-originating imports, than to similar African products originating outside their own RECs, hence threatening regional integration agenda.

2. Concerns regarding the specific articles within the EPA

The following are our concerns regarding specific articles within the EAC-EU EPA.

a) Rendez-vous Clause (Article 3): Under this clause, the EAC and EU undertake to conclude the negotiations in areas of services, investment, government procurement, trade and sustainable development, intellectual property rights and competition policy and conclude within five years upon entry into force of the EPA. This commitment is neither required by the Cotonou Agreement nor for WTO-compatibility, and the issues therein will further shrink EAC partner states’ policy space needed for sustainable development in the following ways:

• Government Procurement: Under this, the EAC will be required to liberalise government procurement. Uganda has not signed or developed a formal position on signing the GPA yet it will soon be engaged in discussions and negotiations about it should the EPA be signed. This will curtail the scope and space for the government to use procurement as an instrument for development, especially in giving preferences to local companies for the supply of goods and services and for the granting of or concessions for implementing projects.

• Investment: Under this, the Uganda will be required to liberalize investment and accord EU investors the same treatment with respect to acquisition of property, expansion, management, conduct, operation, and sale or other disposition of investments in the EAC territory, like that accorded to the Ugandan Investors. This will be constrain Uganda’s ability to promote local investors or local industries, which doubtlessly need assistance to grow in order to be able to compete with foreign companies which are already more established.

b) Export duties and Taxes (Article 14): To a larger extent, this Article prohibits either parties to introduce any new duties or increase existing ones in connection with the exportation of goods to either Party. The logic of export taxes is to encourage producers to enter into value-added processing, hence encouraging diversification and the upgradation of production capacities. While the Article allows EAC Partner States to impose, after notifying the EU, a temporary duty or tax in connection with the exportation of goods, the time granted for such an imposition (48 months) is so limited to enable EAC partner states effectively nurture their industries and enhance her competitiveness. Moreover, at the Word Trade Organisation (WTO), export taxes are completely legal. Also, there is ample evidence that all today’s rich countries got rich through using nationalistic policies (e.g. tariffs and restrictions on foreign trade) in order to nurture their infant industries, and only liberalized after they had attained a level of competitiveness.

c) More Favourable Treatment (MFN) resulting from a Free Trade Agreement (Article 15). Under this article, the EAC is obliged to extend to the EU any more favorable treatment resulting from a preferential trade agreement with a major trading economy/country. This circumscribes EAC’s external trade relations and will undermine the prospects of South- South trade which the EAC is aspiring to promote. In addition, the clause is contrary to the spirit of the WTO’s Enabling Clause that promotes Special and Differential Treatment for developing countries and South- South cooperation.

d) Domestic policy measures (Article 68): Falling under the Agriculture chapter, this article states that the EU shall not grant export subsidies for all agricultural products to EAC Partner States, as from the entry into force of the EPA. However, this prohibition shall be reviewed by the EPA Council after 48 months. This means that after 48 months, EAC economies will be more exposed to EU’s dumping of subsidised agricultural products to the detriment of agricultural producers in the EAC.

3. Kenya’s case

The European Commission (EC) has amended Annex 1 to the Council Regulation No 1528/2007 to state that the European Commission will take appropriate action to remove Kenya from Annex I if it has not ratified its agreement by 1st October 2016. According to the Kenya Flower Council, the removal of Kenya from Annex A will mean imposition of a tariff of 12% (MFN) or 8.5% (GSP) leading to an estimated revenue loss to Kenya of about US$193.8 Million per year. While this is a huge loss to the Kenya economy, it is vital that, for the future development of the region, the implications of the EPAs on the entire EAC economy are considered. We also propose that:

• The EAC region be treated by the EU as an LDC region which should benefit from Duty Free Quota Free Market Access given the fact that the region consists of four (4) LDCs and only one developing country. This is in line with the African Union proposal for a common and Enhanced Trade Preference System for LDCs and Low Income Countries.

• Kenya be granted an enhanced Generalized System of Preferences (GSP+) where her top 27 exports to the EU including the much cited flower and horticulture exports will access the EU market duty free and quota free. This will necessitate Kenya’s ratification of the Genocide and International Labor Organization Conventions 87 which are already reflected in her legal practice.

• The EAC recalls section C Para 20 of the ACP guidelines for negotiating the EPA which states that “irrespective of the outcome of the EPA negotiations, with respect to trade relations with the EU, no ACP State should be worse off in the post-2007 period than under the current ACP-EU trade arrangements”. Under such circumstances, failure to sign the EPA should note leave either Kenya or any other EAC Partner State in a worse situation than it was before. The EAC should therefore call upon the EU to be true to its promises.

Therefore, taking note of the need for regional integration in the EAC which the EPA, among its objectives is meant to promote, we call upon Uganda to among other issues:

• Reconsider signing the EPA especially given its implications on EAC’s in general and Uganda in particular, and given the changes in the EU with the exit of Britain

• Engage other EAC partner states to explore the alternatives for Kenya’s access of the EU market so as to ensure that Kenya does not lose out from not signing the EPA;

• Explore an alternative mutually beneficial trade relationship with the EU.