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Open Access 2024 | OriginalPaper | Chapter

8. The Free Trade Fantasy

Author : Carlos Lopes

Published in: The Self-Deception Trap

Publisher: Springer Nature Switzerland

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Abstract

Free trade is fêted as a cornerstone of a competitive economy, essential to build prosperous nations and create socioeconomic benefits. But in Africa, this has not been a universal experience. Far from integrating African economies into the world economy, free trade appears to have cemented Africa’s marginalisation. This is largely because trade agreements have been systematically used to impose norms, standards, and preferences that perpetuate extractive colonial structures and create a dependency on external trade partners for processed products.
This chapter provides a background to and overview of the trade agreements that have shaped African trade, including a deep dive on EPAs, which brought about a sea change in how Africa engaged with its largest trading partner, the EU. We also highlight the EU’s conflicting involvement with the AfCFTA process and how this is influencing Africa’s positioning on trade issues as the AU attempts to redefine its trade relationships in a way that prioritises African interests, aligns with continental goals, and contributes to sustainable development.

Tilting the Balance in Favour of Europe

The trading relationship between the EU and the ACP group can be traced back to significant conventions such as Yaoundé I and II and Lomé I-IV. On July 20, 1963, 18 African countries and six European states officially signed the Yaoundé Convention, an agreement that aimed to foster cooperation for economic and social development within the respective territories. Subsequently, in 1969, the European Commission entered into separate trade agreements with Africa, the Caribbean, and the Pacific. Building on this, a year later, the European Commission unified these agreements, bringing the ACP nations into a standardised trading system under Yaoundé.
At the core of these trade agreements was the commitment from EU countries to provide free access to their domestic markets for products from Africa, thereby establishing close economic ties between the two continents. At the same time, ACP nations retained the authority to raise tariff barriers or impose other restrictions on the entry of EC goods into their territories to safeguard their nascent industries.
The overarching goal of this partnership was twofold: to create a free trade area and to foster the industrialisation and development of African economies. Accordingly, a dual emphasis was placed on liberalising trade across a territorial expanse and safeguarding the sensitive sectors of ACP nations’ economies. These aspects formed the complementary foundation of the trade cooperation between the EU and the ACP countries.
The shift from the Yaoundé Conventions to the Lomé Conventions signified an evolution in the EU-ACP partnership, progressing from focusing on economic and social development to a more comprehensive collaboration encompassing trade, aid, and political dialogue.
The inaugural Lomé Convention was forged during the Cold War, which underscored Europe’s vulnerability in world politics and heightened its dependence on commodity imports, particularly minerals. This was exacerbated by the oil price surge in the 1972/1973 crisis. Grilli (1994) highlights that, in the early 1970s, Europe identified itself as the industrial region most susceptible to actions by commodity producers. Africa was Europe’s primary source of critical materials. Together, ACP countries supplied significant quantities of commodities to the EU, including tropical timber (46 per cent of EU imports), iron ore (21.5 per cent), manganese ore (31 per cent), and ores of uranium and platinum (99 platinum). Viewing the Lomé Convention as a strategic means to secure access to these vital minerals was a logical argument at the time.
However, as concerns about raw material shortages diminished, it became evident that the Lomé Convention, initially designed to address Europe’s pressing economic needs, had a lasting impact that tilted the balance in favour of Europe rather than Africa. As the convention transitioned from its origins in Lomé, its focus shifted to creating a free trade area for African economies, shaping a dynamic where Europe benefitted most. For example, the sugar protocol, which assured ACP countries access to the EU market for fixed quantities of sugar at preferential prices, involved an annual negotiation of prices to import 1.3 million tons of raw sugar into the EU (European Commission, 2005). In 2004, reform packages initiated a 33 per cent reduction in preferential prices over three years, with additional cuts of 20 per cent in 2005 and subsequent reductions of 8 per cent and 5 per cent. The EU argued that these changes were necessary to align its sugar policies with global frameworks, but these alterations significantly impacted ACP countries, leading to revenue and employment losses in the sugar sector, compounded by limited diversification in other sectors (CEPAL, 2005). The sugar protocol fell away entirely in 2006 as EU prices surpassed those applied at the international level.
ACP member states opposed the reform package, citing excessive price cuts that disregarded the ACP/EU initial sugar protocol, which guaranteed market access and prices. The EU, in response, pledged to assist ACP countries in diversifying their economic activities or enhancing competitiveness in the sugar sector. However, member states noted that the reform package favoured beet producers, discriminating against sugar producers.
ACP lobbying efforts successfully delayed the implementation of the reform package and expedited accompanying measures, including further price cuts, in June 2005. The reduction spanned four years from 2006/2007, with the EU compensating farmers at an average of 64.2 per cent for the loss due to price cuts. Countries surrendering at least 50 per cent of their quota received a 30 per cent payment for income loss over five years.
Lomé I to IV provided ACP countries preferential and non-reciprocal market access to EU markets for various exports. Yet, most Caribbean preferential sugar producers faced production costs exceeding international levels. Challenges emerged in the Banana, Rice, and Rum regimes due to tariff quota issues as the EU moved towards WTO requirements. The WTO contended that European preferences for Africa were incompatible with reciprocity principles and unfair to other Caribbean and Pacific countries in the ACP trading community.
Replacing the Lomé Agreement in 2000, the Cotonou Agreement became the new framework for trade and cooperation between the EU and ACP member states, aiming to eradicate poverty and integrate ACP countries into the world economy.

The WTO: A Missed Opportunity to Build a Fairer Global Trade System

In line with WTO rules, the Cotonou Agreement recognised the principle of differentiation, acknowledging varying levels of development and the diverse needs of the countries involved. This led to a significant shift in the way some African countries were treated under the new agreement. Departing from the non-reciprocity principle of the Lomé Conventions, the Cotonou Agreement introduced WTO-compliant trading arrangements whereby LDCs continued to receive non-reciprocal trade preferences while non-LDCs were offered reciprocal EPAs.
This led to the gradual removal of trade barriers and preferences aimed at integrating ACP countries into the multilateral system and aligning EU-ACP trade relations with WTO standards and GATT rules (CEPAL, 2005). Effectively, these changes meant that ACP countries were subjected to sudden and intensified global competition. The economic transformation required significant adjustments, including the loss of export earnings, potential import surges due to declining tariffs, and increased vulnerability in sectors like agriculture and manufacturing.
The EU imposed asymmetric demands on vulnerable ACP countries, emphasising adherence to seemingly fixed and immutable WTO rules, neglecting their political construct. Could things have played out differently? Montoute et al. (2017) contend that the EU, a powerful player in shaping new WTO rules, linked ‘good governance’ with ‘sustainable development’ despite differing views within the ACP group.
Altering these rules through a genuine partnership could have provided a robust alliance in shaping the multilateral trading system. For example, the EU and ACP could have cooperated to amend GATT Article XXIV relating to meaningful special and differential treatment (Onguglo & Ito, 2003). The combined voting strength of the two parties, constituting a two-thirds majority in the WTO, could have facilitated flexibility in WTO rules. However, the EU needed more support to pursue this cooperative approach.
While negotiating further waivers with other WTO members, the EU hesitated due to concerns about potential impacts on ACP market access to the EU. Despite the ACP’s unreadiness to liberalise, the EU aimed to conclude EPA negotiations by the end of December 2007, highlighting a need for more alignment in priorities and a potential imbalance in the negotiation process.
WTO decisions, binding even for absent countries, compelled Africa’s compliance despite its non-participation (Onguglo & Ito, 2003). WTO regulations identified trade preferences with Africa as unfavourable for other southern countries, such as the Philippines. In response, the EU transitioned from preferential trade arrangements to reciprocity, a strategic shift in its trade policy. Initially driven by the pursuit of cost-effective commodities, the EU’s decision underscores a departure from unilateral preferences towards a more balanced and reciprocal trade framework. This change enhanced Europe’s economic competitiveness and encouraged diversified trade partnerships beyond the ACP. However, the implications for the ACP were less sanguine. The move posed challenges such as the potential loss of preferential treatment, negotiation disparities, and the risk of economic marginalisation.
The EU’s historic extraction of mineral resources and use of cheap labour from Africa to drive its industrialisation contributed to Africa’s structural underdevelopment. Over time, the preferential trade system has perpetuated this by creating dependencies on the EU for processed products that are exacerbated by fiscal policies, including tax structures and incentives designed to support and incentivise the production and export of these goods. In addition, African countries have been systematically prevented from protecting their ‘infant industries’ through subsidisation. This has put the continent at a disadvantage, leading to fierce competition from more established EU industries, resulting in fiscal revenue losses.
Even though the preference system was not a genuine concession to Africa, when the WTO mandated dismantling the preference system, Africa was placed at further risk. Notably, it faced the risk of losing duty-free access to Europe. Stripping Africa of its customs duties proved detrimental to its fragile economy. The prospect of losing this privilege posed a significant threat to the continent’s economic stability. The removal of customs duties, which allowed African nations to export goods to Europe without facing additional tariffs, had been a crucial element in sustaining the fragile African economy. This loss of duty-free access would not only undermine the competitiveness of African products in the European market but also disrupt the economic equilibrium by imposing additional financial burdens on African exporters. The consequence was a potential setback for Africa’s economic growth and development, reflecting the delicate balance between trade preferences and the resilience of emerging economies.
In the context of extensive trade liberalisation, the loss of revenue from customs duties must be substituted by alternative income sources, such as direct taxes. However, some of these alternatives may need to be revised and consistent with the proclaimed poverty reduction objectives of EPAs (as developed further below).

Divide and Conquer: The Coming of the EPA to Africa

The primary goal of the EPAs was to assist ACP countries in addressing globalisation challenges by fostering stronger regional economies (Nnamdi & Iheakaram, 2015). Recognising that capacity constraints and underdeveloped economic and social infrastructure prevent countries from reaping the benefits of increased market access, EPAs were negotiated to support investment and help develop productive capacity in specific regions.
EPA negotiations were configured based on regional, geographical, political, and historical affiliations. The general premise was that ACP countries within each region or grouping shared equal or sufficient interest in signing the EPA to craft a shared WTO-compatible package (McDonald et al., 2013). At the start of the negotiations of EPAs, Africa was configured into four regional groups, totally disregarding existing regional organisations. The four configurations are the Economic Community of West African States (ECOWAS), the Central African Economic and Monetary Community (CEMAC), the Southern African Development Community (SADC), and Eastern and Southern Africa (ESA). The Caribbean and Pacific, by comparison, represented one regional bloc.
When EPA negotiations failed to yield the intended inter-regional outcome in Africa by the WTO-imposed deadline of December 31, 2007 (WTO, 2007), the EU opted to initial interim EPAs with individual countries rather than reconsidering its position on an all-Africa EPA. With limited options at their disposal, developing African countries chose to join these EPAs to maintain preferential access to the EU market. In some instances, countries within intra-African customs unions, such as Côte d’Ivoire and Ghana in ECOWAS or Cameroon in CEMAC, diverged on EPA accession. Such regional divisions complicate the ability to form a unified position, presenting challenges at regional and continental levels.
African countries would be better positioned if they were able to negotiate as a unified bloc, leveraging their collective strength to maximise negotiating leverage. In the past five years, the continent has taken a decisive step towards achieving this objective with the implementation of a continental free trade area and a standard external tariff (AfCFTA). However, threats to this goal persist, primarily stemming from the fragmented approach to trade relations between African countries/regions and third parties.
One significant concern for African countries regarding EPAs is the sustainability of exporting raw materials to the EU while allowing the EU free access to African markets for high-value-added goods. This arrangement hampers the development of indigenous value-adding industries in African countries.
Within the framework of EPAs, African countries appeared to pursue a strategy aimed at tempering the reciprocity principle by introducing notable asymmetry in the market opening, both across sectors and throughout the temporal trajectory. This approach involved a deliberate effort to secure substantial development aid as supplementary considerations for agreeing to the terms of the EPAs. Regrettably, this tactic has proven ineffective, as the anticipated benefits or outcomes have not materialised. Despite seeking asymmetry as a means of safeguarding its interests, the African negotiating stance, backed by requests for development aid, has faced challenges in achieving the desired results within the EPA framework.
The EU has long contended that pre-existing trade preferences have failed to achieve the desired developmental changes in Africa. Consequently, it proposed capacity building in terms of aid for trade, believing it would enhance the agreement. The EU made a noteworthy commitment in this regard, allocating €13.5 billion over five years to ACP countries through the European Development Bank to fund economic development projects and assist in adjusting to new market conditions. For the Western African region, a commitment of around €6.5 billion was earmarked for 2015–2020 as an aid for trade support (European Commission, 2002; UN, 2022).
Despite this, the negotiation techniques employed by the EU regarding the EPAs were largely perceived by Africa as akin to blackmail or ultimatums, pressuring them to sign EPAs or face the cessation of economic aid from the EDF. Furthermore, discussions within the WTO’s Development Round and EPA negotiations suggested that increased development funding, especially in infrastructure, could compensate for the losses resulting from the heightened openness of African economies. African governments found themselves in an unenviable position, needing more knowledge of the consequences of signing or not signing EPAs while simultaneously facing pressure from the EU and domestic exporters to do so.
The EU consistently emphasised that, in the absence of EPAs, the only legal option was to utilise the Generalised System of Preferences (GSP) system, implying increased tariffs for African exports to the EU. This scenario was viewed by many as a ‘looming nightmare’, as expressed by a Cameroonian banana-producing association (Pefok, 2007). The pressure intensified, with the African private sector fearing disproportionate impacts, particularly in losing access to markets for tea, cocoa, beef, grapes, fish, and fish products.
Some African countries accused the EU of exploiting imposed deadlines to ‘arm-twist’ the ACP into making more concessions on market access (Gerrit & Orbie, 2009). African and European NGOs levelled accusations of ‘dirty tricks’ and ‘bullying tactics’, asserting that the EU was ‘strong-arming’ the ACPs into signing agreements they did not genuinely desire (Financial Times, 2008).
The imperative of WTO compatibility compelled negotiations to focus more narrowly on the political energy directed towards achieving Sustainability in All Trade (SAT) through tariff liberalisation. This negotiation shift homed in on a subset of countries whose commodity exports to Europe enjoyed preferential margins and whose governments relied less heavily on border charges, thus exhibiting lesser concern over potential revenue losses associated with trade.
In addition, the EU approach insisted that the development dimension for poverty eradication and economic development could be reached through trade and investment liberalisation. By contrast, the ACP’s approach strongly emphasises the structural transformation of ACP economies as the plausible means of enabling them to expand and diversify trade in high-value-added products, achieving the three end goals underlying the Cotonou Agreement.
Another unreasonable part of the negotiations was the EPA’s focus on achieving the SAT in goods. This formed a strong incentive for ACP concessions. At the beginning of negotiations, ACP countries were offered a well-crafted agreement that reflected each country’s policy goals, including revenue protection, domestic employment, food security, and rural development. The SAT incentive is also problematic in the case of future Free Trade Areas (FTAs). While the irrationality of concessions on purely statistical grounds may cause minimal revenue or production impacts due to low imports from the EU, future FTA partners—with much larger imports making trade threats more pronounced—will likely demand the same line-by-line treatment from ACP countries.
A report from the Institute for Development Studies by Stevens and Kennan (2005) revealed that ACPs could potentially lose over 40 per cent of their tariff revenue due to EU imports, highlighting the adverse effects of premature reciprocal arrangements.
Upon the realisation that EPA negotiations were approaching the deadline, by the end of 2008, the EU successfully argued that ACP countries should liberalise 80 per cent of their imports from the EU within a 15-year period. This is based on a total EU-ACP liberalisation threshold of 90 per cent when combined with the EU’s offer of duty-free, quota-free treatment (Kwa et al., 2014). Thus, the 80 per cent EU proposal reflected a measure of political risk management rather than an actual legal interpretation.
However, the question remains whether those ACP countries that signed EPAs at the 80 per cent threshold conceded too much or too little in the name of WTO compatibility. The 80 per cent by-value threshold used by the EPA partners could be better, given that other possible measurements to achieve the SAT requirement could have provided significantly more protection for some ACP countries.
A liberalisation threshold based on a percentage of tariff lines, for example, does not rely on ambiguous definitions, nor is it dependent on the choice of base periods or data sources, given that the overall number of lines in any given national tariff is unlikely to change significantly over time, even with periodic revisions to the Harmonized System. This makes it easier for ACP negotiators and other parties to handle and evaluate the level of liberalisation in the agreement. Even though EPAs were initially presented as instruments that could enhance Africa’s integration, they have caused more problems for Africa’s regional integration efforts than they have solved. In fact, the hasty and premature liberalisation has further marginalised ACP countries in the global economy.
The EU was committed to concluding EPAs despite the low level of regional integration among African regions compared to intra-EU trade (Karingi et al., 2005). By contrast, at the continental level, the AU, with structural similarities to the European Union, including an AU Council, Commission, Parliament, Court of Justice, and Economic and Cultural Council (Kühnhardt, 2008), kept calling for a continent-wide approach to trade.
Given that many African countries were members of more than one regional integration body, the definition of regional integration could have been more straightforward. The four negotiating groups that emerged early in the EPA process did not coincide perfectly with the existing integration bodies. Thus, the SADC negotiating group was much smaller than the group that had agreed to the SADC Trade Protocol in 1996, and the ESA group was much smaller than the COMESA membership. This ‘shake out’ results from ending double memberships, which is considered positive for regional integration. However, this also indicated the low initial commitment to existing regional integration bodies, which did not bode well for the smooth internal process of developing common positions concerning issues that had been—and must still be—negotiated with the EU.
In addition, the EU opted to conduct negotiations with the six regions of the ACP rather than the ACP bloc; this is a common strategy used in divide-and-rule tactics. The fragmented trade arrangement caused division in Africa, the Caribbean and the Pacific, making deeper economic integration challenging to attain. In the case of Africa, the EPAs discourage the production of manufactured goods, and the EU classifies and designates Africa as an exporter of raw materials. EPAs have also led to disruptions in regional integration. For instance, countries have deviated from their regional commitments to secure trade preferences. Additionally, there has been a divergence in focus between different regions, such as SADC and ESA, causing further challenges (Tandon, 2015).
Moreover, evidence suggests an inequality in the ACP-EU relationship and a power imbalance within the EPAs. Throughout negotiations, the EU adhered to a mercantilist approach, neglecting the development needs of ACP countries. Their strategy aimed to dominate ACP markets and enhance access for EU producers. Scholars like Tandon Yash (2015) have characterised this as a persistence of colonial narratives within the relationship.
The diversification envisioned by the EPAs has yet to yield the anticipated improvements for Africa. Figure 8.1 illustrates that the continent predominantly exports raw materials or unprocessed goods. Out of the 54 African countries, only a limited subset, including Algeria, Morocco, South Africa, Egypt, Tunisia, Lesotho, and Eswatini, amounting to approximately seven nations, engage in the export of manufactured goods.
Additionally, EPAs have encountered challenges in ratification, reflecting a complex interplay of economic, social, and political factors. One central point of contention revolves around the perceived inequality in the terms negotiated between developed and developing countries. The potential impact on domestic industries is a critical concern contributing to the hesitation in ratifying EPAs. The requirement to open markets to international competition, a central aspect of many EPAs, raises fears of increased competition that could adversely affect local industries, particularly those that may not be globally competitive.
Social and environmental considerations further complicate the ratification process. Civil society and environmental groups in Europe and Africa frequently voice concerns that these agreements have given insufficient attention to social and environmental standards. Critics argue (Global Witness et al., 2021) that specific provisions may not adequately address potential negative consequences, raising concerns about the well-being of local communities and ecosystems.
Political dynamics also play a pivotal role, with internal opposition within a country acting as a significant hurdle to ratification. Disagreements among political leaders or parties on the merits of an EPA have led to delays or even a complete refusal to ratify the agreement.
The multifaceted nature of challenges faced by EPAs in the ratification process underscores the need for nuanced considerations that encompass economic disparities, social and environmental impacts, political dynamics, public sentiment, and practical implementation capacities. The evolving landscape of international trade further emphasises the importance of ongoing research and analysis to understand comprehensively the complexities surrounding EPAs.

Separating Cousins: The Different Treatment Reserved for North Africa

The historical narrative of the EU’s relations with North African countries in the context of trade unfolded against a backdrop of complex geopolitical dynamics, economic interests, and cultural exchanges from the post-World War II era to the contemporary landscape.
In the aftermath of World War II, Europe embarked on a path of reconstruction and integration, laying the foundation for what would later become the European Union. Concurrently, having gained independence from colonial powers, North African nations sought to assert their economic autonomy. The ensuing decades witnessed a complex interplay of economic cooperation and diplomatic negotiations between the two. The 1960s marked a significant juncture, with bilateral agreements between European nations and North African countries to foster economic ties. These agreements often centred on trade preferences and sought to address historical imbalances while fuelling economic growth. However, challenges emerged as debates intensified over the equitable distribution of benefits and the impact on local industries.
The consolidation of the EU in the 1990s brought a new dimension to these relationships. The Barcelona Process, initiated in 1995, aimed to establish a Euro-Mediterranean Free Trade Area, heralding a commitment to deeper integration. The subsequent Euro-Mediterranean Partnership further propelled economic collaboration, fostering dialogue and cooperation on issues ranging from trade facilitation to sustainable development.
Numerous studies, including Cestepe et al. (2015), indicate that North Africa’s trade volume and performance fall below expectations and potential, considering the countries’ relative sizes, geographical distances from demand centres, and linguistic and colonial ties. Additional research underscores the region’s low intra-regional integration, attributed to non-complementary production structures and numerous non-tariff barriers, further leading to limited integration into global value chains.
Dadush and Myachenkova (2018) argue that trade agreements did little to stimulate export growth and diversification in North Africa. They highlight that European tariffs were already low before the agreements, failing to significantly liberalise tariffs on agricultural products, where EU tariffs remained relatively high. This development contributed to a decline in development indicators; in 2002, employment issues led to a roughly 5 per cent and 6 per cent decrease in Tunisia and Morocco, respectively.
Ali et al. (2019) emphasise that North African countries have long had access to EU markets under the GSP. However, subsequent trade agreements yielded disappointing results regarding foreign direct investment (FDI) and trade. The importance of preferences varies significantly by country, primarily due to differences in export composition to the EU.
Since the Barcelona conference in 1995, which aimed to establish a free trade area with North Africa and the EU, the FTAs have had limited impact on fiscal revenues for MENA states. While trade integration improved, FDI did not experience significant increases. North African states contend that Barcelona agreements represent unilateral tariff dismantlement without concessions from the EU, benefiting only EU exports into North Africa.
Dadush and Myachenkova (2018) reveal that North Africa’s Herfindahl concentration index indicates little change in export diversification, even during the pre-crisis period (1997–2007). Algeria, primarily exporting petroleum products to the EU, experienced slower export growth to the EU compared to the rest of the world.
The period from 2008 to 2016 saw a negative growth rate of gas and petroleum imported by the EU, including Algerian products. Similarly, Tunisian exports to the EU showed modest diversification, with the main categories being machinery, clothing, and petroleum. While Tunisia gained market share in EU machinery imports, the share of clothing in Tunisian exports to the EU declined from 1990 to 2016.
Morocco’s exports to the EU displayed only modest diversification, improving in recent years. The country mainly exports transport equipment, machinery, fruits, and vegetables to the EU. Despite the EPAs, Africa’s move away from low-value primary production is perceived as unsuccessful, with limited overall impact on North Africa’s economic structure. Trade imbalances, concerns over agricultural subsidies, and the intricate web of regulations governing access to EU markets have been recurring themes, while global economic shifts and regional geopolitical challenges also influenced trade dynamics between Europe and North Africa.
Another facet of the relationship between Europe and North Africa has been the establishment of Association Agreements, which were pursued bilaterally instead of by grouping countries because they are not ACP members. Morocco signed an Association Agreement with the EU, which came into force in 2000, seeking to create a free trade area and enhance economic cooperation. This comprehensive agreement covers diverse aspects, including liberalising trade in goods and services. Similarly, Tunisia entered into an Association Agreement with the EU in 1998, encompassing economic collaboration, political dialogue, and cooperation in various sectors. Egypt has been in an Association Agreement with the EU since 2004, reflecting shared economic development goals and strengthening political ties.
In its pursuit of closer ties with the EU, Algeria implemented an Association Agreement in 2005, emphasising trade liberalisation and economic collaboration. Despite these agreements, challenges persist, prompting a nuanced examination of their impact on North African economies, particularly in diversification and industrial development. A critical analysis of these agreements, considering their evolving nature and geopolitical shifts, underscores the importance of ongoing research to comprehensively understand their implications on the EU and North African nations.
In recent years, the EU has sought to enhance its relationships through initiatives such as the European Neighbourhood Policy and the Union for the Mediterranean. These frameworks aim to foster stability, prosperity, and mutual understanding through enhanced economic integration. Nevertheless, debates persisted over the efficacy of such policies and their ability to address the diverse economic landscapes of North African nations.
As the historical trajectory unfolded, it became evident that a continual process of negotiation and adaptation characterised the relationship between Europe and North Africa on trade. The narrative encapsulated economic considerations and the socio-political contexts that shaped these interactions. This historical exploration provided a foundation for understanding the contemporary challenges and opportunities inherent in the intricate tapestry of trade relations between Europe and North African countries.

Reassessing the Scale of Africa’s Trade with the EU

Since the turn of the century, African economies have exhibited significant momentum, with average growth rates of approximately 5.4 per cent per annum between 2000 and 2010, dropping back to an average of 3.3 per cent per annum in the period 2010–2015. Meanwhile, the performance of the EU lagged behind African economies as it registered 1.4 per cent per annum between 2000 and 2010 and slowed down further to 1.0 per cent per annum over a five-year period (2010–2015), below the world average of 3 per cent and 2.9 per cent during the two periods (McKinsey Global Institute, 2016).
Although African trade volumes surged around the end of the first decade of the millennium, they retreated to about 2.3 per cent of the global volume in the second, resembling levels recorded in 2000. Simultaneously, the share of EU economies in world merchandise trade fell from 38 per cent to about 33 per cent (UNCTAD, 2023).
Despite increased trade volumes, the relative weight of the EU as a destination for Africa’s exports diminished from 58 per cent in 2001 to 30 per cent in 2017. The EU’s significance as a source economy for African imports decreased gradually from 47 per cent to 33 per cent over the same period. In 2017, the EU remained Africa’s leading trading partner, followed by China. African economies represent nearly three per cent of the EU’s external trade, making them the EU’s third most important trading partner, alongside Switzerland, after the US and China (UNCTAD, 2023).
African exports to the EU increased by nearly 50 per cent between the first (2000–2010) and second periods (2011–2022), from $106 billion to $150 billion, but this did not entail a significant shift in the composition of African exports. Exports continued to be skewed towards commodities, with exported primary products exceeding $121 billion in 2010 and hitting a peak of $153 billion in 2023, overshadowing other main export categories. Machinery and electrical products, foodstuffs, and textiles represented around $9–10 billion of Africa’s exports to the EU (UNCTAD, 2023).
Imports from the EU rose across all categories, resulting in an overall increase from $91 billion to $158 billion. The most significant rise in real terms was observed in mineral products. However, the most significant relative increase occurred in the leading machinery and electrical goods category (approximately 40 per cent increase to about $41 billion) (UNCTAD, 2023).
During 2010–2017, African imports amounted to $158 billion annually, with imports more evenly distributed among individual categories, signalling a more diversified composition of the EU’s exports to Africa. Principal imports from the EU were dominated by processed and manufactured goods, with machinery and electrical goods (hitting $103 billion in 2010 and marginally rising to $104 billion in 2022), transportation and chemicals averaged $37 billion in 2022, down from $35 billion in 2010 of Africa’s imports from the EU (UNCTAD, 2023).
The vast asymmetries between the EU and Africa extend beyond economic significance, encompassing trade and FDI. Power asymmetries also exist, as the EU possesses strong institutional structures advantageous in negotiations, a well-resourced bureaucracy, and a team of highly skilled negotiators under the authority of the European Commission. In contrast, many African countries lack the operational structures, technical expertise, and highly skilled human resources necessary for effective negotiation, providing the EU with a substantial advantage in crafting trade agreements for the African region (Adebajo & Whiteman, 2012; and Lopes, 2020).
As of July 2018, the EU had engaged in 21 FTA negotiations, including two with African countries: Tunisia and Morocco. An additional ten trade-related agreements are under negotiation. Since 2017, the EU has successfully concluded FTA negotiations with Armenia, Canada, Japan, and Vietnam (Lopes, 2020). These comprehensive agreements address various facets, including tariff reduction and elimination, removal of non-tariff barriers, opening public tenders to foreign entities, rules about intellectual property, state-owned enterprises, geographical indications, and dedicated trade and sustainable development chapters.
Several investment clauses within the Canada-EU Comprehensive Economic and Trade Agreement (CETA) are notably innovative, with critical provisions meticulously outlined to enhance interpretative clarity. All these agreements envision establishing a standing investment arbitration body to handle Investor-State disputes, a departure from the current ad-hoc system (Garbe, 2011). This is in stark contrast to the kind of deal struck with Africans, despite the fact that trade volumes with Africa are substantial, surpassing the abovementioned countries.
In 2022, Africa accounted for $203 billion worth of EU exports and $174 billion in imports, resulting in the EU’s most significant positive trade balance ($29 billion). Japan is Europe’s second-most important trading partner in this context, while Vietnam represents the most profound trade deficit for the EU among the sampled countries (UNCTAD, 2023).
Aligned with African counterparts, the EU’s primary export categories across all countries include machinery, electrical products, transportation, and chemical and allied industries. Notably, the EU’s imports from Africa primarily consist of primary commodities. The import patterns from other countries in the sample vary across individual economies.
Recent data (Global Affairs Canada, 2021) indicate that Canada leads in mutual investment relations, with FDI stocks nearly evenly split between the two economies ($296 billion of EU stocks in Canada and $278 billion of Canadian stocks in the EU). However, the volume of EU’s outward stocks in Canada is second only to those in Africa.
Economic data underscore that African economies have gained relative global economic strength since the signing of the Cotonou Agreement in 2000. Despite the EU’s diminished global power and trade significance in Africa, it remains the most crucial trading partner for African economies, ranking third overall. While the African continent represents a more substantial market than key economies with recent trade agreements (Canada, Japan, and Vietnam), trade patterns with Africa remain reliant on commodity exports.

AfCFTA: A Transformative Paradigm Shift in African Trade Dynamics

Regionalism in Africa presents a mixed picture, characterised by formal initiatives and overlapping membership across various regional organisations. This complexity, identified by the United Nations Economic Commission for Africa (UNECA) (Mangeni & Atta-Mensah, 2022), poses challenges to deepening regional economic integration. The implementation of the seminal AfCFTA could go some way towards reducing this complexity.
A pivotal element within the developmental framework of the AU’s aspirational Agenda 2063, the AfCFTA exemplifies Africa’s dedication to fostering economic integration. Its roots trace back to the 18th Ordinary Session of the AU’s Assembly of Heads of State and Government in Addis Ababa, Ethiopia, in January 2012, where the decision to establish the free trade area was mooted. At the same time, the Action Plan for Boosting intra-African trade was embraced as a key initiative for promoting socioeconomic growth and development across the continent. At its core, the AfCFTA aspires to expedite intra-African trade and elevate Africa’s standing in global trade by fortifying a unified voice and policy space in international trade negotiations.
AfCFTA aims to create a single African market for goods and services and facilitate the movement of people within the continent. Additionally, the agreement aims to liberalise the market for goods and services through successive rounds of negotiations, contribute to the movement of capital and natural resources, and lay the foundation for a Continental Customs Union in the future. It seeks to foster sustainable and inclusive socioeconomic development, gender equality, and structural transformation, all while enhancing the competitiveness of State Parties’ economies on both the continental and global stage.
Formally inked on March 21st in Kigali, Rwanda, the AfCFTA Agreement came into force on May 30, 2019. Operational Instruments governing trade under the AfCFTA regime were subsequently launched in Niamey, Niger, in July 2019, marking a crucial step in the operationalisation of the agreement. Trading under the AfCFTA regime commenced on January 1, 2021, which is a significant milestone.
Negotiating collectively under the AfCFTA significantly strengthens Africa’s bargaining power in global trade discussions. The AfCFTA’s unified voice enhances Africa’s negotiating stance, making it challenging for external partners to exploit divisions among member countries (Lopes, 2020). At the same time, diversity within the AfCFTA contributes to Africa’s attractiveness as a comprehensive trading partner (Mangeni & Atta-Mensah, 2022). By fostering economies of scale in a market boasting over one billion people, coupled with more seamless intra-African economic activity, AfCFTA can significantly enhance the attractiveness of the African market to external partners.
The AfCFTA’s emphasis on harmonising trade policies and regulations streamlines negotiation processes, presenting external partners with a more consistent framework. This coherence enhances the predictability of the AfCFTA, making it more appealing to potential collaborators (Lopes, 2020). This will also help to boost intra-African trade, which is currently limited.
Empirical evidence by Mevel (2020) shows that intra-African exports and imports represent just 16.4 per cent and 13.3 per cent of total exports and imports, respectively. A report by UNECA (2018) shows that intra-Africa exports as a per cent of African exports increased from about 10 per cent in 1995 to around 17 per cent in 2017 (see Fig. 8.2). However, it remains low compared to levels in Europe (69 per cent), Asia (59 per cent), and North America (31 per cent).
Part of the difficulty of intra-African trade is because markets are small, fractured, and partly isolated. Many African countries resorted to development strategies after gaining independence, including establishing Regional Economic Communities (RECs). However, several RECs have overlapping memberships and can increase complications instead of facilitating trade relationships among African countries (UNCTAD, 2020). High trade costs have also constrained intra-Africa trade, diverting it into predominantly informal channels and hindering the development of regional value chains. The prevalent challenges, including high tariffs averaging 8.7 per cent and formidable non-tariff barriers such as inadequate infrastructure, onerous regulations, and cumbersome customs processes, create significant obstacles for intra-African and extra-African trade.
A 2018 UNECA study projects a promising future, suggesting that implementing the AfCFTA could amplify intra-African trade by 40 per cent by 2040. This potential surge could elevate the share of exports within the continent from 17 per cent to approximately 25 per cent of total exports, signifying a transformative impact on Africa’s trade landscape.
The AfCFTA has and will continue to impact Africa’s external trade relations, too, particularly with the EU. While the EU has formally endorsed the AfCFTA and even committed significant financial support for its implementation, some of its actions around trade in Africa are undermining this support.
When African countries engage in intra-continental trade, they exchange more manufactured and processed goods, facilitating knowledge transfer and creating additional value. However, the trade regime governing relations between Africa and the EU introduces complexities based on geographical considerations (such as whether an African country is located in North Africa or below the Sahara), the level of development (least developed or developing), and the presence of existing EPAs or the GSP that may apply to exports. Initially presented as instruments to bolster Africa’s integration, EPAs have posed challenges to regional integration efforts thus far. The segmentation introduced by EPAs, distinguishing trade relations between North Africa and Sub-Saharan Africa, undermines the overarching goals of the AfCFTA. These variations, existing within each African regional economic community, often force African countries into a challenging position where they must decide between adhering to their regional commitments and aligning with the trade regime established by the EU.
Many African countries, cautious of the potential threat to their domestic policy space, have opted for a measured approach, refraining from deeper commitments to integration. This stance complicates efforts to establish a continental customs union. With diverse pressures and incentives, African governments exhibit varying appetites for engaging in reciprocal bilateral trade agreements with external partners, such as the EU. Moreover, the EU’s changing tactics and aims have made African governments hesitant to delegate negotiating powers to the AU, a critical prerequisite for effective continent-to-continent trade negotiations.
The negotiation and implementation of the AfCFTA are expected to enhance the capacity of African governments and support institutions in navigating complex trade agreements, positioning them more effectively for pursuing a continent-to-continent FTA with the EU.
To date, the structure and negotiation dynamics of EPAs will likely impede deeper intra-Africa integration and complicate efforts to establish a continental customs union, given the EU’s varied pressures and incentives exerted on individual countries or regions. Furthermore, the EU’s reluctance to allow the AU to represent Africa in trade negotiations further underscores the complexities surrounding EPAs, which are integral to the EU’s Comprehensive Strategy with Africa. In North Africa, the EU is concurrently negotiating Deep and Comprehensive Free Trade Area (DCFTA) agreements with several countries.
In light of these challenges, Africa faces a pivotal decision on whether to persist with the prevailing practice of negotiating trade agreements at the regional and national levels, as exemplified by the EPAs or to elevate these engagements to a continental scale.
The consolidated data presented in Fig. 8.3 suggests that adopting a pan-African approach could empower African countries with a unified voice proportional to their collective economic influence. Such an approach, rooted in a joint articulation of trade and investment policy priorities within a broader development agenda, could reshape the partnership with the EU to better align with African objectives.
Such input, in turn, holds the potential for deeper integration of African companies into global value chains and enhanced value addition in products and exports. Ultimately, this could accelerate economic growth and poverty reduction across the continent. Additionally, a collective agreement of this magnitude could play a pivotal role in influencing global trade rules, especially between regions at disparate stages of development.
An additional advantage of a mega-regional trade agreement lies in its potential to align the external and internal dimensions of the AfCFTA, which is slated to evolve into a customs union.
In preparation for negotiations at the AfCFTA level, suggestions have been made to halt the ongoing EPA negotiations temporarily (Lopes, 2020). However, it is crucial to acknowledge a potential drawback of a collective approach: an inevitable loss in the flexibility of individual African countries to pursue their unique national visions. Building on the outlined advantages and aligning with contemporary perspectives linking trade and development, a unified approach creates an environment conducive to innovation and ambition in negotiations. This unity extends to critical areas such as investment and combating illicit financial flows, presenting an opportunity to set new standards and foster a more prosperous future for the African continent.
African countries have been cognisant of the potential anti-development ramifications associated with EPAs, mainly due to the principle of reciprocity. This reciprocity risks inundating African markets with inexpensive goods from the EU, posing a threat to nascent markets and potentially causing disruptions without sufficient safeguards. These challenges, however, hold the potential to generate new trade interests and fuel increased demand from African firms and consumers for deeper continental integration, as well as stronger economic ties with Europe.
A comprehensive study conducted by Karingi et al. (2005) delved into the impact of EPAs on Sub-Saharan Africa. Their model forecasts a decline in the production of natural resources and energy, accompanied by a marginal increase in fishing, crops, and vegetables. However, the study underscores that these gains are susceptible to erosion under conditions of complete reciprocity. Moreover, the research anticipates a substantial decline in heavy, low-tech, clothing, and textile industries, emphasising the multifaceted challenges associated with implementing EPAs in the region (Karingi et al., 2005).
Muluvi et al. (2016) extend the study of Karingi et al. (2005), focusing on Tanzania, Uganda, and Kenya. The authors reveal that the losses of EPAs outweigh the benefits, especially for Kenya, as the fierce EU competition will rattle the country’s manufacturing sector.
This is also the case in the ECOWAS region; Busse and Großmann (2004) explored the impact of EPAs on West African countries and found that in most cases, trade creation effects outweigh the trade diversion effects, leading to harmful government deficits.
EPAs incorporate a regional integration clause designed to mitigate the adverse effects stemming from variations in the country aggregation of RECs and EPA regions (Schmieg, 2020). Additionally, they provide preferential rules of origin for African products, allowing for input cumulation and processing across EPA regions if fully implemented (Grumiller et al., 2018).
Conversely, the divergence in import tariff schemes and phase-out periods for EU imports among different EPA regions complicates intra-African trade, especially for products destined for further processing, necessitating effective control of rules of origin in intra-African trade. The Most-Favoured-Nation (MFN) clauses in the EPAs imply that the EU would benefit from tariff reductions if intra-African tariffs were lower than those on EU products (Grumiller et al.). Furthermore, the EPA infant industry clauses differ from the unique and differential treatment clauses of the African Continental Free Trade Area (AfCFTA) (Sommer & Macleod, 2019).
Removing tariffs on EU imports impacts public revenues alongside intra-African tariff removals (Tröster & Janechová, 2021). Additionally, ongoing negotiations between the EU and Northern African countries for deep and comprehensive trade agreements, incorporating regulatory approximation of national legislations to EU standards, can potentially widen regulatory gaps between African regions. This stance contradicts the goals of the AfCFTA, which aims to close these gaps to foster more significant intra-African trade and integration. Given the intricate and potentially adverse interactions between the AfCFTA and diverse EU trade arrangements, Luke (2023) advocates for a more strategic sequencing of trade liberalisation, prioritising intra-African integration before liberalisation with the EU occurs. Considering that the ratification and application of the EPAs are still pending for several African countries, this presents a new entry point for negotiations with the EU and reviews of applied EPAs (Schmieg, 2020; Grumiller et al., 2018; Tröster & Janechová, 2021; Sommer & MacLeod, 2019; Luke, 2023).
In conclusion, the AU faces a critical decision in shaping the trajectory of its trade relationships, particularly with the EU. The existing asymmetrical trade dynamics and the overlapping commitments of EPAs and the AfCFTA pose challenges to intra-African trade and the Pan-African vision.
To safeguard the integrity of the AfCFTA market and minimise the potential exploitation by third parties, the AU might consider adopting a strategy akin to the West African EPA. This approach ensures that the EU does not receive more favourable treatment unless reciprocal benefits are extended to African, Caribbean, or Pacific states.
The current trade relationship with the EU presents a dilemma for African nations, forcing a choice between pursuing regional integration through the AfCFTA or securing short-term gains from EPAs. The existing patchwork of agreements with the EU raises concerns, particularly regarding subsequent trade commitments.
In moving forward, African countries must prioritise preserving market access to the EU while seeking deeper access. Justifications for continued access include addressing the developmental challenges faced by many African countries and aligning with the EU’s commitment to the Sustainable Development Goals (SDGs) and poverty eradication.
Furthermore, a focused dialogue with the EU on stringent requirements and standards, particularly for agricultural products, is crucial. These standards and EU subsidies to its farmers significantly hinder African agriculture and agro-manufacturing exports.
Lastly, the AU should explore trade agreements modelled after the WTO’s Trade Facilitation Agreement, emphasising matching implementation capacity with obligations. Seeking explicit rules, rather than vague language, in a post-Cotonou Agreement ensures that new commitments align with the capacity to implement, fostering a development-friendly approach.
In navigating these complexities, the AU has an opportunity to redefine its trade relationships in a way that prioritises African interests, aligns with continental goals, and contributes to sustainable development.
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Metadata
Title
The Free Trade Fantasy
Author
Carlos Lopes
Copyright Year
2024
DOI
https://doi.org/10.1007/978-3-031-57591-4_8

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