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Ghana national trade policy and Economic Partnership Agreements

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By Nancy Kachingwe

Political Economy Unit – TWN-Africa  

June 2004

Economic partnership agreements’ or free trade areas are currently being nego-tiated between the European Union and the different sub-regions of the ACP group, including ECOWAS. EPA/FTAs will have considerable consequences for domestic economies in the sub-region and therefore will be a critical element in defining the direction of the region's economic development in the next decade or two. While the ECOWAS governments and the European Commission are still agreeing the road map for the negotiations, EPAs have not been discussed fully with local stakeholders. This first workshop, organised by TWN-Africa and GAWU was a first test to measure the concerns and reactions of stakeholders – particularly producers - to this latest addition to an ‘alphabet soup’ of initiatives ostensibly aimed at reversing Africa’s economic decline.

The EPA negotiations are taking place while the Government of Ghana is formulating a national trade policy. Through a series of contributions and debates, local actors from agriculture, industry, services and financial sectors presented a list of concerns and issues that should inform both government’s position in EPA negotiations as well as the content of the national trade policy. Beyond getting the right set of policies, changes in many practices on the part of the authorities are required as well.

Who calls the shots? An overriding concern of national stakeholders is the excessive influence that external partners have over national policy making. While it is true that the government depends extensively on international do-nors for public financing, it was observed that development partners are pro-tecting their national interests primarily, and therefore their policy prescriptions are biased towards providing opportunities for their own multinationals and promoting their economies. Consequently, the policies that they advocate have not tended to be primarily in the interests of the local economy and its producers. It is only national actors that can identify what the national interests are.

It is understood that government is constantly under pressure to liberalise and open the economy to foreign goods, services and investors. But the focus on the external had become excessive – to the detriment of local actors. While lib-eralisation may ensure cheaper imports for consumers (eg. rice, poultry), the benefits are limited to just that – lower prices. Encouraging local production, whether for export or for domestic consumption has multiplier effects that cre-ate jobs, support the growth of new sectors, contribute to social welfare as well as public finances. Conversely, when an economic sector collapses, the consequences are widespread and go well beyond the sector which is directly affected.

Left by the wayside … is agriculture passé? Agriculture is the largest eco-nomic sector, but the government has not drafted an agricultural policy which would work in concert with the trade policy. It has however adopted a posture – which is that of opening up the sector to imports. The problem for the Ghanaian agricultural sector is that the playing field is not level, particularly because so many agricultural imports entering the market enjoy subsidies. Obviously our hopes of influencing change in global trade rules to tip the scales in favour of Ghana’s producers is slim, but we can find ways to work around the rules through well thought domestic policies so that the agriculture sector can thrive. A balance needs to be struck between the export driven model and the import substitution model. In the rice sector for example, there has been a loss in the domestic market of about 150 million, but at the same time, export earnings are stagnant at some 30 million. We have to question the rationale of giving up this sector if we are not able to see the quid pro quo.

 The poultry issue clearly begs the question to what extent is government in control of policy making and how committed is it to the local farming sector? – Adhering to WTO, World Bank and IMF policies is a questionable path if the end result is the death of the agricultural sector as a result of free-for-all imports. The emphasis on exports may make sense on paper, but it may be much more beneficial for us to focus on domestic and regional markets, rather than international markets only.

Connecting the dots in export promotion policies: In countries such as South East Asia which have experienced an economic boom, companies had built their export success on the back of successes on their domestic markets. The companies that were most likely to succeed in exports were those that per-formed well in their domestic markets. National policies that are geared at strengthening the domestic producers in domestic markets will be the launch pad for growth in the export sector.

Import substitution policies – as a path to industrialisation - has been aban-doned in favour of the search for foreign direct investment. Such investment has not been forthcoming. Relatively speaking FDI inflows have been inade-quate and concentrated mainly in the extractive sector. Therefore the policy of deregulating and liberalising had resulted in more consequences than benefits. The bias towards attracting FDI as one of the planks for economic growth has left local economic operators marginalized and overlooked in public policy. The support required from the state – which companies in other countries have been able to rely on – has not been forthcoming. Many of the areas that need to be addressed to make local companies competitive in a have been neglected. In fact, it is time that some survey on the impact of the policies of the last two decades on the local business sector was conducted.

Local stakeholders also stated repeatedly that the issue of competitiveness vis-à-vis foreign imports had been grossly misrepresented. When it comes to com-petitiveness both in terms of price and in terms of quality, it is not clear cut that local products are automatically inferior, as tends to be the stereotype. Similarly the price differences were frequently the result of export and other subsidies that industrialised countries are able to provide their producers.

Industrialised countries are able to subsidize agriculture as a result of the growth of other sectors, particularly manufacturing. Therefore the lack of active policies to support the manufacturing sector has an impact on the extent to which government is able to support agricultural producers. In parallel, the lack of support for the agricultural sector is resulting in increased poverty since this is the sector where the majority of the population gain their livelihoods.

Manufacturing – how serious are we? Prices of raw materials world-wide are falling, which provides an opportunities for boosting manufacturing. How-ever much the word is disliked by donors, protecting infant industries is a ‘pas-sage obligatoire’ – an unavoidable step – in building manufacturing capacity. Rather than enjoy ‘domestic preference’ local suppliers face reverse discrimina-tion. A local manufacturer bidding for a government contract still has to pay duty on raw material inputs. Foreign suppliers are able to gain duty free access to markets, particularly where the contracts are part of foreign aid projects, which is the case in a large number of public contracts. Public procurement is one of the largest markets, but with the new government procurement bill, the state no longer has the option to support local manufacturers through public contracts.

The problem with removing ‘domestic preference’ provisions in the procurement bill is that in manufacturing as in other sectors, competitiveness can only be built through practice – through learning by doing. Many industries start by producing low quality products but are able to transform their industries into manufacturers of high quality goods. For example, Ghana’s export drive in the region has been based on the plastics industry built over the years. ‘Passive protectionism’ should be distinguished from ‘active protectionism.’ In the for-mer, governments simply protected and ‘sat back’, expecting that the rest would follow. In the latter, protectionism is part of a strategy to help strengthen local manufacturing in the knowledge that trade barriers will come down and they will have to compete. Such a long term strategy seems to be lacking.

Low quality imports disadvantage local producers that have a competitive ad-vantage in quality. Worse still, they affect consumer health and safety. Liberal-ising markets, without equipping regulatory institutions, such as the Ghana Standards Board is disadvantaging the country in both ways. The private sector would be prepared to support the effort to strengthen these institutions as a way of ensuring that low quality imports are not put on the Ghanaian market.

Tapping potential to meet local investment requirements locally: On the subject of investment – which is needed to finance production - the poten-tial on the local market has also been overlooked in favour of attracting foreign investment which is declining. Over the past 7 years $507 million had entered the country as FDI and the figure is declining. Just 5 million Ghanaians saving 1 million cedis a year could surpass that amount. The problem was not the lack of money locally to finance investment, but a lack of creativity in finding different ways to mobilise local resources, create more savings and utilise this for in-vestment.

The challenges for local resource mobilisation are a problem of policy, orienta-tion as well as institutional readiness to be more innovative. Where attempts had been made, the financial services sector had proved that it could be done. It was up to government to ensure a regulatory environment that builds the confidence of citizens to invest their savings in local production. Mainstream banking has tended to be far too conservative and unable to adopt strategies to mobilise resources that take account of the reality of the Ghanaian economy.

Eyeing the services sector – the need for caution: Services are the fastest growing economic sector world wide. Services liberalisation – including of public utilities is now a heavy focus of attention in WTO negotiations. Within the WTO, countries have to indicate their intention to liberalise services sectors and may also make requests of other countries to liberalise sectors which are of interest to them. Ghana had made a number of commitments to liberalise services, and has to consider a number of requests. The Ghanaian government has also liberalised some services sectors through domestic legislation. In the EPA negotiations, the EU is demanding that services liberalisation be part of the trade agreement with ECOWAS.

Decisions to liberalise sectors or otherwise had significant implications for local service providers. There is a need to review the experience of services liberali-sation to date, as in some cases the results have been fairly chaotic, particularly given the inability to monitor and regulate the activities of services operators. The results of reform of different sectors had to be assessed before commit-ments could be made at the multilateral level (WTO, EPAs etc). In particular it was stressed that decisions on liberalisation should be based on a pragmatic vision for the sector in the context of overall social and development policies, and after an objective assessment of strengths and weaknesses of the local sectors to supply such sectors.

In some services areas such as cargo handling, Ghanaian companies have de-veloped expertise and are well established. Cargo handling is a valuable earner of foreign currency for the country and so considerations to open up to external operators has to be viewed in that light. Different sectors have to make their views known to clarify the direction in which services can be liberalised or oth-erwise.

Meeting the challenges of the expanding fisheries industry: Though it seems obvious that policies should be chosen in the light of the national social and development policies, the full development potential of the country is lost due to the lack of comprehensive and mutually reinforcing set of policies focus-sed primarily on building local production capacity. The fisheries sector, is one of the most important non-traditional exports. However, the challenges for de-veloping a sustainable fisheries industry are many. The problem of depletion of fish resources and degradation of the coastline, combine with a list of other is-sues that require attention from policy makers. Commercial fishing relies heavily on expatriate fishing crews and not enough has been done to upgrade Ghana-ians to do these jobs. Where pricing is concerned, there is a problem of a mo-nopoly, so that it is more profitable to sell fish in neighbouring countries, in-stead of to the quasi-sole buyer in the country. Inland and artisanal fisheries sectors should also be supported and developed. The rise in illegal fishing is another matter for concern. There is an institutional vacuum because the Fish-eries Commission has not been set up. Perhaps because of the lack of a statu-tory body to oversee the industry, these problems persist in spite of numerous representations made to government to address problems.

 However, over and above the national constraints the fisheries sector is in diffi-culty because it has benefited from special preferences to EU markets. Now that the EU has been providing similar trade preferences to other developing regions, the position of the sector in leading the drive in non-traditional exports was being compromised, particularly when measures are taken without warning. This means that in the EPA negotiations, the Ghanaian government should try to secure a predictable margin of trade preferences over a predictable timeframe before they are phased out.

Outreach efforts needed for micro operators: It is critical that policy dis-cussions are accompanied by an outreach programme that enables all economic actors to make their inputs. There are many that operate on the micro-level who never get a chance to contribute to policy. Traders are an essential part of the economy, and yet they had very little opportunity to shape policy making. Equally, not enough trouble is taken to inform them of new policies. In conse-quence, traders are left to survive by their wits, and in turn feel little obligation to respect new policies. Often traders and producers are pitted against each other, and yet this conflict of interest could be resolved by designing a policy framework that ensures that they are complementary rather than oppositional. Commerce has in fact been relegated to the informal sector – as the place for people who could not find jobs and yet the market queens are a central part of our trade policy. In the public sector, traders are immediately perceived as criminals so that they are blocked rather than facilitated by the authorities. It would be desirable for traders to be able to graduate into production – but it is impossible for them to generate the necessary capital because of requirements from banks to produce collateral.

All in all, the preliminary documents presented by the Ministry of Trade as the basis for formulating the national trade policy were welcomed as useful, par-ticularly as they provided relevant data and information to enable stakeholders to assess options. The fear was that recommendations from local stakeholders that did not get the nod from donors would not be accepted. Secondly, there were many problems of administrative inefficiency and corruption that needed to addressed. Finally it was stressed that without looking at some fundamental problems – such as electricity supply – there was never any hope for the coun-try to become competitive. Electricity privatisation had been undertaken and yet problems still persisted.

Economic Partnership Agreements – where do we go from here? As a result of all these difficulties and challenges, local operators were fairly sceptical about the ability of Economic Partnership Agreements to bring benefits to the country. Firstly the agenda is that of the EU: no-one in the country had asked for EPAs. However the initiative is on the table, and the success of EPAs de-pends largely on the kind of agreement that the governments are able to nego-tiate. The outlook for concluding a successful agreement is grim. To start with, the EU’s negotiating directives demonstrates that it is more clear about its de-mands of ACP countries, and much less committal when it comes to its own ob-ligations. Such nebulous language is not acceptable.

While there are losses and gains in any liberalisation exercise, the country has to be assured of net gains. Furthermore, tariff reduction needed to be accom-panied by measures to cushion the costs – particularly training people to work in other sectors. Just the literacy rate now estimated now at less than 50% in-dicates the level of the challenge to deal with the human resource challenges.

The data needed to undertake an adequate cost-benefit analysis of EPAs was not sufficient to negotiate competently. It was pointed out that impact assess-ments that had been conducted had not been satisfactory, and in fact there had not been any training of local capacity in impact assessments which was an ex-tremely difficult discipline. Some institutions such as UNCTAD had developed tools to assist countries to conduct such assessments, but the training in these tools still needed to be undertaken. There is heavy reliance on external consult-ants to do such work. The quality of their work is not guaranteed. Furthermore, since they are commissioned by donors most frequently, their terms of refer-ence do not prioritise the needs of the country. Building local capacity in the public sector to service these needs is further hampered by the caps on public spending and hiring that donors insist on. These practical questions make it dif-ficult to negotiate successfully in the timelines that are given.

Already the negotiations have hit a stumbling block in ECOWAS because the road map does not clearly spell out that the EU is prepared to pledge additional financing to help bear the costs of EPA-FTA liberalisation. The European trade commission has stated that it only has a mandate to negotiate trade issues not financial packages. ECOWAS on the other hand is insistent that additional fi-nancing is the only way to make EPAs meaningful to support programmes to enhance the competitiveness, compensate for tax revenues, and deal with ‘ad-justment costs’ of economic sectors that will be negatively affected by liberali-sation.

Therefore with so many challenges and questionable benefits, how should Ghana deal with the EPA negotiations? Should we negotiate EPAs or not? For all intents and purposes, the governments have already committed to negotiations and therefore it was not possible to backtrack. Some organisations are clearly against an arrangement of reciprocal trade with the EU particularly given that the coverage area will be between 75% and 90% of all trade between the two. Others feel that there is no point in avoiding negotiations; it is better to deal with the difficulties and ensure that the set up negotiated maximises potential advantages and minimises the costs. However a consensus emerged that the timelines are too short for the country to undertake meaningful negotiations, and there is a need to slow the process down, particularly to make informed decisions about the positions that the country should take.

The debate on EPAs needs to be a public debate involving all stakeholders. It was important to prevent a situation where government is under pressure to sign an agreement that will be to the detriment to the national economy. For this to happen, different sectors have to come together and engage with the government so that it is moving forward with a mandate that reflects the con-sensus of the various national stakeholders, small and big.



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