NO. 1 JANUARY 2019 Introduction

EU and Africa: Investment, Trade, Development What a Post-Cotonou Agreement with the ACP States Can Achieve Evita Schmieg

The EU is currently negotiating a successor to its Cotonou Agreement of year 2000 with the African, and Pacific (ACP) states. The political and economic con- text has changed enormously over the past two decades, with trade relations between the EU and the more developed ACP countries now largely regulated by bilateral and regional Economic Partnership Agreements. Since 2015, in line with international sustainability targets, social and environmental aspects must be taken into account in international treaties, while in 2018 the (AU) agreed to establish an African Continental Free Trade Area. A successor to Cotonou offers an opportunity to modernise the rules on issues including investment, services and migration. This could also generate greater interest in the talks in Germany and the EU. But the cooperation need to be placed on a new foundation and the African states will have to decide whether they want to negotiate together, as a continent.

The Cotonou Agreement and its predeces- protocols for the three regions. In July 2018 sors, the Lomé Agreements, regulated the the European Council adopted a negotiat- EU’s relations with its member states’ for- ing mandate confirming the Commission’s mer colonies in Africa, the Caribbean and line. In its own negotiating mandate of May the Pacific during the decades following 2018, the ACP Council of Ministers under- their independence. A successor needs to be lines its interest in an overall ACP agree- negotiated before the Cotonou Agreement ment. The negotiations began in September expires in 2020. In 2017 the European Com- 2018. mission published a proposal for future The first, fundamental question is relations with the ACP group, which today whether an agreement between the EU and comprises seventy-nine countries. It pro- the member states’ former colonies is still poses a framework agreement with the relevant at all, given the enormous changes entire ACP, concluded between all parties in circumstances over the past decades. to the Cotonou Agreement and defining Europe’s political and economic signifi- shared values, goals and principles for cance to Africa has declined markedly. In future cooperation, with additional regional 2017 it was still the most important desti-

nation for African exports with 29 percent Negotiating Partners (down from about 42 percent in 2000), but China has made up a great deal of ground. Below the level of the proposed framework Even as recently as year 2000 China played agreement, it remains unclear whether the almost no role in the global economy, with African Union will negotiate a regional just 3.6 percent of world trade. Today it is protocol for Africa as a whole or the ACP responsible for the largest share of new in- Secretariat will seek a protocol just for the vestment flowing to Africa, namely 23.9 per- African ACP states. The Africa-EU Partner- cent in 2016; the top two EU countries, ship – based on the Joint Africa-EU Strate- France and the United Kingdom, account gy of 2007 – already links the European for almost 5 percent each, while Germany Union and Africa, with the latter repre- occupies tenth place with just under 2 per- sented by the AU. From the Union’s perspec- cent. But Europe still leads the field for in- tive it would make sense to merge its co- vestment stocks. Finally, Europe’s political operations with the AU and the African interest in Africa has also revived. The con- ACP states, which are also members of the tinent is now viewed as a realm of oppor- AU. The EU’s mandate therefore proposes tunities, where a number of economies are keeping talks with ACP members open to developing very fast and the African middle other states that share the basic values of class in particular is experiencing very rapid the Cotonou Agreement. It remains unclear growth. At the same time migration from how Africa will respond to this offer. The Africa to the EU has become an important AU’s role has grown enormously over the issue – although migratory movements past two decades, driven by its interventions within Africa are actually much larger. The in peace and conflict resolution and its determining factors for trade and invest- spring 2018 decision to create an African ment flows have changed too: tariffs have Continental Free Trade Area. So it was only fallen globally, reducing their importance, logical for the AU’s Executive Council in allowing global value chains to arise, and March 2018 to claim the role of lead nego- making the economic and political frame- tiator for the African regional protocol. The work even more important for national final decision on this has not yet been made. competitiveness. Foreign direct investment The states of North Africa are not mem- is regarded as a decisive factor for securing bers of the ACP group. Some of them, like growth and employment. Egypt, are sceptical towards the idea of Both the EU and the ACP states want co- joining the negotiations for a post-Cotonou operation to continue. The Cotonou Agree- agreement. They are already connected to ment built on three pillars: trade policy the EU by bilateral association agreements, (with the EU granting non-reciprocal trade some of which are currently being renego- preferences), development policy (with the tiated. So these states already possess a for- Agreement defining areas and procedures mat within which they can assert their in- for the European Development Fund) and terests vis-à-vis the EU. It is unclear whether political dialogue. Both sides’ negotiating it would be advantageous for them to join mandates foresee discussions about all the Cotonou successor agreement. Nor can areas of cooperation addressed in the Coto- it be automatically assumed that the African nou Agreement. But the priorities will have ACP states would welcome a pan-African to shift. Europe’s biggest challenge in this protocol. With the question of development connection will be to shape its relations funding representing one of their main with Africa. interests, they might fear possible disadvan- tages if all African states are included in the successor agreement. The ACP’s negotiating mandate says nothing about this, and the African states have yet to adopt a position.

SWP Comment 1 January 2019

2 The “Political Dimension” of example in the international trade system, Cooperation could play a role in future. In their man- dates the EU and ACP both underline their Both the ACP and the EU value the “politi- interest in a strong multilateral system. cal dimension” as an achievement of the The EU treats migration as a high priori- Cotonou Agreement, and wish to retain it. ty and would like to keep the relevant pro- It encompasses political dialogue about vision from the Cotonou Agreement. Arti- national, regional and global questions of cle 13 outlines basic principles for dealing mutual interest, as well as a commitment to with migration, emphasises the observance human rights, good governance, and peace of human rights, and obliges states to take and stability. Article 9, which names the back rejected migrants. Bilateral talks on “essential elements”: “human rights, demo- these issues are foreseen if necessary. Al- cratic principles and the rule of law”, is though it is relatively detailed, however, regarded as especially important. The Agree- this set of provisions has not to date played ment created the framework and institu- a role in EU-ACP relations. The ACP states tions for political dialogue (such as the have already indicated that they are not Council of Ministers and the Joint Parlia- interested in including Article 13 in the mentary Assembly) and a procedure for post-Cotonou agreement. dealing with violations (Article 96). The latter has been used about fifteen times to date in response to coups, violent escala- Development Funding tions and human rights violations in ACP states. Sanctions under Article 96 are re- It is currently an open question how devel- garded as having limited effect and the opment finance is to be regulated. To date existing EU-ACP institutions are also seen as the European Development Fund (EDF) has rather ineffectual. Meetings of the Council depended on successively renegotiated con- of Ministers to date have been regarded as tributions from the member states under ritualised and generally not high-level. A procedures defined in the Cotonou Agree- need therefore exists to make the institu- ment. The Commission would like to inte- tions of the Cotonou Agreement more effi- grate the EDF, with a volume of €30.5 bil- cient and lend them greater political weight. lion for 2014 to 2020, into the EU budget. Formulations relating to human rights in This would place it under normal budget the existing bilateral and regional economic procedures and closer oversight by the partnership agreements (EPAs) between the European Parliament. Development finance EU and ACP states cross-reference the Coto- would then operate in a context where all nou Agreement, giving the EU further rea- states followed the same rules. From the son to include those provisions in the new perspective of the Commission and some agreement. EU member states that would be more effi- Cooperation with a large group of states cient and align better with the Union’s ex- on the basis of shared fundamental values ternal relations today. Such an orientation can gain new significance for both sides, on more objective criteria would satisfy the especially in times of growing foreign poli- aims of the Global Strategy for the Foreign cy instability. This applies all the more and Security Policy (2016), which places when a dialogue is held not only on issues development funding in the context of of bilateral concern but also as an exchange global challenges and strategic interests. of views on international issues. The EU- The Global Strategy and the proposal to ACP cooperation has proven to be helpful integrate the EDF into the regular budget and constructive, for example in the pro- reflect the fact that the new EU member cesses leading to the adoption of inter- states that joined in 2004 have no colonial national sustainability goals. The need to past and therefore also no specific interest strengthen multilateral approaches, for in special relations with former colonies in

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3 the form of the ACP group. They prefer to the worth of trade preferences in general is orientate (development) policy more clearly declining as the EU also concludes trade on objective criteria and their own inter- agreements with other developing countries ests. This tendency could be strengthened and lowers its tariffs for them too (prefer- by Brexit. ence erosion). Because the discussion about integrating Against this background the most im- the EDF into the EU budget is ongoing, the portant trade-related question in the EU EU’s negotiating mandate for the parallel and ACP negotiating mandates is how the talks on the Cotonou successor leaves this chances of ACP states to benefit from agree- question open and merely reiterates the ments can be improved. Some African existing funding principles. These include states have already benefited. For example the target of spending 0.7 percent of GDP South Africa recorded export increases from on development cooperation, with 0.2 per- 2016 to 2017 for fish (16 percent) and sugar cent earmarked for the poorest countries. (289 percent) and Madagascar from 2012 to The role of bilateral and regional develop- 2016 above all for textiles (65 percent), after ment channels had already been fading, the rules of origin were simplified under while the number of thematic funds has the EPA. Ghana and Côte d’Ivoire were able grown. The latter include instruments like to increase their exports of chocolate, cocoa the Commission’s External Investment butter, cocoa paste and cocoa powder by a Fund (EEIF) for third countries and the EU factor of 4.5 and 2.5 respectively between Trust Fund for Africa (EUTF). Brexit will also 2008 and 2015. It is especially interesting reduce the volume of the EDF, where the that they succeeded in expanding local pro- United Kingdom has to date contributed cessing and thus boosting value creation 14 percent. and employment. In other words, EPAs are beginning to contribute to diversification of exports. Trade Preferences and The ACP’s mandate (Art. 67) puts the Trade Facilitation possibility of trade preferences back on the table via the topic of trade facilitation. The Non-reciprocal trade preferences granted by ACP countries want to facilitate trade in the EU represented a core element of the services, including movement of natural relationship with the ACP. Because they persons. It is unclear how this could be contravene world trade rules, the Cotonou concretised. There would indeed be leeway Agreement proposed so-called economic for a further EU market opening vis-à-vis partnership agreements (EPAs) between the sub-Saharan Africa in this area (in contrast EU and the ACP regions. The final negotia- to goods) because trade preferences for tions were concluded in 2014, and the service exports are neither part of the EU’s agreement has now been implemented in Generalised System of Preferences nor has thirteen African states as well as the EU. the issue to date been taken up in the Afri- The thirty-three African countries that can EPAs. If the ACP states were to propose belong to the world’s poorest already enjoy that the EU grant them non-reciprocal pre- tariff- and quota-free market access to the ferences, however, the same problem of EU under the everything-but-arms initiative conformity with WTO rules would arise as of the EU’s Generalised System of Prefer- with trade in goods: trade preferences may ences. This again secures completely free be granted on the basis of objective criteria, access to the EU for goods exports from but not restricted to a specific group of coun- almost all African states (apart from North tries. Improved market access for services and South Africa). Preferences for products could be negotiated in the scope of free that the EU otherwise strictly protects – trade agreements. From the EU’s perspec- especially (processed) agricultural products tive the existing EPAs and the association and textiles – are especially valuable. But agreements with North African states are

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4 therefore the right context for preferences under the auspices of the AU, to accelerate on services. continental integration by dismantling The WTO does permit non-reciprocal 90 percent of tariffs. According to calcula- trade preferences for services to be granted tions by the United Nations Economic Com- to the world’s poorest states until 2030. mission for Africa the abolition of all tariffs Although twenty-five industrialised states could increase intra-African trade by more grant preferences under this arrangement than half. But the AfCFTA is not seeking they are of small economic significance full liberalisation. And moreover, wide- according to the UN Committee for Devel- spread enthusiasm for the initiative rather opment Policy, and largely restricted to the obscured the fact that it does no more than possibility of using services abroad. This is define the objectives, topics and structure so-called Mode 2 under the General Agree- of talks. The economically effective provi- ment on Trade in Services (GATS). But there sions, such as how far to lower tariffs and are already few restrictions in this area, so which rules of origin to apply, are still to be the preferences largely reconfirm the ex- negotiated. Furthermore, economic heavy- isting level of liberalisation. GATS Mode 4, weight Nigeria has to date refrained from which provides for people to cross borders participating; its employers and trade to provide services abroad, is much more unions fear destructive competition among interesting for developing countries. It African countries. Nigerian industry also would be conceivable for the ACP states to sees little point in ratifying a proposal whose demand preferences for services – in par- substance is still completely unknown. So it ticular Mode 4 – in return for concessions will be a long time before the Free Trade in the area of preventing migration. The Area has been finalised and implemented, debate over movement of people involves and is thus actually able to expand trade the suggestion that it will be easier to re- flows within the region. strict irregular migration if channels for In September 2018 European Commis- legal migration are created. sion President Jean-Claude Juncker declared that the EU was willing to enter into trade talks with Africa as a whole if the AfCFTA The African Free Trade Area and came into effect. This would only be logical Negotiations for a Post-Cotonou given that the EU has for decades been en- couraging African regional integration. The In their mandate the ACP states place great EPAs were originally also meant to serve weight on further African regional integra- that end. In the interests of further pan- tion to boost value creation and initiate African integration it might be necessary to development processes. Today finished harmonise the different EPA tariffs of the products such as cement, fertiliser, cleaning countries and regions involved. It is right agents and iron already play a significant and proper that the EU declares its open- role in trade between sub-Saharan coun- ness to (re-)negotiate already today – even tries, accounting for 46 percent of trade if a great deal of time will pass before the volume. But raw materials still dominate problem actually arises. exports to countries outside Africa (with 85 percent), while regional trade represents only about 20 percent of Africa’s total for- Investment as the Crux eign trade. Only in southern and eastern Africa have sub-regional integration com- In order to achieve sustainable development munities succeeded in increasing the pro- and create jobs for the African population portion to any significant extent. In March – which is set to double by 2050 – private 2018, initially forty-four of the fifty-four investment in particular must increase. The African states decided to establish an Afri- negotiating mandates grant corresponding- can Continental Free Trade Area (AfCFTA) ly broad space to this issue. The ACP states

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5 “resolve to create an enabling environment therefore working in the international arena to improve productivity and facilitate value towards a transparent, multilateral replace- creation and addition to ACP products and ment with an appeals system. services, to foster trade competitiveness and A modern investment agreement between encourage investment expansion”. The EU’s the EU and Africa – or the ACP group – mandate provides for improvements in should guarantee investors security and sta- framework conditions in order to create an bility for their investments, but also commit attractive and stable environment for invest- them to social and ecological goals in line ment. To that end the parties should estab- with the international sustainability goals. lish transparent and open rules for inves- With its Investment Policy Framework for tors, design a regulatory framework and de- Sustainable Development, the UN Confer- velop mechanisms to facilitate investment. ence on Trade and Development (UNCTAD) New instruments to promote investment has presented guidelines and options for in Africa have been created in recent years. modern investment agreements designed to Under the G20 Compact with Africa (CwA) fulfil precisely that objective. Apart from African states implement reforms to im- that comprehensive compendium, the EU’s prove the environment for investment and Economic Partnership Agreement with fif- in return the G20 governments use various teen Caribbean states contains a number of instruments to encourage private investors formulations committing investors to social to engage more strongly in Africa. The Euro- and ecological standards. Further orienta- pean External Investment Fund provides tion is supplied by the OECD Guidelines for €4.1 billion, designed to mobilise €44 bil- Multinational Enterprises on corporate lion in private investment by 2020. The social responsibility. The parties could agree Africa-Europe Alliance for Sustainable In- to establish national contact points, analo- vestment and Jobs unveiled by the Commis- gous to those for the OECD Guidelines, that sion in June 2018 bundles existing initia- also grant representatives of civil society tives in the area of development and trade the right to lodge complaints. of the EU-AU Partnership to strengthen All discussions about promoting invest- dialogue and cooperation with Africa on ment must include the aspect of strengthen- the subject of investment climate, including ing local and regional investment, and not investor protection. To this end various in- just foreign direct investment. struments are to be joined up. If the African states and the EU take up the issues of investment protection, promo- Outlook tion and framework conditions this would lend great weight to the negotiations and The Cotonou Agreement was the last agree- the Cotonou successor agreement itself. ment that still breathed the spirit of the ACP states and the EU could then join post-colonial ties of the EU and its member forces to create paradigmatic modern rules states. Its successor will be more strongly governing investment. Such agreements determined by political interests. In their could also succeed the old bilateral invest- mandate the ACP states particularly empha- ment protection agreements that were one- sise issues like regional integration, invest- sidedly tailored to investor interests and ment to increase value creation, trade in also contained the now discredited investor- services and the framework for sustainable state dispute settlement. The latter is criti- development of African states. They under- cised – no longer only by civil society – line their interest in joining with the EU to for undermining the legitimate regulatory create modern arrangements for coopera- interests of states – for example on con- tion in new fields and growth areas. The EU sumer protection – and permitting com- should grasp this opportunity to strengthen panies to sue governments outside their its position in Africa. As a continent with country’s system. The is strong growth in many regions and a rapid-

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6 ly growing population (and middle class), EPAs – about which there were hefty con- Africa is set to play a larger economic and troversies between Africa and the EU and political role in the world. Additionally within the member states – may be a thing Europe has a pressing interest in securing of the past. Certainly the negotiating man- development and security in the continent date of the ACP states no longer calls EPAs to its south. into question, but instead seeks successful Investment has become a key question implementation. for Africa’s future development and will be The ACP states may conceivably demand an issue in the negotiations on a successor trade preferences for Mode 4 services in the to Cotonou. In view of the multitude of European market, possibly as quid quo pro existing instruments, negotiations about an for EU demands in the sphere of migration. © Stiftung Wissenschaft investment regime that combines investor Here the EU appears as “demandeur” seek- und Politik, 2019 protection with sustainability commitments ing promises from the ACP states to take All rights reserved promise especially great added value. The back rejected migrants. In the negotiations This Comment reflects time until 2020 may be too short to achieve it will have to offer something in return, the author’s views. far-reaching progress in this direction. But especially if the question of development it would be a good first step if the Cotonou funding – which is important to the ACP The online version of successor agreement were able to set some countries – is settled outside the negotia- this publication contains important markers on the road to a com- tions. From the perspective of the ACP, it functioning links to other prehensive investment agreement. That would be a consistent negotiating strategy SWP texts and other relevant sources. would mean formalising the intention to to tie migration issues to trade preferences conclude such an agreement and laying for services, especially Mode 4. SWP Comments are subject down the first ground rules. The negotiations about a Cotonou suc- to internal peer review, fact- In the area of trade the uppermost ques- cessor agreement certainly offer the EU an checking and copy-editing. tion will be what instruments are suited to opportunity to discuss with a large group of For further information on our quality control pro- further expand the benefit of existing trade states about value-based political and eco- cedures, please visit the SWP rules for the ACP states. Successful exam- nomic cooperation. Given the number of website: https://www.swp- ples where African exports and value crea- communication channels that have broken berlin.org/en/about-swp/ tion have been increased are encouraging, down over recent years, the Union should quality-management-for- but not yet enough for a great success of grasp this opportunity. swp-publications/ the EPAs. It would make sense to integrate SWP the topics of investment and trade promo- Stiftung Wissenschaft und tion. Finally, EPAs have created especially Politik strong trade preferences in areas that are German Institute for attractive to less developed countries. Gen- International and erally, broad export successes are found Security Affairs primarily where trade liberalisation has Ludwigkirchplatz 3–4 been accompanied by internal reforms. 10719 Berlin Linkage of reform and investment is also Telephone +49 30 880 07-0 a line pursued by the G20 Compact with Fax +49 30 880 07-100 Africa. An associated specific EU Compact www.swp-berlin.org with EPA Countries could take up the task [email protected] of promoting new investments in connec- ISSN 1861-1761 tion with the EPA. doi: 10.18449/2019C01 Certainly the discussion about trade and investment has taken a constructive turn. Translation by Meredith Dale The debate about the point and dangers of (English version of SWP-Aktuell 70/2018) Dr. Evita Schmieg is Associate in the EU/Europe Division at SWP. This paper was prepared in the scope of a project on trade and development in the context of the sustainable development goals, funded by the German Federal Ministry of Economic Cooperation and Development

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