What will Rwandan traders export to Europe?

There’s absolutely no reason why negotiation of the Economic Partnership Agreement (EPA) between the East African Community (EAC) and European Union (EU) wasn’t concluded in Nairobi on September 26, as earlier planned. But as the EAC negotiation team and senior government officials waited for their European counterparts that day, a last minute message came in that the EU party would not show up; no reason was provided. That was last month and was the latest of many low points that have characterised the long, complicated and often dramatic process of negotiating the EPA, whose conclusion should have been in 2007. But on Wednesday afternoon, at a news conference organised by the Ministry of East African Affairs (MINEAC), a team of Rwandan representatives to the EAC negotiating team led by Trade and Industry Permanent Secretary Emmanuel Hategeka, showed up to announce that the negotiations were finally concluded and the EPA agreement initialed. That was on October 14, in Brussels, Belgium, the capital of Europe–a week ago. Why Brussels? Trade negotiation experts think it was a tactical maneuver by the EU to get a last minute home advantage and squeeze a stubborn EAC into submission on contentious clauses. But, according to Hategeka, in Brussels, the EAC negotiators managed to stick to their guns and defended their interests as a single bloc. “In the end, we managed to negotiate on our terms and got everything regarding the contentious clauses our way,” he said. John Bosco Kanyangonga, an independent consultant with Trade and Development Links who was part of Rwanda’s technical team, said; “Part of the reason why we took so long to reach an agreement is that we went to Europe with a theme, ‘no development no EPA.” That means, EAC-EU EPA deal is not just about trade but also about Europe helping develop and improve EAC partner states’ capacity in order to fully compete with EU. What’s in the EPA? Hategeka came to the news conference carrying a thick blue document, which he said was just part of the EPA. But its substantive contents are mainly composed of six clusters that include market access, including the rules of origin and specific product roles, a chapter on economic development cooperation, a chapter on agriculture, fisheries, and institutional arrangements, dispute resolution. The other clause is coded as the ‘rendezvous clause’ which basically covers issues for future negotiations, mainly regarding trade in services such as competition and intellectual property rights. Under these clauses, exports from the five EAC partners will not be taxed to access the 27 member country European market. That, experts think, will make it easier for EAC traders, including those in Rwanda, to send their goods to any country in Europe without major trade constraints…that’s an obligation which EU members have promised to uphold under the EPA. In return, EAC partner states also agreed to gradually exempt up to 82.6 per cent of European imports into the region, from import taxes over the next 25 years starting from next year. That means, the EPA is a-two way traffic, what EAC gets from Europe; the EU must get from EAC hence the reciprocal nature of the agreement. However, while Europe is giving East African exports 100 per cent tax exemption to access to its 27 member country market, East Africa will only give away up to 82.6 per cent of the region’s market to European imports. “That’s because the region is still less developed and needs to protect its infant industries from European competition,” Hategeka said. It has also been agreed that the EAC will open up to EU imports in three main phases, starting in 2015 with 64 per cent of EAC imports from Europe being exempted from import-tax. Then between 2020 and 2027, an additional 14.6 per cent of European imports will also get a tax holiday to make it 78.6 per cent of all imports. Another 2.6 per cent would be added between 2025 and 2040. However, (perhaps a point of victory), the EAC refused to give away 17.4 per cent of its market to Europeans, arguing that as a developing region, it needed to protect some of its young industries. This position, Hategeka said, the EU agreed to respect because they understand that the two parties are not equals regarding development. “That’s why the chapter on development is very important; Europe has agreed to help EAC partners improve their own capacity in areas that would improve the region’s competitiveness in trade, globally,” he said. So what will Rwanda export to Europe? The negotiations are complete but not the signing of the agreement. According to Hategeka, this will take a few more months during which the document will undergo ‘legal scrubbing’ of the text (final proof reading) and the final ratification by all the five EAC partner states, a process expected to end mid-next year or earlier. In the meantime, experts want Rwandan exporters to use the time to answer the question regarding how they plan to exploit this new arrangement with Europe. Gerald Mukubu, acting CEO of the Private Sector Federation (PSF), said there’s a need to popularise the EPA contents and prepare members for the time when the agreement gets into implementation stage. At least 36 per cent of Rwanda’s exports in the past three years have been going to Europe but, still, statistics paint a largely lopsided bilateral trade relationship in favour of Europe. The value of Rwandan exports to Europe dropped from $199million in 2011 to $169m in 2012 and last year, it dropped further to $168.6m compared to the $570.4million total trade value between Rwanda and Europe in 2013. Marie Angie Hakiba, a member of the negotiating team from Ministry of Finance, said the reason for the lopsided trade is that Rwanda mainly exports raw materials to Europe which return less receipts compared to the high value imports. During the negotiations, Rwanda submitted a number of priority areas that Europe can provide development support to improve Rwanda’s competiveness. “The total is around $8.9bn (that Rwanda wants to spend on development priorities) between 2015 and 2020,” she disclosed. She added that the priority areas include energy projects, Northern Corridor projects such as the proposed standard gauge railway and roads. However, both Hategeka and Mukubu concurred that the way forward for Rwandan exporters is to invest in value addition to earn more returns on their exports to Europe as a way of offsetting the unfavourable trade relationship. Meanwhile, in a statement released on the development, EU Commissioner for Trade Karel De Gucht, said the EPA is the best way in which ‘we can support EAC’s (integration) aspirations.’ If the EPA is finally ratified by partner states early next year, the EAC will have joined two other blocs, SADC and ECOWAS that already reached an agreement with EU.

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What will Rwandan traders export to Europe?