"Sustainability Impact Assessment (SIA) of trade negotiations of the"
Sustainability Impact Assessment (SIA) of trade negotiations of the EU-ACP Economic Partnership Agreements Working draft - 01 October 2003 This report was prepared with financial assistance from the Commission of the European Communities. The views expressed herein are those of the Consultant, and do not represent any official view of the Commission. This report was prepared for the European Commission under Framework Contract EC TRADE 02-F3-02, Specific Agreement No. 1 For more information about our Consortium and this project, please visit our website: www.sia-acp.org 2 Table of Contents A. Introductory Materials...............................................................................7 I. OUTLINE OF THE FRAMEWORK ..........................................................................................8 SECTION I - COUNTRY GROUPINGS: SETTING TRADE AND SUSTAINABILITY PRIORITIES .....8 1. Country Groupings ..............................................................................................................8 2. Regional Sustainability Context ..........................................................................................9 3. Setting Priorities ................................................................................................................11 4. Selecting Indicators: Definitions and Sources...................................................................13 SECTION II - ANALYSING TRADE-RELATED SUSTAINABILITY IMPACTS ............................13 5. Trade related scenarios ......................................................................................................14 6. Identifying trade-related impacts.......................................................................................14 7. Independent Conditioning Factors ....................................................................................15 8. Significance of Impacts .....................................................................................................15 SECTION III - SUSTAINABILITY CHALLENGES........................................................................16 SECTION IV - POLICY RECOMMENDATIONS...........................................................................16 II. SUMMARY OF PROGRESS .................................................................................................20 1. Regional Country Groupings.............................................................................................20 2. Regional Sustainability Context ........................................................................................20 3. Setting Priorities ................................................................................................................23 4. Analysing Trade Related Sustainability Impacts ..............................................................23 III. OUTLINE OF THE CONSULTATION PROCESS .................................................................24 1. Electronic communication.................................................................................................25 2. Expert Networking: Developing Networks in Europe and the ACP Regions...................25 3. ACP Regional Workshops on the SIA ..............................................................................27 B. Summarized Mid-Term Report...............................................................31 I. COUNTRY GROUPINGS: SETTING TRADE AND SUSTAINABILITY PRIORITIES .................32 1. Country Groupings ............................................................................................................32 2. Regional Sustainability Context ........................................................................................39 3. Setting Priorities ................................................................................................................84 4. Selecting Indicators: Definitions and Sources...................................................................95 II. ANALYSING TRADE-RELATED SUSTAINABILITY IMPACTS.............................................97 1. Trade-related scenarios......................................................................................................97 2. Trade-related sustainability impacts..................................................................................98 3. Independent Conditioning Factors ..................................................................................109 4. Significance of Impacts ...................................................................................................113 III. SUSTAINABILITY CHALLENGES ...................................................................................115 IV. POLICY RECOMMENDATIONS ......................................................................................116 1. Trade Related Policies for the Negotiators (short-term) .................................................117 3 2. Recommendations related to sustainability (non-trade related) (short, medium and long- term) .......................................................................................................................................117 3. Recommendations to promote transparency ...................................................................117 ANNEX 1: Market Access for Goods—Western Africa (work in progress) Figure 1 PART I: Country groupings: Setting trade and sustainability priorities. Figure 2 PART II: Analysing Trade-related Sustainability Impacts Figure 3 ECOWAS Region Figure 4 Payment and Receipt of services in CARICOM Figure 5 Migration in the Western African Region (1988-1992) Figure 6 Main products exported from ECOWAS (+Mauritania) to the EU Figure 7 Main products exported from the EU to ECOWAS (+Mauritania) Figure 8 Main products exported from the Caribbean Region to the EU Figure 9 Main products exported from the EU to the Caribbean Region Figure 10 Economic dynamics in ECOWAS region Table 1 Country Groupings for the ACP-EU SIA Table 2 ECOWAS Member Countries: GDP of Main Economic Activities in % of Total GDP (2000) Table 3 GDP and per capita GDP in the Caribbean Region (2000) Table 4 Economic Structure – Caribbean region (2000) Table 5 West African countries ranks and levels of HDI (2000) Table 6 Priority Sustainability Issues for Western Africa and the Caribbean Regions of the ACP Table 7 SIA country grouping in the Caribbean region Table 8 Examples of Potential Sustainability Impacts of Trade Measures (work in progress) Table 9 Preliminary Priority Sectors (work in progress) Box 1 ECOWAS regional seminar to prepare EPA negotiations (Abuja, Nigeria) Box 2 Desertification in the Sahel Box 3 The Upper Guinea Forest Box 4 The importance of trade in dairy products for the Caribbean Region Box 5 Economic activity in the Niger Delta Box 6 Government of Nigeria. Excerpt of Submission to CSD 8 Box 7 Market Access and Bananas in Dominica Box 8 Some environmental impacts of large-scale infrastructure projects Box 9 Standards-related issues and the Ugandan Fisheries sector Box 10 Phasing out the MFA Box 11 LDCs in the ACP Box 12 Types of Policy Recommendations 4 This is a summarized Mid-Term Report of the Preliminary Global Sustainability Impact Assessment (SIA) of the ACP-EU Economic Partnership Agreement (EPA) negotiations. The Mid-Term Report is the second report that has been prepared in Phase 1 of the project. It builds on the Inception Report that was released at the beginning of February 2003 and looks forward to final Preliminary Global SIA. For Phase 1 the EC has directed the Consortium to complete the following deliverables, which are being undertaken in parallel: ! Provide a qualified Preliminary SIA of the ACP-EC EPA negotiations, including an overview of their potential major economic, environmental and social impacts. ! Provide in-depth “pilot” SIAs of the potential impacts of EPAs in two ACP regions: Western Africa (ECOWAS + Mauritania) and the Caribbean (CARICOM + Dominican Republic). This SIA is developed within the context of its overall purpose, which is to: ! Impact the negotiations. Enhancing the analytical awareness and understanding of those involved in the EPA negotiations of the links between trade liberalisation (and the EPAs in particular) and sustainability, to ensure that EPA negotiations take sustainable development fully into account. ! Influence negotiators. Contributing to research and policy efforts related to the EPA negotiations and to encouraging negotiators to adopt positions that will promote sustainability in the EU and in the countries of the ACP. ! Develop policy packages to promote sustainability. Defining and developing policy packages to accompany EPAs in order to ensure that the outcome of the negotiations contribute to sustainability, including through capacity building. ! Increase transparency. Increasing transparency by developing a basis for discussion between European and ACP stakeholders about sustainability implications associated with the EPAs. The terms of reference for this Phase of the project require detailed in-depth assessments to be undertaken of two regional country groupings—West African (ECOWAS + Mauritania) and Caribbean ACP countries (CARICOM + Dominican Republic). The regional in-depth SIAs will apply the same overall framework that is discussed and applied with reference to the EU-ACP SIA in this document. The work on the regional in-depth assessments is proceeding in parallel with the development of the EU-ACP SIA; lessons learned in that work will make important contributions to the overall work on the ACP. The two regional in-depth SIAs will be released with the Final Preliminary Global SIA. Part A of this report begins by presenting an outline and explanation of the methodology that will be used for the in-depth regional SIAs, and that will form the basis of the priority setting exercises to select areas for work within the Global EU-ACP SIA. It then moves to outline, in five pages, the progress achieved so far, in terms of developing the underlying material for the in-depth regional SIAs, and in employing the framework to identify potential impacts of changes in market access for goods in Western Africa. Finally, 5 part A of this paper provides an outline of the consultation process, including some detail on the regional workshops that will be held in the Caribbean and Western Africa later this year. Part B of this report works through the framework developed for this SIA. Section 1 presents the ACP country groupings that will be used throughout this SIA. Section 2 focuses on developing the sustainability context for the two in-depth SIAs, to highlight key economic, social and environmental “hot spots” that will be the major focus of the impact analysis that will follow. Similarly, as part of the process of understanding the priorities in these regions from a trade and sustainability perspective, it includes an outline of major trade flows. In Section 3, Setting Priorities, the report presents a table with some preliminary consideration of trade measures that will form the basis of the EPAs, and begins to suggest sectors for further examination. Trade measures and sectors presented, will be applied on a case-by-case basis in the regional in-depth SIAs, as applicable. Section 4 is included to suggest indicators that can be used in the ACP SIA selected on a case-by-case basis as relevant for the in-depth regional SIAs. These indicators will be related to the sustainability “hot spots” developed in Section 2 (above) and will be included in the Final Report. The final section of this report presents further detail of the framework for analysis of impacts. This material remains a work in progress pending comments from stakeholders and others in forthcoming consultations. In order to the “test” the viability of the approach, the project team has prepared a draft assessment of market access in goods, as it related to Western Africa. This document is attached as an Annex to this report. The final development of the framework will be included in the Final Report. 6 A. Introductory Materials 7 I. Outline of the Framework Section I - Country Groupings: Setting Trade and Sustainability Priorities Part I is included in the Framework as a first stage in setting a context and OUTLINE OF THE FRAMEWORK determining priorities. This SIA is potentially very broad in its geographic Part I: Country Groupings: Setting Trade and scope, its trade related scope and in its Sustainability Priorities 1. Country Groupings range of economic, environmental and 2. Regional Sustainability Context social sectors and issues related to 2.1 Economic, Social and Environmental Issues sustainability. At the outset of the SIA, 2.1.1 Structure of the national economies no choices had been made to narrow 2.1.2 Social Priorities and Poverty 2.1.3 Environmental Priorities the scope of the exercise. Therefore the 2.2 Major Trade flows first task of the SIA is to identify the 2.3 Geographic Locales/Clusters most relevant avenues for examination, 3. Setting Priorities based on sustainability priorities and 3.1 Trade Measures trade flows. The application of Part I of 3.2 Sectors the Framework is illustrated in Figure 3.3 Independent sustainability challenges 4. Selecting Indicators: Definitions and Sources 1. 4.1 Economic 4.2 Social 4.3 Environmental 4.4 Institutional Part II: Analysing Trade-Related Impacts 1. Country Groupings 5. Trade-related scenarios 6. Trade-related impacts The first step is to examine 6.1 Changes in trade and trade-induced economic processes of regional integration within impacts the ACP with a view to identifying 6.2 Linking economic impacts to sustainability: Causal Pathways regional country groupings to be used 6.3 Regulatory impacts in the SIA. The groups of countries will 7. Independent Conditioning Factors be based on existing commonalities, 8. Significance of Impacts among them, ongoing regional integration and specified criteria. Part III: Sustainability Challenges Part IV: Policy Recommendations 8 2. Regional Sustainability Context A second area where choices have to be made at an early stage in the SIA is with respect to the key sustainability challenges in the regions. The ACP countries represent a range of states from small island states in the Caribbean and the Pacific, to landlocked countries, to countries in sub-Saharan Africa. Despite the fact that a number of the countries of the ACP are generally classified as less-developed, they do not necessarily share economic, environmental or social priorities. Neither do they necessarily share similar trade profiles, and it is likely that liberalisation will affect them in different ways. Therefore the second step in the process of setting priorities is to identify the most relevant avenues for examination, based on sustainability priorities and trade flows. 2.1 Economic, Social and Environmental Issues Each region will first be examined from the perspective of general sustainability priorities. This allows the project team to focus scarce time and resources on areas where there are most likely to be significant sustainability impacts. In particular, this section will make a contribution to the SIAs in the following areas: ! Contribution to selecting trade measures and sectors for detailed study. Reviewing the economic, environmental, and social issues most relevant to the ACP will contribute to decisions to prioritise trade measures and sectors, based on the criteria that reflect those issues most closely associated with sustainability. ! Contribution to indicator selections. Highlighting priority challenges and opportunities related to sustainability will help identify the most relevant indicators to include in the regional in-depth SIAs. ! Contribution to the elements of a “Causal Chain Analysis”. Exploration of sustainability priorities, and in particular identification of the underlying cause that contribute to unsustainable behaviour, will suggest ways in which economic, environmental and social variables might be impacted either directly by trade, or indirectly through economic and regulatory changes that are induced by trade. This could include highlighting issues such as production practices, infrastructure impacts, transportation and other forces that impact sustainability, both positively and negatively. 2.1.1 Structure of the national economies Identify the main economic characteristics of the countries in the regional country grouping, including economic sectors that make major contributions to national economic activity. 9 2.1.2 Social Priorities and Poverty Identify social/development related characteristics of the countries, with an aim of selecting “hot spots” that characterise the most relevant themes to consider in the SIA. These priorities should be: ! Related directly or indirectly to equity (including gender equity) and social well- being (including, inter alia, poverty, employment, health and education). ! Relevant for a large proportion of the population, and in particular vulnerable portions of the population. 2.1.3 Environmental Priorities Identify environmental characteristics of the countries, with an aim of selecting “hot spots” that characterise the most relevant environmental themes to consider in the SIA. These priorities should be: ! Related directly or indirectly to major environmental media and natural resources such as water or land. ! Associated with strategic natural resources, such as the provision of certain foodstuffs and extraction. ! Related to geographically important or particularly vulnerable ecosystems. 2.2 Major Trade Flows This section identifies major trade flows associated with regional country groupings as part of the priority-setting exercise. In particular it examines values and volumes of major exports from the ACP regions to the EU and major exports from the EU to the ACP regions. This information will allow the project team to identify sectors where there are significant levels of trade between the EU and the ACP, or where the EPAs might present opportunities to enhance trade. This information, considered with the previous discussion of sustainability priorities will feed into the decision to prioritise specific sectors or products for detailed study in the regional SIAs. Therefore, the overall purpose of this section is to contribute to: ! Selecting trade measures and sectors for detailed study. Reviewing the trade flows between the ACP regions and the EU will contribute to decisions to prioritise trade measures and sectors, based on the criteria that reflect products and sectors most closely related to the EU-ACP trading relationship. ! Developing baseline trade information. An initial survey of trade flows between the EU and the ACP regions will contribute to developing baseline information for the SIA as a starting point from which trade related impacts of EPAs might occur. 10 2.3 Priority Geographic Clusters Within a regional country grouping, there may be specific geographic locales that deserve priority attention, based on their high levels of economic activity, including production, vulnerability of specific ecosystems, or as home to high levels of particularly vulnerable populations. Where, within the regional in-depth SIAs, it may also be necessary to cluster countries that share specific characteristics, sustainability challenges, or economic and trade profiles; this will be considered on a case-by-case basis within the regional in-depth SIAs. 3. Setting Priorities 3.1 Trade Measures This section is included in the framework to select the most relevant trade measures to focus on for the EU-ACP SIA. This mid-term report presents potential sustainability impacts of trade measures at a relatively high level of generality. The regional in-depth studies (ECOWAS +Mauritania and CARICOM + Dominican Republic are underway) will prioritise trade measures as they apply to the specific regions with impacts directed at the specific regions. Decisions to prioritise specific sectors in the regional in-depth SIAs will be made based on the potential role of trade measures in terms of their impact on identified priority trade flows and their impacts on identified sustainability priorities, highlighted in Section 2. Given the potential breadth of this SIA, priority will be given to trade measures that meet the following criteria: ! The measure is a core component of the Cotonou Agreement; ! The measure is likely to be the subject of negotiations of EPAs with respect to liberalisation; ! The measure is one that could significantly affect trade in strategic sectors between the EU and the ACP countries; ! The measure is one where one might expect, a priori, that there may be important sustainability impacts. 3.2 Sectors A second level of analysis is to adopt a sectoral approach to assessment whereby impacts of trade measures are assessed for priority economic sectors, issue or product within that sector, or because of their specific importance for sustainability. This section of the framework will encourage the selection of the most relevant sectors. It will be informed by the previous discussion on sustainability and trade. In order to select sectors, this framework employs the following criteria: 11 ! The sector is significant from an economic, environmental and social perspective; ! The sector is significant in terms of trade flows in both volume and financial terms; ! The sector may be impacted by changes in the trade measures included in a future EPA; ! The sector bears some significant relationship to the regional trade between the region and the EU through rule changes, government policy changes, institutional changes, investment changes or direct trade impacts; ! An analysis of this sector will contributes to an understanding of other issues of importance in the region; ! The sector is one where one might expect that there will be potential impacts of the EPA on sustainability. 3.3 Independent Sustainability challenges At this stage in the framework, independent sustainability challenges should be identified that, while they might not be directly or indirectly linked to trade, deserve attention in light of their importance to the region, and the opportunity provided by the EPAs. The ACP countries, while very different on some levels, share a number of important characteristics, particularly related to the size of their economies relative to the EU. They are typically small countries, with small economies, low levels of trade and investment, low levels of resources, vulnerability to external shocks, and have important sustainability challenges. It is possible therefore, that an approach that focuses exclusively on volumes, values and changes in trade flows could miss important opportunities for promoting sustainability within the context of an EPA. Therefore, this approach incorporates, along with a central focus on trade, an equally important focus on opportunities for promoting sustainability. The rationale for including independent sustainability challenges is strengthened by the nature of the EPAs. The EPAs, which flow from the Cotonou Agreement, may not resemble classic trade agreements. They are likely to be broader than a traditional trade agreement and incorporate other important issues related to sustainability, including development, capacity building and good governance. Therefore, this approach to SIA for the EPAs diverges somewhat from the traditional approach to SIA, which focuses exclusively on trade as its only frame of reference. This approach will include attention to development and sustainability as priorities for the analysis. 12 4. Selecting Indicators: Definitions and Sources Given the broad range of issues associated with sustainability across the diverse regions and countries of the ACP, indicators will be selected from a “long list” for each of the regional in-depth SIAs. This reflects the reality that issues related to sub-Saharan Africa (for example, deforestation and desertification) might not be relevant for small island states where the health of coral reefs might be of more immediate concern. Similarly, land-locked states may face sustainability challenges that differ from small island states. In the Inception Report, the project team has developed an initial “long list” of indicators as a preliminary guide for the selection of further, more detailed indicators. Work remains to be done, pending the completion of the sustainability profiles for the five ACP country regions, to develop a long list of indicators for the ACP. The ongoing regional in-depth SIAs of Western Africa and the Caribbean Region will contribute to the exercise as priority indicators are selected in these SIAs. At the ACP level and for the regional in-depth assessments, the following criteria will be used to select relevant indicators: Criteria: ! They should be limited in total number, but in aggregate they should be comprehensive in their coverage of sustainability; ! They should be balanced in their coverage of economic development, social development environmental quality/resource conservation and governmental and institutional indicators; ! They should reflect concerns relating to intergenerational and intra-generational equity; ! They should focus on key components of concern to decision-makers and stakeholders.1 This section will provide a working definition for each indicator selected as well as data sources for the specific indicators. Section II - Analysing Trade-Related Sustainability Impacts Part II of the framework includes the mechanisms by which sustainability impacts of trade measures will be identified and assessed. This section employs a series of logical steps to illustrate a cause and effect relationship between changes in trade and impacts on sustainability. This avenue of analysis is directed at sectors where important economic impacts associated to changes in trade measures are expected. The analysis identifies the 1 Kirkpatrick, C. and Lee, N. 2002. Further Development of the Methodology for a Sustainability Assessment of Proposed WTO Negotiations (Final Report). IDPM, University of Manchester. 13 potential impacts of trade-induced change on trade flows and behaviour in important sectors, as well as the impacts of changes in trade rules on key trade flows and economic activity. The ultimate purpose of the exercise is to identify the impacts of these changes on economic, environmental, social and institutional indicators. The application of Part II is illustrated in Figure 2. 5. Trade related scenarios This SIA is ex-ante, that is, it is occurring before the EPAs have been negotiated. Any analysis of trade-related impacts must therefore be based on one or more scenarios for liberalisation. These scenarios are selected and defined in conjunction with the EC, and represent a theoretical level of liberalisation, or levels of liberalisation. In addition to scenarios for liberalisation, a no-liberalisation scenario may be considered, that represents the continuation of the status quo. 6. Identifying trade-related impacts 6.1 Changes in trade and trade-induced economic impacts Using the scenarios for liberalisation, the first step in identifying potential trade-related sustainability impacts is to explore the expected changes in the flows of goods and services, including technology related to the issue or sector under consideration and determine the potential economic impacts of these changes within a regional country grouping. This can involve the use of quantitative models or results from existing modelling exercises that forecast prospective changes in trade or levels of economic activity based on specific changes in trade rules, particularly levels of tariffs. It is more difficult to predict economic impacts of changes in rules such as those rules applying to intellectual property rights, for example. Nevertheless, where data permits the project team will endeavour to employ quantitative data based on relevant econometric or other techniques. Work is underway at present to determine the availability of such techniques and data for the EU-ACP SIA. Where this is not possible, the team will substitute its own analysis employing existing data, and expert judgement in considering potential impacts of changes in trade rules on: ! Impacts on trade flows / impacts on trade rules ! Impacts on flows of goods and services / investment ! In what sectors? For what products? This analysis will be fed into the following section which seeks to link trade-induced economic change to sustainability impacts. 14 6.2 Linking economic impacts to sustainability: Causal Pathways Economic change can have sustainability impacts directly or indirectly through a series of changes in the economy brought about by the nature of trade (i.e., tariff structures, relative prices, terms of trade and business opportunities). This SIA presents the following avenues that may be relevant to trade-induced economic impacts on sustainability, beginning with the changes in overall levels of economic activity (scale) and changes in the pattern of economic activity (structure), including allocation of resources. Impacts can be determined by an assessment of specific variables including production methods (including technology), transportation and other infrastructure. These are presented to guide the causal chain analysis and may not all be relevant in every analysis but should be considered on a case-by-case basis. 6.3 Regulatory Impacts An additional step that might be relevant is to consider the potential regulatory impacts of changes in trade. Government policy can play a major role in forwarding programs that can reinforce, offset or otherwise alter the potential impacts of liberalisation. In addition, trade measures or agreements can have impacts on the ability of governments to regulate to protect the environment, social and health regulations or other standards. In some cases, specific provisions in trade agreements may constrain this ability. Government regulation is also relevant for sustainability in that, in conjunction with trade liberalisation, governments impose and enforce complimentary environmental and social regulations that respond to—or prompt—new developments in production and technology or offer other protections related to sustainability. This section of the SIA will be based on expert judgement, including local experts, consultations and lessons from experience. 7. Independent Conditioning Factors In considering trade-related impacts, independent conditioning factors should be taken into account in all the analyses underpinning this SIA. These are factors that will impact economic change and performance, or performance related directly to sustainability, independently from trade or the EPAs. 8. Significance of Impacts 15 Sustainability impacts – positive and negative – should be identified which are significant enough to retain the attention of negotiations and lead to consideration for follow-up action. The framework presents the following criteria that will help determine significance: ! Sustainability thresholds. ! Magnitude of the expected impact. ! Spatial distribution of the impacts. ! Expected cumulative effects. ! Irreversibility. Section III - Sustainability Challenges Part III can be applied on a case-by-case basis where trade related impacts appear to be minimal, because of low levels of trade, pre-existing liberalisation, or small economic impacts, but, where countries are particularly fragile economically, where large portions of impacted populations are vulnerable, or where environmental sustainability issues are critical. This avenue of investigation will allow the Consortium to explore the identified sustainability challenges facing the ACP regions or countries within those regions that might be effectively addressed in EPAs and promote sustainability independently of large impacts of specific trade-related measures. It will take as its starting point in any analysis, the development plans and poverty reduction strategies of ACP regions and individual countries themselves. It will focus on the following questions: ! Are there identified sustainability challenges/unsustainable behaviour where an EPA could make a contribution towards improving sustainability? ! How can the EPAs, through trade, development etc. contribute to sustainability? Section IV - Policy Recommendations Policy recommendations can be developed that fall into the following general categories: ! Trade-related policies for the negotiators (short-term) ! Recommendations related to sustainability (non-trade related, short, ! medium and long-term) ! Recommendations to promote transparency ! Recommendations to promote capacity building. 16 Their selection will be based on the following criteria.2 ! Impact on sustainable development ! Flexibility ! Enforceability ! Transparency/fairness and equity ! Policy compatibility ! Political acceptability 2 Some of these are taken from the SIA Methodology for the WTO Negotiations (Phase III). Kirkpatrick, C. and Lee, N. 2002. Further Development of the Methodology for a Sustainability Assessment of Proposed WTO Negotiations (Final Report). IDPM, University of Manchester. 17 Figure 1 – SECTION I: COUNTRY GROUPINGS: SETTING TRADE AND SUSTAINABILITY EU-ACP EPA Context Cotonou Framework Country Groupings Identify the regions of the ACP countries that will be included in this report and employed throughout the SIA. Criteria: ! a critical geographic and economic mass ! a degree of political/economic integration and stability ! the presence of a leading country Setting Priorities Identification of Priority Trade Measures ! The measure exists as a core component of the Cotonou Agreement; Regional ! The measure is likely to be the subject of negotiations of EPAs with respect to liberalisation; Sustainability Context ! The measure is one where one might expect, a priori, there may be important • Economic, Social and sustainability impacts. Identification of Priority Sectors Environmental Issues ! The sector is significant from an economic, environmental and social perspective; • Structure of the national ! The sector is significant in terms of trade flows in both volume and financial terms; ! • economies The sector may be impacted by changes in the trade measures included in a future EPA; • Social Priorities and ! The sector bears some significant relationship to the regional trade between the region and the EU through rule changes, government policy changes, institutional Poverty changes, investment changes or direct trade impacts. • Environmental Priorities ! An analysis of this sector will contributes to an understanding of other issues of • Major Trade flows importance in the region. ! The sector is one where one might expect that there will be potential impacts of the • Geographic Clusters EPA on sustainability. • Independent sustainability challenges • The measure (sector) exists as a core component of the Cotonou Agreement; • The measure (sector) is likely to be the subject of negotiations of EPAs with respect to liberalisation; • The measure (sector) is one where one might expect, a priori, there may be important sustainability impacts at the ACP/regional/national levels or for some specific actors or areas, particularly the most vulnerable and fragile. • Preliminary scenarios identified. Selecting Sustainability Indicators: Definitions and Sources Criteria: ! They should be limited in total number, but in aggregate they should be comprehensive in their coverage of sustainability; ! They should be balanced in their coverage of economic development, social development environmental quality/resource conservation and governmental and institutional indicators; ! They should reflect concerns relating to intergenerational and intra-generational equity; ! They should focus on key components of concern to decision-makers and stakeholders. Economic Environmenta Social Governance and Indicators l indicators indicators institutional Identify Identify Identify indicators indicators, indicators, indicators, Indicators, definitions definitions and definitions and definitions and and sources sources sources 18 sources Figure 2 - SECTION II: ANALYSING TRADE-RELATED SUSTAINABILITY IMPACTS Trade Measure/Sector Analysis of scenario A Analysis of scenario B Identified change from the status quo What is the status quo (counterfactual) Impact of changes in trade rules Trade-related economic impacts Impacts on trade flows / impacts on trade rules Impacts on flows of services / investment In what sectors? For what products? ! Determined through modeling or expert analysis based on quantitative data ! In some cases impacts may be direct. Availability of models (To be confirmed) Causal pathways for impacts on sustainability • Scale, Product/Services and Structure Determine availability of modeling • Production/Supply, Management and Technology or other techniques to assess: • Infrastructure ! Impacts on economic growth Regulatory Impacts ! Impacts on poverty ! Impacts on environmental • Government policies, programmes and regulation performance (pollution intensities) Independent For some issues impacts may be direct (go directly to relevant indicator). conditioning factors Consider independent impacts of any intervening factors Economic Environmenta Social impacts Governance and impacts l impacts institutional impacts Impacts on Impacts on Impacts on selected indicators selected indicators selected indicators Impacts on selected Determination of Determination of Determination of indicators significance significance significance Determination of 19 II. Summary of Progress 1. Regional Country Groupings The initial priority setting exercise has yielded the following country grouping: Table 1. Country Groupings for the ACP-EU SIA Region Regional Organisations Countries Western Africa Economic Community of Benin, Burkina Faso, Cape Verde, Ivory Coast, West African States Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, (ECOWAS) Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo plus Mauritania. +Mauritania [WAEMU: Benin, Burkina Faso, Ivory Coast, Mali, Niger, Senegal, Togo, Guinea-Bissau.] West African Economic and Monetary Union (WAEMU) Central Africa Economic and Monetary Cameroon, Central African Republic, Chad, Congo, Community of Central Gabon, and Equatorial Guinea. Africa (CEMAC) Southern and South African Development SADC: Angola, Botswana, Democratic Republic of Eastern Africa Community (SADC) Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, Swaziland, Tanzania, Zambia, (minus South Africa) and Zimbabwe. Common Market for COMESA: Angola, Burundi, Comoros, Democratic Eastern and Southern Republic of Congo, Djibouti, Eritrea, Ethiopia, Kenya, Africa (COMESA) Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and (minus Egypt) Zimbabwe. Caribbean CARICOM Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, + Dominican Republic St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, plus the Dominican Republic. Pacific Pacific Island Countries Cook Islands, Fiji Kiribati, Marshall Islands, Trade Agreement (PICTA) Micronesia, Nauru, Niue, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu. 2. Regional Sustainability Context A summary of the regional sustainability context has been completed for the Western Africa and Caribbean regions of the ACP.3 The following areas have been identified as important areas for consideration in the priority-setting exercise associated with this SIA. 3 Complete summaries of the remaining ACP regions exist in draft form, and will be written in final form once the approach to the SIA has been validated by the EU and in consultations. 20 Most ACP countries have weak economies. In Western Africa all countries with the exception of Nigeria, Ghana and Ivory Coast are LDCs. Development is higher in the Caribbean where the only country classified as an LDC is Haiti. Because of either their weak development (i.e. LDC) or their small size (i.e. small Caribbean economies), most ACP countries have small national markets and their development rely mainly on their capacity to export on the regional and international markets. The structure of the economies differs greatly between the Western African region and the Caribbean which may dictate different priorities. In Western Africa, economies are dominated largely by agriculture. Typically this agricultural activity is carried out on a small scale and industrialisation is difficult as mechanisation is not viable on such small plots and increasing the size of farms is difficult as a result of land tenure issues. Production is not diversified and communities and countries tend to rely on one dominant product. Nevertheless, there is underutilised potential for diversification into higher value crops in many countries. Industrial development is weak, but exists in some countries such as Guinea, Sierra Leone, Ivory Coast and Nigeria. Concentration of industry typically occurs around large (and growing) urban centres. Nigeria is the regional leader, and tends to dominate manufacturing among the countries of Western Africa. However, in some countries there is underutilised capacity in key industries such as the textiles industry that is currently not competitive and subject to intense competition from exports of used clothes from the EU and exports of cheap textiles from Asia. At present much of the growth in the “informal” economy in the region, which is essentially a subsistence economy and a refuge for the poor. The services sector is generally underdeveloped in Western Africa. This sector might develop as economies become more competitive and with the improvement of quality and increased abilities to meet standard requirements imposed by regulations and by the market. This stands in sharp contrast to the Caribbean region where services is by far the most important economic sector, and in particular travel and tourism services. This heavy reliance on tourism makes this sector particularly vulnerable. At first glance, agricultural products do not heavily weight in the global export figures of the Caribbean, with the exception of Guyana, Belize and Haiti. However, agriculture remains one of the most import sectors for exports to the EU. Although it is not the largest in size, it is the sector that is most evenly distributed across the region and impacts the greatest number of people, particularly the poorest populations, such as that of Haiti. It will therefore be important in the Caribbean region for this SIA. From a social perspective, key indicators that are emerging as important components of this SIA include poverty, which is most acute in the Western African region, but also in some of the countries in the Caribbean region, such as Haiti. A major component of poverty is related to inequitable income distribution, which means that a priority of the EPAs should be on assuring that benefits accrue to large segments of the populations. Other major issues associated with poverty include employment and underemployment. These will be an important factor in the investigation of “winners” and “losers” from a potential trade 21 agreement, and prospects for re-employment, which may involve some focus on training and education. This is also closely connected to issues of migration which are particularly important for Western Africa, where poor migrants from rural areas to urban areas in search of economic opportunities are overwhelming the ability of the urban centres to absorb them, leading to increasing urban poverty and social tensions. In the Caribbean, the migration is as important but is done mainly outside of the region due to the narrowest of the local markets. Migration remittances play an essential role as safety nets in the poor segment of the population. In both the Caribbean and Western Africa gender issues should figure as important social variables for examination. In particular, in Western Africa the role of women in the “informal” economy, a lack of access to resources and fundamental inequities in society such as access to education and health care will be examined. In the Caribbean, special attention will be given to the equitable access to production means and employment opportunities. From an environmental perspective, key indicators that are emerging as important components of this SIA focus in the ACP regions principally on the use of natural resources. This includes overexploitation of marine resources that support the fisheries, it also includes forest products, particularly in Africa and in the Central American Caribbean countries, and pollution impacts brought about by the use extraction and processing of petroleum, the use of inefficient and old technologies, and the use of fossil fuels as a major energy source. Biodiversity is also emerging as an area of potential focus, in particular because of the increasing fragmentation and loss of habitats as a result of patterns of migration, urbanisation and agricultural activities. Activities that degrade coastal zones has also been highlighted in the work so far. These include concentration of industry and urban centres in coastal areas, industrial pollution, infrastructure projects, shipping, and the use of coastal zones for tourism. In Africa in particular, the desertification and erosion associated with widespread degradation of the land is highlighted as a priority environmental issue. Consistent with the economic, social and environmental profiles of the countries trade related sectors of importance to the ACP countries are also focused on the use of natural resources. Exports from ACP countries to the EU consist mainly of primary products, exported in a raw state. This includes petroleum (for specific ACP countries such as Nigeria, Trinidad & Tobago, Equatorial Guinea,), agricultural products (such as, inter alia, cocoa, cotton, fruits and nuts, coffee, tobacco, sugar, rum and fish) including those that have been traditionally protected under the Lomé Protocols (sugar and bananas). These agricultural products are among the most protected sectors in some ACP regions (for example, the Caribbean) and given their importance to the economies, to the societies (their support for large numbers of the population) and to the environment (their close connection to the land and dependence on resources), removal of historic preferences and a reduction in tariffs for imports could have a disproportionally large impact on sustainability. Textiles and clothing is one of the few secondary sectors that are important for ACP regions (in particular the Caribbean). Low levels of value-added, and reliance on the export of primary commodities makes this pattern of exports vulnerable to external shock, climatic conditions, and heavily resource dependent. Any structural shifts in trade that encourage the development of alternative 22 industries such as those that are emerging in services (financial services, call centres, new technologies etc.) will require flexibility to adapt. This is especially true for some smaller ACP countries where agriculture remains the dominant sector at the national level (in Africa in particular). 3. Setting Priorities Given this sustainability and trade profile, the project team has identified a number of trade measures as important, generally to the ACP, at this stage in the work. This includes market access for goods, which encompasses, tariff and non-tariff barriers, rules of origin and trade facilitation. It also includes standards and certification (including SPS standards), intellectual property rights, investment, and trade in services. These may not apply equally to all the regions of the ACP, or indeed to the two pilot regions: Western Africa and the Caribbean. Nevertheless, this work is continuing for the overall SIA, and will be employed, as relevant, in the in-depth regional SIAs. A number of sectors have also been identified as potentially important at this stage. Principal among these is the agriculture sector, which includes a range of products of vital importance to the ACP countries, and impacts many of the sustainability priorities that have been highlighted. For the Caribbean, priority products that have been identified at this stage include bananas, sugar, rum and dairy products. For Western Africa priorities identified at this stage include cotton and fruits and vegetables. Fisheries have also been identified as an important sector for both regions. This is work underway and will be completed for the in- depth regional SIAs, as well as the remaining regions of the ACP in the final report. 4. Analysing Trade Related Sustainability Impacts The preliminary examination of market access in Western Africa reveals that the market access provisions of EPAs, such as the removal of tariff barriers, is not likely to make any large, direct, trade-related changes to EU trade with Western Africa, except possibly with respect to the non LDCs—Nigeria, Ivory Coast and Ghana. For LDCs tariffs on agricultural products, where they exist, are already low and the removal of existing tariffs on these and other primary products will not likely result in an increase of exports to the EU. The LDCs benefit from the “Everything but Arms” (EBA) Agreement with the EU which gives them free access to the EU market, for all products with the exception of arms. The EU Commodity protocols will have virtually no affect on exports from Western Africa, which is a net importer of sugar, and exports neither beef and veal, nor rum. Only the Ivory Coast exports significant amounts of bananas and this production will not be competitive once the protocol is phased out. However, there is the possibility that producers in the Ivory Coast can adapt relatively easily and there will be opportunities to shift production into other sectors such as non-traditional export production of high-quality tropical fruits such as mangoes and papayas and other sectors such as cut flowers. For non-LDCs, the prospects of the removal of EU tariff peaks on processed products holds out the potential for increased exports and improved value added for West African 23 countries. A number of countries including Ivory Coast, Nigeria, Senegal and Ghana already have the capacity to transform primary products into higher value products. This is evidenced by relatively high levels of transformation in fish products in Senegal (and Mauritania). To the extent that the EPAs can encourage enhanced processing, and to the extent that West African countries can improve their own competitiveness and productivity, they may be able to compete effectively in some areas including, inter alia: fruit juices, fruit extracts, pre- packaged fresh fruits, pre-cooked vegetables and fish. However, in order to develop potential in nascent processing industries, the countries of the region will have to be able to meet the standards imposed by its trading partners. A failure to make these fundamental gains could lead to the collapse of much of the manufacturing sector, which at the moment constitutes the backbone of the modern economy in the region and is an important employer in urban centers which is a refuge for unemployed populations but does not have the capacity to support viable small and medium-sized enterprises. This is the case in the cotton sector. To the extent that cotton is taken out of production and value is added to the crop through processing prior to exports, positive environmental implications could flow, given that cotton production is particularly damaging to the agricultural land because of its reliance on high levels of agro-chemicals and irrigation. For these impacts to ensure, adapting to changing prices and increased competition could require technical assistance and capacity building to assist the workforce to make a transition into non-traditional industries requiring different levels of education and training. The EPAs are broad enough to build in tools that can ease the transition and help countries in the ACP regions pursue sustainability and ‘build’ their markets. More work needs to be done for the market access measures to examine, more precisely, relevant non-tariff barriers, and tariff peaks as they related to processed goods in key sectors that might be impacted in Western Africa’s non-LDCs. More detailed work also needs to be done to examine the precise impacts on European exports to Western Africa, where there are still some tariff barriers on certain imports. In addition, the author is continuing to seek out existing modelling data developed for relevant sectors by others, in order to contribute to the assessment of the potential economic changes that have been predicted (for example in the context of multilateral negotiations), for possible application to this case study. III. Outline of the Consultation Process The consultation process associated with the implementation of the framework is an integral part of the SIA. It includes, at a general level, efforts to disseminate information to raise awareness and increase transparency in Europe and the ACP regions of the prospective EPAs and the SIAs. Dissemination of information occurs through newsletters, participation in meetings, and use of the World Wide Web. A second component of the consultation process is to engage the stakeholders in an active dialogue with the members of the Consortium. This is desirable to solicit feedback from experts in the region which will add value to the experience in the Consortium. It is also important to add credibility to the study and to include 24 the priorities of regional stakeholders in the decisions that are taken at various stages in the work – from commenting on the proposed methodology, to identifying the major sustainability issues in the regions, and better appreciating the challenges associated with liberalisation on a range of communities. A participatory approach is a component of the Cotonou Agreement, which frames the development of the EPAs. The Cotonou Agreement contains important provisions to promote participatory approaches to ensure the involvement of civil society as well as economic and social players by providing all necessary information on the ACP-EU EPAs, facilitating non- state actors’ involvement in the implementation of programs and projects, providing non-state actors with adequate support for capacity building and encouraging networking and linkages between ACP and EU actors. An integral part of this project is therefore its successful development of a meaningful dialogue with stakeholders about issues related to sustainability and the EU-ACP trade negotiations. The approach that has been adopted to ensure the active participation of stakeholders include the following three components: (1) electronic communication; (2) expert networking (including EU consultations); and, (3) ACP regional workshops. 1. Electronic communication To increase transparency and promote dialogue, an important element of the consultation activities is the project’s dedicated Internet website (http://www.sia-acp.org), which allows stakeholders to access information about the project, receive updates on progress, and provide comments and input to the Consortium. Between November 2002 and March 2003 over 1,000 visits were registered on the website. The number of visits peaked after public meetings and the publication of the inception report and the project newsletters. However, in spite of best efforts to communicate with stakeholders in ACP regions using the Internet, the impact of this means of communication could be constrained by limited access to the Internet in ACP countries (Africa, in particular). This is reflected in the dearth of active feedback received on the website to date. At this point, this mode of communication appears best suited as a mechanism for the dissemination of information. The Consortium is considering options to improve the feedback rates from the use of the web, but challenges in the ACP regions may necessitate the use of more varied methods. This will be considered at regional seminars scheduled to occur later this year in two of the ACP regions. 2. Expert Networking: Developing Networks in Europe and the ACP Regions The success of the consultation process around this SIA depends on a number of factors. First, is actively participating in existing networks within the EU-SIA process and in the EU 25 more broadly. This involves attending meetings organised by the EU and other meetings in Europe and taking full advantage of the opportunities provided by these workshops associated with this, and other SIAs. This has been a priority and since the beginning of the project, members of the Consortium have made presentations and actively participated in over ten public meetings including, inter alia: ! Two ACP briefings with civil society organised by EC-DG-Trade (27 November 2002/ 4 March 2003, Brussels, Belgium); ! A stakeholder conference on SIA (6-7 February 2003, Brussels, Belgium) organised by DG-Trade where representatives of the Consortium participated in the plenary and in the workshop on the ACP region, exchanging views with EU and ACP stakeholders; ! A meeting with EU and ACP stakeholders organised by the European Economic and Social Committee (14 March 2003); and, ! A meeting on Sustainability Impact Assessment of Trade Agreements and New Approaches to governance organised by the Sustra Network4 (26-27 March 2003, University of Louvain la Neuve, Belgium). ! The Consortium has actively participated in consultations on trade related issues organised by EC-DG-Trade and the European Economic and Social Committee (EESC) and members of the Consortium have attended various other meetings in Brussels. ! Working meetings are held with the EC in Brussels to discuss project management, the direction of the work, scenarios for the EPAs and details of a comprehensive consultation process for the SIA. Relevant issues raised by stakeholders during public meetings include, inter alia, the following: ! How to make sure that findings of the SIA are integrated into the negotiation process and policy-making? ! How can the SIA help NGOs to raise awareness about social and environmental impacts of EPAs among ACP negotiators and governments? ! How will the issue of “informal sector” be addressed? ! Is reliable statistical data readily available in the regions? ! How will food security issues be addressed? ! How will the SIA address gender issues? A second important element involves using the Consortium’s extensive networks in the ACP regions to build on the consultations in Europe and engage a broader range of stakeholders. This is done by participating to meetings such as the regional meeting organised by the ECOWAS secretariat in Abuja, Nigeria (20-22 February 2003) or the Caribbean regional meeting organised by the Caribbean Regional Negotiation Machinery (RNM) in Montego Bay, Jamaica (15-19 June 2003) in preparation for the World Trade Organisation (WTO) ministerial in September 2003. 4 Trade, Societies and Sustainable Development 26 In Western Africa, for example, members of the Consortium have close working relationships with many of the organisations representing civil society including, inter alia: ! The West African Enterprise Network (WAEN). A group of second generation entrepreneurs devoted to bringing about change in the business environment in the region and promoting regional integration. Their track record includes major changes concerning the fluidity of exchanges in the region. ! Réseau des Organisations Paysannes et de Producteurs Africain (ROPPA). A dynamic and proactive organisation of West African agricultural producers. ! l’Organisation Internationale des Consommateurs (OIC). ! Fédération des Organisations Patronales de l’Afrique de l’Ouest (FOPAO). ! Partenariat pour le Développement Municipal (PDM). ! le Réseau des Chambres d’Agriculture de l’Afrique de l’Ouest (RECAO). In the Caribbean region, the consultation is carried out through the regional civil society network, Caribbean Policy Development Centre (CPDC). Its members include: ! Regional networks such as the Caribbean Conservation Association (CCA), the Caribbean Human Rights Network (CARIBBEAN RIGHTS), the Caribbean Organization of Indigenous People (COIP), the West Indies Farmers' Association (WINFA), the Caribbean Association for Feminist Research and Action (CAFRA), the Caribbean Conference of Churches (CCC) and the Caribbean Network for Integrated Rural Development (CNIRD). ! The Caribbean Economic Research Center (CIECA). ! National federations and associations including the Barbados Association of NGOs (BANGO), the Belize Association of National Development Agencies (ANDA), the Haitian Platfom Ayisyen Pledwaye pou yon Developman Altenatif (PAPDA), the Suriname Bureau Forum NGO's, the Trinidad Network of NGOs of Trinidad & Tobago for the Advancement of Women (T&T NETWORK) 3. ACP Regional Workshops on the SIA The Consortium has been working with the EU and organisations in the ACP to identify opportunities to host meetings in ACP regions that could complement existing opportunities for dialogue with stakeholders in Europe. This effort is underway in the two ACP pilot regions for the in-depth SIAs: Western Africa and the Caribbean region. DG Trade has provided additional funding to ensure that these workshops take place and provide meaningful results. The overarching goal of the two regional workshops will be better integration within the SIA work of civil society and awareness-raising of the EPA negotiations. At a general level, the principal items for discussion will include the following: ! Presentation and discussion of the overall framework. This will ensure that regional stakeholders have a clear understanding of the process and the methodology and that the Consortium receives feedback with respect to the viability of the approach it has developed. 27 ! Presentation and discussion of priorities (economic, sustainability, trade, trade measures, sectors) highlighted in the work so far. This will allow regional stakeholders to comment on the preliminary results in the SIA that are focused, in particular, on narrowing its scope to address the most important issues for the regions. This includes hearing from the participants on where their priorities may differ and where there are issues at stake that may not have been captured by the initial work. ! Discussion of likely impacts to, or risks to, sustainability. What and where are the environmental risks related to economic activities? Where are the poor and the social vulnerabilities? What are the economic sectors concerned? How will the EPAs affect these issues? ! Development of an action plan to encourage effective stakeholder participation. This would ensure broad distribution of information, awareness-raising and effective mechanisms for the Consortium to provide information to stakeholders on priorities identified and decisions implemented in the SIA (including those from the workshop) and to promote effective, ongoing, feedback to the Consortium. A similar framework adopted for the two regional ACP workshops will ease the integration of their results into a final document and facilitate the Consortium’s ability to compare outputs. At a general level, three sets of documents are contemplated to provide background to participants. These are the following: ! Background information on the EPA, the SIA process, poverty profiles and social and environmental vulnerability concerns, trade information, and possible sustainability issues at stake in the negotiation of EPA; ! Preliminary findings produced by the Consortium; and, ! Specific documents for each session of the workshop including summaries of presentations and main questions for discussion. These documents will include, inter alia, a summary of the context, scope and objectives of the consultation including a clear and readable description of specific issues open for discussion as well as an explanation of the contractor’s processes for dealing with contributions, feedback expected and details of the next stages. In order to keep the workshops manageable, they will be limited to around 30 participants. The selection will be made on an individual basis taking into account the necessity to bring together, on the same issues, stakeholders from different constituencies of society. Western Africa The regional consultation in Western Africa will take place in Accra, Ghana, in August or September 2003 (exact date to be determined). It will be a two-day workshop with the main objective of bringing together stakeholders representing and/or having access to the different constituencies of the West African society in order to gain their commitment to active participation in the SIA process over the long-term. 28 Up to ten short working papers (no more than 10 pages) will be prepared and sent to participants in advance of the workshop. These papers could also be more broadly disseminated using the SIA website in order to obtain feedback on specific issues from a wider range of individuals. Each paper will include a set of questions to be raised at the workshop. Additional documents presenting in-depth analysis will be available upon request. These working papers will be prepared in close cooperation with the team in charge of the Caribbean workshop and vice versa. Follow-up is a major output of the workshop. A two-day session is not sufficient to ensure a sustained awareness of the process or the challenges. A mechanism should be put in place to ensure linkages between the Consortium and civil society. In Western Africa, the Consortium will explore the following options: ! Consider putting in place an ad hoc Steering Committee composed of participants selected during the workshop, taking into account their capacities, motivation and technical ability to monitor and lead the follow up effort in the region. The idea is to benefit from the support of selected stakeholders in close contact with the various constituencies of the civil society and thus to be in a position to monitor the implementation of the action plan and have a feedback on the effective awareness of the civil society and its expectations. ! Consider developing a “network” of journalists (radio, television and press) to complement the dissemination of information on the website. Access to internet in Western Africa is not widespread and the majority of the population does not know how to operate computers or navigate the internet. However, much of the population has access to radio and newspapers. At present, journalists are relatively unfamiliar with the EPAs and even less familiar with the SIAs. The Consortium could provide information to such a “network” for dissemination in order to raise awareness of these efforts. Caribbean Region The regional workshop in the Caribbean will take place over three days in the Dominican Republic in September 2003 (exact dates to be determined). It will be organised by the Consortium in collaboration with the CPDC. The CPDC is a regional civil society network of more than 50 national and regional NGOs and research centres. It works on different sustainability issues including policy dialogue, trade, social issues and gender issues. The CPDC hosts the Caribbean Reference Group (CRG) which deals specifically with trade issues. CARICOM will also be associated with the workshop. Officials affiliated with CARICOM have a wealth of expertise of the economic, social and environmental issues in the region. The Caribbean RNM will also be included in the workshop in light of its specific expertise related to trade negotiations. 29 The agenda of the workshop will be finalised in collaboration with the local partner, but will be consistent with the overall approach presented above. The analysis and recommendations from this workshop will be included in the in-depth regional SIA for the Caribbean to reflect the concerns of civil society and national and regional institutions. 30 B. Summarized Mid-Term Report 31 I. Country Groupings: Setting Trade and Sustainability Priorities This initial exercise is necessary to set priorities. This SIA is potentially very broad in its geographic scope, its trade related scope, and its range of relevant economic, environmental and social sectors. At the outset of the SIA, no choices had been made to narrow the scope of the exercise. Therefore the first task of the SIA is to identify the most relevant geographic groupings of countries and the most relevant avenues for examination, based on sustainability priorities and trade flows. 1. Country Groupings An SIA of the EU-ACP EPAs covers 77 countries, spanning the globe from the Americas to Africa to the Pacific. The first stage in the application of the framework is to examine processes of regional integration within the ACP with a view to identifying regional country groupings to be used in the SIA. The groups of countries are based on a number of considerations including, inter alia, geographic proximity and ongoing regional integration processes. The EU, including its 15 member states, will be considered one regional grouping for the purpose of this SIA. 1.1 Western Africa In Western Africa the Economic Community of West African States (ECOWAS) plus Mauritania, is the reference point for the regional country groupings for this SIA.5 The countries of ECOWAS include: Benin, Burkina Faso, Cape Verde, Ivory Coast, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo (Figure 3). Mauritania, which is a past member of ECOWAS and whose economy is closely integrated with the other countries, will be associated with ECOWAS in this country grouping for Western Africa. 5 ECOWAS was created in 1976 in Lomé (Togo), to promote cooperation and integration. Its specific aim was to create an economic union in West Africa, to eliminate of customs tariffs and other non-tariff measures, create a common external tariff (CET), the harmonize economic and financial policies, and create a single monetary zone. In July 1993 a revised ECOWAS Treaty was signed, designed to accelerate economic integration and increase political co-operation; principles of supra-nationality were adopted and supranational institutions were created. 32 Figure 3: ECOWAS region ECOWAS presents a critical geographic and economic mass but its economic integration has been slow and it is, at present, more a political union than an economic union. Nevertheless, it benefits from membership of a major African country (Nigeria) and has adopted well-developed criteria for convergence. Nigeria is not only by far the largest economy in the region, it also provides some political leadership. Considering the countries of Western Africa together could promote existing efforts at integration.6 The in-depth assessment of Western Africa will include, where relevant, consideration of the West African Economic and Monetary Union (WAEMU), which is the most well- developed process of integration in Africa. All of the members of WAEMU also belong to ECOWAS.7 WAEMU might be the subject for a case study as it represents a “credible” economic area, although from a trade perspective it is just developing.8 It is increasingly important in the region as a counter-balance to the dominance of Nigeria within ECOWAS. 6 There are efforts to encourage integration in ECOWAS to achieve a FTA. The liberalisation process is slated to be completed with a CET for all 15 (16) countries, in order to transform ECOWAS into a customs union. Nigeria, in particular, has recently been willing to play an active role in ECOWAS and has put forward a “fast track” approach and the creation of a sub-regional FTA with Ghana, Benin, Togo, Niger, Burkina-Faso and Mali. The main objective of common market in West Africa suffers from two mains weaknesses. The first is the legal weakness that results in a lengthy decision-making process and a lack of ability to implement decisions. The second is the institutional weakness of the Executive Secretary, with a lack of financial and technical capacities that do not allow for the supervision and coordination of decisions. See Solingac-Lecomte (2001). 7 In order to accelerate the process of creation of a monetary union in ECOWAS, its member countries (except Cape Verde and Liberia which are not WAEMU-members) have decided to create a second monetary union in addition to the WAEMU with which it formally seeks to merge in 2004. 8 The West African Economic and Monetary Union (WEAMU or UEMOA) entered into force in 1995 and includes Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo. It is more integrated than ECOWAS for a number of reasons. The region benefits from a single common currency (Franc CFA) 33 Box 1 - ECOWAS regional seminar to prepare EPA negotiations (Abuja, Nigeria) Two representatives from the Consortium attended a meeting convened by the ECOWAS Secretariat on 20- 22 February 2003 in Abuja, Nigeria. During this seminar the SIA was presented to and discussed with representatives from the ECOWAS Secretariat, the EC, Governments of ECOWAS countries, civil society and the private sector. As a result of the meeting, the following action-points related to the SIA were adopted: - Create a framework for consultation with civil society and strengthen cooperation with ECOWAS; - Put into place decision-making processes to increase participation of civil society and the private sector; - Ensure large dissemination of documentation on sustainable development and the SIA; - Promote cooperation between the Consortium and all state and non-state actors in West Africa. ECOWAS has already started to work with it member states to develop a mandate for EPA negotiations9 (Box 1). The negotiations will be backed by an organisational structure representing all ECOWAS countries and an office will opened in Brussels. The negotiations with ACP countries that began in September 2002 are scheduled to conclude by September 2008. 1.2 Central Africa In Central Africa the Economic and Monetary Community of Central Africa (CEMAC) is the reference point for the regional country groupings for this SIA. CEMAC is the principal institution in Central Africa and includes: Cameroon, Central African Republic, Chad, Congo (Brazzaville), Gabon, and Equatorial Guinea. CEMAC was created in 1994 to strengthen a process of economic integration and contribute to development in Central Africa. It includes relatively small economies. From an economic perspective Cameroon plays an important role in the region, responsible for around three-quarters of all external trade and half its GDP and population. Despite the small size of the economies, they share a common reliance on key sectors and have made some progress towards regional economic integration. This includes the creation of a monetary union with a which is anchored to the Euro (whereas there are eight currencies in circulation in ECOWAS). The countries share a common language (French). There is growing harmonization of the legal, statistical and fiscal framework. A Convergence, Stability and Growth Pact has been adopted and several sectoral policies have been implemented in, inter alia, infrastructure, agriculture, health, energy, environment, and gender issues. There is an efficient common external tariff (CET) that has been operating since 1 January 2000, with a common trade policy towards non-members countries. See Solignac-Lecomte (2001). 9 At the end of January 2003 the 26th session of the conference of Heads of State and Government took place in Dakar, Senegal, including representatives of the ECOWAS countries and the EU. The conference provided an opportunity to accelerate the regional integration process. In addition, further definition of the content of the EPAs was presented on the following items: ! Priorities to encourage action in the West African region; ! The negotiating agenda; ! The structure of the negotiations; ! The terms of the mandate; ! The question of development funding. 34 common Central Bank and the stability of CFA Franc. It also includes defined criteria for economic convergence. CEMAC aims to gradually establish a common market with free movement of factors of production between member states and growth in national markets, with the objective of raising the standard of living of the local population. It is expected that the common market will lead to a decline in inter-zone trade of some products. CEMAC member countries rely on revenues from customs tariffs as the main public finance resource and will need a certain degree of protection to face world trade prices and practices. The long term objective of CEMAC is the creation of a sub-regional financial market to attract flows of foreign direct investment (FDI) and support the development of the energy and mining potential in the region. The constraints to economic harmonization are important from the perspective of modernizing production and the current methods associated with financing, which do not encourage long term investment. Reforms of the macro-economic, financial, legal and tariff structures are underway. This should be accompanied by reduced tension and conflict in the region as a prerequisite for the extension of infrastructure networks necessary to promote regional integration. Because it includes a monetary union, CEMAC represents a higher level of integration than ECOWAS and its countries share a history and a language (French). CEMAC has announced its decision to negotiate an EPA with EU. 1.3 Southern and Eastern Africa In Southern and Eastern Africa two regional trade agreements (RTAs) exist that will be combined for the third regional country grouping.10 The first is the Common Market for Eastern and Southern Africa (COMESA), which is the third-largest RTA in Africa in terms of intra-regional trade. A second RTA is the Southern Africa Development Community (SADC). The Republic of South Africa (RSA) has negotiated a separate agreement with the EU and will therefore not be included in a consideration of the SADC in this SIA. In addition, Egypt is not part of the ACP group of countries and will therefore not be included in COMESA for this SIA. The combination of COMESA and SADC (minus South Africa and Egypt) includes the following 23 countries, nine of which belong to both COMESA and SADC: Angola, Botswana, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe. 10 A third RTA is the South African Customs Union (Botswana, Lesotho, Namibia, South Africa and Swaziland). Although it is a functioning customs union, the Consortium has chosen to focus on the SADC because it includes a larger number of ACP countries, and as such, is less dominated by South Africa, which is not included in this SIA. 35 In the SADC the integration process is relatively well-developed.11 As a regional institution SADC has laid the basis for regional planning and development in southern Africa. It also provides the desired instrument by means of which member states should move towards eventual economic integration. An Integrated Ministerial Committee has been constituted to devise a five-year Regional Indicative Strategic Development Plan for the region together with the newly created Department of Strategic Planning, Gender and Development and Policy Harmonisation. All SADC member states will participate in this process through national committees. SADC also forms one of the building blocks of the African Economic Community.12 South Africa has taken a leading role in the region to address such issues as closer collaboration and economic integration. These include the establishment of a free trade area in the region, the development of basic infrastructure, the development of human resources, the creation of capacity to move this process forward, as well as the urgent need for peace, democracy and good governance to be established throughout the region.13 A number of SADC countries also belong to other African RTAs and all members of SADC, with the exception of the Seychelles are also members of the WTO. South Africa signed a separate EPA with EU in 1999 which could be extended to BNSL (Botswana, Namibia, Lesotho, Swaziland) which, “de facto belong to a virtual EPA with the EU.”14 COMESA has defined criteria for integration and is working towards greater regional integration. COMESA is expected to become a customs union, perhaps as early as 2004, with the ultimate objective of achieving a common market and eventually an economic community.15 11 In order to address national priorities through regional action most member states had been allocated the responsibility of coordinating one or more sectors. This involved proposing sector policies, strategies and priorities, and processing projects for inclusion in the sectoral programme, monitoring progress and reporting to the Council of Ministers. However, this approach was reviewed in 1999-2000 and the sector-based decentralised approach is to be discontinued in favour of a centralised one at the SADC Secretariat Headquarters in Gaborone, Botswana. A decision of the SADC Summit held in Maputo, Mozambique, in August 1999 instructed that a review be conducted of the Institutions of SADC as well as its Operations. This directive was based on the fact that under the sectoral based approach which was inherited from the SADCC, the organisation was being hamstrung in its endeavours to achieve regional integration by devising and implementing regional policies and strategies in a co-ordinated and harmonised manner. The review exercise was duly completed in December 2000 and having been approved and recommended by the Council, was presented to the Extra-ordinary Summit of SADC in March 2001 in Windhoek, Namibia. The Summit endorsed the recommendations contained in the Review Report and called for the restructuring to be implemented with immediate effect and to be completed within a two-year transitional period. 12 South Africa acceded to the SADC Treaty on 29 August 1994 at the Heads of State Summit in Gaborone, Botswana. As a member of SADC, South Africa's focus is on regional co-operation for the socio-economic development of the Southern African region. 13 The SADC Protocol on Trade in August 1996 confirmed the commitment of Southern Africa to establish a Free Trade Area in the region. The Trade Protocol was ratified by more than two thirds of the SADC Member States and it was implemented on the 1 September 2000. South Africa has also played a leading role in the development of the so-called ‘Berlin Initiative’, which strives to foster closer co-operation between the European Union and SADC. 14 Solingac-Lecomte (2001). 15 COMESA was been created to establish a sub-regional economic co-operation, and to reduce the member countries’ traditional economic dependence on the industrialized countries of the North. This could only be done 36 There are a number of important commonalities between the countries of SADC and the countries of COMESA. In addition to the high level of overlapping membership between the two areas, at a general level their economies share largely the same profiles as does their trade with the EU. It is therefore logical to consider them together as a regional country grouping for Southern and Eastern Africa in this SIA. 1.4 Caribbean Region The Caribbean ACP countries are located in the Americas. They include Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, plus the Dominican Republic. The most relevant regional structure for trade negotiations appears to be CARICOM although the Dominican Republic is not a member of CARICOM and may negotiate a separate EPA with EU. CARICOM benefits from some degree of integration although progress towards achieving a fully-functioning customs union has been slow. The EPA negotiations could provide an opportunity to support or enhance not only the regional integration process but also some convergence between CARICOM and the Dominican Republic. CARICOM may not represent an important economic mass in the region bounded by major integration blocs such as the NAFTA and MERCOSUR. Although CARICOM has 15 member states, most of them are small economies. In 2000, the sum of the GDP of CARICOM countries was around US$26 billion (by comparison, the sum of GDP in ECOWAS was over US$76 billion in 2000). Coordination with the DR is important since it increases the economic weight of the grouping by over 40 per cent. Even more important than the economic weight of the region are other factors. First is the geographical location of the bloc. Its proximity to North and South America is important for the local economies, as is its proximity to European territories such as the French Antilles and French Guyana. Second, is the high level of expertise and of competence in the region. Finally, the presence of Haiti and its high social and environmental vulnerability make this an important region for the SIA. The Caribbean Single Market Economy (CSME) was established in 1992 to enhance the economic development of CARICOM Members States. It includes nine prospective protocols through the adoption of self-sustaining development measures in all sectors. In 1978, the First Extraordinary meeting of Ministers of Trade, Finance and Planning was held in Lusaka and recommended the creation of a sub-regional economic community, beginning with a sub-regional trade area which would be gradually upgraded over a ten-year period to a common market until the community had been established. The Treaty establishing the FTA was signed in 1981 and came into force on 30 September 1982 after it had been ratified by more than seven signatory states as provided for in Article 50 of the Treaty. The Treaty envisaged the creation of a Common Market (to come into force in 2004). The Treaty establishing COMESA was signed in 1993 in Kampala (Uganda) and was ratified a year later. The third phase will involve the eventual establishment of an Economic Community. 37 covering from institutions and dispute settlement to sector policies (trade, industry, agriculture, transport), to support to disadvantaged countries and sectors. The trade agreement integration should be complete in 2005 with the creation of an economic union. The harmonisation of trade policies is nearly complete. A common external tariff is fully implemented, except in Antigua & Barbuda, St. Kitts & Nevis and Suriname. The middle-income countries are in a dilemma whereby they cannot yet compete with developed countries in high-tech products, but have already have lost comparative advantage in labour-intensive products.16 The Free Trade Area of the Americas (FTAA) may come into force at roughly the same time as the EU-ACP EPAs are negotiated. A key threat to the Caribbean countries is the planned suppression of the commodity protocols on traditional products: rice, rum, bananas and sugar. There are also opportunities associated with integration. There may be opportunities to develop trade in agricultural products not concerned by the protocols such as fresh fruit. There may also be opportunities for strategic development on ‘knowledge driven business development,’ particularly in the services sectors such as engineering, where a significant level of experience exists.17 1.5 Pacific Region In the Pacific region the integration process is developing. The Pacific Island Countries Trade Agreement (PICTA) is the only RTA that includes all ACP countries in the region – Cook Islands, Fiji Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu – and will be considered as the reference point for the final regional country grouping. The countries of PICTA are in the first stages of integration and a free trade agreement among the countries is scheduled to take effect in 2010. Negotiations with the EU will provide an opportunity to further its integration process. PICTA is characterised by countries with generally small economies. The ACP Pacific islands are faced with a limited capacity for analysis and negotiation. They are concerned primarily with aid.18 Fiji in particular is also concerned about the fate of the sugar protocol. It is likely that if the ACP Pacific Islands choose to sign an EPA with the EU, that they will do it under the ad hoc organisation which is currently being developed. As with others regional trade agreements, PICTA is supposed to help overcome the weakness of Pacific Islands Countries (PIC) including the small size of their domestic markets, lack of diversification or their economies which compete for markets for the same, 16 Ecorys-Nie (2002). Caribbean Perspectives on trade, Regional integration and Strategic Global Repositioning. Rotterdam. 17 World Bank (1996). Prospects for Service Exports from the English-Speaking Caribbean, paper prepared for the CGCED, Washington. 18 “ For countries importing almost all consumption and capital goods, the cost of introducing reciprocity in trade was a very small fraction of the potential cost of losing on aid (less aid if no EPA)”. HBSL (2001). 38 few, products for export (such as fats and sugar), typically with little value-added. However, for liberalization in the Pacific to sustain growth, the World Bank has indicated that “for these benefits to be exploited, integration would have to be deeper than an elimination of internal trade barriers.”19 The liberalization process will have to be sustained by convergence policies in order to lead to real integration of the Pacific Islands. PICTA is a first step in this integration process, being implemented in the more general framework of PACER (Pacific Agreement on Closer Economic Relations) and a Regional Trade Agreement between PICTA and the Australia and New Zealand. Negotiations on PACER are scheduled to be completed eight years after PICTA comes into force. Modeling studies have already shown that the most important benefits for Pacific island countries will come from signing regional trade agreements with high-incomes countries (EPA with the EU; PACER with Australia and New-Zealand) more than from the creation of a Free Trade Area between low-income and non-diversified Pacific island countries. A free trade agreement with developed countries could lead to important transfers of technology and know-how that will sustain the economic and infrastructure development of the countries in the Pacific region. 2. Regional Sustainability Context A second area where choices have to be made at an early stage in the SIA is with respect to the sustainability challenges in the regions. The ACP countries represent a range of states from small island states in the Caribbean and the Pacific, to landlocked countries in sub- Saharan Africa. Despite the fact that a number of the countries of the ACP are generally classified as less-developed, they do not necessarily share economic, environmental or social priorities. Neither do they necessarily share similar trade profiles and it is likely that they will be impacted by liberalisation in different ways. Therefore the second step in the process of setting priorities is to identify the most relevant avenues for focus, based on sustainability priorities and trade flows. 2.1 Economic, Social and Environmental Issues As a means of developing baseline information for the SIA and developing information to select the most relevant trade measures and economic sectors, each region will be examined from the perspective of its general sustainability priorities. This allows the project team to focus scarce time and resources on areas where there are most likely to be significant sustainability impacts. In particular, this section will make a contribution to the SIAs in three ways: ! Contribution to selecting trade measures and sectors for detailed study. Reviewing the economic, environmental, and social, issues most relevant to the ACP will contribute to decisions to priorities trade measures and sectors, based 19 World Bank (2002). ‘Embarking on a Global Voyage: trade Liberalization and Complementary Reforms in the Pacific’, Pacific Islands Regional Economic Report, n° 24417-EAP, World Bank. 39 on the criteria that reflect those issues most closely associated with sustainability. ! Contribution to indicator selection. Highlighting priority challenges and opportunities related to sustainability will help identify the most relevant indicators to include in the regional in-depth SIAs. ! Contribution to the elements of “Causal Chain Analysis”. Exploration of sustainability priorities, and in particular identification of the underlying cause that contributes to forms of unsustainable behaviour, will suggest ways in which economic, environmental and social variables might be impacted either directly by trade, or indirectly through economic and regulatory changes that are induced by trade. This could include highlighting issues such as production practices, infrastructure impacts, transportation and other forces that impact sustainability, both positively and negatively. These priorities are explored and explained in detail in the regional in-depth SIAs, and what follows is a summary of the major sustainability priorities that have been identified. This material is presented in a table format at the end of Section 2. 2.1.1 Structure of the national economies This section identifies the main economic characteristics of the regional country groupings, including economic sectors making major contributions to economic activity with the aim of highlighting economic considerations for the SIA. Western Africa There is a disparity in the size of the economies in Western Africa. Levels of gross domestic product (GDP) in 2000 ranged from lows in countries such as Guinea Bissau (GDP US$.2 billion), Gambia (GDP US$.4 billion), Cape Verde (GDP US$.5 billion) and Sierra Leone (GDP US$.6 billion) to highs in Senegal (GDP US$4.4 billion), Ghana (GDP US$5.1 billion) and Ivory Coast (GDP US$9.3 billion). But by far the largest economy in the region is Nigeria with a GDP in 2000 of US$41 billion. In 2000, per capita GDP was lowest in Sierra Leone (US$126), Niger (US$169), and Guinea Bissau (US$180) and highest in Guinea (US$406), Senegal (US$459) Ivory Coast (US$585) and Cape Verde (1,266). Per capita GDP in Nigeria was US$324 in 2000. In Western Africa, there is a distinction between Sahel and non-Sahel economies, and between the countries in the region and Nigeria, which is the major economic driving force in the region. The Sahel countries (Burkina Faso, Cape Verde, Gambia, Guinea Bissau, Niger, Mali, and Senegal and Mauritania) are all LDCs. Their economies rely predominantly on agriculture 40 and to some extent commerce. Agriculture is typically carried out on a small scale with most producers farming between 1 and 5 ha.20 It is therefore difficult to develop mechanised agriculture and attempts to create larger farms face the challenge of obstacles related to land tenure. Only four of Sahel countries have direct access to the sea (Mauritania, Senegal, Gambia and Cape Verde). The others are landlocked countries with poor and costly transport infrastructure (road and rail). Even though Mali and Niger have important mineral potential, with the exception of very high-value products (gold and precious stones), their exploitation is not economically viable at present. A potential for export of agricultural products exists in Sahel countries. This is already happening in Senegal, Burkina Faso and Mali which have begun to export fresh “out of season” fruits and vegetables to the EU. Much more could be done with an improvement of logistics. Mauritania for instance enjoys very good lands and climatic conditions on land bordering the Senegal River. Mauritania is geographically close to the EU and could compete with Morocco on many products. The non-Sahelian countries are the more developed countries in the region. They enjoy favourable climatic conditions, a diverse range of agricultural possibilities, a manufacturing sector and export possibilities with direct access to the sea. Three of them are not classified as LDCs (Ghana, Ivory Coast and Nigeria). In addition, Guinea has considerable undeveloped potential in sectors such as agriculture, mining and industry. Nigeria plays a dominant role in the region (60% of the consumers, 47% of regional GDP, 50% of the industrial potential, 60% of the graduates).21 The “real” economy in the region depends on Nigeria. Its neighbouring countries (Benin and Togo) are “warehouse states” (a major part of their imports are re-exported to Nigeria and their imports from Nigeria are largely re-exported). Niger depends on agricultural products from Nigeria (grains) and provides meat to the Nigerian market. Nigeria not only provides a major market, but also has a very dynamic and diversified agricultural base able to provide products to most of region. The industrial and manufactured production from the other countries including Ghana and Ivory Coast is largely dependant on Nigeria.22 With its diversified manufacturing sector, Nigeria provides West African countries with all manner of consumer goods at affordable prices, although they are often of relatively low quality. However, this makes it almost impossible for other countries to develop viable and competitive manufacturing sectors. Since informal trade is the rule in the region administrative protections are inefficient. WAEMU is an attempt to build a counterweight to Nigeria’s economic power within the ECOWAS region.23 20 Harsh weather conditions play an important role in their economic well-being in light of their strong dependence on agriculture. 21 OECD. 2000. Prospects for trade between Nigeria and its neighbours. Club de Sahel. November. 22 The current problems of the textile industry in the region are largely due to textile imports from or through Nigeria. 23 Current problems in Ivory Coast will weaken WAEMU as a sub-regional economy. 41 Data in the table below are taken from the National Account of ECOWAS for 2000.24 It is used in conjunction with the World Bank data on general economic profile, made up of Agriculture, Industry and Services. The benefit of the World Bank data is that there is consistent data for all regions of the ACP. The advantage of the ECOWAS data is that they are more detailed in terms of its breakdown of the economies of ECOWAS countries. It identifies two key industrial sectors (manufacturing and mining) and also includes a breakdown of services into construction, restaurants/hotels, transport/communications and finance/banking. One drawback for the purposes of this study is that it excludes Mauritania. Therefore, the ECOWAS data should supplement, rather than replace, the data collected by the World Bank. In general in the countries of Western Africa, the dominant overall economic activities are agriculture and services. According to the ECOWAS national accounts, the ECOWAS countries that rely the most on agriculture are those located in the southern part of the Atlantic coast: Liberia (76.2%), Guinea-Bissau (61.4 %) and Sierra Leone (48.5%), where the endemic political instability discourage FDI and the development of industry and where the services industry is the less developed (8.3%, 21% and 26.7% respectively). Cape Verde, in particular, is overwhelmingly dominated by services (72.2%) and also experienced the highest levels of growth in the region between 1990 and 2000.25 The main services sectors are household services and commerce (23.3%), transport and communications (19.4%), and construction (13.3%). Cape Verde also has the least important agricultural sector, representing only 8.7% of total GDP in 2000, according to the ECOWAS data. Sierra Leone, Guinea Bissau and Nigeria rely the least on services as a contributor to GDP, with overall contributions of 20.8%, 23.7%, and 24.5%, respectively.26 Similarly, Liberia has very small services and industrial sectors at present. 24 ECOWAS. 2000. Comptes Nationaux de la CEDEAO, Abuja. Despite the fact that the trends are similar, these data present some disparities when compared to 2001 data presented at a more general level of aggregation by the World Bank (Agriculture, Industry, Services. World Bank. 2002. World Development Indicators). This occurs mainly because of differences in nomenclature and lack of harmonization of ECOWAS National Accounts compared to harmonized World Bank data. This clearly illustrates the statistical difficulties in Africa and given the lack of data generally, these figures are included to illustrate the general makeup of the regional economies in Western Africa. 25 World Bank. 2002. World Development Indicators. 26 World Bank. 2002. World Development Indicators. 42 Table 2 : ECOWAS Member Countries : GDP of Main Economic Activities in % of Total GDP (2000) Finance/Ban Restaurants/ Manufacturi Communica Commerce/ Constructio Agriculture Real Estate Gas, Water Electricity, Transport/ Insurance/ Industries industries Mining Hotels king, tions ng n Benin 40.6 0.1 10.1 1.3 3.5 14.7 5.9 16.1 Burkina 35.1 0.6 13 0.6 1.7 13 4.7 0.1 Faso Cape 8.7 1 5.9 1.8 13.3 23.3 19.4 4.2 Verde Ivory 28.2 0.3 17.8 2.4 3.1 18.1 5.2 4.3 Coast Gambia 23.8 0.1 5.1 0.7 4.4 17.6 8.7 6 Ghana 30.9 6.4 10.1 2.6 8.7 7.5 5.1 0.5 Guinea 18.5 18.6 3.8 0.5 7 28 5.9 8.4 Guinea 61.4 0 8.8 0.2 3.4 14.5 2.5 0.4 Bissau Liberia 76.2 2.1 4.6 0.5 1.5 3.6 2.8 2.9 Mali 47 6.2 6.4 1.7 5.1 15.6 5.9 1.2 Niger 37.3 5.8 6.8 1.4 2.7 21.5 6.5 0.6 Nigeria 41.5 10.7 6 0.5 2.1 12.1 3.2 9.6 Senegal 20.9 0.3 21.2 1.9 4.8 21.8 12.7 19 Sierra 48.5 14.7 5.8 1.8 2.7 14 4.8 3.4 Leone Togo 43.6 8.1 8.5 3.6 4.2 55.5 5.5 8 ECOWAS 35.4 7 9.5 1.5 4.5 14.4 5 6.1 Source : ECOWAS National Accounts, 2000. In Nigeria the industrial sector contributes 46% of GDP. The remainder is divided roughly equally between agriculture and services.27 As a contribution to GDP, the role of industry in Nigeria is well above the regional average of around 23%. Guinea Bissau, Gambia, and Benin have the lowest levels of industry as a contributor to GDP at 12.0%, 12.7% and 15.1%, respectively. According to ECOWAS data, manufacturing industry is largely under-represented in the contribution to GDP in national economies and is only developed in non-LDC countries including Ivory Coast (17.8%), Ghana (10.1%), Nigeria (10.7% in mining) There are three exceptions, the former non-LDC Senegal (21.2%), Guinea (18.6%) and Sierra Leone (14.7%), the latter two countries focusing on mining. 27 Data from ECOWAS National Accounts present a much more developed agriculture sector (41.5 % GDP), and a less developed industrial sector: however, these data only take into account two main (?) industrial sectors (mining and manufacturing, weighting for 16.7 %); one can suppose that other important industrial sectors are contributing to GDP but are not taking into account by the ECOWAS National accounts data. 43 Of the countries in the region, the Ivory Coast presents a relatively balanced profile in its economic make up with 28.2% in agriculture, 18.1% in industry (two main sectors) and services developed in commerce (18.1%) and transport and communication (5.2%). The land- locked countries of the Sahel still rely heavily on agriculture but also on commerce as they are located at the heart of the trading nexus in Western Africa—Mali (47% agriculture; 15.6% commerce), Niger (37.3%and 21.5%) and Burkina-Faso (35.1% and 13%). The northern countries along the Atlantic coast also present strong GDP contribution of commerce, their economies being oriented towards the Mediterranean basin and Europe. This is particularly the case in Guinea (28% commerce), Senegal (21.8%), Gambia (17.6%) and Guinea Bissau (14.5%). It is also true in Cape Verde and Senegal where the transport industry is the more developed (19.4% and 12.7% respectively). Togo and Benin are small countries where the most important sector remains agriculture (43.6% and 40.6% respectively) but where the commerce is also important (14.7% in Benin and 55.5% in Togo). Transport and communication services are also partly developed in Benin and Togo (5.9 % and 5.5 %, respectively). These countries are important ‘warehouses’ and part of commercial transportation corridors for the land-locked countries in the Sahel. Caribbean Region The countries of the Caribbean region are very small compared to all the countries of the EU. The average GDP among the Caribbean countries in 2000 was US$3.4 billion compared with US$522.4 in the EU. In 2000, the three largest economies in terms of GDP were the Dominican Republic (US$19.7 billion), Jamaica (US$7.4 billion) and Trinidad and Tobago (US$7.3 billion). The smallest economies were Dominica, St. Kitts/Nevis and St. Vincent and the Grenadines, all with GDP at US$0.3, billion well below the average. The same configuration does not apply for per capita GDP. In 2000, the average per capita GDP in this country grouping was US$5,070. The Caribbean ACP countries with the highest per capita GDP were the Bahamas (US$15,901), Antigua and Barbuda (US$10,125), Barbados (US$9,736) and St. Kitts/Nevis (US$7,661). The countries with the lowest was Haiti with only US$509 per capita, a low level in the region but one that is still well above some levels observed in Western Africa. Nevertheless, Haiti should be considered a priority in terms of development since it is the only country classified as an LDC in the Caribbean. The majority of Caribbean countries experienced solid growth between 1990 and 2000. Both St. Kitts and Nevis and Antigua have experienced growth rates in the past 10 years that are well ahead of most countries in the region. Only two countries in the grouping have experienced negative growth: Haiti and Jamaica. This further distinguishes this grouping from the West African country grouping, where negative growth rates were common between 1990 and 2000. 44 Table 3. GDP and per capita GDP in the Caribbean Region (2000) Gross Domestic Product Per capita GDP Annual growth rate (GDP) (US$ million)1 (US$)1 (%) 1990-20002 Antigua and Barbuda 689 10,125 2.8 Bahamas 4,818 15,901 0.1 Barbados 2,600 9,736 1.7 Belize 820 3,419 1.6 Dominica 270 3,700 .. Dominican Republic 19,669 2,349 4.2 Grenada 410 4,187 2.9 Guyana 712 936 5.0 Haiti 4,050 509 -2.7 Jamaica 7,403 2,812 -0.4 St. Kitts and Nevis 314 7,661 4.7 St. Lucia 707 4,533 0.9 St. Vincent & 333 2,895 2.6 Grenadines Surinam 846 2,029 3.0 Trinidad & Tobago 7,312 5,620 2.3 Source: 1European Commission, DG Trade. External Trade 2002: EU-ACP volume 6. 2UNDP. Human Development Index, 2002. Nevertheless, a few countries in the region show some economic fragility that should be taken into account during the EPA negotiations. First, the fact that Haiti has the lowest per capita GDP, and it is decreasing, indicates that it is the most vulnerable country in the region. The decrease in per capita GDP in Jamaica is also cause for concern since it is one of the most populous countries in the region. On the contrary, the high GDP growth rate in Guyana is a good sign since the country presents a very low per capita GDP and in order to promote sustainability, it is therefore important to maintain solid levels of growth. The economies of the Caribbean region are heavily dominated by services, followed by industry and finally agriculture (Table 4). This overall dependence on services is higher than the dependence that exists in the African regions, and largely responsible for the solid levels of growth in the Caribbean, compared to other ACP country groupings. 45 Table 4. Economic structure - Caribbean Region (2000) Country Agriculture Industry Services Antigua and Barbuda 3.9 19.1 77 The Bahamas .. .. .. Barbados 6.3 21 72.7 Belize 21.4 27 51.6 Dominica 17.4 23.5 59.1 Dominica Republic 11.1 34.1 54.8 Grenada 7.7 23.9 68.4 Guyana 35.1 28.5 36.4 Haiti 29.6 21.1 49.3 Jamaica 6.5 31.3 62.2 St Kitts and Nevis 3.6 26 70.4 St Lucia 7.9 19.6 72.5 St Vincent and Grenadines 9.8 25.5 64.7 Suriname 9.7 20.4 69.9 Trinidad and Tobago 1.6 43.2 55.2 Average CARICOM 12.3 26 61.7 Source: World Bank The importance of services applies without exception to all economies in the Caribbean region, but is particularly significant for Antigua and Barbuda, Barbados, St. Lucia and St. Kitts and Nevis where it contributes over 70% to the economies. It is least important to Guyana (36.4%). The services sector grew at a rate of 5.2% per year between 1993 and 2000. Three sub-sectors represent more than 95% of total services receipts. Travel and tourism services are the most important (more than 70% of total receipts) reflecting the importance of tourism in the Caribbean economies. The second and third largest sub-sectors are commercial services (15%) and transportation (11%), respectively. Generally, CARICOM’s balance of trade in services appears to be positive (Figure 4). Agriculture is of relatively less importance for the economies of the Caribbean region, with the exception of specific countries including Belize, Guyana, and Haiti, where it typically contributes over 20%. The small weight of agriculture in most islands is related to the lack of arable land. In the Bahamas, arable land covers less than 1% of the surface and it is not more than 20% in most CARICOM countries. The situation in Haiti is different; although the extension of arable land is not possible, the slow development of other economic sectors means that agricultural activities are priorities. 46 Figure 4 – Payment and Receipt of services in CARICOM Source: Caribbean Community (Caricom) Secretariat (2002), Caricom’s Trade in Services, Guyana. Industry is most important for Trinidad & Tobago (43.2%) due essentially to the petrol industry. Compared to other ACP country blocks, the industry sector in the region is not under-developed since it represents between 20% and 30% of the national GDPs. It is a diversified with clothing in Haiti and Jamaica, ship construction in Barbados, the Bahamas, St Vincent & the Grenadines, Antigua & Barbuda and small equipment in Jamaica and DR. 2.1.2 Social Priorities and Poverty Social aspects in ACP countries should be considered primarily as a question of access to human capital by households, especially in the poorest segments of the population. Access to human capital includes access to basic services (such as education and health services), access to economic opportunities, access to productive assets (market integration targeted towards the poor). For the access to basic public services, key issue to be considered is the degree to which macro-economic and budgetary priorities support general and unrestricted access to these services. For the access to economic opportunities, the government capacity to ensure pro-poor economic growth strategies (as favoured by the PRSP agenda led by the World Bank and the IMF) will be a key issue to consider. In the absence of the effective delivery of basic services, social safety-nets targeted at the poorest segments of the population play a crucial role in the ACP countries. Indeed, they may be necessary to reverse the long-term impact of poor household short-term coping strategies (such as de-capitalisation of long-term productive assets or increased unsustainable indebtedness to meet immediate food requirements). Safety nets include government and 47 donor sponsored food/cash for work programmes, community support initiatives and other poverty related programmes. The economic viability of these activities targeting the poorest members of society and the overall impact of the safety nets remain important issues that need to be addressed. A variety of cross-cutting issues may be integrated in the assessment of social impacts, including HIV/AIDS and gender equality. In Western Africa, for example, is the situations worsens beyond current levels (2.28% infection rate for men and 5.78% infection rate for women) the HIV/AIDS issues could move beyond the humanitarian and health sectors as they have a direct impact on the size of the economically active population. Gender equality is also a key issue related to poverty in ACP countries. For example female-headed households and deprived women often represent a disproportionate number of the poorest in the population. Moreover, it is clear that poor people have less capacity to resist to economic and social shocks. Therefore, any change arising from the negotiations, even if it has temporary negative impacts, may have dramatic impact on the most vulnerable populations. This section identifies social/development related characteristics of the regional country groupings with the aim of selecting “hot spots” that characterise the most relevant themes to consider in the SIA. What are the issues in the region that are most likely to positively or negatively influence progress towards sustainability that are: ! Related directly or indirectly to equity and social well-being (including, inter alia, poverty, employment, health and education). ! Relevant for a large proportion of the population, and in particular a vulnerable portion of the population. Western Africa During the last 40 years, Western Africa experienced an ‘historic’ demographic growth (from 85 million people in 1960 to 215 in 1998) combined with an important connection to the world markets. These trends have had (and still have) tremendous impacts on the economic, social and environmental profile of the region, accelerating regional and international migration flows, increasing urbanisation resulting in an exodus from rural areas, all of which contribute to basic social deterioration in terms of poverty, health and gender equality in rural and urban areas. • Population On issue related to development opportunities for the population of Western Africa is linked to demographic trends. At 2.7 per cent per year, population growth in Western Africa is set to double in the next 25 years, following a trend that has existed since the 1970s. This 48 trend is particularly pronounced in the countries of the Sahel.28 It is explained by a rise in the natural rate of increase in the population and by increasing migration.29 Nevertheless, fertility rates have been declining in the region since 1970, in all countries with the exception of Niger. This is consistent with most recent demographic trends in a majority of African countries whereby fertility rates are dropping due to factors such as an increase in the average age at marriage, development of contraception, migration of rural populations to urban centres, and increasing access to education.30 If these trends continue, population growth in the region may be curbed. However, these effects will only be observable in the coming decades, starting in 2025, because nearly 50 per cent of the population in the region is under the age of 15. In the short term, it is likely that the population will continue to increase over the next 20 years. At the same time, the median age of the population is expected to increase, changing the demographic profile in the region. One of the major consequences of this demographic shift will be a decrease in the rate of dependency—defined as the share of the population that is of working age and that can contribute to the economy, compared to the share of population that is either too young or too old to work. In 2000 the dependency rate in Sahel countries was exceptionally high, at 96 per cent—each working person was responsible for another non-working person.31 By 2050, the United Nations predicts that, as a result of demographic change, the dependency rate will be 46 per cent.32 This presents a huge opportunity for economic and social development in Western Africa. The OECD suggests that the dramatic decrease in the dependency rate in Western Africa will have consequences including, inter alia: ! A rise of the active (compared to inactive) population, which should lead to growth in productive capacity and an increase in overall wealth, providing the population is not unemployed and productivity remains stable. ! For households, the reduction in the ratio of “dependant” people could lead to an increase in private savings. At a macroeconomic level, this could facilitate domestic financing of investments and reduce dependency on foreign flows. ! The impacts on public finance will be positive, because the rise of economic activity should increase public fiscal earnings.33 28 Burkina-Faso, Cape Verde, Gambia, Guinea-Bissau, Mali, Mauritania, Niger, Senegal (and Chad which is not a member of ECOWAS). 29 A rise in the natural rate of increase in the population is a result of falling mortality rates and increasing fertility rates, and explains the major population increases that occurred in the region between 1970 and 2000. Fertility rates in the Sahel countries are among the highest in the world, at an average of 6.4 children per woman. This compares to fertility rates of 5.6 in other sub-Saharan Africa. 30 Urban fertility rates are typically lower than rural fertility rates. 31 The dependency rate in developed countries is typically 50 per cent. It is 63 per cent in Latin America and 92 per cent in other sub-Saharan countries in Africa. 32 United Nations. 1998. World Population Prospects, The 1998 Revision, Department for Economic and Social Information and Policy Analysis, New York: United Nations. 33 OCDE. 2001. Profil économique et social des pays sahéliens, Chapitre I – Population et développement humain, février, OCDE-Club du Sahel, Paris. 49 From a strictly mathematical basis, all other things being equal, a 10% fall in the dependency rate should translate into a 7% increase in levels of per capita GDP. These positive impacts are dependent on the opportunities available to people of working age for participation in national economic life—in the official economy or in the informal economy. If these opportunities do not exist, negative impacts could flow that include rising unemployment, violence, and animosity among sectors of the population engaged in modern economic activity and those that might be left behind and whose living standards have not improved. The fragile ethnic equilibrium of several Sahel countries presents a favourable climate for civil unrest. By creating positive conditions for economic and social development, the EPAs can help to realise opportunities for development. • Migration and Urbanisation Migration patterns will impact strongly on opportunities for development and the well- being of populations. Migration in Western Africa affects more than 600,000 people each year – or 4 per cent of the population over 15 years of age. Three main trends of migrations include: 1. Migration from rural to urban areas zones (46%); 2. Intra-rural migration (10%) and intra-city migration (2%); 3. Migration from landlocked countries to coastal countries.34 The vast majority of migration occurs from rural areas to urban areas. This has led to rapid urbanisation in Western Africa, in particular along the coastline between the Ivory Coast and Nigeria. Apart from traditional migration out of the desert zones, important migrations flows have been influenced by the development of exports crops (cotton, cocoa, coffee and groundnut) and by the urban market opportunities for agriculture products. The density of population in rural areas has been strongly influenced by the development of urban markets, thereby enhancing the differences between rural populations located in areas well-connected to urban market (and thus benefiting from economic opportunities) and those suffering simply from an exodus of a rural population. In this context of rapid demographic development, urbanisation (by incorporating important flows of migrants from rural areas) plays an important role of stabilisation of demographic trends, reducing the pressure on the land and thus allowing the remaining rural population to develop viable production. It will however have strong economic, social and environmental impacts on the urban areas. 34 International migrations (intra and extra-regional) are also important with 31% emigration (mainly to Europe) and 23% immigration. 50 Figure 5: Migration in the Western African region (1988-92) The urbanisation process can be considered the “first form of large-scale work division” between producers and consumers.35 It is an essential condition for the growth of rural revenues and for the intensification of agriculture production, provided that the urban demand is sufficient, connections between urban markets and production areas are efficient and the macro-economic environment is favourable. External trade policies and new moves towards increasing liberalisation will play a major role in ensuring a favourable environment for this complex and fragile demographic/urbanisation process. Foreseeable consequences of urbanisation include: ! An increase of urban employment mainly in the informal sector and not the formal sector, which requires qualified workers; the informal sector will be strengthened and remain a refuge for the poor. ! Most of the economy will be in urban centres and they will become the engines of the economy. Urbanisation is closely connected to issues of food security. The development of urban centres has encouraged an increase of the production of food of 2% per year between 1960 and 1990. This is not enough to cover the needs of a population increasing at rates of 2.7% per year. Imports are still needed in most of the region (Nigeria is close to being self sufficient as a result of currency pressures which forced it to develop local production). For export crops, the evolution might well be favourable since the move to better lands will force a change in the methods and allow a more intensive agriculture taking into account the need of productivity and better use of a now scarce resource—the productive land. Urban 35 OECD (1998). ‘Pour preparer l’avenir de l’Afrique de l’Ouest – Une vision à l’horizon 2020’. Club du Sahel, Paris. 51 markets could also attract both foreign and local investors to the “modern” sector. However, this is considered unlikely by some commentators who point to the weak purchasing power of the consumers and suggest that these markets are more likely to benefit the “informal” economy. Also, what is important for the development of a modern economy is the presence of a dynamic economy and of qualified workers, which do not exist at present. The majority of the population remains poor and under-qualified. • Poverty Poverty in the region is a third important issue that will be highlighted in the SIA. Poverty is a critical indicator for an SIA given its strong linkages to economic development and the environment and its fundamental role in the well-being of societies. The UN proposes several synthetic indices for measuring the human development and poverty including the Human Development Indicators (HDI).36 The HDI measures the average achievements in a country based on three dimensions of human development: a long and healthy life; knowledge; a decent standard of living.37 Over the past 30 years, the HDI of West African countries has risen slowly but still remains, on average, below average rankings for Sub-Saharan Africa, LDCs as a group, and well below the developing country average. All of the countries in Western Africa suffer from very low HDI ratings (Table 5). Only three countries in the region rank around the average for developing countries: Cape Verde, Ghana and Togo. The remaining countries in Western Africa are at the very bottom of developing countries in terms of human development. Table 5: West African countries ranks and levels of HDI (2000) Low HDI Medium HDI High HDI 175 - Sierra Leone (0.275) 141 - Togo (0.501) none 174 - Niger (0.292) 129 - Ghana (0.567) 173 - Burkina-Faso (0.330) 103 - Cape Verde (0.731) 172 - Mali (0.337) 166 - Guinea-Bissau (0.373) 161 - Ivory Coast (0.396) 159 - Benin (0.411) 157 - Guinea (0.425) 156 - Senegal (0.430) 154 - Mauritania (0.454) 152 - Nigeria (0.463) 151 - Gambia (0.463) In Western Africa, poor populations are concentrated in rural Sahel areas. However, there is also a growing concentration of poor in burgeoning urban centres. This could be a cause of 36 HDI ranking from 0 to 1; UNO, United Nations Development Report 2003. 37 A long and healthy life is measured by life expectancy at birth, knowledge is measured by the adult literacy rate (with two-thirds weight) and the combined primary, secondary and tertiary gross enrolment ratio (with one- third weight) and a decent standard of living is measured by GDP per capita (PPP US$). 52 tension in the future and increase the risks of conflict between populations of different ethnic groups as has already occurred in Nigeria and the Ivory Coast. Urban poverty can be contained somewhat by the development of a massive informal economy, which function is primarily to fulfil basic needs of the population relying on a subsistence economy. Over the past 40 years, people working for the “modern” sector (non- agricultural) of the regional economies has remained stable at around 10-15% of the total of population. The main trend has been a huge shift in the population from the agricultural sector to the informal (non-agricultural) sector. This trend is expected to continue and the “informal” economy is likely to become the most important “sector” for a majority of the population by 2020. The poorest countries and populations in the region are likely to made more vulnerable to the trade opening within the framework of trade agreements because they are deprived from the basic conditions necessary to be able to take advantage of the opportunities presented by liberalisation. In particular, this would include pursuing diversification strategies in response to increasing competition from imports in some sectors and for some products. The UN’s Human Poverty Index (HPI) measures deprivations in the three basic dimensions of human development captured in the HDI: a long and healthy life (vulnerability to death at a relatively early age); knowledge (exclusion from the world of reading and communications); and, a decent standard of living (lack of access to overall economic provisioning).38 The average rating of ECOWAS countries is 44.05 per cent. As with the HDI, the country levels are uneven between the Gulf of Guinea countries (38.06%), the Atlantic coast (39.75%) and the land-locked countries, where deprivation of basic human development needs is particularly high (53.81%). In Western African over 47 per cent of the total population lives below the national poverty line and 43.4 per cent live on less than a dollar a day, with 70.8 per cent living on less than two dollars per day. Within ECOWAS, the land-locked countries in the north have the highest indicators of poverty in the region. ! Countries of the Gulf of Guinea: 35 % of the population lives under the national poverty line (40.4 % and 71.6 % living on less than 1$ and 2$ per day, respectively); ! Countries along the Atlantic coast: 55% of the population lives under the national poverty line (29% and 54% living on less than 1$ and 2$ per day, respectively); ! Land-locked countries: 57.5% of the population lives under the national poverty line (65 % and 87 % living on less than 1$ and 2$ per day, respectively).39 38 The lowest rate of HPI is interpreted as a low degree of poverty. HPI measures deprivation of three criteria: 1) a long and healthy life (vulnerability to death at a relatively early age) is measured by the probability at birth of not surviving to age 40; 2) knowledge (exclusion from the world of reading and communications) is measured by the adult illiteracy rate; 3) a decent standard of living (lack of access to overall economic provisioning), as measured by the unweighted average of two indicators, the percentage of the population without sustainable access to an improved water source and the percentage of children under weight for age. 39 See annex xx – Table ‘poverty and Income Distribution Indicators – by regional groupings’, World Bank (2003), African economic Outlook 2002-2003. 53 These indices do not reflect the profound dichotomy between two clearly separated social groups in Western Africa, which develop distinct development strategies. This first group is that engaged in the modern economy (mainly driven by overseas trade) that benefit from opportunities for growth, but are also more exposed to international forces such as global commodity prices. This group has remained relatively stable over the past 15 years. The second group includes those people engaged in the “informal” economy. The “informal” economy is less exposed to international pressures and, so far, managed to regulate its development by the rural/urban migrations. But it is basically a ‘survival’ economy, aimed at fulfilling the basic needs of the community (without any consideration of productivity). Increased liberalisation could impact this group if the traditional, informal regulation processes are influenced by news rules and new competitors. • Health Health is a fundamental factor in the economic and social development of African countries, by limiting the loss of wealth creation due to mortality, by enhancing the general level of education (children can go to school) and by allowing financial resources to be redirected towards productive activities. Health expenditure account for over 3% of GDP in the region, more than 4% for the Sahel countries, but are still below the required level for ensuring the basic health services for a large majority of the population (4.8% of GDP for 80% of the population in the Sahel countries). Public health expenditure, as a percentage of total government expenditure, varies widely between groups of countries in Western Africa. The average is 7.8 per cent. The countries along the Atlantic coast as a group average 8.7%, the land-locked countries in the north average 8.1% and the countries along the coast of the Gulf of Guinea average 6.1%. Among countries, these expenditures range from 1.9% in Guinea Bissau to 12.9% in Guinea. In Western Africa, the average life expectancy at birth was 48.3 years between 1995 and 2000. It is estimated at 54.9 years between 2000 and 2005 year without AIDS, but only of 50.5 years if AIDS is taken into account.40 The economic and social consequences of AIDS are heavy for West African countries because a majority of HIV infected people are young (heterosexual) adult, the most economically active part of the population. Within Western Africa, the countries of the Sahel have the lowest life expectancy rate, although it rose from 40 years to 49 years between 1970 and 1998. This rise is explained by a decline in the infant mortality rate and a general improvement in living conditions. However, the infant mortality rate in the Sahel is still 10 per cent above the average for sub-Saharan Africa. These low life expectancy levels can be explained by the weakness of national revenue of West African countries, as well as to other factors such as lack of accessibility to medical centres (particularly in the land-locked countries) and to low-cost generic medicines. The civil strife in some West African countries should also be taken into account. 40 Table ECOWAS – Basic Health Indicators; World Bank (2003). 54 • Gender issues Consideration of issues related to gender is important for developing policies that aim at alleviating poverty and establishing sustainable societies. Women experience poverty and deprivation because they lack access to and control over resources, which would enable them to participate actively in economic development and to produce and trade competitively in the market. It is therefore an important prerequisite for poverty reduction to provide women with equitable access to and control of productive resources. 41 These issues of inequality between men and women are pronounced in Western Africa. Based on the UN’s Gender-related Development Index (GDI), the average GDI for Western Africa is 0.43, compared with 0.9 in OECD and EU countries.42 Most of the countries in the region are at the very bottom of the GDI rankings (ranging from 104th place for Ghana to 144th place for Niger). The only country in the region with an average ranking is Cape Verde, in 82nd place. Cape Verde contributes to a relatively high ranking for the countries along the Atlantic coast, which, taken together have an average index of 0.51. This compares with countries along the Gulf of Guinea at 0.45 and the land-locked countries in the Sahel with a very low index of 0.36. The first inequality between men and women is towards health issues: even if, on average in the Western Africa, the life expectancy (at birth) is higher for women (51.14%) than for men (48.54%), the healthy life expectancy at birth is slightly higher for men than women (40.9% compared with 40.5%). Women live longer but are less likely to be healthy.43 Moreover, the female mortality is higher for women between 15 and 34 because of high maternal mortality rates. In the countries of the Sahel there were 1,163 maternal deaths for each 100,000 births between 1990 and 1996. This is 18 per cent higher than the average rate of maternal mortality in LDCs. A second inequality concerns the access to education. The average literacy rate in Western Africa is 55.53 per cent for boys and only 34.74 per cent for girls. Disparities are also important between sub-regional groupings in western Africa. This rate is extremely low for the land-locked countries in the Sahel where only 13.5 per cent of girls are literate, compared to 32 per cent of boys. In the countries along the Atlantic coast the figures are 56.9 and 36.4 for boys and girls, respectively. In the countries of the Guinea Gulf countries literacy is the highest in Western Africa with 68.3 per cent of boys and 45.9 per cent of girls being literate. It is widely admitted that the whole gender inequalities have an important development cost : according to the World Bank estimates, there is a clear correlation between gender inequalities (especially in education and job opportunities) and the national economic growth, 41 APPRODEV. 2002. “EPAs – What’s in it for Women ? A gender based impact assessment study on ‘Women in Zimbabwe: Issues in Future Trade Negotiations with the EU’”. Brussels. November. 42 The GDI adjusts the average achievement to reflect the inequalities between men and women in the three main basic human dimensions used for calculating the HDI and HPI: a long and healthy life, knowledge, and a decent standard of living United Nations (2003). 43 Table ECOWAS – Sanitary conditions and ECOWAS – Gender Issues 55 that could be reduced where large differences exist. For all sub-Saharan countries, this gender difference could explain up to 0,7 % of GDP (per person) between 1960 and 1992.44 Caribbean region • Population Dominican Republic (DR) and Haiti, with over ten million inhabitants, are by far the most populated countries in the region, followed by Jamaica with three million inhabitants. This is important as Haiti is also the least developed country of the region with the least economic weight. It is therefore the country usually excluded from trade negotiations when it should be a main target in a development process. The fragility of the situation of the Dominican Republic is also important. Haiti and DR also have the highest population growth rates in the region, at 2% per year. Belize and the Bahamas have similar rates of growth. Haiti also has the youngest population in the region, with over 40% of its population under the age of 15. Belize has the second largest number of young people, but in most countries in the Caribbean the population under the age of 15 accounts for less than one-third of the total population. It is when the analysis of the region focuses on the basic development indicators that the unique position of Haiti becomes clear. Concerning access to basic services, the Caribbean region has some globally good results that are reflected in the UNDP’s HDI rankings. Of the 15 countries in the Caribbean region, nine are ranked among the top 70 countries in the world (out of a total of 173). The last three are DR (ranking 94), Guyana (ranking 103) and Haiti (ranking 146). This is reflected in nearly all the development indicators: ! Under-five mortality rate is 125 out of 1,000 live births in Haiti when this ratio is less than 30 in the other countries of the region with the exceptions of Belize and DR that have a ratio between 40 and 50 and, Guyana with a death ratio of more than 74. ! Access to improved water is available in most countries to over 90% of the population with some problems for 15-25% of the population, in Trinidad & Tobago, DR, Belize and Jamaica. But in Haiti, only 45% of the population has access to clean water. ! Access to essential drugs is available in over than half of the population in all countries at the exception of Haiti and Guyana. ! The Caribbean region is globally characterized by a high level of education compared to other developing regions. The adult literacy rate is more than 90% in most countries and between 80 and 90% in Antigua & Barbuda, DR, Jamaica, St. Vincent & Grenadines. But it is less than 50% for Haiti. This should be reversed with the drastic improvement of the primary enrolment ratio in that country that rose from 25% in the beginning of the 19802 to 80% in 1998. 44 OCDE (2001). Profil économique et social des pays sahéliens, Club du Sahel, Paris, février. 56 • Poverty Based on the basic development indicators, it is an evident that Haiti should benefit from specific attention concerning the development impact of EPA in this country and especially in term of reducing poverty. But many countries in the Caribbean region are still fragile. The poverty level in these countries relies directly on their ability to participate in the international economy because of the small size of their national markets and economies. This implies a thorough analysis of the links between poverty and economy, between poverty and trade. The first difficulty to overcome is the difference between the availability of resources and research analysis on poverty for these countries. For some countries, poverty assessment research is widespread. For other countries it is less available or incomplete. This is related to the importance of poverty in the respective countries (i.e., extensive analysis in Haiti) but also to the involvement of the countries in the World Bank and IMF process of PRSP (i.e., DR and Guyana) that implies the development of in-depth analysis of poverty mechanisms and national consultations. The first parameter of Caribbean poverty is income inequality. “Income distribution hasn't changed in the past decade. […] High levels of inequality persist and several countries have the most concentrated income distribution in the world.[…] This has happened even in countries that have achieved significant growth rates. […] reciprocal conditioning between growth and equity and the distributive content of development depends critically on the application of policies that promote wider social distribution of the benefits of economic growth.”45 These conclusions, quoted from a study of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) reflect a key feature of poverty in the region. With the notable exception of Haiti, poverty in the Caribbean region is very much Latin American inspired; poverty is the outcome of income inequality rather than the effect of overall underdevelopment. Another characteristic of poverty in this region is the strong interaction between urban and rural areas. As in other developing countries, the poverty in rural areas is stronger than in urban areas. Poverty in rural areas is directly related to a fall in commodity prices, lack of access to land and other productive means, poor access to markets and infrastructure. In urban areas, the problem is more one of access to professional training and credit, low wages and exposure to discrimination. But it should be underlined that in the Caribbean, the relationship between the two spheres, rural and urban, and the interdependency between them are very strong with a direct impact on the evolution of poverty in the two areas. This is due to the relatively small size of the territories being studied and their relatively high density. Compared to sub-Saharan Africa, Caribbean rural populations have access to more urban economic opportunities and services. In Jamaica, for example, no rural area is more than two hours by car from one of the major two cities, Kingston and Montego Bay. 45 Gibbings (2000). 57 Apart from the Central American countries (Guyana, Surinam, Belize), Caribbean countries are characterized by high population density, important urbanization, and intensive agriculture. In this context, one main factor of poverty is the situation of the labour market. Unemployment and underemployment, in particular are traditional causes of poverty in developing countries. Unemployed persons are at risk of falling below the poverty line, as they do not have access to social benefits and other safety net supports. Underemployed persons paid a very low wage are similarly at risk when they are heads of households and represent the only source of stable income in a large family. In the Caribbean, both labour situations are strong contributor to poverty. As the Caribbean region has experienced difficult economic conditions in most of its national economies during the 1990s (debt crises, prolonged declining commodity prices and subsequent adjustment and stabilisation policy) unemployment rose substantially. It has since decreased in most of the countries but remains a cause of concern related to poverty reduction. Underemployment is a key contributor to poverty and in some cases is more important than unemployment. Indeed, the Caribbean context shows that labour activity may not necessarily be lower among poorer populations than among wealthier populations. The fragility of most Caribbean economies, the high population density and the proximity of highly developed economies (such as the United States and Canada) explains the high level of migration in the region. International remittances and other forms of private household level financial transfers are a major instrument of the coping strategies for the poorest in the population. Remittances may represent as much as half of a poor household’s income. In DR for instance, the first source of coping strategy of the poor is financial support from family members both within DR and abroad. Three quarters of poor households receive domestic transfers (typically private transfers from urban based family to rural based family members) amounting to 16% of their income. About one-fifth of poor households receive international remittance amounting to half their income. International remittances contribute to better housing conditions, access to education for girls, and reduction of child labour.46 In St. Vincent and the Grenadines 17% of poor households received regular contributions either in cash or in kind from individuals outside the household. An important coping strategy, therefore, was emigration and 43.8 percent of households reported recent migrations among members of the household. The United States was the preferred destination.47 Unlike the rest of the Caribbean, remittances do not appear to be a decisive coping strategy in Trinidad & Tobago. • Gender issues Although the gender issue is considered as a development priority in most developing countries, it is very difficult to have a global view of the situation within the Caribbean region. Data are not available for most of the small islands. For the few countries where data are available concerning the gender equality in accessing to basic services (UNDP indicator GDI), it appears that in Guyana and in DR, the gender 46 World Bank (2001a). 47 CDB 199X. 58 inequality is stronger than in countries such as Trinidad & Tobago, Jamaica or even Haiti. Access to education seams to be relatively equitable since the highest difference is in Haiti where female adult literacy rate is 43.4% compared to 48.3% for men. On the contrary, access to wealth is unequal. In Belize, the GDP per capita for men is more than 300% higher than the per capita GDP for women. The difference is over 200% in DR, 170% in Guyana and Suriname and 135% in Trinidad & Tobago. It is between 70% and 50% for countries such as Haiti, Jamaica, Barbados and the Bahamas. In light of this data, it is surprising that the UN indicator measuring the inequality in economic and political participation and decision-making (GEM) shows that the Bahamas, DR and Trinidad & Tobago provide relatively good opportunities for women compared to most countries in the world. This is not the case in Guyana and Suriname. A recent study by CARICOM analyzing the access of women to some decision-making posts underlines the under-representation of women in these positions. In the Parliamentary Assembly, less than 18% of the representatives are women, although this has improved over the past 20 years. In public order and safety occupations, the majority of judges are men. For senior level positions in government services, the percentage of women participating in 5 countries rose from 8% in 1980s to 25% in 2000.48 Therefore, although access to education and basic services seems to be relatively equal within the region (although national disparities still exist), the access to mean of production, good wages or high level decision post are still limited for women. 2.1.3 Environmental Priorities Many of the countries in the ACP are custodians of important components of the world’s biodiversity and natural resources. However, they face similar challenges with respect to a common dependence among the ACP countries to derive capital for economic development from these very resources. Because commodity prices are set at the international level many ACP countries are at a disadvantage and in most countries national policies and market activities fail to reflect the full economic value and potential of their natural resources.49 This has led to the degradation and overexploitation of natural resources, as industry and trade have generally focused on maximizing profits at the expense of sound environmental management and protection. The greatest problem lies in the imbalance in the use of the natural resources, which results from a combination of factors, such as: lack of investment capital; inappropriate technologies; and poor management. In many cases government also lack the resources to effectively enforce environmental protection regimes. The economic trends are coupled with the social challenges facing the region to contribute even further to pressures on the environment. Deterioration of the natural environment when the human population is growing at an accelerated rate is a major concern for developing 48 CARICOM Secretariat. 2003. Women and men in CARICOM Member States: Power and Decision Making (1980-2002). June. 49 Commodity prices on exports from developing countries are determined by the World Trade Organization (WTO) through a quota system. 59 world. In addition, the links between poverty and the environment are well-documented. This linkage was made by the WCED in 1987 and reinforced at the Earth Summit (1992) where the eradication of poverty was identified as an indispensable requirement for sustainable development—including the environment. The theme of poverty was the centrepiece at the WSSD in 2002. Within this context, this section identifies environmental characteristics associated with the regional country groupings with the aim of selecting “hot spots” that characterise the most relevant environmental themes to consider in the SIA. It identifies issues in the region that are most likely to positively or negatively influence progress towards sustainability that, inter alia, are: • Related directly or indirectly to major environmental media and natural resources such as water or land. • Associated with strategic natural resources, such as the provision of certain foodstuffs. • Related to critical or particularly vulnerable ecosystems. Western Africa The link between development, social priorities and the environment is pronounced in Western Africa. For example, there are links between the movements of people from rural areas to urban centres. It is not clear that the environmental authorities in the region have the human and financial resources to effectively tackle some of the challenges that are posed by the rapid urbanization in the region, including providing fundamental services related to providing clean water or sound waste management practices. There are also important links betwee the standard of living of people and farmers in rural areas and the preservation or deterioration of environment, mainly soil degradation. In Western Africa, the very poor rural inhabitants develop strategies for ‘basic survival’ and produce crops and feed livestock for their own needs or those of the close community. If, doing this, they mine the land, it is because their standards of living do not allow them to implement even the simpliest innovations or basic practicies such as adding inorganic fertilizer to the soil. The concern of preservating the environment is second compared to survival strategies and, therefore, poverty generates inappropriate methods of exploitation of environmental resources, degradation of the environment, low productivity and ultimately to more poverty. In Western Africa the main forms of environmental degradation are summarized as follow: loss of natural vegetative cover, including deforestation, range land deterioration and reduction in floral diversity; depletion of faunal diversity; soil deterioration, including erosion, leaching and salinization and decline in fertility; coastal degradation; and human habitat pollution and the attendant health hazards.50 50 Benneh, G. (1997), ‘Indigenous African farming systems: Their significance for sustainable environmental use’, in E. A. GYASI and J.I. UITTO eds, Environment, Biodiversity and Agricultural Change in West Africa, United Nations University Press. 60 • Land: Desertification and Degradation One of the most important environmental problems in West Africa is land degradation. Land degradation should be highlighted in this study as it is closely connected to the productivity of agricultural lands and the maintenance of a steday food supply. It also disproportionately affects the rural poor, in some of the most vulnerable countries in the regions, such as those in the Sahel that depend on agriculture for the majority of their GDP. Degradation of this nature is caused by a number of forces, some natural and some human. Natural pressures on degradation come mainly from erosion which can be wind- induced or water-induced. Patterns of migration, and in particular the exodus of populations from parts of the Sahel also aggravate desertifiction and lead to the loss of many small producers in the agricultural sector. They are perhaps most acute in the countries of the Sahel (see Box). In the Sahel zone, the main agent of natural erosion is wind, supported by climactic conditions. Human pressure on the land come about in part due to the production practices in the agricultural sector, combined with a rapid increase in the population and migration out of rural areas to urban areas. Any development in agriculture generally is likely to have impacts on land quality and lead to the further destruction of already fragile soils, and an increase in the process of desertification.51 This in turn contributes further to declining, stagnating or marginally increasing agricultural output, which adversely affects food supplies, nutritional status, incomes and general welfare of the expanding population. Land degradation is felt most acutely by the poor because they are forced to cultivate marginal lands such as desert margins which get degraded more rapidly. Hence productivity losses are more rapid and affected households become increasingly food insecure. Box 2: Desertification in the Sahel In the Sahel area of Western Africa there is an increasing risk of erosion and desertification. In Niger, only 19 per cent of the country is non-desert, and most of this is highly vulnerable to desertification. Mauritania is similarly affected with 93 per cent of the country classified as hyper-arid, and the remaining 7 per cent at moderate to very high risk of desertification. The IPCC predicts that rainfall and run-off will decline, and that evaporation will increase, in this zone, further contributing to desertification pressures in the future. Areas in the north (Sahel, Mauritania) – huge degradation problem brought about by exploitation for food, fuel wood and other resources. Fuel wood is the major source of energy in many of these countries. Source: UNEP 2002. Unsustainable farming practices contribute to loss of soil fertility and to desertification. Any trend towards the development of extensive agriculture could have severe environmental consequences, with increased reliance of chemical and synthetic methods in soil fertility 51 Desertification refers to the loss of soil fertility and structure to the extent that its ability to support plant life is severely compromised. The implications of such serious forms of degradation are a reduction in vegetative cover, and a loss of soil fertility which leads to decreasing productivity. 61 management and the development of highly polluting agriculture like cotton. Cotton is considered an “industrial” cultivation using large amounts of agrochemicals and irrigation. In Western Africa an increase of production and profitability is related to the intensification of the cotton cultivation. Intensification has been undertaken by a managed use of fertilizers and a light mechanisation, with limited negative impact on environment. More sustainable farming systems based on effective soil-regeneration techniques are seen as one of the best solution for improving this situation. In Western Africa, some indigenous farming systems that rely on organic farming tequniques (that do not employ agrochemicals) have been successful in supporting sustainaility.52 Population pressures are also negatively impacting land in Western Africa. The dramatic population growth in the region leads to rising demands for the basic necessities of life including food and energy. This can lead to exploitation of marginal lands for agricultural production, and increased harvesting of wood for use as fuel. Any economic pressures that lead to increased deforestation of more intensive agricultural practices will also have impacts on the land and could contribute to desertification and degradation. • Urban Air Pollution Air pollution is emerging as an environmental challenge in the West African region in large part in response to rapid urbanisation, industry, vehicle emissions and some industrial activities. For example, Senegal is a major importer of used cars which represent 84 per cent of all vehicles in the Dakar region and constitute a major source or air pollution. The average age of vehicles in Dakar is approximately 15 years for cars and 20 years for buses. More than 40 per cent of the cars have diesel engines, which have particularly toxic emissions. In Nigeria, air pollution from the direct production and consumption of fossil fuels is exacerbated by the flaring of natural gas. Due to the lack of gas utilization infrastructure, Nigeria flares around 75 per cent of the gas it produces.53 Gas flaring, which occurs in part because of limited infrastructure, contributes to both the production of acid rain and increased carbon emissions into the atmosphere—major source of CO2 and methane. Urban air pollution is likely to become a worsening problem as a result of increased economic and human activity that results in increased combustion of fossil fuels for domestic energy needs in both urban and rural areas, dependence on old vehicles and dirty fuels, or production practices such as the practice of gas flaring in Nigeria. In addition, processes that might accompany increased activity and trade, in particular, is the development of transportation networks in the region, allowing people to travel further distances to go to work, and moving goods towards ports on the coasts could aggravate the problem, particularly given the high dependence on fossil fuels for transportation and industrial activity. 52 These could be used as prototypes for even more environmentally sustainable systems of farming. Edwin A. Gyasi and Juha I. Uitto (1997), o.c. 53 US DOE April 2002. 62 • Biodiversity Western Africa as a region is well endowed with a wide diversity of habitats and species of flora and fauna. Its forests are particularly diverse (see Box). However, there are serious threats to the biodiversity in the region, through habitat loss brought about by human behaviour has led to the loss a number of species of flora and fauna and threatens many more.54 Population pressures can put pressure on habitats as lands are converted for urban development and agricultural plantations to service growing population. In addition, it can lead to over-harvesting of plants and animals due to increasing population and rising consumption levels. Trade liberalization and the economic pressure that it encourages threaten biodiversity in a number of ways. Most directly, involves the potential for a depletion in species brought about by an increase in the trade in endangered species, without adequate enforcement of international MEAs such as CITES. In addition, increased trade can facilitate the introduction of alien invasive species (which dominate and alter habitat conditions). Economic pressures could also lead to the continued destruction and fragmentation of habitats (including deforestation), accelerated by increasing populations and increasing industrial and agricultural activity. This might include clearing and burning of forests, uncontrolled or illegal logging, fuel wood extraction, shifting agriculture, nomadic cattle rearing, overgrazing, and the continuous exploitation of marginal lands. Habitat loss due to conversion of natural habitats is well-documented. Savannas in the north have been degraded by exploitation for food, fuel wood and other resource; untreated effluents from domestic, commercial and industrial sources have polluted wetlands creating a toxicity risk for flora and fauna. Sustainable farming systems based on effective soil-regeneration techniques would not only contribute to the health of the soil, but could help alleviate pressures on species diversity.55 Box 3: The Upper Guinea Forest The Upper Guinea forest extends from western Ghana through Ivory Coast, Liberia and Guinea to Southern Sierra Leone, over approximately 420,000 km2, It is a biologically unique system that is considered on of the world’s priority conservation areas because of its high endemism. Nearly 2000 plants and over 41 mammals are endemic to the ecosystem. Species diversity is also high, with more than 20,000 butterfly and moth species, 15 species of even-toed ungulates and 11 species of primates. Estimates of existing forests suggest a loss of nearly 80 per cent of the original extent. The remaining forest is highly fragmented and spread across national borders. The forest fragments that remain are under severe threat, mainly arising from slash-and-burn agriculture which accounts for much of the sub-region’s subsistence food production. Source: Conservation International 1999, UNEP 2002. 54 In Nigeria for example, in recent years the country has lost a number of important species including the cheetah, the pygmy hippopotamus, the giraffe, the black rhino and the giant eland. About 10-12 species of primates are under threat. An estimated 484 plant species from 112 families are threatened with extinction because of habitat destruction and deforestation. Government of Nigeria 2000. 55 Benneh, G. 1990. Towards sustainable development: An African perspective. Geografisk Tidsskrift, 90. 63 Forests as a key natural resource and habitat. Commercial timber production is an extensive and lucrative occupation in West Africa contributing significant proportions of income and foreign exchange. Between 1990 and 2000 a total of 12 million hectares of forest were cleared in Western Africa – 15 per cent of the region’s total forest.56 Timber and wood products are typically exported to earn foreign exchange, and they contribute a considerable amount to GDP. Forests have also been cleared for agriculture, particularly during the 1970s and 1980s when high incomes could be earned from cash crops such as coffee, cotton and sugar.57 Local communities often suffer most from forest degradation as they lose vital sources of firewood, construction materials, clothing, pharmaceutical products, food, hunting accessories, cultural and religious apparatus and grazing land for animals. In addition, the region loses key carbon sinks that can contribute to mitigating the challenge posed by global climate change. • Coastal Zones and Marine Resources The coastline and marine waters off the coast of West Africa include rich and diverse ecosystems. They also provide essential resources for the region. An estimated half million people living in Mauritania, Guinea Bissau and Senegal rely on fisheries for their income and their food supply.58 In addition to fisheries, there are abundant oil and gas reserves off the West African coast, particularly in the Niger Delta. Economic opportunities also exist as a result of mineral deposits, sand, gravel and limestone and opportunities for shipping and tourism. Population pressures have contributed to substantial resource degradation in the coastal zones of Western Africa. The coastal region of Western Africa already includes major population centres, and the coastal population is likely to rise to about 20 million by 2020, through growth of existing coastal populations and migration from inland areas.59 In Ghana 35 per cent of the population live on the coast, and 60 per cent of industry is concentrated in the Accra-Tema metropolis. In Nigeria, about 20 million peoples (22.6 per cent of the country’s population live along the coastal zone, and 13 million people live in the coastal capital of Lagos which is also the centre for 85 per cent of the country’s industrial activity.60 The coastal region of Dakar (Senegal) is home to about 4.5 million people (66.6 per cent of Senegal’s population) and 90 per cent of the country’s industries.61 Industries that are located on the coastlines include, inter alia, fisheries (artisanal, industrial and aquiculture), mining and oil exploration, oil refinery, petrochemical, fertilizer, liquefied natural gas, iron and steel, and aluminium smelting. Other uses of the coastal regions include agricultural land for food crops such as yam, cassava, plantain, maize and rice, as well as cash crops including palm oil and rubber. The coastal areas are also used to support the tourism industry, and transportation (shipping). 56 UNEP 2002. 57 UNEP 2002, FAO 2001. 58 IPS 2001, UNEP 2002. 59 UNEP 2002. 60 UNCHS 2001, Chidi Ibe 1996. 61 IPCC 1998. 64 The stress brought about by the increasing demand for resources, compounded by industrial and urban development and their associated pollution loads has led to increasing stress along the coastlines of West Africa, including: erosion, degradation of the coastline, combined utilisation of the coastal resources contributes to growing environmental problems including: land degradation, erosion and flooding, fisheries depletion, deforestation, biodiversity loss, introduction of exotic species, oil pollution, gas flaring and solid waste pollution. The potential for further degradation of coastlines and further depletion of marine resources will be influenced by population pressures including the continued steady migration of people towards, the coast. Urbanisation, and to the extent that agricultural activities expand in coastal region, increased agricultural plantations, could apply continued pressure on coastal rain forests to (what remains is decreasing at an annual rate of between 2 and 6 percent). 62 In addition, chemical residues, fertilizers and soil washed from the surrounding cultivated areas can cause eutrophication in coastal wetlands. Industrialisation related to increased economic activity could also accelerate deterioration of coastal zones. At present, main sources of industrial pollution (the discharge of untreated effluents from industrial operations) in coastal zones in Western Africa include breweries, textile industries, tanneries, aluminium smelting, petroleum processing and edible oil manufacturing (palm oil). This could increase and expand to other sectors with rising economic pressures to expand industrial pollution along the coastlines.63 Activities that involve the extraction of natural resources along the coastline also threaten the health of coastal and marine ecosystems. This includes mining of sand and gravel from estuaries, beaches and directly from the continental shelf, which contributes to coastal erosion and shoreline retreat. It also includes offshore mining and oil drilling activities mainly because of leaking pipes, accidents, ballast water discharges and production-water discharges. Drilling also involves the use of heavy metals. Oil exploration and industrial effluents are also primary sources of land-based marine pollution in Western Africa. There is also the ongoing risk of an irreversible depletion of fish stocks resulting from over-fishing in territorial waters. There are also threats to the coastal regions brought about by processes that accompany any increasing industrial and agricultural activity as a result of liberalization. This includes the construction of large scale infrastructure projects (including dams inland and ports and harbours along the coastlines) that contribute to coastal erosion. It also includes dangers posed by increasing marine transportation. Shipping contributes to the pollution of coastal waters and marine waters and facilitates the introduction of damaging invasive species. According to the government of Nigeria, oil exploration, shipping, crude oil marine tankers, dumping of industrial effluents and fishing with explosive substances and poisonous matter are the primary sources of sea-based 62 World Bank 1996. 63 Akpabli 2000, UNEP 2002. 65 pollution.64 In shipping ports, where the trans-shipment of oil takes place, the chronic release of oil into the water though ship leakage, ship maintenance is a problem. As world oil demand increases, oil-producing countries in the sub-Saharan Africa are increasing the production and export capacity, leading to an increasing volume of oil being shipped though pipelines and via tankers. In addition, as shipping lanes become more congested, the changes of spills and accidents increase, putting the environment at greater risk. Caribbean The Caribbean region is one of the richest in the world from a biological point of view. The environment is of great importance either because the ecosystems are very fragile, especially in the islands where the population densities are high, and also in other countries since it represents an important part of the economy and should be managed in a sustainable way. As for the social dimension, the environmental protection in the region is strongly related to the economic development and choices that are directly related to trade opportunities. Data on environment are disseminated and not homogeneous, making the comparison between countries difficult especially since it is a complex region exhibiting wide disparities in the development of population, level of economic development, and access to wealth and natural resources. The approach will be therefore to focus on the environmental risk related to specific economic activities. Most countries within the Caribbean region are aware of the importance of environment. They have usually ratified international environmental agreements and are active within the small island grouping participating in international environment negotiations, especially the ones tackling issues related to climate change. 64 Government of Nigeria 2000. 66 • Global environmental fragility The region is submitted to different environmental threats that are linked to regional and global changes. The first one is the sea level rise, a predicted effect of global warming that is of special concern to low lying coastal areas and island nations. Another point is that coral bleaching has been increasingly observed in the tropical seas of the world and could bring about massive ecological changes for coral reefs and other marine ecosystems. This should be added the impact of phenomenon such as "El Niño" or tropical climatic events such as hurricanes. The strong and highly unpredictable impact of environmental changes represents an additional source of variability and uncertainty in all phases of the planning and management of regional fisheries. • Natural resource exploitation Some countries in the region rely on mineral extraction such as Jamaica, Guyana and Suriname for bauxite or Trinidad and Tobago for petroleum. They are confronted with environmental problems. The countries producing bauxite/alumina are affected by problems related to mined-out lands and toxic 'red mud' lakes (storage areas in which the residual from processing bauxite into alumina is deposited). Petroleum producing countries experience problems related to oil drilling on land as well as oil spills. These two products weight heavily in the national exports. Therefore, the introduction of environmental norms for foreign investments in these sectors and for products exported to Europe could have impact on the environment. Forestry is also an important economic sector in the Central American countries of the region. It covers some 95% of the land area of Suriname and Guyana and 90% in Belize. But the utilization of this resource varies among countries. Suriname and Belize export very small quantities of logs or wood panel (less than US$4 million per year) and, in Belize, the cost of importing paper and wood-panel exceeds the benefits from log exports. The forest industry in Guyana is much more developed with exports of logs and wood-panel that total nearly US$30 million per year. In these countries, the opening of new markets for logs but also for processed wood products as well as the conditions attached to these markets will have direct effect on the forest management. Most other countries in the region are confronted with high rates of deforestation (where forests cover less than 15% of the country’s surface). In Haiti the forest has nearly totally disappeared (covering only 0.8% of surface). In Jamaica, deforestation could result in the disappearance of forest cover by the year 2010. This implies high risk of soil erosion and problem of access to low cost energy for the poorest people. Although this environmental problem is a high priority, it does not have direct links with prospective EPAs. Access to water is a critical issue in most islands of the region with the drastic increase of water consumption. This is due to the population increase as well as the development of 67 irrigation. In Jamaica, for example, between 1960 and 2000, population increased by more than 50% and irrigated areas by nearly 80%. As a result water consumption was tripled. In Trinidad and Tobago, the increased by 70% of the population during the last 40 years and the doubling of irrigated areas had the water consumption multiplied by four. In Haiti, during the same period, the doubling of population and irrigated areas resulted with the doubling of water consumption. It is clear that with limited resources in water, these islands are confronted to water scarcity and access to water problems. • Agriculture and fishery Agriculture in the islands is mainly intensive due to the lack of surface area. It has resulted in recent years in intensive use of various agro-chemicals that have contaminated domestic water resources. The types of agricultural practices in some of the smaller countries and the cultivation of all lands available, even the most fragile, have led to soil erosion, landslides, and flooding. Changes in the agriculture exports may have different effects based on the new opportunities given to farmers. The lack of market may lead to the abandonment of agricultural activity with some positive impacts for the environment but it can also push the poorest farmers to cultivate even more marginal and fragile lands or to shift to more lucrative crops that are less adapted to the local agricultural local conditions (i.e. shifting from banana plantation that can have a soil fixing role to annual crops exposing to even greater soil erosion). The Caribbean region has developed a wide variety of fishing activities. It goes from the industrial and traditional fishing activity to the recreational fishing for tourism. Main fisheries within the area are for small and large pelagic finfish, reef fishes, coastal demersal finfish, crustaceans and molluscs. The captures in the region is around 120,000 tons per year, one third being done in the waters of Guyana. The other main catches are from Suriname, DR, Bahamas and Trinidad & Tobago. Although it is region surrounded by sea, the fish captured in the local waters barely covers the needs. In 2000, exports of fish represented US$210 million and imports US$150 million. One third of the exports came from the Bahamas followed by Guyana and Belize. DR, although it is one of the biggest producers of the region, is also one of the main importers. Two thirds of fish imports are done by DR and Jamaica. This is quick presentation of the fishing market in the region shows the fragility of the resource and the increasing difficulty of most countries to cover their needs. This is directly related to overexploitation. According to the FAO, 35 per cent of stocks in the region were regarded as overexploited. But the large year-to-year fluctuations in fish abundance and total production are also due to changes in environmental conditions. The region, particularly the western coast of the Americas, seems to be particularly susceptible to the impacts of environmental changes. Particularly noticeable are the impacts of the "El Niño" phenomenon. Changes in the overall distribution and local abundance of squids, tunas, coastal shrimps, hakes and a relatively wide variety of species, which are or could be related to changes in the "El Niño" Southern Oscillations (ENSO), have been reported on both the Pacific and Atlantic sides of the Americas. In the Caribbean area, tropical climatic events also seem to have an 68 impact on the abundance and production of important fish stocks. For instance, it is reported that hurricane Gilbert, which hit the area in 1988, caused high mortality among juvenile lobsters. • Services Tourism has contributed to degradation of certain natural assets like coral reefs, not only through tourist encroachment on the reefs but also the mining of coral for the production of various craft items. Expansion of the tourist sector has also contributed to the erosion and ultimate destruction of some beaches. It has also increased the pressure on the access to water. The development of tourism should therefore be considered within the framework of tourism policies and standards taking into account the environment. This is especially important since part of the tourism development is directly linked to the capacity of the countries to preserve the environment resource (coral reefs, forests and wildlife). 69 Table 6 - Priority Sustainability Issues for Western Africa and the Caribbean Regions of the ACP Economic Social Environmental Western Geographic Disparities Population Land: Desertification and Degradation Africa • Regional economy dominated by Nigeria ! Large population increase ! Desertificatoin, soil fertility and erosion, serious and WEAMU(UEMOA) that structure ! Very young population problem in many parts of the region. Affects as counterweight to Nigeria inside ! Prospect of fewer “dependants” in coming productivity and ultimately food security. ECOWAS. years leading to potential for increased savings ! Any developments in agriculture wil impact land • Sahelian (mainly land-locked), poor and and potential vast workforce in coming years to (positively or negatively). non-diversified countries strongly support development. ! Aggravated by unsustainable farming practices, dependant on weather conditions. ! Potential development of an emerging overgrazing, deforestation. • Non-Sahelian countries (mainly in entrepreneurial middle-class. ! Potential for negative impacts through intensive Guinea Gulf) countries, more Migration and Urbanisation agricluture (in sectors such as cotton, for developped, with favourable climatic ! Large-scale migration from rural areas to urban example) conditions and sea access. areas. ! Designing of sustainable farming systems, • Only three non-LDC countries : Nigeria, ! Rapid, unplanned urbanisation, lack of adopting integrated and comprehensive Ghana and Ivory Coast infrastructure and development of urban slums. approaches. Concentration of Economic Centers ! Increased job demands from rural migrants ! Loss of small producers and rural populatoins • Strong urban development in the coastal (previously agricultural workers) and prospect through migraton can in some cases aggravate ‘belt’ (Guinea Gulf) and (less of increase in “informal” urban economy. desertification, in other cases restor land to its importantly) in the soudano-sahelian ! Risks of social/ethnic tension, particularly in natural vegetative state. ‘belt’, concentrating employment urban areas. ! Developments of transportaton networks to potentialities. ! Loss of population in rural areas and remaining facilitate the movement of goods will impact land • Development of cross-border inter-urban rural populatinos increasingly concentrated Urban Air Pollution network leading to a concentration of around urban centres. ! Industrual activity, located in or around urban economic centres. ! Increasing stress on food supply centres, will contribute to air pollution as main • Development of (still expensive) transit Poverty energy source, fossil fuels. industry between the agriculture zone ! Low HDI rankings, all countries classified as ! Aggravated by use of “dirty” fuels and old “low” with the exception of Cape Verde and vehicles, in increasing numbers due to high levels and the coastal belt. Ghana that are classified as “medium”. of urbanisation and supply. • Unequal potentialities between market- ! 70.8% of population in Western Africa live on ! Developments of transportaton networks to connected/disconnected agriculture less than $2 per day. facilitate the movement of goods will impact air zones. ! Poverty is worst in land-locked countries (Mali, quality. • Strong dependancies of several countries Niger, Burkina Faso). Biodiversity to Nigeria (Mali and Togo as ! Poverty is least in countries along the Atlantic ! Huge wealth of biodiversity, habitats and species ‘warehouses’) hampering industrial coast. of flora and fauna (in particular forest development of some others countries. ! Poverty levels stable in population that ecostystems). Weak Economic Diversity participate in the “modern” economy, less so ! Threats to biodiversity include population • Primary reliance on agriculture in the for the “informal” economy pressure on habitats as land convrted for urban 70 land-lock and poorest costal countries. for the “informal” economy. pressure on habitats as land convrted for urban • Small farms and difficulties of • Disequilibrium between market- development and agricultural production expands industrialisation connected/disconnected agriculture zones. to produce more food. • Potentialities for diversification in fruits • Potential social problems due to the unequal ! Overharvesting of plants and animals as a result and vegetables in most countries. sharing of economic gains. of increasing consumption. • Weak development of industry, mainly Health ! Trade in endangered species, and inadequate linked to mining and fossil fuel • AIDS development mainly in the young/active enforcement of CITES. extraction (Guinea, Sierra Leone, urban population. ! Introduction of alien invasive species can be Nigeria). Gender encouraged by trade. • Distressed import substitution in most • Very low GDI rankings for countries in the ! Industrial pollutoin threatens biodiversity in countries. region (with the exception of Cape Verde coastal areas and other wetlands. • Important development of services, which ranks average among developing ! Deforestation (loss of forest resources, and loss of mainly based on commerce (Togo, countries). important habitat for biodiversity) is a major Guinea, Cape Verde, Senegal) and • Worst ranking in land locked countries (Mali, problem in some countries due to exports of secondly in transport (Cape Verde, Burkina Faso, Niger). unprocessed wood, clearance of land for Senegal, Gambia). agriculture and collection of firewood for fuel. • Important economic development Coastal Zones and Marine Resources potential in the South of the Atlantic ! Coastal and marine areas provide a wealth of coast (mining, fossil fuels). natural resources (inter alia, agriculture, fisheries, . oil and gas exploreation, mining, tourism). • Particular vulnerability of poorest ! Degradation of coastal zones occurs as a result of countries to liberalisaton and external shock : lack of diversification increased population pressures and urbanisation possibilities and industrial infrastructure. in coastal cities. ! Contentration of industry in coastal regions leads Importance of the informal economy to industrial pollution from, inter alia, breweries, • Economic importance of informal, cross- textile industry, tanneries, aluminum smelting, border trade. petroleum processing and edible oil • Primarly social role of informal manuracturing. economy stabilisating huge migration ! Infrastructure projects inland (dams) and along flows. the coastline (ports and harbours) contribute to • Informal economy as the main growing coastal erosion. sector in terms of population ! Increasing transportation (shipping) can cause employment. marine pollution through, inter alia, release of oil, Weak business environment cleaning ballasts etc. • Inefficient financial services. • Unreliable judicial system but impoving in WAEMU countries. • Poor transport and communication infrastructure (parallel North/South 71 corridor rather than horizontal intra-zone transortation infrastructure). • Insufficient training capacities. Carib- • Small size of economies and small size Population • High global environmental vulnerability, bean of local markets. • small countries with low population growth especially in the Island due to high population Region • Predominance of service sector in the and stabilized population structure density economies. It is mainly tourism that is a • Two exceptions: Haiti (more than 10 million • Vulnerability to global and regional highly vulnerable sector. The two other habitant, high population growth rate, 40% environmental accident such as the global service sectors, transport and population under 15 years of age) and DR warming or climatic accident (El Nino, commercial services, are less vulnerable. (more than 10 million habitant and high cyclones) • Little reliance on agriculture except for growth rate) Natural resources Guyana, Belize and Haiti. But high Poverty • Pollution linked to the mineral extraction in specialisation of agriculture on few • One under-developed country (Haiti), one Jamaica, Guyana products in most countries. Therefore; a country with a low HDI (Guyana) • Pollution due to extraction and processing of high vulnerability to changes in import • Problems of access to health services in Haiti petrol in Trinidad & Tobago policies of importing countries. and Guyana • Overexploitation of forest in the islands with • Haiti is the only country classified as a • Problems of access to improved water in Haiti erosion, lost of biodiversity, lack of access to LDC but also some difficulties ion Jamaica, Belize, low cost energy for poorest people in Haiti • High density of population in most DR and Trinidad & Tobago • Importance of forest in economies of the Island but low density in the countries on • High level of alphabetization and American countries. Risk of over exploitation the American continent. improvement of the situation in Haiti, high and mismanagement. level of education • Difficult access to water in most islands with • Strong income inequality constrains for the development of irrigated • Rural poverty directly related to fall of agriculture, human consumption commodity prices and access to land Agriculture and fishery • Urban poverty related to access to training, • Increase of agriculture production in the Islands credit, low wages and discrimination dependent on the intensification with risks of • Strong interaction between urban and rural pollution by inputs, erosion, lack of water areas due to small distances resources. • Predominance of the situation of labour • Overexploitation of marine resources in the market on poverty level. region with environmental risk and economic • High importance of remittance from migration risk (lost of attraction for tourism, increase in in the coping strategies of the poor fish imports) Gender Tourism • Relatively equitable access to education • High development of tourism with impact on • Strong discrimination in access to wealth coral reefs, increase in water consumption, • Strong discrimination in access to high level destruction of beach, disturbing of fragile decision making positions ecosystems. 72 2.2 Major Trade flows This section identifies major trade flows associated with regional country groupings as part of the priority-setting exercise. In particular it examines values and volumes of major exports from the ACP regions to the EU, major exports from the EU to the ACP regions. This information will allow the project team to focus on sectors where there are significant levels of trade between the EU and the ACP, or where the EPAs might present opportunities to enhance trade in specific sectors. This information, considered with the previous discussion of sustainability priorities will inform decision to prioritise specific sectors or products for detailed study in the regional SIAs. Therefore, the overall purpose of this section is to contribute to: • Selecting trade measures and sectors for detailed study. Reviewing the trade flows between the ACP regions and the EU will contribute to decisions to prioritise trade measures and sectors, based on the criteria that reflect products and sectors most closely related to the EU-ACP trading relationship. • Developing baseline trade information. An initial survey of trade flows between the EU and the ACP regions will contribute to developing baseline information for the SIA as a starting point from which trade related impacts of EPAs might occur. Although the EU is a major trading partner for ACP countries, it is not the dominant partner in all regions. Any liberalisation that occurs through the WTO or in regional agreements such as the FTAA will have important implications for the trade in the ACP regions and particular country groupings (FTAA for the Caribbean region, PACER for the Pacific Islands Countries), independently of what is negotiated in the EPAs. Nevertheless, the promise of the EPAs is that they can go further than trade, and encompass a range of development measures to help countries adjust to the removal of preferences and the lowering of tariff and non-tariff barriers, which will subject them to increasing competition from other countries and regions that might be better able to supply certain products at more efficiently and more competitively. Western Africa The EU is a major trading partner for West African countries and is the main destination for exports, and the main provider of industrial products.65 From a trade perspective, intra- regional trade is important for Western Africa, and the dominant influence on trade in the region is Nigeria. 65 Intra-regional trade accounts for 10.2% of total exports from ECOWAS. Intra-RTA trade is a major indicator of the progress towards regional integration and the prospects for its future deepening. SADC is the region within Africa where intra-RTA trade is the most important. SADC alone represents nearly one third of the total intra-RTA exports, with ECOWAS as second. SADC and ECOWAS countries trade more with other RTAs than with the member countries of their own RTA. 73 Nigeria is a major regional partner for other West African countries. Nigeria has 60% of West Africa’s consumers, 47% of GDP, more than 50% of the manufacturing potential of the region. If trade with Sub-Saharan Africa only represents a tiny proportion of Nigerian foreign trade (from 2.5% to 6%) ECOWAS’s share in Nigeria’s trade with Africa varies between 70% and 80%. This trade is unbalanced and largely in surplus for Nigeria.66 Official statistics tend to show that Nigeria is mainly trading with Ghana, Ivory Coast and Senegal, the economically most advanced countries in the region. Nigerian petroleum products represent 99% of official sales to Ivory Coast and 80% of those of Ghana. Over 75% of exports to Nigeria from Ivory Coast are refined petroleum products67. Nigerian imports from Ghana are cola nuts, aluminium products salt, textiles, and dried fish but also refined petroleum products. Behind official trade, informal trade with neighbouring countries include a wide range of goods made locally or imported from the EU or Asia. This trade has its own form of organization.68 The volume of informal trade is difficult to assess but reliable observers consider that informal imports by Nigeria’s neighbours (Benin, Cameroon, Chad, and Niger) add up to over US$1 billion/year.69 Adding long distance trade to other countries (Burkina Faso, Ivory Coast, Ghana, Mali and Togo) the total estimate value of informal exports to West Africa from Nigeria range from US$1.5 billion to US$1.9 billion. Particular attention should be paid to foodstuffs: Nigeria now supplies its neighbours with grains, the largest consumers being Niger and Chad.70 Nigerian imports from ECOWAS are led by livestock, followed by vegetable oil from Ivory Coast, and “fancy” textiles from Ghana and Ivory Coast. But imports are mainly re- exports. Benin71 and Cameroon act as “warehouse state” for products that are either banned or highly taxed in Nigeria such as second-hand and retreated tires, second-hand clothes, textiles and garments, and used cars. If imported products from Nigeria enable low-income population to acquire fuel, manufactured products, and food, this trade has a destructive effect on the economies of neighbouring countries leading to lost revenues and unfair competition to their locally manufactured products. • Exports from Western Africa to the EU Exports from Western Africa to the EU are not diversified. Major exports to the EU are based on primary products, and are therefore vulnerable to global commodity products and internal shocks. Exports tend to include very little valued-added for the local economy. 66 Two reasons: (1) Nigeria is the only regional supplier of crude oil and (2) the loss of competitiveness of the sub region’s products in the Nigerian market. 67 Inter alia, the main reasons of this situation are that the similarity between the two countries’ manufactured goods does not favour complementary trade and payments procedures are long and difficult. 68 It starts from the main Nigerian cities (Kano for Niger, Maiduguri for Northern Cameroon and Chad, Calabar for Southern Cameroon and Lagos for Benin and other countries). 69 LARES in Cotonou 70 The volume of maize and millet exported to Niger alone varies from 100,000 to 200,000 tons/year. 71 Over 75% of the goods landed at Cotonou harbour are estimated to be headed for Nigeria for a value of over $ 10 billion/year 74 Of the main products traded, three of the top four exports can be attributed to individual countries in the region. Petroleum oils and petroleum gas together make up just under 39% of all exports from the region to the EU. This is virtually exclusively due to exports from Nigeria. In addition, by value, ships rank as the third most important export from the region. This is due exclusively to Liberia. Cocoa, which is the second most important product exported from Western Africa to the EU is one that is important for a number of the countries in the region. Cocoa is exported primarily in its raw form, although there is some capacity for preliminary processing in some countries. In particular, the industrial base exists to process it into cocoa paste, a very rudimentary level of processing, and to a lesser extent, into cocoa butter, fat and oil. In countries such as the Ivory Coast where this capacity exists, it would be relatively easy to add value to the raw beans domestically. Figure 6: Main products exported from ECOWAS (+Mauritania) to the EU Other (35%) Fuels (39%) Cocoa (19%) Ship-boats (7%) Source: Comext 2002 EU declarations, European Commission, DG Trade. External Trade – 2002. The wood sector figures prominently in Western African exports to the EU. Wood is exported in its rough form from some countries such as Nigeria, and is subject to very limited processing – being sawn and cut lengthwise – in Nigeria and other countries in the region. The value added by simply engaging in this preliminary stage of processing doubles the value of the export for the countries of Western Africa. Fish and fish products are also significant exports from Western Africa to the EU. This includes frozen fish, fillets, and crustaceans. There is some processing capacity in the region, particularly in countries such as Mauritania with very rich resources, to process fish products into frozen meals for export to the EU and the United States. Exports of fish and fish products are the most important exports for Senegal. They are also significant in the Ivory Coast and Ghana, both countries with relatively well developed industrial capacity to process fish (including tuna). Shrimps are a very important export product for countries as it is a very high value product. It is critical for Benin, for example. Apart from cocoa, there are a number of other agricultural products that are important exports for the countries of Western Africa. Specific fruits and vegetables are important exports for particular countries. For example, pineapples is a major crop for both Ghana and 75 the Ivory Coast, two of the countries in the region which are not classified as LDCs. Pineapples are exported in their raw form, but the capacity exists to add further value domestically through some preliminary processing, which does not currently occur. Bananas figure relatively prominently in the exports from the Ivory Coast to the EU. Bananas are not exported in any significant quantities from other Western African Countries. Given the Ivory Coast’s status as a non-LDC, the possibility exists that in that particular country, there may be some impacts from the removal of the Banana Protocol under the Lomé system of preferences as the domestic industry is not competitive. In addition, cotton is a key export from Western Africa. Typically it is exported in its raw state (neither combed nor carded). There is no viable processing industry for cotton in the region and there is increasing competition emerging by producers in Pakistan, India and China. While it exports raw cotton to the EU, one of the key imports for many of the countries in the region is used clothing, and to some extent, cotton fabric. • Exports from the EU to Western Africa The EU exports a wide range of goods into the countries of Western Africa. There is no one product that represents over 10% of imports from the EU. The export of ships and boats, which makes up the largest single item exported from the EU to the region reflects the role of Liberia as a flag of convenience location, and does not reflect a “real” flow of traded goods. Vehicles also make up a large portion of the exports from the EU to Western Africa. Motor vehicles for personal use represent a trade, from Europe, in second-hand cars to the region. It is a significant inflow for many of the countries in Western Africa. Similarly, inflows of “powered aircraft” represents the import of used airplanes and helicopters into the region. Figure 7: Main products exported from the EU to ECOWAS (+Mauritania) Other (40%) Machinery (25%) Ship, boats (11%) Chemicals (10%) Vehicles (8%) Fuels (6%) Source: Comext 2002 EU declarations. European Commission, DG Trade. External Trade – 2002. 76 Four per cent of the exports from the EU to Western Africa is comprised of medicines, and is important for virtually all countries in the region. This reflects the fact that there is no viable domestic producer of generic medicines in the region. Similarly, milk and cream make up significant exports from the EU to Western Africa, which does not have a viable dairy industry. Other agricultural products of note that are exported by the EU include prepared or preserved tomatoes (which is essentially tomato ketchup); wheat and muslin (replacing cereals grown domestically) which are necessary to make bread, which is becoming more common in the cities in response to consumer demand, but having a negative impact on producers of traditional cereals such as millet; meat of fowls (essentially chickens). The latter two products compete with domestic production, but as a result of agricultural policies in the EU, can be produced more competitively in Europe. Caribbean Region Trade in the CARICOM region is heavily weighted towards the United States, relative to other ACP countries. Although the ACP as a whole tends to export roughly one-third of its goods and services to the United States and 29% to the EU, the Caribbean ACP countries export nearly two thirds (60%) of their goods and services to the United States and only 17% to the EU. The Caribbean ACP countries also import far more from the United States than from Europe, 48% and 14%, respectively. This suggests that the FTAA negotiations will be an important conditioning factor in an SIA that considers CARICOM. 72 The strategy of the Caribbean countries seems to have relied, until recently, on a status quo strategy.73 Indeed, the main question for ACP Caribbean is not the negotiation of an EPA with EU but the question of the planned removal of the commodity protocols. However, there has recently been a move to prepare for other possible outcomes including reciprocity. The two main possibilities are the negotiation of free trade agreement within CARICOM, or using the parallel regional negotiating machinery (RNM). In principle, RNM has the responsibility for international negotiations (FTAA, Lomé and WTO) while the CARICOM Secretariat negotiates the regional Caribbean Agreement.74 • Exports from the Caribbean Region to the EU As a region, exports from the Caribbean Region to the EU are relatively well diversified. This distinguishes the Caribbean Region form many ACP countries in Africa. 72 EU DG trade, statistics on EU-ACP trade (EU website). Given such high levels of trade with the United States in particular, it is not surprising, that CARICOM countries are immediately interested in the outcome of the FTAA negotiations, and that an EPA with the EU is less of a short-term priority. 73 This is also true for the Pacific ACP countries. 74 “The role of the RNM is to develop along with technical advisory group a perspective on the agenda, initial draft and the basic objectives to be sought by CARICOM.” HBSL (2001). 77 The main exports by the Caribbean region to the EU are boats.. It is mainly yachts and sport and pleasure boats and not cruise-boats, ferryboats or cargo boats like in countries such as Liberia, with the exception of St Vincent and the Grenadines. Nevertheless, nine out of the 15 Caribbean countries offer registries for “flags of convenience”, which explains the importance of boats and ships in the trade flows with the EU.75 The second type of item exported by the region to the EU is mineral resources. This includes petroleum oil exported mainly by Trinidad and Tobago. In 2002 oil and gas combined represented 48.7% of that country’s total exports to the EU. The only other countries in the region that export any significant amount of oil to the EU are the Bahamas (2% of exports to the EU) and Antigua & Barbuda (1.3%). The other mineral resource exported is aluminium hydroxide, which is by far the main export of Jamaica and Suriname to the EU. Figure 8: Main products exported from the Caribbean Region to the EU Ship, boat (33%) Other (20%) Chemicals (14%) Unden ethyl alc (11%) Fuels (8%) Sugars (8%) Fruit, nuts (6%) Source: Comext 2002 EU declarations, European Commission, DG Trade. External Trade – 2002. It should be underlined that exports of high value mineral resources and of expensive goods such as boats may mask the importance of other exports that may more closely concern more people, and have a broader geographical coverage with more important environmental impacts. This is the case for agricultural production. Although exports of agricultural product represent only a quarter of exports to the EU any changes in this sector may have a higher impact on the labour situation, the level of revenues and the environment. Moreover, they are the most important exports for a number of countries in the region. The main agricultural export is rum from four countries. It is by far the largest export to the EU for the Bahamas but it is also important for Jamaica, Guyana and Barbados. The second most important product is sugar (7.3% of total exports to EU in 2002). Sugar is a key export item for virtually all the countries in the region including Barbados, Belize, Guyana, St. Kitts, and Trinidad and Tobago. Similarly, bananas are a major export item from 75 102 countries propose offshore and onshore jurisdiction for flags of convenience. Nine are located in the Caribbean region: Antigua & Barbuda, the Bahamas, Barbados, Belize, Haiti, Jamaica, St. Kitts & Nevis, St. Vincent & the Grenadines, and Trinidad & Tobago. 78 the region (5.4% in 2002). Bananas are of particular importance to Dominica, the Dominican Republic, St. Vincent, St. Lucia and Belize. The exports of rum have been already affected by the remove of the protocol. The two other exports (bananas and sugar) will be impacted by the removal of the special protocols that were set up under the Lomé system of preferences. Given that they are often ranked as the second most important export products, the removal of the preferences granted by the protocols could have important implications for future export markets in the EU. Textiles are also key exports to the EU representing 2.2% of total exports in 2002 (jerseys, pullovers and cardigans). Crustaceans are the most significant fishery product exported and are important for a limited number of countries including Suriname and the Bahamas. • Exports from the EU to the Caribbean Region Most of the EU exports to the CARICOM are ships and boats for access to the flag of convenience register. The exports of machinery are focused on exports of industrial plant components, pumps, and specific machinery essentially for Trinidad & Tobago, Barbados and St. Lucia. The "aircraft" item is a particularity of 2002 since it reflects the import by Jamaica and the Bahamas of satellite material. The import of vehicles, mainly motor cars, is also a leading import from EU into most Caribbean countries. Figure 9: Main products exported from the EU to the Caribbean Region Other (36%) Ship, boat (33%) Machinery (19%) Vehicles (6%) Aircraft (6%) Source: Comext 2002 EU declarations. European Commission, DG Trade. External Trade – 2002. None of these items compete with local industries and other sectors. Moreover, they are usually expensive items and, as with the analysis of exports, they mask the value of other items imported that might have important impacts on sustainability, and compete with local production. This is the case for dairy products (Box 4). Dairy products (milk, cream and cheese) represent the most important import form the EU into Haiti, Guyana, St. Lucia and Grenada. They represent the second most important imports into the DR and the third most important for Dominica and Belize and the sixth for Trinidad & Tobago. 79 BOX 4: The importance of trade in dairy products for the Caribbean Region Dairy products are an important category of products making up a significant portion of EU trade with the ACP countries, particularly exports from the EU to the ACP. After cereals, milk is the second most important agricultural product exported by the EU to ACP countries. Milk imports by ACP countries make up between 10 and 12 per cent of EU exports. The EU dominates the import market in regions such as UEMOA (54% of milk imports in 1994-96) and CEMAC (80%) but faces competition from Australia and New Zealand in the SADC. In CARICOM, EU exports meet half of the import needs. EU milk production is managed through the milk common market. It benefits from quotas and target prices. Moreover, important export subsidies are given to exports of milk (78 to 87% of the total EU price in 1999), butter (129 % of EU price) and cheese (65%). ACP countries produce only 3.5% of the world’s milk. The EU is the top ranking world producer, with around 40% of the world market. Unlike in African ACP countries where widespread domestic production is not viable, it is viable in the Caribbean and imported milk competes with domestic production. In Jamaica, potential production is 25 to 30 million tonnes and consumption 140 million tonnes per year. National production has been protected by a high import tariff, until the structural adjustment programme of the 1990's eliminated production subsidies and lowered tariffs. Production dropped from 31 million tonnes in 1990 to 25 million tonnes in 1994. Moreover, processing factories prefer to import powdered milk. Sixty per cent of imports of powdered milk come from the EU and 10% from the United States, despite the higher cost of production in these two countries. For example in 1996, the cost of production, in US$/litre, was as follows: 0.39 for the EU, 0.3 for the US, 0.2 for Australia, 0.16 for New Zealand, and 0.2 for Argentina).76 The lowering of tariffs has had an impact on government revenue. In most LDCs, trade taxes, and especially import taxes, provide important sources of government revenue. Other agricultural products that are imported in smaller quantities include sugar in Suriname and Grenada, wheat, fish and vegetables in Haiti and meat in Belize. Other important items include medicines. In value terms, it is the most important import from the EU for St. Kitts & Nevis. It is also among the top ten imports for Haiti, Barbados, Antigua & Barbuda, Suriname, Guyana, Dominica, Belize, Jamaica, Grenada and the DR. The only country concerned by the discussions on TRIPS for drugs is Haiti since it is the only LDC in this region. Nevertheless, it appears clearly that medicines are an important market for the EU in this region with strong competition from the United States. The impact of any trade agreement concerning this sector should be evaluated through its impact on the access to essential medicines for the poorest. It should also be linked to the development of a local industry. 2.3 Priority Geographic Clusters Within a regional country grouping, there may be specific geographic locales that deserve priority attention, based on their high levels of economic activity, including production, vulnerability of specific ecosystems, or as home to high levels of particularly vulnerable populations. Where, within the regional in-depth SIAs if makes sense to cluster countries that 76 Jamaica was unable, because of World Bank pressures and of processing factory lobbying, to apply an anti- dumping tax, although this was suggested by different organisations. 80 share specific characteristics, sustainability challenges, or economic and trade profiles, this will be considered on a case-by-case basis within the regional in-depth SIAs. Western Africa For the regional in-depth study on Western Africa, the process of selecting priority geographic locales has commenced. Western Africa is a heterogeneous group of 19 countries, with 220 millions habitants (in 1998), 64% of them concentrated in three countries (Ivory Coast, Nigeria and Ghana) which also account for around 67% of the economy. Within the region, these three countries could be considered together as they are the only three non-DCs in this country grouping. As such, they do not benefit from the “Everything But Arms” initiative which, as of March 2001, allows LDC imports to enter the EU without any tariffs or restrictions.77 ECOWAS could be very roughly divided into three main groups sharing the same kind of economic, social and environmental profiles and facing the similar challenges: ! The coastal group of countries around the Gulf of Guinea – Ivory Coast, Ghana, Togo, Benin, Nigeria. This is the “gravity centre” of the regional economy. A majority of the population and the wealth (80% of GDP) is concentrated in this grouping of countries, led by Nigeria, which accounts for over 50 % of the regional GDP. These countries are experiencing important waves of immigration into a fast-growing cross- border network of urban areas. ! The land-locked countries – Mali, Niger, Burkina-Faso. These countries are predominantly desert. They have little potential for economic development and are particularly exposed to harsh climactic conditions, including drought. The largest groups of the very poor inhabitants of Western Africa live in these countries, predominantly in the rural areas. They are a source of ongoing emigration to countries further south and overseas. ! The Atlantic countries have an economy mainly oriented towards overseas market and benefit (relatively) from more international cooperation than the great land-lock countries; their insertion in the regional integration process is more problematic. The Northern countries in this zone (Mauritania, Senegal, Gambia and Cape Verde) all have the limited potential for development in rural areas, and development is based mainly on urban areas, where most of the job creation exists. Therefore, their development will depends on their capacity to diversify into (urban) sectors other than agriculture and also on the amount of international financial transfers they will benefit of (originating from international cooperation, but also household financial transfers from members of the family working abroad, mainly in Europe). This zone is certainly one of the most fragile in the region 77 Except for Bananas, rice and sugar that will be subject to longer agenda (from 2002 to 2009). 81 The Southern countries (Guinea-Bissau, Guinea, Sierra Leone, Liberia) benefit from important mining/oil resources and agricultural potential, but their development has been hampered by political instability and conflict.78 Provided they find a more peaceful evolution, these countries could have the opportunity to ‘link’ to the regional gravity centre through Ivory Coast. The in-depth SIA of Western Africa may also consider, as appropriate, corridors where the development of intra-regional trade has been most significant. Two main zones are highlighted as potential areas for focus (see map).79 ! The first of these zones is the ‘costal belt’ (300 km wide and 1,500 km long), around the Benin Gulf, between Abidjan (Ivory Coast) and Port Harcourt (Nigeria). More than 40% of the population and 50% of the regional wealth is concentrated in 6% of Western Africa (10% if desert areas excluded). The demographic and migration trends at play in Western Africa will likely enhance this concentration with a projected two- thirds of the regional wealth concentrated in this area by 202080. ! the second zone is the ‘Soudano-sahelian cross-border belt’ which is the heart of agricultural (cotton, cocoa) economy in Western Africa and present the strongest potential for agricultural development aimed at fulfilling the growing needs of the regional market. It is also the second major point of urban development network in Western Africa. This region is on the border between Sahel and costal countries and, therefore, at the heart of regional trade in goods and migration flows between the land- locked countries and the ‘coastal countries’ and the world markets. For these reasons, this region can be considered as a potential “counter-weight” (based on regional market development) to the “gravity centre” represented by the coastal belt, whose development is driven by external trade. These two areas will be important for the future of Western Africa and may have to be more precisely considered, as well as the consequences of their evolution for the remaining part of the region, in particular the land-locked countries in the Sahel which are very poor and have little potential for economic development. The Atlantic countries remain a separate group, with the Northern and Southern countries experiencing different potential 78 In particular, Liberia and Cape Verde that are closed of a civil war situation similar to what Sierra Leone experienced in the last years. 79 OCDE (2001), ‘Une expérience d’approche locale de la coopération régionale sur le pays frontière S.K.BO avec une entrée par le coton et les organisations de producteurs ?’, Note du Secrétariat du Club du Sahel, OCDE, Paris. 80 According to a linear evolution developed by the WALTPS study of OECD-Club du Sahel; cf. OCDE (1998), o.c. 82 Figure 10: Economic dynamics in ECOWAS region Source : OECD-Club du Sahel (2001). Caribbean Region Based on the analysis of the social and environmental vulnerability in the different countries in the Caribbean region and their economy, a classification of countries is proposed develop the in-depth SIA. It is based on the following variables: ! the structure of the economy (agriculture, industry or service dependent, or diversified); ! the level of development (low, medium, high HDI, GDP per capita); ! the size of the country in GDP and in population; ! environmental risk; ! other non-economic commonalities (such as cultural, geological, importance of indigenous people). 83 Table 7: SIA country grouping in the Caribbean region Countries Structure of Level of Size of Size of GDP Environmental risk the economy development population Haiti Deforestation Haiti Agriculture # $ # Access to water Soil erosion The “Big Tourism Dominican Three” Diversified Deforestation Republic, (or industry- $ $ $ Access to water Jamaica, Trinidad led) Petrol and mining & Tobago exploitation The Dominica, Sustainable agriculture Windward Grenada, St Services # % # Biodiversity islands Lucia, St Vincent Tourism Central Biodiversity Belize, Guyana, American Agriculture # $ # Forest management Suriname Caribbean Marine resources The “Happy Antigua & Tourism Few” Barbuda, The Marine resources Bahamas, Services $ % # Water resource Barbados, St Kitts & Nevis Another characteristic to be considered is the geographic location. The Central American Caribbean countries have a very different situation compared to the island countries. The countries based on the American continent have: ! low density; ! important forest resources and other natural resources; ! direct contact with the neighbouring countries either through trade agreements or even migration agreements like Belize with Guatemala; ! a lower trade dependency to the US ; ! the specific problematic of indigenous people; ! lack of infrastructure; ! lower transport cost (although it depends also on the frequency of transport, the development of infrastructure). 3. Setting Priorities 3.1 Trade Measures Starting in 2008, the EPAs will replace tariff preferences with provisions to promote liberalisation that is reciprocal and WTO-compatible and cover “essentially all trade”. Trade provisions contained in the prospective EPAs will be implemented over a period of ten to 12 years. This section is included in the methodology to select the most relevant trade measures to focus on for the EU-ACP SIA. This mid-term report presents potential sustainability 84 impacts of trade measures at a relatively high level of generality. The regional in-depth studies (ECOWAS +Mauritania and CARICOM + Dominican Republic are underway) will prioritise trade measures as they apply to the specific regions with impacts directed at the specific regions. Decisions to prioritise specific sectors in the regional in-depth SIAs will be made based on the potential role of trade measures in terms of their impact on identified priority trade flows and their impacts on identified sustainability priorities, highlighted in Section 2. Given the potential breadth of this SIA priority will be given to trade measures that are most closely associated with the likely agendas for negotiation, those that will most significantly affect trade in strategic sectors between the EU and the ACP countries, and those which might impact most on sustainability. The following criteria have been developed and applied to the long list of trade measures provided in the Inception Report. ! The measure exists as a core component of the Cotonou Agreement; ! The measure is likely to be the subject of negotiations of EPAs with respect to liberalisation; ! The measure is one where one might expect, a priori, there may be important sustainability impacts. Based on a consideration of a range of trade measures considered in the scope of EPA negotiations and the application of the criteria, the following trade measures have been identified as important for the overall ACP-EU relationship, with associated sustainability impacts that will be further defined and explored in the in-depth regional SIAs. The consideration of market access is informed, in particular, by the in-depth examination of market access measures in the West African region. Those sectors that are highlighted are those that could be developed further in the short-term, subject to continuing discussions among members of the project team and feedback from the EU and others. 85 Table 8 - Examples of Potential Sustainability Impacts of Trade Measures (work in progress) Trade in Goods • In general, the impact of removing tariffs will not affect most ACP trade to the EU as Market Access imports from LDCs already enter the EU duty-free. NTBs such as indirect taxes in the EU, however, affect all imports, including those from the ACP. There may be some impacts for EU exports to ACP countries as in some ACP countries various forms of protection remain in place. The impact of removing tariffs is limited to Nigeria, Ghana and the Ivory Coast in ECOWAS, as these countries are non-LDCs, this is particularly true for processed products. • The removal of market access restrictions could lead to further specialisation in ACP countries. • Any decline in agriculture could impact the health of the rural economy and encourage further migration and urbanisation, particularly from the most marginal countries in the Northern Sahel in Western Africa, for example. Unless alternative employment opportunities are created in urban centres, based on rising manufacturing or agriculture directed at servicing urban populations, urban poverty and potential tension might increase, and local infrastructure for providing environmental services might be overwhelmed. Any new manufacturing and infrastructure, particularly along the coastlines will, unless properly planned, have negative impacts on coastal zones. • Social impacts will depend in part then, on availability of paid employment, and the ability of different actors to adapt. • While there may be declines for some agricultural products, there may be increasing opportunities in others, such as fruits and vegetables. To the extent that producers are able to switch into high value sectors with potential for increased exports to the EU, any impacts of a decline in the competitiveness in other sectors might be mitigated. For some products, there may be opportunities to develop niche export markets for organics, based on traditional production methods. However, specialisation on fewer crops could bring about trends towards monoculture resulting in a loss of crop genetic diversity. • In rural areas, a decline in protected export production may offer the opportunity for land to revert to a more natural state with attendant increases in environmental supports and biodiversity. It may also result in the adoption of copping strategies, such as slash-and-burn agriculture or expansion onto marginal lands, which have negative environmental impacts, but provide short-term survival strategies. • Governments will face a loss in incomes as tariff revenues are phased out. • Removal of tariff distortions could encourage increased processing in some ACP countries with an existing industrial base • Trade facilitation could lead to increases in amounts of trade (scale) with varied environmental and social consequences, depending on the product. General Trade Related Areas Intellectual • Well-protected IPs could affect access to basic services (agricultural inputs, health care) property rights • Effects access to new technologies, especially processing technologies to add value to primary products or standards certification technologies. The import of expensive and protected technologies lower the competitiveness of ACP exports. • Effects on research in biotechnology innovation and development of local biotechnologies to respond to local needs; • Potential for the preservation of land races, local varieties and traditional knowledge; • Potential for the loss of genetic diversity as a result of the focus of PBRs on few species and varieties; • Potential for increasing prices for essential drugs; Standards and • Potential benefits from upgrading production facilities to comply with standards; conformity assessment • Implementation of new standards may be prohibitive for individual production units (including SPS (particularly traceability, quality and SPS standards); measures) • Certification can provide opportunities where standards are already being met, e.g. in organic agriculture, sustainable forestry; 86 •Standards should reflect the realities of the ACP countries. Trade and labour •Potential for promotion of fundamental rights and strengthened governance; •Potential for enhanced worker safety and protection; •Potential for improved efficiency and productivity; •Potential for reduced discrimination and reduced access to child labour. Trade in •Potential for access to wider range of services including improved environmental services; Services •Potential for rising prices and the creation of monopolies; •Potential to improve infrastructure, education and training; •Improvement in flows and dissemination of technology from foreign firms; •Potential for increasing employment where ACP countries have a comparative advantage – i.e., tourism, construction, information technology. Specific Trade-Related Areas Investment • Potential positive impacts on productivity, competitiveness and growth through FDI; • Potential negative impacts associated with market concentration and lack of competition; • Integration of production and standards through intracorporate investment can encourage integrated production systems and common standards; • Could encourage diffusion of state-of-the-art technologies and high environmental and social standards; • Increased production through FDI can put additional stress on natural resources; • Improved training and education to employ new technologies; • May be improved access to a broader range of products at lower prices; • Could provide improved social and labour standards for employees with spill over effects on local industries. Public procurement • Could encourage cost-effective investment by government and increase quality and efficiency; • Could put local bidders at a disadvantage; • Could disadvantage local bidders in small economies that cannot develop scale savings and not allow local competence to develop; • Could include requirements for sustainable development and social and/or environmental requirements; 87 3.2 Sectors A second level of analysis is to adopt a sectoral approach to assessment whereby impacts of trade measures are assessed for specific sectors, issue or products within a sector, based on identified links to sustainability, trade and trade measures.81 This section of the framework encourages the selection of the most relevant sectors for study. It is informed by the previous discussion on sustainability and trade. The following criteria are employed to select priority sectors: ! The sector is significant from an economic, environmental and social perspective (based on “hot spots” determination). ! The sector is significant in terms of trade flows in both volume and financial terms. ! The sector may be impacted by changes in the trade measures included in a future EPA. ! The sector bears some significant relationship to the regional trade between the region and the EU through rule changes, government policy changes, institutional changes, investment changes or direct trade impacts. ! An analysis of this sector will contributes to an understanding of other issues of importance in the region. ! The sector is one where one might expect that there will be potential impacts of the EPA on sustainability. 81 Participants at an OECD workshop on environmental assessment in 1999 were of the view that sectoral approaches to assessment are the most feasible at this time. While a sectoral approach is practical and feasible, it runs the risk of ignoring important impacts between sectors (i.e. cross-sectoral impacts) (OECD 1999). The framework developed by the CEC allows for the exploration of cross-sectoral impacts. At a minimum, the boundaries should be able to expand to include changes in the major upstream (inputs) or downstream (products) sectors or issues with which they are linked. In a study on cattle feedlots, the CEC’s analysis extended back to the feed-grain sector, and forward to the beef-processing sector. (CEC 1999). Such expansions of the field of analysis could be guided by the following criteria: • Is there a related sector or issue that is a major input into and/or consumer of the sector or issue under consideration? • Are there related economic, social or environmental dynamics from other issues or sectors that are necessary to the operation of the sector under consideration? • Is there a related sector or issue that has proliferating environmental or social impact on the sector or issue under consideration? (Adapted from CEC 1999). 88 Table 9 : Preliminary Priority Sectors (work in progress) Sector Sustainability Priorities Trade Flows Trade Measures Economic Social Environmental Agriculture In some regions Provides a livelihood Farming can lead to Agricultural products Market Access (including Protocols) economic well for many of poorest deterioration in soil, represent a main In ACP countries, the main market access Includes being is dependent people in ACP water and air quality, portion of ACP exports constrains in the agricultural sector are: specific on agriculture countries. and to loss of natural to the EU and a products: habitats and considerable portion of - High tariff levels on food products, Major contributor to Employs over 60% of biodiversity, including EU exports to ACP. especially products that are produced - Bananas GDP and economic the population in Sub- through clearing land locally or that can compete with local - Cocoa growth Saharan Africa, and can for agricultural products such as cereals, beverages, - Cotton be much higher for production sugar, fisheries or vegetable oils - Meat (fowl) individual countries— according to the country or region. - Milk and such as 92% in Burkina Environmental changes Some import prohibitions in ACP cream Faso. can have important countries (e.g., Nigeria, Grenada, St. Kitts - Sugar implications for the etc.) - Wheat and In the Caribbean, levels of agricultural meslin employs around 30% of production and food Tariff barriers and non-tariff barriers on - Vegetables the population, rising to supply and can limit the processed production / tariff peaks - Rum 65% in Haiti. sustainable development over time. Tariff barrier on inputs In the EU the The importance population employed in Agricultural activities Intellectual property rights (access to of these agriculture varies from can also support sinks seeds) products varies 1.4% in France to 18% for greenhouse gases, depending on in Greece. conserve biodiversity Standards the ACP region. and landscapes and help Agriculture is related prevent floods and to important elements landslides. of sustainability such as food security and In the EU, modern poverty reduction . production methods often rely on intensive In the EU agriculture land and water use and has different impacts on other techniques such sustainability, but is no as monoculture and less important. intensive livestock production. 89 Cotton 14% GDP in Mali Textile sector is a major Destruction of land 75% of exports from 38% GDP in Benin employer (potentially 1 caused by cultivation of Benin Illegal imports of textile products from 35% GDP in million people in cotton 60% of exports from Asia . Burkina Faso WAEMU only) and Burkina Faso located in urban Intensive chemical use 50% exports from Mali Imports of used clothes from EU that Textile industry centres. in Mali and Burkina reduce local demand for clothing. threatened Faso Imports of cheap used Cotton production clothes from Europe Subsidies in EU for cotton production. Cotton major major employer (6 that production in the million people in region WAEMU). Central and Western Central and Africa the third largest Western Africa the Most producers are exporter region of 6th largest producer small, poor and among cotton in the world of cotton the most vulnerable. Production costs for cotton very competitive and so there are economic opportunities. Textile industry not competitive due to cost of electricity and lack of financial resources. Fruits and Unexploited Potential major Reallocation of lands Main exports from Removal of unnecessary non tariff vegetables comparative employer in both previously used for Western Africa to barriers advantage industrial plantations banana production in CI Europe – and individual farms. Ivory coast: bananas, Possible competition with EU products, High added value Limited and controlled mangoes, pineapples peak tariffs production Will revive agricultural use of chemicals and Ghana or pineapples, production in Sahel pesticides due to exotic greens and Necessary support for marketing of Impact on countries and offer new environment papaya products in the EU improvement of opportunities to small requirements in the EU Mali for mangoes, road, rail and air farmers green beans, exotic transport Limitation of rural greens and mangoes infrastructure Impact on capacity exodus in rural regions Burkina Faso for green 90 building and technical with income creation beans. Impact on capacities in the region Senegal for green development of air beans, exotic greens, freight and adequate Increased attention to mango and melon airport and work conditions (Fair maritime Trade requirements) Access to high quality infrastructure (cold and profitable storage) production and markets in the EU New subcontracting opportunities for Exposure to SME (maintenance, competition from Asia, packaging, Latin America on EU transport) markets Impact on business environment (role of customs, financial sector) Fisheries Major resource for Dependent fishing Resource EU is the biggest fisher Fisheries partnership agreements with Mauritania, communities (600,000 overexploitation may in the region (fleets EU (Mauritania, Senegal, Angola) Senegal. persons in Mauritania, lead to species from Spain Portugal, Senegal and Sao Tome) endangerment or Greece, Netherlands Support to access to EU markets for local 80% of catches by irreversible harm. and the UK) fishery production and processed foreign fleets Declining local products. fisheries in Senegal Favoured use in Increasing access to EU 50% of revenues of Western Africa of used markets from local fish Support to local fleets. Mauritania come Artisan fishing industry EU fishery boats processing plants from from fishing sector; in peril increases risk of Mauritania Prohibitive traceability, quality and 30% of exports potential pollution. sanitary standards in some cases. earnings for Possible employment of New EU decision to Senegal local fishers on Foreign relocate used fishery fleets boats instead of Possible modern decommissioning them fish processing in the EU. 91 plants to add value (success in Mauritania) New EU decision on used boats adds capacity in the fishery sector. 92 3.3 Independent sustainability challenges This section addresses a feature that has been added to the framework in order to take into account sustainability priorities in the ACP regions that might not be impacted by trade but are nevertheless open to policy recommendations that could be included within the scope of an EPA. This SIA of the ACP is distinguished form previous SIAs undertaken by the EC by the potential breadth of the EPAs and the often critical sustainability challenges facing the countries of the ACP. In order to take advantage of the opportunities to promote sustainability, this framework provides for the selection of sustainability issues that might be considered for policy intervention, despite minimal trade-related impacts. These choices will be made within the in-depth regional SIAs as they are relevant. The emphasis on sustainability is consistent with a number of developments in SIA analysis at the international level.82 It also builds on, and extends, work undertaken in the context of NAFTA at the CEC where, although the core focus of analysis was the trade agreement itself, an integral part of the methodology included setting a broad context for the sector or issue under consideration. This important element of the methodology was designed to catalogue the range of forces, many of them unrelated to trade, that determine environmental quality and the impact of an activity. The framework that was developed between 1995 and 1999 focuses on environment, economic, social, geographic and political factors that may be a factor in any analysis. It then moves directly into examining the ways in which NAFTA is likely to affect changes to the issue under examination, using the trade agreement as the key referent for isolating economic and other changes.83 This can and should be done with respect to priority trade measures in an EU-ACP EPA. It can also provide an independent point of departures for critical sustainability challenges, where policy intervention might be urgent, and where an EPA can make a positive contribution, despite low levels of trade. By including a focus on critical sustainability priorities, the project team will be able to proceed to ensure that an analysis of trade measures focuses in particular on sustainability issues of the most critical priority, where immediate policy attention might be necessary. It will also suggest clear priorities that might only be indirectly associated with trade, that within the context of an EPA, deserve priority attention. 82 One attempt at designing an approach with an environmental focus has been undertaken using an Extended Domestic Resource Cost (EDRC) analysis (Borregaard and Bradley 1999). It is designed to offer “an effective tool to identify, systematise and quantify welfare gains from exporting, net of environmental impacts, and to formulate domestic policy recommendations for trade and environmental issues based on this analysis.” In addition, as part of its three-year project on sustainability assessment, WWF has developed an approach that highlights important sustainability issues. WWF work suggests that SIAs should identify a clear “sustainability” baseline for the issue/sector or region under investigation, describing current economic, developmental and environmental conditions. It should highlight any key issues, associated with unsustainable practices and use relevant indicators to provide further concrete empirical data to support the analysis. This information can provide a useful baseline for determining the present state of sustainability within a sector or a region. WWF. 2002. “Balanced process, balanced results: how to get there. Critical elements for sustainability assessment.” WWF Position Statement; Finally, UNEP, in its Reference Manual suggests sustainability priorities as one starting point for integrated assessment. It is developing this approach through a process underway, developing a framework for 83 CEC 1999. 93 In the context of classic trade agreements, an analysis that begins with a sustainability concern might not be causally traced back to specific measures covered by the liberalization agreement. In the context of an EPA, however, there is more flexibility, given the potential breadth of its coverage to include other development related issues. Therefore, this limitation applied to some approaches to SIA does not act as such a constraint in this case. This additional element to the approach provides a framework for analysis, where appropriate, that begins with an environmental or social issue of concern, and then proceeds to explore those factors prior to correlating any impacts with trade rules or trade flows embedded in a prospective EPA. This framework adds an additional level of flexibility to the approach being developed for this SIA, and offers the following specific advantages: ! User Confidence and Accessibility. It provides the project team with the confidence that the exercise has as its central objective a goal related to promoting sustainability and that the analytical apparatus of the methodology is tailored to meet these objectives, in the context of the ACP and the EPAs. ! Focus on Policy Priorities. It allows the project team to select the specific environmental/social issue of greatest concern and direct the application of the framework to the solution of that issue or problem. On the other hand, the application of ‘trade-first’ approaches may ultimately yield the conclusion that trade is of little or no relevance in either a causal or corrective fashion, to the sustainability issues that have been identified as critical. ! Policy Intervention. This approach allows for the identification of a range of economic and other factors that affect sustainability priorities that may only be loosely related to EU trade, but may still be relevant given the potentially broad scope of the EPAs. Many of these non-trade factors may be open to short term policy intervention and effective influence by civil society groups, that can bring about environmental and development improvements through domestic policy or through cooperative mechanisms put in place by the EPAs. ! Precaution. This approach places a premium on monitoring, collecting, comparing and generating data on critical environmental and social dimensions, and associated pressures and responses. This is particularly valuable given the paucity of reliable and over-time data in this sphere, relative to that of trade. Early environmental and social monitoring can provide a rapid indication of change on key “early-warning” environmental/social indicators, and thus offer the maximum amount of time to make modifications in the internationally codified trade system.84 This section will not only allow the project team to identify and analyse sustainability issues that might not emerge from a strict trade related analysis, but will also contribute to the development of comprehensive indicators that can assist with the further analysis of the impacts of trade measures on specific regions or countries in the following section of the approach. 84 WWF/FFLA 2000. 94 4. Selecting Indicators: Definitions and Sources This section was introduced in the Inception Report. The Consortium will review the long list of indicators presented in the Inception Report to present a focused set of indicators that can apply to this SIA, to be canvassed by the regional in-depth SIAs and selected on a case by case basis. 4.1 Economic 4.2 Social 4.3 Environmental 4.4 Institutional Given the broad range of issues associated with sustainability across the diverse regions and countries of the ACP, it is prudent to select indicators on a case-by-case basis. For example, issues related to sub-Saharan Africa that might include deforestation and desertification might not be relevant for small island states where the health of coral reefs might be of more immediate concern. Similarly, land-locked states may face sustainability challenges that differ from small island states. In the Inception Report, the project team has developed an initial “long list” of indicators as a preliminary guide for the selection of further, more detailed indicators. From these, core indicators can be selected, based on the criteria above, to apply generally to the ACP region and to the regional in-depth SIAs. In addition, there may be instances when addressing specific regions or issues where additional indicators should be considered. Where, during the course of the SIA, it becomes apparent that additional indicators should be considered, they will be added as appropriate. To guide the selection of appropriate indicators for issues within this SIA, the Project Team will begin with the criteria for selecting relevant indicators developed by the University of Manchester. The Manchester methodology (Phase III) recommends the use of first Tier and Second Tier indicators to assess changes in sustainability. It presents the following criteria to assist in selecting relevant indicators: Criteria: ! They should be limited in total number, but in aggregate they should be comprehensive in their coverage of sustainability; ! They should be balanced in their coverage of economic development, social development environmental quality/resource conservation and governmental and institutional indicators; ! They should reflect concerns relating to intergenerational and intra-generational equity; ! They should focus on key components of concern to decision-makers and stakeholders. 95 To assist in selecting specific indicators that focus on social and environmental impacts and to provide an operational focus for tracking those impacts, the indicators and their characteristics are divided into three groups: activity based indicators, results based indicators and impact indicators.85 ! Activity based indicators. These are indicators of the means of production, activities and policies (led by public/government or private bodies) that may be affected by the EPAs (for example, level of resources spent on building schools). ! Result based indicators. These indicators are direct outcomes of the activities and policies identified by the activity based indicators. In that sense, result based indicators are meant to evaluate the immediate impact of any EPA trade agreement (for example, proportion of pupils/students attending school). ! Impact indicators. These are long term global indicators to which result based indicators do contribute, but which may be affected by other variables than trade related indicators (for example, literacy rate of 15-24 year olds). ! This section will provide a working definition for each indicator selected as well as data sources for the specific indicators. 85 This is approach is consistent with the OECD’s “Pressure-State-Response” model of indicator identification, as well as the UN CSD’s “Driving Force-State-Response” model. 96 II. Analysing Trade-Related Sustainability Impacts Economic change can have sustainability impacts directly or indirectly through a series of changes in the economy brought about by the nature of trade (i.e., tariff structures, relative prices, terms of trade and business opportunities). Consistent with much of the work in this field, the methodology adopted for the Preliminary SIA of the ACP-EU EPAs involves forms of causal chain analysis (CCA), complemented with quantitative analytical techniques and as possible, modelling. Analysing trade related impacts begins by determining scenarios for liberalisation. A second step is identifying any direct impacts of changes in trade rules, or identifying economic impacts that will come about as changes in trade rules. For particular trade measures (such as market access) liberalisation scenarios (such as the removal of existing tariffs), and particular countries, there may be ways to model trade related changes and trade- induced economic change. Where such methods are not available, reliance on existing quantitative data and expert judgement can be employed to suggest prospective trade and economic changes induced by various methods of liberalisation or by rule changes. Any econometric approach will face obstacles in ACP countries and particular in Africa, where not only is there a lack of data, but the importance of the informal economy and informal trade is not captured by official statistics. A third step in the analysis involves the application of the major elements identified that can link changes in trade and economic activity to sustainability impacts, indirectly through economic and regulatory processes. 1. Trade-related scenarios This SIA is ex-ante, that is, it is occurring before the EPAs have been negotiated. Any analysis of trade-related impacts must therefore be based on one or more scenarios for liberalisation. These scenarios are selected and defined in conjunction with the EC, and represent a theoretical level of liberalisation, or levels of liberalisation. In addition to scenarios for liberalisation, a no-liberalisation scenario may be considered, that represents the continuation of the status quo. Scenarios for individual country groupings and trade measures are beginning to be developed in this phase of the work. For the regional in-depth country studies they will be located in the broader scenario for liberalisation in each region as follows. Western Africa. The overall scenario is based on the full implementation of a free trade area among the countries of ECOWAS by 2004, including a monetary union and a common external tariff (of between 11 and 12 per cent), in place by the time that an EPA would be signed, in 2007. It contemplates a 12 years implementation period during which trade between the EU and ECOWAS will be progressively liberalized. The agreement should be 97 fully implemented place by 2019. Alternative scenarios may also be considered including varied transition times for the Nigeria participation in the monetary and custom unions. Caribbean Region. Dominican Republic is not a member of CARICOM and the scenario will assume that EPA negotiations will take place with CARICOM and the Dominican Republic. Negotiations will have to fit into the regional integration agenda and therefore the scenario will assume EPA to be similar as if there were only one single EPA. This scenario includes a full implementation of a customs union among the CARICOM countries by the time the EPA will be signed. It will consider a longer transition period for Haiti (Haiti domestic market to be totally opened by 2010), and take into account levels of liberalisation achieved under current FTAA negotiations in the region. 2. Trade-related sustainability impacts 2.1 Changes in trade and trade-induced economic impacts Using the scenarios for liberalisation, the first step in identifying potential trade-related sustainability impacts is to explore the expected changes in the flows of goods and services, including technology related to the issue or sector under consideration and determine the potential economic impacts of these changes within a regional country grouping. This can involve the use of quantitative models or results from existing modelling exercises that forecast prospective changes in trade or levels of economic activity based on specific changes in trade rules, particularly levels of tariffs. It is more difficult to predict economic impacts of changes in rules such as those rules applying to intellectual property rights, for example. Nevertheless, where data permits, the project team will endeavour to employ quantitative data based on relevant econometric or other techniques. Work is underway at present to determine the availability of such techniques and data for the EU-ACP SIA. Where modelling, or other forecasting techniques are not considered feasible, the aim is to identify sources for detailed quantitative date on trade and economic impacts to use in conjunction with the scenarios to develop preliminary assessments of economic impacts that might be brought about by changes in trade rules, for each country grouping. The first step is to explore the expected changes in the flows of goods and services, including technology related to the issue or sector under consideration and determine the potential economic impacts of these changes within a regional country grouping. Data related to predicting economic impacts can be generated by econometric and other economic techniques, and expert judgement considering: ! Impacts on trade flows / impacts on trade rules ! Impacts on flows of goods and services / investment ! In what sectors? For what products? 98 The underlying questions that should be addressed in this section included those related to trade flows and economic activity as follows: ! Trade flows. What are the expected changes in the flows of goods and services, including technology related to the issue or sector under consideration? ! Economic activity. What are the changes in the overall level of economic activity (scale) and changes in the pattern of economic activity (structure)? This analysis will be fed into the following section which seeks to link trade-induced economic change to sustainability impacts. 2.2 Linking economic impacts to sustainability: Causal Pathways Given the research that has been completed on sustainability and trade for the regional in- depth SIAs, this section can be developed in the next phase to reflect the linkages between trade and sustainability that are emerging, and will be presented in a way that reflects the reality of the ACP countries in the next version of the report. Economic change can have sustainability impacts directly or indirectly through a series of changes in the economy brought about by the nature of trade (i.e., tariff structures, relative prices, terms of trade and business opportunities). This SIA presents the following avenues that may be relevant to trade-induced economic impacts to sustainability, beginning with the changes in overall levels of economic activity (scale) and changes in the pattern of economic activity (structure), including allocation of resources. Impacts can be determined by an assessment of specific variables including production methods (including technology), transportation and other infrastructure. For identifying trade-related impacts on sustainability, this study will use the following “causal pathways” to link changes in trade to related sustainability impacts: Scale, Product/Services and Structure; Production/Supply, Management and Technology; and, Physical Infrastructure; ! This framework for analysis is based on the following considerations: ! The sustainability issues associated with the trade measures related to the EU-ACP; ! Existing frameworks developed by other intergovernmental and non-governmental institutions including OECD, UNEP, CEC and WWF;86 ! Experiences documented in existing literature and case studies on linkages between trade, environment and development. This framework is characterized by the following elements: ! Flexibility. The framework is flexible and should be used by researchers based on the priority economic, environmental and social variables associated with individual trade measures and regional county groupings; 86 See description in Inception Report. 99 ! Comprehensive. The framework is comprehensive so as to capture impacts associated with trade in goods, trade in services87 and changing trade rules.88 ! Feedback effects. The framework can be applied to capture potentially important feedback effects that exist. For example, excessive migration and urbanization can reduce human capital available for production and maintenance of the land, which could result in environmental degradation and further social challenges for those remaining on the land. It could also result in the deterioration of local communities and support structures. In order to undertake this analysis, various materials might be consulted including literature and other SIAs for documented empirical evidence suggesting key linkages between economic activity and environmental effects, as well as available environmental and social data. The analysis of environmental, social and governance impacts will rely primarily on qualitative analysis, given the difficulty of modelling linkages between economic change and environmental, social or institutional change, and taking into account the regions under investigation where data, and particularly good time-series data, might not be readily 87 Despite difficulties associated, in particular with modeling the economic impacts of services trade, there have been attempts to distinguish services trade from trade in goods and develop appropriate frameworks for analysis of services. One such approach was released by the WWF International in February 2001, and a second by the OECD in January 2002. This analysis incorporates lessons learned from a close examination of these two frameworks. In particular existing studies highlight the very close association between trade in services and liberalisation of investment. This latter trade measures suffers from similar challenges related to analysis as identified above, in particular a paucity of data. See WWF International. 2001. Preliminary Assessment of the Environmental and Social Effects of Liberalization in Tourism Services. Geneva: WWF International Discussion Paper. February. Organization for Economic Cooperation and Development OECD. 2002. Assessing the Environmental Effects of Services Trade Liberalisation: A Methodology. Paris: OECD.15 January 88 One issue that the project team will confront at this study moves forward, and particularly as opportunities for economic modeling are confirmed, is whether to separate out the approaches for goods, services and rules, based on the possibility that for goods at least, there may be opportunities to employ econometric techniques at various stages in the analysis. For services trade, for example, the WTO found that the studies examined considered "self-generated" liberalization effects with respect to services. These effects may contribute, at least in part, to the objectives of Article IV.1 (a) and (b) of GATS – the strengthening of developing countries' domestic services capacity and improved access to distribution channels and information networks. These studies are silent, however, on the trade and welfare effects that may ensue in developing countries from developed countries liberalizing market access in sectors and modes of supply of export interest to them. These limitations exist for the following reasons: Lack of Data. The only comprehensive source of information on services trade at a global level is the IMF balance of payments statistics (BOP).88 However, BOP statistics only register transactions between residents and non-residents, thus excluding "foreign affiliates trade" (mode-3) and, to a significant extent the activities performed by foreign natural persons in export markets. Moreover, current statistical classifications are far less disaggregated than the Classification List (MTN.GNS/W/120) generally used for scheduling purposes under GATS, and there is a lack of coherence between some of the IMF categories and those contained in the Classification List. Uncertainty. Any Uruguay Round-related liberalization study would need to start from the assumption that significant policy changes have occurred under GATS. However, there is uncertainty surrounding this assumption. Available policy information on most sectors and countries is confined to scheduled commitments, leaving it open (i) whether these commitments have actually improved on the status quo, (ii) whether additional changes have been implemented since their entry into force, and (iii) what the access conditions are in non- scheduled sectors. 100 available. Direct social or environmental impacts that result from the EU-ACP EPAs will be described thoroughly identifying the process by which sustainability impacts are felt. Scale, Product/Services and Structure. Scale effects are those that relate to levels of economic activity. Typically, it is assumed that trade liberalisation will lead to increased levels of economic activity. Sustainability impacts will arise depending on the levels of activity and the sectors in which that activity takes place. For example, negative scale effects may occur when higher levels of economic growth, trade and/or transport bring increased pollution and faster consumption of resources due to the absence of appropriate environmental policies. Trade may magnify of existing environmental and social pressures, and trade induced economic growth can lead to unsustainable patterns of production and consumption causing environmental degradation and social dislocation.89 Product effects are most closely associated with trade in goods and impacts arise from trade in specific products that might contribute to, or detract from sustainability. Trade rules in specific sectors and products can lead to the greater use of imported environmentally superior products as substitutes for less-clean domestic alternatives. This might also increase the availability of a side range of products to consumers at lower prices. Positive results may also stem from increased trade in environmental goods and technologies themselves, such as equipment for water treatment, waste management and air quality. Likewise, a similar logic can be applied to the delivery of services, from the very basic analysis of types of services delivered as a result of liberalisation. Some services tend to have lesser impacts on the environment (financial), some might improve environmental performance (environmental services) and some might put increasing pressure on natural resources (tourism). The eventual impact on sustainability of the delivery of these services, however, will require a more detailed analysis including issues such as wages, geographic location, capacity building and other relevant variables. Structural effects are typically identified as those brought about by changes in the relative importance of economic sectors and patterns of economic activity. Positive structural effects may result when trade measures and agreements promote an efficient allocation of resources and patterns of production/ consumption. At an economy-wide level, substitution can lead to a shift of production and consumption to those sectors and products with lower tariffs that generate fewer environmental stresses and production can concentrate in geographic locations which are relatively better suited to absorb increased concentration. Negative structural effects may occur when appropriate environmental policies do not accompany changes in patterns of economic activity, and when environmental costs and benefits are not reflected in the prices of traded goods.90 Impacts on societies will depend on levels of dislocation, ability of different actors in the economy to adapt to structural changes in the economy (see: Box 6) 89 OECD 1994. 90 OECD 1994. 101 Box 5: Economic activity in the Niger Delta The Niger Delta is one of the largest deltas in the world, covering around 20,000 km2. It consists of a number of distinct ecological zones including coastal ridge barriers, mangroves, freshwater swamp forests and lowland rain forests. The Niger Delta covers about 80 per cent of Nigeria’s 853 km long coastline. Much of Nigeria’s population and economic activities are located along the coast. According to the 1991 census, approximately 20 per cent of the population inhabits the coastal zones. Accentuated erosion has been document in the Niger Delta. This is one of the impacts of offshore oil production. Source: Government of Nigeria 2000; UNEP 2002. Production/Supply, Management and Technology This category includes production practices/modes of supply of services, associated management practices and technology employed in the production unit and associated research and development. All of these issues will be important in translating changes associated with trade and economic activity, taking into account also, impacts on scale and structure that have also been explored. This issue is applicable to investment, where the production unit will usually be a firm. In this case, a critical question will be the extent to which these firms adopt production practices, including management and technology that support sustainability. It is important for services to the extent that they can support production, management, technology and R&D. It is applicable to goods to the extent that liberalization encourages the flow of production and physical technology across borders. This section includes the behavior of the major actors in production – depending on their levels of development, resources, capacity, industrialisation and other variables. Technology effects are associated with changes in the way products are made depending on the technology used. Positive technology effects may result when the output of pollution per unit of economic product is reduced. Foreign producers may transfer cleaner technologies abroad when a trade measure or agreement results in a more open market and a business climate more conducive to investment. Trade induced growth and competitive market pressures generated by liberalisation can hasten processes of capital and technological modernisation for all firms. Newly opened markets can provide the revenue and the income to allow firms to accelerate capital turnover, and invest in cleaner, more efficient plants, technologies and processes. In doing so, however, this new marketplace may harm even more environmentally-friendly and socially valuable traditional methods.91 There are opportunities provided by theses variables to exert positive impacts on the economies, environments and societies of countries. However, negative effects might occur if production is concentrated in sectors which lack adequate technology, management, physical infrastructure or the institutional capacity to handle trade-induced growth. 91 OECD 1994. 102 An important factor to consider will be the geographic location of production facilities. For example, a concentration of production in locales where there is inadequate capacity for government regulatory oversight and inadequate infrastructure to handle the level or increasing intensity of industrial processes could place stress on ecologically sensitive locales. Similarly, such concentration might attract large numbers of migrant workers. In this case, the location of the production, and the basic services available, will need to be able to absorb increasing populations. Unless such basic infrastructure is available, the local environment could be degraded and the social problems associated with health, crime, congestion, or others could ensue. Box 6: Government of Nigeria. Excerpt of Submission to CSD8. The following are some of the identified export-induced increases in production that have increased environmental problems in Nigeria: - Deforestation and desertification resulting from the exploitation of unprocessed log wood for export; - Depletion of wild fauna and flora due to exportation of certain endangered species; - Depletion of fish stock resulting from over fishing in the territorial waters for exportation; - Oil and Gas exploration which has resulted in serious environmental degradation especially in the Niger Delta area of the country; and - Increased activities in the tannery industries leading to discharge of increased volume of effluents which have exacerbated the incidence of pollution of rivers and streams including underground water in certain industrialized areas of Nigeria. In the services sector, the structure of the investment and the structure of costs will be important factors in determining sustainability impacts.92 For example, liberalisation can lead to an increase in foreign direct investment in tourism development of destination countries, such as for the construction of resorts, golf courses or airports. Related environmental impacts vary depending on where this foreign capital is directed and according to several factors such as the scale of development (rapid or slow, controlled or unchecked), the location (whether it is occurring in location/site that is able to absorb it), spatial characteristics (whether it is concentrated or spread out) and the environmental practices that exist for managing the development. Related social issues might be felt in levels and quality of employment opportunities, among other things. 92 OECD 2002. 103 Box 7: Market Access and Bananas in Dominica A recent study on the liberalization of banana trade and its environmental impacts on the Windward Islands (particularly Dominica) illustrates the complexity associated with this type of assessment. The study examines the impact of liberalization and the removal of EU preferences in the banana sector. According to the literature, historical protection of this sector has been a double-edged sword. While it has provided employment, self reliance and foreign exchange earnings, some commentators argue that it has discouraged the development of alternative crops and industries leaving affected economies highly reliant on one commodity and their agricultural sectors and skill bases geared toward the production of bananas for export rather than meeting the demands of local markets. A close examination of the banana sector indicates that the situation is complex. The study shows that the responses to the economic impacts of liberalization will vary significantly among social actors and different categories of farmers. Typically, three choices face producers when prices fall: they can intensify production, diversify into other crops, or abandon production altogether and migrate off the land. This study finds that the choice made will be based on their bundle of resources – that is, endowments of land, labour, capital and access to technical support/knowledge—and their immediate needs—that is, the extent to which they are engaged in the cash economy. The largest, wealthiest, farmers are smaller in number than the small more vulnerable actors, but they control far more land. Distributional differences suggest that the most suitable land, owned by the wealthiest farmers, will be taken out of banana cultivation while production on marginal land will become even more intensive and environmentally unsustainable. The largest farmers already farm intensively and use high levels of agrichemicals. Their most likely response will be to use even more agrochemicals on their banana crop in an effort to cut back on wage labour. However, they tend to farm on the best land, they have the greatest access to resources, they are willing to take risks and are the most flexible in response to falling prices, able to diversify out of bananas to other cash crops, which may produce a net environmental benefit depending on which crop they opt for. Intermediate farmers (wealthy peasants and entrepreneurs) are likely to continue to produce bananas, but reduce production on marginal lands. This could lead to a net environmental benefit as these lands tend to be unsuitable for bananas, and may be more prone to erosion. However, this group is also likely to intensify their agrochemical use in an attempt to cut back on labour. The poorest farmers have the fewest choices and are prepared to take the least amount of risk. They tend to farm the most marginal land and the environmental consequences of their response to liberalization are typically the most environmentally damaging. Lower prices will tend to lead to further intensification as they try to use their land to the maximum and take even the most unsuitable lands into production thereby exacerbating soil erosion problems and impacting biodiversity. This group tends to produce the smallest range of crops and is extremely reluctant to diversify out of bananas. In the long term, extreme hardship facing the poorest farmers could force them to leave the industry, migrate off the land and/or adopt unattractive alternatives, including cultivation of illegal drugs (particularly marijuana), or crime. Source: Keith Tyrell. 2001. Growing Bananas: Assessing the environmental impact of the international banana trade in the eastern Caribbean. (Unpublished, DPhil Development Studies, University of Sussex). Physical Infrastructure. Physical infrastructure refers to the character and environmental and social impact of the physical infrastructure that supports liberalisation. This includes site-specific production units and connects them to their inputs, customers and stakeholders.93 Infrastructure includes, inter 93 CEC 1999. 104 alia, transportation infrastructure (such as ports, roads, airports, and waterways), distribution systems (including those for agricultural production) and the provision of basic services. As such it is closely linked to economic activity, growth and efficiency and environmental and social sustainability. Box 8: Some environmental impacts of large-scale infrastructure projects Construction of the Akosombo Dam in Ghana and the Kainji Dam in Nigeria has lowered sediment loads in rivers that reach the coast by up to 40 per cent , making less sediment available to replace that eroded or extracted in the coastal zone. As a result, coastal erosion east of Accra has been accelerated, reaching a rate of 6 m/yr. In Togo and Benin, coastal retreat has exceeded 150 m over the past 20 years and is threatening the potential for future development in the coastal zone. Source: UNEP 1999, 2002, Wellens-Mensah 1994. Concentration of industry will depend on well-developed transportation infrastructure, and related services. As with all physical infrastructures, transportation infrastructure has the potential to be environmentally damaging. Liberalisation can put pressure on this infrastructure, depending on scale effects, through the increasing movement of goods and services. As identified above, this could be particularly acute in specific regions of customs unions where there are ports of entry that become used disproportionately relative to other ports of entry in the region. This could impact the environment, while at the same time providing economic and social benefits. There will also be trade-offs associated with related issues. For example, faced with important trends associated with urbanisation, for example, in some sectors a well developed infrastructure will be necessary to meet the challenge of meeting growing urban populations’ basic needs such as affordable and safe supply of food and water. In some countries, food distribution chains may be inadequate to deal with the additional strains of having to supply increasing urban populations. In some countries in the ACP long distances, bad roads, and poorly maintained trucks can contribute to spoilage of significant amounts of produce. Where these and other services (such as storage facilities or slaughterhouses) are already under pressure, increased costs will be associated with investment necessary to produce and transport food safely over longer distances to service urban populations. With these populations growing at rates of up to 10 per cent per year these costs may be prohibitive for many countries. 2.3 Regulatory impacts An additional step that is relevant is to consider the potential regulatory impacts of changes in trade. Government policy can play a major role in forwarding programs that can reinforce, offset or otherwise alter the potential impacts of liberalisation. In addition, trade measures or agreements can have impacts on governments’ ability to regulate to protect the environment, social and health regulations or other standards. In some cases, specific provisions in trade agreements may constrain this ability. Government regulation is also relevant for sustainability. In conjunction with trade liberalisation, governments impose and enforce complimentary environmental and social regulations that respond to—or prompt— 105 new developements in production and technology or offer other protections related to sustainability. This section of the SIA will be based on expert judgement, including local experts, consultations and lessons from experience. The role of governments in maximising the opportunities available from liberalisation in this context is very important. An critical component of any analysis regarding the ability of ACP countries to take advantage of liberalisation will be an examination of countries’ financial and institutional capacity to develop policies and programmes to support their export-oriented industries, and parent companies (for FDI) to access new markets. This is also important in the area of standards where an SIA should consider the existence of national standardisation bodies, regional cooperation within regional country groupings, and the capacity of these bodies, and government agencies to facilitate the adoption and implementation of higher standards, and opportunities for meeting higher technical regulations. To the extent that these standards and regulations promote issues associated with sustainability such as environmental protection or strong labour standards, the prospect exists that improvements could ensue (see Box 8). Government policies and programmes might include those in areas such as: efficient delivery of public services, donor-led or other programmes providing access to training, access to capital including preferential credit and other market based incentives. For example, the existence of well implemented and efficient public services in a given area (such as the environment, or social safety nets) could facilitate the ability of corporations to meets requirements set out in standards and other regulations. There are significant costs associated, for example, with improvements in the development and enforcement of strong standards. Similarly there are significant costs associated with compliance and conformity with new standards and certification. In both cases, lack of technological capacity, lack of training, and inadequate access to technical and other support will be obstacles to development. While liberalisation measures might lead to improved market access, this might not be enough to pay for the costs of any transition. Assistance will be important in allowing stakeholders in ACP countries access new markets and remain competitive. Government programs to encourage education and training will impact the knowledge gap. To the extent that capacity is not in place there may be limited access to new markets and the economic benefits of any liberalisation might not be captured or that any increased economic activity could lead to environmental degradation or other lack of protections for sustainability. The ability of governments to regulate in conjunction with liberalisation is also critical. The extent to which governments are in a position to impose strong environmental and social regulations, for example, could define the impacts of any increasing FDI. Similarly, liberalisation that occurs as a result of GATS-type commitment on services could have direct impacts on domestic regulations, including environmental and social policies. Liberalisation may lead to changes in national regulations applying to the provision of tourism services, such as foreign exchange regulations and tourism investment incentives to attract foreign investment. International obligations can undermine domestic social or environmental policy objectives. Where sectors are closely connected to the use of natural resources and the 106 employment of large numbers of people, such as in tourism, negative sustainability impacts could arise if not properly regulated.94 Likewise, adequate levels of regulation are necessary to take advantage of gains that might be achieved as a result of liberalisation of specific trade rules. For example, in procurement to pursue “green” procurement policies, will often require the development of regulations, coupled with an ability to administer and enforce them. Similarly, adequate administration and enforcement procedures are necessary for governments seeking to promote strengthened intellectual property rights. However, these too will depend on financial, technological, human and institutional capacities. Government regulation might be facilitated by the concentration of economic activity, brought about by structure and scale impacts, or by geographic implications of trade facilitation, for example.95 Within the ACP context, the Poverty Reduction Strategy Paper (PRSP) and the Heavily Indebted Poor Country (HIPC) agenda led by the World Bank and the IMF will be a consideration for the SIA. PRSP strategies are three to four year comprehensive approaches to poverty reduction including all policy areas of government action, from macroeconomic stabilisation to health, education and rural development. Attention should also be paid to the coherence between the environmental legislation and international environmental agreements signed by the ACP countries. 94 WWF 2001. 95 CEC 1999. 107 Box 9: Standards-related issues and the Ugandan Fisheries sector In Uganda fisheries exports are second only to coffee exports in terms of their importance for generating foreign exchange. The EU is a major export market for Ugandan fisheries products and it is a valuable market where prices are typically high. The fisheries sector in Uganda has traditionally been dominated by small, artisanal fishers. A recent report highlights the vulnerability of fishers to standards applied in major trading partners, and highlights also, the positive impacts this can have for consumer protection and in both trading partners, as ultimately it helped to improve quality standards in Uganda. In July 1991 the EU issued a directive (EEC Council Directive 91/493/EEC (July 1991)) which stipulated that all fish products from Uganda should be processed, stored and transported in a hygienic manner, and set out requirements for management (such as audits) at fish processing plants including inspection and monitoring mechanisms. This measure was imposed as a result of the detection of salmonella bacteria in packaged fish for export. This was a measure taken to protect the health of consumers. The EU did not send a delegation to inspect practices in Uganda until May 1997. At that time it made recommendations for improvements, based on Ugandan national standards and the requirements in the directive. As a result of a follow-up visit in December 1997, the EU imposed a temporary ban on chilled fishery products to the EU (unless products were chilled to -18 degrees Celsius). The EU directive requires that the inspection and monitoring of establishments shall be carried out under the reasonability of the competent authority. It set out rules and conditions applying to all stages in the fish processing chain as follows: - Conditions applicable to factory vessels; - Requirement during and after landing; - General conditions for establishments on land; - Special conditions for handling fisher products on shore; - Health control and monitoring of production conditions; - Packaging; and - Storage and transportation. Uganda responded to this ban by initiating measures, through the Uganda National Bureau of Standards (UNBS) and its Department of Fisheries Resources, to ensure that the fisheries sector conformed to the standards outlined in the EU directive. These included formulation of national standards in the Fish Quality Assurance Rules (1998) that are consistent with international norms for the fish processing sector which stipulate requirements for fish handling and quality assurance at various stages in the production chain. In Uganda, a regulatory framework has been put in place aimed at meeting not only national quality control requirements that seek to ensure that a high degree of cleanliness and hygiene, improve process and quality control and ensure production of safe food products. These standards are also intended to satisfy requirements of major importers, notably the EU. As a result of these measures, in July 1998 the EU lifted the ban on imports of chilled fish products to the EU. Challenges remain, with respect to artisanal fisheries, which are still dominant, including inter alia: - Most artisanal fishers cannot afford the highly sophisticated fishing vessels with the design specification and equipment as required in the EU directive; - Most fishers do not have facilities for icing their catch during transportation before sale; - Many fishers/distributors are not sensitized on sound fish handling practices; - There is inadequate capacity for inspection. The Government of Uganda responded by planning to invest US$ 1.5 million per annum to construct and improve landing sites. This investment should be supplemented with improved hygiene and sanitation conditions throughout the fishing and fish handling chain. During the study, fishers expressed a willingness to pay for cold transportation to attain higher fish prices. Source: UNEP. 1999. Environmental Impacts of Trade Liberalization and policies for the Sustainable Management of Natural Resources: A Case Study on Uganda's Fisheries Sector. (NY and Geneva: UN). 108 3. Independent Conditioning Factors Building on the work first presented in the Inception Report, this framework includes a range of independent conditioning factors which should be taken into account in the analysis underpinning the detailed SIAs. These are factors that independently from trade or the EPAs, could impact economic change and performance, or performance related directly to sustainability. The relevance of these issues will vary depending on the issues, countries and regions involved and should be considered as appropriate within the regional in-depth SIAs. 3.1 International Trade and Co-operation Context The ACP-EU trade negotiations will not take place in isolation. Not only are there provisions related to the prior regime governed by the Lomé Conventions that remain in place and need to be taken into account, but a number of ACP countries, and the EU are actively involved in other for a governing regional and international trade ranging from the World Trade Organisation (WTO) and the Free Trade Area of the Americas (FTAA). Within the existing EU-ACP relationship, there are issues that should be taken into account in an analysis that looks at changes in trade such as the phase out of the commodity protocols. The Lomé Conventions introduced separate trading protocols on sugar, beef and veal, bananas, and rum. Although the Protocol on Rum is now terminated, the other three will exist until 2008. During the summer of 2002 Australia and Brazil initiated a complaint to the WTO alleging that this EU sugar regime was incompatible with the Agreement on Agriculture, GATT 1994, and the Agreement on Subsidies and Countervailing Measures. Actions such as these could subject the EU to an accelerated time frame for phasing out the Sugar Protocol than now exists and could impact upon EU-ACP trade in sugar. At the WTO comprehensive negotiations are underway on Agriculture and Services, both issues that will be the subject of discussions in the context of the EU-ACP EPAs. The Doha mandate also included provisions related to regional trade agreements (RTAs) and issues of “WTO compatibility” might be relevant in an examination of EU-ACP EPAs. These negotiations are expected to conclude by 2005 and depending on their outcome, could impact RTAs such as those developed or implemented by the West-African Economic and Monetary Union (WAEMU) or the Southern African Development Community (SADC). The EPA negotiation process should also be cognisant of other RTAs including both ACP and non- ACP countries such as the Free Trade Area of the Americas (FTAA), which includes the countries of the Caribbean, and the Common Market for Eastern and Southern Africa (COMESA). In Africa alone there are ten distinct regional and sub-regional economic co- operation groupings. There are particular elements associated with specific trading arrangements that might be necessary to take into account in an SIA of specific issues for inclusion in an EPA. For 109 example, any discussions related to fibres and textiles should consider the impact of the phasing out of the Multi-fibre Agreement that was negotiated under the GATT (Box 9). In addition, other international efforts such as the G-8 initiative in Africa under NEPAD might also be useful as mechanisms to promote sustainability in specific regions. There may also be implications that come about as a result of the Doha Development Agenda (DDA). Any increased emphasis on subsidies and protection could help ensure food security, support small-scale farming, compensate for lack of capital, and/or prevent the rural poor from migrating into already over-congested cities. The DDA might also include capacity building measures such as improving basic information related to trade including economic statistics and customs data. Box 10: Phasing out the MFA The Multi-fiber Agreement is an internationally agreed derogation from GATT rules that allows an importing signatory country to apply quantitative restrictions on textile imports when it considers them necessary to prevent market disruption, even when such restrictions would otherwise be contrary to GATT rules. The objective of the MFA is to reconcile the interests of textiles-exporting and textiles-importing countries by permitting an orderly expansion of trade while avoiding market disruption. This global system of bilateral textile and apparel quotas that comprise the MFA is scheduled to come to an end. Under the Uruguay Round agreement, countries agreed to eliminate the MFA quotas in phases beginning on 1 July 1995 and ending on 1 July 2005. Following this 10-year transition period rules on textile trade will be fully integrated into those of the WTO. 3.2 Macroeconomic and Microeconomic Context In considering the sustainability impacts of the prospective EPAs, it is important to take into account the other macroeconomic and microeconomic conditions that affect trade and flows of foreign direct investment (FDI). Among the most important variables to consider are: domestic macroeconomic forces (such as inflation and interest rates, government debts and deficits, for example); microeconomic changes in each economy (such as processes of deregulation and privatisation, for example); and major fluctuations from international forces (such as exchange rates and balance of payments deficits, for example). It is extremely difficult to disentangle macroeconomic, market or policy factors in explaining trends in trade. However, recent UNEP case studies show that independent macroeconomic activity can be as important, if not more important that trade liberalisation in determining countries’ trading positions.96 Given the dependence of many ACP countries on the export of primary goods, commodity prices are a potentially very important aspect for this SIA. Export prices for primary agricultural commodities have been dropping steadily since 1995. Between May 1996 and January 2000, the FAO total foodstuffs price index declines by some 38 per cent. The index stabilised in 2000 and 2001 but weakened further in January 2002.97 Among the major 96 UNEP Synthesis Report, Round Two Country Studies. 2002. 97 FAO 2002. 110 foodstuffs, the decline in prices has been most pronounced for cereals and for oils and fats. Coffee prices have also been severely depressed. In 2001 prices fell to their lowest level since 1973.98 After coffee, cotton has suffered the most pronounced decline. Average prices in 2001 were down to 50 per cent of their level in 1995.99 Weakening non-fuel commodity prices could have negative consequences for a number of ACP countries, which will be reflected in their terms of trade. In particular, an important conditioning factor related to a number of ACP countries is the major role of the “informal sector” in their economies. This central role of the informal sector has diverse consequences, the most important one probably being the net loss of fiscal revenue for the national states. One of the objectives followed by the European Union through the EPA negotiations is to contribute to the creation of the conditions for substituting the informal economy by a rules-based economic system.100 This will require transparent state revenue to develop the necessary regulatory framework and might be helped by the regional integration of ACP countries. As far as the SIA process is concerned, the existence of such a large informal sector in the economy limits the potential benefits of economical modelling studies, as, by definition, the impact of the informal sector and its potential incorporation into the rules-based economy cannot be modelled. 3.3 Data Availability There may be additional limits placed on the ability of researchers in this instance to undertake sophisticated modelling of proposed scenarios that might occur under the EPAs. Where data is available, attempts will be made to provide quantitative information to illustrate trade flows, changes in trade flows, investment levels and other issues related to the economic impacts of trade liberalisation. In many cases, identifying sustainability impacts associated with those changes may well rely on standard qualitative methods based on social science methods including research, interviews and other techniques. 3.4 Domestic Policy Initiatives In addition to domestic macroeconomic policies and the international trade context, issues such as domestic policy reforms unrelated to the negotiations of ACP trading arrangements should be considered as important contextual elements in an SIA. For example, in the EU at present there are important ongoing issues of policy that include the likely reform of the Common Agricultural Policy (CAP) between 2002 and 2006 and the ongoing process of EU enlargement. On 12 and 13 December 2002, the Copenhagen European Council concluded accession negotiations with Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia. The objective is that the first group of new members should join the EU in time for the elections to the European Parliament scheduled 98 FAO 2002. 99 FAO 2002. 100 EU, Orientations on the qualifications of ACP regions for the negotiation of economic partnership agreements, http://europa.eu.int/comm/trade/pdf/acp2.pdf 111 for June 2004. Therefore, before the end of the EPA negotiations, the EU will probably represent 25 member countries instead of 15 as today. 3.5 Role of Less Developed Countries (LDCs) in the ACP The ACP includes 39 countries that fall within the United Nations’ definition of least developed countries (LDCs, Box 10). This status is reflected in the content of the Cotonou Agreement including through its emphasis on capacity building and poverty alleviation. It also impacts existing trading regimes. For example, given their characterisation as LDCs, these countries have, independently of their membership in ACP or special association with Europe, benefited recently from an EU resolution putting in place a Generalised System of Preferences (GSP) applicable to all LDCs. Under this GSP quotas and duties on all products except arms and munitions from the world’s 48 poorest countries.101 As of 5 March 2001 European duties and quotas were eliminated from most products. However, a transition period is put in place with respect to sugar, rice, and bananas. Box 11: LDCs in ACP • Over 50 per cent of the ACP Group countries are least developed countries • Over 60 per cent of the ACP Group population lives in least developed countries. • Of 46 sub-Saharan African countries only 13 are non-least developed Even after 2008 not all ACP countries will have to open their own markets to EU products. The least developed (LDCs) are entitled to keep Lomé, or even a slightly improved version of it, without having to reciprocate. Non-LDCs who “decide they are not in a position” to enter into EPAs could be transferred into the EU’s Generalised System of Preferences (GSP) which is non-reciprocal and less generous than Lomé, or may benefit from as yet undefined “alternative arrangements” (ECDPM, 2000). Any analysis considering changes in trade rules should take into account those areas where ACP countries might be subject to different rules vis a vis the EU based on their status as a LDC. 3.6 Political Stability and Security Political instability and concerns about security has the potential not only to absorb the attention of governments and public away from the challenges associated with sustainability, but also to have direct impacts on the economic, environmental and social well-being of countries and regions. Conflict and displacement of populations as refugees as a result of 101 Council Resolution (EC) No. 4165/2001 of 28 February 2001. There are 48 LDCs on the UN list of which the following 39 are ACP countries: Sudan, Mauritania, Mali, Burkina Faso, Niger, Chad, Cape Verde, Gambia, Guinea-Bissau, Guinea, Sierra Leone, Liberia, Togo, Benin, Central African Republic, Equatorial Guinea, Sao Tome and Principe, Democratic Republic of Congo, Rwanda, Burundi, Angola, Ethiopia, Eritrea, Djibouti, Somalia, Uganda, Tanzania, Mozambique, Madagascar, Comoros, Zambia, Malawi, Lesotho, Haiti, Solomon Islands, Tuvula, Kiribati, Vanuatu and Samoa. 112 conflict can affect food security at the national and regional levels, both during a conflict, when trade might be more difficult and imports might not arrive, and in its aftermath. For example, civil strife in African countries such as Guinea, Liberia and Sierra Leone could affect the food supply.102 Political instability in Liberia, Sierra Leone and Senegal has created large numbers of refugees that add further pressure on cities and ecosystems (such as forests) through migration and subsistence agriculture. Political instability can also create economic distress indirectly by resulting in unsustainable resource use and lack of patrolling and enforcement of regulations. 3.7 Climate Climate variability can have an impact on development and sustainability in the ACP countries, as elsewhere. In Africa, for example, extremes of rainfalls are the most damaging aspect of climate variability and Africa frequently suffers the devastating impacts of floods and drought. Perhaps more than in any other sector, weather patterns and natural disasters can affect global production and trade in agricultural products. It is often the poor who are the most vulnerable as they have no alternatives source of income if livestock or crops are impacted, given that many rely on agriculture for their livelihoods. A dependence on the weather contributes to the vulnerability of the rural poor in many parts of the ACP. For example, in several parts of Africa, the reduced 2001 maize harvest was caused by bad weather and led to food shortages. In Malawi, floods affected more than 600,000 people. In Zambia, emergency food aid is required for almost 1.3 million people following the poor 2001 maize harvest. In Zimbabwe, the 2001 maize output declined by 28 per cent from the level of the previous years. Climate can also have an independent impact on freshwater availability and desertification. In addition, weather patterns can dictate the types of crops that can successfully be grown in many regions of Africa, such as particularly arid zones such as the Sahel, and is an important contributing factor to the competitiveness, or lack of competiveness of a number of sectors. 4. Significance of Impacts This section will include a discussion of the assessment of significance of environmental and social impacts for the purposes of this SIA. Once a range of sustainability impacts associated with a particular trade measure are identified, a determination should be made in the detailed SIA with respect to their significance. Prioritising the most important 102 FAO 2002. 113 sustainability impacts will help best inform negotiators during trade negotiations and can focus the development of appropriate policy measures to support sustainability. This section will be developed in full for the Final Report in this Phase of the Project, which is scheduled to be complete by July 2003. It will include a means for assessing significance, through the possible application of a subjective scale clearly identifying issues as having no, minimal, moderate, high or extreme significance, backed up by a clear rationale. There is some experience that can be drawn on in an effort to develop criteria and assessment methods for determining significance. Works undertaken in previous SIAs have presented the following criteria to assist with this making this determination: ! extent of existing economic, social and environmental stress, in affected areas, ! direction of changes to base-line conditions, ! nature, order of magnitude, geographic extent and duration of changes, ! regulatory and institutional capacity to implement mitigating measures.103 For the ACP region, the following criteria will be considered for addition to this list: ! number of people directly or indirectly affected; The OECD has developed a series of criteria that it applies to screening for environmental significance of impacts from services. Given the important role of services trade for this SIA, these criteria will also be taken into account in developing a means for moving forward with this study. Among other things, this will involve considering their application to a broader set of sustainability issues including social and governance issues. In its recent methodology on services trade liberalization the OECD offers the following three questions in a screening for significant of environmental effects: Those environmental effects – positive and negative – should be identifies which are significant enough to retain the attention of negotiations and lead to consideration for follow- up action. Questions: ! What is the potential scope of the environmental effects predicted (e.g., local, national, transboundary, global)? ! What is the potential magnitude of the environmental effects predicted? ! What is the expected duration of the effects? Are such effects reversible?104 Among the most important considerations to take into account in adopting criteria for significance are the following issues, many of which are incorporated into the criteria presented above.105 Sustainability thresholds. The criteria should attempt to address the concern that there might be limits to sustainability. For example, with respect to environmental sustainability, there might be limits to the ability of an ecosystem to maintain itself in a healthy state. 103 Kirkpatrick et al. 2002: 12. 104 OECD 2002: 14. 105 See also, PwC et al. 2003 (EU-GCC FTA). 114 Critical environmental thresholds are reached when pressures overwhelm supports to the degree that they cause a compounding, irreversible deterioration in the state of the ecosystem that carries it, below the level where it can sustain the life that depends upon it and recover to its earlier state. In those cases where environmental effects might be irreversible, policy intervention is urgent. Magnitude of the expected impact. At first glance, the greater the magnitude, the more significant the impact. However, in assessing magnitude it is important to consider issues such as existing stresses on the environment and social structures/supports. For the environment, the ability to absorb additional stress, whether of great magnitude, or of smaller magnitude that adds incrementally to the stress over time, or in combination with other stresses and thereby threatens key ecosystems in a more subtle way. Magnitude should be defined to include incremental and overtime impacts. Spatial distribution of the impacts. Will they occur in a confined, common geographic region? Is this region able to sustain such impacts or is it a vulnerable ecosystem or species that might already be under threat? Or, in the case of social issues such as migration and urbanisation, what is the availability of infrastructure to support increased populations and what might be the environmental impacts on coastlines and the marine environment, for example, of increasing concentrations of people. Expected cumulative effects. This should include consideration of potentially disproportionate affects of small impacts from the same sector over time, but also the impacts associated with impacts of varied magnitude from other sectors that, combined, might have important effects in the short or longer term. Irreversibility. Finally a key component of significance should be the irreversibility of the impact. From an environmental perspective, if a change, whether or a great magnitude or a minimal magnitude is moving an ecosystem or a species to a point where key environmental thresholds are threatened and policy intervention is urgent, then it should be considered significant. III. Sustainability Challenges This section of the framework examines the specific independent sustainability challenges identified in Section 3.3 with a view to developing policy recommendations. It can be applied on a case-by-case basis where trade related impacts appear to be minimal, because of low levels of trade, pre-existing liberalisation, or small economic impacts, but, where countries are particularly fragile economically, where large portions of impacted populations are vulnerable, or where environmental sustainability issues are critical. 115 This avenue of investigation will allow the Consortium to explore the identified sustainability challenges facing the ACP regions or countries within those regions that might be effectively addressed in EPAs and promote sustainability independently of large impacts of specific trade-related measures. Among the questions to be considered when assessing these issues are the following: ! Are there identified sustainability challenges/unsustainable behaviour where an EPA could make a contribution towards improving sustainability? ! How can the EPAs, through trade, or policies developed within the framework of the Cotonou Agreement contribute to sustainability in this area? IV. Policy Recommendations Following development of the analytical approach, the SIA requires consideration of policy Box 12: Types of Policy measures to promote sustainability. The EU Recommendations: recognizes that trade measures and agreements can Trade Related have potentially wide ranging effects on the • Develop position on trade measure economy, social development and the environment • Modify position on trade measure and that these impacts can be positive and negative • Develop complementary trade- for sustainability. This is reflected in the purpose of related measures that can promote the SIA, to influence negotiations to ensure that the sustainability. best deals are negotiated, taking into account Non-Trade Related sustainability; to put in place complementary • Develop complementary national or regional policies or cooperation to polices at the domestic level, or through promote sustainability. international cooperation, to mitigate any negative impacts and enhance any positive impacts, and Transparency improve overall sustainability. This section of the report is not fully developed and the following is offered as initial thinking on the framework for developing policy measures. This existing framework introduces the issues. It includes defining and elaborating trade- related measures. It also includes defining and elaborating non-trade-related measures or non- trade related mitigation and enhancement measures to accompany EPAs to ensure that the outcomes of the negotiations contribute to sustainable development. Building on the four key purposes associated with the EU-ACP SIA, a range of policy recommendations can be developed that fall into the following general categories. 116 1. Trade Related Policies for the Negotiators (short-term) Because one purpose of the exercise is to influence the EU-ACP EPA negotiations, one set of policies will be crafted that relate directly to the trade negotiations and address specific trade measures, where significant impacts are found to exist, and where these can be mitigated or avoided by adopting a particular negotiating position with respect to a certain trade measures, or by developing new environmental and social safeguards to include in the agreement. Where negotiating positions are already in place, the case will be made for revising them as necessary to take into account a specific finding related to a trade measure. ! Recommendation related to a specific trade measures; ! Recommendation for the inclusion of environmental and/or social safeguards in the agreement; ! Recommendation for modification of some aspects of the trade measure or agreement. 2. Recommendations related to sustainability (non-trade related) (short, medium and long-term) One of the purposes of the SIA is to develop policy packages to promote sustainability. That is, to help define, and provide input into policy packages being developed by the EU and by the countries of the ACP to accompany EPAs in order to ensure that the outcome of the negotiations contribute to sustainable development. There may also be opportunities to include provisions within the EPAs that although not directly trade related, will address priority sustainability issues analysed in this SIA, and directly promote sustainability. There is a potentially very broad range of policy measures that might be included in this category. There may also be opportunities to stagger and prioritise policy measures over the short and medium term. ! Implementation of a complementary national or regional environmental and/or social mechanism(s)/policies to promote sustainability. 3. Recommendations to promote transparency Increase transparency. To increase transparency by developing a basis for the discussion with European and ACP stakeholders about sustainability implications associated with the negotiations. Within these overall categories, the range of policy recommendations that might emerge from a SIA will require a degree of flexibility is also required to allow for the identification of policies to be implemented in the short, medium and longer terms. In some instances policy measures might be implemented over the medium and longer term, particularly those designed to maximise the potential benefits brought about by the EPAs. In other cases, particularly in situations where significant adverse impact is identified, swift remedial action 117 might be required. Additional variables that should be considered when identifying appropriate policy measures might also include the range of instruments available including command and control, market based instruments or voluntary action. The following criteria will help guide the selection of appropriate policies. Some of these are taken from the SIA Methodology for the WTO Negotiations (Phase III). 106 ! Impact on sustainable development; ! Flexibility ! Enforceability ! Transparency/fairness and equity ! Policy compatibility ! Political acceptability ! Cost-effectiveness; and, ! Feasibility. 106 Kirkpatrick, C. and Lee, N. 2002. Further Development of the Methodology for a Sustainability Assessment of Proposed WTO Negotiations (Final Report). IDPM, University of Manchester. 118 ANNEX 1: Market Access for Goods—Western Africa (work in progress) This is a very preliminary sketch of how what an analysis of market access in Western Africa would look like, working through the example of cotton. There are a number of other sectors that could be affected by changes in market access provisions, although direct trade- related impacts are likely to be minimal for exports from Western Africa in light low tariffs that now exist. More work needs to be done to examine relevant non-tariff barriers, and tariff peaks as they related to processed goods in key sectors that might be impacted in Western Africa’s non-LDCs. More detailed work also needs to be done to examine the precise impacts on European exports to Western Africa, where there are still some tariff barriers on certain imports. In addition, the author is seeking to identify any existing modeling data for all relevant sectors, in order to contribute to the assessment of the potential economic changes that have been predicted (such as those that might exist in the context of multilateral negotiations) for possible application to this case study. Access to EU market for ECOWAS products The EU is a major trading partner for West African countries. It is the main destination for West African exports, most of which are primary products with very little value-added. Tariffs on these products, where they exist, are already low, and the removal of existing tariffs on primary products will not likely result in an increase of exports to the EU. What is at stake is competitiveness of West African products in the EU market if they do not have a privileged access and have to compete with EU production and third parties. Many exports from ACP countries already enter the EU duty-free (Table 1). This preference applies to all manufactured and processed products, provided they meet certain rules of origin. For example, raw materials that do not originate from ACP countries cannot represent more than 15 per cent of the final price of the good. Table 1 Share of ACP exports entering the EU duty free, 1997 Product % Value (€ billion) Industrial products 100 13.7 Agricultural products 80 8.2 Total 92 21.9 "Protocol" agricultural 10 1.6 products Total with protocols 99 23.5 For agricultural products, all tropical products that do not compete with European products (including, inter alia, cocoa and palm oil) enter the EU duty free. This gives the West African countries a competitive advantage with respect to non-ACP countries supplying 119 the same products to the EU although margins are beginning to narrow as a result of reductions of tariffs under the WTO.107 Goods that compete with EU production are typically subject to specific import measures, including high duties and tariff quotas. However, these do not apply to LDCs, which benefit from the “Everything but Arms” (EBA) Agreement with the EU. Under this agreement, it is likely that all LDC’s will have free access to the EU market, for all products (including for bananas, rice and sugar), with the exception of arms, by the time the EU-ACP EPAs take effect starting in 2008. Through the EBA initiative in March 2001 the EU effectively opened its markets to all exports from LDCs. In the Western Africa, only Nigeria, Ivory Coast and Ghana are not LDCs. There are three exceptions, which will be subject to some delay, are all agricultural products: ! Bananas: Beginning in January 2002, tariffs are to be reduced by 20 per year, with total elimination in January 2006. ! Rice: Tariffs should be reduced by 20 % by September 2006, 50% by September 2007, 80% by September 2008 and eliminated completely by September 2009. ! Sugar: Tariffs should be reduced by 20 % in July 2006, 50 % in July 2007, 80 % in July 2008 and eliminated completely by July 2009. For imports from non-LCD counties tariff peaks are employed by the EU mainly with respect to agricultural products such as meat, dairy products, processed and unprocessed cereals products, processed fruits and vegetables, beverages and spirits.108 The difference between the minimum and maximum rate ranges from zero to 470.8% for agricultural products and from 0 to 36.6% for non-agricultural products. Very few non-agricultural goods are subject to important tariff variations, with the exception of organic chemicals. Tariff peaks might be of some importance for Nigeria, Ghana and Ivory Coast since these countries have the potential to process part of their agricultural production. As long as exported fruits to Europe are either tropical fruits or off season products they are not considered as sensitive and then are not concerned by tariff barriers. All processed products would be considered as sensitive and then subject to limitations and quotas. Few of them are concerned for the moment since export of processed fruits and vegetable are not exported for the moment. EU Member states also apply indirect taxes such as value added and excise taxes to imported products at the same rates as for goods produced in the EU. These indirect taxes apply to all imports from both LDCs and non-LDCs. Among the various non-tariff barriers (NTBs), the traceability requirements and the sanitation rules imposed by the EU and apply, inter alia, to imports of meat, fish and fresh 107 For example, while ACP products in the category "Cut –flowers, living plants and trees" enter the EU market duty free, similar products from Latin America are subject to an average tax of 7.4 per cent. 108 Tariff peaks are tariffs that are the triple of the average tariff. For raw materials from non-LDCs tariffs are not imposed unless they compete with European production. 120 fruits and vegetables. Given that agricultural products are among the most important exports from Western Africa to the EU, including large amounts of fish and fruits and vegetables, failure by countries in the regions to meet these requirements could impact most severely the potential for expanding trade from Western Africa in strategic agricultural products. These requirements are often difficult to fulfill and have a cost that further reduces competitiveness of West African products in EU markets. Mangoes, for instance, are collect products and traceability requirements are almost impossible to reach, green beans are produced in Burkina Faso and in Mali by small farms who receive the seeds and the tools from the exporter who buys the product. They are hardly able to respond to any regulation concerning traceability. If trade barriers and mainly NTBs could be lifted the potential for expansion of this sector would be important and could probably double for tropical fruits within less than five years. It would open ways to proceeded products such as pre-packed fresh fruits or pre-cooked vegetables and give access to high value products with high margins. Such a trend would be of significant importance for Sahel regions able to produce most of the concerned vegetables including tomatoes, a very sensitive product, and some fruits like melon, papaya and mangoes. These production would help to maintain populations in rural areas, might be an alternative to other damaging crops such as cotton since they are much more profitable for farmers Access to the EU market is most difficult for land-locked countries, since most of their products have to be exported by sea and thus must reach a port in another country within the region. In theory most of the ports of the region have a special system of customs warehouses that allow duty free transfers and avoid the payment of any duty. But in reality the high level of formal and informal inter-regional duty is an obstacle to trade with EU. The informal cost of duties for a lorry between Ouagadougou, Burkina Faso and Accra, Ghana is around €1,500, with two to four check points every 100 km. The situation is similar among the WAEMU countries with almost the same level of controls and price between Ouagadougou, Burkina Faso and Abidjan, Ivory Coast. Access to EU market will not be made easier or more difficult by a change in the existing tariff and non tariff barriers. The main change will come from the suppression of privileged access through specific protocols. Competition will increasingly become the rule in the EU market. The countries of Western Africa will have to find ways to increase their competitiveness to reap the economic advantages of their comparative advantage. 121 The Four EU Protocols Four products operate under specific protocols: sugar, beef and veal, bananas and 109 rum. These products are considered sensitive because they are produced by the EU either in mainland Europe (veal and beef, and sugar) or in the overseas territories of the member states (bananas, sugar, and rum). The protocols grant free access (or a substantial reduction in custom duties) to a specified quantity of exports from certain ACP suppliers. In particular, the sugar and meat protocols allow ACP products to benefit from domestic fixed prices in Europe that are higher than international prices. The sugar protocol enjoys a unique status since it is legally dependent on the Lomé Convention and has an indefinite duration. For sugar, veal and beef and bananas, the Protocol contingencies have been included in the GATT 5 per cent contingencies in an effort to bring them into line with WTO obligations. Sugar The Cotonou Agreement reaffirms the principles of the sugar protocol with tariff quotas for ACP sugar. The main beneficiary countries are not West African countries although there might be some impacts in Senegal and Ivory Coast.110 Ivory Coast and Senegal are the two sugar producers in Western Africa, although their market is predominantly local and regional. In 2002, neither Senegal nor the Ivory Coast exported sugar to the EU. Both Senegal and the Ivory Coast import modest amounts of sugar from the EU. In 2002 the Ivory Coast imported 50,401 tons, worth €13,109 million which accounted for 1.1% of its total imports from the EU. In the same year, Senegal imported 47,001 tons, worth €11,623, accounting for 1.0% of its total imports from the EU.111 The production in these West African countries is not competitive compared to other major producers within the ACP. Further opening the EU market is unlikely to impact production in Western Africa, and the interest of the sugar protocol generally is lessened by the reduction of EU tariffs and the lowering of EU prices. Beef and Veal The Beef and Veal Protocol gives duty-free access to the EU market for six countries up to a limit of over 52,000 tons.112 No West African country is affected by this protocol because they do not currently export beef and veal. But in 1997 the cost of production in the EU was 2.5 euros/kg, or almost twice as much as the 1.4 in Argentina and 1.3 in Brazil. In Abidjan, the selling price of beef was 1.4 euro/kg. In 1999, the kilo of beef in Ouagadougou was 1.22. Africa’s competitiveness thus appears promising in a liberalised market provided 109 The Rum Protocol measures have been phasing out since 1997. The Rum protocol is not part of the Cotonou Agreement. 110 Mauritius, Fiji, Guyana, Jamaica, and Swaziland. Concerned smaller exporters include Trinidad & Tobago, Belize, Barbados, St. Kitts & Nevis, Malawi, Madagascar, Tanzania, Democratic Republic of Congo, Uganda, Suriname and Kenya 111 Comext, 2002. 112 Botswana, Kenya, Madagascar, Swaziland, Zimbabwe and Namibia 122 Western Africa is able to develop this industry despite the weakness of the sector organisation (notably infrastructure and taxes). Nevertheless, the quota system is still part of the Cotonou Agreement and should benefit Botswana, Namibia, Zimbabwe, Madagascar and Swaziland. Even if the cost of production of African beef is low and appears to be competitive, opening the EU market would have little or no effect since this production is typically undertaken in the Sahel and cannot be extended due to limitations in transport and cold storage capacities. Bananas The banana protocol gives preferential access to the EU for bananas from ACP countries. Under the Most Favored Nation treatment, tariff is 737 €/ton. For bananas exported by ACP countries, the tariff is zero within the limit of the quota given to the country and 200€/ton for volumes exceeding the quota. Only African countries fill their quotas. This is not related to the importance of the product for the local economy. For example, in St Lucia, banana exports represented 84% of all agricultural exports and they made up 49% of St Vincent’s agricultural exports (in 2000). In 2002, the EU imported 210,727 tons of bananas from the Ivory Coast, which represented 4.5% of the total exports from Ivory Coast to the EU in that year.113 Ivory Coast is the only country in Western Africa to export bananas to the EU. Several rulings by the WTO’s Dispute Settlement Body have found that the banana regime is inconsistent with the EU’s obligations under the GATT. By January 2006, the quota regime with its distribution of quotas between ACP countries and other exporters will be replaced by a tariff-only regime for bananas (with no more quotas or licenses). The Banana Protocol is still part of the Cotonou Agreement but it focuses only on support to production, transportation and marketing of ACP bananas without any references to quotas or specific access to the EU market. Given the dependence of the ACP countries on the EU market, the phasing out before 2006 of the preferences for ACP countries that exist in the Banana Protocol could have important impacts. No West African producers can compete effectively with the big plantations in Latin America (of up to 5,000 hectares) in a liberalised market where costs of production are around US$200/tonne and which benefit from FDI to support intensive patterns of production. The cost of production in Ivory Coast is on average US$ 400/tonne. Ivory Coast is the only country in region that would benefit from preferred access to the EU market for bananas. Despite major investments in this sector, banana production in the Ivory Coast will never be competitive and it is likely that phasing out of the protocol could reduce production even further. Any land used for banana plantations that are no longer viable, could be converted to grow higher value agricultural products for export. 113 Bananas are more important for some other parts of Africa. For example, in 2002 Cameroon exported 229,722 tons of bananas to the EU, representing 8.9% of its total exports to the EU. However, these figures are still small compared to exports to the EU from major producers in the Caribbean. 123 Access to ECOWAS market for EU products In theory, tariff regimes are relatively similar in the countries of Western Africa, although they differ somewhat between WAEMU and ECOWAS. In all countries in the region, the customs policies are based on low imports duties on raw materials and relatively high duties on imports of finished products that might compete with local production. Some general comments can be made: ! Average tariff levels remain high in most countries compared to levels in the EU. ! Tariffs are not homogeneous according to the products. ! Import duties on industrial products and on “first necessity” products such as pharmaceuticals are usually low or non-existent. ! In most cases, the highest duties are on agricultural products. The tariffs can be especially high for products that are produced in the country (for example, 120% on sorghum in Nigeria). ! Apart from fixed tariffs, very few countries use tools such as tariff peaks. This is due to their choice to declare bound tariff rates at the WTO. ! All countries in the region apply a VAT that varies from 15% to 20%. Some countries add excise duties that generally apply to both imported and local products. In some cases, this tax is applied only to imported products. ! Most countries are already part of a regional economic integration process with preferential import tariffs for the products coming from regional economic partners. The countries of ECOWAS have harmonized their approach to customs documentation, introducing common certificates of origin, customs nomenclature (HS) and other declaration forms. However, significant non tariffs barriers exist within the region, typically at an informal level. For example, goods are often subjected to non-transparent and inconsistent procedures at border crossings which increase the cost of the transaction and pose an obstacle to the process of market integration. In addition, the implementation of the Trade Liberalisation Scheme (TLS) has faced serious obstacles including high levels of taxation on approved tax-free products and the refusal by some customs officials to recognize the scheme and the products approved under it. NTBs, including technical barriers to trade (TBTs) are the major impediment to West African countries entering the EU market. These include standards, which are the subject of separate treatment in this SIA.114 There is scope for discussion on specific measures to remove some of these technical barriers as well as providing support to reinforce the capacity of the public and the private sector of the ACP countries in this field. For WAEMU countries, trade within the region is duty free and a CET, composed of permanent tariffs and temporary tariffs, has been in place since January 2000. The structure of the permanent tariffs is as follows: 114 Article 47 of the Cotonou Agreement deals with Standardisation and Certification and Article 48 with Sanitary and Phytosanitary measures, which are dealt with separately in the SIA. 124 ! Duty free: oil and refined oil, medicines, newspapers and books ! 5%: commodities, essential needs products, equipment and specific inputs ! 10%: other inputs and intermediary products ! 20%: consumer products and other goods ! 1%: Community solidarity tax ! 1%: Statistical tax Temporary tariffs can be applied by member states for sectors that are particularly vulnerable in the trade liberalisation process. These include the "Taxe dégressive de protection" (TDP) and the "Taxe conjoncturelle à l’importation" (TCI). ! TPD: was put in place in conjunction with the CET in January 2000 for an initial period of two years, although it has been extended until January 2004. It allows member states to apply a “low TDP” (starting at 10 per cent in 2000, and decreasing to 0 per cent in 2004), or a “high TDP” (starting at 20 per cent in 2000, and decreasing to 0 per cent in 2004). ! TCI: allows a member state to apply an extra tariff of 10 per cent (or more) for local products under threat of harsh international competition. Depending on the nature of the product, the member states may need authorization from WAEMU to apply TCI. With respect to major non-tariff barriers, no export restrictions or quantitative restriction are allowed among the countries of the WAEMU. In addition, there are no provisions for anti-dumping, export subsidies or safeguard measures applied among the countries of the WAEMU. Rules of origin are not applied to non-processed agricultural products (except for fisheries) or handicrafts. However, as in ECOWAS, informal barriers to trade continue to exist among the countries of WAEMU, which increase the cost of transactions. West Africans are used to living in an open market where they can get all kinds of products at affordable prices, in line with their low purchasing power. While liberalisation might encourage this, it might also accelerate the collapse of modern West African manufacturing sector. After the independence of many of these countries, industrialisation developed based on import substitution rather than exports, breweries, cement plants, plastic containers. This was made possible by the protection of local markets. The exports that developed were raw products to be transformed in Europe and elsewhere. This strategy has demonstrated its limits. ! Local industries incurred huge costs of production and therefore their selling prices were significantly higher than for Asian or even European products. ! Protection of local markets proved to be inefficient and local traders found ways to import cheaper products available for the poor with limited purchasing power. ! As a consequence modern import substitution the manufacturing sector faces severe crisis. Some industries remain and are profitable (such as breweries, cigarettes producers) because they benefit from the fact that they are tax collectors and thus receive some protection. Others, like the plastics industry, benefits from the barrier 125 of transport cost for products with little value but high volume—the higher the transport price is for imported products, the higher the real protection for local production. The “modern” manufacturing sector, based on import substitution is still important and provides employment in major West African cities. It cannot easily be replaced by an efficient and profitable export-oriented industry. Protected by tariffs and privileged access to markets, African entrepreneurs are not used to the pressures of constantly having to improve productivity and competitiveness. The removing of protective tariffs will accelerate the decline of modern manufacturing sector, a trend already engaged with the competition of imported smuggled products. The evolution of an efficient manufacturing sector will take time, and will depend to a large extent on the behavior of African governments, as well as developments in trade regimes. To benefit from the opening of the EU market and the existence of a regional market, West African economies have to be competitive. For the moment, with the exception of Nigeria in some cases, they are not. The reasons, inter alia, for non competitiveness are the following: ! unfriendly business environment; ! lack of expertise; ! weak infrastructure; ! cost of energy; ! lack of adequate financial tools; ! poor logistics. The situation in Western Africa is such that EU markets have to remain open to African products and as much as possible to value-added production, even if some of this production competes with EU products. At the same time some kind of protection must remain in Africa. Liberalisation is a necessity to ease evolution towards a sustainable development but it has to be progressive. Such an approach would ease the necessary move of African producers of exports products to comply with legitimate requirements for entry into EU markets. It will also pave the way for new job creation and a better respect of regulations and requirements in terms of environment protection and fair trade. Market access is clearly a core component of the Cotonou Agreement. The focus is on competiveness of these products. The Cotonou agreement clearly highlights the need of increasing competitiveness of ACP products and provides support to reach this objective. By the way, a change of tariff barriers will have few effects while the removal or the adaptation of non tariff barriers is crucial for ACP products. On a case by case basis it can be an issue to be addressed in a mutually profitable basis in the context of an EPA. Most of the exportable products from Western Africa are agricultural or mineral products that can be locally transformed to add value. Since only 9% to 12% of these products are transformed locally there is room for improvement provided they have access to the EU market. An increase of trade in these sectors could have considerable effects on sustainability allowing the development of modern and profitable crops, their transformation through a modern industrial sector creating jobs in the urban centers as well as lowering exodus from the Sahel countries. 126 The market is not sufficient in itself, and local governments will have to improve the overall environment and engage themselves in the creation of a viable economic union in ECOWAS. In the context of liberalisation, with no more privileged access to EU markets, West African products will have to face competition not only from EU products but also from third parties producers. Little production might immediately have a comparative advantage. The structural weaknesses of their legal and financial environment, of infrastructure, will not allow an immediate improvement of most of the sectors. Apart from the mining sector and oil and gas sector, the countries of Western Africa produce raw agricultural products. Only 9% of this production is locally transformed into higher value processed products and so there may be opportunities for improvement. The main exporters are Ivory Coast for coffee, cocoa, tropical fresh fruits and vegetables and wood products115, followed by Ghana. The countries of the Sahel account for a limited part composed mainly of agricultural products, such as cotton fibers. Production for local market is limited to few import substitution products. Their production cost is high and these sectors are not competitive. The liberalisation of trade will probably increase the problems they already face with the competition of goods imported by the informal sector. Effort should be made to promote competitive sectors with a potential for exports. At a general level, potential economic consequences of market access liberalisation in Western Africa include, inter alia, the following: 1. The collapse of much of the manufacturing sector, which at the moment constitutes the backbone of the modern economy in the region and is the main employer in urban centers. Key economic impacts will include loss of revenue for the urban population and for the government, increased weakness of the financial sector, of insurance companies and services linked to these manufactures 2. An increase in the informal sector to provide employment, food and services to urban population with the consequence of non-performing micro-enterprises working more on the survival mode than on the development mode. This will not be shock for urban population already used to living and surviving with the support of the informal sector. 3.2 Sectors Given these general dynamics, there are some sectors in the region that deserve specific attention. This section begins the selection of the most relevant sectors for study, 115 Ivory Coast accounts for 7% of ACP trade with EU. 127 related to market access. It is informed by the previous discussion on sustainability and trade. The following criteria are employed to select priority sectors: ! The sector is significant from an economic, environmental and social perspective (based on “hot spots” determination). ! The sector is significant in terms of trade flows in both volume and financial terms. ! The sector may be impacted by changes in the trade measures included in a future EPA. ! The sector bears some significant relationship to the regional trade between the region and the EU through rule changes, government policy changes, institutional changes, investment changes or direct trade impacts. ! An analysis of this sector will contributes to an understanding of other issues of importance in the region. ! The sector is one where one might expect that there will be potential impacts of the EPA on sustainability. From the perspective of market access, if access to EU market is made possible by removing existing NTBs and tariffs that apply to non-LDCs, combined with some level of capacity building (included in the Cotonou Agreement), there may be overall positive impacts in the following sectors: a. Palm oil in Ghana, Ivory Coast and Benin, including by products (soap, margarine, edible cooking oil) for local and regional markets as well as exports; b. Rubber in Ghana, Ivory Coast and Nigeria with progressive local transformation which require minimal technology; c. Wood products for export after transformation into high value products (furniture) in Ghana and Ivory Coast; d. Production of high value fresh fruits and vegetables for export purposes in all West African countries e. Fisheries for regional market but also export after transformation to add value f. Cotton in the Cotton belt including Sahel countries and Ivory Coast, Benin and Nigeria for export after transformation and local markets through a revived textile industry; g. Tourism. Negative impacts on development on environment are to be analysed: ! An increase of production of agricultural products, if not properly managed, will result on a pressure on lands and soils. In Sahel countries it is a major concern and the increase of lands devoted to cotton production will probably result in an increase of possible desertification; additional production will also induce the need of bigger farms and thus the reduction of small family farms with more mechanisation, more fertilisers, more chemicals; ! An increase of demand on fishery products, if not properly addressed, will put an unsustainable pressure on already over exploited waters. 128 ! An additional pressure on primary forest seems difficult and wood exploitation will need serious management of the resource, mainly in countries like Ghana and Ivory Coast. ! The development of an industry will mean additional pollution of air, waters, and since most of these industries will be close to export facilities such as ports, they will provoke additional degradation of the coastal regions. Social impacts of an increase of production also have to be addressed since although there may be some job creation, there may also be negative impacts that include: ! Attraction from poor countries with the risk of ethnics or religious conflicts between local population and newcomers. ! An increase of urbanisation will accelerate the need for health support, waste management, access to drinkable water, all of these services that cannot easily be provided by the municipalities or States. In the context of this study selected sectors will be analysed in terms of their potential impacts on sustainable development including economic social and environmental issues. The selected sectors will have to have a significant impact on trade and relation with the EU and possibly be impacted by a possible EPA. This will determine the potential of the sector, the conditions to be met to reach the objectives of adding value, increase competitiveness. The impact of these sectors on social issue and environment will also be addressed. In order to illustrate the type of analysis, that will result, this draft paper on market access focuses on the cotton sector in Western Africa. Cotton Cotton is important in West African countries. From an economic perspective it represents 38% of GDP in Benin, 35% in Burkina Faso and 14% in Mali. In 2002, it accounted for 75% of Benin’s exports to the EU, 60% of the exports to the EU from Burkina Faso and 50% from Mali. Yet the West African textile industry is disappearing. In WAEMU countries 41 units were set up in the 1980s and only 20 of those are still operating, at very low levels of activity, and underutilisation of their capacity. The market is important but does not satisfy 20% of the regional market. Smuggled imports cover 50% of the needs of this regional market, imports of used cloths accounts for nearly 15% and 15% is satisfied by imports from Asian countries. Cotton is a major production of the region. Taken together, Central and Western Africa are the sixth largest producer of cotton in the world and the third largest exporter of cotton behind the United States and Uzbekistan. The production of cotton thread in Western Africa is competitive.116 The production cost of raw cotton is very competitive in West Africa ($1100/ha in the United States and $222/ha in Mali). But Western Africa remains one of the few regions where cotton is not transformed locally. The respect of rules of origin will 116 Costs of production per kg for thread Nm 50/1 (ring process) in Fcfa is as follows: Europe 2639; United States 2477; Thailand 2054; India 2028; WAEMU 1715. 129 impose more local transformation locally for export markets (including the United States, through AGOA, and Europe). The situation is different for the finished product. The West African textile industry is not competitive for the moment due to high prices of energy, weak transport infrastructure and competition from imported second hand garments and smuggled products. For example, a smuggled imported “fancy” print in Abidjan is sold 39% cheaper than the same local product. The selling price of fraudulent imported unbleached product is 19% cheaper than the production cost of the same local product. These figures partly explain the decline of West African textile industry which is due to the high prices of energy (2 to 3 times more than in Taiwan and Malaysia) and low productivity in Western Africa (3 times less than average in the textile sector). From a social perspective, cotton is hugely important for the populations in some parts of Western Africa. Large portions of the populations in Mali, Burkina Faso, Benin are dependent on the cotton and textile sectors as major employers.117 Yet most producers in Western Africa are small producers, farming lots between 1 and 5 ha, and because the world price of cotton is low, the production is becoming less attractive, and it is becoming harder to make a living.118 From an environmental perspective cotton is also important. The cultivation of cotton contributes to the severe degradation of land as a result of intensive use of chemicals in countries including Mali and Burkina Faso. The day when the cultivation of cotton ceases, the land is more or less impossible to use for producing food. Indicators In the context of this work, the economic impact of a development of cotton transformation will be considered through the effects of adding value to an existing production, in terms of investment, revenues for the States, contribution to restructuring of the industrial export oriented sector. The possible increased land degradation will be a major criteria used to examine the environmental impact but also the benefit of keeping an agricultural activity in Sahel rural regions. The social impact will be examined through the criteria of impact on urbanisation and/or rural exodus, and income generation both in rural areas and urban centers. Trade-related changes to cotton: Possible impacts of market access provisions in an EPA. Cotton is a challenge in the future of relation between the EU and West African countries. On the one hand CAP allows generous subsidies to EU cotton producers (from 117 In WAEMU only 10 million people with 6 million in raw cotton production 118 35% of world price for the Malian producers, 39% average in WAEMU countries to be compared with 93% in India not including subsidised prices to producers like in the US or EU. 130 Greece and Spain119) and on the other hand EU spinning industry is declining. Spinners tend to be close to the production of raw materials to lower their costs. Most of the threads used by EU textile industry come from Uzbekistan, China, Pakistan. Complementarities could exist between West African producers of cotton threads and the EU textile industry. Assuming a scenario based on the full implementation of a free trade area among the countries of ECOWAS by 2004, including a monetary union and a common external tariff (of between 11 and 12 per cent), in place by the time that an EPA would be signed, in 2007. A 12-year implementation period is assumed during which time trade between the EU and ECOWAS will be progressively liberalized. The agreement should be fully implemented place by 2019. Removing market access barriers, given the current situation with cotton, would have a beneficial impact. For the moment, all cotton products included in chapter 52 are considered as sensitive and as such subject to limitations even if they come from LCDs. Such a protection might be redundant since most of the spinning industry in Europe is closing down or relocating. Preliminary sketch of some Sustainability Impacts Economic impacts arise from the fact that cotton production will become less and less viable in major cotton producing countries like Mali, Burkina Faso, and Benin which depend on the cotton sector for a large part of the GDP and where the sector employs a great many people (around 6 million people are employed in the cotton sector in these countries). Even if the pressure on market prices through US and EU subsidies for cotton producers is alleviated, and market prices become more attractive, it might not be enough. Environmental impacts focus on issues of land use that will come about if there is a structural shift away from cotton production. It will depend on whether the land surface devoted to cotton production increases, or whether additional revenues are gained by engaging in the transformation of cotton fiber in Western Africa. Since the current trend of the market is not an expansion of the use of cotton and thus additional production but rather a move of spinning industry closer to production, the negative impacts on environment will be limited. The contribution of a viable cotton sector to poverty reduction through employment creation and income generation in the rural areas of Sahel countries is clear. Growth linkage research in the West Africa region has shown multiplier effects on employment and income in the rest of the rural economy due to the expansions in income from cash crops. If the West African cotton production remains uncompetitive, which is now the case with an unfavorable exchange rate between the dollar and the euro, in WAEMU countries, and unless there is no alternative crops or an increase of cotton seeds utilisation, the impacts on the economies of Mali and Burkina Faso would be huge (loss of 50% in average of their 119 The production of Greece is 325,000 metric tons/year and Spain is 105,000 to be compared with 956,000 tons/year produced in West and Central Africa 131 revenue from export, 14% to 38% of their GDP). Population would move to already over populated urban centres and aggravate the poverty level of most of these countries. Such a scenario is quite possible and the effects would be hard to mitigate since for landlocked countries like Mali and Burkina Faso any alternative exploitation of agricultural or mineral resources is made difficult. Besides, the land previously used for cotton production can hardly be used for any other food crop. Liberalisation could also offer potential opportunities associated with transforming the cotton fibers and adding value in West African countries prior to export. At present the export of textiles from Western Africa is minimal while Eastern and Southern Africa has developed a major export textile and garment sector taking advantage of the AGOA.120 In Western Africa the local market for textiles is huge and growing at the rate of the expansion of the population but limited by smuggled imports and the growing imports of used clothes. Access to EU market would be a serious incentive and can be done progressively if logistics and business environment improve. Reducing NTBs in Europe might help this necessary trend. At the same time, it is necessary to open the regional market. Competition would be from Nigerian products where the textile industry is profitable given the exchange rate of the Naira to the Cfa Franc. But products might be complementary. It is necessary to transform the cotton fibers produced to avoid that the added value is made in other countries. This will involve consideration of a number of issues, to determine any sustainability impacts including: ! The extent to which additional value for cotton will induce additional production. ! The response of farmers (increase the pressure on disposable lands, use more chemicals?) It seems that as far as there are disposable lands in countries like Cameroon and Mali, the farmers will use them as long as they have access to disposable water which is the case in North Cameroon with the Lagdo Dam and in Mali with the Manatali Dam and the “office du Niger” facilities far from being used. It is not obvious in other countries in the region. Due to the relatively high price of chemicals and pesticides, it is not obvious that farmers will increase their use. ! The viability of export-oriented industries in the Western Africa. Can they limit the negative effects (economic and social) of the loss of import substitution manufactures? Obstacles to competitiveness are huge. They cover price and availability of energy, poor and expensive transport infrastructure, especially for landlocked countries like Mali and Burkina Faso, a weak financial sector. Does the political commitment exist to promote export industries? What kinds of flanking measures are necessary? Preliminary Sketch of Policy Recommendations The EPAs could address the following trade-related issues: 120 Africa Growth Opportunity Act which grants tax and quota free access to US market for African textiles and garments 132 ! Access to EU market: the EBA should be in application for Sahel countries production if not for Côte d’Ivoire. Despite problems for Côte d’Ivoire products it should allow West African products to benefit from their competitive advantage. Linkages between African producers and EU traders and textile industry could be encouraged in order to secure access to products, quality requirements and training; ! Access to ECOWAS markets: one of the major problems facing textile industry in West Africa is imports of worn clothes from the EU. If these imports could be limited or even banned it would help revive local and regional markets for clothes and thus for a local textile industry. In the event that the countries of Western Africa develop their production of transformed goods (agricultural and others) in some cases, it might be possible that some compete with EU production and thus will be subject to tariff peaks. The level of tariff peaks on selected products could be negotiated in the context of the EPA in order to ensure access to these products on part of the EU market. This could be complemented with measures concerning access to the West Africa Market. Similar peak tariffs could be negotiated to limit imports of used products such as used cars, tires, and used garments from Europe. At domestic level, the countries of Western Africa should focus on the first stages of transformation: cotton threads and unbleached fabrics for export. In the meantime working on improving the business environment and productivity, it will be possible to revive textile industries both for export and local markets. Policy reforms increasing productivity of cotton in West Africa requires privatisation to spin off to the private sector the non core activities of the cotton parastatals, reinforcing the technical and commercial capacities of farmers associations, introducing competition at crucial stages such as ginneries and marketing of fibers and threads. 133