EPAs in Services no good for Africa, says World Bank

World Bank
World Bank

According to the wishes of the European Commission, full and final Economic Partnership Agreements (EPAs) should include an agreement on trade in services. Services include a wide array of activities ranging from the provision of clean water, energy supply, education, health care and telecommunications to business services such as banking, lawyers and accountants.


The interim EPAs, which some African countries signed referred only to trade in goods and did not include services. Most African countries are reluctant to include services in the final agreement (Mozambique being one of the very few exceptions) and no agreement on the inclusion of services in the EPAs with African countries has so far been reached. The only EPA which so far has included services is with the Caribbean states and is also the only final EPA to be signed so far.


It has to be noted here that the inclusion of services and other trade related matters, such as intellectual property rights, is not necessary to make EPAs compatible with the rules of the World Trade Organisation (WTO). An agreement in goods only is entirely sufficient. However, once the two parties agree to include trade in services in the agreement, this has to be done in a WTO-compatible manner, in particular with Article V of the General Agreement on Trade in Services (GATS) of the WTO that calls for a liberalisation with substantial sector coverage.


The World Bank's study on EPAs in services

In August 2010 the World Bank released a study on the inclusion of services in EPAs[1]. The report mentions that services are an increasingly relevant economic sector in many African countries and that there are considerable margins for further growth. The report warns that a liberalisation of the service sector tends to be more complicated than that of trade in goods.


The liberalisation of the trade in services needs to be coordinated with regulatory reforms and additional policy measures in order to achieve the desired outcome and provide remedy in case of market failure. Furthermore, mechanisms to ensure that key services (e.g. access to health care, education) are not compromised by the trade liberalisation and that the liberalisation will not lead to deterioration in the provision of these key services to the poorest because they are the least profitable to serve. This capacity to implement sound regulatory policies for the service sector is limited in many African countries.


In order to be able to plan service liberalisation effectively and to negotiate a trade agreement on service liberalisation effectively it is essential for governments to possess extensive information on the nature of regulation and trade restrictions in all sectors under discussion. Many African countries lack a comprehensive set of data on their service sector which hinders their capacity to participate effectively in negotiations and to defend their interests well. 


The type of reforms in the African service sector necessary to turn the sector into a driver of development on the continent cannot be achieved effectively through EPAs because it is in the nature of trade agreements like EPAs to be the result of give-and-take bargaining, where both sides try to maximise their advantages and to reduce their losses to a minimum. What is needed is a constructive collaboration between the EU and the African countries to achieve the necessary reforms in the service sector in Africa on a country- and sector-specific basis. Such an approach is not possible in an EPA which, as mentioned above, would foresee the liberalisation of substantially all sectors in order to be WTO-compatible. The technical and financial assistance needed by African countries to reform their service sector has to be independent of trade negotiations and should be given by the EU regardless of whether they sign an EPA or not.


Moreover, the only type of services the African countries could at the moment realistically hope to export to Europe is the temporary movement of natural persons (e.g. a nurse) from Africa to Europe in order to provide the service or GATS Mode 4 type of services to use WTO-speak. It is completely unrealistic to believe that Africans will be able to open banks or law firms in Europe. However, in this sector the EU is very reluctant to make any concession, particularly in regard to the temporary movement of unskilled workers, because EU member states are afraid of the arrival of migrants to Europe and are concerned that they will not return to Africa.


The alternative of deeper regional integration

According to the World Bank study, liberalisation at regional level is a better alternative for African countries as it would allow regional service providers to emerge and give the governments the possibility to gain regulatory experience before fully opening the service sector.


In an other study[2] analysing the service sector in the East African Community (EAC), the World Bank also calls for greater integration at regional level.  The study notes that the fragmentation of regional markets for professional services caused by restrictive policies and regulatory heterogeneity represent a serious hurdle for the growth of the service sector.


Regional integration would enhance competition amongst service providers, enabling them to exploit economies of scale and to produce a wider variety of services. A larger regional market would be likely to be able to attract more domestic and foreign investment. Regulatory cooperation in order to overcome differences at regional level should take place especially in the following areas: cooperation to remove restrictions on the free movement of labour (including visa and immigration laws), cooperation to improve the financing and capacity of professional education, mutual recognition of qualifications (e.g. diplomas) and the development of common standards.


Services in the CARIFORUM EPA

The CARIFORUM EPA (with the Caribbean countries) is the only final EPA signed thus far and also the only one containing a chapter on services. The agreement is compatible with GATS Article V, which foresees substantial sectoral coverage in the service liberalisation. The EU interpreted this as meaning that the less developed countries had to liberalise at least 65 % of their service sectors and the more developed Caribbean countries at least 75 %. For many Caribbean countries this meant a considerable shift, for example Surinam went from 15 to 75 %, Grenada from 23 to 69 % and Guyana from 19 to 82 %. On the other hand, the EU needed to make very little further liberalisation[3]. The EPA text contains far fewer flexibilities for developing and least developed countries than is foreseen in GATS.


The CARIFORUM EPA considerably narrows down the scope GATS Mode 4 on temporary movement of natural persons to provide services abroad. GATS Mode 4 covers all categories of service workers, whereas in the EPA the EU restricted it to six élite categories of skilled workers, thereby reducing the benefits the Caribbean countries can obtain from the EPA.


The CARIFORUM EPA also contains a series of elements which go beyond what is foreseen at WTO level. The ACP countries had rejected the inclusion of the 'Singapore issues'[4] - investment, competition and government procurement - in the WTO and stalled the passage of far-reaching disciplines on domestic regulation of services. After having failed to obtain liberalisation of these issues multilaterally at WTO level, the EU succeeded in obtaining it bilaterally in the EPA, where the Caribbean countries succumbed to the EU's pressure. In the EPA the Caribbean states agreed to liberalise their financial sector including banking and rules on investments, reducing their capacity to control the flows of the very same type of hot money and potentially toxic assets that caused the financial crisis.



The World Bank study shows clearly that EPAs in services are not in the interest of Africans. In particular there is little benefit for Africans if the Commission insists on the restrictive interpretation of Mode 4 and there is no reason to believe the EU will make greater concessions to African countries than they did to the Caribbean. If anything, they are likely to be even more restrictive. Moreover, there is no need to include services in order to make EPAs WTO-compatible. Other forms of cooperation with the objective of promoting regional integration in the service sector and helping regional actors to emerge are more useful for the development of the service sector in Africa than a free trade agreement like an EPA, which imposes the liberalisation of substantially all trade in services.



Thomas Lazzeri



[1] Brenton P., Dihel N., Hinkle L., Strychacz N., 2010, Africa's Trade in Services and the Opportunities and Risks of Economic Partnership Agreements, Africa Trade Policy Notes N. 6

[2] [2] Divel N., Fernandes A. M., Mattoo A., Strychacz N., 2010, Reform and Regional Integration of Professional Services in East Africa, Economic Premise.

[3] Kelsey, J. 2010, Legal Analysis of Services and Investment in the CARIFORUM-EC EPA: Lessons for other Developing Countries, South Centre Research Paper 31.

[4] [4] Named 'Singapore issues' because the refusal to include them was expressed at the WTO negotiation round in Singapore

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