Africa and the Uruguay Round 1

Graduate Institute for International Studies, Geneva

Africa and

the Uruguay Round

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Did Sub-Saharan Africa Lose

as a Result of the Trade Agreement?

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Discussion Paper

Presented for the Seminar on

International Trade Policy: Theory and Practice

of Prof. R. Blackhurst

Dina Pomeranz

()

June 2001

Introduction…………………………………………………………………. ..3

Executive Summary…………………………………………………………….5

1. Characteristics of African Trade Patterns……………………...10

2.Developing Countries in the Uruguay Round Agreements……...11

3. Preference Erosion……………………………………………………13

3. 1. The Generalized System of Preferences (GSP)…………………………………………13

3. 2. The Lome Convention…………………………………………………………………..14

3. 3.Decrease of the Preference Margins…………………………………………………….14

3. 4. Preferences versus MFN………………………………………………………………...16

4. General tariff cuts in the Uruguay Round……………………….16

4. 1. Cuts in Tariffs on African Imports……………………………………………………...16

4. 2. Cuts in Tariffs on African Exports……………………………………………………...17

4. 3. Tariff Escalation…………………………………………………………………………19

4. 4. General Remarks on Tariff Cuts………………………………………………………...20

5. Effects of Specific GATT Agreements……………………………..20

5. 1. Agreement on Agriculture………………………………………………………………20

Reduction of Subsidies in the North…………………………………………………………...20

Preference Erosion……………………………………………………………………………....22

Tariffs on African Agricultural Exports……………………………………………………....23

Tariffs on Agricultural Imports………………………………………………………………..24

5. 2. Agreement on Textiles and Clothing……………………………………………………25

The Multi-Fiber Arrangement (MFA)…………………………………………………………25

MFA Phase-Out …………………………………………………………………………………25

Effects on Africa of MFA Phase-Out …………………………………………………………26

MFN Tariffs in the Textiles and Clothing Sector ……………………………………………27

5. 3. Antidumping and Safeguard Measures………………………………………………….28

5. 4. Regulatory Protection…………………………………………………………………...29

6. General Agreement on Trade in Services (GATS) ………………..30

6. 1. Liberalization of African Exports……………………………………………………….31

6. 2. Liberalization of African Imports……………………………………………………….31

6. 3. Future prospects for African Trade in Services…………………………………………32

7. Dispute Settlement…………………………………………………….33

8. The role of Africa's own situation and possible internal reforms.35

8. 1. Lack of Resources to Follow WTO Developments……………………………………..35

8. 2. The Role of Internal Reforms…………………………………………………………...36

9. Overall impact of the Uruguay Round on Africa ……………….37

Conclusion …………………………………………………………………….39

Bibliography…………………………………………………………………...41

Annexes………………………………………………………………………….44
Introduction

The question of the effects of the Uruguay Round on Africa[1] is an important topic for many reasons. First, Africa is the only continent to be a net loser in the Uruguay Round Agreement according to many trade specialists. The question arises, whether those who claim so are merely fundamentalist opponents of globalization, and if this is not the case, what might be the reasons for Africa's overall loss.

Second, anybody interested in the economic development of the African continent, and of developing countries in general, will have an interest in the influence of the WTO agreement on African economies. And third, in the light of present, sometimes vigorous attacks on the WTO by northern NGOs, who claim that the Organization's activities hurt developing countries in general and Africa in particular, it seems important to get more insight into the issues concerning African countries in the WTO, the problems they are facing and the ways in which they might benefit from the new trading system.

The following paper cannot provide an in-depth analysis of all implications of the Uruguay Round agreements for Africa. The time- and space-limits imposed make such an ambitious attempt impossible. It tries, however, to provide an overview and to point to the most important results of the Round for Africa. Even so, it was necessary to limit the scope of this paper, and to exclude certain important topics. The following will therefore not look at the implications of the Agreement on Trade-Related Investment Measures (TRIM), of the Agreement on Subsidies and Countervailing measures and of the Agreement on Preshipment Inspection.

Most importantly, the paper will not address questions related to the agreement on Trade Related Intellectual Property Rights (TRIPs), which is very different in nature from the other WTO agreements. This highly controversial agreement most certainly has very important implications for the African continent. The most prominent aspect, which has also attracted a lot of media intention lately, is probably its implications on the price of aids drugs for the poor. Other aspects, such as the protection of African biodiversity wealth from powerful chemical and pharmaceutical companies, seem however almost equally important. While this paper cannot deal with the implications of the TRIPs agreement, another paper in the same seminar was dedicated to the subject and might represent a useful complement [2]

Furthermore, this paper cannot look at the redistribution effects inside African countries, which might result from the Uruguay Round agreements, nor at the effect that concern one African country rather than another. The following will attempt to give an overview of the effects of the Uruguay Round on Africa as a whole and try to answer the question whether the Sub-Saharan Africa lost as a result of the Agreement.

As a publication of the UNCTAD (1997b:14) notes, the standard of comparison or reference point for considering the results of the Uruguay Round is important in any evaluation of the Uruguay Round agreements. The alternative scenario is not necessarily the status quo. Some think that a scenario similar to that of the 1930s, when retaliatory action led to a breakdown in the international trading system, was a real possibility. Others may think that another trading round with different outcomes might have resulted from a failure of the Uruguay Round. This paper will however compare the Uruguay Round outcomes with the hypothetical situation of an unchanged trading environment since 1995.

After a brief characterization of African trade patterns and of the position of developing countries in general in the WTO, the different Uruguay Round agreements and their effects on Africa will be analyzed. Section eight examines the role of Africa's domestic reform efforts while section nine concludes with the description of expected overall impact of the Agreement on the continent.

Executive Summary

1. Characteristics of African Trade Patterns

African trade is not very diversified, neither with regard to sectors and products nor with regard to destination of exports. Natural-resource based and agricultural products such as petroleum, precious stones, cocoa and coffee dominate exports, which are concentrated to a few markets: over 50% is destined to the EU, a large share also goes to the USA and Japan, while intra-African trade accounts for less than 10%.

2. Developing Countries in the Uruguay Round Agreements

While the WTO in general endorses an export-promoting approach to development through reciprocal trade liberalization agreements, this approach is somewhat qualified through 'special and differential treatment', longer transition periods and some exemptions of full compliance with the agreements. Depending on the analysts' points of view, these exemptions are seen as an advantage for the 49 Sub-Saharan African (SSA) developing countries and should maybe even be increased, or they are seen as depriving developing countries of the fundamentally beneficial process of trade liberalization.

3. Preference Erosion

African exports will be adversely affected by preference erosion resulting from the Uruguay Round agreements, although on average not very substantially. The impact varies however considerably among countries and sectors, and some industries may be severely hurt. On the other hand, preference erosion might have merely accelerated inevitable structural reforms, and the Uruguay Round leads to a more certain and stable environment for African trade.

4. General Tariff Cuts in the Uruguay Round

The fact that the African countries did not lower their tariffs significantly during the Uruguay Round while the rest of the world did seems to have an important negative impact on Africa. Concerning tariff cuts for African exports, the results are mixed. While tariffs have on average been cut considerably and most tariffs facing African exports are now close to zero, there remain tariff peaks in key areas such as, vegetables, fruits, fish, textiles and clothing, footwear, leather and travel goods. A clearly positive factor is the reduction of tariff escalation in most sectors, although much scope remains for improvement in this area.

5. Effects of Specific GATT Agreements

5. 1. Agreement on Agriculture

Northern Subsidies

The reduction of subsidies in developed countries, which result from the Uruguay Round, are beneficial for Africa's food exporters and bad for net food importers. However, the EU has pursued a policy which, although formally complying with the Uruguay Round agreements, resulted in only minor increase of world prices. With higher world prices, agricultural production might however become more profitable in Africa, self-sufficiency rates might increase and net food importers might even become food exporters. Africa as a whole can therefore be expected to win from the subsidy cuts.

Market Access

The Agreement on Agriculture has brought some benefits for African exports, although policies of many Northern countries have limited these benefits considerably. First, the Agreement brings more transparency through tariffication and through binding of tariffs for all agricultural products. While tariffs in developed countries have to be cut by 36 percent on average, important tariff peaks remain in sensitive areas. In addition, the 'special safeguard mechanism' is often used by northern countries to protect their own agricultural producers, which reduces market access for African exporters considerably. Concerning their own import barriers, most African countries have foregone the opportunity of the Uruguay Round to liberalize or to bring more stability and transparency for access to their own agricultural market.

It therefore seems that in this sector, which is the most important for SSA countries, and in which it appeared that a major breakthrough had occurred, the net impact on SSA countries is actually very small. The rise in import costs, due to the reduction in northern subsidies, appears to be almost negligible, while on the other hand, only modest gains in market access, due to reduced tariffs on African exports, seem likely.

5. 2. Agreement on Textiles and Clothing

Since the MFA did not restrict African exports as much as exports from other regions, its phasing-out will hurt Africa as a whole, even though some countries such as Mauritania might win, if they manage to adapt to the new, competitive environment.

5. 3. Antidumping and Safeguard Measures

Anti-dumping and safeguard measures have not been restricted, on the contrary, the Uruguay Round legalized discriminatory application of safeguards. Such measures are increasingly being used by major industrial countries, but also by other developing countries. This situation is very detrimental to Africa, since safeguards and anti-dumping measures will be applied exactly to the products where African producers are competitive, where progress is being made and where they could potentially gain important market shares in developed or in other developing countries.

5. 4. Regulatory Protection

Technical Barriers to Trade and Sanitary and Phyto-Sanitary measures are very important obstacles for African exports. In this sensitive area, there has however not been much progress made during the Uruguay Round.

6. General Agreement on Trade in Services (GATS)

Under the GATS, Africa undertook less commitments than any other region in the world. This represents a lost opportunity to bring competition to sectors such as transport and telecommunications, where monopoly power today keeps prices high and quality low. The creation of the GATS might however in itself constitute an advantage for Africa, since it might push the continent in further negotiation rounds to liberalize its market access for services.

Concerning African export of services, it seems that while developed countries undertook much more liberalization than developing countries, most of these liberalizations are not in the areas where Africa has an actual or potential comparative advantage, such as services that are intensive in labor but that require a temporary permit for workers to be able to sell their services in importing countries.

7. Dispute Settlement

In general, the post-Uruguay Round dispute settlement mechanism is much more efficient and 'stronger' than the old mechanism was. Since the absence of rule of law leads to a situation of anarchy, where the stronger can impose their will on the weaker, these stricter rules and procedures potentially represent a marked advantage for politically and economically weaker countries. Some fear, however, that for political and economic reasons, African countries will not proceed to complaints against strong industrial states. In this case, a stronger dispute settlement mechanism would not be at the service of the weaker, since it would only be invoked by the stronger against the developing countries and not the other way around. This pessimistic view seems however not to be entirely true, as there have been several WTO disputes launched by developing (although not African) countries against major developed states.

8. The Role of Africa's Own Situation and of Possible Internal Reforms

8. 1. Lack of Resources to Follow WTO Developments

Developing countries come to the WTO bargaining table and to the dispute resolution process at a marked disadvantage. The trade missions of developing countries are understaffed and lack technical expertise. While the Uruguay Round did not cause this situation, it did not provide much remedies for it either. The consequences of this situation go beyond the direct outcomes of the Uruguay Round, because it creates a disadvantage for developing countries in future negotiations.

8. 2. The Role of Internal Reforms

The improved market access resulting from the Uruguay Round is not sufficient to stimulate economic growth. Institutions, infrastructures and the macroeconomic environment are only some of the factors, which determine whether a country can benefit from the opportunities offered by trade liberalization. The effects of the Uruguay Round on Africa therefore also heavily depend on the way, in which African countries react to the changed environment, and on the internal policy reforms they undertake.

9. Overall Impact of the Uruguay Round on Africa

With regard to the geographic composition of exports, Asia’s share is projected to rise slightly, and Europe’s share is expected to fall. One could therefore conclude that the Uruguay Round reforms brings Africa’s trade patterns closer to global averages with respect to the geographic composition of exports, although the EU’s share of African trade would still be roughly twice the EU’s share of global trade. Concerning the impact of the Uruguay Round on output and trade values, Africa is the only region of the world for which exports and imports are expected to decline. The projected reduction in the volume of trade corresponds to a loss of African income of 0.1% or about 570 million dollars a year.

Conclusion

It seems that Sub-Saharan Africa did not profit very much from the Uruguay Round, and that in many areas they even lost considerably as a result of the Agreement. The overall effect seems to be slightly negative, although not very substantially. This outcome seems to reflect the position of Africa countries in the WTO, where they do not have very much weight or influence. The results for Africa seem to be simply a by-product of negotiations between much more powerful and better organized countries.

Now that the WTO has come into existence and the Uruguay Round agreements are being implemented, even if this situation might be slightly worse for Africa than the hypothetical situation of an unchanged trading environment since 1995, it is without a doubt better for African countries to be in the Organization than outside of it. Being outside, African countries would not only forgo the MFN tariffs they receive as a by-product of liberalization negotiations between other countries, but they would also contribute to increase their marginalization in the trading world and in one of the most important arenas of international relations.

1. Characteristics of African Trade Patterns

This paper will focus on the overall effects of the Uruguay Round on Sub-Saharan Africa as a whole, and will therefore concentrate on the common features of African economies. It is important to note, however, that there is substantial heterogeneity of both the economic structure and the trading interests across African countries. Unfortunately, it is beyond the scope of this paper to take into account these differences, and the following is therefore necessarily a very simplified picture of a complex reality.

After independence in the 1960s, many African governments embarked on protectionist policies and a strive for economic self-sufficiency. As Jeffry Sachs (1996:20) put it, the continent ‘took itself into self-imposed economic exile’. Africa’s share of world trade has subsequently declined over the last three decades. African resource-based exports (such as fuel and minerals) and agriculture, for example, declined from 0.8 percent of total world exports in 1970 to 0.3 percent in 1995 (Blackhurst and Lyakurwa, 1998:3). According to the Trade and Development Center (2001a), total African exports currently make up about 2% of worldwide merchandise exports and 2.2% of services exports.[3]

Africa’s trade barriers did not only reduce the volume of trade, but also its diversity. According to Blackhurst and Lyakurwa (1998:5), most Sub-Saharan African (SSA) countries are essentially primary commodity exporters, and the share of primary commodity exports as proportion of total merchandise exports has remained above 70% for most countries. Not only are most SSA countries dependent on primary commodity exports, but export earnings are also highly concentrated in a few primary products. Some countries such as Angola, Uganda, Seychelles, Nigeria, Zambia and Gabon depend on three commodities for over 90% of their total merchandise exports and for most of the countries, the figure is above 50%. For most African countries, natural resource-based commodities dominate their exports. The most important exports of African countries are oil, unroasted coffee, cocoa beans, diamonds, copper cathodes raw sugar cane, tobacco, cotton, tuna, logs (wood) and gold (Blackhurst et al., 1998:44).For Africa as a whole, just four items (crude petroleum, precious stones, cocoa and coffee) have accounted for two-third of exports to OECD countries in recent years (Hertel et al., 1998:210).

Agriculture represents a very important sector in SSA economies. The continent has little non-farm capital, the large majority of Africa’s labor is employed in agriculture and about two third of African exports are in this sector. However, agriculture on the continent is not very productive.[4] Since agriculture is such a big part of SSA economies, the Uruguay Round implications for this sector are an important factor in the overall effects of the Round on the continent. These implications will be the discussed in section 5. 1. of this paper.