TTIP and EPAs: Geometry of trade and investment relations between the EU and Africa

Andreas Freytag recently had an interview with ECONWATCH explaining the TTIP and its potential as a path to greater prosperity.

For our German readers the original article is available here in German.

The EU is in the midst of strengthening regional integration efforts with the Trans-Atlantic Trade and Investment Partnership (TTIP) taking the foreground. The impact these negotiations will have is not limited to party states and will have an indirect effect on their trading partners and the EU’s attempts to strengthen other regional integration efforts.

European-African relations are directed by the Economic Partnership Agreements (EPAs) between the EU and regional African trading groups, which has been problematic since colonial times. Making integration efforts harder is the reality that within the African trading groups are states at various levels of development. Managing a coherent and regionally uniform agreement has proved difficult as Europe’s preferential trade schemes do not apply equally to both Least Developed Countries (LDC’s) and non-LDC states. An additional hurdle is African attitudes towards further opening their economies, since the prevailing strategy for African states is that of targeted industrial policy and import substitution to avoid competing in the global economy. This also means that Africa will take a step back in participating in Global Value Chains (GVC’s) and potentially miss out on the economic growth presented by GVCs.

Customarily the TTIP is expected to realize trade creation within the parties and cause trade diversion from non-members, however recent research shows that with increasing global division of labour and the spreading of GVCs the effects of trade diversion can be small. It follows that if Africa reacts to the TTIP with the aim to be included in GVCs then TTIP could serve as a stimulus for further economic growth.

For African exporters to truly take advantage of the mega-integration effort mutual recognition of standards within the TTIP would be necessary, meaning that the USA needs to be open to EU standards and vice versa. This unification of standards would mean that suppliers from non-member states could export to the USA on EU standards and to the EU on USA standards, which increases both the size of the African goods market and incentives to comply to standards.

Considering these particulars Africans would need to change their strategy. Mega-regional trade deals will most certainly continue to occur and if Africa insists on keeping its trade borders relatively closed the effects of trade diversion will heavily weigh in on economic development. African governments have the opportunity to react to the TTIP by joining the EPA’s and insisting on open standards in the TTIP.