Sustainability impact assessment in support of the negotiations to deepen the EU- Eastern and Southern Africa (ESA) Economic Partnership Agreement

Draft Inception Report

Civil Society Dialogue, September 11, 2020

Meet the team!

Andreas Freytag, Team Lead

Elitsa Garnizova, Project Manager

Contents

Introduction to the Study

Background and Literature Review

Preliminary Screening of Impacts

Methodology for Remaining Tasks

Stakeholders and Work Plan

INTRODUCTION TO THE STUDY

Introduction

• In 2007, six states in the ESA region (Comoros, Madagascar, Mauritius, Seychelles, Zambiaand Zimbabwe) concluded an interim EPA (iEPA) with the EU.

• The interim agreement sought to liberalize trade in goods between the ESA and the EU.

• The iEPA included a rendezvous clause, meant to facilitate further negotiations to expand thescope of the agreement to cover new trade-related areas and rules, including trade inservices, public procurement, intellectual property rights, among others.

• The current negotiations between the ESA and the EU is thus to conclude a comprehensiveEPA which takes into consideration:

• The UN 2030 Agenda on the Sustainable Development Goals;

• The Global Strategy for the EU’s Foreign and Security Policy; and

• Coherence with the European Consensus on Development

Aims & Objectives of the study

• The purpose of the study is to provide for a deep assessment of the potential economic, social, human rights and environmental effects of the anticipated new and comprehensive EPA.

• The study includes a mini ex-post evaluation to review impacts across all areas of theAgreement beginning at the start of the provisional applications (2012; 2019).

• Thereafter, the project will focus on a forward-looking analysis to implement the SIA, takingthe findings of the mini ex-post into consideration.

• The findings of the SIA will aid in informing the negotiating teams.

Methodological Approach

The assessment considers five key areas and is broken down into fourphases

1. Inception Phase (Tasks 1-5): developing a factual introductionto the study, and conducting a preliminary screening of economic,social, human rights, environmental and developmentcooperation impacts

2. Ex-post and forward looking analysis (Tasks 6-11): carryingout the ex-post evaluation of the current interim EPA and tasks 6-11 for the SIA on trade in goods, trade in services, digital tradeand investment, trade and sustainable development; includes oneround of stakeholders’ consultation and two case studies, relatedto the SIA elements

3. Forward Looking Analysis (Tasks 12-17): covering tasks 12-17 for the SIA on public procurement and competition, IntellectualProperty Rights and dispute avoidance and settlement; includes asecond round of stakeholders’ consultation and three casestudies, related to the SIA elements

4. Presentation of Findings

Economic Analysis

Social Analysis

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Environmental Analysis

Human Rights Analysis

Tasks

To implement the four phases of the project, the team will undertake 17 specific tasks:

Task 1: Develop a factual introduction to the study Task 10: Results and impact of trade-relateddevelopment assistance to ESA5

Task 2: Analyze existing studies and reports Task 11: Conclusions for ex-post assessment

Task 3: Preliminary screening of impacts Task 12: SIA economic analysis

Task 4: Methodology and Consultation Strategy Task 13: SIA social analysis

Task 5: Develop a detailed work plan for the project Task 14: SIA human rights analysis

Task 6: Determining the implementation, obstacles, andawareness of iEPA

Task 15: SIA environmental analysis

Task 7: Rules of origin Task 16: Development Cooperation

Task 8: Analysis of trade flows Task 17: Proposals for policy recommendations

Task 9: Impact Evaluation

BACKGROUND AND LITERATURE REVIEW

Overview of the ESA5

• Four countries (Comoros, Madagascar, Mauritius and Seychelles) are groups of islands or an island respectively, the fifth (Zimbabwe) is landlocked.

• Two of the five countries are least developed countries (LDCs) - Comoros and Madagascar -whereas two show a relatively high per-capita income, Mauritius and Seychelles.

• The population size differs from less than 100,000 in the Seychelles to almost 27 million citizens in Madagascar.

• The political systems of the five ESA countries also differ substantially. Mauritius is a quite robust democracy whereas on the opposite side of the spectrum Zimbabwe shows signs of an autocracy.

Literature Review

The review of the existing literature on the EPA revealed the following:

• Regional integration has the potential to increase welfare and trade in Africa.

• The ESA5 countries are likely to benefit more from the EU-ESA5 EPA than the EU.

• The differences among the ESA5 countries may lead to diverging welfare gains of the countries, which should

be considered in the negotiations and recommendations.

• There are a few potential institutional obstacles on the way to fully utilise the potential of the EU-ESA5 EPA,

such as governance problems and the thickness of borders.

• The deepened EPA with its strong commitments on human rights, social aspects and the environment may at

the same time provide an opportunity to overcome these obstacles.

SCREENING ECONOMIC, SOCIAL, EVIRONMENTAL & HUMAN RIGHTS IMPACT OF THE EPA

Preliminary screening – econ impacts by chapter

Chapter and measures Hypotheses on possible economic impacts Potential importance

Rules of origin More trade in manufactured commodities due to simpler rules of origin requirements / calculation methods

Relaxed cumulation requirements for ESA5 countries

++ Particularly important for ESA5 exports of manufactured

commodities, such as textiles and clothing Benefits for intra-African integration due to duty-free treatment of

inputs originating from neighbouring countries which have an FTA with the EU

Customs and trade facilitation Improved legal framework and simplification of relevant measures regarding customs

Increased customs cooperation between the EU and ESA5 authorities Efficiency gains from improvements trade facilitation and non-

discriminatory treatment Efficiency gains from upgraded methods and procedures

+ The EU does not impose tariffs on imports from ESA5 countries Improved trade facilitation relevant for all ESA5 countries: less illicit

trade, safer products, less fraud

Sanitary and phytosanitary measures

New mechanisms for trade in plant and animal products, animal welfare and consumer protection

Impact on farmers and producers of foodstuff products in ESA countries Better protection of human, animal and plant life and health in the

territory of ESA5 Greater transparency and predictability as regards SPS measures

applicable to trade between the Parties Improved capacity of ESA countries to implement and monitor SPS

measures and in setting and implementing international, regional and national standards

++ Impacts highest for agricultural trade and trade in food products Impact on farmers and producers of foodstuff products in ESA5

countries Key concern for Seychelles, whose major export commodity is fish

Technical barriers to trade Improved legal framework and simplification of relevant measures regarding testing or certification procedures

Overall reduction of technical barriers to trade which are deemed unnecessary

Contribution to good governance in ESA countries due to commitment to regulatory impact assessment of planned technical regulations

More gains from trade for ESA countries due to alignment of national regulations with international standards

+++ Cross-sectoral relevance TBTs are often greater barrier to trade than import tariffs Greater diversification of ESA imports of manufactured products incl.

products from small companies Alignment with international standards: positive spill-over effects for

exporters of manufactured products in ESA countries in the medium-to long-term

Trade defence mechanisms Prevention of unfair trade practices Improved market access in both regions

Cross-sectoral relevance Capacity building could improve discipline in ESA5 countries and

ESA5 countries own capacity to launch investigations

Trade in services Increase of import/export trade flows for services Greater access to digital business models and positive impact on

digital transformation of domestic economies Positive impact on structural economic change towards modern digital

and non-digital services

+++ Access to modern telecommunications, financial and digital services

relevant for all countries Impacts highest in large ESA countries, i.e. Zimbabwe and

Madagascar

Investment (and private sector development)

Improved legal framework for liberalisation and facilitation of investment

More investment from EU in ESA5 countries

+++ Increasing EU investment in key economic sectors in ESA5 countries,

boosting production, employment and structural economic change (renewal)

Public procurement Clearer and more transparent legal framework and legislative requirements governing public procurement

Positive impact on rule of law and economic opportunity in ESA5 countries (e.g. less corruption)

Moderate impacts on exports from ESA5 countries Increased imports from EU

++ Improvement in rule of law may have positive impact on business

and investment climate in ESA countries Only few companies in ESA5 countries able to compete in EU

procurement markets

Intellectual property rights Higher degree of border enforcement of intellectual property rights (IPR), including Geographical Indications (GIs)

Generally positive impacts on R&D, innovation and business development in ESA5 countries

Positive impact on higher education systems

+++ Technological and innovative capacities still relatively low in ESA5

countries Positive impacts on overall investment and business model

innovation due to improvements in IPR enforcement, e.g. brands and patents

Trade and competition policy Improvement of relevant legal framework regarding state aid regimes and preferential tax policies

Higher transparency regarding special conditions or privileges given to SOEs such as targeted subsidies or government contracts

++

Generally positive impact on investment climate and quality of supply of goods and services

Impacts higher in large ESA5 countries, i.e. Zimbabwe and Madagascar

Trade and sustainable development

Ratification and implementation of international treaties on labour rights and multilateral environmental agreements

Promotion of corporate social responsibility

++

EU investors and importers likely to give greater attention to sustainability issues throughout supply chains

Domestic manufacturers and services likely to give greater attention to sustainability issues

Agriculture More sustainable farming and cultivation of land and water resources as well as forestation

More reliable international value chains

Greater food security

More inclusive division of economic rents from agriculture and foodstuff industries

++

Cross-country relevance depending on economic use of natural resources

Fisheries Improved market access to EU market

Further attention to sustainability of fisheries and marine resources

++

Particularly relevant for Madagascar, Mauritius and Seychelles due to high export shares of fishery products

May promote more inclusive fishery sectors in ESA5 countries

Dispute avoidance and settlement

Improved enforcement of provisions of deepened EPA +++

Positive impact on rule of law

Positive contribution on political ownership of EPA in ESA5 countries

Institutional structures (including civil society involvement)

Positive impact on inclusivity and participation and transparency of law-making procedures through non-discriminatory involvement of stakeholders

+++

Positive impacts on public acceptance of deepened EPA

Positive contribution on political ownership of EPA in ESA5 countries

Greater attention to sustainability issues in trade and investment

Economic development cooperation

Improved business conditions for trade and development, including interrelated issues in the areas of finance, technology, investment and sustainable development

+++

Positive impacts on overall economic development and structural economic renewal

Highest impact on least economically developed ESA countries, i.e. Madagascar, Zimbabwe and Comoros

Possible support for capacity and projects on sustainability linked to trade and investment

Preliminary screening – TSD chapter

Possible measure Possible impacts Potential importance

Promotion of ratification and implementation of key international conventions on labour, human rights and environment

A review of key conventions has shown that the five ESA countries have already ratified many (see Annex XII).

Ratification of remaining conventions should strengthen national actions in the social, human rights and environmental spheres

A provision for effective implementation of the conventions ratified should further strengthen national actions

++ Further ratification may not have a major

impact Better implementation should strengthen

national legal frameworks and government actions

Promotion of corporate social responsibility (CSR) and responsible business conduct (RBC)

Greater implementation of CSR and RBC by enterprises (both EU investors in the region and domestic enterprises) – and where relevant, supported by new legislation and policies – along their supply chains

++ Corporate CSR and RBC policies can lead to

improved social, human rights and environmental actions

Civil society participation Better independent monitoring of social, human rights and

environmental impacts on ESA5 conditions due to an increased involvement of civil society in EPA advisory groups

++• Better monitoring could lead to improved

government and enterprise actions

Preliminary identification of case studies

Country Total Number of Case

Studies

Marine Fisheries Agriculture and Agro-

Processing

Garments, Textiles and

Soft Toys

Mining Tourism

Comoros 3 Yes Yes No No Yes

Mauritius 4 Yes No Yes No Yes

Madagascar 5 Yes Yes Yes Yes Yes

Seychelles 3 Yes No No No Yes

Zimbabwe 4 No Yes No Yes Yes

• Fisheries: the fisheries sector is a key sector for 4 out of 5 ESA countries, with strong economic, socialand environmental implications, as well as a regional and global dimension

• Agriculture: agriculture, including agro-processing and high value crops such as essential oils, spices,cut flowers and export vegetables, is economically important for all 5 ESA countries and also hasstrong environmental implications as well as having strong regional and global dimensions.

• Textiles: the textile sector is recommended in the ToR as a sector in which a case study could beconducted. We are proposing to broaden this to include textiles, garments, apparel (HS Chapters 50 to63) and soft toys.

• Tourism: an important economic sector in all ESA5 countries and one which has been badly affected bythe COVID pandemic and one which will need strong support to build back up again.

• Mining: the artisanal mining sector, is an important economic sector in Madagascar and Zimbabwe.

METHODOLOGY FOR REMAINING TASKS

Determine the extent of implementation of

the iEPA

• Preparation of a legal analysis of how effectively each party (ESA5 and EU) has implemented itsobligations under the Agreement;

• Assessment of what the main obstacles in implementation have been;

• Assessment of the level of awareness and knowledge about the EPA among key governmentstakeholders and private sector stakeholders (chambers of commerce, associations, SMEs, foreignbusinesses) in ESA5 states; and

• Making recommendations on how to improve implementation of the existing EPA and how to raise awarenessamong key beneficiaries.

Rules of Origin

• Assessment of awareness of existing market access provided under EPAs

• An assessment of whether cumulation provisions are adequate to meet the needs of economic operators

• Whether there is a need to conclude an ACA with relevant non-ESA-EPA states.

• Whether using the Registered Exporter (REX) system would be beneficial to ESA economic operators thatare exporting to the EU under the EPA.

• Whether there is a need for Fisheries rules of origin to introduce system that results in a quicker issuance ofcatch certificates by the responsible EU member state

• An evaluation of the capacity of the customs authorities of all five ESA states to properly apply thepreferential rules of origin applied in trade in goods with the EU.

Using information gathered through interviews and questionnaires, an assessment will be made as to whether

SMEs and MSMEs are benefitting from preferential market access arrangements. The following steps will be

undertaken to provide recommendations on how to increase benefits

Trade Flow Analysis

• How did EU FDI in ESA5 develop?

• Which sectors and countries are particularly targeted by EU investors?

• How did trade flows with other ESA EPA countries within the region develop?

• Has regional integration from an economic viewpoint made progress?

• How did trade flows of ESA4 countries with the rest of the world develop under the EPA?

• How did trade flows between ESA-4 countries and neighboring OCTs and ORs evolve?

• Which other trade agreements have the four/five ESA partner countries concluded?

• What role did other trade agreements with third countries play for the use of the EPA with

the EU?

The team will assess how EU exports to the ESA5 countries and ESA5 exports to the EU have developed

under the EPA addressing the following questions:

Development Cooperation

• Sustainable Development Goals

• Least developed countries

• Micro, Small and Medium Enterprises

• Consumers

Trade in

Goods

Rules of origin; Customs and

trade facilitation; SPS and

TBT; Trade defense; Export

taxes; Agriculture; Fisheries

Trade in

Services

Digital trade; Investment;

Public procurement;

Intellectual property rights

The objective is, for each thematic report, to identify possible areas for cooperation and

development assistance. Each thematic report will contain an analysis of the impacts on the

following cross-cutting issues:

Policy recommendations and accompanying measures

• The analysis shall lead to proposals for policy recommendations covering enhancement and prevention/mitigation measures.

• Recommendations will be presented both in terms of the EU’s and partner countries’ negotiating positions and will also cover non-trade-related accompanying measures.

• The report will indicate whether the proposed recommendations have been:

• (i) put forward by stakeholders (if so, which ones, and the contractor endorses them), or

• (ii) additional ideas developed by the Team members themselves (not having been proposed by stakeholders).

• The contractor will use its wide network in Southern Africa but also other parts of the trade community to present the draft list of recommendations to think tanks in the partner countries or in the region to get their reaction.

Stakeholder identification

Group Stakeholders

Public Sector

National ministries National statistical institutes Sub-national administrations Customs administrations Port authorities Other authorities: competition authorities, investment agencies, export promotion agencies, IPR At EU level: European Commission, Members of the European Parliament, EESC At the International and Regional level: AUC, SADC, COMESA Secretariat, international and regional partner organisations At MS level: National administrations, including development ministries / agencies

Private Sector

Large companies and multinationals in relevant sectors (M)SMEs Exporters Importers/freight forwarders Chambers of commerce with European background (EU or by individual Member States) SME / MSME associations Quality infrastructure institutions Business associations Sectoral associations: Farmers’ associations, fishermen’s associations, mining associations, textile sector associations, tourism associations Chambers of Commerce

Social Partners

Trade Unions Cooperatives Student organisations/youth organisations Employers’ organisations

Civil Society Organisations Think tanks Environmental, social, human rights NGOs Academia

Stakeholder input

• Stakeholders can provide comments and inputs to the draft inception report by the 25th September 2020 @:

• Website: http://research-sia-esa.eu/contact/

• Email: Research.Sia-Esa@lse.ac.uk

• Twitter: @esa_sia

• Input to the project overall can be provided at any time. Do not hesitate to get in touch with us.

• Next report due to be published in February 2020.

• Thank you for your time!