Ghana national trade policy and Economic Partnership Agreements

By Nancy Kachingwe
Political Economy Unit - TWN-Africa [1]

Economic partnership agreements� or free trade areas are currently being

negotiated between the European Union and the different sub-regions of the ACP
group, including ECOWAS. EPA/FTAs will have considerable consequences for domestic
economies in the sub-region and therefore will be a critical element in defining
the direction of the region�s economic development in the next decade or two.
While the ECOWAS governments and the European Commission are still agreeing the
road map for the negotiations, EPAs have not been discussed fully with local
stakeholders. This first workshop, organised by TWN-Africa and GAWU was a first
test to measure the concerns and reactions of stakeholders - particularly
producers - to this latest addition to an �alphabet soup� of initiatives
ostensibly aimed at reversing Africa�s economic decline.

The EPA negotiations are taking place while the Government of Ghana is formulating
a national trade policy. Through a series of contributions and debates, local
actors from agriculture, industry, services and financial sectors presented a list
of concerns and issues that should inform both government�s position in EPA
negotiations as well as the content of the national trade policy. Beyond getting
the right set of policies, changes in many practices on the part of the
authorities are required as well.

Who calls the shots?

An overriding concern of national stakeholders is the excessive influence that
external partners have over national policy making. While it is true that the
government depends extensively on international donors for public financing, it
was observed that development partners are protecting their national interests
primarily, and therefore their policy prescriptions are biased towards providing
opportunities for their own multinationals and promoting their economies.
Consequently, the policies that they advocate have not tended to be primarily in
the interests of the local economy and its producers. It is only national actors
that can identify what the national interests are.

It is understood that government is constantly under pressure to liberalise and

open the economy to foreign goods, services and investors. But the focus on the
external had become excessive - to the detriment of local actors. While
liberalisation may ensure cheaper imports for consumers (eg. rice, poultry), the
benefits are limited to just that - lower prices. Encouraging local production,
whether for export or for domestic consumption has multiplier effects that create
jobs, support the growth of new sectors, contribute to social welfare as well as
public finances. Conversely, when an economic sector collapses, the consequences
are widespread and go well beyond the sector which is directly affected.

Left by the wayside...is agriculture pass�?

Agriculture is the largest economic sector, but the government has not drafted an
agricultural policy which would work in concert with the trade policy. It has
however adopted a posture - which is that of opening up the sector to imports. The
problem for the Ghanaian agricultural sector is that the playing field is not
level, particularly because so many agricultural imports entering the market enjoy
subsidies. Obviously our hopes of influencing change in global trade rules to tip
the scales in favour of Ghana�s producers is slim, but we can find ways to work
around the rules through well thought domestic policies so that the agriculture
sector can thrive. A balance needs to be struck between the export driven model
and the import substitution model. In the rice sector for example, there has been
a loss in the domestic market of about 150 million, but at the same time, export
earnings are stagnant at some 30 million. We have to question the rationale of
giving up this sector if we are not able to see the quid pro quo.

The poultry issue clearly begs the question to what extent is government in
control of policy making and how committed is it to the local farming sector? -
Adhering to WTO, World Bank and IMF policies is a questionable path if the end
result is the death of the agricultural sector as a result of free-for-all
imports. The emphasis on exports may make sense on paper, but it may be much more
beneficial for us to focus on domestic and regional markets, rather than
international markets only.

Connecting the dots in export promotion policies

In countries such as South East Asia which have experienced an economic boom,
companies had built their export success on the back of successes on their
domestic markets. The companies that were most likely to succeed in exports were
those that performed well in their domestic markets. National policies that are
geared at strengthening the domestic producers in domestic markets will be the
launch pad for growth in the export sector.

Import substitution policies - as a path to industrialisation - has been abandoned

in favour of the search for foreign direct investment. Such investment has not
been forthcoming. Relatively speaking FDI inflows have been inadequate and
concentrated mainly in the extractive sector. Therefore the policy of deregulating
and liberalising had resulted in more consequences than benefits. The bias towards
attracting FDI as one of the planks for economic growth has left local economic
operators marginalized and overlooked in public policy. The support required from
the state - which companies in other countries have been able to rely on - has not
been forthcoming. Many of the areas that need to be addressed to make local
companies competitive in a have been neglected. In fact, it is time that some
survey on the impact of the policies of the last two decades on the local business
sector was conducted.

Local stakeholders also stated repeatedly that the issue of competitiveness vis-�-
vis foreign imports had been grossly misrepresented. When it comes to
competitiveness both in terms of price and in terms of quality, it is not clear
cut that local products are automatically inferior, as tends to be the stereotype.
Similarly the price differences were frequently the result of export and other
subsidies that industrialised countries are able to provide their producers.

Industrialised countries are able to subsidize agriculture as a result of the

growth of other sectors, particularly manufacturing. Therefore the lack of active
policies to support the manufacturing sector has an impact on the extent to which
government is able to support agricultural producers. In parallel, the lack of
support for the agricultural sector is resulting in increased poverty since this
is the sector where the majority of the population gain their livelihoods.

Manufacturing - how serious are we?

Prices of raw materials world-wide are falling, which provides an opportunities
for boosting manufacturing. However much the word is disliked by donors,
protecting infant industries is a �passage obligatoire� - an unavoidable step - in
building manufacturing capacity. Rather than enjoy �domestic preference� local
suppliers face reverse discrimination. A local manufacturer bidding for a
government contract still has to pay duty on raw material inputs. Foreign
suppliers are able to gain duty free access to markets, particularly where the
contracts are part of foreign aid projects, which is the case in a large number of
public contracts. Public procurement is one of the largest markets, but with the
new government procurement bill, the state no longer has the option to support
local manufacturers through public contracts.
The problem with removing �domestic preference� provisions in the procurement bill
is that in manufacturing as in other sectors, competitiveness can only be built
through practice - through learning by doing. Many industries start by producing
low quality products but are able to transform their industries into manufacturers
of high quality goods. For example, Ghana�s export drive in the region has been
based on the plastics industry built over the years. �Passive protectionism�
should be distinguished from �active protectionism.� In the former, governments
simply protected and �sat back�, expecting that the rest would follow. In the
latter, protectionism is part of a strategy to help strengthen local manufacturing
in the knowledge that trade barriers will come down and they will have to compete.
Such a long term strategy seems to be lacking.

Low quality imports disadvantage local producers that have a competitive advantage
in quality. Worse still, they affect consumer health and safety. Liberalising
markets, without equipping regulatory institutions, such as the Ghana Standards
Board is disadvantaging the country in both ways. The private sector would be
prepared to support the effort to strengthen these institutions as a way of
ensuring that low quality imports are not put on the Ghanaian market.

Tapping potential to meet local investment requirements locally

On the subject of investment - which is needed to finance production - the
potential on the local market has also been overlooked in favour of attracting
foreign investment which is declining. Over the past 7 years $507 million had
entered the country as FDI and the figure is declining. Just 5 million Ghanaians
saving 1 million cedis a year could surpass that amount. The problem was not the
lack of money locally to finance investment, but a lack of creativity in finding
different ways to mobilise local resources, create more savings and utilise this
for investment.

The challenges for local resource mobilisation are a problem of policy,

orientation as well as institutional readiness to be more innovative. Where
attempts had been made, the financial services sector had proved that it could be
done. It was up to government to ensure a regulatory environment that builds the
confidence of citizens to invest their savings in local production. Mainstream
banking has tended to be far too conservative and unable to adopt strategies to
mobilise resources that take account of the reality of the Ghanaian economy.

Eyeing the services sector - the need for caution

Services are the fastest growing economic sector world wide. Services
liberalisation - including of public utilities is now a heavy focus of attention
in WTO negotiations. Within the WTO, countries have to indicate their intention to
liberalise services sectors and may also make requests of other countries to
liberalise sectors which are of interest to them. Ghana had made a number of
commitments to liberalise services, and has to consider a number of requests. The
Ghanaian government has also liberalised some services sectors through domestic
legislation. In the EPA negotiations, the EU is demanding that services
liberalisation be part of the trade agreement with ECOWAS.

Decisions to liberalise sectors or otherwise had significant implications for

local service providers. There is a need to review the experience of services
liberalisation to date, as in some cases the results have been fairly chaotic,
particularly given the inability to monitor and regulate the activities of
services operators. The results of reform of different sectors had to be assessed
before commitments could be made at the multilateral level (WTO, EPAs etc). In
particular it was stressed that decisions on liberalisation should be based on a
pragmatic vision for the sector in the context of overall social and development
policies, and after an objective assessment of strengths and weaknesses of the
local sectors to supply such sectors.

In some services areas such as cargo handling, Ghanaian companies have developed
expertise and are well established. Cargo handling is a valuable earner of foreign
currency for the country and so considerations to open up to external operators
has to be viewed in that light. Different sectors have to make their views known
to clarify the direction in which services can be liberalised or otherwise.

Meeting the challenges of the expanding fisheries industry

Though it seems obvious that policies should be chosen in the light of the
national social and development policies, the full development potential of the
country is lost due to the lack of comprehensive and mutually reinforcing set of
policies focussed primarily on building local production capacity. The fisheries
sector, is one of the most important non-traditional exports. However, the
challenges for developing a sustainable fisheries industry are many. The problem
of depletion of fish resources and degradation of the coastline, combine with a
list of other issues that require attention from policy makers. Commercial fishing
relies heavily on expatriate fishing crews and not enough has been done to upgrade
Ghanaians to do these jobs. Where pricing is concerned, there is a problem of a
monopoly, so that it is more profitable to sell fish in neighbouring countries,
instead of to the quasi-sole buyer in the country. Inland and artisanal fisheries
sectors should also be supported and developed. The rise in illegal fishing is
another matter for concern. There is an institutional vacuum because the Fisheries
Commission has not been set up. Perhaps because of the lack of a statutory body to
oversee the industry, these problems persist in spite of numerous representations
made to government to address problems.

However, over and above the national constraints the fisheries sector is in
difficulty because it has benefited from special preferences to EU markets. Now
that the EU has been providing similar trade preferences to other developing
regions, the position of the sector in leading the drive in non-traditional
exports was being compromised, particularly when measures are taken without
warning. This means that in the EPA negotiations, the Ghanaian government should
try to secure a predictable margin of trade preferences over a predictable
timeframe before they are phased out.

Outreach efforts needed for micro operators

It is critical that policy discussions are accompanied by an outreach programme
that enables all economic actors to make their inputs. There are many that operate
on the micro-level who never get a chance to contribute to policy. Traders are an
essential part of the economy, and yet they had very little opportunity to shape
policy making. Equally, not enough trouble is taken to inform them of new
policies. In consequence, traders are left to survive by their wits, and in turn
feel little obligation to respect new policies. Often traders and producers are
pitted against each other, and yet this conflict of interest could be resolved by
designing a policy framework that ensures that they are complementary rather than
oppositional. Commerce has in fact been relegated to the informal sector - as the
place for people who could not find jobs and yet the market queens are a central
part of our trade policy. In the public sector, traders are immediately perceived
as criminals so that they are blocked rather than facilitated by the authorities.
It would be desirable for traders to be able to graduate into production - but it
is impossible for them to generate the necessary capital because of requirements
from banks to produce collateral.

All in all, the preliminary documents presented by the Ministry of Trade as the
basis for formulating the national trade policy were welcomed as useful,
particularly as they provided relevant data and information to enable stakeholders
to assess options. The fear was that recommendations from local stakeholders that
did not get the nod from donors would not be accepted. Secondly, there were many
problems of administrative inefficiency and corruption that needed to addressed.
Finally it was stressed that without looking at some fundamental problems - such
as electricity supply - there was never any hope for the country to become
competitive. Electricity privatisation had been undertaken and yet problems still
persisted.

Economic Partnership Agreements - where do we go from here?

As a result of all these difficulties and challenges, local operators were fairly
sceptical about the ability of Economic Partnership Agreements to bring benefits
to the country. Firstly the agenda is that of the EU: no-one in the country had
asked for EPAs. However the initiative is on the table, and the success of EPAs
depends largely on the kind of agreement that the governments are able to
negotiate. The outlook for concluding a successful agreement is grim. To start
with, the EU�s negotiating directives demonstrates that it is more clear about its
demands of ACP countries, and much less committal when it comes to its own
obligations. Such nebulous language is not acceptable.

While there are losses and gains in any liberalisation exercise, the country has
to be assured of net gains. Furthermore, tariff reduction needed to be accompanied
by measures to cushion the costs - particularly training people to work in other
sectors. Just the literacy rate now estimated now at less than 50% indicates the
level of the challenge to deal with the human resource challenges.

The data needed to undertake an adequate cost-benefit analysis of EPAs was not
sufficient to negotiate competently. It was pointed out that impact assessments
that had been conducted had not been satisfactory, and in fact there had not been
any training of local capacity in impact assessments which was an extremely
difficult discipline. Some institutions such as UNCTAD had developed tools to
assist countries to conduct such assessments, but the training in these tools
still needed to be undertaken. There is heavy reliance on external consultants to
do such work. The quality of their work is not guaranteed. Furthermore, since they
are commissioned by donors most frequently, their terms of reference do not
prioritise the needs of the country. Building local capacity in the public sector
to service these needs is further hampered by the caps on public spending and
hiring that donors insist on. These practical questions make it difficult to
negotiate successfully in the timelines that are given.

Already the negotiations have hit a stumbling block in ECOWAS because the road map
does not clearly spell out that the EU is prepared to pledge additional financing
to help bear the costs of EPA-FTA liberalisation. The European trade commission
has stated that it only has a mandate to negotiate trade issues not financial
packages. ECOWAS on the other hand is insistent that additional financing is the
only way to make EPAs meaningful to support programmes to enhance the
competitiveness, compensate for tax revenues, and deal with �adjustment costs� of
economic sectors that will be negatively affected by liberalisation.

Therefore with so many challenges and questionable benefits, how should Ghana deal
with the EPA negotiations? Should we negotiate EPAs or not? For all intents and
purposes, the governments have already committed to negotiations and therefore it
was not possible to backtrack. Some organisations are clearly against an
arrangement of reciprocal trade with the EU particularly given that the coverage
area will be between 75% and 90% of all trade between the two. Others feel that
there is no point in avoiding negotiations; it is better to deal with the
difficulties and ensure that the set up negotiated maximises potential advantages
and minimises the costs. However a consensus emerged that the timelines are too
short for the country to undertake meaningful negotiations, and there is a need to
slow the process down, particularly to make informed decisions about the positions
that the country should take.

The debate on EPAs needs to be a public debate involving all stakeholders. It was
important to prevent a situation where government is under pressure to sign an
agreement that will be to the detriment to the national economy. For this to
happen, different sectors have to come together and engage with the government so
that it is moving forward with a mandate that reflects the consensus of the
various national stakeholders, small and big.