EPAs: can we expect more job creation?

Employment & Income,Inclusive Economy22 Sep 2014Isabelle Ramdoo

As the latest phase of Economic Partnership Agreements (EPAs) between the EU and African regions are set to close by 1 October 2014, many African countries have been sealing a deal  to preserve their market access to Europe. The immediate employment effect will be to preserve jobs in the African sectors exporting to Europe. But looking forward, can EPAs foster more productive and ‘decent’ job creation, as African countries increasingly face the challenge of a growing youth population? The answer to this question is not straightforward.

First, EPAs are trade tools that focus essentially on trade in goods. They have managed to prevent trade disruption and maintain, at least in the short term, some margin of preferences for African countries’ exports to the EU. But these tariff preferences are expected to be short-lived as the EU enters into more ambitious trade agreements with its other trading partners. Trade agreements for services, which have the capacity to create new business opportunities and hence more jobs, have not yet been negotiated. This is a missed opportunity for business development –  despite the fact that EPAs contain rendezvous clauses to further negotiate on services and rules, conclusion is not foreseen anytime soon.

Second, the opening of African markets will be gradual (over 20 years) and most sensitive sectors have been excluded (e.g. about a quarter of West African products, mainly in agriculture, will remain protected), limiting competition from EU products. Jobs should thus be mainly preserved, though some specific import-competing sectors may still be affected.

Third, in many African countries, the main obstacles to productive employment, such as lack of industrialization, labour market rigidities, business development as well as skills mismatches and shortages, are not something that can be addressed in the context of trade negotiations. They depend essentially on domestic reforms and require time to be addressed.

Fourth, while EPAs can at least provide predictability to signatories for existing economic sectors, it is not clear to what extent on-going dynamics in many African countries can be linked to EPAs. Many countries, which topped the list of the fastest growing countries (such as Ethiopia or Zambia), do not have an EPA and may not have one in the near future. There are also no clear signs of significant economic improvements in those countries that concluded an EPA in 2008, notably in the Caribbean or in the Eastern and Southern African region.

However, on the positive side it does provide a framework for countries, if they choose, to add more value to their products as the flexible rules of origin allow for countries to cumulate value across borders to be able to export more transformed products to the EU. Similarly, a predictable and large market is an incentive to attract or encourage investments in other economic sectors, therefore potentially creating more productive jobs. But this requires accompanying reforms and targeted policies.

An EPA can be a start, but it is not an end in itself. The responsibility of making it a tool for development and a generator of productive jobs essentially lies with the signatory countries. This may require support, in the form of improved productive capacities or upscaling of capabilities and skills, but ultimately will come down to governments effectively implementing policies and finding ways to encourage productive investment.

This expert opinion is one of a series of articles on trade agreements. The series was published shortly before the start of the 7th round of negotiations on TTIP on 29 September and the expiry of the deadline for signing the EPAs that the EU has set at 1 October. Please find the other articles in this series here.