AID THROUGH TRADE

EU’s Efficiency in Aiding Developing African Countries

Supervisor: Development Policy

N. Dytianquin

D. Wolff
F. Arab
M. Broek
M. Engelen

Pigeonhole: 776
Course: 2.B
Date: 19 December 2008

Final Version
Table of Contents Page

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

1. The EU Development Policy and Trade in historical perspective…………………………4

2. Policy Process – the Economic Partnership Agreement…………………………………...7

2.1. Agenda-setting…………………………………………………………………...7
2.2. Policy formulation.................................................................................................9
2.2.1. Basis for negotiations with Southern Africa…………………...............9
2.2.2 Negotiations……………………………………………………………10
2.3. Decision-making………………………………………………………..……….11

3. The advantages and shortcomings of aid through trade in the EU Development Policy….11

3.1. The advantages of aid through trade…………………………………………..…12

3.2. The shortcomings of aid through trade…………………………………………..13

4. Case Study – Zimbabwe…………………………………………………………………...16

4.1. The EPA deal between the EU and Zimbabwe…………………………………..17

Conclusion……………………………………………………………………………………21

References……………………………………………………………………………………23

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Introduction

Since the beginning of the European Economic Community (EEC) in the 1950s, its number of
tasks and influence has grown and expanded. Today, one of the European Union‟s (EU) main
responsibilities is assisting the developing world in its struggle to create economic and social
stability. The Development policy is considered to be “essential to the eradication of poverty
and the achievement of social development” (van Reisen, 1999, p.183). The EU seems to
have confidently taken up this major responsibility as it has become the world‟s largest aid
donor over the past few years. Each year, the EU spends about 0.43% of its Gross National
Product (GNP) which was the equivalent of €47 billion in 2007 and the EU and its Member
States are committed to see this number grow (European Union, 2008). A large amount of the
aid money is spent on providing clean drinking water and the amelioration of a country‟s
infrastructure. Moreover, the EU encourages aid-receiving countries to trade with other
developing countries as well as the EU. In order for the developing countries to be able to
offer their products on the European market, the EU has removed or reduced many of its
trade-barriers and tariffs. The recipients of aid are mostly countries in Africa, the Caribbean
and the Pacific. Due to Europe‟s colonial past with Africa, this continent remains the largest
recipient. “It can […] be shown that Europe‟s relations with developing countries were built
and expanded upon the basis of previous colonial connections” (Mold, 2007, p.31). The EU is
also involved with the political development of the developing nations, as it wants to spread
European values such as democracy, human rights and rule of law as laid down by the Treaty
establishing the European Community (EC).
Despite what appears to be the EU‟s unselfish and humanitarian effort to spread its
wealth throughout the world, there are many who believe that the EU‟s “aid” policy is merely
an excuse for increasing its own wealth and influence in the world (Holland, 2002). Hence the
question arises: Is the EU covertly trying to enrich itself at the expense of the poorest
inhabitants of this world?

‘Independent Africa stumbled […] development policy emphasized the

production of primary commodities for export, often the expense of
adequate support for subsistence agriculture. We became subject to the
whims of the market without having any say in its functioning.’
(Kofi Annan, Former UN Secretary-General, 2007)

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With a focus on EU aid via trade, this paper claims that the EU is choosing power politics
over partnership.
The main question of this paper is as follows: Is trade an efficient way to support
developing African countries? Consequently, first the history of the Development policy will
be discussed by mentioning how shortcomings of the EU‟s previous conventions have led to
its current policy agreement. Secondly, the policy process will be studied. Thirdly, the
advantages and disadvantages of European aid through trade will be taken into account.
Furthermore, the case-study of Zimbabwe will illustrate if trade is an efficient way to aid
fragile African democracies. This paper will be concluded with an overall evaluation on the
efficiency of EU aiding fragile states via trade.

1. The EU Development Policy and Trade in historical perspective

The first official notion of some sort of a development policy was mentioned as early as 1950
by former French Prime Minister Robert Schuman. As he stated: “With increased resources
Europe will be able to pursue the achievement of one of its essential tasks, namely, the
development of the African continent” (Schuman Declaration, 1950). This aim was also
included in the Treaty Establishing the EEC, better known as the Treaty of Rome, signed in
1957. However, “the shape and the content of [Europe‟s relations with the developing world]
have altered significantly since [...] 1957” (Holland, 2002, p.1). These changes were largely
the result of global development, enlargement, the collapse of communist ideology and the
World Trade Organization (WTO).
During the 1960s the relationship between Europe and former-colonial Africa was
restructured through the Yaoundé Convention. The main foundation was the recognition of
the national sovereignty which established certain trading arrangements between the EC and
18 African countries. The Convention was based on three distinct traits; Firstly, “a
comprehensive character”, secondly “a multilateral framework” and thirdly “its joint
institutions” (Ibid, p.28). Despite this, Holland argues that hardly any (economic) progress
was being made. “Whilst the free trade principle was seen as assisting development, in
practice the limited concessions tended to maintain, even strengthen, the dependency
relationship” (Ibid, p.31). The Yaoundé convention was renewed every 5 years until a new
Convention replaced Yaoundé: The Lomé Convention.
The Lomé Convention (1975-2000) was considered an important step in the EU‟s
relation with the Third World as it linked the EU with 71 African, Caribbean and Pacific

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(ACP) developing countries. The Member States who signed the Lomé convention were
aware of the shortcomings of the previous Convention. Therefore the new convention created
a more equal partnership and allowed ACP countries to access the European market, which
was considered the main reason why the Yaoundé convention failed to produce significant
improvements. For example, products such as sugar could now be sold on the European
market at a competitive price. In 1979, Lomé II was signed but again, no major changes were
incorporated. Holland argues that Lomé I and II are nothing more than a “watershed in post-
colonial relations with the developing world” (Ibid, p.40). In total, the Lomé Convention was
renewed 4 times and each time the amount of donation money raised to €12 billion at Lomé
IV in 1990. However, this growth did not go smoothly during the economic crisis in Europe
in the 1970s. The number of ACP countries also rose during that period to 79 countries.
Lomé IV ended in 1999 and was succeeded by the Cotonou Partnership Agreement
(CPA) in 2000. Along with the introduction of the CPA it had to be recognized that previous
development initiatives by the EU had failed to improve the African economies. Hence, the
CPA introduced some drastic changes. First and foremost, development aid was no longer
considered a given; when a country failed to respect fundamental human rights its aid could
(temporarily) be suspended. Second, the CPA acknowledged the importance of NGO‟s,
especially on the implementation process of the policy cycle. Finally, the criteria of the World
Trade Organization (WTO) were met through re-introducing reciprocity in preferential trade
agreements. Regarding aid via trade, the CPA framework provided new trading agreements
between the EU and the ACP countries under Economic Partnership Agreements (EPAs). As
Holland argues, the changes made in the area of Development ran parallel with the changes
within the EU, “both integration and development policy expanded in scope, content and
ambition” (Ibid, p.51).
As previously discussed, the EU Development policy has undergone major changes in
the past. However, the transition from “particular and specialized arrangements to a
contemporary approach” was mostly formed by the Treaties of the 1990s (Holland, 2002,
p.140). Most important is the Treaty of Maastricht, as it acknowledged the EU‟s competences
for Development and turned it into law. “The Treaty created a constitutional basis for
development co-operation policies, and formalizes the existence of a European development
policy functioning in liaison with those of Member States, while recognizing their
interdependence” (Three-Cs, n/d). The main aspects are the so-called “3Cs”; coordination,
complementary and coherence. These C‟s were introduced to bring order in a field dominated
not only by the EU, but also International Organizations and Non-Governmental

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Organizations (NGO‟s) as well as national and regional governments in the ACP –countries.
The definitions of the Three C‟s are as follows.
Coordination was introduced to ameliorate the cooperation between different
organizations so they can “harmonize their policies, programs, procedures and practices so as
to maximize the development effectiveness of aid resources” (Three-Cs, n/d). Complementary
entails that the Community Development policy “shall be complementary to the policies
pursued by the Member States” (Three-Cs, n/d). Subsequently, Coherence is meant to
minimize (negative) externalities caused by the policy.
The EU development policy has strong ties with other policy areas such as; Common
Foreign and Security Policy, Environment policy and Trade. The main aim of EU
development policy is to completely wipe out poverty in the developing countries. The EU
tries to achieve this goal through the establishment of rule of law, democracy, respect of
human rights and fundamental freedoms.
When studying the relationship between trade and the European Development Policy,
one can see that it has always been heavily criticised for lacking the proof that it contributes to
the wealth of the developing nations. Even on the website of the European Commission it is
admitted that “trade is not a guaranteed route to economic growth for developing countries”
(European Commission External Trade, 2008). However, it is important to keep in mind that
as with other policies, the different approaches were a matter of trial-and-error. From the
earliest conventions in the 1960s up until the recently implemented EPAs, the EU has had to
deal with critique from the Member States, the developing countries and the EU‟s external
relations.
The main aim of an EPA (EPAs) is as follows: „EPA (EPAs) that would promote
poverty reduction, sustainability development and the gradual integration of ACP countries
into the world economy and which would bolster regional economic integration‟ (Oxfam,
2008, p.2). Difference with the first conventions is that now the EU realizes that “non-
reciprocal tariff- and quota-free access to the European market” is not enough but that “a lack
of capacity to trade blocks the path of even the most determined modern developing country
entrepreneurialism” (DG Development, 2008). Hence, today trade is specifically aimed at
helping developing countries with their capacity to trade (European Commission External
Trade, 2008). To understand the current situation of trade within the European Development
Policy towards the African countries, one must first understand how the recently implemented
EPA came about.

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2. Policy Process – the Economic Partnership Agreement (EPA)

This section builds upon the previous parts of the paper and aims at analysing the policy
making stages of the legal instrument, namely the EPA. The most frequently used model, the
policy cycle, is to divide the process into five distinct stages: agenda-setting, policy
formulation, decision-making, policy implementation and policy evaluation. The stages model
was developed to assist the comprehension of the very complex process of policy making.
The following paragraph will start with an examination of the agenda-setting phase.

2.1. Agenda-setting

According to the policy stages approach, the agenda „is the list of subjects or problems to
which government officials [...] are paying some serious attention at any given time‟
(Kingdon, 1984, pp. 3-4). Meaning that the agenda-setting stage deals with the question why
certain items are put on the agenda. Often an item appears on the agenda because
governments become aware of certain problems. In these cases it is rarely a simple rational
decision – it rather is a result of a complex interaction of various factors. Here the interesting
question arises: how did EPAs find their way onto the EU agenda?
The EPAs appeared on the agenda during the 1990‟s and this is explainable via a
three-level approach focusing on the socio-economic, the political and the public level. In the
first place it has to be mentioned that there where internal shortcomings in the previous trade
arrangements which needed to be solved in order for it to become more efficient. A second
factor can be found at the political level where the WTO pressured the EU to adjust certain
elements in the existing arrangements. Thirdly, the demand for fair trade and sustainable
development increased among the public, hence the EU was forced to optimise its
development policy. A complex interplay between these different factors were crucial for the
agenda-setting phase, therefore, each level will be examined in the following paragraphs.
The previous EU-ACP trade arrangements have been criticized for being too restricted
in three areas: their ambition, scope and perception. Regarding the level of ambition, the EU
was too focused on trade between itself and the ACP countries, hence, the focus needed to be
shifted to fostering „the smooth and gradual integration of the ACP states into the world
economy‟(European Communities, 2002, p. 6). Secondly, the EU needed to broaden its scope,
moving forward from an approach which did not prioritize improving access for the ACP
countries to the EU market, but towards an approach „enhancing the production, supply and

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trading capacity of the ACP countries as well as their capacity to attract investment‟ (Cotonou
Partnership Agreement, 2000). Thirdly, the EU was too limited in its perception, because it
was merely focusing on increasing the flow of the ACP countries‟ exports to the EU.
Apart from the socio-economic reasons, the EPAs where created to ensure conformity
with the new WTO rules. Hence, the barriers to trade by both the EU and ACP needed to be
dismantled and the element of reciprocity on trade relations between all states, needed to be
introduced. Pressured by the WTO, the EU and the ACP countries agreed „to conclude new
WTO compatible trading arrangements, removing barriers to trade between them
progressively‟ (European Communities, 2002, p.5). In practice this lead to the creation of the
EPAs.
Another factor is the growing interest of the public for efficient use of development
aid. In today‟s global world the public is well informed about the ongoing advancements in
this area. The public gains their knowledge via global events like Live Aid Concerts which
raises public awareness on insufficiencies within development aid. In general, the public finds
aid through trade ineffective since they interpret it as enriching itself at the expense of the
poorest inhabitants. In order for the public to gain influence in the decision-making process
they gather in organized lobbies and pressure groups. A number of these profit and non-profit
organizations approached the EU. An example of such an organization is the Association of
European Chambers of Commerce and Industry, which represents 19 million business firms in
the EU. This association argues that „trade is at the very heart of development‟
(EUROCHAMBRES, 2008). They want to push for more focus on regional integration which,
in turn, leads to more EU investments and the transfer of know-how.
The best theory which captures the complexity of these three factors influencing
agenda-setting, is the policy window model by Kingdon (1984). According to this theory
there are three different streams, namely the policy stream, the political stream and the
problem stream which open a policy window when these streams interact with one another. If
this is the case, the policy window will open, meaning that the issue will appear high on the
EU agenda. The policy stream concerns experts which identify a problem; in this case the
identified problem is the socio-economic shortcoming of former trade agreements. Secondly,
the political streams are powerful political factors influencing the agenda-setting such as the
WTO. Thirdly, the problem stream concerns recognition of problems such as public problems,
in this case it is the growing public demand for efficient use of development aid.
Consequently, in this case the three streams intersect each other, explaining why the EPAs
appeared on the EU agenda.

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2.2. Policy Formulation

The following part elaborates on the formulation phase of the EPAs. The policy formulation
phase involves a number of actors which have different powers within the system, mostly due
to their authority. Policy formulation can be best described as follows: it is a „process of
defining, considering and accepting and rejecting options‟ (Howlett and Ramesh, 2003, p.
143). Additionally, the formulation phase analyses a variety of possibilities when there is a
need to solve problems. The coming paragraphs will first study the basis for negotiations with
one of the six regions, namely the Southern African Development Community (SADC).
However, it should be mentioned that the negation process of the SADC is similar to the ones
that the other EPA regions in Africa experienced. Secondly, the negotiations between the
different actors and procedures will be examined. Before moving forward it should be
mentioned that the EU and the ACP countries can bring in their ideas and experiences on
equal terms.

2.2.1. Basis for negotiations with Southern Africa

The EPAs are an integral part of the CPA which was signed in 2000 by 15 EU countries and
77 ACP countries. The procedures on EPAs are laid down in Article 37 of the CPA. The
negotiations started in 2002 and this was done in two phases. The first phase contained
negotiations on issues which were of great concern to all the ACP countries. The framework
for this round of negotiations was set out in a directive adopted by the Council of Ministers on
17 June 2002 (Bilal, 2007, p.10). The result of these negotiations was presented by the EC
Commissioners for trade and development and the ACP Council of Ministers. Finally, this
lead to the adoption of a joint report ACP/00/118/03 Rev.1-ACP-EC/NG/NP/43, which was
the end of the first round of negotiations.
In the second phase the EU negotiated with each of the six regions individually. The
second phase, i.e. the bilateral negotiations between the European Commission and East and
South Africa were launched in 2004. At the first regional meeting both sides agreed on a
negotiation mandate including the following objectives: sustainable development of the
countries, gradual integration into the global economy, and poverty reduction.

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2.2.2 Negotiations

The general objectives and guidelines on which the negotiations between the EU and the
SADC are based, find their origin in the following three documents: the Cotonou Partnership
Agreement, the Joint Report adopted in October 2003 and the Joint Road Map between the
EPA and the EC agreed on in February 2004.
The negotiations took place on two levels: the Ministerial level and the
Ambassadorial/Senior Official level. The negotiations on the SADC side were conducted by
the Regional Negotiation Forum (RNF). To conduct the EPA negotiations the RNF divided
themselves into six different clusters: Development Issues, Market Access, Agriculture,
Fisheries, Trade in Services and Trade-Related Issues. Furthermore, the RNF selected six
Ambassadors which were located in Brussels and six ministers to lead the negotiations on
both levels. On the other side, the negotiations on the EC side were conducted by the
European Commission. The Commissioner for Trade represented the ministerial level and the
senior official of DG Trade represented the ambassadorial level. Thereby, preparatory
discussions between the EC and SADC on a technical level were held before meetings to
ensure proper coordination on the senior level. The DG Trade unit was responsible on the side
of the EC.
The negotiations themselves were divided into three phases. In phase one (March to
August 2004) the priorities were set. During this phase the SADC side organised itself
according to the structure pointed out above. Thereby, the National Development and Trade
Policy Forum (NDTPF) held their first meetings discussing issues like the composition, rules
and procedure, work programmes and funding mechanisms. The RNF finalises the work
programme and agreed on the composition of the technical expert groups which support the
ambassadorial spokesperson. Furthermore, to prepare the negotiations with the EC, three
representatives of the NDTPF and a representative from the RNF attended an orientation
session in Brussels. This session explains the operations and functions of the EC, including
the European Parliament, Council and Commission. Thereafter, a Regional Preparatory Task
Force (RPTF) was established containing of people from SADC and the EC to ensure
coordination during the negotiations at both levels.
The second phase (September 2004 to December 2005) dealt with substantive
negotiations. The overall formulation of the EPA outline was agreed on and a number of
priority areas were identified, namely, development issues, market access for goods, fisheries
and agriculture and SADC regional integration. This phase of the negotiations will be

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prepared by ambassadorial and senior level. In the third phase (January 2006 to December
2007) the substantive negotiations continued and the EPA was finalised and ratified by all
parties. Additionally, the SADC countries and the EU used this phase to prepare a binding
legal text which allows the EPA to come into force in October 2008.
Based on the previous paragraphs it can be concluded that the negotiation phase is
crucial for the formulation stage. Each part of the EPA was formulated during the negotiation
phase on a ministerial level. Thereafter, they were re-negotiated or re-formulated at the
ambassadorial and senior level. Thus the negotiations on the ambassadorial and senior level
lead to the final policy formulation.

2.3. Decision-making

The Council of Ministers has full power within the decision-making phase due to the fact that
trade agreements are cooperation‟s outside the ordinary budget (van Reisen, 1999, p. 46).
Even though the Council has the final say in the decision-making phase, the negotiation phase
was of great importance because this is the place were experts pre-decided on the largest part
of the problems.
A good way of explaining decision-making in the EU is via the network theory. The
network theory „constitutes a variety of separate linking systems between interests within and
outside the government‟ (Hill, 2005, p. 68). According to Peterson and Bomberg (1999)
decision-making takes place at three levels, making use of a bottom-up approach. The first
level contains of the Commission and working groups which set the basis for the European
policy. At the second level the policy-making takes place in the Council of Ministers and
COROPER. At the third level the final decisions are made by the European Council and the
Member States in intergovernmental Conferences.

3. The advantages and shortcomings of aid through trade in the EU Development Policy

In the next two sections the advantages and disadvantages of aid through trade will be
discussed. This will allow for a balanced conclusion, relating back to the main question of this
paper – namely: Is aid through trade an effective and efficient way to support developing
African countries? At this point it might be important to mention that trade represents a major
pillar of the EU development policy (European Commission, 2008, p. 3). It is intended to
enhance the productive capacities and boost economic growth of African countries. Once this

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is achieved, an improvement in the standard of living through sustainable development is
hoped to follow.
The main tools employed expected to increase trade are preferential trade agreements
(PTAs), which seek to lower trade barriers – making imports from developing countries more
attainable and attractive. This involves the removal of tariffs and custom duties on African
goods imported into the EU. However, as is generally known, economic growth is not
necessarily coupled with development. This represents another challenge to the EU
development policy, which needs to try to achieve the best possible balance between
economic growth and sustainable development (European Commission, 2008).

3.1. The advantages of aid through trade

Aid through trade as part of the EU development policy theoretically means that the EU will
remove custom duties, barriers and tariffs in order to boost trade between the EU and Africa.
Such increased trade, import as well as exports, is expected to bring about the typical
advantages usually brought about by international trade and free trade. Therefore, the
advantages as well as the disadvantages mentioned below are mostly discussed in terms of
theoretical economics.
First of all, engaging in international trade is known to increase economic welfare due
to the fact that the country in question may specialize in goods where it has a comparative
advantage. The term “comparative advantage” generally describes the ability of a country to
produce a good at a lower opportunity cost than another country (DWAF, 2007). It is
generally known that different countries have different factor endowments. Specializing in
goods with a comparative advantage increases world output, while countries will be able to
consume beyond their Production Possibilities Frontier (PPF).
Furthermore, as the country specializes in producing a good where it has a
comparative advantage, it may benefit from economies of scale. In this case the production
costs of units are spread over the amount of produced goods, eventually lowering the
production costs and increasing efficiency. As a consequence the country in question may
become more competitive on the international market as quality rises and price decreases. On
the other hand, while exports may increase national income, imports are known to increase
consumer choice. Through imports products may enter the economy which otherwise would
be impossible to produce domestically. This in turn benefits the consumer as he or she will

12
have a wider variety of goods to choose from, ultimately raising the standard of living of the
consumer.
Additionally, the increased variety of goods on the market may cause increased
competition, as inefficient monopolies are forced out of the market and companies struggle to
make their products more attractive. As a consequence the quality of goods may improve as
companies are required to operate more efficiently in order to remain on the market. Another
factor induced by trade with the EU is innovation. While new goods are entering the African
markets, local producers try and produce similar or improved versions of those goods
domestically (Holroyd, 2004, p. 28). However, this rarely happens due to reasons discussed in
the next section.
All the above mentioned advantages of Africa trading with the EU may be utilized in
order to fund health, education and infrastructure. The EU development policy emphasizes the
importance of sustainable development. It is aware of the fact that only sustainable
development can remove the African countries from their aid dependency. Here the multiplier
and accelerator effect come into play. The “multiplier effect is the proportion by which an
initial increase in injections (G, I or X) causes a greater final increase in the level of national
income” (Holroyd, 2004, p. 48). The accelerator on the other hand “is the relationship
between a change in the level of national income and the level of investment that this
induces” (Holroyd, 2004, p. 48). The interaction of the multiplier and accelerator effect may
offer an explanation for the start of slumps and booms. Hopefully for the EU, it will offer an
explanation for the latter, thereby making African countries less dependent on foreign aid.
In conclusion it can be said that, trade is rightfully one of the main pillars of the EU
development policy. Put into practice correctly, the theory as mentioned above may become
reality. Without free trade between the EU and Africa there will be a loss of the countries‟
comparative advantages, higher costs to consumers and loss of efficiency and
competitiveness. Thus the EU is on the right track. However, what went wrong? What is it
that seems to spoil well-meant support from the EU? In the next section the disadvantages of
aid through trade shall be examined, hopefully providing an answer so the questions posed
above.

3.2. The disadvantages of aid through trade

The advantages of aid through trade discussed above gave an overview of what should or
could be achieved under optimal conditions. In this section the theoretical framework

13
established above shall be applied to Africa, while assessing its effectiveness and efficiency in
practice. In how far does it facilitate the achievement of aid independence, sustainable
development and economic boosts?
Aid through trade also has its downsides. This becomes apparent when assessing the
effectiveness of the EU development policy in terms of trade. One example is how the EU‟s
preferential trade agreements did little to reinforce trading ties with Africa (Evrensel, 2007, p.
6). Since the 1970s (with the exception of oil exporting countries) Africa‟s overall exports and
imports to the world have been declining. Some figures show a weak “increase” in exports
and imports from and to the EU. However, this is solely due to the general decline in world
imports and exports, making the EU figures stand out positively as they declined less sharply
compared to the rest of the world (ECIPE, 2007). The figure below (see Figure 1) proves how
trade with ACP nations (includes Africa) has been declining.

Figure 1. EU’s trade partners (main shares)

Source: Direction of Trade Statistics CD-ROM by the IMF (2005)

The reason for this trend can be found considering the properties of such preferential trade
agreements (PTAs). Oftentimes PTAs only foresee a simple reduction of tariff levels. It is
frequently argued that such agreements do little to provide significant economic gains to
African countries. Instead, they are said to primarily promote political harmony and
international “goodwill” between the EU and African nations (McQueen, 1982). Reasons for
this include the fact that oftentimes tariffs are already so low that the removal of such tariffs
via PTAs becomes highly insignificant. Furthermore, non-tariff barriers have been known to
be employed, eliminating the positive effect such a PTA could have had. Non-tariff barriers
may include strict regulations on “rules of origin”, environmental and safety standards

14
(Evrensel, 2007). As a whole this can be regarded as one of the EU‟s disguised protectionist
measures.
Negative externalities are also known to emerge from within such “trade creating”
agreements. In an attempt to improve trade, the EU has been employing trade creating
measures. However, these trade creating measures have been acknowledged to come with a
bitter aftertaste known as negative externalities. While trade creation is taking place, the
environment is taking a high toll as the additional trade brings pollution and labor exploitation
with it (Managi & Akira Hibiki, 2006, p. 36). Even though the EU has made it to its priority
to remain within the boundaries of sustainable development, not every variable emerging
from trade can be monitored. Increased levels of pollution, including air and water
contamination due to the lack of regulations, are decreasing the standards of living across
Africa (Managi & Akira Hibiki, 2006).
In general, opening up previously inward-oriented markets usually involves economic
drawbacks in the short-term. One of such problems is known under the term “dumping”.
Dumping is generally defined as exporting a product for an “unfairly low” price. This could
involve selling the product below production cost or home market price (Deardorff, 2001).
Due to the fact that African markets have been opened up for European producers, some local
African industries have been adversely affected. While European producers are benefiting
from a larger customer base and a way of getting rid of excess production, local African
producers are being forced out of business. This can be explained considering that African
producers oftentimes cannot compete in terms of quality and costs of production (Ulmer,
2008).
Another topic closely linked to the above and worth addressing is the so called
worsening “terms of trade”. Terms of trade are known to “measure the rate at which one
good is exchanged for another” (Holroyd, 2004, p. 71). Such terms of trade have an impact on
a country‟s balance of payments as well as domestic economy. African, non-oil exporting
countries have been facing declining terms of trade since the 1970s (Holroyd, 2004, p. 71).
This means that in order for them to acquire the same amount of imports they need to sell a
larger quantity of exports.
The reason for this trend can be discovered considering that most African countries
still depend on the production and export of primary goods. Such goods are known to have a
low income elasticity of demand. On the other hand, as statistics prove, African countries
import a large quantity of manufactured goods – which in turn have a higher (positive)
income elasticity of demand. Thus, as world income increases the price for manufactured

15
goods is increasing at a faster rate than primary goods (Holroyd, 2004, p. 72). Responsible for
this phenomenon are demand-side as well as supply-side factors. The latter is strongly
associated with the EU‟s CAP. While not going further into the CAP, it should be mentioned
that the oversupply of agricultural goods in the EU funded through the CAP is further
depressing primary product markets in Africa (Bergmann, 2004, p. 7). Hence, due to the fact
that demand for primary products is price inelastic, the depressing effect on prices will be
enhanced by any increase in supply.
In conclusion of this part of the paper it should be reflected on the above mentioned
facts: the preferential trade agreements have been rather inefficient. PTAs, being the main tool
of the EU to improve trade, have been used by large multinational companies (e.g.) to dump
their products in countries all over the African continent. The results, as outlined above, have
been economically devastating for the concerned African countries, amongst them Zimbabwe.
However, while such drawbacks of the European development policy should be kept in mind,
the positive factors should under no circumstance be neglected. To reach a balanced
conclusion it is important to point out the positive factors: PTAs have opened up marks,
curbed innovation, increased competition, quality, variety and enabled the use of comparative
advantages/economics of scale. It can be said that the EU is on the right track by providing
help to African countries through trade – however the protectionism has to end in order to
achieve a truly progressive policy. Thus, it is in fact a well meant policy with a bitter
aftertaste of conditional aid, protectionism and negatively rigid, inflexible characteristics.

4. Case Study - Zimbabwe

The following case study on Zimbabwe aims to provide another insight on how the EU aids a
developing African country. Currently, Zimbabwe is suffering from a crisis on an economic
as well as political level. Thereby, Zimbabwe is confronted with a cholera outbreak which
has worsened the situation. Since December of this year the government declared a state of
national emergency. The president of Zimbabwe, Robert Mugabe, is only receiving critique
and the majority of the world is pressuring him to leave. The growth rate of Zimbabwe was
negative with 6 percent, whereas most of the African countries had a growth rate between 6 to
10 percent GDP in the last year. The economy of Zimbabwe is even worse than Somalia,
which has failed as a state for the last 19 years (Frazer, 2008). Today, only 20 percent of the
population is formally employed, and additionally Zimbabwe has the lowest life expectancy at
birth in the world, i.e. 34 years for women and 37 years for men. This is due to the fact that

16
Zimbabwe has one of the highest HIV and AIDS rates of the world, namely more than 20
percent of the total population (Ploch, 2007). Moreover, Zimbabwe‟s current situation is
spiralling out of control and can be described as desperate.
Consequently, a lot of development aid is needed for Zimbabwe. The EU is the most
important donor of this country. One of the ways in which the EU is trying to aid Zimbabwe
is via the EPA. From this, the following question arises: Does the EPA deal between the EU
and Zimbabwe pass the development test? The following paragraphs will discuss in whose
interest this new trade deal is. This is done through elaborating on eight points which the EU
promised to improve the situation via the EPA. These eight points are as follows: regional
integration; goods; protection of farmers; infrastructure; access to EU market; foreign
investments; trade in services, and; technology and innovation.

4.1. The EPA deal between the EU and Zimbabwe

Regional integration of Zimbabwe‟s economy with regional neighbours is very important for
developments within the economic market. It gives companies a larger economic market
which makes it easier for them to specialise and add value. However, since the six
designations of the EPA regions it has only been problematic, because these regions intersect
other ongoing regional integration efforts (see Figure 2.).

Figure 2. Regional disintegration in Africa: Figure 3. Common Market for

„initialled‟ trade regimes Eastern and Southern Africa (COMESA)

Source : Oxfam, 2008 Note: The blue part in this figure highlights the area which
belongs to the COMESA
Source: Institute for Security Studies, 2007

17
Zimbabwe‟s negotiations for the EPA took place within the framework of the Southern
African Development Community (SADC) (see Figure 3.). However, Zimbabwe also belongs
to another regional integration effort: the Common Market for Eastern and Southern Africa
(COMESA). The fact that there are different agreements between the same regions in Africa
and the EU is a hindrance to the creation of a common external tariff. Moreover, the EPA deal
regarding regional integration creates enormous barriers for regional partners to integrate and
in some cases the EPA even fragments existing regional partners.
Besides regional integration major investments need to be made to upgrade
Zimbabwe‟s infrastructure, this is critical for the growth of regional and international trade.
Zimbabwe needs improvement within the following three sectors: Road sector; Railway
sector; and, water sector. In 2006, only 24 percent of its roads were in good condition, 40
percent was in poor condition and there is $1.7 Billion needed to restore it to an overall good
condition (Africa Transport Sector, 2006, p. 14). Freight traffic decreased from 14 million
tons in 1990 to 6.3 million tons in 2006 and this is mainly due to poor locomotive availability
(p. 16). However, if the locomotive availability would have been 100 percent then it would
have carried 50 percent more traffic. Thirdly, since the declining economy (1990‟s) the access
to water and sanitation services have been declining to about 30 percent below the required
level. There is about $10 Billion needed to bring this level back to the required level (p.18).
Zimbabwe first needs to overcome this large barrier before it can compete on equal terms with
European producers. Zimbabwe will be financially worse off when it trades with Europe
under today‟s conditions. The EU provides funds for infrastructure via the European
Development Fund (EDF), however the EU only has €23 Billion to spend over the coming 7
years, this budget has to be divided among all the ACP countries. The EU‟s budget for
infrastructure is nowhere near sufficient.
The increase in foreign investments in Zimbabwe is another important development
which the EPA stimulates. Between 1999 and 2005 the foreign investments flows doubled in
Zimbabwe from 6.5 to 13.5 as a percentage of gross fixed capital formation (United Nations,
2006). An increase in foreign investment is positive because, at its best, it creates decent jobs,
transfer knowledge, generates demand for local producers and it can provide capital when
there is not enough. Nevertheless, at its worst, foreign investments lead to human rights
violations, effecting the environment in a negative way (negative externalities) and the host
country only earns a small percentage of the total profit (capital flight). The negativity of
foreign investments particularly applies to the case of mining (Oxfam, 2008). The third largest

18
sector in Zimbabwe is mining, 90 percent of its production is exported and it amounts for 45
percent of foreign earning. Zimbabwe benefits from foreign investment when it is well
managed (Van Harten, 2007).
As a next point Zimbabwe‟s access to European markets shall be discussed. The
Oxfam Briefing Paper 2008 describes the European markets as only “half open”. Statistics
have shown that the goods and services exported to Europe are generally of low value (i.e.
primary goods). In order to help Zimbabwe, value needs to be added to its products –
resulting in high-value products. Exporting such products then would improve the terms of
trade, balance of payments and national income. However, barriers to trade have been
preventing this outcome – especially the barriers to trade designed to keep high-
value/processed products out of European markets. Thus a positive relationship between the
value of products and tariffs imposed can be observed. This is best depicted with an example:
while exporting unprocessed fruit attracts no tariffs, exporting fruit juice triggers a dramatic
increase in tariffs – often up to 35 percent. The same holds true for raw and processed sugar
(Oxfam 2008, p. 13).
Other factors prevent Zimbabwean access to European markets are rules of origin.
Another example of restrictive (disguised) protectionist measures, preventing the influx of
cheaper products from Zimbabwe. Such rules are hindering Zimbabwe from taking advantage
of the available market access. Yet again, an example can be drawn to clarify this point: the
EU requires Zimbabwean yarn to be spun by regionally acquired yarn and fabric. Even the
workers processing this yarn are not exempt from this rule: they too have to fulfil certain
conditions in order to satisfy the strict rules of origin (Naumann, n/d).
Finally, another factor significantly reducing the access to European markets is the
exacting of standards. Oftentimes standards (e.g. health standards) are raised by as much as it
is necessary in order to eliminate a large number of Zimbabwean exports. Illustrating this by
an example again, the case of 2002 is of significance. The EU had made new minimum
standards for aflatoxins which were even “beyond international recommendations”. They
justified this behaviour by the fact that it is in the interest of the European consumers and their
health. However, in reality this move only reduced the “incidence of death by two people in a
billion” (Oxfam 2008, p. 13). Thus, it had minimum health benefits to the aforementioned
consumers and only served as another disguised protectionist measure – decreasing exports of
dried fruits and cereals by almost 50 percent (p. 13).
Furthermore, through the implementation of non-tariff barriers, the EU, via the EPA
stimulates to increase the level of trade between the countries, and, aims to create

19
opportunities for Zimbabwe to develop new industries and increase the number of jobs. 2-20
percent of all the imports are exempted from full opening, these goods are placed on
„exclusion lists‟ (Oxfam, 2008). This list is dominated by agricultural products, which is the
most important sector of the Zimbabwean economy and accounts for 40 percent of the total
export incomes. Thus this list protects Zimbabwe‟s most vulnerable farmers. However, on
the other hand, the list does not contain many manufacturing and high valued goods (South
Centre, 2008). This in combination with stringent rules on tariffs as discussed earlier in this
paper. Hence, the EPA makes it difficult for Zimbabwe to develop new industries and create
jobs due to the fact that the deal restricts economic diversification towards high-valued
products.
Another topic worth touching upon is the overcoming of insecure access to food and
support for vulnerable farmers. Statistics show that one in three children, men and women in
Africa suffer from hunger and malnutrition as defined by UN. Worsening this trend is the fact
that the per capita food production has been declining steadily over the past decade. Climate
change is predicted to further depreciate the situation, with desertification and the frequency
of natural disasters such as droughts increasing. As a result valuable agricultural (fertile) land
will be lost, while growing seasons are getting shorter and yields are lost. Studies have
predicted that Zimbabwean rain-fed crops could decrease by up to 50 percent by 2020. The
way out: technological innovation as it happened in the green revolution. Amongst other
things, drought-resistant plant varieties are vital for Zimbabwe in order to meet the growing
demand and lacking supply (Oxfam 2008, p. 32).
This approach of technological innovation has proven to be effective in Nigeria
(1970s). In this case new varieties of “cassava” were developed by scientists employed in the
public sector. As a result yields increased by more than 40 percent, which resulted in a sharp
decrease in market prices. This in turn significantly improved food security of many millions
(urban as well as rural households). Hence, food insecurity and support for vulnerable farmers
is to overcome by means of innovation, research and technology. Unfortunately, this is one of
the chronically underfunded sectors within the development efforts of the European Union. A
shift of focus needs to be conducted, in order to designate necessary attention and resources to
the vital aspect of insecure access to food as well as shortages (Oxfam 2008, p. 13).
The current deal forces Zimbabwean firms to, directly, compete under the same rules
as European firms. However, without giving Zimbabwean producers the chance to tackle
major competitiveness constraints which they are confronted with. Moreover, Zimbabwe
needs to overcome trade barriers before they open-up to the European market, because their

20
producers are by far not as strong as some European firms, making it hard to compete on
equal terms. The EU is not helping much: it opened up the remaining parts of their markets,
but (disguised) barriers remain. Thereby, the deal costs a lot of money for Zimbabwe, but the
EU only provides a little part of the finance needed. Moreover, the EPA deal between
Zimbabwe and the EU has failed the development test.

„Europe will be the biggest Winner. With an economy tottering on the

brink of collapse and an unenviable political situation, civil society
organisations in Zimbabwe have every reason to worry about the
implications of the interim agreement on trade in goods that their country
has just signed as part of the Economic Partnership Agreement (EPA)
with the European Union (EU).’ (Kwidini, 2008)

Conclusion

To conclude, the development policy is probably one of the most contested areas in which the
EU is involved. Trade is rightfully one of the main pillars within this policy. Regarding aid
via trade, the EU had to overcome a number of obstacles in the last few decades before it
came-up with the current approach, namely the Economic Partnership Agreements. The EPAs
found their way quickly onto the EU agenda and directly managed to become a priority.
Hereby, it should be pointed out that pressure by the WTO and public demand encouraged the
EU to revise its previous policies. Meaning that the EU policy process, in this area, makes use
of a bottom-up approach.
When focusing on the advantages and shortcomings of the EPAs it has to be
mentioned that the main aim of the EPA (EPAs) is a good one: it would promote poverty
reduction, sustainable development and the integration of African countries, step-by-step, into
the world economy via regional economic integration. The main tool to improve trade and
reach these goals is, namely, the Preferential Trade Agreement (PTA). Put into practice
correctly, free trade between the EU and African countries will open-up markets, curb
innovation, increased competition, quality, variety and enabled the use of comparative
advantages. Nevertheless, in the current situation the shortcoming of a PTA cannot be
ignored. As is already mentioned in theory and illustrated by the case study on Zimbabwe, the
protectionism has to end in order to achieve a truly progressive policy. The EU should and has
the power to first give producers of the African continent the chance to tackle major

21
competitiveness constraints, giving them a chance to compete on equal terms with European
businesses. Unfortunately, as shown above, this is not the case. Hence, one could argue that
the EU is choosing power play above partnership. Only time will show if the EPAs become
successful in making African developing countries better off.

22
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