Which product should be exported from Africa?
No EU tariffs on Africa's exports: a hoax?
The trade policy of the European Union (EU) is repeatedly criticized for hindering the development of agriculture and small industry in Africa. The main points of criticism are that cheap agricultural exports harm African smallholders and that high EU trade barriers prevent the export of processed goods from Africa.
In connection with combating the causes of migration and flight, this criticism also reaches the media, politics and business. The question is rightly asked how the many jobs in Africa are to be created that are needed to offer young people in Africa in particular prospects in life. The focus has now been drawn to the opportunities that an export-oriented processing industry could create in terms of investments and jobs in order to come closer to this goal.
Against this background, the import regulations in the form of import tariffs, but also other EU trade rules, have come under discussion as far as investments and support for Africa's economy are concerned.
Africa's small share of world trade
The lamentation about the low exchange of goods between the neighboring continents of Africa and Europe is nothing new in itself. Those who see free trade as the key to economic development are particularly critical of the fact that African governments have done too little to open up markets and deregulate them. Conversely, African entrepreneurs accuse the EU of closing their market off against the importation of African products. This complaint, which has been heard for decades now, does not change the fact that Africa's share of world trade is less than five percent and that of German trade is even a few two percent.
These figures can also be interpreted positively in the sense that the African economy has managed to maintain its share of world trade. But that would be a little cynical, given the continent's wealth of raw materials and labor.
Customs barriers for African products are now identified as the cause of the low level of trade between Africa and the EU. The argument is that the high tariffs, for example, would deter small and medium-sized German companies from investing in African countries.
It is understandable that politics and business from the country of the “world export champion” see the key to overcoming poverty and hunger in an export-oriented economy. However, this approach does not do justice to African realities. The so far still low domestic consumption and the African domestic trade rather offer the great opportunity to become the actual job and economic engines for the continent. But there are also many more opportunities to generate jobs and income in foreign trade than is the case today. Because for investments in modern branches of the economy, foreign exchange for the purchase of technologies and machines is indispensable.
Stagnation in exports from Africa to the EU
Why is it now that Africa does not benefit even more from its proximity to the EU market? It cannot really be due to high EU import tariffs on African goods, even if some politicians have recently cited this. Basically, it can be said that almost all African states have one way or another so-called preferential access for their goods when they are imported into the EU. The poorest countries in Africa, 34 out of 55 countries, can even export products to the European Union without paying any tariffs. The preferential access granted to these states includes all goods, with the exception of weapons. In the case of countries that belong to the middle-income countries, the set of rules is somewhat more complicated, depending on whether the countries have a trade agreement with the EU or "only" a so-called preferential status.
The fact that African countries (with the exception of North Africa and the Republic of South Africa) can export a large part of their goods to the EU duty-free has always been in the interests of the colonial country France. When the European Economic Community (EEC) was founded in 1953, the country had precisely ensured that its “special” trade and economic relations with its old colonies would not be lost through something like “state independence” and high tariffs. These preferences were one-sided - so only applied to Africa's exports to Europe, not the other way around. Even when the World Trade Conference (WTO) came into being, African states were able to determine their external tariffs themselves without losing the privilege of exporting duty-free to the then EEC.
Since 2001, poor countries have also been granted customs exemption from the EU in other ways. To do this, they must meet the criteria for the United Nations list of the 50 poorest countries in the world. In addition, there is the obligation to have ratified 25 UN agreements on human rights, environmental and social issues. Other “richer” developing countries also receive preferences with restricted customs exemption, have to apply for this status themselves and sometimes meet more conditions than the group of the poorest countries.
No customs privileges without reciprocity - all under the EPA umbrella
Some African countries (including Morocco, Tunisia, South Africa, Namibia, Cameroon, Ghana, Kenya, etc.) have each had to sign a bilateral trade agreement with the EU, which forces them to open their markets to EU products if they continue to be duty-free want to export their products to the EU. What was the background for these agreements?
Since 2000, in the “Cotonou Agreement”, the EU has tried to force all African states, including the poorest countries, into such a corset of trade agreements through so-called Economic Partnership Agreements (EPAs). The aim of the deal is that free access to the EU market will only be granted if the EU also receives duty-free in the long term for at least 80 percent of its future exports to Africa. This is how you secure future markets.
Most of these bilateral agreements have failed, but have now left behind a patchwork of differently shaped trade relations between the EU and Africa. This becomes particularly clear when one examines the question of why Africa does not generate more value from the processing of its raw materials.
The tariffs are not!
As indicated: Africa's weak exports to the EU cannot be due to mere import tariffs. But another fact in the context of trading rules does play a role. Especially when you ask yourself why Africa almost exclusively exports raw products, whether they are agricultural raw materials such as cocoa or mineral raw materials such as ores and crude oil.
It is about trade barriers called "non-tariff trade barriers". There are many of these trade barriers. The most important are the so-called rules of origin, provisions on food safety and plant and animal health (SPS) and also private standards, e.g. of retail groups in supply chains.
Raw cocoa gladly - milk chocolate only with conditions!
Development Minister Müller often takes up the examples of coffee and cocoa when he regrets that Africa will lose a great deal of added value and thus jobs as long as African producers export the unprocessed raw material. Roasted coffee and milk chocolate should be able to be delivered to our supermarkets directly from factories in Africa. That is what the people in Africa and development organizations like Bread for the World would like. Basically, such exports are possible. There is even a certain advantage over other providers because most African countries can export duty-free to the EU - but only under certain conditions.
Milk chocolate from poor Togo, for example, would only be duty-free if the ingredients sugar and milk were also from Africa or the EU. But if the weight percentage of sugar makes up more than 40 percent of the chocolate or more than 60 percent together with the milk and the ingredients are bought elsewhere, e.g. sugar in Brazil, then the EU blocks. The chocolate is not really from Africa - and can therefore no longer be imported duty-free from Togo. In this case, the tariff would amount to almost 17 percent on the chocolate destined for export and could not compete with the chocolate bar from Germany - although the cocoa beans may come from Togo. For other countries that are not among the poorest, this is even worse.
For milk chocolate from Nigeria, with cheap sugar from Brazil (90 percent of the sugar comes from there!), 20 percent tariffs would be levied. Of course, these countries could also use sugar and milk from Africa and the EU, but then the chocolate would also be more expensive and could cost as much as the tariffs make it up. In any case, the advantage of being able to export duty-free would be, there and in the supermarkets there is still German milk chocolate with cocoa beans from Africa on the shelf. The jobs remain with us and are not created in the country where the raw material grows and is harvested.
Market opening for EU exports is sweetened
But if you conclude a trade agreement with the EU, the chocolate export will be sweetened. Cameroon, which was forced to open 80 percent of its market to the EU, e.g. to continue exporting bananas and coffee duty-free, is also allowed to export milk chocolate with cheap sugar from Brazil to Europe duty-free. This applies to chocolate and also to orange juice, as long as the value of the sugar in both products does not exceed 30 percent. This gives Cameroon an advantage over poorer neighbors such as Chad or its larger neighbor Nigeria. Here the EU does not calculate the value of the sugar in the juice or chocolate, but the weight.
The difficulties for production “made in Africa” become very clear if Africa were to one day manufacture industrial products for the EU market - for example electric scooters or mopeds. Since it is unlikely that all the individual parts for a small scooter will be produced in Africa in the medium term, the motors, brake systems or the frame should mostly come from Asia and be assembled in Africa. These parts will probably not come from Europe or would be too expensive.
Electric scooters from Africa - not so soon!
Such finishing industries would create many jobs. But if the electric scooters are sold in the EU, the duty-free regime is over. Because the EU rules of origin for imports of machines and technical equipment are not as “generous” as they are for agricultural products. Even the states that have a bilateral trade agreement with the EU, such as Cameroon, would have to manufacture at least half of the parts for a scooter themselves, from their own raw materials, in order to be able to export duty-free. An impossible undertaking, so the scooters from Cameroon pay the same duty as the scooters from China. Then why should China have mopeds assembled in Cameroon? Then it's better to assemble the scooters yourself or in a neighboring country. In this way, the EU prevents a partner other than itself from investing in Africa, creating jobs and reducing poverty - of course that is always completely selfless!
Nigeria also does not meet the requirements of the rules of origin (50 percent in-house production), but even if they did, Nigeria would have to pay 4.5 percent tariffs for electric scooters anyway, the normal external tariff of 8 percent without proof of origin. The most populous country in Africa is being punished for rejecting a trade agreement with the EU in order to continue to protect itself from cheap EU competition. It is also not allowed to use the lower preferential tariff to attract investors. That is the hypocritical development and trade policy of the EU, which exposes all phrases of a partnership with Africa.
... because of duty-free imports from Africa!
And those are not the only rules that make imports from Africa difficult. For agricultural exports, there are a lot of rules about how to make, store and transport them. But also low detection limits for certain pesticides (mostly supplied from the EU agrochemical kitchens) or regulations for the treatment of products play a role. Many are useful to protect European consumers, especially hygiene regulations. However, other regulations are incomprehensible under the conditions of tropical agriculture. Implementing these makes production more expensive; this also applies to rules about standard sizes, labeling requirements, etc.
What medium-sized companies in Germany have to deal with when exporting to other countries becomes an insurmountable hurdle and cost trap for small industries in Africa. A UN study lists how often products from the group of the poorest countries in Africa encounter non-tariff obligations when exporting, e.g. there are 40 rules for nuts or fruits from Africa to the EU alone. If the same products are exported to Southeast Asia, they only have to overcome half the hurdles.
The standard requirements of the international supply chains of retail groups, i.e. the so-called private standards, are then only the last drop in the ocean. All these restrictions and regulations make it more than suggestive that the EU or Germany have no interest in granting Africa at least a small part of the world trade cake by building up export-oriented agricultural production or small industries. As long as initiatives such as the Marshall Plan or Compact for Africa do not start to dismantle trade barriers, hardly anyone in Africa will believe in the will of the EU to seriously help the neighboring continent to develop industries in order to process their own raw materials.
Dismantle non-tariff trade barriers for Africa - freeze the EPAs!
But, as already noted, it is a fundamental question for many civil society actors and small businesses, especially small farmers, whether they should do this to themselves to enter the export business with the EU. Even if higher income may be tempting in the long term, local and regional markets are the more promising alternative for African investors and producers. Here, too, sustainable investors from abroad can provide support if they observe human rights, environmental and social standards.
In the meantime, the EU can review all its rules of origin and non-tariff measures to see which of them could be changed in favor of added value and jobs in Africa. Of course, the important standards for consumers in the EU must not be lowered.
If the EU is already in the process of changing the rules in favor of Africa, then it could also mothball or freeze the chaos of various trade agreements and preferences for Africa. So there is still enough to do.
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