The revelation of the Pandora Papers was a stark reminder of the manner through which tax havens and high secrecy jurisdictions continue to facilitate the transfer of capital belonging to wealthy individuals through a myriad of tax avoidance schemes.
Unfortunately, the existence of such jurisdictions has been to the detriment of states with less attractive tax rates as they have led to the extraction of resources which in turn has limited the ability of governments to support their domestic programmes due to the tax base erosion.
As such, they are encouraging a ‘race to the bottom’, with countries competing to reduce their tax rates in a bid to retain and attract investments. Worryingly for poor countries, including in sub-Saharan Africa, the lower tax collections will add to the challenges our governments are currently facing in servicing their high debt burdens and financing critical social programmes.
Interestingly, this ‘race to the bottom’ is also not only being manifested through the tax havens and various tax agreements but also through trade treaties which, in themselves, are indeed tax arrangements. Trade treaties come in the form of free trade agreements or economic partnership agreements often requiring zero or progressively lower tariffs for products traded between the parties.
Despite these agreements being in existence for years, recent developments in the WTO – including the rise in dominance of countries such as China, India and Brazil in the institution – have led to a burgeoning of these agreements. This is especially so primarily from traditional economic powers such as the USA and EU who have turned to them to obtain concessions that would otherwise be arduous to achieve in the WTO.
The usual neoliberal dogma that liberalisation is the best way to achieve development because it boosts growth and reduces poverty is pushed by the proponents of the agreements in spite of the strategy’s failure in the 1980s and 1990s.
This was when poor countries initiated a series of liberalisation schemes that subsequently did not reduce poverty. Certainly, there is an increasing body of work that has indeed confirmed that trade liberalisation by itself has not increased growth.
Regrettably, some African states have already entered into bilateral or regional agreements with the proponents while some are currently negotiating new ones. In countries where the agreements are already in effect, negative consequences have been reported.
The EU-Ghana EPA, which liberalises access to Ghana’s market for 80 per cent of the total volume of EU exports, is a good example. The EPA has ruined the Ghanaian tomato sector due to the flooding of cheap imports from the EU, which has caused the displacement of tomato farmers and closure of tomato factories that once supported livelihoods.
This has forced local farmers to cut their losses and head to Europe where they live and work in desperate conditions as day labourers earning extremely low wages.
Additionally, these agreements tend to offer promises that often fail to come to fruition. For example, most of the agreements will indicate that there will be technological transfers. However, they fail to take into account the realities required for the adoption of these technologies such as high skills, reliable energy sources and good quality infrastructure, which are lacking in poorer countries.
As a result, the technological transfer does not take place and countries are left behind in this capacity.
Another major concern with pursuing these agreements is their implications on the implementation of the African Continental Free Trade Agreement. While the AfCFTA agreement does permit member states to enter into agreements with third parties, this leeway could have significant effects on the region’s integration efforts as is being observed.
At the moment, there are several member states of the AfCFTA with different trade agreements with the EU. Each of these trade agreements contains different provisions, including on issues related to rules of origin. This fragmentation in the rules of origin certainly makes integration within the region extremely cumbersome, prolonging its implementation and the eventual realisation of its potential benefits.
Therefore, there is the need to reconsider the process in which we pursue trade agreements with third parties where, rather than going at them as individual states, we should instead approach them as a bloc similar to the EU.
Such disparities in negotiating procedures between us and developed countries are the setbacks that we face in safeguarding ourselves against ‘bad’ agreements.
Further, other than the fact that African delegations are often understaffed, it is also the case that critical interest groups including women, youth and farmers' groups are not effectively engaged in the negotiation process as they would assist in identifying key offensive and defensive interests for our societies.
Despite there being public participation forums, they are often called on short notice, which then curtails the ability of interested participants to thoroughly scrutinise the documents, hence, affecting the quality of public participation.
To make matters worse, it is also the case, including in Kenya as it is with other African countries, that members of Parliament are not sufficiently engaged throughout the negotiation process and are only involved in the latter stages when it is time to ratify the agreement.
This is in contrast to our counterparts in the US and UK where Congress and House of Commons actively participate in the negotiation process from its inception and potently debate on each of the chapters of the agreements to make sure that they are truly in the interest of their people. Africa must revisit this.
These are but a few of the concerns and risks associated with trade treaties that we will continue to face unless we change our ways. While we must acknowledge that no country has developed successfully by rejecting international trade, none has developed by simply throwing open its borders.
The key is ensuring that countries develop and adopt their own trade and investment frameworks aligned to their development priorities so that any treaties we ratify are beneficial to the majority of Africans.
Trade & Investment programme officer at Econews Africa
