agenda 17.3.pdf

8/11/2019 Agenda 17.3.pdf

1/40

ISSUE Vol. 17 No.3 2014 US$5.00 GB3.00 5.00

CSOs react to ECOWAS leaders approval of EPAs

8/11/2019 Agenda 17.3.pdf

2/40

Find out

what's on the

African Agenda

To subscribe, please fill in the

form and post it to the address

shown

ANNUAL SUBSCRIPTION

RATES

(INDIVIDUALS)

Africa & Global South $35.00

North America & Australia $55.00

Europe 55.00

U.K 35.00

Ghana GH9.00

INSTITUTIONAL/ CORPORATE


North America & Australia $70.00

Europe 70.00

U.K 45.00

Ghana GH10.00

STUDENTS

Ghana GH8.40


North America/Australia $50.00

U.K 30.00

Europe 50.00

The African continent is mostly reported as a land of poverty, civil strife and end-

less lines of begging hands. Problems facing the continent are portrayed and

communicated mostly by foreign eyes through the monopoly-controlled news

media.

Rarely are Africans themselves given a forum to highlight what they see as press-

ing problems, and offer analyses and solutions to tackle the challenges. By pub-

lishing African Agenda, Third World Network Africa aims to provide exactly that

forum. Open your eyes and ears to an African perspective on critical issues such

as trade, the environment, gender and sustainable development.

I wish to subscribe to AFRICAN AGENDA and I enclose

A cheque/bank draft payable to Third World Network

AMOUNT .......................................................................................................................................................................................................................................

NAME: ....................................................................................................................................................................................................................................................................................

ADDRESS: ...................................................................................................................................................................................................................................................................................

CITY: ..................................................................................................................................................... POSTCODE: ........................................................................................................

COUNTRY: .........................................................................................................................................................................................

Send to Third World Network, P.O. Box 19452, Accra-North, Ghana

METHOD OF PAYMENT

Cheque/Bank draft payable to Third World Network

Direct Bank Transfer: Account Name - Third World Network

Bank Address:- Standard Chartered Bank, Foreign Services

Branch High Street, P.O. Box 768, Accra-Ghana

Account No. 2800202240700

CREDIT CARD

Please charge the amount of ................................................................................................. to my credit card

AMERICAN EXPRESS MASTER CARD VISA

Account No.

Signature:................................................................................................................................. Expiry Date:..........................................................................................................................

West Africa Telephone +233 -302- 511189 fax 233-302-511188

Email: [email protected] /[email protected]

8/11/2019 Agenda 17.3.pdf

3/40

Note to subscribersAs part of efforts to improve our data management allsubscribers have been allocated identification numbers.

You will always find them on your address labels. Pleasequote these numbers in all correspondence regarding

your subscription.

The material in this magazine may be freely reproduced and

distributed without prior permission, provided that the source of

the material is attributed to African Agenda ISSN 0855-3378.

Editor-in-Chief: Yao GrahamEditor: Cornelius AdedzeAssistant Editor: Kwesi W. ObengDesign: David Roy Quashie

EDITORIAL, SUBSCRIPTIONS AND ADVERTISING:

TWN-AfricaP.O. Box 19452

Accra-North

Ghana, West AfricaTel: (233) 302 511189/503669/500419

Fax: (233) 302 511188

Email: [email protected]: www.twnafrica.org

TWN INTERNATIONAL SECRETARIAT

President: Mohammed Iddris

Director: Martin Khor

131 Jalan Macalister

10400 PenangMalaysia

African AgendaPublished byTWNAfrica

page 6 photo:African leaders at the AU headquarters

African Agenda is published six times a year by Third World Network (TWN) Africa.TWN is an international network of groups and individuals who seek greater articulation of the needs and rights of the peoples of the Third World, especially marginalised social groups,a fair distribution of the worlds resources and forms of development which are ecologically sustainable and fulfil human needs. TWN Africa is grateful to Oxfam-NOVIB, Development

and Peace, InterPares (Canada), TrustAfrika, Rockefeller Brothers Fund and Rosa Luxemburg Foundation.

COVERCSOs condemn ECOWAS leader's approvalof EPAs................................................................................................ page 5

Economic integration is attainable with or withoutsingle currency................................................................................... page 6

Africa's strategic approach to industrialdevelopment...................................................................................... page 10

BITs a challenge to regional integration in Africa .................... page 13

TRADEInvestor-state arbitration system needs'complete overhaul' .......................................................................... page 16

If US has its way, Doha Round is dead as dodo......................... page 19

DEVELOPMENT

UNCTAD calls for catalytic and strategic investmentto transform Africa's economies.................................................... page 22

African refugees: The untouchables of our time........................ page 24

INTERNATIONALArgentina: Once more on the map, invited by BRICS.............. page 24

ENVIRONMENTNature is talking and Africa's legislators arelistening............................................................................................... page 28

Africa's ecosystems: imperilled by mining frenzy...................... page 30

POLITICSContinuity and little change as Southern Africagoes to the polls................................................................................. page 32

The forgotten African soldiers in WWIIcelebrations......................................................................................... page 34

SHORT STORYThe proposals..................................................................................... page 37

Contents

8/11/2019 Agenda 17.3.pdf

4/40

Africa's integration agenda has been on themake for years but much like the mirage thecloser it looms the more distant it seems.Topping the hurdles to be cleared for mean-ingful and beneficial integration are self-inflicted disjointed policies and signing of

bilateral investment agreements that derailthe very agenda of integration.

From the founding of the AfricanUnion (then Organisation of African Unityin 1963) integration has been the rallyingcry but five decades down the road Africa isnowhere near integration. RegionalEconomic Communities, RECs, were atsome point seen as building blocks but upto now most of them have not fared too wellin carrying out their sub-regional integra-tion agenda. Various initiatives like the

Lagos Plan of Action, The Abuja Plan,NEPAD, and lately the Continental FreeTrade Area, are all aimed at ensuring anintegrated Africa but so far these seem notto be working. Not necessarily because peo-ple are not committed to having them workbut because there are just too many initia-tives aimed at achieving the same goals sothat in the end not much gets done as ener-gies, resources are dissipated.

The challenge is multifaceted. Apart

from individual countries adopting policiesthat run counter to continental and region-al integration efforts, the continental andregional organizations themselves haveincoherent policies and initiatives that alsoeither derail progress or are simply out tomake nonsense of the integration agenda.Paramount among these integration set-backs are Bilateral Investment Treaties,BITs, that African countries sign regardlessof the implications for the continent's inte-gration agenda. (See page 5, BITs under-

mine regional integration in Africa). TheEconomic Partnership Agreements, thatAfrican countries are about to sign with the

European Union as individual RECs areother spokes in the integration agenda ofAfrica as they are a means to further disinte-grate Africa. Unfortunately, and in spite ofthe negative impacts the CARIFORUMEconomic Partnership Agreement, EPA,

with the European Union, has had onCaribbean countries, African countries,spearheaded by ECOWAS are on the brinkof signing the EPA.

Adoption of a variety of industrialdevelopment plans aimed at integratingAfrica has also been bedevilled with notonly incoherence policies but also unrealis-tic timelines, targets and unclear mandateson who does what. (See Page 13, Africa'sstrategic approach to industrial develop-ment). Here again mention can be made of

such initiatives like Industrial DevelopmentDecade for Africa (IDDA) in the '80s, fol-lowed by African Capacities Initiative, thenAccelerated Industrial Development forAfrica (AIDA). All these are yet to produceany meaningful result.

Another hurdle to be cleared is theobsession with single currency as a sine quanon of integration. Although studies andreality have shown that Africa's or regionalintegration efforts do not hinge on single

currency this has become for some the be-all and end-all of integration by bothAfrican governments and other regionalinstitutions. (See page 9, Economic inte-gration is attainable with or without singlecurrency).

Whilst Africa is struggling to integrate,the world especially the developed world isworking towards greater integration acrossoceans and continents. The Trans-AtlanticTrade and Investment Partnership and theTrans-Pacific Partnership are a few of the

mega trading blocs that are emerging on theglobal stage. These involve the US andmostly the European Union and the US and

its APEC (Asia Pacific EconomicCooperation) partners in general. Wheredoes Africa lie in all these? The bigger play-ers on the global market are getting togeth-er to ensure that their economies do notlose out on opportunities whereas African

countries whose economies are weak andneed to be together are still fumbling.

Already, without these major devel-oped countries coming together, Africancountries suffer from the inefficiencies ofsmall, non-viable and incoherent policieshow much more when they face the megatrading blocs that will result from theemerging partnerships. The EPAs present aclear danger to Africa's integration plans asthey face a much more well organized andbetter resourced European Union whose

agenda of 'capturing' the African market isclear.

An African 'market, that is fragmentedbut offers the EU a ready and willing play-ground to throw its products and services.An African 'market' that thanks to its owninability to take advantage of itself closesdoors to trade among its various countriesbut is ready to open up to foreign 'partners'.Intra-African trade is said to amount to lessthan 10 per cent of the continent's total

imports and exports trade, whereas in theEU 68 per cent of exports and 71 per cent ofimports are intra-regional.

Ultimately, what this means is thatAfrican countries are not able to take advan-tage of continental opportunities to tradeamong themselves. What is preventing thisis presence of a plethora of initiatives, poli-cies, international and bilateral agreementsthat conflict with continental and regionalintegration efforts. Time is now to consoli-date these initiatives, stop signing inhibiting

bilateral agreements and adopt clear, realis-tic, achievable and comprehensive policiesthat inure to the benefit of Africans.

EDITORIAL

4 AFRICAN AGENDA VOL.17 NO.3

Incoherent integration policies

8/11/2019 Agenda 17.3.pdf

5/405AFRICAN AGENDA VOL.17 NO.3

The Economic Justice Network of Ghana(EJN) unequivocally condemns the deci-sion of the West African leaders to approvethe signing of the Economic PartnershipAgreement (EPA) with the EuropeanUnion. This deci-sion, taken at 45th

Ordinary Session ofthe ECOWASAuthority of Heads ofState andGovernment on July10 2014 in Accra,runs counter to thelong standing viewsand positionsexpressed by severalgroups of stake-hold-ers and ordinary citi-

zens and corroborat-ed by institutions ofhigh repute such asthe United Nationsand the AfricanUnion.Faith-based organisa-tions, trade unions,farmer-based organi-zations, womengroups and privatesector players haverepeatedly demon-

strated over the yearsthat the EPA areagainst the funda-mental developmen-tal needs and impera-tives of theeconomies of WestAfrica.

Judging by theterms and provisions in the text approvedby the Heads of State, EPA will lead to thecollapse of the domestic manufacturing and

other productive sectors due to undue pres-sure from the subsidized goods fromEurope and loss of revenue from tradetaxes.

The agreement also commits the Sub-region to have developed, within 6 monthsof its adoption, a road map and modalitiesfor an agenda of further liberalisation andderegulation of a whole range of areas - such

as Services, Investment, GovernmentProcurement, Intellectual Property andeven other areas that have never been part

of the EPA negotiating agenda, such asCapital Accounts, none of which arerequired by any international rule or obliga-tion undertaken by the government.

The cumulative effect of all these willbe to take away ability of West African gov-ernments to deploy the range of policyinstruments that are critically needed fordevelopment in our Region.

Furthermore theagreement subjects

the dynamics ofWest Africa's inter-nal regional tradeand development, aswell as its relation-ship with the otherregions of Africa andthe South to theimperatives of itsdealing with theEuropean Union. Itis sad for the West

Afric an leader tomake mockery of ourown regional inte-gration agenda bythis decision.

All these nega-tive consequencesinflicted on WestAfrica are in returnfor a paltry aid prom-ised by the EuropeanUnion, as well as anattempt to save a few

groups of exporters,when indeed credi-ble alternatives existwhich could haveaddressed the con-cerns and needs of allstake-holders.

This agreementcannot be accepted

by the ordinary men and women of thiscountry who struggle daily in the midst ofthe precarious economic situation. Citizens

should call upon their elected representa-tives in Parliament to demonstrate dueleadership when this inimical agreement ispresented to Parliament for ratification.

CSOs react to ECOWAS

leaders' approval of EPAs

Below is an extract from the final communiqu of the 45th ordinary session of the ECOW-AS heads of state and government convened in Accra, Ghana on July 10, 2014 andchaired by President John Mahama who is also current chair of the region group.Theregional leaders approved the controversial Economic Partnership Agreement with theEuropean Union.

ECONOMIC PARTNERSHIP AGREEMENT (EPA)

15. The Summit welcomes the work done by the Ad Hoc Committee set up by the44th Ordinary Session of the Authority of Heads of State and Government to consid-er the technical concerns raised by some Member States and whose recommenda-tions led to appropriate solutions on these issues.

16. On the basis of the consensual results reached by the Chief Negotiators on allthe issues (particularly on the market access offer, the EPA Development Programme(EPADP) and the text of the Agreement), the Heads of State and Government deci-sively approve the Economic Partnership Agreement negotiated and taking dueaccount of the technical concerns raised.

17. Consequently, the Heads of State and Government instruct the West AfricanChief Negotiators to take all necessary steps to quickly start the process of signingand implementing the Agreement.

18. In that regard, the Summit encourages them to sustain their efforts, particularlyby informing and raising awareness of the national and regional actors.

19. The Authority congratulates the Chief Negotiators and the MinisterialMonitoring Committee for their resolve and sense of compromise that led, througha constructive approach, to the conclusion of a fair, balanced and mutually beneficialAgreement for both parties.

20. The Authority also reaffirms deep appreciation to His Excellency Macky Sall,President of the Republic of Senegal, for the decisive and highly political role heplayed in the successful conclusion of this development-oriented Agreement whichreinforces the West African integration process.

EXTRACTS FROM ECOWAS LEADERS' COMMUNIQU

COVER

8/11/2019 Agenda 17.3.pdf

6/406 AFRICAN AGENDA VOL.17 NO.3

COVER

THE issue of common currency or singlecurrency has become very contentious.Common currency or currency unificationis a special case of monetary integration. Assuch, the issue is often discussed as a partic-ular case of the broader issues of monetaryand financial integration, exchange rate pol-icy and so on.

In this regard, some economists distin-guish between pseudo-exchange rateunions and complete exchange rateunions. Single currency regime is an

extreme case of fixed exchange rate regime.Just as other aspects of economic integra-tion, monetary integration is generally con-sidered as an important element of eco-nomic management policy. Scholars includ-ing Copernicus (1526); Bodin (1577); Mill(1894); Lerner (1951); Meade (1957);Scitovski (1958); Mundell (1961, 1973);

Johnson and Swoboda (1973) and a largenumber of modern economists haveexplored the subject.

In modern history, however, the Treaty

of Rome in 1957 has been instrumental inshifting the debate from an essentially aca-demic field to the realm of economic poli-cymaking.

So people have started thinking moreseriously about monetary integration andwhat it means and eventually common cur-rencies. But, there is no consensus among

economists particularly after the break-down of the Bretton Woods system, whichhas led to a generalised floating currenciesin the world.

Economic integration is attainablewith or without single currency

A high degree of economic integration can be achieved without single currency. However,a well designed and well implemented, monetary integration can be highly helpful,

contends *Kodjo Evlo.

African leaders at the AU headquarters

8/11/2019 Agenda 17.3.pdf


Essentially, the key question is whyshould two or more countries adopt a singlecurrency which is an extreme case of fixedexchange rate in a world of generalisedfloating? The answer is simple, it is neededfor regional integration. So currency inte-gration is part of the broad issue of econom-ic integration. Regional integration is amust but regional integration has so manyaspects and we have to be careful to adoptthe most appropriate mechanisms.

Currency or monetary integration is

part of broad economic integration.Regional integration has become stylishnowadays, especially since the appearanceof Euro in Europe the subject has becomeso hot. There have been questions aboutthe role currency integration can play in thebroader process of economic integrationand more importantly in overall economicperformance and development (and that iswhat matters) and the stage at which singlecurrency should be adopted,

Although the debate is far from settled,

it is fair to examine the role, benefits andcosts of common currencies. Essentially,the role of single currency is the well-knownrole of money in general in economic activ-

ity (as means of exchange; store of value;etc). There are benefits and costs and thesehave to be carefully weighed.

Single currency enhances the useful-ness of money as a medium of exchange andas a store of value. As a result, it makestransactions between countries easier andmore efficient by eliminating conversioncosts and uncertainty about exchange ratesbetween national currencies.

The liquidity of currency increaseswith the volume of transactions it is used in,

or the size of the area it covers. But the cur-rency of a very small and open country maylose some of its value as money to foreigncurrencies, if this country faces the floatingexchange rate regime alone.

Moreover, currency unification isbelieved to reduce the need for externalreserves. Mundell puts it very clearly by say-ing that if two countries join in a monetaryunion, they do not need reserves to do busi-ness between them which is a very goodthing. This implies that the larger the cur-

rency area, the greater the reserve saving.Also, there is the property of shock absorp-tion which is associated with common cur-rency. Monetary union enhances the shock

absorbing role of foreign reserves. Thepooling of reserves by member countries isan application of the well-known principleof risk pooling. So there are clearly knownbenefits but there are also costs.

Cost of single currencyThe first one is the loss of independ-

ence or sovereignty by national authoritiesto a supranational authority and also how todeal with instability issues arising from onecountry that is a member of the monetary

union.Often, developments would occur

from time to time that could push the rela-tive cost of the participating countries outof line, and even some that would tend topush them progressively further and furtherout of line and threaten the coherence orthe very existence of the union. Such possi-bilities arise if the participating countries donot harmonize or coordinate effectivelyoverall economic policy or do not convergeto some well-defined levels of key econom-

ic variables. A recent example is the case ofGreece in Europe.Another issue is the giving up of alter-

native uses of the exchange rate as a policy

African Union chairperson, Nkosazana Dlamini-Zuma and some of her lieutenants

COVER

8/11/2019 Agenda 17.3.pdf

8/408 AFRICAN AGENDA VOL. 17 NO.3

tool and the inevitable exposure of membercountries to disturbances arising from anypart of the union. Believe it or not there areresources devoted to resolving internal con-flicts within monetary unions.

There is also the tricky issue of

seigniorage. How do you manage seignior-age even within the West African MonetaryUnion for example? There have been fromtime to time issues around how to share theseigniorage in the region. Conflicts do arise,fortunately most of those conflicts havebeen resolved quietly by France and we donot know much about them.

So under what conditions shouldcountries adopt a single currency given thecost and the benefits? The question is whatare the conditions for two or more coun-

tries to come together to form a monetaryunion or to have a single currency?

In many cases the answer to this ques-tion does not rest on simple economicgrounds but instead, it is formulated takinginto account political, social, historical con-ditions and considerations. But definitelyfor the discussion to be made in favour ofcurrency unification, it is necessary that thebenefit should outweigh the cost howeverthey are defined.

It has often been argued that for coun-tries to form monetary unions, there has tobe assured benefit of reducing transactioncost. Indeed, very often, some of the mostconvincing arguments that are advanced oneconomic grounds in favour of currencyunification are the size of commercial andfinancial transactions between the coun-tries involved and the extent to which mem-ber countries converge toward agreed levelsof key macro-economic indicators. Now ifyou do not undertake transactions betweenyourselves, is there a need to have a com-mon currency? The point is that the larger

the commercial and financial transactionsbetween two countries or within a region,the greater the benefits of common curren-cy.

The other thing worth mentioning isconvergence criteria. Convergence criteriaare really necessary to make a monetaryunion work. All regional economic commu-nities (RECs) have defined convergencecriteria that potential members of the mon-etary union being formed should follow(see the Maastricht Treaty, the revised

ECOWAS Treaty, the UEMOA Treaty, theCOMESA Treaty and the SADC Treaty).Very often, these criteria are not always

respected even in the case of the Eurozone,

because different member countries facedifferent socio-economic and political reali-

ties. For more than 15 years, ECOWASmember countries and other African RECshave been struggling to meet these criteria.Most of these RECs have not even beenable to achieve the stage of Free Trade Area.Regarding the size of intra-regional transac-tions, the more countries are integrated, thelarger tends to be the size of the economictransactions between them. In this particu-lar regard, currency unification would bemore justified in an area such as theEurozone, where intra-regional trade is

about 60 per cent of total trade whereas inAfrican RECs sometimes it is less than 10per cent.

But among African RECs, SADC coun-

tries are doing much better in this regardthan say COMESA countries where intra-

community trade is usually less than one-tenth of total trade. And despite all effortsor promises, the situation remains almostunchanged over the last two decades. Oneof the reasons is that the structure of outputis about the same in these African countriesso that they have very little to trade in.

However, the size of intra-regional eco-nomic transactions and the degree of con-vergence alone should not determinewhether countries should adopt single cur-rencies or not. The costs should also be

taken into account. In European countriesor more developed countries, for examplebetween France and Germany it is a littleless than 10 per cent of bilateral trade but if

Regional integration arrangements take a variety of forms:

Preferential Trade Area (PTA): - is an arrangement in which mem-bers apply lower tariffs to imports produced by other members than

to imports produced by non-members. Members can determine tar-iffs on imports from non-members.

Free Trade Area (FTA): - a preferential trade area with no tariffs onimports from other members. as in preferential trade areas, members

can determine tariffs on imports from non-members.

Customs Union: - a free trade area in which members impose com-mon (external) tariffs (CET) on non-members. Members may also

cede sovereignty to a single customs administration.

Common market: - a customs union that allows free movement ofthe factors of production (such as capital and labour) across national

borders within the integration area.

Economic union: - a common market with unified monetary and fis-cal policies including common currency.

Political union: - the ultimate stage of integration, in which mem-bers become one nation. National governments cede sovereignty

over economic and social policies to a supranational authority estab-

lishing common institutions and judicial and legislative processes

including a common parliament.

Countries can start with any of these arrangements, but most begin

by removing impediments to trade among themselves. they then

introduced deeper and wider integration mechanisms

Source: UNECA, Assessing Regional Integration in Afria, Addis Ababa, 2004, Page 10.

COVER

8/11/2019 Agenda 17.3.pdf

9/409AFRICAN AGENDA VOL. 17 NO.3

you compare Belgium and Luxembourgyou see that it is very high so those coun-tries are very integrated compared to otherEuropean countries. The United States andCanada are about two of the most econom-ically integrated countries in the world

today. Canada has about 40 per cent of itstrade with the US but based on trade only,Canada doesn't feel the need to have a com-mon currency with the US. So commoncurrency is a wonderful thing, it is conven-ient, but it is not a prerequisite for regionalintegration. What Africa needs is some typeof monetary integration, in particular, con-vertibility among currencies. Between theUS and Canada, the currencies are so con-vertible that the transaction costs are sosmall, so tiny compared to the value of

transactions and so small compared to whatthe countries may save as the cost of cur-rency unification. So, common currencycan help in other fronts including economicgrowth.

Clearly, regional integration providesa strong argument for currency unifica-tion. However, there is no consensusamong economists regarding the questionas to whether currency integration isrequired for regional integration. Most ofthem do think that monetary integrationis a possible part of economic integration.But an important number of them believethat currency unification could be a possi-ble (but not necessary) part of the inte-gration process of economic integration.

Africa's experience with singlecurrencies

Africa 's experience with common cur-rencies dates back to at least colonialtimes during which both the British andFrench colonial administrations institutedcurrency boards that issued and managed

the currencies used in the colonies. Thus,these colonies all experimented with sin-gle currencies in their respective zones.After independence, the currency boardswere dismantled in the former Britishcolonies but have survived and taken newforms in the former French colonies,which have progressively led to UEMOAand CEMAC, two of the best-knownmonetary unions in Africa today.

The respective single currencies ofthese two monetary unions, the CFA franc

(franc de la Communaute FinanciereAfricaine, in West Africa, and franc de laCooperation Financiere en AfriqueCentrale, in Central Africa) are just new

names of the colonial CFA franc (francdes Colonies Francaise d'Afrique).

The creation of these single curren-cies in the two monetary unions has noth-ing to do with economic integration.Rather, it is simply a remnant of theFrench influence as the former colonialpower. In fact, intra-community econom-ic transactions are less intensive withinUEMOA and CEMAC than within otherRECs such as ECOWAS, SADC and

SACU. Attempts by other African RECsto move toward single currencies have yetto materalise.

Single currency and economicperformance in Africa

Many people have written extensivelyabout the case of West African Union.Devarjan and Melo came out with a verybright paper that the CFA countries aremore stable than the other African coun-tries. What the pair primarily looked atwere inflation rates and openness in thecontext of the Washington Consensus.

Stanley Fischer did the same thingand a few years later, they came back andsaid that there is a paradox here.Normally countries that are more stablehave to grow faster but we don't under-stand the situation in CFA zone. Theproblem was that, the issue of stabilitysimply based on inflation rate is notenough.

There are other issues which aredeflationary pressures because they said

that in Europe, inflation rates have to beless than three per cent (3%), so we haveto have less than two per cent (2%) in ourcountries. But other scholars have shown

that in developed countries, so long asinflation rate does not exceed 10 per centin some areas, it is not necessarily thebiggest problem. So we have had defla-tionary pressures in West Africa whichhave been detrimental to growth. Other

aspects pointed out include the variabilityof the exchange rate itself and if you com-pare, the variability of the inflation rate isvery high in the CFA area countries com-pared to non-CFA area countries.

Variability of inflation can have a sig-nificant negative effect on growth. It is obvi-ous that there is no question CFA countrieshave lower inflation rates than other coun-tries. A look at the growth rate would showthat CFA countries perform poorly thannon-CFA area countries. So what lessons

can be drawn from these? Currency unifica-tion is good, it is a good thing, it is conven-ient but it does not necessarily mean goodperformance. Currency unification doesnot necessarily mean development, butwhat Africa needs is convertibility and find-ing a way to reduce those transaction coststhat are linked to multiple currencies.

In conclusion, Africa has a lot to learnfrom the experience of CFA area countriesand the Euro zone, and currency unificationis a possible part of economic integration.However, high degrees of economic inte-gration can be achieved without single cur-rency. A well designed and well implement-ed, monetary integration can be highlyhelpful.

Currency unification is thus notrequired for rapid economic integration orstrong macroeconomic performance as canbe seen in the case of the West African mon-etary union, UEMOA, and in particular inthe case of CEMAC. Currency unification

maybe desirable only after reasonableprogress is made in overall economic inte-gration. At least the stage of common mar-ket or even higher should be reached beforea policy of single currency can be success-fully implemented. Finally, single currencyis not a compelling path, it can be a realdiversion, if it is not well designed or wellimplemented.

*Prof Kodjo Evlo is a lecturer at theUniversity of Lome, Togo. These are

excerpts from a paper he delivered at aColloquium on Regional Integration jointlyorganized by TWN-Africa and the UNECA,in Accra, Ghana from May 6-8.

Currency unification is thus

not required for rapid econom-

ic integration or strong macro-

economic performance as can

be seen in the case of the WestAfrican monetary union,

UEMOA, and in particular in

the case of CEMAC. Currency

unification maybe desirable

only after reasonable progress

is made in overall economic

integration.

COVER

8/11/2019 Agenda 17.3.pdf


Africa's strategic approach

to industrial developmentAfrica needs to have a strategic approach to industrial development as currently manufacturing

plays an insignificant role in the economies on the continent. In this article, *Patrick Osakwecritiques and reflects on the way forward for Africa.

MANUFACTURING plays a very limitedrole in African economies. What this meansis that the share of manufacturing in GDP isvery low in Afric a compa red to otherregions and also compared to the globalaverage.

Manufacturing has been declining inAfrica from 1990. In 1990, the share ofmanufacturing value-added in GDP was15.3 per cent. Just around the beginning of

the financial crisis it was 10.5 per cent. Thisis a significant decline given that it had beenincreasing since 1970. Manufacturingvalue-added in GDP however, rose from

22.4 per cent in developing countries in1990 to 23.7 per cent in 2008.

So while the average for developingcountries has been going up, the average forAfrica has been declining and that is whypeople are speaking about industrializationin Africa and is also a good reason forAfrican leaders to want to focus on the issueof structural transformation because theyhave realized that if they do not do some-

thing about it, Africa is going to be leftbehind in the current globalization process.This is one fact that any talk about industri-al development in Africa cannot gloss over.

The second point worthy of note isthat at the global level, Africa is not a majorplayer in the market of manufacturing.Africa's share in total manufacturing value-added is very low. It is roughly about one(1%) per cent (it fell from 1.2% in 2000 to1.1% in 2008). The continent's share ofglobal manufacturing export is equally tiny.It has been so for quite a number ofdecades. It marginally rose from 1 per cent

in 2000 to 1.3 per cent in 2008. However, inEast Asia and the Pacific it rose from 9.5per cent to sixteen per cent albeit in LatinAmerica it fell from five per cent to 4.5 per

COVER

8/11/2019 Agenda 17.3.pdf


cent over the same period.The structure of manufacturing enter-

prises in Africa is dominated by small andinformal firms. Indeed, Africa's industrialstructure is weak both in terms of numberof firms operating and their average size. In

a study done recently on the average size offirms across regions, it was observed that inAfrica, the average size of a manufacturingfirm is about 47 employees compared to171 in Malaysia, 195 in Vietnam, 393 inThailand and 977 in China.

More importantly is the fact that it isextremely difficult for these small firms inAfrica to grow into medium or large firms.What does that mean? It means that whenyou are a small firm in Africa you are morelikely to remain small and if you are a big

one you are more likely to stay there. Thisis a big problem because if the firms are notgrowing, then how are you going to exploitthe synergies between the different sizes offirms?

There have been so many industrialdevelopment initiatives in Africa. At leastsince the 1980s, there was the IndustrialDevelopment Decade for Africa (IDDA),which was from 1982 to 1992, and it did notwork. Then came another one, from 1992to 2003 it did not work either.These were followed by theAfrican Productive CapacitiesInitiative (2003/2004) whichwas supposed to build supplycapacity but there are still prob-lems of supply capacities inAfrica.

This was also again fol-lowed by the AcceleratedIndustrial Development forAfrica (AIDA) initiative whichwas adopted by the heads ofstate in 2008. Then at the

regional level, each regional eco-nomic community (REC) hasits own industrial developmentinitiative. Sometimes they arenot well synchronized with thecontinental initiative. Thusthere are so many initiatives inAfrica and so it is not surprisingthey are not producing thedesired results. Unfortunately,this is what Africa is becomingknown for, having so many ini-

tiatives as opposed to achievinga very high level of industrializa-tion and that is certainly a major drawback.So Africa needs to spend more time think-

ing about how to industrialize as opposedto coming up with new initiatives when halfof the old initiatives are yet to be imple-mented.

Africa needs to have a strategicapproach to industrial development. Most

African policy makers, say they have a strat-egy, but that, unfortunately is not a strategy.These are invariably, half of the time, wishlists and not strategies.

Most RECs and even the AfricanUnion and other many regional organisa-tions now have an industrial developmentvision, but the vision is just one aspect ofdeveloping a strategy. Where they are lack-ing is on the how questions, things likehow will these things be done and how tomeasure progress in a credible manner.

Another critique of the way Africaapproaches industrial development is thetendency to look at industrial developmentas if it is something that can actually bedone specifically at the continental level. Acontinental industrial policy may not neces-sarily make sense as it assumes that allnational governments have an incentive toeffectively support efforts to promoteregional industrial development.

A number of countries are not that

convinced. They are showing political sup-port for it but effectively they are not doing

anything to make sure that there is progressin terms of achieving industrial develop-ment objectives and it is not surprising thatthey are not showing the kind of interestthat one would have them show in theprocess.

By definition, industrial developmentgoes with industrial policies and industrialpolicy is something that makes more senseat the national level and the reason is sim-ple. Development and implementation ofindustrial policies involve the mobilizationand allocation of resources.

To do this at the continental or region-al level, one has to be able to state who isgoing to do them, yet it is very difficult toget agreement on these issues. Industrialpolicies require making decisions on how to

mobilize and allocate resources and it ischallenging to make these decisions at thecontinental level. For example it is not clearwho should make these decisions (AU,RECs etc). Some people, obviously thinkthe African Union (AU) should do it butare member states going to be willing togive the AU full authority to make decisionson industrial development and industrialpolicy?

Then again, many of the countries are

not paying their dues and if they are notpaying these dues how they can effectively

COVER

8/11/2019 Agenda 17.3.pdf


give the AU the kind of effective support itneeds to make progress on this front. So,that is another aspect of Africa's industrialdevelopment framework that is trouble-some. In some areas, it makes sense to haveinitiatives at the regional level, but in some

other areas, that is not the most effectiveway to do it.

Coherence of continental initiativesrequires taking into account the feasibilityof proposed actions and this is somethingthat has not been well thought-out and inte-grated into existing continental industriali-sation plans

Given the above, to make progress interms of promoting industrial develop-ment, continental initiatives have to focuson lifting binding constraints to industrial

development at the continental and region-al levels. Things like building cross-borderinfrastructure, providing access to longterm finance, removing barriers to regionaltrade and investment, designing the foreigninvestment code especially as it relates tothe environment because one can see theharm that foreign investment is doing onthe environment in a number of Africancountries.

Focusing on the regional and the conti-nental level on some of these binding con-straints, will make more progress asopposed to coming up with an African com-mon industrial policy, whose implementa-tion may not be possible given the incentiveissues involved.

Africa approaches industrial develop-ment with too heavy a focus on small andmedium enterprises. There is no country inthis world that has developed its industrialstructure on the basis of the SMEs.Most people claim in the United States a

lot of the companies are SMEs, but they failto elaborate on the actual size of these

American SMEs. They are not what we callSMEs in Africa. The size of SMEs in Chinais made up of about 977 employees. That iswhat they call a small firm. When it is saidthat China developed on the basis of SMEs,US developed on the back of SMEs, it mustbe recognized that what they call SMEs arenot what Africans call SMEs because theSMEs in Africa are way too small. Theirscale is so small to be able to exploit theeconomies of scale that is needed to becompetitive in terms of promoting manu-

facturing.The second point that needs to bemade is that SMEs in general are good interms of creating employments but they are

only good to the extent that they survive.What we know about SMEs in Africa is thatthey hardly survive. They come and go.Very few of them tend to thrive for a longtime. So if their survival rate is low, poten-tially they may be useful for creating

employment but if they are not in businessfor long, how are they going to sustain thisemployment?

And so what this tells us is that we haveto pay attention to the issue of size and inparticular when we are developing policiesfor industrial development, the focusshould not be so much on promoting smallfirms at the expense of the large ones. Thefocus should be on how to create linkagesbetween the firms African countries alreadyhave, irrespective of whether they are small

or large, they both need support.SMEs are important but too much

emphasis on SMEs ignores the role ofeconomies of scale in industrial develop-ment. Industrialisation requires firms ofcertain minimum scale. This implies thatsize and growth are important.

Africa is at a stage where much has notachieved in terms of industrial developmentand so there is the need to pay attention tothe existing firms irrespective of the size -small, medium and large. The focus shouldnot be just on SMEs as was done in the past.

Africa also needs to be realistic in set-ting goals and targets on industrialisation.Most African countries all have visions:Vision 2015, Vision 2020, Vision 2030 andsometimes what they want to achieve overthe next ten years are unrealistic.

Some want to be the next South Koreaof the world in 10 years whilst they are notputting in place anything that will get themthere. Realism is important in terms ofindustrial development.

Africa needs to be realistic and should

not do things just because it is fashionableto do them or say things because it is fash-ionable to say them. Things should be saidand planned for because they can beachieved.

The implementation mechanisms ofmost initiatives are either weak or simplynot credible. For example, the institutionalarrangements for implementingAccelerated Industrial Development forAfrica (AIDA) initiative relies heavily onthe African Union Commission (AUC) and

RECs which face severe challenges in mobi-lizing resources to finance their existingprogrammes.

The AIDA initiative is one area one can

see the issue of lack of realism played outclearly. Implementation rests with the AUCyet the countries are not providing thefunds for the clusters, so how is the AUgoing to deliver on this? These are verylaborious projects and they require a lot of

money.Africans cannot criticize the AU for not

delivering when their governments are notproviding the organisation the tools itneeds to do their job. If Africa is seriousabout industrial development and using theAU as an organ or as an instrument toachieve it, it has to make sure that the AU isprovided the resources it needs to deliveron some of these important issues.

Finally, Africa's relationship withdevelopment partners has to be made con-

sistent with the objective of promotingindustrialisation on the continent.

Usually Africa comes up with its ownprogrammes and these programmes arehijacked by external factors. This is a seri-ous problem for Africa and especially whenit comes to the issue of industrial develop-ment. Africa cannot rely on its developmentpartners to industrialise Africa, it is theresponsibility of African governments andregional organisations.

The development partners can providesupport but Africa has to set the pace. Africashould not allow development partners todictate what direction it is moving in as wasdone in the past. Africa has to set the pace,set the path and to the extent that thisdevelopment partners can fit into the pro-gramme. There is no reason to follow their(development partners') agenda. Africa hasto follow its own agenda and if the agendaof the development partners is not consis-tent with the objectives set by Africans,then there is no point asking for their sup-port particularly if they do not want to

move in the direction that Africa wants.This is very important because it is easy toget distracted and Arica is wasting a lot oftime on some of this development partner-ship issues particularly in areas where it willnot make more impact in terms of promot-ing industrial development in Africa.

*Patrick Osakwe, PhD, is chief, Trade andPoverty Branch at United Nations Conferenceon Trade and Development (UNCTAD) inGeneva, Switzerland. He made this presenta-tion at a three-day colloquium on Africa's

Economic Integration from May 6-8, 2014 inAccra, Ghana. The colloquium was jointlyorganised by TWN-Africa and UNECA.

COVER

8/11/2019 Agenda 17.3.pdf

13/40AFRICAN AGENDA VOL. 17 NO.3 13

OVER the past two decades, as part of thepush to attract foreign investment, Africancountries have been signing internationalinvestment agreements (IIAs), mainlybilateral investment agreements (BITs)with little attention to trade offs such as lossof national and regional policy space.

IIAs also take the form of investment

provisions in Free Trade Agreements suchas in the CARIFORUM EconomicPartnership Agreement (EPA). It has sec-tions on investment, competition, services

all of which have investment protectionimplications. The EPAs being negotiatedbetween the EU and various African region-al groupings have Rendez - vous clauses fornegotiations on investment issues similar towhat is contained in the CARIFORUMEPA. A number of North African countrieshave Free Trade Agreements with Europe,

which could also be described as FreeTrade agreements with investment provi-sion. Then there is a third category which isRegional Investment Agreements. For

example, there is a COMESA investmentarea agreement; the SADC protocol onfinance and investment, and the ECOWASEnergy Protocol which is an obscure butvery important agreement.

So far African countries have signedclose to 1,000 BITs. According to UNC-TAD by the end of 2013, Africa's bilateral

investment agreements amounted to 27 percent of the global BITs. Formally speakingthese state to state international investmentagreements are reciprocal frameworks for

International investment agreements especially Bilateral Investment Treaties, (BITs) that

have come to pre-occupy some African countries pose a major challenge to Africa's integration

agenda , writes *Yao Graham.

BITs a challenge to regionalintegration in Africa

COVER

Flashback: A section of colloquium participants

8/11/2019 Agenda 17.3.pdf

14/40

COVER

14 AFRICAN AGENDA VOL.17 NO.3

the management of investment flowsbetween countries. Between most Africancountries and their partners in the BITshowever formal reciprocity does not meansubstantive reciprocity because mostAfrican countries are not capital exportersand usually sign these agreements asInvestment Attraction Agreements and theCapital Exporting countries have signedthem as Investment ProtectionAgreements. So different purposes havedriven the signing of these agreements.The signing of BITs globally has beendeclining since a peak in the mid-90s. TheAfrican pattern of signing BITs mirrors theglobal declining trend. This is not surpris-ing because African countries are notdemandeurs of BITs but takers so if those

who are pushing for them slow down, it willbe reflected in what happens in Africa.

In recent times, however negotiationshave been initiated for a number of majorregional or bilateral investment agreementsthe outcomes of which will have implica-tions well beyond those directly involved.These include the Trans-PacificPartnership which involves the US and anumber of major players in Asia, the negoti-ations involving ASEAN, Australia, China,India, Japan, New Zealand and Korea, the

EU-USA, Trans-Atlantic Trade andInvestment Partnership, TTIP, and inAfrica there is the trilateral FTA, SADC,EAC and COMESA. An African investmenttreaty is also said to be in the offing. It hasbeen estimated that these agreements cover76 countries and about half the world's pop-ulation with a combined GDP of 90 percent of the world's GDP.

Germany has got the largest number ofBITs in Africa, 42, China has 34 and the UKhas 22. Despite the decline in the overallpush for BITs, Africa remains a target with

demands from Asian countries and notablyCanada which has been particularly aggres-sive. In fact the Canadian foreign ministerearly this year publicly celebrated the factthat under the Harper Government, 2013was Canada's most successful year for thesigning of BITs particularly in Africa. In2013 they signed agreements withTanzania, Cote D'Ivoire, Cameroon,Madagascar, Mali, Nigeria, Senegal, Zambiaand they have ongoing negotiations withGhana, Tunisia and Burkina Faso. The US

has also signed these BITs in Africa, withCameroon, DRC, Congo Rep., Egypt,Morocco, Mozambique, Senegal andRwanda.

In addition to the bilateral investmenttreaties, the US has been signing Trade andInvestment Framework Agreements(TIFAs) which are understandings verybroadly put, but what they create really is apolitical and legal framework within whichspecific demands are made on the signatorycountries about the treatment of US invest-ment. So although strictly speaking, they donot belong to the classic category of inter-national investment agreements the TIFAsserve that purpose. The USA's AGOA, aunilateral preferential market access frame-

work for qualifying countries, also containsinvestment related conditionalities whichserve investment protection and invest-ment liberalization functions.

A look at the pattern of actual invest-ment flow into Africa shows most has goneinto resource extraction with large amountsgoing into some of the most difficult coun-tries - Nigeria hardly a model of stability,particularly in the zones where oil extrac-tion is taking place. Angola continued toreceive American investment during the

civil war even as the USA was arming theopposition.

There are issues with so many of theseinvestment agreements. The broad effect is

the restriction on policy space as a quid proquo for expected investment inflows. Thereis an imbalance between the rights of obli-gations between the State and investors andusually in favour of the investor. The stateagrees to give up a lot of its power to regu-late investment even in regard to protectingidentified public policies. The institutionalmanagement of these negotiations in manycountries is problematic in terms of theanalyses of the clauses. In many Africancountries, there is a challenge of coherence.This is not simply policy coherence across

sectors but also policy coherence evenacross different BITs because usually eachcapital exporting country comes with itsBITs with different demands, differences indefinitions and so on.

BITs establish very broad standardswhich are subject to interpretation by tri-bunals. The tribunal function is vested inthe investor-state dispute resolution mech-anism which provides for treaty- based arbi-tration which has been found to be veryintrusive and also with very expensive

enforcement. One of the things about thatmechanism is that it is one sided in disci-plining the role of the state because it isdesigned primarily to protect the investor

8/11/2019 Agenda 17.3.pdf


COVER

who can initiate an action under the arbitra-tion provision. The threat of a suit or anaward can force the abandonment ofimportant public policy initiative becausethe cost of arbitration is very high. ManyAfrican countries have to hire and payexpensive lawyers from outside the conti-nent.

The wide coverage of definitions in theBITs is a problem. The definition for exam-ple of investment covers anything fromderivatives, to actual substantive, to estab-lishment of a firm and concrete FDI invest-

ment. What is a state measure is definedvery widely. For example the Canada-Benin BIT, says any law, regulation or pro-cedure requirement or practice by anybranch of government at any level of thestate; district to national - very wide; theRwanda - USA BITs have the same provi-sions. The wide definition of investment iswidespread. The US - Mozambique BITalso contains some examples of this verywide definition of investment which meansthat there may be people who have even

acquired rights in a country who may not bethe horizon of the host state and its institu-tions because of the way the investment isdefined.

The BIT being primarily about invest-ment attraction has its own very narrowlogic which may not necessarily fit in withwhere development policy is going. Soeffectively it freezes the regulatory climatefor the country as of the time that the BIT is

signed and of course they are burdensomeobligations both in substance and inprocess and their institutional challenges.The reality is after signing these treatiesthere is a lot of to work to do on what theymean in terms of policy. In many cases,nothing else is done until disputes arise andpeople start scrambling to try and work outwhat they mean and worst still realize theprohibitive cost of litigation.

The substance of the treaties, pose anumber of questions. The issue of National

treatment is a constant, which means thatonce somebody's investment has enteredinto your country under the BIT, they are tobe treated like a national and cannot be dis-criminated against in any way. NationalTreatment has led to a number of problemsin some contexts. For example, when SouthAfric a introduced its Black EconomicEmpowerment, it was sued by a number offoreign investors under various BITs whosaid the affirmative action to correct the illsof Apartheid violated the NationalTreatment non - discrimination provisions.So anything about localisation, local pro-curement rules and so on could potentiallyrun foul of these things.

The Most Favoured Nation is another

problem. The principle of fair and equitable

treatment which is one of the very wide pro-

visions which has become problematic is

another one. There are also restraints of

performance requirements which is to say

that if a country wants investors to be locat-

ed in a particular place, train so many locals,

transfer technology among others to con-tribute to national development in a partic-

ular way it is no longer possible. North

American BITs in particular are very strong

in outlawing performance requirements. In

fact the Rwanda - USA BIT applies the pro-

hibition even to third party investors. So

even for non-US companies, Rwanda is

required not to impose those performance

requirements.

The German module BIT of 2008 has

the provision about National and Most

Favoured Nation Treatment as a single

clause, but many BITs have them as sepa-

rate clauses. The US-Rwanda BIT, the

Canada-Tanzania BIT also have similar

provisions and are quite extensive. The

effects of this National Treatment and Most

Favoured Nation Treatment are immense.

The World Bank did a study in 2012 in

which it is kind of moving back from itsoriginal position of twenty (20) years ago

when it said that all that governments in

Africa should do is to encourage foreign

investment and hope that the firms will do

the rest. In this study, which in a way, was

driven by the African Mining Vision

(AMV), they made proposals for how local

content in mining can be increased in West

Africa particularly the input side.

Unfortunately, to undertake that as an affir-

mative action will be in breach of the

National Treatment provision in some ofthese BITs. Some have argued that

Nigeria's local content legislation in petro-

leum possibly violates some of its BITs and

WTO principles.Another effect therefore is that, if there

is a regional cooperation agreement, in sayWest Africa or in Africa with special termsto each other, unless there were someexceptions in the BITs around regionalcooperation, the MFN will trigger enjoy-ment by all foreign investors. So the MFNin BITs can blunt the momentum for South- South and regional cooperation.

The African Mining Vision, which hasthis vision of minerals and industrializationraises important questions about the coher-ence between the ambitions expressed in itand various initiatives in agriculture, indus-trialisation and so on vis-a- vis the termsaccepted in these agreements. Things likevalue addition, local enterprise ownershipand promotion are all called into question

by some of the terms of BITs.It is obvious that the various BITsbeing entered into by African countriespose dangers to the declared intentions ofthe same countries to integrate as the BITSnot only run counter to the national devel-opment policies of these countries but alsoconflict with regional and continental poli-cies.

* Yao Graham is coordinator of Third WorldNetwork-Africa and this an excerpt from a

presentation he made at a colloquium onregional integration organized jointly byThird World Network-Africa and UNECA

from May 6-8 in Accra, Ghana.

8/11/2019 Agenda 17.3.pdf

16/4016 AFRICAN AGENDA VOL. 17 NO.3

TRADE

Investor-State arbitration systemneeds complete overhaul

A prominent international lawyer has launched a scathing critique of the international

arbitration system that deals with investor-State disputes, calling for its "complete overhaul",writes *Fauwaz Abdul Aziz.

THE investor-State arbitration system fea-tures strongly in bilateral investmenttreaties and recent bilateral and plurilateraltrade agreements such as the controversialTrans-Pacific Partnership Agreement.

Delivering the keynote address to theEighth Annual Juris Investment TreatyArbitration Conference held inWashington, D.C. recently, George Kahale

III - who has been lead counsel in several ofthe world's largest international arbitrationcases, including a pending claim againstVenezuela - also listed the top ten of what

he viewed were the most troubling aspectsof investor-State arbitration.

The chairman of the Curtis Mallet-Prevost Colt & Mosle law firm has alsoacted as lead counsel in some of the world'slargest and most publicised transactionsand infrastructure projects in the interna-tional petroleum industry, representingenergy ministries and national oil corpora-

tions in many oil and gas producing coun-tries.

At the conference, themed around thequestion "New Developments in

Investment Treaty Arbitration: A Return toFundamentals?", Kahale said the pace andscope of change in the area of internationaltrade and investment agreements, in partic-ular, had overtaken the ability of govern-ments to grasp the seriousness of the chal-lenge, significance and impacts they posed.

This is in addition to the serious flawsof the current international arbitration sys-

tem, such as its biasness and partiality infavour of foreign investors as against states,the use of private commercial arbitrationlaw principles and practices to decide on

8/11/2019 Agenda 17.3.pdf


TRADE

matters traditionally deliberated on thebasis of public international law, and thesusceptibility to abuse of substantial provi-sions in international investment treaties,such as the Most-Favoured- Nation andFair and Equitable Treatment standards.

Kahale also decried the preference ininternational arbitration for "speed" andfinality" as opposed to due process and jus-tice, the arbitrary and exorbitant claims andawards against states that often exceed theGDP of developing countries, the lack of acredible and uniform standard of conductfor arbitrators, and the recent phenomenonof third-party funding.

Weapons of legal destructionThe first of the "top ten" concerns he

has with current international arbitration isthe fact that many governments are jump-ing on to the bandwagon of investmenttreaties - which Kahale described as"weapons of legal destruction" - often with-out scrutinising the serious implicationsand significance of the obligations con-tained therein.

Governments also often overlook thechanging nature of investment treaties -which are expanding in breadth and ambi-guity - in favour of investors with the corre-

sponding effect that more and more typesof State acts, gestures or Statements arebecoming liable to challenge and compen-sation by foreign investors, said Kahale.

Secondly, a "club of international arbi-trators" and a new body of international lawwere being built up through the interna-tional arbitration system, but arbitrators areseldom trained in international law andoften have "other interests not necessarilyconsistent with their functions as arbitra-tors" nor their independence as supposedlyimpartial 'judges' between parties to inter-

national disputes.In such an environment, said Kahale,

"arbitrators are actually encouraged to tradepoints as if they are bargaining in a Turkishbazaar, acting more like party representa-tives negotiating a settlement than arbitra-tors deciding a momentous legal controver-sy."

Emphasising that the issue lies beyondthe mere choice of which arbitrators arepicked by disputing parties to a dispute -and acknowledging that "quite a few" arbi-

trators are competent and professional -Kahale stressed that the system itself ofinternational arbitration is unsuitable forinvestor-State disputes.

Abuse-prone standardsThe third criticism Kahale raised was

that the provisions contained in bilateralinvestment treaties (BITs) and other inter-national trade and investment agreements,such as Most-Favoured-Nation (MFN)

and Fair and Equitable Treatment (FET)standards, are themselves "susceptible toabuse".

"Most of us intuitively sense that thedrafters of these 3,000 treaties had little orno idea that FET meant anything otherthan the minimum standard of treatmentunder customary international law," forexample, whereas MFN is "a dangerousprovision to be avoided by treaty drafterswhenever possible" and has been used as ifit was a "magic wand" to impose obligations

on governments to give protections "neverimagined for virtually an entire world ofinvestors," said Kahale.

Fifthly, rather than "the proper admin-istration of justice", he said the premium

placed in the international arbitrationprocess on "speed and finality" has turnedjustice and due process into the main casu-alties of the system.

He cited the example of the refusal ofthe International Centre for Settlement ofInvestment Dispute's (ICSID) AnnulmentCommittee in 2007 to overturn an earlierICSID award of US$133 million againstArgentina despite finding "manifest errors"in the original decision that "could have adecisive impact on the operative part of theaward."

As Kahale noted, the AnnulmentCommittee nevertheless felt that it couldnot annul the award because it exercised

jurisdiction under what it thought was a"narrow and limited mandate conferred byArticle 52 of the ICSID Convention."

"How is Argentina supposed to feel

when it loses a case that the AnnulmentCommittee says was a product of manifesterrors of law?" he asked.

Mega casesThe sixth criticism of international

arbitration relates to the increasing normal-

isation of US$50-$100 million awards aswell as the increasing frequency of billion-dollar "mega cases" and other claimsexceeding the GDP of many nations. Suchclaims are being brought against States inthe same "cavalier" manner as if they werethe same as a "small demurrage claim undera charter party," said Kahale.

The case of Occidental (oil corpora-tion) versus Ecuador has seen not only aforeign investor being awarded US$1.8 bil-lion plus interest - which Kahale said is "the

largest known award in investment treatyarbitration's history" - and is currently thesubject of annulment proceedings, but rais-es questions as to how the tribunal arrivedat the decision to reduce the compensationby 25 percent.

"Did the arbitrators just throw darts?Did they sit around negotiating percent-ages? 'How about 30, or maybe 40? No,that's too high, let's make it 25'", hequipped.

Kahale also noted that the decision

that had given rise to the Occidental versusEcuador dispute in the first place -Ecuador's termination of a contract withOccidental - was itself precipitated byOccidental's violation of the prohibitionagainst assigning an interest in the projectto a third party without ministerialapproval, on which point Occidental hadactually lost.

"I can only assume that Ecuador wasand remains puzzled as to how it is that itcan win the underlying issue giving rise tothe case and still lose the largest award in

ICSID history. Can you imagine what theUS Congress would have done if a multi-billion-dollar award had been renderedagainst the United States for exercising itsright to terminate an oil lease for breach ofits terms?" he asked rhetorically.

A comedy of errorsOn the controversial decision of

ConocoPhillips versus Venezuela, Kahalecited the dissenting arbitrator's descriptionof the majority's findings as "a legal comedy

of errors on the theatre of the absurd, not tosay travesty of justice, that makes mockerynot only of ICSID arbitration, but of thevery idea of adjudication."

Arbitrators are actually

encouraged to trade points as

if they are bargaining in a

Turkish bazaar, acting more

like party representatives

negotiating a settlement than

arbitrators deciding a momen-

tous legal controversy.

8/11/2019 Agenda 17.3.pdf


Kahale said that many objections regis-tered against the conduct of arbitrators havebeen serious, but they did not succeed sim-ply because the rules of the internationalarbitration system ensure that arbitratorconduct is not held to the same standards as

those of domestic judicial systems."We have to acknowledge," said

Kahale, "that conduct wholly unacceptablefor a federal judge in the United States iscommonplace in investor-State arbitra-tion."

"I ask," he added, "Why should that beso if, in fact, investor-State arbitration ofteninvolves issues of international law havingan impact far beyond the individual case,and matters of the highest public order andnational security for the States involved?

Under these circumstances, what possibleexcuse is there for not holding arbitrators tothe highest, rather than the lowest, conflictstandards?"

A lack of standardsThe lack of a credible standard of con-

duct is compounded by the finality of arbi-trators' decisions as well as the related mat-ter of issue conflicts, Kahale said further. Inmost judicial systems around the world, hestressed, even if a judge were to have dis-

played his/her bias for or against certainissues, that judge would still be bound tofollow the interpretation of a higher judicialauthority, or otherwise risk reversal ofhis/her decision.

"But in the world of investor-State arbi-tration, where arbitrators feel free to followtheir preferred school of thought or even toinvent law without fear of appellate review,issue conflict has to be taken more serious-ly."

Related to the above criticism, Kahalecontended, is that many cases can be pre-

dicted by experienced practitioners on thebasis of the composition of the tribunal.

While this explains why it can take along time for parties to agree on the tribunalof arbitrators for their dispute, the more sig-nificant question is how such a state ofaffairs can be squared with the notion ofimpartiality, which Kahale said is universal-ly agreed to be the bare minimum qualifica-tion for arbitrators.

"The fact is that true impartiality isalmost impossible to achieve on issues, and

that's a dangerous thing when combinedwith other features of the current system,including the manner of appointing arbitra-tors and the sovereignty of each tribunal."

Claimants have also demonstrated thetendency to grossly exaggerate claims:when ExxonMobil started its litigationagainst Venezuela's State oil firm, it had ini-tially sought US$12 billion in a claimagainst Venezuela's State oil company

PDVSA (the tribunal awarded Exxon 5 per-cent of that amount); ConocoPhillipsbegan its case against Venezuela claimingover US$30 billion plus interest.

"Now, we've all heard the stories aboutmulti-million dollar claims based on coffeespills. Gross exaggeration of a claim is noth-ing new, but with investor-State arbitration,it reaches a new level, first because of theamounts involved and second, becausethere is a greater chance that some tribunalwill actually take such a claim seriously than

there is in a national court which is subjectto more checks and balances."

The next "disturbing phenomenon"connected to international arbitration isthat of third-party funding, said Kahale,whereby commercial companies offer topay some or all of a claimant's legal fees andexpenses in exchange for payment of theclaimant's direct costs and a share of thesum recovered by the claimant in the arbi-tration (typically between 15% to 50%).

"One can wax eloquent about the posi-tive role played by funders in getting justicethat would otherwise be denied," saidKahale, "but I think we should all be frankenough to admit that that isn't the kind ofinvestment BITs were meant to protect."

Bias against statesKahale's final criticism was on "the per-

ceived bias against States" in the investmentarbitration system, which is a result of thefeatures discussed above as well as manyothers that have not been mentioned.

While such bias does not mean that

States never win cases, that tribunals arealways tilted in favour of investors, or thatStates never do wrong, Kahale said thatsuch figures cited by proponents of the cur-rent international arbitration system show-ing that States win more than 50 percent ofcases are "meaningless, if that figure hap-pens to represent the percentage of casesthat never should have seen the light of dayor that would never survive a motion to dis-miss in a national court."

"It is also cold comfort if 20 or 30 per-

cent of those cases involve manifest errors,especially if some of those are mega cases."In conclusion, Kahale said there are

some quarters who believe the criticisms

against the current international arbitrationsystem are merely isolated, fixable "mis-takes" and exceptions to the general efficacyand efficiency of the system.

"But I can assure you," Kahale pointedout, "there is a very large segment of theinternational community, including States,international law scholars, and even stu-dents trying to make heads or tails out ofthese decisions, that believe otherwise. Andif that's the case, as it undoubtedly is, it callsinto question the legitimacy of the entiresystem."

While not purporting to have any onepanacea for all the problems of the system,they do call for immediate recognition andattention, particularly since they are "seri-ous problems that don't often get sufficientair time."

"After all, the first step in solving aproblem is always becoming aware of itsexistence," Kahale stressed.

According to a Curtis report on thespeech, it was not the first time that Kahalehas spoken out against investor-State arbi-tration.

In New York in 2012, he argued thatICSID suffered from a legitimacy problem,and that the institution had strayed from itsoriginal ambit.

His essay on the same subject, "IsInvestor-State Arbitration Broken?", wonthe Burton Award in 2013 for distinguishedlegal writing.

* This article was first published in SUNS(#7801) TWN Info Service on Finance and

Development

TRADE

But in the world of investor-

State arbitration, where arbi-

trators feel free to follow their

preferred school of thought or

even to invent law without

fear of appellate review, issue

conflict has to be taken more

seriously.

8/11/2019 Agenda 17.3.pdf


TRADE

IT is becoming more and more clear thatthe only leverage developing countries haveto force the United States and the EuropeanUnion to come to the table, and live up totheir Marrakesh and Doha Round commit-ments on agriculture, will be for developingcountries to block further progress on the

draft Trade Facilitation accord.Very little has come out of the closed-

door meeting outside of Geneva, but areport in the Washington Trade Daily

(WTD) provides a comprehensive, and yetconcise report.

According to the report, those presentwere envoys from the United States, theEuropean Union, China, Japan, Canada,Australia , Brazi l, South Africa, India ,Mexico, Colombia, Chile, Pakistan,

Norway, New Zealand, Jamaica andSwitzerland.

The WTO Director-General, Mr.Roberto Azevedo, was not at the meeting,

his participation apparently was not accept-able to all participants.

[The meeting of envoys of key coun-tries among themselves, without the D-G,had been a practice which began fromaround the time of the failed CancunMinisterial meeting, and became more or

less systematised until very recently.The 'retreat' last week was thus a return

to practice.]It is notable that except for South

If US has its way, DohaRound is dead as dodo

Judging by reports on the day-long closed door Swiss-hosted meeting of a select group of trade

envoys at the so-called 'retreat' to formulate and agree on a post-Bali work programme for con-

cluding negotiations on the Doha Development Round (DDR), it is apparent that the DDR Single

Undertaking may be as dead as a dodo writes *Chakravarthi Raghavan.

Former US trade representative Ron Kirk (l) and Michael Punke who is the US ambassador to the WTO

8/11/2019 Agenda 17.3.pdf


TRADE

Africa, there was no other African envoy.Currently, Botswana is African Union coor-dinator, Uganda is Least DevelopedCountries (LDCs) coordinator, and Kenyais the coordinator for the ACP (African,Caribbean and Pacific) group, taking over

this year from Jamaica (the coordinator tillBali) which was at the meeting.

According to the WTD report, the USmade clear at the meeting that it would nottake the 2008 agri-modalities text, even asbasis for further negotiations, since itsdomestic constituencies will not acceptwhat is on the table in agriculture at thisjuncture.

In what would put to shame a famousinformation minister of an European coun-try before and during World War II, the US

ambassador to the WTO, Mr. MichaelPunke, blandly insisted that new realitiesmust be taken into account, and assertedthat the 'new realities' was that China andIndia are the subsiders distorting agricultur-al trade.

According to the French civil societyactivist, Jacques Berthelot, in a paper he hasposted on 16 April at the Solidarite website(http://www.solidarite.asso.fr/Papers-2014), the United States, from inception ofthe WTO, has been consistently under-notifying or not notifying its various subsi-dies and support programs, and has placed(contrary to WTO rulings) some of its ille-gal subsidies into the new 'green box'.

In his paper, Berthelot shows that theUnited States' actual annual total AMS sub-sidies have exceeded the notified AMS byan average of $2.563 bn from 1995 to 2000,by $4.313 bn from 1995 to 2004 and by$12.574 bn from 2005 to 2011.

Also, the actual total AMS has evenexceeded the bound allowed AMS of$19.103 bn in 2005, 2006, 2009 and 2011

and the average margin of the allowed totalAMS less the actual AMS has shrunk from$6.139 bn in 1995-2000 to $4.287 bn from1995 to 2004 and has disappeared, at -$76m, from 2005 to 2011 (p. 18 and Table 10,pp18-19).

At the retreat, the United States, havinggot what it wanted out of the Round at Bali,in the shape of the Trade FacilitationAgreement, subject only to the pendingexercise of adoption of the legal text and aprotocol for incorporating it into Annex IA

of the WTO Agreement, is refusing to con-sider any give on its part in Agriculture, themost heavily subsidised and trade-distort-ing element - despite the various box-shift-

ing of the support programmes. The USenvoy, Mr. Punke, is reported as telling oth-ers that the US does not even want to talk

about it till the US-mid-term elections in2014.

It is clear that the US and EU, far fromreversing course on agricultural support, inreturn for the onerous price paid in advanceat Marrakech by developing countries, hasjust done some box-shifting to provideincreased support under various heads to itsdwindling minority employed on farms, andnow wants 'market access' for its heavilysupported agricultural products in Chinaand India, where the farmers are still

engaged in subsistence farming.As far as the farmers in the developingcountries who are asked to compete, itmakes no difference to them from whichsource of governmental actions the USfarmers (rather the giant agri-corporationsthat benefit the most by these programs)get support - money in the final analysis istotally fungible.

According to the WTD report, theindustrialised country members at the'retreat' -especially the United States - madeit clear that the Doha Round is not do-able

as along as it is based on the existing draftmodalities in agriculture, industrial goodsand services.

The WTD said that "elaborate" discus-sions took place at the meeting on the threeagriculture pillars - domestic support, mar-ket access and export competition - alongwith a formula versus a request/offer nego-tiating process in non-agricultural marketaccess. The Doha agriculture negotiationschair, John Adank, reportedly offered mem-bers his assessment on the continuing dif-

ferences among members over core agricul-ture issues.He lamented the fact that there has

been no change in members' positions

despite several attempts made during 2008and 2011 and now. The ambassadorremarked that some members want "cre-

ative" solutions - though what would beinvolved was not spelled out, the WTD said,citing participants familiar with the meet-ing.

According to the report, the US (sup-ported by the EU and Canada) insisted thatits domestic constituencies will not acceptwhat is on the table in agriculture at thisjuncture. It complained that India andChina, in particular, are not willing to pro-vide real market access. Both countries'insistence on "special products" and various

flexibilities in agriculture will underminemarket access by others. It alsofaulted India for increasing its subsidy pay-ments.

According to the WTD report,

the industrialised country

members at the 'retreat' -espe-

cially the United States - made

it clear that the Doha Round is

not do-able as along as it is

based on the existing draft

modalities in agriculture,

industrial goods and services.

8/11/2019 Agenda 17.3.pdf


TRADE

The WTD said that in a sharp rebuttal,trade envoys from the Group-of-20 coali-tion - including Brazil, South Africa and

China - reminded the United States that it isbaseless to say that developing countriessecured benefits for themselves in the 2008draft modalities text while the industrialisedcountries bore the brunt of reduction com-mitments in domestic supports.

Developing-country trade envoys atthe meeting said upwards of 70 percent ofthe Doha agriculture negotiations werespent on arriving at specific flexibilities forthe United States in domestic supports -particularly the carve out of new "blue box"

payments. A lot of negotiating time also wasspent on market access issues pushed by theUnited States, the EU, Japan, Norway,Switzerland and Canada.

And Switzerland, Norway and Japan man-aged to secure flexibilities to shield some 12percent of their tariffs on sensitive products,

the developing country envoys said.Market access flexibilities for develop-

ing countries were only proportional towhat the industrialised countries got, onedeveloping-country envoy said.

The WTD said that during the discus-sion on domestic supports, there were sharpexchanges on increases in "amber box"measures in both India and China andtrade-distorting effects of expanding "greenbox" measures. Canada insisted that thenegotiations should not open up the "green

box" program.However, WTD said, another Cairns

Group member reminded Canada that liter-ature prepared by the group established

that continued shifting of payments to the"green box" causes distortions in globalfarm trade.

During the discussion on industrialgoods, non-agricultural market access nego-tiations chair Remigi Winzap admitted tono convergence by members on how tobridge the gaps between bound and appliedtariffs, and that several industrialised andsome developing countries made it clearthat there will be no real market access inmajor developing countries such as India,Brazil, South Africa and China if the currentformula-flexibility approach is followed.

The EU, Japan, Australia, Mexico andCanada, among others, supported theUnited States in calling for new approachesto remove the gap between bound andapplied tariffs.

In sharp response, Brazil, South Africa,China and India said the level of ambitionin agriculture was set by industrialisedcountries, followed by a "proportional" mar-ket access approach in industrials.

Developing countries at the retreat saidthey agreed in 2008 to make reforms inmarket access for industrial goods in a cali-brated manner based on the revised draftmodalities. The developing countries also

maintained that they have suffered heavilydue to the global financial crisis whichcaused massive unemployment in theircountries.

On services, industrialised countriespressed for securing new market access.Developing countries - including Brazil andSouth Africa - said they have no problemswith the current negotiating modalities thatallow for a request/offer approach, and thatthere has been adequate progress in thenegotiations. Some developing countries

signalled their willingness to do more inservices, but only in line with parallelprogress in agriculture.

There was also reported criticism at themeeting from some members on why theplurilateral Trade in Services Agreement(TISA) negotiations were being pursuedeven though the overall level of progress inthe Doha services talks was acceptable tomost members. The industrialised coun-tries assured that the TISA negotiationsresults would not be imposed on WTO

members.

* Chakravarthi Raghavan is the EditorEmeritus of the SUNS.

Shipping container terminal

8/11/2019 Agenda 17.3.pdf


DEVELOPMENT

IN the last decade, Africa'seconomies have recorded high andcontinuous economic growth rates

as compared to the rest of theworld. In spite of the high econom-ic rates the growth has not beentransformative but characterised byjoblessness, growing inequality andlow productivity in most Africaeconomies. The lack of transforma-tion is partially a consequence of lackof high investment in strategic andproductive sectors of the economiesin Africa. This was contained in itsannual report on economic develop-

ment in Africa for 2014 subtitled'Catalysing Investment forTransformative in Africa'.

The report calls for not only boost-ing investment rates but also directinginvestment into strategic and prioritiessectors such as agriculture and manufac-turing that are vital for job creation andsustained development. This can beeffective with an overhaul of the policylogic undermining development inAfrica. There are structural challengesconfronting African economies. Thenature and pattern of Africa's growth hasalso contributed to the current problemsof Africa. Despite the continent's high andsteady growth over the past decade, manycountries are yet to go through the normalprocess of structural transformation charac-terised by a shift from low to high produc-tivity in sectors and across sectors as well asa declining share in agricultural output andemployment and an increase in modernservices output. Development of produc-tive capacities and structural transforma-

tion are the two elements

agenda 17.3.pdf

Documents