EU Member States Sign Ambitious FTA with South Korea

In 2009, The EC concluded an FTA with South Korea- a deal which has now been signed by all EU Member States ahead of pending Parliamentary procedures, ratification by all EU Member States according to their own laws and procedures and subsequent provisional application in July 2011. 

The first interesting observation from the EU-South Korea deal is that the EU’s FTAs are increasingly “americanized” as they resemble templates applied by the US based on NAFTA. In addition, the agreement will make major advances in areas such as intellectual property, government procurement, competition policy and trade and sustainable development.

South Korea was designated a priority FTA partner by the EC in the Global Europe trade policy strategy of 2006, given that South Korea’s economy (the 14th largest in the world) was the EU's fourth most important trading partner behind the US, Japan and China. It is therefore not surprising that the EC-South Korea FTA is the most comprehensive FTA the EU has concluded which is expected to open several billion euros worth of new opportunities for EU companies especially in the services sectors. 

The Agreement eliminates almost all tariffs in goods trade while in services, the FTA will offer the EU commitments on services on a par with those offered by South Korea in the draft FTA with the US. However the EU-South Korea deal also goes beyond commitments South Korea undertook with the US in those sectors of specific EU interest. The United States and the Republic of Korea signed the United States-Korea Free Trade Agreement (KORUS FTA) on June 30, 2007, however the Agreement is still pending Congressional approval. If approved, the Agreement would be the United States' most commercially significant free trade agreement in more than 16 years.

In practical terms, the FTA between South Korea and the EU will eliminate 98.7% of duties in trade value for both industrial and agricultural products within 5 years from the entry into force of the FTA. By the end of the transitional periods, duties will be eliminated on almost all products, with a few exceptions in the agricultural sector.

In comparison with the ACP, EC offer was that as of 1st January 2008, all goods originating from an ACP country or region that negotiated an interim EPA, would enjoy duty free quota free access to EU markets, except for rice and sugar where access to EU markets will be duty free from 2010 and 2015 respectively.

In services, the EC-South Korea FTA will be by far the most ambitious services FTA ever concluded by the EU, which significantly improves South Korea’s current WTO-GATS commitments including its offer in the ongoing DDA negotiations. The agreement additionally covers the liberalization of investment, both in services and most non-services sectors.  In practical terms, EU broadcasters (telephone and TV) will be able to operate directly cross-border into South Korea, thus avoiding the obligation to liaise with a Korean operator. The FTA also allows: 100% indirect ownership in the Korean telecommunication sector; full market access for EU's shipping firms and the right of establishment in South Korea; substantial access to Korean market to all EU financial firms, with ability to freely transfer data from their branches and affiliates to their headquarters;  access for EU providers of international express delivery services to the Korean market and allows European lawyers to open offices in South Korea to advise foreign investors or Korean clients on non-Korean law. 

What is interesting to note in the EU-South Korea services, investment and e-commerce chapter is that, the text is generally similar to the ambitious EC Template presented to Sub Saharan African economies in the context of the EPA negotiations. This is despite the fact that the services trade output of all SSA economies combined cannot be compared to that of South Korea alone.

The full text of the Agreement can be obtained here.

The Future of African Remittances

Did you know that the remittance service landscape in Africa is dominated by two international money transfer operators that control in excess of 60 percent of the remittance access points across Africa? In addition, because of exclusivity agreements between international money transfer operators and their mainly commercial bank partners, other types of institutions are largely excluded from the market due to regulations that limit non-financial institutions from playing a meaningful role in remittance services markets in most African countries.

International remittance flows to sub-Saharan Africa currently exceed 30 billion dollars annually, while on a global basis, remittances are estimated to have exceeded $315 billion in 2009. In SSA, they affect as many as 25 million recipient households, and have the potential to significantly reduce poverty and stimulate growth. Over the past decade, remittances have evolved from a miscellaneous trade accounting item into a widely recognized flow of foreign financing that often exceeds FDI and ODA to many African countries.

Recognizing the impact that remittances have on development, policy makers and development partners in many other regions have invested substantially in measures to leverage their potential. Worldwide, remittances are now better tracked, transaction costs have declined, and recipients are being integrated into the financial system, giving them more productive options to use their money, thereby leveraging development impact for the communities where they live.

Unfortunately, much of this progress in remittances has not yet reached Africa. However this is slowly changing especially in light of a useful World Bank initiative in collaboration with national central banks of Kenya, Ethiopia, Uganda- to address the Future of African Remittances (FAR).

For instance, the cost of sending remittances to Africa still exceeds 10-15 percent for many countries and reaches 20-25 percent for remittances sent within Africa, which are of growing importance given migration patterns. Reducing transaction costs by only 5 percentage points could increase total resources available to the recipient households by as much as US$ 1.5 billion per year.

In addition, only 20 percent of African households have access to formal financial services and remittances are often relegated to informal transmission channels, which are less secure and even more costly. Promoting product innovation and improving payment services tailored to the needs of the recipient households (especially in rural areas) offers a win-win solution. Households can use remittances as an asset to access formal financial services and benefit from safer and cheaper remittance transfers, while banks and other financial institutions can mobilize a higher share of the remittances to fund private sector investment.

The Future of African Remittances Program aims at strengthening the market for remittance transfers through the following efforts:

• • Technical assistance for regulatory reform targeting the remittance services market
• • Technology development incentives for products linking remittances to financial products (housing, insurance, savings and investments), with a focus on mobile software applications
• • Knowledge exchange with advanced remittance markets in Asia and Latin America
• • Training for regulators on best practices for regulating remittance markets and fostering innovation
• • Financial literacy and encouragement programs for first and last mile remittance product uptake

In combination with rapid innovations in mobile technology in Africa, remittances present a unique opportunity to expand access to finance and lift thousands of communities out of poverty.

More information on the African Remittances Program can be obtained here. 

Kenya to Migrate from Hydro to Geo Thermal Power

Business Daily Oct 22 2010

Kenya is making quick progress towards shift to more reliable geothermal power following the launch of a Sh152 billion ($1.9 billion) energy expansion project set to connect millions of consumers to the national grid.

The project funded by World Bank and other development agencies will see Kenya Electricity Generating Company (KenGen) boost its geothermal production capacity from 105 megawatts to 385 megawatts by 2013.

It will also provide 1.5 million more Kenyans with electricity in the next six years in urban, peri-urban and rural areas.

Drilling of the geothermal wells will be financed by Exim Bank of China to a tune of Sh7.6 billion ($ 95 million), KfW of Germany Sh1.2 billion ($15 million) and the Government of Kenya will provide Sh17.4 billion ( $217 million).“This is part of the drive to shift the power base from the weather-dependent hydro and expensive thermal sources to geothermal that is not affected by weather conditions,” said Energy Minister Kiraitu Murungi.

About Sh82 billion ($1.03 billion) has been set aside for power generation.

The project is also set to improve supply lines and reduce outages during transmission.

About Sh19.7 billion ($247 million) has been earmarked for construction of five new transmission lines between Eldoret and Kitale, Kisii and Awendo, Kindaruma to Garissa via Mwingi, Olkaria and Lessos and between Suswa and Isinya.

The project is expected to enhance Kenya Power and Lightning Company’s (KPLC) connection rate, enabling it to meet its annual target of 200,000 new connections.

“We will connect at least one million new consumers by 2012 and we expect to have raised our electricity access from the current 23 per cent to 50 per cent after the project is completed in 2016,” said Mr Murungi.

Mr Murungi said that the priority areas for electricity expansion will be the agricultural economic zones in a bid to mitigate losses incurred by farmers due to unavailability of power.

“We have identified the fishing industry, dairy, coffee and tea growing areas as the priority areas to allow for the establishment of cooling plants. This will enable farmers and fishermen time to bargain for better prices since they wont be forced to sell their products at low prices for fear that they will get spoilt,” said Mr Murungi.

World Bank country director, Mr Johannes Zutt said the bank has injected Sh26.4 billion ($330 million) as part the energy sector investment to increase geothermal power generation, enhance connectivity, and refurbish power plants to enhance efficiency.

“No country has ever achieved eight to 10 per cent growth annually needed normally to reduce poverty without modern energy,” said Mr Zutt.

See full article here.

WTO Agreement on Government Procurement Possible by December

BRIDGES 20th October 2010

A deal that would liberalise access to billions of dollars worth of public procurement contracts among over forty WTO members is within reach by the end of the year. However, it remains unclear whether China will become part of the optional scheme in the foreseeable future; major trading powers like the US and the EU want China to join, but not on the terms Beijing has offered thus far.

At the top of the The WTO government procurement committee’s agenda are two issues, neither of which are linked to the WTO’s struggling Doha Round talks: revising the Agreement on Government Procurement (GPA), a plurilateral WTO accord that has since 1996 opened up access to several types of public tenders to companies from all participating countries; and negotiating the accession to the GPA of several WTO members, most significantly China.

Government agencies’ procurement of goods and services tends to account for 10 to 20 percent of national GDP. Joining the GPA requires governments to give up the ability to direct certain types of public purchases to domestic firms - traditionally a much-used lever for promoting particular economic sectors (albeit one that has been vulnerable to abuse, at increased cost to taxpayers). In return, their companies receive access to the types of public tenders covered by the GPA in all countries that are party to it.

But not all types of public procurement are covered by the GPA. When the 41 WTO members covered by the agreement signed up to it (the figure includes all 27 member states of the EU), each made a detailed offer describing which types of public purchases of goods and services would be open to competition from other GPA signatories. These offers spelled out which ministries would be covered, monetary thresholds below which GPA obligations would not apply, and exceptions. For instance, the US excludes food aid from its commitments, enabling it to direct such purchases exclusively to domestic suppliers; it also has exceptions for the purchase of construction-grade steel and programmes to support veteran soldiers. Sub-central entities like state and provincial governments are often (but not always) subject to disciplines under the GPA, but tend to have greater latitude to source locally than central governments.

The present GPA and its commitments were negotiated in the Uruguay Round. These negotiations achieved a 10-fold expansion of coverage, extending international competition to include national and local government entities whose collective purchases are worth several hundred billion dollars each year. The new agreement also extends coverage to services (including construction services), procurement at the sub-central level (for example, states, provinces, departments and prefectures), and procurement by public utilities. The new agreement took effect on 1 January 1996.

It also reinforces rules guaranteeing fair and non-discriminatory conditions of international competition. For example, governments will be required to put in place domestic procedures by which aggrieved private bidders can challenge procurement decisions and obtain redress in the event such decisions were made inconsistently with the rules of the agreement.

See full article here. Other resources on the GPA can be found here.

Growth in the African Skies

With air traffic between the United States and Africa growing at more than 5 percent annually, the US based carrier Delta Airlines has increased flights to the continent in response to strong customer demand. Africa is home to 12% of the world’s people, but it accounts for less than 1% of the global air service market. Part of the reason for Africa’s under-served status, according to a just-published World Bank study, Open Skies for Africa – Implementing the Yamoussoukro Decision, is that many African countries restrict their air services markets to protect the share held by state-owned air carriers. 

According to Delta Airlines as well, there has been an underserved U.S.-Africa demand for many years that historically did not have many options for service other than circuitous routings through Europe. Delta began to fill that void in 2006 by introducing the  service to Johannesburg from Atlanta via Dakar- a flight that operates nonstop and has been very successful. Since then Delta has been expanding its footprint in the region.

In the EAC Region, players in the aviation sector have also witnessed growing business opportunities especially with the coming into force of the East African Common Market. The East African region initiated an open skies agreement in 2006 when the EAC Partner States undertook the implementation of Yamoussoukro Decision on the liberalization of air transport in the region. The framework for liberalization is progressing, however, despite slow liberalization of the regional airspace, airlines have been pushing their governments to negotiate for landing rights. Meanwhile, the region has discussed and passed the Civil Aviation Safety Standards Oversight Agency (CASSOA) Bill, which will harmonize aviation safety and training standards- thereby seeing to safer EAC skies.

For local cargo carriers operating in the region, Tanzania has been a major destination mainly driven by the mining industry since a substantial amount of mining cargo is moved by air from the country.  With commodity prices on the rise, demand for minerals has increased leading to more demand for air services. In addition, the boom in tourism has seen a rise in business on the Zanzibar route and to Juba which relies heavily on imports, thus creating an opportunity for cargo services. Additionally, as the capital city of Southern Sudan emerges from 21 years of civil unrest, it has become an attractive investment destination, making it new ground for business in the region. 

Delta Airlines has also attributed the growth in Africa's aviation industry to three key factors: strong economic growth across the African continent, the large number of African-born American citizens who are now traveling back and forth to Africa on personal and business travel, and increased investment in the continent’s oil and natural resource industries. Despite restrictions in Africa's aviation market, in July 2007, Delta had 97 departures to Africa from the U.S but by July 2010, they had 320 flights, hence they tripled in size in three years. 

The Yamoussoukro Decision of 1999, named after the Ivorian city in which it was agreed, commits its 44 signatory African countries to deregulate air services, and promote regional air markets open to transnational competition. In 2000, the Decision was endorsed by head of states and governments at the Organization of African Unity, and became fully binding in 2002.  In general terms, the Yamoussoukro Decision calls for:

• Full liberalization of intra-African air transport services in terms of access, capacity, frequency, and tariffs
• Free exercise of first, second, third, fourth and fifth freedom rights for passenger and freight air services by eligible airlines (These rights, granted by most international air service agreements, enable, among others, non-national carriers to land in a state and take on traffic coming from or destined for a third state.)
• Liberalized tariffs and fair competition
• Compliance with established ICAO safety standards and recommended practices

Open Skies for Africa’s recommendation is for African states to implement the Yamoussoukro Decision which applies to all its signatories, but especially mentions those that have not signed or properly ratified it, namely: Djibouti, Equatorial Guinea, Eritrea, Gabon, Madagascar, Mauritania, Morocco, Somalia, South Africa, and Swaziland.

Meanwhile at the WTO level, the General Agreement on Trade in Services (GATS) Annex on Air Transport Services, excludes the liberalization of traffic rights and services directly related to the exercise of traffic rights. However the GATS addresses measures affecting aircraft repair and maintenance services; selling and marketing of air services and computer reservation services. 

The EC EPA Text (2009 version) includes the later elements as well however the EPA Text also extends the scope of air services covered by the Agreement, to include: other ancillary services that facilitate operation of air carriers such as ground handling services, rental services of aircrafts with crew and airport management services.

Africa's Energy Infrastructure

Africa's 5 power pools are well illustrated in the 2010 Energy Atlas. The Energy Atlas also shows the current energy projects in the continent including the % of population with access to power. Despite various efforts to generate increased renewable and non renewable energy, Africa is the only continent estimated to generate less power than demand necessitates, in the next few decades.  

                                               Click to enlarge

Source: Africa Energy

The Rise of China and Implications for Dominance, Development and Aid

Interesting piece on the Rise of China and Implications for Developing Countries. 

There is a need to digest new avenues of thought such as: "China challenges the pre-existing dominance of the OECD countries (Organisation for Economic Cooperation and Development)".

On development and aid "the rise of China requires a rethinking of development theory and rethinking of traditional donor practices".