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Viewing cable 09ANTANANARIVO607, MADAGASCAR'S ECONOMIC PARTNERSHIP WITH EU UNDER THREAT

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Reference ID Created Released Classification Origin
09ANTANANARIVO607 2009-08-21 06:35 2011-08-26 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Antananarivo
VZCZCXYZ0002
RR RUEHWEB

DE RUEHAN #0607/01 2330635
ZNR UUUUU ZZH
R 210635Z AUG 09
FM AMEMBASSY ANTANANARIVO
TO RUEHC/SECSTATE WASHDC 2774
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS ANTANANARIVO 000607 
 
DEPARTMENT FOR AF/E - MBEYZEROV 
DOC FOR BERKUL 
TREASURY FOR FBOYE 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON PREL MA
SUBJECT: MADAGASCAR'S ECONOMIC PARTNERSHIP WITH EU UNDER THREAT 
 
REF: A) 09 ANTANANARIVO 573, B) 09 ANTANANARIVO 604 
 
1. (SBU) SUMMARY: Since 2002 the European Union (EU) and the 
African, Caribbean and Pacific Group of States (ACP) have been 
working to put in place new trade agreements: the Economic 
Partnership Agreements (EPAs), designed to enhance cooperation in 
all areas related to trade.  Madagascar signed an interim EPA on 
December 11, 2007 and continues to enjoy trade preferences regarding 
its exports to the EU.  However, due to the ongoing political crisis 
in Madagascar, the de facto GOM will not be allowed to continue 
negotiation of EPAs, nor to sign the interim EPAs on August 28.  A 
temporary waiver has been granted until the next EU/Malagasy 
political dialogue in October.  If the EU continues its suspension 
of cooperation at that time, Madagascar's export costs to the EU 
will rise, adding another threat to the country's future economic 
development. END SUMMARY. 
 
EPAS COMPATIBLE WITH WTO RULES, AND GOOD FOR BUSINESS 
------------------------------ ---------------------- 
2. (U) Since 1976, the Lome agreement outlined the trading and 
political relationship between the EU and Africa, the Caribbean and 
Pacific group (ACP), which includes 77 developing countries. This 
agreement gave unilateral preferences for ACP products into the EU, 
which was eventually challenged in the WTO by non-ACP developing 
countries.  WTO rules on regional trade agreements authorize 
developed countries to give unilateral preferences to only two 
groups of developing countries: either Least Developed Countries, or 
all developing countries.  Hence, since 2002 the EU and ACP have 
been working to put in place new trade agreements: the Economic 
Partnership Agreements (EPAs) which are also designed to enhance 
cooperation in services, investment and intellectual property.  The 
goal is to ensure a stable business environment and rule of law that 
will attract foreign investment and help ACP countries integrate 
further into the global economy. 
 
3. (U) The EPAs should have replaced the former trade arrangements 
between the ACP and EU starting from January 2008, given that the 
waiver granted by the WTO expired at the end of 2007.  However, EPA 
negotiations did not conclude on time, so the EU and ACP countries 
decided to sign interim agreements. Madagascar initialed an interim 
EPA on December 11, 2007 and continues to enjoy trade preferences 
(governed by EU regulation CE 1528/2007). 
 
POLITICAL CRISIS JEOPARDIZING EPAS 
---------------------------------- 
4. (U) Following the March 17 coup, the EU launched a process of 
consultations in accordance with the Article 96 of the Cotonou 
Agreement, and has suspended its development work indefinitely (with 
the exception of humanitarian aid and support that directly benefits 
the population).  After the political dialogue held in Brussels on 
July 6, the EU resolved to maintain the current suspension. 
Furthermore, Madagascar is not allowed to continue the negotiation 
of EPAs, nor to sign the interim EPAs expected to be completed on 
August 28. 
 
5. (U) The process of consultations launched by the EU lasts 120 
days. Another political dialogue will take place in October and the 
EU will decide at that time on the continuation of its cooperation 
with Madagascar.  In the meantime, regulation CE 1528/2007 continues 
to govern trade between Madagascar and the EU. 
 
EXPORTS WILL SUFFER IF COOPERATION REMAINS SUSPENDED 
--------------------------------------------- ------- 
6. (SBU) The outcome of the political dialogue depends on the 
evolution of the political situation in Madagascar.  If cooperation 
remains formally suspended, Madagascar would not benefit from an 
EPA, nor from the Everything but Arms initiative (the Generalized 
System of Preferences granted to least developed countries).  As a 
result, Madagascar's exports will be subject to custom duties and 
become more expensive relative to products benefiting from trade 
preferences.  In 2008, Madagascar's exports to the EU amounted to 
USD 726.6 million, representing 60 percent of total exports. 
Agricultural goods (coffee, vanilla, spices, cocoa, clove, and 
sugar) and fisheries and textile products represent the bulk of 
these exports.  Hence, rural farmers and low-skilled workers who are 
the poorest in the country will be hit severely by a suspension of 
EU cooperation with Madagascar. 
 
MADAGASCAR'S FUTURE ECONOMIC DEVELOPMENT AT STAKE 
--------------------------------------------- ---- 
7. (SBU) Apart from the trade aspect, the EPAs affect development 
cooperation.  For Madagascar, this includes promotion of the fishing 
sector (capacity building, investment in infrastructure and 
equipment), private sector development (investment promotion, 
competitiveness enhancement, financial sector development, promotion 
of the mining sector, promotion of the tourism sector), and 
infrastructure in the energy, transportation and ICT sectors.  The 
European Development Fund finances this development cooperation in 
the context of the Cotonou Agreement. 
 
8. (SBU) COMMENT: The stakes are thus very high for the EU's October 
political dialogue, with far-reaching impact on both EU/Malagasy 
trade and economic development.  With the United States' AGOA 
preferences also currently endangered by Madagascar's political 
crisis (reftel A), much depends on the outcome of current talks 
among the feuding political movements (reftel B).  If a political 
solution cannot be reached, and Madagascar cannot thereby quickly 
restore the rule of law, the loss or expected loss of US and EU 
preferential trade agreements is certain to further undermine the 
already weakened economy in November/December 2009.