From Cape to Cairo: The Birth of Africa's Largest Free Trade Area
There is increasing consensus among African policy circles that increased regional trade cooperation through the removal of intra-regional trade restrictions, such as tariffs, quotas and non-tariff barriers, is a critical strategy to address the challenges posed by small domestic markets, limited economies of scale and increasing marginalisation of African economies in world trade. As a result, the formation of regional trade blocs has proliferated.
In acknowledgement of this truism, the Governments of the Regional Economic Communities (RECs) of East African Community (EAC); Common Market for East and Southern Africa (COMESA) and the Southern Africa Development Community (SADC) have agreed to create the COMESA-EAC-SADC Tripartite Free Trade Area (FTA), which will bring together 26 countries with a combined population of nearly 600 million people, a combined GDP of approximately US$ 1 trillion and a GDP per capita of US$ 1,184.
The main goal of the Tripartite FTA is to allow the duty-free, quota-free flow of goods and services, and the free movement of business people by 2016.
Making up over half of the African Union (AU) in terms of membership with just over 58% in terms of contribution to GDP and 57% of the total population, once established, the Tripartite FTA is seen as a major building bloc towards the African Economic Community (AEC). The main goal of the Tripartite FTA is to allow the duty-free, quota-free flow of goods and services, and the free movement of business people by 2016. The hope is that positioning half of Africa as one large common market will allow it to benefit far more from global trade flows, as well as attract greater investment and large-scale production. The overall objective of the Tripartite FTA is to accelerate economic integration, increase economic growth, reduce poverty, attain sustainable development and improve the quality of life for the citizens of the Tripartite Members States. The Tripartite Integration process is anchored on 3 pillars, namely Market Integration; Infrastructure Development and Industrial Development.
The Tripartite FTA Agreement will, among other things, harmonise discrepant regulations governing trade among the three RECs. The agreement also aims to improve the flow of goods along transport corridors by lowering transit times and reducing the cost of trading. Additionally, joint planning and implementation of infrastructure programmes will enhance physical interconnectivity through infrastructure development and improving operational efficiencies of border crossings and seaports. This will be complemented by facilitation of the movement of businesspersons within the Tripartite region.
Towards establishing the FTA, the REC governments constituted the Tripartite Task Force (TTF) in October 2008 during the 1st Tripartite Summit. The 2nd Summit of the Tripartite Heads of State, held in June 2011, officially launched the negotiations towards the FTA. Among others, the Summit adopted the Draft Agreement and its Annexes; together with the Negotiation Scope, Principles, Processes, Institutional Framework and Road Map.
The Tripartite process
In terms of the Scope of negotiations, there will be 2 phases. Phase I will cover negotiations on tariff liberalization, rules of origin, dispute resolution, customs procedures and simplification of customs documentation, transit procedures, non-tariff barriers (NTBs), trade remedies, technical barriers to trade (TBTs) and sanitary and phyto-sanitary measures (SPS). Movement of businesspersons will be dealt with during Phase I of negotiations, but as a parallel and separate track.
Phase II will cover negotiations on trade in services, intellectual property rights, competition policy, and trade development and competitiveness.
The Roadmap for the Tripartite FTA Negotiations is organized along a preparatory phase and a negotiation phase.. The preparatory phase will take 6-12 months, starting June 2011. It will cover information exchange, rules of procedures, schedules, positions and establishing monitoring and evaluation mechanisms.
The Negotiation Phase, to take 24-36 months, aims at completing negotiations around the issues outlined in scope 1, business persons and the negotiations of the buitl-in agenda outlined in Phase 2.
The negotiating principles adopted are also noteworthy. The negotiations shall be REC and / or Member State driven (it should be noted that the EAC intends to negotiate as a REC). Variable geometry, which will allow progression in cooperation among the members to implement FTA at different speeds, is also provided for. The Summit also adopted the notions of building on the acquis of the existing REC free trade areas in terms of consolidating tariff liberalization in each REC; and of a single undertaking covering first phase on trade in goods. Other negotiating principles include substantial liberalization, most-favoured nation (MFN), National Treatment, Reciprocity and consensus on decisions taking.
The private sector’s role
The role of the private sector as the key Tripartite FTA beneficiary has been acknowledged by the Tripartite FTA Policy organs, including the Summit. Each Partner State is expected to use its various systems to receive inputs from the private sector and other non-state actors. Cognisance has also been given to REC business associations such as East African Business Council (EABC) as stakeholders to provide input for the negotiation process. To this end, EABC is collaborating with the EAC Secretariat and is also set to begin a program to ensure that our Members and the wider private sector develop positions and provide other inputs on key areas of interest including on matters related to tariff liberalisation, rules of origin, NTBs, SPS measures and customs documentation, among others.
The road ahead
Looking forward to the negotiations, there are a number of factors that will augur well for the establishment of the Tripartite FTA. Among these is the fact that the Tripartite RECs share a lot in common. Firstly, the proposed FTA comprises the largest number of English speaking Africa and the countries which constitute the three RECs have been cooperating on many fronts. For instance, Tanzania was home to most of the liberation movements in southern Africa particularly Mozambique and Southern Africa.
Secondly these countries, for decades, have had close ties in terms of trade and investment, with South Africa being one of the major investor in countries of Eastern and Southern Africa. Also, River Nile riparian states have been cooperating under the Nile basin initiative.
Thirdly, the RECS share common objectives where economic integration is concerned – that of expanding trade with a view to economic growth and improved standards of living of their people. Each REC is already implementing regional integration programmes in trade and economic development covering the establishment of Free Trade Area, Customs Union and Common Market; as well as regional infrastructure development programmes in transport, information communications technology, energy and civil aviation as a first step towards the realization of continental integration.
It was therefore only a matter of time before the 26 member states would come together to form a regional trading bloc that would further strengthen ties and cooperation that has existed over a number of years. That the Tripartite FTA has support and goodwill from the highest level possible – the Tripartite Summit that comprises Heads of States also augurs well for the establishment of the FTA.
Challenges of course are expected. Amongst these is the issue of Rules of Origin (RoO), which in preferential trading arrangements, set out the criteria for determining the origin of a product. The key challenge will be to come up with an agreeable new framework for RoO as the EAC and COMESA’s RoO regimes (themselves somewhat similar) are significantly different from the SADC RoO.
Challenges to the Tripartite negotiations
Another challenge relates to tariff liberalisation and the issue of sensitive products. Given that trade liberalisation can have negative effects on a country / region’s economy, products to be exempt from tariff liberalisation in order to fend off any negative effects are designated as sensitive products. However, what constitutes a sensitive product differs from REC to REC and even within the RECs; and there is no common criteria used to determine sensitive products. "In the negotiations, officials have a tendency to list everything that a country produces as ‘sensitive’. These products are then excluded", SADC trade policy advisor Paul Kalenga is quoted as saying (1). He further adds that countries should not be allowed to simply exclude whole sectors from the FTA, they should justify exclusions on the basis of development policies.
Taku Fundira, a researcher with Trade Law Centre for southern Africa, notes the issue of sensitive products may become an area of contention in the Tripartite FTA negotiations, simply because “much of the basis for this exemption designation is likely to be arbitrary, and the sensitive products are more likely to reflect protectionist interests or rent-seeking behaviour, both of which will perpetuate inefficiencies.” (2)
Additionally, concerns have been raised on the readiness of smaller nations in the region to engage in such a grand scheme as the Tripartite FTA, what the potential benefits are for them; and what needs to be done to ensure they reap these benefits. Speaking during a TRAPCA Workshop in Arusha, Dr. Mukhisa Kituyi, former Trade Minister for Kenya, correctly argued that greater market access through the first pillar offers many opportunities for the most dominant economies in the region that have industrial bases but not so much for smaller economies. Thus, to sustain the latter’s interest in the Tripartite FTA, the partners should endeavour to sequence the activities under the pillars in a way that boosts all countries. This may require identifying ‘champions’ for trade facilitation and infrastructure and industrial development.
The last challenge is the issue of ‘single undertaking’, which has been adopted as one of the principles of the FTA negotiations. A number of people have questioned the purpose of a principle that holds that ‘nothing is agreed upon, unless there is agreement on all the issues on the table’. Indeed this very principle has been held responsible for the jam that the WTO Doha Rounds finds itself in. The principle has the potential to prolong and derail the Tripartite negotiations. To avoid this scenario it would be wise to identify areas that may cause rifts and address them early on so as to create appetite and momentum for the process by offering partner states quick wins or an early harvest.
Overall of course, the negotiations will proceed on the assumption that the 3 RECS have their own arrangements, be they at the stage of FTAs or Customs Unions, operating optimally: that all have tariff free internal trade, no sensitive products within the RECs, no stay applications, no non tariff barriers and that trade amongst themselves is well facilitated and governed. Ergo, it is imperative that we address challenges within our own blocs to ensure that once the Tripartite FTA is established, it achieves the benefits we envisage for it.
Ms. Nderitu is the Executive Director of East African Business Council
(2) Taku Fundira, An Assessment of Agricultural Sensitive Products in the Cape to Cairo Tripartite Region – Tralac Working Paper, April 2011. www.tralac.org/2011/04/05/an-assessment-of-agricultural-sensitive-products-within-the-cape-to-cairo-tripartite-region/
This article was published in GREAT Insights Volume 1, Issue 4 (June 2012).