Topics publications: African regional integration
Trade Briefs
Tripartite FTA: State of Play on Preferential Rules of Origin
Rules of Origin (RoO) in preferential trading arrangements set out the conditions according to which the origin of a product is determined. Products are often made up of both local and imported inputs and materials and this requires rules that define how much transformation of imported materials must take place before a product can be considered to have the economic origin of the exporting country.
The purpose of preferential RoO is primarily to help avoid trade deflection. This will also be the case in the proposed Tripartite Free Trade Area, that will consist of the 26 member states of the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for East and Southern Africa (COMESA).
This Trade Brief provides an overview of rules of origin issues in the context of the Tripartite Free Trade Area. The three regional economic communities (RECs) – SADC, COMESA and EAC – each employ their own RoO in their respective trade agreements. While COMESA and EAC RoO are to a large extent the same, they differ significantly from the RoO used by SADC.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
The tripartite Free Trade Agreement: A computer analysis of the impacts
This paper examines the implications of the so-called tripartite countries of the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC) entering into a genuine Free Trade Agreement (FTA). We use the Global Trade Analysis Project (GTAP) latest pre-release Version 8 database to assess the welfare and trade gains from this FTA, as determined by duty-free merchandise goods access and with a small (2%) reduction in assumed non-tariff barriers to both merchandise goods and services barriers also factored in. Importantly, our simulation starts from the assumption that the three regional blocs of COMESA, EAC and SADC have their FTAs operating in a comprehensive manner in that all three have tariff-free trade within their blocs but not outside their blocs. Thus, our results relate to combining these three blocs into one large tripartite FTA.
The paper includes developments such as the implementation of the Trade, Development and Cooperation Agreement (TDCA), and, most significantly, the assumption that the Economic Partnership Agreements (EPAs) between all African countries except South Africa and the European Union (EU) will be implemented.
Our GTAP results are indicative only, but as we are using the pre-release Version 8 GTAP database with extensive African country disaggregation we feel that these results offer a very realistic view of the final outcome. They are, to coin a phrase, ‘the best game in town’, as the use of a model such as GTAP forces consistency and closure in the resource allocative process and GTAP is the international model of choice for trade analysis.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Intra-African trade in southern and eastern Africa and the role of South Africa
tralac has been collaborating with the National Agricultural Marketing Council (NAMC) in South Africa during the past year on a project which focuses on the proposed Tripartite Free Trade Area (FTA). The Tripartite FTA is envisaged to consist of the 26 member states of the East African Community (EAC), the Common Market for East and Southern Africa (COMESA) and the Southern African Development Community (SADC), establishing a free trade area stretching from Cape to Cairo. The research papers focus on different aspects of the trade in goods agenda; including a review of intra-African trade and agri-business development in this region. These papers are included in a book, entitled Cape to Cairo – an Assessment of the Tripartite Free Trade Area.
The purpose of this paper is to analyse the implications for South Africa of the proposed COMESA-EAC-SADC tripartite free trade agreement, with a focus on agricultural trade. Any analysis of this nature needs to take into account the problem of regional data quality. African countries are notorious for the lack of openness, timeliness and reliability of trade data. For this reason, a wide range of data sources has been investigated and, where possible, the best data for the specific components has been used.
First, the recently-built Global Trade Analysis Project (GTAP) African database is used to present what is possibly the most accurate report on intra-Africa trade data, including agricultural trade. As this analysis is built upon 2001 data, however, the COMTRADE data base is then used to update the analysis to the 2006 to 2008 period. This is followed by an examination of the ‘mirror’ data for most of the major countries exporting agricultural products to Africa using World Trade Atlas (WTA) data for the December years through to and including December 2009, and then by an analysis using the United Nations Food and Agricultural Organisation (FAO) data to look at a consistent but slightly dated analysis of African imports by product. Finally, given the focus on the implications for South Africa, South African agricultural trade with the tripartite region is analysed, again using WTA data.
Compounding the problems of timeliness and completeness of the data are the inconsistencies in the sector definitions used. In general, this analysis is based on the definitions used by the World Trade Organisation (WTO), but this has not always been practical, and the approaches used to facilitate consistency are discussed at the appropriate points in the analysis. The chapter starts by introducing the trade data and its components, namely agriculture (processed and unprocessed), resources, and manufacturing as used in the GTAP database.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Agricultural production in the tripartite region
tralac has been collaborating with the National Agricultural Marketing Council (NAMC) in South Africa during the past year on a project which focuses on the proposed Tripartite Free Trade Area (FTA). The Tripartite FTA is envisaged to consist of the 26 member states of the East African Community (EAC), the Common Market for East and Southern Africa (COMESA) and the Southern African Development Community (SADC), establishing a free trade area stretching from Cape to Cairo. The research papers focus on different aspects of the trade in goods agenda; including a review of intra-African trade and agri-business development in this region. These papers are included in a book, entitled Cape to Cairo – an Assessment of the Tripartite Free Trade Area.
A special emphasis in this project is given to agriculture, and the objective for this chapter is to examine agricultural production trends in the region as a basis for the subsequent analysis. This analysis makes extensive use of the United Nations Food and Agriculture Organisation (FAO) data. This paper starts by providing an analysis of agricultural production in Africa as a whole as well as in the tripartite region countries in order to place the tripartite countries in perspective before moving on to examine the individual countries and their associated commodities in more detail. The paper concludes with an analysis of undernourishment and food aid in the region.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Tripartite Agribusiness Opportunities for South Africa
tralac has been collaborating with the National Agricultural Marketing Council (NAMC) in South Africa during the past year on a project which focuses on the proposed Tripartite Free Trade Area (FTA). The Tripartite FTA is envisaged to consist of the 26 member states of the East African Community (EAC), the Common Market for East and Southern Africa (COMESA) and the Southern African Development Community (SADC), establishing a free trade area stretching from Cape to Cairo. The research papers focus on different aspects of the trade in goods agenda; including a review of intra-African trade and agri-business development in this region. These papers are included in a book, entitled Cape to Cairo – an Assessment of the Tripartite Free Trade Area.
The modern focus of trade is to move past commodity trade and try to search out more value-added products that offer opportunities for producers, processors and traders. The objective of this paper is to start with an examination of the implications of regional integration for South Africa (RSA). This has been done using the Food and Agricultural Organisation (FAO) trade database to look at what the tripartite region is importing and what South Africa is exporting in order to get a preliminary idea of where opportunities exist. The emphasis is on opportunities in the more distant East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) markets because the Southern African Customs Union (SACU) market is already integrated and the Southern African Development Community (SADC) is hopefully moving in that direction with its own Free Trade Agreement (FTA). Conscious that the FAO database provides trade data only for agricultural outputs, World Trade Atlas data has been used for an indication of where opportunities may lie in the wider agribusiness input sectors.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
The economic and agricultural policy setting for the tripartite Free Trade Agreement
tralac has been collaborating with the National Agricultural Marketing Council (NAMC) in South Africa during the past year on a project which focuses on the proposed Tripartite Free Trade Area (FTA). The Tripartite FTA is envisaged to consist of the 26 member states of the East African Community (EAC), the Common Market for East and Southern Africa (COMESA) and the Southern African Development Community (SADC), establishing a free trade area stretching from Cape to Cairo. The research papers focus on different aspects of the trade in goods agenda; including a review of intra-African trade and agri-business development in this region. These papers are included in a book, entitled Cape to Cairo – an Assessment of the Tripartite Free Trade Area.
In this paper the economic fundamentals of the tripartite countries are explained in order to place these countries’ economies in perspective before continuing to examine the agricultural policy settings of the countries in order to similarly place their agricultural sectors in perspective. Data on the economic settings is sourced from the United Nations World Development Indicators, the Food and Agricultural Organisation (FAO) and the Central Intelligence Agency (CIA) websites, with the most consistent recently available data used.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Books
Monitoring Regional Integration in Southern Africa Yearbook 2009
During 2009 several important developments highlighted specific challenges for policy makers in Southern Africa. The global economic crisis continued to impact on the region in 2009, and as the fall out of the crisis in the euro region manifests, it is clear that the open economies of southern Africa will not be isolated from these events.
In June 2009 Botswana, Lesotho, Mozambique and Swaziland signed the Interim Economic Partnership Agreement (IEPA) with the European Union (EU), while Angola, Namibia and South Africa chose not to sign. South Africa in particular raised concerns about its future membership of SACU should the three member states implement the IEPA. This has generated an intense debate about the future of SACU. The demise of SACU would bring more problems than this could solve. The smaller countries rely heavily on the revenue from the SACU revenue pool, and with very few options for raising government revenue are extremely vulnerable, should South Africa withdraw from SACU. This is however not to suggest that it should be business as usual for the future of SACU. SACU presents many challenges that other regional economic communities face too. While a review of the revenue sharing arrangement and indeed also other provisions of the 2002 SACU Agreement may well be necessary, there are other challenges too.
Implementation challenges continue to bedevil regional integration in Southern Africa and elsewhere on the continent. In the case of the 2002 SACU Agreement, key institutions provided for in the Agreement, including the Tariff Board and Tribunal, have not been established. Further, common policy development in key areas such as agriculture and industrial development has made very little progress. Without effective implementation the potential benefits of such agreements will not be realized.
South Africa’s April general election was followed by changes to Cabinet and the establishment of a new Government Department, the Department of Economic Development (DED) that has direct implications for regional integration. The relationship between this Department and the Department of Trade and Industry (DTI) is important. DED will be responsible for the oversight function for the International Trade Administration Commission (ITAC) which currently serves as SACU’s Tariff Board, as well as the Competition Commission, and the Industrial Development Corporation.
Namibia which has chosen, along with South Africa and Angola, not to sign the Interim EPA with the EU, held Presidential and National Assembly elections in November 2009. Although nine opposition parties have taken a petition to the High Court (and in the meantime to the Supreme Court) of Namibia contesting the results of these elections (the case is still pending), the Chief Justice has already sworn in the President, the new members of Parliament and the newly appointed Ministers.
With regard to Peace and Security significant developments took place in SADC in 2009. In order to more effectively deal with human and societal security in the region, especially in respect of human trafficking, money laundering and transnational crime, SADC strengthened the nascent security community. The most significant developments have been the formal recognition of the “Southern African Regional Police Chiefs Cooperation Organisation” (SARCPCCO), which also co-operates with Interpol, as a SADC institution. Moreover, SADC also recognized the Harare-based SADC Regional Peacekeeping Training Centre (RPTC) as a constitutive institution. The RPTC is now part of a SADC structure falling under the Directorate of Politics, Defence and Security of the Organ and has emerged as regionally recognized Centre of Excellence in Peacekeeping and Peace Support training. The RPTC provides and coordinates all training in the region for SADC and multi-national peacekeeping missions as mandated by the regional body.
Following an earlier resolution of the 2006 SADC Summit, SADC also decided to conduct a strategic review of the SADC Strategic Indicative Plan for the Organ (SIPO). The review is expected to be tabled at the 2010 SADC Summit in Windhoek, Namibia.
This book was launched in Windhoek on 13 August 2010.
© 2009 Trade Law Centre and the Konrad-Adenauer-Stiftung
Publication of this book was made possible by the support of the Trade Law Centre for Southern Africa (tralac), the Konrad Adenauer Foundation and the Namibian Economic Policy Research Unit (NEPRU). The views expressed by the authors are not necessarily the view of any of these institutions.
Readers are encouraged to quote and reproduce the material contained in these books for educational, non-profit purposes, provided the source is acknowledged. Please contact us to obtain authorisation for reproducing this material.
Trade Reports
State of play in the SADC-EU EPA negotiations
In June 2009, four members of the Southern African Development Community (SADC) Economic Partnership Agreement (EPA) negotiating group – Botswana, Lesotho, Mozambique and Swaziland – signed an interim EPA (IEPA) with the European Union (EU). This was a significant development for regional integration in southern Africa, and has led to considerable debate over the future of integration initiatives in the region. Concerns have been raised over the effects the signing of the IEPA will have on the Southern African Customs Union (SACU), two of whose members – South Africa and Namibia – chose not to sign the IEPA
This paper aims to provide an update on the SADC-EU EPA negotiations, focusing in particular on some of the most contentious issues that have arisen during the negotiations. It begins by tracing the history of the EPAs through the various trade agreements and conventions that have regulated trade between the EU and the African, Caribbean and Pacific (ACP) states. The paper then highlights recent developments in the SADC-EU EPA, including the signing of the IEPA in 2009. Turning to the state of play in the SADC-EU EPA negotiations as of early 2010, the paper addresses the main sticking points in the negotiations, including the so-called ‘MFN Clause’, the coherence of the SACU common external tariff and the definition of the parties to the agreement. Finally, the paper concludes with some remarks on the significance of the current impasse in the negotiations.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Books
Supporting Regional Integration in East and Southern Africa – Review of Select Issues
There has been renewed interest in regional integration in Africa in the last few years. Political ambitions to progress along the linear path of regional integration from free trade areas (FTA) to customs unions, and even to achieve monetary union, have led to the reiteration of commitments to tight deadlines especially to move from FTAs to establish customs unions, despite the fact that implementation of FTAs has met with many challenges.
The Treaties establishing regional economic communities in the East and Southern African region are all very clear on the developmental objectives of regional integration. Yet, it appears that the mere move from an FTA to a customs union is viewed, at least by politicians in the region, as significant progress in regional integration.
The Economic Partnership Agreement (EPAs) negotiations with the European Union have highlighted particular challenges associated with regional integration in East and Southern Africa. The EPA configurations cut across existing regional economic communities (REC) in a region that is characterized by unparalleled overlapping membership. Mozambique is the only country in the Southern African Development Community (SADC) for example that belongs to only one REC.
Given that one of the key objectives of the EPAs is to promote regional integration, the interface between the EPA negotiations process and the regional integration agenda is important to review.
Several countries in the region have begun to assess their trade policy options in a regional context and to weigh up the choices that they will have to make when the RECs to which they belong establish customs unions. For some at least membership of more than one REC is motivated very clearly by economic and broader political and security considerations. Membership choices will have to be considered very carefully, taking into account, amongst other things, also regional trade agreements such as the EPAs.
At the Southern African Development Community (SADC) Summit held in Lesotho in August 2006, a decision was taken to convene an Extraordinary Summit to discuss the SADC regional integration agenda. Although concerns were raised regarding the ambitious SADC targets to achieve a customs union and further integration objectives, political ambitions remained very high to move towards achieving a customs union, monetary union and common market. Early in 2009 SADC agreed however to postpone the 2010 target for establishing a customs union. While the establishment of a customs union is not off the agenda, its postponement provides an opportunity to focus on the implementation of the Free Trade Area and to assess the rationale for, and the implications of moving ahead to establish a customs union.
The Common Market for East and Southern Africa (COMESA) launched a partial customs union 2009, with some member states clearly not ready to take the step to join the customs union yet. The East Africa Community (EAC), taking into account the asymmetry with in the group, opted to establish a customs union first, before liberalizing trade amongst the member states to establish an FTA.
All these developments have to be viewed in a broader African context.
The African Union (AU) articulates a pan-African regional integration plan to establish the African Economic Community (AEC) as envisaged in the Abuja Treaty. Developments in East and Southern Africa epitomize some of the challenges that this broader integration agenda will have to negotiate.
This collection of papers reviews select issues on the regional integration agenda in East and Southern Africa. We start with the bigger picture, reviewing the African Paradigm of Regional Integration, as well as the broader AU integration agenda. We also reflect on the impact of the global economic crisis on Africa. This is followed by a review of progress on regional integration in SADC. We then consider country specific issues; including the trade policy choices of several countries, the role of new generation trade issues such as services on the regional integration agenda, and assess the status of protectionism, trade remedies and safeguards in regional trade agreements, both intra- and extra-regional to which countries in this region belong. Finally we present a review of the developments in the SADC EPA negotiations, specifically focusing on concerns raised within the SADC group.
© 2010 Trade Law Centre and The Royal Danish Embassy
This project has been funded by DANIDA, and we gratefully acknowledge this support. We would like to thank our colleagues at the Danish Embassy in Pretoria very much for their support to tralac.
Readers are encouraged to quote and reproduce the material contained in these publications for educational, non-profit purposes, provided the source is acknowledged. Please contact us to obtain authorisation for reproducing this material. All views and opinions expressed in these publications remain solely those of the authors and do not purport to reflect the views of tralac.
Books
South Africa’s way ahead: Shall we Samba?
The timing of the third book in tralac’s ‘South Africa’s way ahead’ series exploring trade policy options fits perfectly with the recent interest in examining both South Africa’s Industrial Policy and Trade Policy. The book details the implications of taking the current SACU-Mercosur partial trading agreement (PTA) further to a full free trade agreement (FTA), and we consider that it makes a valuable contribution both trade and industrial policy insights with the Mercosur countries of Brazil and Argentina in particular. We conclude that such an FTA is worthy of serious consideration.
The book starts by detailing the political, economic and trading regimes and settings for both Mercosur and SACU before examining the agricultural production and policy profiles and trade regimes and performances of Brazil, Argentina and South Africa in particular. These three countries have much in common in that they are all, with Brazil and to a lesser extent South Africa, becoming significant actors upon the global agricultural trade reform stage resulting from their common positions as champions of a more liberal agricultural trading world. Specifically for South Africa we find that there are many similarities in the production patterns of the three countries, and while they are to a large degree competitors on in global markets for many products there are also many complementarities.
While recognising that models are never exactly right but arguing that they provide valuable insights, we use the internationally accepted benchmark GTAP global computer model as the analytical tool to examine an FTA between SACU and Mercosur that eliminates custom’ tariff barriers and a representative but conservative estimate of both non-tariff and service constraints between the parties. The results show that there are comfortable welfare gains to South Africa from; a better use of land, labour and capital (enhanced allocative efficiency); increased net investment increasing the amount of capital employed in the economy; and a small contribution from increased labour employment.
This FTA is not good for the South African agriculture sector, however. Imports of agricultural products increase leading to marginal reductions in the prices of all agricultural products. While this is bad news for farmers, it translates into good news for consumers as the reduced agricultural prices across the board help to lower the consumer price index which in turn contributes to the overall welfare gains for South Africa.
The gainers are the vast majority South Africans who are consumers and losers are mainly the small number of commercial farmers. The results for the manufacturing sectors are better news for South Africa, as despite a reduction in the value of production in the motor vehicle and parts sector there was an increase in overall value of manufacturing output. The big gainers were the chemicals, rubber and plastics sector and non-ferrous metals. Importantly, we run an extra scenario whereby changes to the vehicle sector were constrained, and while our modeling has several limitations the results suggested that protecting the motor vehicle sector against Brazilian imports is not in the best interests of South Africa or South African agriculture.
There are several other aspects of a possible FTA covered in this book, as a modern FTA is about more than just merchandise trade. A literature review of the relevant non-tariff barriers (NTBs) is presented which finds that technical barriers to trade seem to be the most common NTB facing exports to Brazil, Argentina and South Africa. Also, in the GTAP model we proxy a reduction of NTB resulting from an FTA and this provides a valuable perspective on the importance of these barriers.
Trade remedies traditionally consist of anti-dumping measures, countervailing duties and safeguards. We provide an analysis of how these are embodied within the trade policies of the main parties and show that they may become important should SACU and Mercosur move towards a comprehensive FTA.
For services, the SACU-Mercosur agreement is limited in scope and currently excludes any reference to trade in services. A key problem here is that SACU is embroiled in a number of regional and bilateral arrangements without having a common negotiating structure and no common position on how to treat the liberalisation of trade in services. In contrast the South American countries are more prepared and organised to liberalise trade in services.
While outside of the SACU-Mercosur mandate, Chile is a closely related South American country that shares many characteristics with South Africa. As an adjunct to the main research we similarly examine these implications for a South Africa/Chile FTA. While not providing major gains, this relationship has some intuitive appeal as there appear no obvious sensitive sectors such as clothing with China or autos and sugar with Brazil that are likely to lead to a cautious approach from South Africa.
Importantly, the implications for the Botswana, Lesotho, Namibia and Swaziland (BLNS) are examined in detail. Again most of the interest is in the agricultural sectors, and given that Mercosur is the global benchmark producer of cattle meat and sugar, both of which are important exports from the BLNS under EU preferences, this is to be expected. There are perhaps smaller reductions than feared in both of these sectors and limited changes in other agricultural products. However, the SACU tariff revenue pool implications for the BLNS countries are substantial and sobering following an FTA with Mercosur. Thus, it is not the direct trade effects from these FTAs that are the main interest to the BLNS but rather tariff revenue pool implications and this research puts some numerical values around that conflict.
© 2010 Trade Law Centre for Southern Africa and the National Agricultural Marketing Council
Publication of this book was made possible by the support of the Trade Law Centre for Southern Africa (tralac) and the National Agricultural Marketing Council (NAMC). The views expressed by the authors are not necessarily the view of any of these institutions.
Readers are encouraged to quote and reproduce the material contained in these books for educational, non-profit purposes, provided the source is acknowledged. Please contact us to obtain authorisation for reproducing this material.