Building capacity to help Africa trade better

A tralac Perspective on the bigger picture for 2018


A tralac Perspective on the bigger picture for 2018

A tralac Perspective on the bigger picture for 2018

The Trade Law Centre (tralac) monitors integration, trade and governance in Africa. The fact that developments in Southern and Eastern Africa are more frequently covered does not mean that continental and global developments are ignored. They are directly relevant for what happens (or does not happen) in our part of the world.

We focus here on a selection of bigger picture issues which we believe merit closer scrutiny in 2018; acknowledging that the list is by no means exhaustive.

The 11th World Trade Organisation (WTO) Ministerial Conference, held in Buenos Aires in December 2017, confirmed that all is not well on the multilateral level. This Buenos Aires meeting concluded without any new deal and no signs that the Doha Development Agenda offers realistic hope for accommodating the demands of the developing world. Even “neutral” proposals to ban subsidies for illegal, unreported and unregulated fishing (agreed to be implemented by 2020 as part of the United Nations’ Sustainable Development Goals) could not make it.[1] The Economist described this Ministerial as “the triumph of self-interest over the greater good”[2], amid signs “to enhance trilateral co-operation in the WTO” when dealing with excess capacity, technology transfer and local-content requirements.[3]

In agriculture, there has been disagreement about what could be termed ‘systemic issues’. The G33 developing country coalition called for “meaningful development-centred outcomes on the special safeguard mechanism and public stockholding.”[4]

A group of 70 member states (ranging from the US and the European Union to Nigeria[5]) is keen to negotiate new rules on e-commerce on a plurilateral basis, given the lack of general appetite for a multilateral agreement. A first meeting is planned for the first quarter of 2018. The aim is to negotiate a WTO agreement on the trade-related aspects of electronic commerce.[6] Resistance came from many developing and most African countries; citing capacity, infrastructure and other constraints.

A surge of plurilateral agreements will not revitalise the WTO. For that, the organization’s members need to show more commitment and be prepared to accept meaningful compromises. The Buenos Aires meeting failed to achieve this.

While most observers argue that it would be a mistake to abandon the WTO process entirely, it is clear that one of its major benefits to global trade, its dispute settlement system, faces a crisis. At its November 2017 meeting, the WTO Dispute Settlement Body (DSB) failed, on its tenth attempt, to launch a selection process to fill a growing list of vacancies on the Appellate Body (AB). The US is withholding its support on the appointment of new AB Members because they want systemic issues, such as “judicial activism” by the AB (earlier raised by the Obama administration), first to be addressed.

In a speech during the Buenos Aires Ministerial Conference, Mr Robert Lighthizer, the US Trade Representative said: The WTO is losing its essential focus on negotiation and becoming a litigation-centered organization. Too often members seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table. We have to ask ourselves whether this is good for the institution and whether the current litigation structure makes sense.[7]

Mr Lighthizer also warned that the US would have to consider action if the WTO finds in China’s favour in a dispute between Beijing and the EU concerning whether China deserves “market economy” status in the WTO. There has been criticism of the WTO’s institutional capacity to cope with a rising China and what US officials have labelled its unprecedented mercantilism and cheating.

Does it matter what the US says and does? The Secretary General of the WTO says it does. “The US misgivings about the system are important. A key member like the United State having concerns is not something that we could or should ignore.”[8]

2018 will be a decisive year for Brexit. It will bring new challenges for the East and Southern Africa (ESA) and Southern African Development Community (SADC) Economic Partnership Agreements (EPAs) in particular. They were concluded when the United Kingdom (UK) was still an EU member. Preferential market access to the UK is important for these African countries, and must be protected – London agrees. How will this be done? The UK government wants to “roll over” existing preferences into domestic law; on a reciprocal basis.

Rolling-over involves novel challenges for the conduct of trade. Detailed national laws and procedures are required on both sides (on a range of issues, including customs and tariff rate quotas) without being anchored in trade agreements. The UK cannot conclude new trade agreements while still an EU member. And there must first be legal certainty about the terms for exiting the EU and about its own new trade policies. Not even the basic features of Brexit (whether a Canada-plus, EFTA-minus or other deal) are yet known. This leaves the private sector with a predicament regarding practical issues such as transport, logistics and distribution networks to reach final destination markets. Uncertainty is very difficult to factor into supply and distribution contracts.

Those African nations without EPAs should also monitor the Brexit process. The UK was a member of the General Agreement on Tariffs and Trade (GATT) when it joined the EU in 1973. However, in 1995, it joined the WTO as part of the EU. When it now leaves the EU, and takes up its own seat as a WTO member, many matters need clarification. The UK will have to submit and negotiate its own offers on tariffs and trade in services. Tariff rate quota’s have already been identified as complex issues to address. It will, in addition, have to request new waivers in order to grant preferences to developing countries and LDCs. Such waivers will have to be followed by domestic laws and procedures. What happens to African preferences in the interim?

More generally, there are indications that the approach developed more than ten years ago for the Economic Partnership Agreements may be running out of steam. What should anchor EU-ACP (Africa, Caribbean and Pacific) trade? It would be unfortunate if Africa considers the Everything but Arms and GSP mechanisms as sufficient. Reciprocal trade agreements are difficult to negotiate but offer the benefits of legal certainty and broad coverage.

The Africa Growth and Opportunity Act (AGOA), is faced with the same considerations. It is a unilateral preferential arrangement, anchored in United States legislation, but does not provide unconditional, preferential market access for African exports. It will most likely come to an end in 2025. This poses the question whether FTAs between the US and Regional Economic Communities (RECs) will be concluded. Do the parties have the required appetite? When Washington tried to negotiate an FTA with SACU some years ago, South Africa was not interested. The Trump administration has not given any indication yet that Africa matters for its America first policy. But, security issues may change that.

And then there is China, which seems to be going from strength to strength. The American withdrawal from the Trans Pacific Partnership negotiations has granted Beijing major geopolitical benefits. This can be expected to embolden China’s initiatives in Africa and elsewhere. China does not appear enthusiastic to conclude FTAs with African nations, despite the fact that it is concluding FTAs with other partners. China advances its interests on the continent in other, more ‘direct’ ways. They should be scrutinized in greater detail.

Africa’s challenges at home now include refugees, the displacement of people, lack of economic transformation and governance issues. There are, however, apparently positive developments in the southern African region. Robert Mugabe has been ousted, Angola has a new President, and Kenya eventually held valid elections. South Africa stands on the brink of significant economic and policy change, following the election of Mr Cyril Ramaphosa as leader of the African National Congress, the country’s ruling party. While such developments can generate some immediate effects, such as the appreciation of the South African currency in December, economic reconstruction and transformation take much more time and effort, and especially careful policy and governance direction.

By 2050, Africa’s population will have doubled from 1.2bn to 2.5bn.[9] Many describe this as a ‘demographic dividend’ that could lift millions out of extreme poverty. But it is also true that this population growth and especially the youthfulness of the population, could well be a ticking time bomb; especially if millions of young people are poorly educated and unemployed.

How will policy makers deal with these challenges? These challenges require much more than national development plans and additional trade deals aiming to boost economic development and integration. In June 2015, the COMESA-EAC-SADC Tripartite FTA was officially lunched.[10] However, at that point the tariff schedules, rules of origin and trade remedies were still outstanding. Annexes on these disciplines have now been accepted but tariff offers are still being negotiated and will presumably continue in 2018. Until such time as these negotiations are concluded, there is of course no TFTA to trade under.

The first meetings of the Technical Working Groups of the Continental Free Trade Area (CFTA) were held in February 2017, followed by further meetings in May, September and November – December 2017. This process will continue in 2018. The aim is to sign the CFTA Agreement by the end of March 2018.

Both the TFTA and CFTA are about advancing the African integration agenda, but they follow different approaches. The CFTA is more comprehensive and addresses, unlike the TFTA, trade in goods and services simultaneously. It aims at boosting intra-African trade on a continental scale, while the TFTA is about closer co-operation among three existing RECs. The first phase of the TFTA focuses only on trade in goods; with trade in services to be negotiated in a second phase. Given the scheduling and progress of the CFTA, trade in services negotiations may now be conducted in the CFTA context only.

The TFTA and CFTA implementation strategies are not, at present, synchronised. And they may not address the vexing problem of overlapping membership of regional economic communities. But they reflect what the Member States are prepared to accept, for now, as new commitments. They have chosen incrementalism as the route to trade liberalization and industrialization; perhaps wisely.

[1] For a discussion of the issues, see https://www.economist.com/news/leaders/21732848-wtos-failure-reach-agreement-curbing-subsidies-illegal-fishing-baffling

[2] https://www.economist.com/news/finance-and-economics/21732555-its-ministerial-meeting-buenos-aires-finishes-virtually-no-noticeable.

[3] According to a joint statement released by America, Japan and the European Union.

[4] https://www.ictsd.org/bridges-news/bridges/news/wto-ministerial-as-buenos-aires-negotiations-get-into-gear-road-ahead

[5] The only African state joining this group.

[6] WTO Doc WT/MIN(17)/60.

[7] Opening Plenary Statement of USTR Robert Lighthizer in Buenos Aires. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/december/opening-plenary-statement-ustr

[8] https://www.ft.com/content/3459f930-a532-11e7-9e4f-7f5e6a7c98a2

[9] https://mg.co.za/article/2017-12-26-africa-for-pessimists-2017-in-review.

[10] The text of the Agreement can be sourced from the tralac website: SADC-EAC-COMESA Tripartite Free Trade Area Legal Texts and Policy Documents

About the Author(s)

Trudi Hartzenberg

Trudi Hartzenberg is the Executive Director of tralac. She has a special interest in trade-related capacity building. Her research areas include trade policy issues, regional integration, investment, industrial and competition policy.

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