Designing Sector Development Strategies and Regulatory Frameworks for the CFTA
JB Cronjé, tralac Researcher, comments on the trade in services negotiating agenda under the Continental Free Trade Area (CFTA)
In 2011, African Union (AU) Members embarked on a new pathway for trade and development on the continent with the decision to fast track the establishment of the Continental Free Trade Area (CFTA). This decision comes against a process for African integration that started in 1963 with the adoption of the Organisation for African Unity (OAU) Charter and followed by the Lagos Plan of Action for the Economic Development of Africa: 1980-2000 and the Treaty Establishing the African Economic Community (Abuja Treaty) in 1994.
The decision for the establishment of the CFTA should be viewed against other AU initiatives to enhance industrial development including the Action Plan for Accelerated Industrial Development for Africa (AIDA), the Action Plan for Boosting Intra-African Trade (BIAT), and infrastructure development; the Program for Infrastructure Development in Africa (PIDA). The aim of the CFTA is to enhance competitiveness of businesses through the exploitation of opportunities of economies of scale, reducing the costs of doing business, continental market access and better reallocation of resources, and resolving the challenges of multiple and overlapping membership. All of these AU initiatives focus on, amongst other things, the development and interconnection of economic infrastructure services and those imbedded in virtually all economic activities such as financial, communication, transport, electricity, water and business services.
The question is how can the CFTA contribute towards achieving the AU’s integration goals. The CFTA negotiations shall cover trade in goods, trade in services, investment, Intellectual property rights and competition policy. The negotiations will be concluded in two phases covering trade in goods and services in phase one and investment, competition policy and intellectual property in phase two. This decision should be rescinded because the separation of negotiating issues into different phases will lead to the fragmentation of the trade agenda and uncoordinated outcomes that do not promote the objectives of a comprehensive trade agreement. Arguments in support of this decision often advance human capacity constraints as justification for the separation of the negotiations. This is a fallacy because the trade in goods negotiators will be different from those negotiating services, competition policy, intellectual property or investment.
The nature of possible CFTA trade in services provisions in support of national regulatory objectives will differ depending on the unique characteristics of each services sector; the reasons for regulatory intervention in that particular sector at the national level; and the regulatory/trade interface. Therefore, the substance of possible CFTA trade in services provisions will be derived mainly from the reasons for regulatory intervention at the national level (i.e. addressing market failures associated with natural monopolies, information asymmetries and other public policy goals such as universal access and inclusion). This is because the regulatory challenges present at the national level will continue to exist after the creation of a larger market. However, regulatory choices made at national level might not always be appropriate for the desired objective or it can have a restrictive effect on cross-border trade creating trade barriers or unnecessary trade costs. In this case, the role of the CFTA and the opening of services markets is not to remove or weaken domestic regulatory frameworks. On the contrary, it will require stronger regulation to ensure the effective functioning of services sectors.
The trade in services negotiating outcomes should provide the necessary soft infrastructure to support the effective and efficient supply of goods and services across borders. Therefore, as a precondition to liberalisation the CFTA should concentrate on addressing cross-border regulatory challenges and develop disciplines relating to the initiation and development of domestic regulation (including disciplines on transparency and due process in law-making, regulatory impact assessments, the mandatory consideration of cross-border regulatory effects of proposed regulation; and forced cooperation with cross-border regulatory counterparts); the development of regional mechanisms ensuring mutual recognition of qualifications and licenses; the adoption of international standards or best practices; the adoption of trade facilitation principles addressing procedural aspects to services when interacting with governments (such as the acceptance of copies, electronic filing and payment of applications, and procedures for review of administrative decisions); and obligations on regional reporting, monitoring and evaluation of implementation. All of this is needed to address a fundamental concern relating to cross border supply of services, namely the need for quality assurances and lack of consumer trust. Importing countries and their consumers are, in general, more willing to accept foreign services and service providers knowing that they are well regulated in the export country. The question is does the AU Members have the necessary political will to accept legally binding obligations that will, in the long run, increase trade governance?