Discussions

Making the tripartite FTA work

Making the tripartite FTA work

26 Jan 2011

Paul Kalenga, a tralac Associate and Senior Trade Policy Adviser at the SADC Secretariat and TradeMark Southern Africa comments on making the tripartite FTA work.

He argues that the Tripartite FTA must add incremental value by addressing design and implementation deficiencies within the existing trade regimes.

There is increasing consensus among African policy circles that trade is a powerful engine for economic growth and development. There is also a recognition 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.

The Eastern and Southern African region has seen the establishment of the three trade blocs – COMESA, EAC and SADC. The problem of overlapping membership emerged as a practical constraint in advancing their market integration, leading to these RECs’ resolve to coordinate their trade-related programmes and eliminate duplication of integration efforts. The RECs’ Heads of State and Governments met in October 2008 in Kampala, Uganda and agreed to expeditiously establish an enlarged free trade area (FTA), encompassing twenty-six countries that belong to the three RECs, generally referred to as the Tripartite FTA.

While this development is being hailed as an important strategy to address the problem of overlapping membership, there are concerns as to whether this will make a difference in addressing development challenges facing its constituent members. This also takes place against the background of the poor record of the performance of African regional trade agreements, particularly in enhancing intra-regional trade, addressing supply-side constraints and promoting competitiveness.

It is important that in negotiating the Tripartite FTA, trade officials should seek to make it works better than existing trade regimes. The starting point is to address critical design and implementation deficiencies prevalent in the three RECs as they relate to trade liberalization and the cost of trading.

First, by avoiding sensitive and exclusion lists, especially in manufactures and agricultural products, as the removal of trade barriers in these sectors will have the potential to increase intra-regional trade and stimulate competitiveness. Hence, the idea of a duty-free-quota-free trade liberalisation approach is worth serious considerations.

Second, is the need to seriously address pervasive non-tariff barriers (NTBs) that continue to undermine the potential gains that could be derived from the existing three FTAs. In fact, the three RECs have made substantial progress in reducing tariffs but such gains are offset by a proliferation of NTBs.

Third, there is a compelling case to reform the existing rules of origin regimes towards simplicity. For example, there is evidence of firms not having been able to utilize the preferences under the SADC FTA because of the restrictiveness of its product-specific rules of origin. It is important to avoid a large variety of methodologies for determining substantial transformation as this gives rise to complexity and less transparency in conferring origin. This in turn raises the cost of compliance thereby making trade preferences unattractive. A key policy question is whether rules of origin are effective or an appropriate instrument to promote the use of local/ regional inputs and the development of downstream processing industries.

Fourth, addressing other growth-retarding constraints – beyond trade in goods to services, infrastructures, and institutional and bureaucratic bottlenecks will go a long way in reducing the cost of doing business and promoting competitiveness. Specifically, trade in services liberalisation should be an important component of the design of the Tripartite FTA.

Fifth, tackling implementation deficiencies through strengthening provisions that encourage members’ compliance with their FTA obligations is critical as this is an area where existing FTAs continue to fail. Members should comply with a rules-based regional trading arrangement which they negotiate.

While enhancing intra-regional trade should be an important objective of the Tripartite, its associated gains are likely to be minimal if not accompanied by efforts to halt the region’s marginalisation in global trade through lowering trade barriers with the rest of the world and thereby facilitate the region’s integration into the global economy. This will help to minimise the potential trade diversion that may result and compromise long-term efficiency gains and international competitiveness.

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