Free trade area deal will boost EAC integration and intra-Africa trade
There is cause for celebration following the meeting in Cairo of 26 African heads of state representing the countries that make up the three major trading blocs on the continent – the East African Community, Southern African Development Community and the Common Market for Eastern and Southern Africa – for the formalisation of the Tripartite Free Trade Area (TFTA) agreement.
The leaders endorsed a five-year negotiated framework that establishes preferential tariffs to ease the movement of goods and traders in a region of 625 million people.
The conference kick-started a process that will set up harmonised trade policies, the removal of trade barriers and a renewed promotion of trade facilitation.
The momentum for intra-African trade is strong, with real benefits in increased trade, global competitiveness, employment and higher incomes for the region, and the culmination of the African Union action plan in 2012 to double intra-Africa trade and fast-track a continental free trade area.
The main attraction at the Egyptian conference was the offer of 100 per cent liberalisation on tariff lines. Thereafter, no country should face higher tariffs under the new trade regime.
Although there are more than a dozen overlapping regional trade arrangements of which only eight are recognised by the African Union, intra-Africa trade and investment has remained a distant goal with low trade volumes among countries partly due to the conflicting trade policies and a “bandwagon effect” brought about by corresponding membership in the different trading blocs.
While the preceding trade arrangements in Africa were set up to promote colonial interests, recent negotiations have been motivated by dissatisfaction with the slow progress in multilateral trade liberalisation in the context of the World Trade Organisation (WTO) hence the push for South-South trade.
Numerous players and development partners were delighted by the pact signed by the African leaders and hoped that respective parliaments will expedite the process of authenticating the agreement.
One such partner said in a statement: “As a strong active supporter of the EAC in the negotiations leading to the TFTA, TradeMark East Africa is proud to be associated with this momentous event.”
The World Bank President Jim Yong Kim said that with the launch of the TFTA, “Africa has made it clear that it is open for business.” And the final communique signed by the 26 heads of sates state read: “The establishment of TFTA will bolster intraregional trade by creating a wider market that would increase investment flow… and ensure regional infrastructure development.”
Under the new arrangements, trading will also be governed by harmonised rules of origin, which ensure that only goods produced in the region benefit from the preferential trading arrangements.
The TFTA will also ensure that Angola, DR Congo, Eritrea, and Ethiopia, which are currently outside existing FTAs, are involved in the tariff liberalisation process. It will also ensure that countries in the various FTAs that are not trading under any preferences are enabled to exchange and negotiate tariff offers among themselves.
The new TFTA will be in place once all the non-FTA countries are participating fully within their regional economic communities and necessary tariff offers have been exchanged and duties eliminated. This is expected to become a reality by July 2016.
Africa’s trade potential is not in question. Records show that the world’s second largest continent made its mark in history long ago both as a point of origin as well as a sought after trade destination despite the existence of real logistical and language barriers. Yet African economies account for only two per cent of global trade today.
With a combined market of 625 million people in 26 countries, the EAC, SADC and the Comesa will be the largest single trading bloc in Africa with a GDP of more than $1 trillion.
Data from a study by the Institute of Development Studies at the University of Sussex, indicates that with the elimination of tariffs on trade, the three regional economic communities (RECs) within this expanded market are projected to generate annual welfare gains of at least $3.3 billion per annum.
Entrepreneurs and traders will also benefit from better policy co-ordination and cohesion across sectors, especially in industry and infrastructure development as well as a reduction in overlapping memberships in the RECs.
As far back as 2011, negotiations to establish the TFTA undertook to cover trade in goods, services, intellectual property rights, competition policy, development and cross-border investments. An agreement on the movement of traders was negotiated parallel to that on trade in goods.
The TFTA arrangement has adopted a development approach towards integrating the economies of the 26 member states of the three regional economic communities, based on the three pillars of Market Liberalisation, Industry Development and Infrastructure Development.
Inter-state co-operation implemented through regional trade agreements is not new on a continent that boasts some of the oldest trade arrangements in the world, among them the Southern Africa Customs Union (SACU) and the old EAC, established in 1910 and 1917 respectively.
Since then, trade agreements have proliferated and to date 406 are in force. By April this year, a total of 612 agreements had been notified to the WTO.
Long after the ink dries on the TFTA, the work will have only just begun to secure the nuts and bolts of the second phase of the agreement and to nail down the negotiations on trade in services, intellectual property rights, competition policy, trade and development and cross-border investments – the conduits to the success of the Free Trade Area.
There is also room for further negotiations to unpack the liberalisation of tariffs and rules of origin and to create the pathways that will move Africa away from the traditional but narrow reliance on primary commodity exports. Only then can the citizens of the region begin to reap the benefits of an expanded trade environment.
The writer is the senior director and head of TradeMark East Africa-East African Community (TMEA-EAC) Partnership Programme