The Continental Free Trade Area – A GTAP assessment
The Trade Law Centre (tralac) has recently capitalised upon the pre-release Version 9.2 of the Global Trade Analysis Project (GTAP) database and the recent excellent data sets from the World Bank and other publishing quality data on trade barriers across the African continent. It undertook a series of simulations examining regional integration and intra-African trade barrier reductions. The results for tariff elimination on intra-African trade are promising. But the real news is in confirming that these barriers are not as significant as the various trade-related barriers except for tariffs.
Especially impressive results were forecast by simulating a modest 20% reduction in the costs associated with the particular African problem of transit time delays at customs, terminals and internal land transportation. These gains are significantly above both just intraAfrican tariff elimination and what may be thought of as the more traditional non-tariff barriers that we modelled individually and separately. Although we have not modelled a combined approach which incorporates all three components of tariff elimination, non-tariff barrier reductions and time-in-transit cost reductions, the final combined outcome from all three are likely to be cumulative and generate very large gains to Africa. The overall results from especially time-in-transit costs support the current emphasis on projects such as the World Trade Organisation (WTO) infrastructural supports to Africa.
In addition, the World Bank and others have produced a dataset of constraints in trade-related services for Africa and others that we are examining, adding these simulations to our portfolio. Again, the results here are likely to be significant and additive to reductions in the other three constraints (tariff barriers, more traditional non-tariff barriers, and time in transit costs).
Our simulations for a Free Trade Agreement (FTA) with a selected group of African countries show that this is very much a second-best option, and the inclusion of most of the significant economies in Africa generates the best results. Only in the event of a failure to achieve integration across the continent with all or most African countries should partial integration be pursued.
The policy implications from our research are clear: while cooperation will enhance the gains, much of the benefits will result from unilateral actions and regional cooperation that does not need the long and drawn-out processes associated with FTA negotiations. However, against this background the concept of ‘governance’ must be emphasised, as must the crucial importance of a rules-based structure. In addition, provided African countries are willing to play their part, global funds seem to be available for these reforms.
© 2015 Trade Law Centre and The U.S. Agency for International Development
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