Topics publications: Trade law and regulation
Trade Reports
Intra-REC trade and overlapping membership: review of COMESA, EAC and SADC
This paper analyses trade between the three Regional Economic Communities (RECs) of the Common Market for Eastern and Southern Africa (COMESA), the African Economic Community (EAC), and the Southern African Development Community (SADC) using trade data from the International Trade Centre (ITC). The data is generally ranked by 2013 as that is the most consistently and seemingly comprehensive reporting available.
Examining each REC in turn we find that both Rwanda and Uganda export around half of their totals to COMESA, with DRC and Burundi around 20%, Zambia and Malawi around 15% and the rest below this figure. Libya with less than 0.5% is the outlier. Within the EAC, Kenya is the largest intra-EAC exporter with a share that varies around one-half while Uganda, Rwanda and Tanzania have similar shares of around 15% to 20%. Rwanda reports that some 72% of its exports were destined for EAC during 2013, but the data for other years varies significantly. As expected, South Africa dominates the intra-SADC exports with a share around 50% to 60%.
Next is a group of eight members with shares that are all generally grouped between 3% and 8%. By shares of exports destined for SADC, Zimbabwe reports that over 90% of its exports are in this category, and both Swaziland and Namibia report around 50% to 60%. Angola, like fellow oil exporter Libya in COMESA, has a very low share of around 3% only destined for SADC.
Overlapping memberships are a major feature of the RECs, and we must be careful to assess the overall impact of these to avoid double-counting intra-REC trade. We have taken two subcategories of each REC: (a) ‘pure’ trade entails intra-REC trade that excludes trade counted as intra-regional trade in another REC as both partners are members in common of another REC, whereas (b) ‘geographical’ trade entails all REC members which are arbitrarily assigned to their logical geographical regions. Pure trade is a subset of the full data while geographical trade in turn is a subset of pure trade.
There are, of course, several issues related to these definitions that suggest that we are taking an almost naive approach but this approach does highlight the overlapping issue. We have only assessed exports under these definitions, and ‘pure’ entails only intra-REC trade.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
Implications of the Tripartite FTA for SADC and its Member States
The Tripartite Free Trade Area (TFTA) initiative was originally launched to establish a single FTA among the Member States of COMESA, EAC and SADC. This would have brought the benefits of an enlarged market and would have solved some of the problems caused by overlapping memberships faced by the Members of the three Regional Economic Communities (RECs). It proved impossible, however, to achieve this ambitious objective during the negotiations, which were conducted between 2011 and 2015. The Preamble to the TFTA Agreement, signed in early June 2015, contains references to subsequent decisions on how the negotiating goals were re-formulated and changed.
The TFTA is unfinished business. More work and political commitment are needed for concluding the TFTA agenda and completing outstanding tasks. It may take quite some time before the TFTA Agreement will enter into force. Before that will happen, the participating Governments will have to weigh the benefits or disadvantages of ratifying the Agreement. This would presumably involve discussions with their counterparts in the RECs (and there will be more than one of them in the case of many of the States involved) of which they are a party.
What are the implications for SADC and its Member States of these developments? Those SADC Members which do join the TFTA will do so individually; SADC is not a customs union and does not have a common external tariff or single customs territory, as SACU has. Firms doing business in SADC and elsewhere in Africa will need to study the extent to which the TFTA establishes new trade preferences and what they mean. TFTA rules of origin (still to be decided) will require specific attention; they might turn out to be a mixture of the different approaches followed by SADC (where the rules of origin are tighter) and the EAC and COMESA, respectively. Supply chain logic and needs could be directly affected.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
The Polytol judgment of the COMESA Court of Justice: Implications for rules-based regional integration
The judgment by the First Instance Division of the COMESA Court of Justice in Polytol Paints & Adhesives Manufacturers Co. Ltd (Applicant) versus The Republic of Mauritius (Respondent) has far-reaching implications for rules-based regional integration in Southern Africa. This regional court accepted, apparently for the first time, an application by a private party to enforce an international agreement and to protect the trade related rights of a private firm.
The main arguments by Polytol Paints revolved around the fact that under Article 46 of the COMESA Treaty Member States of the Organization were required, by the year 2000, to eliminate customs duties and other charges of equivalent effect imposed on goods eligible for Common Market treatment. Mauritius initially complied with this obligation but in 2001 re-introduced a 40% customs duty on specific products imported from Egypt (another COMESA member), which included the products imported by the Applicant. Only Egyptian products were targeted.
The Government of Mauritius lodged an appeal to the Appellate Division of this Court, which was later withdrawn. On 6 February 2015 the Court issued a final order that the matter has been settled between the parties; after having received a letter to that effect. The ruling confirmed that the traditional view (that only states are the parties to international agreements and that only they derive rights from such agreements and enjoy standing before international courts when violations occur) needs to be qualified in the case of rules-based regional integration. Community law is sui generis. A binding precedent about the relevant aspects of the community law of COMESA now exists. This Trade Brief discusses this development and the implications for rules-based integration in the Regional Economic Communities (RECs).
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
The new Principles for Negotiating the Continental FTA
The African Union Assembly launched the Continental Free Trade Area (CFTA) negotiations during the 25th Extraordinary Summit of Head of States and Governments on 15 June in Johannesburg, South Africa. It adopted a statement on the Objectives and Guiding Principles for Negotiating the Continental Free Trade Area; in terms of which these negotiations will be conducted.
In order to make the ambitious CFTA project a reality and to get the process started, new legal and institutional arrangements have to be put in place. The Members of the AU will be the parties to these agreements and they will participate in the CFTA negotiations. The Department of Trade and Industry of the African Union Commission will assist the Members States during this process, which will apparently kick off in June 2016. This tralac Trade Brief discusses the most salient points in this document.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
The road transport sector in the context of the SADC Protocol on Transport, Communications and Meteorology
The SADC Protocol on Transport, Communications and Meteorology (TCM) of 1996 aims to integrate the transport sector in the region. It places strong emphasis on the commercialisation of transport services provision and private sector participation in road transport infrastructure development and maintenance. The Protocol on TCM focuses on three core themes relating to road transport namely the development and maintenance of road infrastructure and funding, the regulation of road users (vehicles, drivers and market access), and road transport facilitation. These three areas together contribute to the facilitation of intra-regional trade and the realisation of the region’s developmental integration objectives.
The scope of the Protocol is vast and its objectives very ambitious. However, the circumstances in the transport sector have changed since its adoption in 1996. SADC MS are now negotiating the establishment of the Tripartite COMESA-EAC-SADC FTA which requires, amongst other things, the harmonisation of road transport regulation in the Tripartite Region to facilitate trade among them. Greater focus is also now placed on the development of transport corridors and the facilitation of transport, border, customs and transit measures along particular routes. This may necessitate a review of the Protocol on TCM to make provision for these changing conditions.
Many obligations remain unimplemented or partially implemented. Some of the obligations contained in the Protocol on TCM may have proven unattainable or unrealistic. A clear implementation plan of the Protocol on TCM, aligned to the planning format of the Regional Indicative Strategic Development Plan (RISDP) and Regional Infrastructure Development Master Plan (RIDMP) is required to consolidate and deepen regional integration. The setting of targets for implementation over the short-, medium- and long-term requires evidence-based planning, aligning of budgeting processes and strong regional coordination and monitoring systems to oversee the effective implementation of activities at the national level.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Suitable Mechanisms for Negotiating Trade in Services and Movement of Business Persons in the Continental Free Trade Area
The purpose of trade agreements is to promote international trade. Preferential trade agreements on services or Economic Integration Agreements (EIAs) as they are defined in Article V of the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO) can promote international trade in services by reducing barriers on foreign participation, improving transparency of policies and regulations affecting trade; and increasing the credibility of the trade regime (reducing the risk of (re-)introduction of trade restrictive policies).
Various negotiating and scheduling approaches can have an influence on the outcome of these three trade objectives and the subsequent agreement. However, the level of negotiating outcomes depends not so much on the choice of negotiating and scheduling approach, but on the political will to generate particular results.
The negotiating modalities contain the agreed objectives, the level of ambition the parties wish to achieve and the process to achieve the envisaged outcomes. In addition, the negotiating modalities usually includes the development of disciplines (regulation, competition, government procurement of services, and subsidies) that would establish a transparent, reliable and predictable business environment to facilitate the creation of regional value chains and deeper economic integration.
What approach should be adopted for the drafting and negotiation for trade in services and the movement of business persons in the Continental Free Trade Agreement? This paper provides an analysis and discussion of various models of services negotiations (i.e. positive, negative and hybrid and implications for the CFTA); various multilateral, plurilateral and regional experiences on trade in services and movement of business persons; the treatment of trade in services within African RECs and the Tripartite negotiations; the pros and cons of negotiating movement of business persons, within the framework of trade in services negotiations or separately; and possible negotiating modalities for trade in services and movement of business persons based on international best practices.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
Mutual Recognition of Professional Qualifications: The East African Community
For advanced regional economic integration arrangements, beyond trade in goods, the free movement of labour, is an essential part of the agenda. The free movement of labour creates many social and political challenges. At the heart of society’s concerns is the belief that foreign workers will replace local workers; that they will put added pressure on limited government resources through the use of social services; and, that temporary stay will turn into permanent residence. These perceptions create political ramifications, because in the realm of politics perception often trumps the truth.
One of the major challenges associated with the movement of labour across borders is the lack of recognition of foreign-obtained academic and professional qualifications and experience. In practice, in order for a foreign qualified professional person to practice their profession in another country, they either need to requalify in the host country and obtain the required qualifications or their foreign qualifications must be recognised by the host country.
Recognition requires a high level of trust in the quality of the education system and professional standards of the home country. Countries will only consider recognition (mostly on a reciprocal basis) if the foreign and local academic and professional qualifications are comparable either because they are harmonised or viewed as equivalent. In the case of harmonisation two different sets of standards or procedures are consolidated into one. With equivalence, different standards and procedures coexist but are treated as if they are the same because they produce the same results. With the conclusion of a mutual recognition agreement countries agree to accept and recognise each other’s requirements, certificates and licenses because they are harmonised or considered equivalent or because they satisfy external criteria such as an international standard. Mutual recognition agreements are therefore concluded between two or more countries as a mechanism to achieve regulatory convergence.
The purpose of this study is to focus on this particular aspect relating to the movement of labour with reference to the deeper regional integration objectives of the East African Community (EAC).
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Assessing the implementation of the East African Community Common Market: A preliminary scoping study
Five years have now elapsed since the Heads of State of the five East African Community (EAC) partner states (Burundi, Kenya, Rwanda, Tanzania and Uganda) signed the Protocol on the Establishment of the East African Community Common Market on 20 November 2009. In those five years, intraregional trade has grown significantly from US$ 3,148.7 million in 2008 to US$ 5,470.7 million in 2012, an increase of 73%. However, reports of continued delays and other impediments to the integration process continue to crop up amid the undoubted progress that has taken place.
It is therefore an opportune moment to examine the extent to which the Common Market Protocol has been implemented in order to determine whether the fears were justified or not and whether the use of flexible, ambiguous provisions has been a hindrance or a catalyst to the process of integration. Identification of the achievements as well as the challenges faced along the way can also be of assistance in charting a way forward for the deeper integration that is underway within the Common Market for Eastern and Southern Africa (COMESA) and Southern African Development Community (SADC) regions.
Given the broad scope of sectors covered by the Common Market Protocol, the aim of this paper is not to engage in an in-depth analysis of all its key components but to provide a preliminary analysis, from a legal perspective, of a selected number of those components, with the main emphasis being on the provisions that exist to facilitate the free movement of goods. This will lay the ground for subsequent, more detailed research on the various aspects of the Common Market.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Rules of origin – looking outside the box
There is an almost universal agreement that the rules of origin (ROO), as designed mainly to stop trade deflection or ‘imports sneaking through the back door’ in preferential trade agreements, are becoming increasingly complex through an interplay of different rules and are therefore unduly trade restricting, costly to manufacturers and overall welfare reducing. ROO represent a non-tariff barrier (NTB) in a global trading environment where these NTBs are becoming more trade restrictive than actual tariffs, and especially so in a global manufacturing and trading environment that is rapidly changing in this century while the ROO remain firmly rooted in their 1970s base.
While some observers have boldly questioned the need for the ROO, unfortunately some indication of origin of goods will always be necessary. ROO are required as identification for reporting purposes and also for several trade-related reasons apart from preferential trade agreements. This leaves a situation whereby the best option forward is to reexamine the ROO and as a minimum try to simply coordinate the rules and regimes. This is more easily said than done as vested interests are becoming powerful and pervasive in the negotiating process.
Against this background, this paper examines the extent of how ROO may be impacting on African trade and challenge the perceived wisdom that applications of the ROO are either necessary or trade and welfare enhancing. This paper will concentrate upon the examination of the ROO in an African context. Until recently developing countries such as most African nations have primarily viewed the ROO as a defensive mechanism used to restrict access to the developed-country market.
This context is changing. We are living in an environment where the globalisation of manufacturing is challenging the definition of where a specific product is actually made, and many African countries are seeking trading relationships and policies to both become more active in the globalisation manufacturing chain and expand intra-African trade.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Market Access in Africa: A review of existing tariff structures and the road to a Continental Free Trade Area
Regional integration remains a prominent policy objective for Africa. Its emphasis at continental level was confirmed by the decision of the members of the African Union to establish a Continental Free Trade Area (CFTA) in accordance to the Abuja Treaty. While this is an appealing idea, it is fraught with challenges. Chief of these is the fact that among the existing regional integration communities in Africa, very few have met their commitments by implementing their treaties and protocols. Furthermore, not all countries are signatories to regional trade protocols and even after signing the protocols, trade tariffs and non-tariff barriers still continue to impede intraregional trade.
While challenges exist, what is critical to note is the fact that liberalisation is continuing in Africa, albeit at different rates among different RECs. The objective of this study is to assess the state of liberalisation among African countries both at the multilateral level and at the regional level with the aim of highlighting the challenges that the attainment of a CFTA will face in achieving its goal.
The paper is organised as follows: We begin by looking at the methodology and data concerns in analysing tariff data. This is followed by a section presenting the status of tariff regimes and then we focus on issues related to the achievement of the CFTA itself. Conclusions are then presented. As 53 countries are analysed and in some instances data is not available, we have split the analysis and focused more on the main RECs recognised by the AU for the purposes of this paper. In our view, focusing on these will give clear indications where the gaps exist that require countries to make concessions if a CFTA is to be achieved.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.