Giant trade bloc ready for launch: Southern African leaders are close to fusing the SADC, Comesa and the EAC into one giant free-trade area. Will this bring about greater regional economic cohesion? asks Tom Nevin.
The proposition? The Tripartite Free Trade Agreement (FTA) that will weld the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for East and Southern Africa (Comesa) into one formidable economic super bloc.
This, they hope, will clear the minefield of customs and tax barriers and obstacles that bedevil interstate trade. It will also offer itself as a big, wealthy market trading to the world, more particularly along the South-South axis.
It also expects that as an economic hyperbloc, it will boost intra-regional trade and expand business options by facilitating the smooth movement of goods and removing bureaucratic fuss.
Africa is a patchwork of common markets, development communities, free trade areas, customs unions and monetary areas with real and proposed links to like arrangements around the world. Some such African organisations have found a foothold and others have failed. None, however, has been more than somewhat successful.
Such failure is due in large measure to trade barriers countries have erected on their borders, making it difficult, if not impossible, for African countries to trade as well as interact gainfully and sustainably with one another. Reasons vary why efforts to bring about greater inter-regional African cooperation have been largely unsuccessful.
In spite of persuasive argument that greater neighbourhood commerce is the best, simplest and least expensive route to economic development for the African continent, the region has splintered into countries seeking trade deals abroad, especially with Europe, the US and with Eastern nations.
A powerful economic engine
"There is increasing consensus in African policy circles that trade is a powerful engine for economic growth and development," says Paul Kalenga, an associate and senior trade policy adviser at the SADC Secretariat and TradeMark Southern Africa.
"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 comprises 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 regional economic communities (RECs) resolve to coordinate their trade-related programmes and eliminate duplication of integration efforts.
With this in mind, the RECs' heads of state and governments met as far back as October 2008 in Kampala, Uganda, and agreed to fuse existing RECs into an enlarged free-trade area that would encompass the 26 member countries into a 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 it will make a difference in addressing development challenges facing its constituent members," argues Kalenga.
"It also takes place against the background of the poor record of the performance of African regional trade agreements, particularly in enhancing intra-regional trade, tackling supply-side constraints and promoting competitiveness."
Falling short of expectations
According to Kalenga, the SADC, Comesa and EAC fall short of expectations because of "critical design and implementation deficiencies", particularly in trade liberalisation and the cost of trading.
In the first instance, they avoid 'sensitive and exclusion' lists, especially in manufactured and agricultural products. The removal of trade barriers in these sectors will have the potential to increase intra-regional trade and stimulate competitiveness, so duty-free-quota-free trade liberalisation is worth serious consideration.
Second, there is urgent need to address pervasive non-tariff barriers (NTBs) that undermine the potential gains from the existing three FTAs. In fact, these blocs 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 and simplify the existing rules-of-origin regimes. For example, there is evidence of firms not having been able to utilise 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 what is and what is not 'substantial transformation' in a product's life 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 an appropriate instrument to promote the use of local and 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 provisions that encourage members to comply 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.
Lowering global trade barriers
While enhancing intra-regional trade should be an important objective of the tripartite FTA, its gains are likely to be minimal unless there are efforts to halt the region's marginalisation in global trade through lowering trade barriers with the rest of the world. This would facilitate the region's integration into the global economy. The tripartite FTA conflicts to some degree with plans to create an SADC Customs Union, modelled along the lines of the successful Southern African Customs Union (SACU) comprising Swaziland, Lesotho, Botswana, Namibia and South Africa. However, "launching the SADC Customs Union in 2010 is not possible. The question is what we can do as the way forward," says SADC Executive Secretary Tomaz Salomao.
Customs Unions are a higher level of economic integration than FTAs, which have a common tariff regime domestically but allow members to set their own tariffs with non-SADC members. Customs unions require members to maintain a common external tariff.
RELATED ARTICLE: Grand Free Trade Area
Birth of a superbloc
The proposed Comesa-EAC-SADC tripartite FTA, also known as the Grand Free Trade Area (GFTA), was resurrected in 2008 at a meeting of the Heads of state of the three trade blocs. It was first mooted 60 years ago as a solution for greater regional cohesion and mutual wealth creation and committed to paper in 1991 as the African Economic Community (AEC) Treaty. Discussions at secretariat level focused on the harmonisation of programmes and policies of common interest.
Touted as a way to an African Economic community, and a building block for the United States of Africa, it was envisaged that the tripartite FTA would facilitate "the free movement of business persons, joint implementation of inter-regional infrastructure programmes as well as institutional arrangements, through which the three regional economic communities (RECs) would foster cooperation".
It was seen as an expanded trade bloc of the 26 countries that comprise half of the AU's membership. Its combined population would be around 500m people, its aggregated GDP would amount to some $624bn with per capita GDP averaging $1,184 (2009 estimates).
The three RECs have endorsed the roadmap individually as separate economic blocs at their summits held in 2010, setting the stage for a historic GFTA agreement, to be signed at the Tripartite Summit of Heads of State and Government later this year in South Africa, with implementation scheduled for early 2012.
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|Date:||Mar 1, 2011|
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