A new merger of three existing African Free Trade Areas is creating the continent’s largest economic bloc. The tariff reductions and economic harmonization it should bring are welcome news. But much more trade liberalization is needed.
Africa has never been known as a bastion of free trade, and for good reason. With government budgets over-reliant on import tariffs, customs procedures rife with corruption, and a lack of political will owing to intra-continental conflicts and rivalries, expediting the movement of goods and services has rarely been a priority. But that may soon change with the launching of a mammoth free trade agreement (FTA) next month.
The Tripartite FTA (TFTA), so-called because of its amalgamation of three existing FTAs, will comprise 26 African states and 625 million people. Through a merger of the East African Community (EAC), the Southern African Development Community (SADC), and the Common Market for Eastern and Southern Africa (COMESA), and with a combined GDP of $1.2 trillion, it will establish, by far, the leading economic bloc on the continent.
First announced in Kampala in 2008, the TFTA (also known as the African Free Trade Zone) will at the outset simply combine the tariff lines and import quota reductions of its three constituent economic groupings. That alone should reduce the significant cost of doing business on the continent. But in addition to eliminating all tariffs and promoting much-needed investment, the eventual goal will be to also reduce “non-tariff barriers” such as onerous documentation requirements and technical standards.
As appealing as freeing up the flow of capital and consumption “from Cape to Cairo” is, expectations should be tempered. As with many South-South economic agreements, implementation may prove to be elusive. One only has to look at repeated failures to establish economic harmonization on the part of ECOWAS and CEMAC in West and Central Africa to remain on the skeptical side.
Moreover, the Tripartite FTA will technically not even be ready for some time. Member states have not yet agreed on product-specific rules of origin, which are necessary in any FTA to stymie the effect of re-exportation.
Still, a couple recent examples have shown that some degree of lasting economic integration can definitely be realized on the continent. For instance, one of the TFTA’s intermediate objectives is to form a customs union (CU), which is essentially a deeper, more integrated FTA, where all the member states have a common external tariff.
However, its members must only look south for best practices: the world’s oldest such arrangement still in place is the Southern African Customs Union, which has successfully pooled the trade and customs regulations of South Africa, Lesotho, Swaziland, Namibia, and Botswana, as well as encouraged a degree of common industrial policy among the five member states.
The EAC, albeit more an example of trade diversion rather than trade creation, has also functioned as a fully fledged CU since 2010, not to mention harmonized the controversial topic of customs valuations among the members. This is no small feat in a region where proxy conflicts and strained institutions persist.
Nevertheless, assuming the TFTA rollout is without major hiccups, where does that leave the pan-African vision of continent-wide economic integration? In short, still waiting.
TFTA negotiations have already liberalized countless tariffs, fostered agreement on customs/transit procedures, and gone some ways to addressing the effect of duplicative membership in regional groupings that African leaders have been known to prolifically create. But thornier issues remain, including trade in services, arbitration mechanisms, trade remedies, competition policy, and a whole range of “behind-the-border” impediments to trade – customs harmonization, standards, infrastructure deficits, and the like.
Unsurprisingly, plans for a Continental FTA will surely take longer than the African Union’s goal of 2017.
For the time being, the 26 member states can look forward to increased bargaining power during WTO and regional trade negotiations, along with enhancing intra-African trade, which last year stood at a paltry 12% of total trade volumes, compared to 60% for intra-European trade.
The rebirth of Pan-Africanism? Hardly. Rather, a determined step towards boosting growth and making the continent more attractive to outside investment.
