Is there a risk in rush for Continental FTA deadline?

With negotiations for establishing the Continental Free Trade Area (FTA) now in high gear to meet the December 2017 deadline, an official says there is a real risk that in this rush the FTA might be designed in a manner that even further reduces the paltry intra-Africa trade, 'which would be a self-inflicted tragedy'.
Prudence Sebahizi, Chief Technical Advisor on the Continental Free Trade Area (CFTA).
Prudence Sebahizi, Chief Technical Advisor on the Continental Free Trade Area (CFTA).

With negotiations for establishing the Continental Free Trade Area (FTA) now in high gear to meet the December 2017 deadline, an official says there is a real risk that in this rush the FTA might be designed in a manner that even further reduces the paltry intra-Africa trade, “which would be a self-inflicted tragedy.”

Dr. Francis Mangeni, the Director for Trade, Customs and Monetary Affairs at the Common Market for Eastern and Southern Africa (COMESA) Secretariat says to avoid a Continental FTA characterized by barriers to intra-Africa trade “it is a no-brainer” that Africa cannot afford an overly protectionist continental FTA; as the song in Africa has been about increasing intra-Africa trade in order to create jobs.

On how countries can avoid the self-inflicted tragedy, he said: “The utmost priority is to focus on growing our industries especially SMEs through an industrial policy that directly addresses their constraints.

“This results in competitive industries and jobs; rather than focusing on protectionism through high tariffs. It results in inefficiency and contraction of the economy in the medium to long run.”

According to him, measures to address constraints to growth of “our industries” include: affordable credit and patient (long term or venture) capital; management skills; harnessing innovation and skills from around the world; revamping the industry-academia-government-bank interface; providing market intelligence so that trade and investment opportunities are utilized; large open markets and elimination of non-tariff barriers while facilitating trade.

Mangeni advocates for discovering and nurturing promising industries to create the new M-Pesas and M-Kopas, or Google and Apple. “This requires a systematic and sustained program of mapping new SMEs and research work in training institutions, so that new promising ideas can be discovered and commercialized.”

He proposes curriculum reforms to turn African universities into entrepreneurial universities, so as to produce job creators, not job seekers.

Mangeni also supports formulation of comprehensive industrial policies and action plans at national and regional levels; aiming to boost industrialization through positive interventions in a structured manners that mainstreams industrialization in all government institutions at the central government and local government levels.

He added: “Any exceptions in the form high tariffs to intra-Africa trade should be used sparingly.”
Reforms are overdue

Other experts, however, do not see the negotiations launched in June 2015 as being rushed.

David Luke, coordinator of the African Trade Policy Centre (ATPC) which is based within the United Nations Economic Commission for Africa Headquarters in Addis Ababa, Ethiopia, first noted that the level of ambition for tariff reduction is zero for 90 per cent of tariff lines.

Luke who previously served as Chief of Trade Section at the AU in Addis and senior economist at the AU Geneva Office, among others, said that seven of the AU member states parties to the draft agreement requested a lower threshold of 85 per cent of tariff lines and 15 years to arrive at 90 per cent.

“These modalities are not fully finalized – negotiations are ongoing as I write – but are the likely landing zones for adoption by ministers in Niamey. Please note that the WTO norm for tariff reduction in an FTA is zero for 80 per cent of tariff lines,” Luke added.

“Is this ambitious enough? I would say it is realistic. The political economy of tariff reduction is complex, taking into account the economic fragility of many of the countries participating in the CFTA negotiations. But the first steps in building confidence are being taken.”

Luke who has written widely on trade and development informed The New Times that there is provision to monitor the agreement for its impact on intra-African trade, on poverty reduction, among others, and to take further action as needed. 

The Economic Commission for Africa committed to play an active role in monitoring implementation of the agreement. 

“Are the negotiations rushed? The negotiations were launched in June 2015. There have been seven rounds of negotiations,” he said.

The eighth and final round is currently taking place in Abuja, Nigeria.

“Thirty months of preparation and negotiation is, in my view, not rushed. This time frame is comparable to negotiations for other FTAs,” Luke said. “We should all applaud what is being achieved.  These are the first continent-wide trade reforms, 60 years since the independence era. These reforms are overdue.”

Prudence Sebahizi, Chief Technical Advisor and Head of the CFTA Unit at the African Union Commission’s Department of Trade and Industry, also does not share Dr. Mangeni’s concerns.

“The CFTA negotiations are moving at the right pace and progress made so far is promising. The CFTA borrows experience from existing trade arrangements in Regional Economic Communities and thus builds on them,” Sebahizi said.

“I don’t agree that the CFTA will lead to a self-inflicted tragedy; the worst case scenario would be the status quo. Furthermore, the conclusion of a legal text and implementation of the agreement are two different issues. The implementation of the CFTA agreement will be progressive and will give member states flexibility to align their national policies.”

A decision to establish the CFTA, by 2017, was made in January 2012 by African Union Heads of States.

Concluding a trade agreement requires a broad range of activities beyond mere negotiations, Sebahizi said, noting that the preparatory phase is “normally the most difficult part” which includes capacity building, technical studies and setting the rules for negotiations – negotiating institutions, guiding principles and rules of procedures.

This preparatory phase was completed successfully and negotiations of the draft text commenced in 2016.

The preparatory phase – which took almost four years – was very important to build the confidence of member states and increase awareness among stakeholders; negotiations were split in two phases, and phase one covering agreement on trade in goods and agreement on trade in services will be completed by end of this year; and phase two covering investment, competition policy and intellectual property rights will commence after adoption of the phase one agreements.

According to Sebahizi, the implementation phase will take more than 15 years because tariff reduction or elimination is a gradual process. In any trade agreement, he said, tariff elimination is done progressively and most of the time it takes more than 10 years.

Sebahizi added: “Other elements of a free trade area such as elimination of non – tariff barriers and trade facilitation measures are also implemented progressively. And, a trade agreement is not carved in stone. It is a living policy framework that can be amended anytime to suit the dynamic of every economy.”

Based on this understanding, Sebahizi emphasizes that the CFTA negotiations are not rushed because they were very well prepared and the process is undertaken in a phased approach.

Secondly, he said, the set deadline is meant to conclude an agreement while implementation plans are left to the prerogative of member states.

Sebahizi stressed that the phased approach of negotiations has left member states with enough room to build their internal capacities, mobilize stakeholders and adjust their national policies to the continental objectives of creating a single market.

“Lastly, member states concluding a trade agreement are always given a policy space to develop their local industries through applying provisions on sensitive products that are subject to longer liberalization or transition period and exclusion list which includes products that are not subject to liberalization. Other trade remedies such as safeguards, anti-dumping and countervailing measures are always provided to deal with adverse impact of liberalizing trade.”

The good news, he said, is that technical negotiations on phase one issues have almost been completed.

Sebahizi said chief negotiators will spend next week cleaning up and fine-tuning the text so that it can be submitted to ministers for approval early next month.