Continental Free Trade Area: Be careful what you wish for

At the launch of the TFTA on June 10, 2015 in Sharm el Sheikh, Egypt, the heads of state set a timeframe of 12 months for finalising the negotiations, but by October 2016, there were outstanding issues, prompting the ministers extend the deadline to April 2017. That, too, was missed. ILLUSTRATION | PATRICK GATHARA 

In Summary

• Sensitive and excluded products cover up to 600 tariff lines in the proposed Continental FTA; yet most African countries export to each other on less than 300 tariff lines.

By FRANCIS MANGENI
More by this Author

That intra-Africa trade is low, at 11.78 per cent of total imports, has been lamented for decades.

A key objective for establishing the Continental Free Trade Area covering all the 55 African countries has therefore been to boost intra-Africa trade, with a target of doubling it by the year 2022 over a 2014 baseline.

All this has been discussed and agreed by Africa’s leaders at the highest political level, and written into decisions taken at their summits since 2010.

With the negotiations for establishing the Continental Free Trade Area now in high gear to meet the December 2017 deadline, there is a real risk that in this rush, the FTA will end up being designed in a manner that, through too many exceptions and high tariffs on key exports, reduces even further the paltry existing intra-Africa trade, which would be a self-inflicted tragedy.

A whole raft of exceptions could end up in the Continental FTA Agreement, based on a fear of imports from other African countries.

A standard trade agreement must of course be balanced between liberalisation and safety-valves to address possible adverse developments such as destruction of the environment or existing and planned industries, to ensure peace and security, and to recognise the policy space for governmental interventions to assist social economic transformation. There are therefore standard general and security exceptions as well as trade remedies.

In addition, a number of trade agreements have provision for protection of balance of payments and external reserves and infant industries.

Sensitive and excluded products could in some cases cover up to 600 tariff lines, as indeed proposed for the Continental FTA; yet most African countries export to each other on less than 300 tariff lines.

These exceptions should, however, be designed to be used sparingly, so that domestic industries can have access to large regional and global markets required for their growth.

Large markets that support more trade in goods, services and assets produced by job-creating enterprises, including small-to-medium-scale-enterprises, assist in employment and income generation, thus meeting the public policy objectives of jobs- and wealth-creation.

Large open markets support value chains, specialisation and efficiency through sharing of tasks in modern production lines and processes. This calls for creating a large, open Continental FTA as a rule of thumb in the negotiations.

On the basis that the bulk of imports into Africa, upwards of 88 per cent of the total, are from outside Africa, the fear of an avalanche of imports from other African countries needs to be properly assessed.

A starting point is that with respect to the sources of those imports, which are from outside Africa, as may be deemed appropriate should be addressed under other frameworks such as the World Trade Organisation but not the Continental FTA.

However, should in fact there be an increase in imports from other African countries resulting from the Continental FTA, then that should be a welcome development as the objective of boosting intra-Africa trade would be seeing the light of day.

The fear should not be of imports from other African countries. The issue to focus on is how to boost exports through scaling up production, especially of goods that can find niche markets through product differentiation or wholly new products and industries, within the overall framework of industrialisation, agricultural productivity, and infrastructure development.

There are more specific interventions to focus on in the negotiations.

Regarding trade policy instruments, while tariff protection can be considered but bearing in mind that high tariffs negate the very idea of building a Continental FTA, the more appropriate interventions should seek to grow industries.

These include market intelligence, elimination of non-tariff barriers and subsidies, quality infrastructure and capacity building for familiarity with the CFTA trade rules.

But the more core interventions must seek to grow the domestic industries through addressing the well-known constraints faced by small and medium enterprises.

High tariffs and protected markets are a development fallacy, for without sizeable markets one can hardly expect critical levels of investment that generate industries and infrastructure. Rather, the Continental FTA should seek to be a huge regional open market.

Francis Mangeni is director of trade, Customs and monetary affairs at the COMESA Secretariat in Lusaka, Zambia. Email: FMangeni@comesa.int