Launching the Tripartite Free Trade Area negotiations: opportunities and challenges
2011-06-15 Taku Fundira
The Southern and Eastern regional economic communities (RECs) of the Common Market for East and Southern Africa (COMESA); the Economic African Community (EAC) and the Southern African Development Community (SADC) on 12 June 2011 signed an agreement at a Summit in Johannesburg, South Africa to launch negotiations of an expanded free trade agreement (FTA). The COMESA-EAC-SADC FTA also referred to as the tripartite FTA will be the continent’s biggest FTA comprising of26 countries spanning from Cape Town to Cairo with an estimated market potential of US$ 1 trillion.
At the Summit, Heads of State adopted a developmental approach to the integration process that anchors on three pillars namely; market integration; infrastructure development and industrial development. Negotiations will be in three phases, two of which are expected to be concluded within three years of signing the agreement (by June 2014). These phases which will run concurrently include market integration and infrastructure development. The movement of legitimate business people will also be negotiated during this phase. The final phase which will look at Industrial development and other trade related measures has no time frame allocated to it.
Launching of this tripartite FTA has been welcomed with mixed feelings. As already noted in our previous discussions, there are some benefits that can come out of such an arrangement. These include: duty free access to an enlarged market; an opportunity to simplify the Rules of Origin requirements; and elimination of non-tariff barriers (Fundira, 2009). However, it should be noted that there will be winners and losers in this agreement. Based on a computer analysis of such an FTA, in a recent tralac publication “Cape to Cairo: An Assessment of the Tripartite Free Trade Area,” we note that there are more losers than winners.
The Global Trade Analysis Project (GTAP)1 latest pre-release Version 8 database used to assess the welfare and trade gains from this FTA as determined by duty-free merchandise goods access and with a small (two percent) reduction in assumed non-tariff barriers to both merchandise goods and services barriers also factored in, revealed interesting findings (Jensen and Sandrey, 2011);
a) For the final tripartite agreement only the results show that there are significant gains to Southern Africa, but only for South Africa and Mozambique. South Africa welfare increases by US$1,321 million or 0.22 percent of the real Gross Domestic Product (GDP).
b) Results for the rest of SACU (Lesotho, Namibia and Swaziland) are disappointing with a welfare loss of $84 million, while Botswana similarly loses $16 million.
c) Most other tripartite partners gain or lose very marginally, excepting Mozambique which gains $57 million. This is because most countries other than South Africa and Mozambique have access to other FTAs through their multiple membership of overlapping FTAs.
d) For agriculture, the tripartite FTA is only beneficial in sugar and then only for the South African and Mozambique agricultural sectors.
e) Manufacturing is the big gainer for Southern Africa, but again really only for South Africa with lesser gains for Egypt and rest of eastern Africa (Kenya).
f) Revenue for the SACU tariff actually increases by US$49 million as a result of South African manufacturing imports from non-African countries to replace increased exports to the rest of east Africa. Employment and real wage outcomes are both positive for South Africa.
Although the findings depict a bleak picture with regards to the “winners and losers” from such an agreement, there is optimism on the prospects of the tripartite FTA as a driver of economic growth and development. As the expanded economic zone helps boost the region’s economies, smaller countries that stand to lose in the interim should regard this as a short term temporary setback that in the long run will benefit, once they identify and develop sectors where they have competitive advantage. According to South Africa’s Trade and Industry Minister Rob Davies, “integration would enhance Africa's chances of capitalising on the two drivers of its faster growth rates - the mineral boom and the growth in the domestic market” (SAPA, 2011).
Despite the optimism, if past experience is by all means regarded as indicative of future success, the prospects of a successful establishment of the tripartite FTA are minimal. Arguments for this notion are based on the fact that currently, within the individual RECs, integration has not been as smooth and there are still problems with implementation.
For example, in COMESA, although in theory, the REC has attained customs status, some members have not adopted the common external tariff, while in SADC; already the REC has missed a 2010 deadline to attain customs status with some members still not yet implemented the SADC FTA. A lack of “political will” and implementation deficiencies to comply with a rules-based regional trading arrangement which they negotiated, within the existing trade regimes are some of the reasons for such problems. It is therefore necessary that such issues are addressed and that Members are encouraged to comply with their FTA obligations..
1 See the GTAP website at https://www.gtap.agecon.purdue.edu/ for a full introduction to the model.
US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/
