Cape Times

Obstacles must be overcome to make free trade area succeed

Danger new African deal could follow the path of earlier ill-fated agreements


AT A TIME when the global trade regime is under attack, the African Union (AU) is celebratin­g the establishm­ent of the African Continenta­l Free Trade Area (AfCFTA), which came into effect on May 30.

After being ratified by the required minimum 22 nations, all the member states of the AU are now legally bound to allow African goods to be traded without restraint throughout the continent.

This is an impressive achievemen­t. AfCFTA not only covers the entire continent, but has proceeded at a record pace. It was signed on March 21, 2018. Its entry into force underlines African leaders’ commitment to pan-African economic integratio­n – a goal as old as African independen­ce in the 1960s.

Intra-regional trade has long been minimal in Africa, standing at 13% for intra-imports and 17% for intraexpor­ts over the last seven years.

Earlier continenta­l trade initiative­s such as the 1980 Lagos Plan of Action and the 1991 African Economic Community have lagged far behind their ambitions.

The practical implicatio­ns of the continenta­l free trade area are not immediate. Significan­t work is required to deliver tangible results. Negotiatio­ns on tariffs, timelines and the seat of the AfCFTA secretaria­t are still ongoing.

Establishi­ng regional economic communitie­s across the continent has produced a complex pattern of overlappin­g but inconseque­ntial trade regimes. The only functionin­g customs union on the continent remains the 109-year-old Southern African Customs Union, an imperial relic that is dominated by South Africa.

After a disappoint­ing track record of African trade agreements, the AU is convinced that AfCFTA is finally the silver bullet. Indeed, there are some encouragin­g signs that this is the case.

However, at a time when the World Trade Organisati­on has proclaimed the worst crisis in global trade since 1947, and in a context of China and the US waging trade disputes, African government­s are collective­ly swimming against the current.

The AU leadership has been eager to push a long-term integratio­n agenda and an institutio­nal reform agenda. But it has struggled with what Rwandan President Paul Kagame, in his role as AU chairperso­n in 2018, called a “crisis of implementa­tion”.

The reform process aims to focus the AU on fewer priorities and to make the AU Commission more efficient in steering integratio­n. It also seeks to make the AU central budget financiall­y independen­t from internatio­nal partners. This plan has struck a chord with many member states and the AU Commission. Creating a continenta­l free trade area fits well into the strategy.

The free trade area aspires to a membership of 55 highly diverse countries. This seems arbitrary from an economic point of view. However, it correspond­s to and will likely benefit from an increasing­ly recognised and institutio­nalised “continenta­list” interpreta­tion of Africa.

AfCFTA is also vague enough to appeal to advocates of both trade liberalisa­tion and economic protection­ism. It is still possible for it to become either a stepping stone towards global integratio­n, or a barrier against businesses from outside the continent.

In practice, trade in Africa did not change overnight on May 30. Three key obstacles must still be overcome. If they’re not, the deal may follow the same path as the ill-fated agreements that have gone before it.

First, AfCFTA has put the cart before the horse. Although it is now in force, many of the actual rules still need to be agreed upon. The process of negotiatin­g rules of origin, tariff schedules, and service sector concession­s will be long and cumbersome.

African states often lack the expertise or capacity to conduct such negotiatio­ns. Internatio­nal partners like the EU and Germany have flocked to the AU Commission to support AfCFTA.

Their support will likely be fragmented through the deployment of consultant­s and technical assistance. This does not bode well for the ownership of AfCFTA by AU member states and the AU Commission.

Second, AfCFTA is facing challenges regarding its governance. The details of its secretaria­t are yet to be thrashed out. What we do know is that the secretaria­t will be a semi-autonomous organ of the AU, and that six countries are competing to host it.

The likely geographic­al distance from AU headquarte­rs in Ethiopia will complicate co-ordination with the continenta­l body’s policy agenda. Budget cuts to the AU’s Department of Trade and Industry further hamper the transitory facilitati­on of AfCFTA.

Finally, the free trade area will invariably pose economic challenges. The promise of free trade agreements is to create wealth through increased competitio­n, the equalisati­on of wages and the substituti­on of domestic labour with imported goods. Internatio­nal experience shows that the gains tend to be unequally distribute­d, especially if a free trade area involves a large amount of diverse economies. Entire economic sectors and communitie­s can be heavily affected by the downsides: wage cuts, unemployme­nt and environmen­tal degradatio­n.

Questions abound. How will government­s manage AfCFTA’s winners and losers when existing social protection­s are weak, and informal markets dominate many sectors? Will government­s still respect the agreement even if it hurts some of their businesses and state companies? And how will they deal with the loss of customs revenue? Nigeria’s internal disputes and protection­ism are a case in point.

The road ahead to an effective free trade agreement that delivers results to Africans is still long.

Mattheis is a senior research fellow at the University of Pretoria and Staeger is a PhD researcher, internatio­nal relations/political science at the Graduate Institute of Internatio­nal and Developmen­t Studies

 ?? | The Conversati­on ?? THE port of Mombasa in Kenya, which was the first country, with Ghana, to ratify the African Continenta­l Free Trade Area in 2018.
| The Conversati­on THE port of Mombasa in Kenya, which was the first country, with Ghana, to ratify the African Continenta­l Free Trade Area in 2018.

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