Is the proposed tripartite free trade area a bold step forward, or pie in the sky?

The concept of establishing a tripartite free trade area (FTA), which joins the Common Market for Eastern and Southern Africa (Comesa), the East African Community (EAC), and the Southern African Development Community (SADC), has gained currency and momentum in recent years.

 

The Comesa–EAC–SADC Tripartite Summit of Heads of State and Government – held in Kampala, Uganda on 22 October 2008 – provided the much-needed political endorsement and impetus for the establishment of this tripartite FTA.

The recent Sandton Summit added more momentum to the debate and ushered in a new era.

The target date for the establishment of the tripartite FTA is 2012, by which time all necessary preparatory work is expected to be complete. In light of this noble aim, it may be appropriate to briefly explain the concept of a free trade area.

An FTA is established when two or more countries agree to eliminate duties and other restrictive regulations of commerce on substantially all trade-in goods originating within these economies. Preferential rules of origin have to be devised and used in order to identify the originating goods.

The parties to an FTA retain the right to apply their individual trade policies on trade with third parties. An FTA is thus aimed at encouraging and enhancing trade among the participating member countries.

Since an FTA agreement allows a party to it to grant more favourable conditions to its trade with other parties to the FTA agreement, this would appear to contravene the most favoured nation (MFN) treatment principle of the World Trade Organization (WTO), which forbids discrimination.

The establishment of FTAs, however, is legalised through Article XXIV of General Agreement on Tariffs and Trade (GATT), the enabling clause to GATT and Article V of General Agreement on Trade in Services, the provisions of which give permissible exceptions to the MFN principle (WTO, 2007).

These WTO legal provisions are essentially meant to encourage liberalisation of trade in goods and services among WTO members. It is important that any FTA agreement complies with and is consistent with all the WTO rules governing trade and the prescribed conditions that an FTA must meet (WTO, 2008).

There are many FTAs already operating on the global trading arena but, for Africa in particular, the envisioned Comesa–EAC–SADC tripartite FTA will be the first and largest such FTA, as it will join the three most successful and largest regional economic communities (RECs) on the African continent, with a combined population of more than 500 million people.

The Lagos Plan of Action adopted by the Organization of African Unity (OAU) Extraordinary Summit in 1980, affirmed the OAU political leaders’ commitment to the promotion of the economic integration of Africa, to facilitate the eventual establishment of the African Economic Community (AEC). The political leaders’ commitments were concretised in 1991 in Abuja, through their signing of the treaty establishing the AEC (the Abuja Treaty).

The Abuja Treaty envisions the economic integration of the whole of Africa into a continental Customs Union by the year 2019.

Abuja reckoned that one key strategy of achieving this continental vision is through the establishment of RECs as building blocks that will ultimately merge to establish the continental Customs Union.

Although several RECs, including the EAC, Comesa and SADC, were already in existence when the Abuja Treaty was signed, the treaty, among other things, sought to strengthen the existing RECs and encourage the establishment of new ones. In fact, Article 88 of the Abuja Treaty makes it clear that the establishment of the AEC is the final objective toward which the activities of all existing and future RECs shall be geared.

The intended strategy was staged, and gradual liberalisation of regional and intra-regional trade, co-ordination and harmonisation of activities of all the RECs, the establishment of a free trade area and a Customs Union at REC level, and eventual establishment of the envisioned AEC.

Objectives of the tripartite FTA

The main objective is to establish an FTA on a tariff-free, quota-free, exemption-free basis by simply combining the existing FTAs of Comesa, EAC and SADC.

The proposed tripartite FTA is intended to foster intra-regional trade in the tripartite region through a number of complementary programmes in the following areas:

• Promotion of customs co-operation and trade facilitation;

• Harmonisation and co-ordination of industrial and health standards;

• Combating of unfair trade practices and import surges;

• Use of peaceful and agreed dispute settlement mechanisms;

• Use of simplified rules of origin that recognise inland transport costs as part of the value added in production;

• Relaxation of restrictions on movement of business persons, taking into account certain sensitivities;

• Liberalisation of certain priority service sectors on the basis of existing programmes of the three organisations;

• Promotion of value addition and transformation of the region into an information- and knowledge-based economy through a balanced use of intellectual property rights and information and communication technology; and

• Development of robust infrastructure programmes designed to consolidate the regional market through interconnectivity of all modes of transport, and the promotion of competitiveness through adequate supplies of vital resources.

 

Status of integration programmes in Comesa, EAC and SADC

Although the ultimate long-term aims of Comesa, EAC and SADC are almost the same, the rate of regional integration – in particular trade development and co-operation in the three regions – has not been the same. Some RECs have progressed at a faster rate than the others in certain areas.

Currently, the three RECs are separately engaged in negotiations for economic partnership agreements (EPAs) with the European Union. These negotiations are at different stages of progress and it remains to be seen how these negotiations or EPAs will be managed in a tripartite setup.

 

Comesa

In 1993, through the Comesa Treaty, Comesa evolved from the old preferential trade area (PTA), which had come into force in 1982. The PTA treaty itself envisioned its transformation into a common market after 10 years and left room and provision for bringing new members.

The establishment of the PTA, and its transformation into Comesa, was in line with the objectives of the Lagos Plan of Action and the Final Act of Lagos of the OAU.

Comesa became Africa’s largest REC with a population of more than 300 million people. Since then, Comesa has achieved tremendous progress in its trade liberalisation agenda, which saw it launching an FTA in 2000, as a key mechanism for liberalising intra-Comesa trade.

The success of the Comesa FTA can be measured in the context of the dramatic increase in the volume of intra-Comesa trade from US$3.2 billion in 2000 to US$15.2bn in 2010.

The ultimate aim of Comesa on its economic integration is the establishment of a Monetary Union. This aim is anchored on the REC vision, which is to be a fully integrated, internationally competitive REC with high standards of living for its entire people, ready to merge into an African
Economic Community.

 

EAC

The EAC was originally set up in 1967. However, disagreements between the founding members, Uganda, Kenya and Tanzania, led to its collapse.

The treaty re-establishing the EAC was signed in November 1999, with the new EAC coming into being in 2000.

The later admission of Rwanda and Burundi in 2007 brought the EAC’s combined population to an estimated 120 million people and a combined gross domestic product estimated at $41bn.

Taking into account the asymmetry within the region, the EAC – in terms of Articles 2 and 5 of its treaty – established a Customs Union as the entry point of the EAC, before liberalising trade among member states to establish an FTA.

According to the treaty, the ultimate goal of regional integration in the EAC is the establishment of a Political Federation in 2015.

The Federation would be preceded by three stages: the Customs Union, the Common Market and Monetary Union.

 

SADC

The SADC Protocol on Trade, which came into force in 2000, has seen most SADC countries liberalising their trade in goods, to a level that made possible the establishment of the SADC FTA in August 2008.

Technically, the FTA creates a regional market worth an estimated $360bn a year, in an area with a population of more than 200 million.

With the establishment of the SADC FTA, 85% of all intra-Southern African Community (SAC) trade is now duty-free, and the region has committed itself to eliminating all tariffs by 2012. For those countries already in the SADC FTA, this target does not appear impossible.

Out of the 15 SADC member states, 11 are participating in the FTA. Angola, the Democratic Republic of Congo and Malawi are still to liberalise their tariffs to the required substantial level, while Seychelles only rejoined SADC recently.

Despite this setback, the regional community is in the process of preparing to launch its Customs Union, which is overdue since 2010.

With a few months now remaining before the end of the year, and with substantial preparatory work still to be done, it is increasingly becoming too ambitious a target to achieve.

 

Challenges

The overlap of membership between regional integration arrangements in the wider southern and eastern African region is without parallel anywhere else in the world. As noted, seven RECs are effectively operating in parallel within this region (SADC, Comesa, EAC, Southern Africa Customs Union (SACU), Intergovernmental Authority on Development, Economic Community of Central African States and Economic Community of the Great Lakes Countries).

EAC member states provide a good snapshot of this problem, as they are simultaneously members of all these regional bodies, except the SACU (Stahl, 2005: 21).

At the same time, countries in eastern and southern Africa have formed regional groupings for the purpose of negotiating EPAs with the EU.

Due to the overlaps in membership of existing regional organisations, however, they could not be used as vehicles for this purpose, resulting in a split into two additional negotiating configurations. The first was the Eastern and Southern Africa EPA (ESA–EPA) configuration, with an initial membership consisting of Burundi, Comoros, Djibouti, DRC, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Uganda, Zambia, and Zimbabwe.

The second was the SADC–EPA configuration, with an initial membership consisting of Botswana, Lesotho, Namibia, Swaziland, Tanzania, Angola, and Mozambique.

It must be noted, though, that Botswana, Lesotho, Namibia, and Swaziland (the so-called BLNS countries) are also members of SACU, and as such are already de facto part of the Trade, Development and Co-operation Agreement concluded between South Africa and the EU in 2000.

The most obvious question that arises when examining the logic of Tanzania’s layered trade relationships is why it is still in SADC, when a return to Comesa would seemingly resolve a host of conflicting institutional and trade relationships in one go – for Tanzania, let alone the EAC and the wider region.

A return to Comesa would resolve the need for the EAC Customs Union to maintain different internal rules of origin to deal with the Comesa–SADC–EAC overlaps; it would, in theory, offer a boost to Tanzanian exporters in terms of the Comesa market; and it would resolve one potential Customs Union clash between the EAC and SADC in 2010.

Kenya’s then Trade and Industry Minister Dr Mukhisa Kituyi even stated in early 2007 that his country could not belong to an EAC Customs Union and a Comesa Customs Union, unless Tanzania joins Comesa, as the country’s continued SADC membership would complicate efforts to implement any common external tariff bands (Mmegi, 23/01/2007).

In this respect, Tanzania’s continued membership of SADC reveals most clearly that it is not economic arguments alone that play a role in regional trade bloc membership choices. The parallel memberships are usually because a single bloc does not satisfy all the strategic, political and economic needs and objectives of the member state.

It is perhaps in the historical economic relationship between Kenya and Tanzania that part of the answer lies.

The key point is that the ESA and SADC–EPA configurations are not in line with the memberships of the existing regional organisations, so the question is how these configurations can be reconciled to facilitate regional integration.

This is especially pertinent, given that one of the main stated objectives of the EU in the current EPA trade negotiations is that the regional configurations for EPA negotiations support existing regional integration efforts and assist them in moving toward deeper regional integration.

The problem is that by not following a course of trade bloc consolidation, the EAC contradicts the purpose of its existence and prolongs regional uncertainty among local and foreign business.

Furthermore, it places an additional burden on the EAC institutions that must co-ordinate and administer the respective tariff and rules of origin overlaps and commitments of the three trade blocs. In fact, until such time as the EAC resolves this dilemma, it cannot really be considered a full Customs Union in practice, given that it has to maintain some internal customs and rules of origin procedures, to ensure products entering Tanzania under the SADC Trade Protocol do not find their way into Kenya and Uganda – effectively avoiding the normal import duty into those countries, and vice versa for products entering Tanzania and SADC from the rest of the EAC via Comesa.

The EAC is, therefore, only a partial Customs Union at the moment i.e. SADC and Comesa products can enter illegally through the EAC’s ‘membership back doors’. For example, Egyptian products have already been dumped in Tanzania via Kenya, and similar problems could occur with SADC goods from South Africa entering the EAC via Tanzania.

The further the integration extends within the EAC, the greater the potential for damage by such intra-trade bloc dumping and illicit trade.

Further legal issues could arise from the implementation of the various protocols that may be inconsistently executed or even conflicting in application among the various blocs to which a state may belong.

The great intentions of the tripartite agreement will have to find a way to mediate these contesting and complex dilemmas. Only time will pronounce on its ultimate success.

Liepollo Lebohang Pheko