RITD UNECA, ADDIS ABABA, ETHIOPIA May 31 2011 STUDY ON THE
ESTABLISHMENT OF INTER-RECs FREE TRADE AREAS IN AFRICA DRAWING ON
LESSONS FROM THE COMESA-SADC-EAC FTA EXPERIENCE
Slide 2
Background AU creation of RECs as pillars for integration and
development in Africa Hence the creation of five RECs namely UMA)
in the North, ECOWAS in the West, EAC in the East, ECCAS in Central
Africa, and (SADC) in the South. Three more RECs namely COMESA,
Community of Sahel- Saharan States (CEN-SAD), and (IGAD) have
received the AU endorsement and have joined the earlier five to
bring the AU sponsored RECs to eight. The Lagos Plan of Action of
1980 prescribed the use of the (RECs) as building blocks for
regional integration in Africa
Slide 3
Background The Abuja Treaty of 1991 endorsed the use of RECs
for regional integration NEPAD formed in 2001 as a strategy for
faster development through regional economic integration further
buttresses Africas bid to accelerate the pace of development UNECA,
the AUC and the AfDB all support these development initiatives as
Africas benchmark achievements and springboards for economic
transformation and integration in Africa and for launching Africa
into the global geo-politics and economy African leaders and
development pundits believe that increased trade ties among RECs
through the use of inter-RECs FTAs will quickly metamorphose into a
Grand intra-Africa FTA to boost intra-Africa trade to quickly
realize the continental dream of an African Economic Community and
Common Market.
Slide 4
Introduction Trade has emerged as a formidable instrument for
inter-regional cooperation However, Africas political and
socio-economic upheavals have impaired its capacity and capability
to effectively use trade as a veritable instrument of economic
growth for her development The immediate post-independence era saw
a gradual disintegration of these trans-regional infrastructural
facilities owing to perceived attempts at establishing national
identity and sovereignty. Currently new political agendas and
paradigm shift towards recreating closer ties and cooperation
between member countries of regional economic blocs have emerged
The formation of the Organization for African Unity (OAU) in 1963
and its later transformation to African Union (AU) in 2001 is one
of such efforts at enhancing the continent's economic
prosperity
Slide 5
Introduction Efforts to fast-track development through regional
integration region saw the emergence of more RECs along diverse
lines that include common currency affiliations, common language,
identical colonial history, and homogeneous geo- political
locations The new formations have created conditions for multiple
memberships in the RECs, thereby creating new problems in the wake
of new orientations in the pursuit of regional integration in the
continent The RECs are now seeking closer cooperation through
intra- and inter-REC trade by forming trading blocs for faster
regional integration and to speed up the establishment of an
African Common Market The formation of COMESA and CEN-SAD to cover
wider areas and to include more states from existing RECs
demonstrates further efforts by African states to expand the
frontiers of regional cooperation in trade as a strategy for faster
regional integration The AU Ministers of Trade, at their 6 th
Ordinary Session in Kigali in November 2010, after due assessment
of the progress made in the implementation of FTAs and Customs
Unions in the various RECs, and guided by the views expressed by
ECA, AU and AfDB (2010) in their joint publication - Assessing
Regional Integration in Africa IV (ARIA IV), recommended the
fast-tracking of the establishment of an African FTA
Slide 6
Introduction The EAC, COMESA and SADC Tripartite Summit of
October 2008 and the resultant Tripartite FTA Agreement,
demonstrate the compelling desire for RECs to forge inter-REC
cooperation in trade to enhance regional integration and overall
economic emancipation of the continent The 26 in the three RECs
have a combined population of 527 million people, a total GDP of US
$624 billion, and GDP per capita of US$1,184 (Newsline, 2010), over
58% contribution to GDP, and 57% of the total population of the
African Union (COMESA, EAC and SADC, 2009: Ministry of East African
Community, 2010) The Tripartite FTA is to be established on
tariff-free, quota-free, exemption-free, and should adopt the
principle of variable geometry by simply combining the existing
FTAs of COMESA, EAC and SADC into a single FTA (COMESA, EAC and
SADC, 2011) The Inter-REC FTA is expected to cushion and control
internal and external trading shocks; enlarge markets for goods and
services for Member States; increase the critical mass of trading
facilities; eliminate the problem of multiple memberships; promote
inter-REC and intra-African trade; and enhance the economic and
social wellbeing of the people in the region The initiative takes
place against the backdrop of numerous obstacles to trade
internally and externally. Internally, there are protracted
political unrests; poor infrastructure including low level of
information and communication technology (ICT); paucity of skilled
human capacity; lack of political will; complexity of the African
trading environment especially with multiple memberships in RECs;
and limited domestic capital. Externally, Africa lacks
attractiveness for foreign capital and investment flows and the
continent remains overly marginalised in the globalized and
international scheme of things especially in trade. The Inter RECs
FTA seeks to address these problems by aiming at a larger market
with prospects for economies of scale. This report presents and
analyzes the prospects, challenges and possible impacts of
establishing inter-RECs FTAs drawing from the experience so far in
establishing the COMESA-EAC-SADC Tripartite FTA.
Slide 7
Introduction The initiative takes place against the backdrop of
numerous obstacles to trade imposed by both internal and external
forces. Internally, there have been protracted political unrests;
poor infrastructure including low level of information and
communication technology (ICT); paucity of skilled human capacity;
lack of political will; complexity of the African trading
environment especially with multiple memberships in RECs; and
limited domestic capital. Externally, Africa lacks sufficient
attractiveness for foreign capital and investment flows. In
addition, the continent remains overly marginalised in the
globalized and international scheme of things especially in
trade
Slide 8
Introduction The study assessed the progress so far made in the
COMESA-EAC-SADC Tripartite FTA; identify the challenges and
bottlenecks in the process; determine the prospects of other RECs
replicating the Tripartite FTA example to form other FTAs; and the
potentials of the new FTAs converging to form a Grand Intra-Africa
FTA to boost intra-Africa trade. It made recommendations on how to
surmount the challenges and obstacles in using inter-REC FTAs to
fast- track the formation of the intra-Africa FTA and customs union
to achieve the goal of an African Economic Community in line with
the Abuja Treaty
Slide 9
Aims and Objectives This study has been undertaken to analyze
the potential impact of inter-RECs FTA on African economies, the
challenges, the costs, as well as the political and legal
implications of the undertaking It further assessed the effect on
the inter-RECs FTAs of the on- going Economic Partnership
Agreements (EPAs) that African countries are currently negotiating
with the European Union. The outcome of the study is expected to
guide Member States of the African Union in making sound decisions
on joining the on- going inter-RECs FTA or in establishing new
ones. It is hoped that the inter-RECs FTAs will eventually merge to
form a Grand intra-Africa FTA
Slide 10
Specific Objectives Conduct an overall assessment of the
procedure in establishing inter-RECs FTA and the challenges and
benefits by drawing from the experience of the on-going
COMESA-EAC-SADC Tripartite FTA s. Assess and analyze trade
liberalization and facilitation efforts of the RECs (including
progress in the establishment of free trade areas and customs
unions) and their implications for intra-African trade. Assess and
analyze the likely direction of intra-Africa trade sis following
the establishment of inter-RECs FTAs. Assess and make proposals for
the establishment of inter-RECs FTAs drawing from the experience in
the COMESA-EAC-SADC Single FTA. Provide workable recommendations
and clear action plans for the establishment of the inter-RECs FTA
based on the assessments. Analyze government policies and their
impact on the inter-RECs FTAs. Outline the potential economic,
social, legal as well as political implications of African Member
States joining the inter-RECs FTAs. Discuss the impact of the
inter-RECs FTA on African economies including rules of origin,
revenues, and customs laws. Assess the implications of the
on-ongoing EPA negotiations on the inter-RECs FTAs in Africa.
Slide 11
Justification The Tripartite RECs is a practical demonstration
of an action plan that is geared towards the implementation of the
Lagos Plan of Action for regional integration and the Abuja Treaty
that prescribed the establishment of African Economic Community by
2028 (Madakufamba, 2008). Inter-RECs FTAs represent ideal
interventionist models for addressing most of Africas perennial
trade and regional integration challenges Inter-RECs FTAs will
promote customs cooperation and trade facilitation; harmonization
and coordination of industrial and health standards;; use of
simpler and straightforward rules of origin, promote value added in
production; relaxation of restrictions on movement of business
persons; enhance the use of ICT; development of the cultural
industries ; and develop sector strategies to increase the
productive capacity of regions. Inter-RECs FTAs will further
improve regional infrastructure and consolidate regional markets
through improved interconnectivity in all forms of transport and
communication as well as promote sustainable energy supply to
enhance the regions competitiveness. Finally, through
liberalization, harmonization, and facilitation in trade,
inter-RECs FTAs would eliminate the complex problem posed by
multiple memberships, imposition of non-tariff barriers (NTBs), and
the imbalances in trade and trading capacities (COMESA, EAC and
SADC, 2010b)
Slide 12
Theoretical Concept Figure 1. Hypothetical Structure of
Proposed FTAs
Slide 13
Methodology Types of Data Data Collection Techniques Sampling
Technique The Survey SADC Gaborone COMESA - Lusaka EAC Arusha Trade
Ministries in Nairobi and Pretoria Method of Data Analysis
Slide 14
Results and Discussions Procedures and Experience in
Establishing inter- RECs FTA After the Tripartite Summit in
Kampala, Uganda on 22 October 2008 the governments of the three
RECs commissioned a team of consultants to undertake a study on the
establishment of the single FTA; A Task Force was constituted from
the three RECs to complement the work of the consultants. After 14
months of the Summit, the Task Force produced a Draft Report, Draft
Tripartite FTA Agreement with 14 Annexes
Slide 15
Annexes Annex Table 1. Tripartite Agreement Annexes Annex 1.
Illustrative List of Non Tariff Barriers Annex 2. Rules of Origin
Annex 3. Customs Cooperation Annex 4. Transit Trade and Transit
Facilities Annex 5. Trade Remedies Annex 6. Competition Policy and
Law Annex 7. Standardization, Metrology, Accreditation and
Conformity Assessment Annex 8. Sanitary and Phytosanitary (SPS)
Measures Annex 9. Movement of Business Persons Annex
10.Intellectual Property Rights Annex 11.Guidelines for Services
Negotiations Annex 12.Trade Development and Competitiveness
Measures Annex 13. Dispute Settlement Annex 14.Institutional
Arrangements
Slide 16
Challenges and Potentials in Establishing inter-RECs FTA
Challenges Low Level of Technology Multiple and Overlapping
Memberships (See Figure s 2, 3 and 4) Varying Stages of Economic
Integration among RECs Multiple and Undifferentiated Products Lack
of Political Will Limited Human Capacity Financial Constraint
Slide 17
Slide 18
ECCAS Angola Sao Tome and Principe ECCAS Angola Sao Tome and
Principe CEMAC Cameroon, Chad, CAR, Congo Brazzaville, Equatorial
Guinea CEMAC Cameroon, Chad, CAR, Congo Brazzaville, Equatorial
Guinea CEPGL Burundi, DRC, Rwanda CEPGL Burundi, DRC, Rwanda Figure
3. Member States of ECCAS, CEMAC and ECCAS
Slide 19
UMA Algeria CEN-SAD CAR, Chad, Djibouti, Egypt, Eritrea, Libya,
Morocco, Somalia, Sudan, Tunisia Libya Morocco Tunisia ECOWAS
Guinea Gambia, Ghana, Liberia, Cape Verde Nigeria, Sierra Leone
Mauritania UEMOA: Benin, Burkina Faso, Cote dIvoire, Guinea Bissau,
Mali, Niger, Senegal, Togo Figure 4. Member States of CEN-SAD, UMA,
ECOWAS and UEMOA
Slide 20
Challenges and Potentials in Establishing inter-RECs FTA
Potentials L arger Markets, Specialization and Industrialization,
and Economies of Scale (Example of Kenyas Sugar Industry) Trade
Liberalization Achievements Infrastructural Development
Slide 21
Trade Liberalization and Facilitation Efforts of RECs and their
Impacts on Intra-Africa Trade Trade Liberalization Progress has
been made in the removals of tariffs barriers through legislation
Not much progress has been made on NTBs because most of them
(corruption, bribery, piracy, road blocks) are not subject to
legislation
Slide 22
Slide 23
Slide 24
Trade Liberalization and Facilitation Efforts of RECs and their
Impacts on Intra-Africa Trade Trade Facilitation The primary goal
of trade facilitation is to reduce the transaction cost and
complexity of international trade for business and improve the
trading environment in a region, with a view to optimizing
efficiency and effectiveness in government control and revenue
collection (COMESA, EAC and SADC, 2009) Inter-RECs FTA, hopes to
ensure that any insurance taken in one country should be used in
other countries in the FTA. Role of the Customs (See Figures 7a and
7b
Slide 25
Figure 7a: Completing Customs Certificates
Slide 26
Figure 7b: Access Granted with Completed Certificates
Slide 27
Trade Liberalization and Facilitation Efforts of RECs and their
Impacts on Intra-Africa Trade Trade Facilitation The Partner RECs
have agreed to: Reduce the cost of processing documents and volume
of paper work required for trade among Member States. Ensure that
the nature and volume of information required for trade within the
FTA does not adversely affect the economic development of or trade
among the Member States. Adopt common standards of trade procedures
within the free trade area where international requirements do not
suit the conditions prevailing among Member States. Ensure adequate
coordination between trade and transport facilitation within the
FTA. Keeping under review procedures adopted in international trade
and transport with a view to simplifying and adopting them. Collect
and disseminate information on international development regarding
trade facilitation. Promote the development and adoption of common
solutions to problems in trade facilitation instruments. Initiate
and promote the establishment of joint programmes, for the training
of personnel engaged in trade facilitation. Establish and promote
one-stop border posts (OSBPs).
Slide 28
Trade Liberalization and Facilitation Efforts of RECs and their
Impacts on Intra-Africa Trade Trade Facilitation Infrastructure
-includes transport infrastructure such as roads, railways,
waterways and airways; energy (variety of exploitable energy - oil,
gas, coal, and hydro and solar energy); ICT, etc. The North-South
Corridor (NSC) Programme receives major focus Funding for
Infrastructure Development The three RECs organized a High Level
Conference on the North- South Corridor (NSC) in Lusaka, Zambia
from 6-7 April 2009. The NSC Programme is a flagship programme of
the Tripartite FTA programme. It is a Model Aid for Trade Programme
engineered by the Tripartite FTA programme to implement an economic
corridor- based approach to trade facilitation and reduce the costs
of cross- border trade in the sub-region. Pledges for prioritized
projects at the conference amounted to US$ 1.2 billion. The DFID is
reported to have given UK 67 million in support of the prioritized
NSC project
Slide 29
Trade Liberalization and Facilitation Efforts of RECs and their
Impacts on Intra-Africa Trade Funding The Tripartite Partner RECs,
in collaboration with IGAD organized a major infrastructure
development conference in Nairobi on 28th and 29th October, 2010
with financial support from PRO-INVEST. Captioned Linking up
Eastern and Southern Africa for Sustainable Economic
Development
Slide 30
Guidelines on the Establishment of Inter-RECs FTA with Emphasis
on the COMESA-EAC-SADC Tripartite FTA Define Objectives and
Principles Define Implementation Procedures Consult Stakeholders
Evaluation/Assessment and Comments A careful assessment of the
processes and achievements of the Tripartite vis a vis its set
objectives and principles shows significant divergences. Some of
these deviations are highlighted to serve as a guide for the
Tripartite operatives in future and for RECs that will undertake
the establishment of other inter-RECs FTAs. There is a general
feeling that the arrangement and the procedure in setting up the
Tripartite FTA might not have given sufficient thought to the cost,
time, and resource demands of the programme at its inception. The
decision making process for the establishment adopted a top-down
instead of a bottom- up approach. Eventually, trying to communicate
the idea to the grassroots always faces problems of acceptability
and might not receive adequate cooperation. The schedule of
activities is somewhat ambitious in terms of the deliverables and
the time within which to achieve them. The timelines are considered
too tight for an FTA of that magnitude. (DTI, Pers Comm). The
deadlines in delivering the outputs of the Road Map have not been
met owing probably due to the tightness of the timelines. For
example, consultations on the revised tripartite document slated
for January 2011 could not hold because Member States had not all
submitted their comments on the revised document.
Slide 31
Guidelines on the Establishment of Inter-RECs FTA with Emphasis
on the COMESA-EAC-SADC Tripartite FTA Evaluation/Assessment and
Comments The Second Tripartite Summit which was slated for the
first quarter of 2011 could not be held and has now been shifted to
the second quarter. The launching of the Draft Agreement for
negotiations which is to take place during the Second Tripartite
Summit is therefore delayed. Similarly, the date for implementation
of the Tripartite FTA which was originally slated for 1 st January
2012 has now been shifted to 1 st January 2013. The original plan
to set up the Tripartite FTA by combining the three existing FTAs
seems to have been shelved as the formation seems to have started
from the scratch. Second, it appears that the principle of variable
geometry, which is prescribed, seems to have been ignored. The
Tripartite FTA Units are not fully established and functional at
the REC Secretariats and this poses a problem in the implementation
process. The non-tariff barriers are difficult to identify and
eliminate and they vary widely across states and regions and exist
on land, sea and air.
Slide 32
Expected Direction of Intra-Africa Trade with Inter-RECs FTA
Larger Market for goods and services Economies of Scale Increased
Regional and International Trade (See Figure 8)
Slide 33
Figure 8. Trend in the share of intra-Africa trade in COMESA,
EAC and SADC Source Data: UNCTA. 2010
Slide 34
Costs and Benefits in Establishing inter-RECs FTA Costs of
Integration Direct costs of providing infrastructure Possible job
losses from mergers and downsizing Revenue losses from tariff
removals or reductions Benefits from Integration Economies of scale
Better competitiveness Possible increase in employment Equity in
income distribution by adequately compensating losers
Slide 35
Government Policies and their Impact on the Inter-RECs FTA
Protectionist Policy Influence of Culture Multiple and Overlapping
Memberships
Slide 36
Economic, Social, Legal and Political Implications of Joining
the Inter-RECs FTAs Economic Social Legal Political
Slide 37
Impact of Inter-RECs FTA on African Economies with Respect to
Rules of Origin, Revenues, and Customs Laws Rules of Origin Revenue
Customs Laws
Slide 38
Implications of the On-going EPA Negotiations on the Inter-RECs
FTA. EU Stand on the Negotiations Positioning Africa in the
Negotiation Framework African Union Stand
Slide 39
Conclusions The Tripartite FTA has set the pace The prospects
of others joining are high and the conditions are favourable There
could be challenges but they are surmountable Strong political will
is needed to achieve success The expected benefits outweigh the
costs and these make the initiative worthwhile and desirable Inter
RECs FTA if it gives rise to a Grand Africa FTA and Customs Union
will quicken the realization of Abuja Treaty on African Economic
Community
Slide 40
Recommendations 1. The principle of variable geometry should
form the basis for establishing the inter-RECs FTAs. In what can be
termed the coalition of the ready and willing , the states that
meet the requirements for immediate membership within the
stipulated time frame should form the FTA. Other states willing to
join but have not met the conditions can join later when they
fulfill the requirements. This will help speed up the process. 2.
Other RECs should be vigorously sensitized to use the experience
gained from the Tripartite FTA to form other inter-RECs FTAs and
through those FTAs form a Grand African FTA and customs union. 3.
The establishment of the new FTAs should take advantage of any f
symmetrical or homogenous conditions such as common culture and
language, common currency, level of trade liberalization and
commonality in trade and trade facilitations such as connectivity
in transport, energy and information and communication technology.
4. Starting from areas of commonality will reduce the complexity
and costs in money and time to be spent in achieving the goal. 5.
In establishing the inter-RECs FTAs, it is vital to be realistic
and avoid ambitious, costly and complex formations. It is advisable
to adopt simple, productive, and cost-effective models of
integration through development projects based on the regions
comparative and competitive advantages in producing the products
and in facilitating their imports, exports and distribution. 6. On
international negotiations with particular reference to the EUs EPA
and the WTO trade negotiations, the African Union Commission should
as a matter of urgency develop a common African stand and set of
rules and conditions on all the issues that relate to Africa and
that might impact significantly on the continents development. The
set of rules and conditions will form the benchmark for Africa
which all African states should use as tools for negotiations. In
this way, Africa will be proactive and not reactive in global and
multilateral negotiations. 7. The manpower shortage in both quality
and quantity and their significant contribution to the delays and
lagging behind in the implementation process should be addressed by
incorporating capacity building in the inter-REC and the
intra-Africa FTA Agreements.
Slide 41
Recommendations 8.While the financial support from overseas
partners, especially in the infrastructural development is
appreciated, the danger of Africa ceding much authority to and
becoming over dependent on these foreign agencies cannot be
overlooked. It is therefore expedient for Africa to start looking
inwards in raising funds for its projects. They can do this through
a well organized and coordinated tax system on governments and
through the involvement of the private sector. 9. A thorough
situation analysis should always precede the launching of a
programme to determine the feasibility and viability of the
programme and should include the assessment of quantum of resources
available for the execution and the time frame over which to
execute the programme. Allowance should be made about contingencies
so that programmes do not face delays or the dangers of running out
of funds or time midstream. 10. Partners in the FTA should ensure
that the negotiations result in a win-win situation for Member
States and the participating RECs. Otherwise unfair treatment
leading to inequitable distribution of losses or gains will lead to
disenfranchisement and unwillingness to cooperate. 11. Compensation
and budgetary support as a result of revenue loss occasioned by the
inter-RECs FTA agreements should be a once-off exercise and time
bound to avoid the creation of indolence and over indulgence of
states, which could breed inefficiency and uncompetitive trading
regimes. 12. Trade agreements in an FTA should prescribe
discriminatory interventions in investments and infrastructural
development with the aim of supporting highly disadvantaged states
and regions as a way to boost their confidence and guarantee
fairness. 13. A bottom-up rather than top-down approach should be
adopted to ensure that all stakeholders especially those at the
grassroots are involved in the planning and conceptualization stage
of the programme. This will also correct the disruptive effects
encountered in using ministers as programme implementation whose
frequent turnovers cause projects built around them to be abandoned
or delayed.
Slide 42
Action Plan Statement of the Goal The goal is to achieve a
Grand Africa FTA by 31 December 2013 IMPLEMENTATION EVALUATION What
is to be done?By whom and when?What resources are available?What
determines progress?How and when to gather evidence? Two more
inter-RECs FTA to be formed to add to the on-going Tripartite FTA
1. ECCAS, CEMAC and CEPGL to do the same by the same date (Figure
7a) 2. CEN-SAD, AMU, ECOWAS and UEMOA to meet and discuss by
September 2011 The Secretariats of the RECs to be used as
coordinating units Monthly scheduled meetingsDates and minutes of
the scheduled meetings The three inter-RECs FTAs hold a Summit to
establish a Task Force and delegate authority to them to oversee
the integration The Task Force for the three inter- RECs FTAs to
meet prepare integration plan by March 2012 The Secretariats of the
three inter- RECs FTAs to coordinate the integration of the three
inter-RECs FTAs Summit and subsequent monthly meeting schedules of
the three inter- RECs FTAs Meeting dates and minutes of the
meetings Task Force to prepare Agreement and Roadmap for the
implementation of the Grand Africa FTA The Task Force composed of
representatives from the three inter- REC FTAs to prepare Draft
Agreement by December 2012. Inter-RECs FTA personnel and facilities
as well as private sector, and donor technical and financial
support Attendance in meetings of all participants and
stakeholders. Increased number of donor and private sector
participation and commitments Amount of pledged and collected from
fund drives, records of all meetings held and their dates.
Presentation of the Draft Agreement by the inter-RECs FTA Joint
Task Force for approval Inter-RECs FTA Joint Task Force in June
2012 Inter-RECs FTA Task Force, inter- RECs FTA personnel and
facilities, and donors Published meeting schedules.Minutes and
dates of meetings; funds and technical support procured Review of
the Grand FTA Draft Agreements Partner Inter-RECs FTAs, RECs within
the inter-REC FTAs, and the Member States on December 31, 2012 RECs
and inter-REC FTA Secretariats and personnel, private sector, and
donors Promotions, sensitization programmes, advertisements, and
meetings Published programs in daily or weekly papers, minutes and
dates of monthly meetings, Launching of the Grand Africa FTA Draft
Agreement The Joint inter-RECs Task Force in June 30 2013 Political
leaders, inter-RECs FTA personnel, inter-RECs FTA facilities.
Schedule of meetings leading to the launching. Copy of The Draft
Agreement, brochure for the launching, report on the launching
Commencement of implementationAll three inter-RECs FTA and their
Member States on 31 December 2013 The Secretariats of the three
inter- RECs FTAs Location and facilities designated for the Grand
Africa FTA Physical structures, equipment and personnel allocated
to the Grand Africa FTA