Part 1 of this discussion paper considered the history, need and rationale of economic integration in Africa as well as the benefits it has in store for the continent and the challenges that it involves. The most significant development happening with regard to economic integration in Africa is the development and negotiation of the Tripartite Free Trade agreement (T-FTA).

This CAI paper focuses on the proposed T-FTA between the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA). The paper delves into the rationale, structure and policy considerations which must be taken into account to make this proposed free trade agreement a success. It looks at the T-FTA as a watershed in the economic integration narrative of Africa, with important economic and developmental implications.

The Tripartite Free Trade Area: A turning point in Africa’s regional integration?

In recent decades, there has been marked upsurge in regional trade agreements worldwide and Africa has had its fair share of it. Despite the large number of ambitious, but ineffectively implemented, integration initiatives, member states of SADC, EAC and COMESA have embarked on another ambitious integration programme. With more than 527 million people and a gross domestic product (GDP) of approximately US$ 624 billion, the 26 member countries of the Tripartite make up 57% of the population of the African Union (AU) and just over 58% in terms of GDP. This makes the Tripartite vital to the envisaged single market and continental integration of the African Economic Community (AEC).⁽²⁾

The heads of state and governments of the 26 member states of COMESA, EAC and SADC agreed in October 2008 to establish a grand Free Trade Area (FTA), now referred to as the T-FTA. Since its political inception, this initiative has followed a rather different course from other regional integration initiatives in Africa. The first step has been the setting up of various teams of technical experts who have been engaged in analytical work and have prepared a Draft Agreement and 14 Annexes, covering tariff liberalisation, Rules of Origin, the movement of business persons and dispute resolution, amongst other issues. Negotiations, however, were only officially launched at a summit, held in South Africa, in June 2011. The first phase of the negotiations will focus on trade in goods and the movement of business persons. Phase two will cover services and other trade-related issues. It is, therefore, important to recognise that the T-FTA does not exist yet, that the Draft Agreement and the annexes lack official status and substantive negotiations have not yet begun.

Rationale and key objectives of the T-FTA

Multiple endeavours for economic integration in Africa have led to a ‘spaghetti bowl’ ⁽³⁾ problem; many African countries have signed up for multiple trade agreements, some of which have conflicting requirements. The spaghetti bowl problem is characterised by conflicting implementation schedules and commitments of the different trade regimes, which undermine their effectiveness. The growing awareness of the problems arising from the trade agreement spaghetti bowl in Southern and Eastern Africa is at the foundation of the proposed T-FTA agreed upon among the heads of state of COMESA, EAC and SADC countries on 22 October 2008 at their meeting in Kampala. At this meeting, they agreed on a number of issues,⁽⁴⁾ including:

1. The expeditious establishment of an T-FTA encompassing the member states of the three Regional Economic Communities (RECs) with the ultimate goal of establishing a single customs union;
2. The development of a roadmap for the establishment of the FTA which would take into account the principle of variable geometry;⁽⁵⁾ and
3. The legal and institutional framework to underpin the FTA; and measures to facilitate the movement of business persons across the RECs.

The T-FTA initiative is seen as a more realistic approach to harnessing the gains from regional integration. The summit’s vision is “towards a large single market”⁽⁶⁾ with a theme of deepening COMESA, EAC and SADC regional integration. The Tripartite Summit agreed on a programme of harmonisation of trading arrangements amongst the three RECs, free movement of business persons, and joint implementation of inter-regional infrastructure programmes as well as institutional arrangements on the basis of which the three RECs would foster cooperation.⁽⁷⁾ The Summit underscored the fact that the tripartite arrangement is a crucial building block towards achieving the AEC as outlined by the Treaty of Abuja.⁽⁸⁾

The rationale for the T-FTA initiative is to:⁽⁹⁾

1. Promote the rapid social and economic development of the region through employment and wealth creation and the elimination of poverty, hunger and diseases. It expands to skill building, innovation, factor locations towards national, regional and foreign investments to create trade opportunities;
2. Overcome dependence on the export of primary commodities;
3. Dismantle bottlenecks attributed to regulations of commerce, particularly non-tariff measures currently undermining trade flows within respective RECs and amongst the RECs;
4. Jointly address poor infrastructure and institutional bottlenecks, “including bureaucratic and physical hindrances such as road charges, transit fees, administrative delays at borders and ports,” barriers to free movements of business persons, as well as overcome the challenges linked to the non-implementation of agreed commitments; and
5. Address challenges associated with overlapping memberships in the RECs, as well as ignite the stunted gains within the intra-regional tariff reforms;

The major objectives of T-FTA will be the following:⁽¹⁰⁾

1. To liberalise and facilitate trade in goods through inter alia the elimination of tariff and non-tariff barriers (NTBs) substantially on all intra-RECs trade;
2. To liberalise trade in services in selected sectors;
3. To facilitate, promote and enhance trade and investment as well as other areas of cooperation, e.g. industry, agriculture development and food security;
4. To enhance movement of business persons across the region; and
5. To develop and implement joint infrastructure programmes.

Will the T-FTA be different?

Africa’s integration record is marked by grand schemes, weak legal and institutional foundations for a rules-based dispensation of regional integration, and an implementation record that does not demonstrate serious commitment. Within this backdrop, it is legitimate to ask whether the T-FTA will be any different from its predecessors. The answer to this question lies not in the draft instruments, but in the outcome of the political process that will begin as member states negotiate the legal instruments of the T-FTA. However, there are many important lessons to take from other African Regional Integration Agreements (RIAs) which can contribute to making the T-FTA a successful integration arrangement.

At the Second Tripartite Summit, it was agreed that a ‘developmental approach’ would be taken for the T-FTA integration process. The aim was to go beyond a narrow focus of removal of tariffs and other barriers restricting trade between and within RECs. The T-FTA is based on three pillars: Market integration, infrastructure development and industrialisation.⁽¹¹⁾ These pillars are expected to address the key challenges which constrain the competitiveness of African businesses, and consequently limit Africa’s regional integration achievements and also Africa’s integration with the global economy.

Market integration has been central to African integration initiatives with much focus on tariff liberalisation at the individual RIA level. Infrastructure development has featured on the regional cooperation agenda. It is about augmentation and coordination of regional and national infrastructures for the advancement of regional trade. Industrialisation was part of the early post-independence discussion on regional integration as a remedy to continental fragmentation, small economies and small markets with limited scope for economies of scale, but it has not, in recent years, featured explicitly on the integration agenda. The explicit focus of the T-FTA framework on industrial development is notable because developing productive manufacturing capabilities is vital for economic development. The inclusion of industrial development in the T-FTA is also important because past industrialisation efforts of many T-FTA countries largely failed to bring about significant industrial capacity. As a result, most countries in the region continue to have relatively small and weak manufacturing sectors. This has in turn led to a disproportionate dependence of these countries on production and export of primary commodities, making them vulnerable to global commodity prices and declining terms of trade.

The liberalisation of trade in goods could proceed expeditiously, building effectively on the tariff liberalisation that has already been achieved by COMESA, EAC and SADC. Negotiations on Rules of Origin will be very important for the T-FTA. NTBs are a key impediment to the integration process. SADC, EAC and COMESA have established, through the Tripartite Coordination Mechanism, an online NTB reporting system which can be effectively used in conjunction with the existing legal instruments, and preferably a rules-based framework in the T-FTA (the Draft Agreement calls for a concerted effort to eliminate NTBs).⁽¹²⁾

The T-FTA seeks to integrate 26 member states for which trade facilitation must be taken as a priority. Infrastructure development, which is recognised as an important constraint on industrial development and intra-regional trade is one of the focus areas. Another crucial area for the T-FTA is the development of the services agenda encompassing services liberalisation and regulatory reform. The T-FTA can mark a watershed for African integration if member states are committed to the development of a comprehensive rules-based integration arrangement.

Structural challenges

Position of individual member states

In the proposed T-FTA, many countries are at different levels of development; the majority of them are Least Developed Countries (LDCs) and few are developing countries like Kenya, Namibia, Botswana, Libya, Mauritius, Seychelles, South Africa and Egypt. Although trade in goods and services has contributed to a considerable proportion of GDP in most member states, the service sector remains highly restricted and regulated. For the T-FTA to reach a mutually beneficial agreement, member states will have to open some of the regulated sectors for competition as well as investments. Its impact will be to restrict monopoly, improve efficiencies, create employment and generate revenue for the government in the form of domestic taxes. Also, many member states tend to give preference to their respective national interests over the interests of the RECs; such a conflict of interest, perceived or real, could impede the progress on the T-FTA.

Multiple trade rules, multiple implications

The three RECs in the proposed T-FTA are at different levels of regional integration. Each of the blocks (COMESA, EAC and SADC) have notified the World Trade Organisation (WTO) as required under Article XXIV of the General Agreement on Tariff and Trade (GATT),⁽¹³⁾ Article V of the General Agreements in Trade in Services (GATS) ⁽¹⁴⁾ and the Enabling Clause (EC).⁽¹⁵⁾ COMESA and EAC were notified under the EC in 2001 and 2005 respectively, while SADC’s FTA was notified in 2006 under GATT Article XXIV. When a WTO member enters into a regional integration arrangement through which it grants more favourable conditions of trade with other parties to that arrangement than with other WTO members, it departs from the Most Favoured Nation (MFN) rule, the guiding principle of non-discrimination defined in Article I of GATT and elsewhere in WTO agreements. However, WTO members are permitted to enter such arrangements under specific conditions which are spelled out in three sets of rules: Paragraphs 4-10 of Article XXIV of GATT which provide for the formation and operation of customs unions and FTA covering trade in goods, these specific rules are referred to as the EC. Due to the differing levels of economic development and categorisation as provided for in the EC, member states in the course of their negotiations for the T-FTA will have to make a decision on how they would want to notify the tripartite arrangement under the WTO. Notification of a regional trade agreement entered into with non-LDC countries (like South Africa, Egypt, and Mauritius) does not come under the purview of the provisions of the EC. Thus, the member states would have an option to notify the WTO under Article XXIV of the GATT, GATS Article V and ‘Substantially All Trade (SAT)’ requirements.

A regional integration agreement is said to cover “substantially all trade” when it covers 95% of all HS tariff lines at 6-digit level, or 90% of all existing trade between partners. The challenge that faces the T-FTA is to reach a WTO compatible agreement within the purview of ‘substantially all trade’ without violating the MFN principle.⁽¹⁶⁾  Another aspect to consider is that many member countries to the T-FTA are also simultaneously conducting negotiations with other countries or trade blocks (like the European Community). It is important to ensure that there are minimal conflicts of interest and whether or not the member states will be able to implement multiple trade agreements coherently.

Financing

The Tripartite Task Force, which comprises of the Secretariats of three RECs scheduled to meet at least twice a year, requires financing to fund its activities and negotiations, and has entered into discussions accordingly with the African Development Bank, the World Bank, the European Union and the United Kingdom’s Department for International Development (DFID).⁽¹⁷⁾ For example, a consultative meeting with the Tripartite Task Force held in London on 3 March 2010 resulted in indicative allocations of  £400,000 (US$ 609,000) for the 2010 work plan from DFID TradeMark programme covering administrative and logistical support for tripartite meetings, including the Summit and the Tripartite Trust Fund and its sub-committees. A total of £600,000 (US$ 914,000) was allocated for the preparation and negotiations of a tripartite FTA.⁽¹⁸⁾ DFID also allocated at least “£2.9 million (US$ 4.4 million) for the development of corridors and infrastructure and border posts and approximately £1.5 million (US$ 2.3 million) for developing the tripartite agenda on trade facilitation and addressing broader trade policy issues in the region such as competition and standards. These figures are largely for technical support for project implementation and co-ordination.”⁽¹⁹⁾ The concern here is the extent to which this financing, which is heavily dependent on external funding, is sustainable. This assumes more gravity when one considers the recent, rather frequent, instances wherein donor countries have not honoured their financial aid commitments. This raises the question of how member states would sustain the negotiations and implementation. A possible solution is the creation of a shared T-FTA resource pool mechanism to mobilise resources. However, the creation of such a resource pool is debatable considering the fact that many member states already lack the necessary capacity and resources to finance domestic programmes such as poverty reduction, as well as the secretariats in their current regional trade blocs.

Conclusion and policy considerations

An enlarged market created by the establishment of the T-FTA presents increased market opportunities for trade in goods and services produced within the FTA, thus stimulating increased industrialisation, production, employment, income generation and poverty reduction, among other economic and social benefits. The T-FTA will definitely help in addressing some prevailing challenges among the three regional blocks namely non-tariff measures on goods, infrastructural problems and trade facilitation, multiple membership and rules, rules of origin, defensive interests of some members states and eliminate member states’ restriction on the movement of natural persons and service consumers. However, it is premature to conclude that T-FTA will completely replace previous FTAs. Also, there is a need for a deeper economic integration framework taking into consideration the developmental needs of other member states, especially LDCs.

With regards to goods and services negotiations, the T-FTA working committees need to examine the specific barriers to trade, especially in services, including domestic regulations in individual member states. There is also a need to adopt a rules-based system of agreement where the structures of the agreement are legally executable by a supra-national institution charged with monitoring and ensuring enforcement of the agreement. The harmonisation of technical regulations, standards and conformity assessments procedures are necessary in the tripartite negotiations. Member states need to devote more attention to building a mechanism under which there would be a mutual recognition of standards and conformity assessments. This would require the establishment of standard development centres to support uniformity of standards, testing and certification requirements.

The T-FTA framework marks a departure from the traditional model of linear integration pursued by FTAs in Africa. This will undoubtedly lead to positive synergies; however, it is important to follow the course of its development with guarded optimism. The COMESA-EAC-SADC T-FTA is a crucial part of Africa’s grand economic integration ambitions wherein it seeks to achieve a Continental-Free Trade Area (CFTA) by 2017.⁽²⁰⁾

Written by Sudhanshu Sharma ⁽¹⁾

NOTES:

(1) Contact Sudhanshu Sharma through Consultancy Africa Intelligence’s Finance amd Economy Unit ( finance.economy@consultancyafrica.com). This CAI discussion paper was developed with the assistance of Gaylor Montmasson-Clair and was edited by Nicky Berg.
(2) COMESA-EAC-SADC Tripartite website, www.comesa-eac-sadc-tripartite.org.
(3) Bhagwati, J., 1995. “U.S. trade policy: The infatuation with free trade agreements”, in Bhagwati, J. and Krueger, A. (eds.). The dangerous drift to preferential trade agreements. AEI Press: Cambridge.
(4) ‘Final communiqué of the COMESA-EAC-SADC tripartite summit of Heads of state and government’, Trade Law Centre, 2012, http://www.tralac.org.
(5) The principle of variable geometry implies a concept of a community in which some countries may integrate more (or faster) than others.
(6) Othieno, L. and Shinyekwa, I., ‘Prospects and challenges in the formation of the COMESA-EAC and SADC Tripartite Free Trade Area’, Economic Policy Research Centre, November 2011, http://www.eprc.or.ug.
(7) ‘Historic first EAC-SADC-COMESA Tripartite summit’, The African Executive, 29-05 November 2008, http://www.africanexecutive.com.
(8) Ibid.
(9) Shayanowako, P., ‘Towards a COMESA, EAC and SADC Tripartite Free Trade Area’, Trade & Development Studies – Trust, January 2011, http://www.panafricanglobaltradeconference.com.
(10) Ibid.
(11) See the texts of the Draft Agreement and the 14 Annexes, http://www.tralac.org.
(12) Ibid.
(13) World Trade Organisation website, http://www.wto.org.
(14) ‘General agreement on trade in services’, World Trade Organisation, 1994, https://www.wto.org.
(15) ‘Work on special and differential provisions’, World Trade Organisation, http://www.wto.org.
(16) Under the WTO agreements, countries cannot normally discriminate between their trading partners. If it grants someone a special favour (such as a lower customs duty rate for one of their products) then it will have to do the same for all other WTO members.
(17) COMESA-EAC-SADC tripartite website, http://www.comesa-eac-sadc-tripartite.org.
(18) ‘Regional integration strategy paper 2011–2015’, African Development Bank, September 2011, http://www.afdb.org.
(19) Ibid.
(20) ‘Draft framework, road map and architecture for fast tracking the Continental Free Trade Area (CFTA)’, African Union, 2011, http://www.au.int.