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             Regional integration: a discussion on the proposed tripartite FTA
                                                  by Taku Fundira1




The main objective of Free Trade Agreements (FTAs) is to secure trade liberalisation. An advantage
of FTAs is that market access concessions may be negotiated more easily and more quickly than in
multilateral agreements because fewer parties are at the table. Thus parties can secure advantages
that are harder to win in bigger forums. These sentiments seem to be shared by African leaders in
the region, if one has to consider the decisions that they have taken lately at the regional level.

An example which is the key focus of this discussion is the proposed COMESA-EAC-SADC
tripartite free trade area (FTA). This was conceived in October 2008 when Heads of State from the
Common Market for East and Southern Africa (COMESA); the East African Community (EAC) and
the Southern African Development Community (SADC) agreed on the establishment of a FTA.
Discussions at Secretariat level have for some years been focusing on the harmonisation,
coordination of programmes and policies in areas of common interest.

According to the official communiqué of the 2008 COMESA-EAC-SADC tripartite summit, the
tripartite FTA “is a crucial building bloc towards achieving the African Economic Community as
outlined by the Treaty of Abuja.” It is envisaged that apart from harmonisation and coordination of
policies, the tripartite FTA will facilitate the “free movement of business persons, joint
implementation of inter-regional infrastructure programmes as well as institutional arrangements on
the basis of which the three RECs would foster cooperation.”

The tripartite FTA between the three regional economic communities (RECs) - would be an
expanded trade bloc comprising 26 countries that make up half of the Africa Union’s (AU)
membership. The new bloc will have a combined population and GDP of more than 500 million
people and $624 billion respectively with a per capita GDP averaging $1,184 (RTFP, 2008).

It is important to note that the establishment of such an expanded RTA will have differing
consequences for the foreign trade policy options available to participating countries depending on
the scope, depth and coverage of the RTA created. Regional policy makers are therefore faced with

1
    Researcher at tralac.


                    Regional integration: a discussion on the proposed tripartite FTA
                    tralac Publication | October 2010 | Author: Taku Fundira
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several important challenges. Firstly, will the merger of the 3 RECs solve the problem of overlapping
membership which has been on the table for more than a decade but never been seriously
addressed? Secondly, is the FTA be a means of addressing the challenge of politically sensitive
decisions of choosing one regional bloc over another? If history is anything to go by, we are faced
with the reality that this tripartite FTA is not as simple as it looks on paper.

Past experience can reveal that decisions taken at the regional level by Heads of States have mainly
been at a political level without any pragmatic economic considerations taken into account. And as
such, there has been a tendency to set highly ambitious and unrealistic targets within limited
timeframes and often with limited financial support for implementation. This has led to missed
deadlines and postponements of set targets. Such an inherent precedent across all the 3 RECs has
created a culture where member states are not held fully accountable and can easily renege on their
commitments.

The question we pose then is what are the prospects for the Tripartite FTA? The idea, although
quite noble faces a lot of challenges. What structure will it take and what is required for the
successful implementation of the FTA?

These are hard questions that cannot be answered easily. However, there are some benefits that can
come out of such an arrangement. These include:

i)        Duty free access to an enlarged market

One of the main concerns raised in trade theory regarding FTAs is the issue of trade creation versus
trade diversion. It is highly unlikely that any trade diversion will occur since market access is not
really an issue as most countries currently enjoy preferential treatment of their goods in major
markets. However, it is likely that there will be gains from an increase in intra-industry trade as
trading partners, trade goods that they are currently producing in their own countries. With greater
specialisation and efficiency, trade creation is the likely outcome as demand for goods produced
regionally increases.

ii)       An opportunity to simplify the Rules of Origin requirements

Rules of origin (RoO) specify the conditions under which a good becomes eligible for lower (and
even zero) tariffs in an FTA. While it is tempting to think of FTAs as liberalising, they are often not
because of the RoO requirements. These can act as hidden protection measures which create tariff-
like measures on imported intermediate inputs and affect the price of domestically made inputs as




                 Regional integration: a discussion on the proposed tripartite FTA
                 tralac Publication | October 2010 | Author: Taku Fundira
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well (Krishna, 2004). Currently SADC has different RoO requirements to the COMESA – EAC RoO
requirements and a simplification of especially the SADC RoO can bring benefits to many producers.

iii)        Elimination of non-tariff barriers;

As tariffs have decreased, both in prevalence and importance, the importance of non-tariff barriers
(NTBs), has increased. NTBs are any measures or interventions, other than tariffs, which distort or
restrict trade in goods, services and factors of production. Examples of such measures include
excessive health and safety regulations, costly customs procedures, and government procurement
policies which favour domestic over imported goods or services (Sandrey et al, 2008).

On the downside several drawbacks can be highlighted that can emanate from an expanded FTA
(Chauvin and Gaulier, 2002). These include:

i)      The possibility of polarisation might be of concern, since the emergence of a few poles of
        industrialisation and the polarisation of investment towards the larger and more diversified
        economies of the region is possible. This might raise the issue of the setting up of
        compensatory payments like those currently operating within the Southern African Customs
        Union (SACU).

ii)     Customs revenue represents a significant source of government revenue for most of the
        members in the tripartite. This suggests that any trade reforms will have to be accompanied
        by appropriate fiscal revenue policies to compensate for this loss of revenue.

iii)    Short-term costs can include output and employment losses, as the removal of tariffs under
        the FTA will have differential effects on sectors, sub-sectors and firms in each country.

iv)     Finally, the political tension existing in several SADC countries is also of concern as it can
        slow down the pace of the integration process. In recent years the cases of Zimbabwe and
        the DRC have been a cause of concern. It remains to be seen whether the current political
        effort to resolve the political crisis will yield positive outcomes.

Clearly the proposed tripartite FTA will require a lot of coordination and collaboration among the 3
RECs bearing in mind the challenges that are likely to be faced. The question is how will the larger
FTA proceed on the road to deeper integration as envisaged in the agreements of the constituent
entities?




                 Regional integration: a discussion on the proposed tripartite FTA
                 tralac Publication | October 2010 | Author: Taku Fundira
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References

Chauvin, S. and Gaulier, G. 2002. Prospects for increasing trade among SADC countries. Trade and
Industrial Policy Strategies: Annual Forum 2002.
[Online]. Available: http://www.tips.org.za/files/555.pdf

COMESA-EAC-SADC tripartite summit, 2008. Final Communique of the COMESA-EAC-SADC Tripartite
Summit of Heads of State and Government, [Online]. Available: www.africa-eu.org/.../file/COMESA-
EAC-SADC_EN_221008.pdf

Krishna, K. 2004. Understanding Rule of Origin, available
[Online]: http://elsa.berkeley.edu/~obstfeld/281_sp04/krishna_survey3.pdf

RTFP, 2008. Tripartite talks set new trade path, Regional Trade Facilitation Programme (RTFP),
[Online] available: http://www.rtfp.org/news.php?id=78

Sandrey, R., Smit, L., Fundira, T. & Edinger H. 2008. “Non-Tariff Measures Inhibiting South African
Exports to China and India,” tralac Working Paper 6/2008. Trade Law Centre for Southern Africa.




                Regional integration: a discussion on the proposed tripartite FTA
                tralac Publication | October 2010 | Author: Taku Fundira

								
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