…Challenges posed by economic trade deals
By Hilary Mare
THE issue of regional integration is particularly prominent in Africa, where it has been estimated that the continent’s current trade intensity barely stands above 12 percent. Africa’s own agenda aims to boost intra-regional trade from the current level to 25 percent or more by 2022. This is an ambition that must be embraced by Africa’s traditional and emerging trading partners considering the potential development benefits that could be derived from such a scenario.
Essentially for Namibia and amongst all its regional trade deal, the historic signing of the EU-SADC Economic Partnership Agreement (EPA) against the backdrop of a comprehensive and protracted negotiation process brought Namibia closer to the biggest global market and makes a case for the development of the local manufacturing and production sectors.
In the constructs of the deal it has been well documented that the Government needs to foster a conducive investment climate through structural reforms to promote competitiveness of the domestic economy, mobilise domestic resources as a sustainable means to finance development and leveraging international cooperation in this regard, and promote the role of the service sectors in the economy, especially in respect of tourism, financial services, transport and logistics.
Indeed the deal has wider benefits not only for Namibia but the rest of the region. The southern African market will open gradually and partially to EU exports, in an asymmetric way. The import duties on many intermediary goods will be significantly reduced, making the products more easily accessible to southern African entrepreneurs.
Substantially, the EPA creates joint institutions to support dialogue, smooth handling of all trade issues, and monitoring of the impact of the trade deal. The EU will work with its SADC partners to ensure smooth implementation of the agreement, together with regional and national development cooperation bodies.
In its totality, the coming into force of the Economic Partnership Agreement presents immense opportunities for improved demand and export-led growth for Namibia and the ACP region as a result of increased market access into the EU. The duty-free and quota free access into the EU market is an important catalyst for improved productive capacity for the ACP region, Namibia inclusive thus it needs to be fully embraced.
However so, regional integration is not happening in a vacuum. With intra-regional trade still accounting for a relatively small share of Africa’s exports, the continent cannot ignore its traditional and new trading partners in the South. Moving towards deep continental integration would also ultimately require harmonising the different trade commitments made by African countries at the multilateral, regional and bilateral level. China is now Africa’s second most important export destination behind the EU and India has surpassed the US to become Africa’s third largest export destination. The potential for the emerging economies to boost regional integration in Africa is significant.
It is notable that continental integration has been on the agenda ever since African countries gained political independence. The notion of pan-African integration even predates independence movements and the creation of nation states on the continent. Trade has traditionally been the motor of economic, social and political integration. The launch in June 2015 of the Tripartite Free Trade Agreement, followed by the official start of negotiations with a view to establishing a Continental Free Trade Area (CFTA) by 2017, marks a key milestone in this process.
Empirical evidence also suggests that Africa’s imports from the emerging economies, notably China and India, have been mainly in manufactured goods, including motor vehicles, machinery and equipment. To the extent that these products can be sourced at lower cost from the South, African countries can afford to import more of them, leading to greater productive capacity and, ultimately, increased trade. The links between emerging economies’ investment activity in Africa and intra-African trade are also critical in building the continent’s productive capacity – both directly, including through infrastructure projects, and through knowledge spillovers. Moreover, where such investment catalyses regional FDI, there will be a further boost to region al integration.
On the regulatory front, the rise of mega-regional agreements is posing new challenges. These deep integration arrangements tend to go beyond tariff liberalisation to focus on services, non-tariff barriers, regulatory cooperation and investment, with the risk for African countries that such agreements may raise the bar too high for non-members to access their markets, resulting in further marginalisation of the continent. Estimating the impacts of the mega-regionals on third parties remains a guessing game since only the Trans-Pacific Partnership (TPP) has been concluded – and at the time of writing ratification is facing growing uncertainties.
The trade diversion effects are likely to be small since tariffs are already low. However, the exceptional treatment of agriculture, fisheries or textiles and clothing where high tariffs remain could be a cause for concern over preference erosion for competitive African exporters. On the other hand, the harmonisation of standards, for example between the US and the EU, could benefit excluded parties as they only need to meet the standards in one market to qualify for export to the other. The mega-regionals may also have a domino effect, leading excluded parties to form their own bloc or strengthen existing mega-regionals, and, in the case of Africa, ultimately creating new momentum for the CFTA.
Such an effect may also result ultimately from the conclusion of the Economic Partnership Agreements (EPAs). While these agreements promised to strengthen regional integration in Africa, they arguably had the opposite effect, at least at the very outset, by pushing several countries to split away from their Regional Economic Community (REC) and go for an EPA alone or as part of a smaller configuration. However, an unintended by-product of the EPAs may be the realisation among African RECs that, unless they step up efforts to boost regional integration, they might end up offering more generous market access terms to the Europeans than to their regional partners. The EPAs may also provide for technical and institutional support towards regional integration, including in areas such as infrastructure projects and trade facilitation measures.
Regional accumulation can also foster the development of regional value chains, which, in turn, can boost intra-regional trade. There is some evidence, for example, that flexible rules of origin for textiles under the US-led Africa Growth Opportunity Act (AGOA), has spurred the development of regional value chains in Africa with remarkable impact on jobs. In short, regional integration offers significant potential; particularly if it goes beyond cooperation on trade and promotes economic transformation by expanding regional coordination to other areas, including investment, trade facilitation and infrastructure. Essential drivers for such an approach would include the use of intra-African markets as an engine of economic transformation through diversification, industrialisation and the promotion of regional value chains combining goods, services, investment, trade facilitation and infrastructure development.
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