The Continental Free Trade Area: What's going on?

28 October 2014

 

Regional integration has been a core element of African countries’ development strategies since their independence. The Africa-wide development agenda, as championed by the African Union (AU), is based on regional integration and the formation of an African Economic Community (AEC). This was laid out in the 1980 Lagos Plan of Action for the Economic Development of Africa and the Abuja Treaty of 1991. The Africa regional integration roadmap considers the Regional Economic Communities (RECs) as the building blocks of the AEC. The AEC is to be formed in six phases over 34 years, as outlined below:

 

At its 18th Ordinary Session in January 2012 in Addis Ababa, on the theme “Boosting Intra-African Trade,” the Assembly of Heads of State and Government of the AU adopted a decision and a declaration that reflected the strong political commitment of African leaders to accelerate and deepen the continent’s market integration. The Heads of State and Government agreed on a roadmap for establishing a Continental Free Trade Area (CFTA) by the indicative date of 2017.

As highlighted in the roadmap, the CFTA is set to build on the Tripartite FTA negotiations, which would create a free trade area among the 26 countries of the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC).  Since the formal launch of the negotiations in 2011, significant progress has been made, and leaders have expressed confidence that the negotiations will be successfully concluded by the end of 2014, with the agreement to be fully implemented by 2016.  The 26 Tripartite countries represent close to 60 percent of the AU’s GDP and population, and an FTA among them would constitute a fundamental building block for the CFTA.

The 18th AU Summit in early 2012 opened the discussions on a second bloc of combined RECs (ECOWAS, ECCAS, CEN-SAD, and AMU) to emulate the TFTA. Initial consultations took place in April 2013, and the first negotiation meeting on the second bloc occurred in December 2013. A formal Memorandum of Understanding outlining how decisions will be made and establishing coordination mechanisms still needs to be signed, along with the launching of work on technical studies and key institutional preparatory work on the formation of this second bloc.

 

Rationale for a CFTA

During its 19th Ordinary Session in July 2012, the AU adopted a decision that highlighted the gains from the CFTA for intra-African trade, through the High-Level African Trade Committee and the consultations of the Committee of Seven Heads of State and Government, which addresses the challenges of intra-African trade, infrastructure and productive capacities.

The creation of a single continental market for goods and services, with free movement of business people and investments, would help bring closer the Continental Customs Union and the African Common Market envisaged in phases 4 and 5 and turn the 54 single African economies into a more coherent, larger market. The larger, more viable economic space would allow African markets to function better and promote competition, as well as resolve the challenge of multiple and overlapping RECs, helping thereby to boost inter-REC trade. Moreover, the sheer size of the single market would provide a more conducive environment for industrial diversification and regional complementarities than what is viable under existing individual country approaches to development.

The United Nations Economic Commission for Africa (UNECA) calculates that the CFTA could increase intra-African trade by as much as $35 billion per year, or 52 percent above the baseline, by 2022.  Imports from outside of the continent would decrease by $10 billion per year, and agricultural and industrial exports would increase by $4 billion (7 percent) and $21 billion (5 percent) above the baseline, respectively. If coupled with complimentary trade facilitation measures to boost the speed and reduce the cost of customs procedures and port handling, the share of intra-African trade would more than double over the baseline, to 22 percent of total trade by 2022.

Looking at the potential impact on the EAC for instance, one can see the potential for significant gains from a CFTA. Despite significant increases in intra-community trade within the EAC, the levels of trade between the EAC and other African countries, particularly those outside of the Tripartite area, remains limited.  There has been renewed interest in expanding trade and investment links further afield.  For example, Nigeria - which officially became the largest economy in Africa in 2014 - and the ECOWAS sub-region could present a significant export market for EAC businesses.  In 2012, EAC exports to ECOWAS amounted to $132 million, for a market of close to 300 million people.  West Africa currently relies on extra-African imports of coffee and tea, and the EAC could be in a position to tap into this market, if high tariffs and weak transport links can be addressed.  In May 2014, Kenya and Nigeria signed trade pacts aimed at deepening trade ties, following high-level political meetings and several large Nigerian business delegation visits to East Africa.  Trade with neighbouring Central African States (ECCAS) has shown significant growth, with exports to the region expanding by close to 40 percent between 2010 and 2012, from $1.2 billion to almost $1.7 billion.[1]  The CFTA would further open doors to West and Central Africa, through the reduction and eventual elimination of tariffs and improved trade facilitation and infrastructure.

 

Current Status of the CFTA

The January 2014 AU Heads of State meeting reaffirmed the commitment to the CFTA roadmap, and highlighted the need to launch the CFTA negotiations in 2015. 

The second meeting of the Continental Task Force on the CFTA took place in Addis Ababa in early April 2014. The meeting put forward draft objectives and guiding principles for negotiating the CFTA, which were presented to the Extraordinary Session of the Conference of AU Ministers of Trade (CAMOT) in Addis Ababa between April 23 and 28 this year. The session was attended by officials from member states, six RECs (including the EAC), and private sector organisations (East African Buisness Council, CBC, Federation of West African Chambers of Commerce). 

Key recommendations from the ministers included the following:

    • Further discussions on and refining of the Draft Objectives and Principles and the Draft Institutional Arrangements for the CFTA, should be undertaken and presented to the 9th Session of CAMOT (scheduled for early December 2014).
    • The AU Commission should prepare Draft Terms of Reference of the CFTA-Negotiating Forum based on best practices in the RECs and/or the Tripartite FTA and submit a draft for discussion at the next meeting of senior trade officials.

During the June AU Heads of State Meeting in Malabo, the High Level African Trade Committee (HATC) called on member states to maintain the momentum in the CFTA time table, and authorised trade ministers to meet as often as needed to ensure the launch remains on track.

 

The Role of RECs

Even though member states have the sole mandate to negotiate and agree to international trade agreements, the RECs can play an important role in facilitating the negotiations and building national-level capacity and ownership, especially if the CFTA structure is to build on the Tripartite FTA as well as ECOWAS and ECCAS FTAs (CFTA acquis). 

In terms of the implementation strategy for the broader Boosting Intra-African Trade (BIAT) initiative, the April Extraordinary Session of the CAMOT recommended the following:

    • The AU Commission, REC Secretariats and UNECA should continue their consultations with all Member States in order to ensure ownership;
    • There is need for more coordination between AUC and RECs including the exchange of information on integration so that regional processes will feed into continental processes;
    • Member States and REC Secretariats should designate national and regional focal points and establish the technical working groups for the BIAT/CFTA in line with the July 2012 Summit Decision.

 

Opportunities and challenges

Negotiating an agreement of this magnitude will be an enormous undertaking, and will require the political will of leaders across the continent. Important issues to be considered include:

    • The AU includes many smaller least-developed countries, as well as economic powerhouses such as Nigeria and South Africa. It will be important that the CFTA negotiating framework allows for all member states to effectively participate and the negotiations reflect the interests of the poorest countries on the continent. Capacity building on the key technical issues will be a vital component to ensure all countries can effectively engage.
    • The TFTA negotiations included two phases, the first covering tariff liberalisation, rules of origin, customs procedures and simplification of customs documentation, transit procedures, non-tariff barriers, trade remedies and other technical barriers to trade and dispute resolution, and the second covering trade in services, facilitating movement of business people, competition policy and intellectual property. It may be more practical for the CFTA to cover all of these areas from the get-go, to conform to modern FTA structures.
    • Constructive engagement with the private sector and civil society will be vital to generate the momentum to drive the process forward. The private sector must be engaged from the start, including via national and regional chambers of commerce, to understand the process and potential economic benefits from the agreement. In November 2013, the Pan-African Chamber of Commerce and Industry (PACCI), representing 35 national chambers, signed a Memorandum of Understanding with the African Union outlining its support to the CFTA process and highlighting the need to engage with the business community.

 

The way forward

The meeting of trade ministers in December will be a critical milestone as the AU Commission will present key negotiating principles for consideration prior to the January 2015 High Level African Trade Committee, currently chaired by the President of Ghana, John Dramani Mahama.

To ensure the successful launch of the negotiations by June 2015, there will be a need for further thinking on the key technical issues and structure for the negotiations, as well as a concerted drive to engage with the private sector and the public at large across the continent to ensure this will not be just another Addis-driven “top-down” political exercise.

 

Author: Ilmari Soininen is a senior consultant with Saana Consulting and a grant officer with the DFID Trade Advocacy Fund. 

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