US-African Trade: Creating Common Ground Amidst Policy Uncertainty?
As the US Administration moves forward with a trade policy for Africa and African leaders work toward regional harmonisation, common ground may be emerging focused on market opportunity, a balanced approach to the rule of law, and support for regional trade.
The future of trade and development policy has become a topic of intense debate in the US, UK, and around the world. Amidst significant uncertainty surrounding the direction trade policy will take under the US Trump Administration, common questions are surfacing. Who benefits from trade? What is the best response to shifting markets? How can trade agreements be better designed to respond to current challenges and opportunities? These questions are currently arising in the context of US engagement in the North American Free Trade Agreement (NAFTA), withdrawal from the Trans-Pacific Partnership (TPP), and participation in the World Trade Organization (WTO); yet stakeholders in emerging markets, including sub-Saharan Africa, have repeatedly flagged the same questions.
To date, the new US administration has publicly released little information regarding its approach to trade and development with African nations, although recent statements from US Trade Representative (USTR) Robert Lighthizer suggest that bilateral trade negotiations may be an element of future US-African trade policy. More generally, the Trade Policy Agenda for 2017, an annual report that sets US trade goals, highlighted four priority areas that will impact all US trade policy: (1) defending US national sovereignty, (2) strict enforcement of US trade laws, (3) leveraging all tools to open trade for US businesses and protect intellectual property (IP), and (4) negotiating new and better trade deals around the world. These focus areas are broad and somewhat unclear, but the current policy gap does present an opportunity to answer the question of how the administration should approach trade and investment in Africa.
The New Markets Lab, a trade and development centre focusing on the intersections of law, economic development, and social good, has examined exactly this question. As this article will argue, there are several interconnected areas that are essential to better addressing issues of trade and development for both the African continent and the US. These include policies that focus on emerging market potential, a balanced approach to the rule of law, and prioritisation of regional harmonisation and integration. Focusing on these areas would not only help address the challenges of harnessing the potential for trade and development, but would also point to a way forward in US-African relations based on economic potential and shared priorities.
Opportunities, challenges, and emerging market potential
Without question, Africa’s markets hold significant potential, which key US officials, including President Trump, have highlighted. African policy leaders, such as President of the African Development Bank Akinwumi Adesina, have also stressed the dynamic nature of Africa’s markets, including the development possible in the agricultural sector, an industry that is expected to grow to US$ one trillion by 2030. Overall, Africa’s average growth rate hovered at around 2.6 percent in 2017, but many countries (including Côte d’Ivoire, Ethiopia, Kenya, Mali, Rwanda, Senegal, and Tanzania) far surpassed this average with growth rates over 5 percent. While many attribute this trend to natural resources and foreign direct investment, there is more to the story. As a recent Brookings report highlighted, Africa is breaking the mould with a new model for economic development, leapfrogging traditional patterns of industrialisation through growth in sectors such as horticulture, tourism, and services. For the US, this signals significant new markets for US investment, goods, and services. For African nations, it shows the tremendous possibility the future holds, particularly if economies can diversify beyond commodities and harness the potential for youth employment.
Other issues currently under discussion globally, such as digital trade, are also particularly promising for two-way market growth. E-commerce is starting to permeate almost every sector because of its ability to connect small businesses with a large consumer base. Still, transactional and logistical challenges remain. Recognising e-commerce’s ability to spur economic growth, leaders are beginning to address some of these issues. Among the more substantive outcomes of the WTO’s Eleventh Ministerial Conference was a joint statement by 70 WTO members to start “exploratory work” in e-commerce. Getting the rules right for this emerging sector could unlock considerable development potential in both the US and sub-Saharan Africa.
Trade policy tools
For nearly twenty years, US trade with sub-Saharan Africa has been facilitated mainly through trade preference programs, namely the US Generalized System of Preferences (GSP) and African Growth and Opportunity Act (AGOA), which provide preferential and duty-free treatment on thousands of products entering the US market. The Trump Administration has signalled that these programs will remain a priority, and there is strong evidence that continued support for trade preference programs aligns with the broader US trade strategy. AGOA, which expires in 2025, will likely remain a cornerstone in US-African relations. However, GSP, the foundation on which AGOA is built, expired at the end of 2017, which could undermine AGOA’s benefits if not quickly reinstated.
Trade preference programs have proven to be beneficial trade policy tools, particularly for emerging sectors and small businesses in both the US and African economies. Preference programs also support participation in global supply chains and can contribute to improved security worldwide. Through their eligibility criteria, the trade preference programs help strengthen the rule of law, including in the areas of human rights, labour, and the business enabling environment. Yet, preference programs could use a refresh with changes in certain aspects of the programs, such as statutory prohibitions on product coverage that have limited market development in sectors such as manufacturing and agriculture.
The latest AGOA bill also calls for a segue to two-way trade. The pressure to transition to bilateral trade mechanisms is also echoed in the current US administration’s statements, and USTR Lighthizer’s recent remarks underscore this trend. Europe’s trade relationship with sub-Saharan Africa is now based largely on reciprocal trade agreements, a shift many in the US government have noted. The US currently has no bilateral free trade agreements with sub-Saharan Africa and only a handful of bilateral investment treaties (BITs) with African nations. Other instruments, such as Trade and Investment Framework Agreements (TIFAs), have been used to deepen engagement with individual countries and regional blocs. More recently, the US concluded a Cooperation Agreement with the East African Community (EAC) focused on trade facilitation, sanitary and phytosanitary measures (SPS), and technical barriers to trade (TBT), which was designed to improve the implementation of key rules and take advantage of opportunities for market growth. These models could point the way towards more balanced bilateral trade going forward.
African leaders are also discussing what trade will look like post-AGOA, and regional integration initiatives have taken centre stage. The most comprehensive regional plan is one to form a Continental Free Trade Area (CFTA), with the first phase of negotiations expected to be finalised in March 2018. The proposed CFTA would connect over one billion individuals across 54 nations with a combined GDP of $US 3.4 trillion. The CFTA builds upon existing regional trade agreements (RTAs), including the Tripartite Free Trade Area (TFTA) which brings together three of Africa’s largest trading blocs – the EAC, the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC). The scale of these trade areas demonstrates the market potential inherent in regional harmonisation. The TFTA, representing just a portion of the proposed CFTA, covers an area nearly twice the size of the US.
The enabling environment for trade and development
New and better trade deals – whether bilateral, regional, or multilateral – must include rules for making the market work. Along with infrastructure, the laws, regulations, and policies that underpin trade are perhaps one of the most important aspects of the global economy. Non-tariff issues often present the most significant hurdles to market growth, and weak legal institutions are extremely costly, in particular because they cannot ensure effective enforcement of economic rights and obligations. One way of thinking about the rules of the system is in terms of “building blocks” for trade, which include, among others, trade facilitation, standards, and sector-specific regulatory measures that pave the way for trade and development. These building blocks exist within various trade agreements, ranging from the US-EAC Cooperation Agreement to the recent WTO Trade Facilitation Agreement (TFA). Many of Africa’s RTAs also cover areas like infrastructure and agricultural inputs that will be essential to market growth and diversification. Putting in place the right building blocks for trade is essential, as it creates a more predictable and transparent enabling environment for businesses, which reduces risk and helps expand market potential. When such rules are crafted, deliberated, and applied in a way that integrates the needs of those who are most economically vulnerable, they can have the greatest impact on economic development.
Efforts to harmonise trade rules across Africa signal a new era for the rule of law, driven from within Africa itself. As African nations continue to streamline and coordinate laws and regulations, regional trade agreements will only become more important. Harmonisation of trade rules makes it easier to move goods and services around the continent, and supporting Africa’s efforts to promote regional integration would ensure that the US stays connected with African trading partners as significant economic opportunity unfolds. Regional integration has myriad benefits for trade across multiple sectors. Harmonised rules shorten wait times in customs, make it easier for countries to take advantage of trade benefits (including trade preference programs like AGOA), strengthen systems for standards and food safety, and make processes for registration and licensing more transparent. When properly implemented, they can help countless businesses and entrepreneurs take full advantage of trade.
Improved rules that are designed to facilitate cross-border trade have both economic and social impacts. Economically, integrated regulatory systems are the key to larger markets that can attract investment and create jobs. The rules of the market can also play a pivotal role in helping integrate small farmers into market systems, thus providing them with more diverse opportunities for improving incomes and livelihoods. Harmonised rules stand to provide the greatest benefits to some of the most vulnerable market stakeholders, such as the many women who currently trade informally. At a more macro level, supporting intra-African trade could help reduce the continent’s dependence on foreign aid, a progression supported by successive US administrations and one some African leaders view as crucial to advancing their development agenda. However, targeted economic assistance will continue to play a role as markets develop.
A new US-African trade partnership?
Although the US has yet to develop a clear policy on trade and development in Africa, there are some concrete steps policymakers should take that would move from the zero-sum trade of the past toward a shared vision that strengthens economic opportunity for the US and African nations, promotes wider economic development on the continent, and encourages a more balanced approach to rule of law.
Both the US and African nations would benefit from a cooperative approach to trade and development that spans sectors with market potential. Emerging industries such as services and e-commerce encourage innovation and entrepreneurship in both the US and Africa, and traditionally important sectors like agriculture and manufacturing should remain priorities as well. The investment climate (and rules of the market), along with capacity to trade, will continue to be key factors affecting market growth. To start, a well-articulated and balanced US-African policy is needed that can help stakeholders on both sides get a better picture of how to move forward. This should include clear support for using trade preference programs and economic aid to unlock market transformation, complete with necessary modifications to these programs. If bilateral trade agreements are part of the future, we will need a new model that could address current market potential, reinforce Africa’s integration efforts, and approach market rules in a manner that would be feasible to implement and enforce.
Trade and development ultimately rest upon how the rules of the market are crafted and applied. Similar questions surround trade in both the US and Africa, and one way to address them could be through the legal and regulatory systems that govern the market. Across the board, this means promoting transparency in rulemaking and participatory governance, principles that are enshrined in most trade agreements and could be better implemented, as well as providing individuals with channels for better understanding the system and participating in shaping market rules. The US should also get behind Africa’s plans for regional harmonisation as a true partner. Not only does the momentum within Africa toward continent-wide harmonisation exemplify the staggering potential of the market, it is a refreshing new approach to rule of law, trade, and development, which holds great promise for success.
Author: Katrin Kuhlmann, President and Founder, New Markets Lab
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