The Tripartite Free Trade Area Agreement: A milestone for Africa’s regional integration process
What was agreed in the African Tripartite FTA deal signed on 10 June 2015? What were the main challenges in the negotiations? What are the prospects for the second phase? What are the implications for the CFTA negotiations which were launched on 15 June 2015 at the other end of the continent in Johannesburg, South Africa?
The Tripartite Free Trade Area Agreement (TFTA), bringing together member and partner states of the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC), was signed in Sharm-el-Sheikh, Egypt on 10June 2015 by representatives of most of the 26 countries covered by the deal.
The 26 countries represent 48 percent of the African Union membership, 51 percent of continental GDP and a combined population of 632 million. If the TFTA countries were one country, it would be the thirteenth largest economy in the world. Merchandise trade within the Tripartite region grew from US$23 billion in 2004 to US$55 billion in 2012 – an increase of 140 per cent during this period, reinforcing the ‘Africa rising’ narrative (see chart).
While the scope of the TFTA economy is large, significant structural and policy bottlenecks still remain to be overcome as shown for example in the Economic Commission for Africa’s Report 2015[i]. These include, among others poor infrastructure, high transaction costs and low levels of industrialisation.What is promising about trade within the regional economic communities, however, is that it is more diversified with a higher proportion of intermediate and value-added products than their trade with the rest of the world. The launch of the TFTA augurs well for expanding investment in infrastructure, connectivity and production linkages in regional value chains as a platform for scale economies and improving backward integration into global value chains. According to the Sharm-el-Sheikh Declaration launching the TFTA “the developmental integration approach built on the three pillars of industrial development, infrastructure development and market integration”.
Some technical work however still remains to be done before finalising the agreement which was adopted recently.
TFTA Phase I negotiations – what was agreed?
The TFTA agreement is made up of 45 Articles and 10 Annexes. Tariff liberalisation, disciplines on non-tariff barriers, rules of origin, trade remedies and provision for dispute settlement lie at the core of what was agreed. Other provisions include elimination of quantitative restrictions, customs cooperation, trade facilitation, transit trade, infant industries, balance of payments, etc.
The TFTA aims at liberalising 100 percent of tariff lines taking into account the usual general, specific and security exceptions. This is to be achieved by consolidating the tariff regimes of the EAC which is a customs union and the Southern African Customs Union (SACU), a subset of SADC member states, into the TFTA in line with the principle of building on the acquisand subject to reciprocity. In addition to the 10 EAC and SACU countries, 10 COMESA countries participating in the COMESA FTA made TFTA tariff offers based on the COMESA acquis of 100 per cent tariff liberalisation on a reciprocal basis. It should be noted though that the modalities for tariff negotiations agreed among Tripartite countries in 2013 are not ambitious at all. It was agreed that 60-85 percent of tariff lines will be liberalised upon entry into force of the Agreement and the remaining 40-15 per cent to be negotiated over a period of 5 to 8 years. This presents a challenge for countries that have fairly liberalised trade regimes (with more than 80 percent of their tariff lines at 0 percent MFN) vis-à-vis the principle of building on the acquis.
At the time of the TFTA launch, not all Tripartite countries had finalised their tariff offers. The Third Tripartite Council of Ministers meeting held in Sharm-el-Sheikh has given countries until June 2016 to finalise their offers.
To address the challenges of non-tariff barriers (NTBs), Article 10 and Annex 3 of the TFTA Agreement provides for the harmonisation of the COMESA, EAC and SADC NTB arrangements into a single mechanism and a process for identifying, categorising, reporting, monitoring, and resolving NTBs in the Tripartite region. The institutional framework includes a Tripartite sub-committee on NTBs as well as national monitoring committees and focal points.
Rules of origin
Article 12 and Annex 4 of the TFTA Agreement set out the criteria and conditions for goods to qualify for preferential rules of origin based on a product list of rules. At the time of the launch, however, only about 25 percent of the product list had been negotiated and agreed. The Third Tripartite Council of Ministers undertook to finalise the Tripartite rules of origin within 12 months following the TFTA launch.
Trade remedies and dispute settlement
Articles 16-20 and Annex 2 of the TFTA Agreement provides for the application of anti-dumping, countervailing and safeguard measures to address dumping, subsidisation, imports surges, etc. but the technical details are yet to be finalised. There is a commitment to complete this body of work within 12 months following the launch.
Article 30 and Annex 10 of the TFTA Agreement provides for a Dispute Settlement Body and its powers which include, among others, the establishment of panels and an appellate body, surveillance over the implementation of rulings and recommendations of panels and the appellate body.
Other provisions include those on the elimination of quantitative restrictions, customs cooperation, trade facilitation and transit trade, infant industries, balance of payments, among others. These are generally consistent with obligations under the WTO and international best practices. Article 29 details the organs for the Implementation of the Tripartite Free Trade Area. These include, among others, the Summit of Heads of State and Government, the Council of Ministers, the Tripartite Task Force (made of the Secretariats of the three RECs), the Tripartite Sectoral Ministerial Committee, the Tripartite Committee of Senior Officials and the Tripartite Committee of Experts. Finally, Article 45 on Phase II negotiations provides a time-frame of 24 months to conclude the negotiations on trade in services, competition policy, intellectual property rights, movement of business persons and other trade-related matters.
Entry into force
Entry into force will follow the conclusion of the outstanding technical work – expected to be within 12 months of the launch in Sharm-el-Sheik - and ratification by 14 of the 26 parties to the agreement.
Much technical work on tariff liberalisation, rules of origin and trade remedies remains to be completed. The decision to negotiate list rules, as opposed to agreeing on a general rule delayed negotiations on rules of origin. With regard to trade remedies, negotiations started late and it was agreed that interim provisions will apply while finalising a Tripartite mechanism. In spite of this complex issues, the TFTA Agreement is a milestone in the rationalisation of Africa’s multiple trade integration arrangements. The genie is now out of the bottle and cannot be put back.
One of the major challenges for the TFTA negotiations were contradictions between negotiating principles. These include variable geometry, which on the one hand, allowed countries that were ready to move ahead, and decision-making by consensus which, on the other hand allowed countries that were not ready to hold others back. Funding of the negotiations was also a great challenge as the negotiations proved costly with the parties operating in four languages.
The scoping of the issues for negotiations under phase II is yet to be undertaken. Preliminary discussions on the movement of business persons have been held as a parallel track to the first phase of the negotiations. This subject is expected to be an area of ‘early harvest’ under phase II. More broadly, there is a growing understanding of the contribution of services in African economies in terms of employment, incomes and as inputs to other economic activities in regional and global value chains.
Harmonisation of rules on competition policy, intellectual property rights and investment are important reforms that contribute not only to strengthening capacities in these areas but also to enhancing transparency in the business environment and levelling the playing field. To this extent, the prospects for the phase II negotiations are good although the level of ambition on services is yet to be determined and the time-frame of 24 months for the negotiations may prove to be challenging.
Implications for the CFTA negotiations
On 15 June, the AU Summit directed that the negotiations on goods and services for the establishment of the CFTA be conducted in parallel and concluded by 2017 as an indicative date.
The main implication of the TFTA for the CFTA is that the TFTA Agreement is now part of the acquis of trade integration on the continent, meaning the CFTA will build on the successes of the TFTA. But it will be necessary to reach a common understanding of the meaning of ‘aqcuis’ in the context of the CFTA. The definition of this principle proved ambiguous in the TFTA negotiations as some believed the principle should apply within and across RECs, while others believed it should only apply within RECs.
A CFTA agreement on trade in goods could begin with the TFTA and the 15-member Economic Community of West African States (ECOWAS) bloc which already has a common external tariff. The TFTA and ECOWAS bloc of countries could build on their current prevailing duty-free trade regimes or on tariff lines with zero tariffs as a starting point with a view toward eliminating tariffs on other products in a phased but incremental manner.
However, the aim should be to limit as much as possible the exemption of ‘sensitive products’ so that the benefits of a CFTA on goods can be maximised. The issue of rules of origin, which proved to be thorny in the TFTA negotiations, will also need to be tackled effectively. The Arab Maghreb Union (AMU) in North Africa and the Economic Community of Central African States (ECCAS) in Central Africa which do not yet have functioning FTAs could subsequently join the CFTA and undertake the required liberalisation effort to make it fully continent-wide.
As far as trade in services and the other issues are concerned, it is envisaged that the TFTA and CFTA negotiations will be conducted in parallel since both negotiations have an initial 24-month time-frame. Commitments in the TFTA could be extended towards the CFTA as a starting point for negotiations with ECOWAS and subsequently to the north and central African blocs.
What cannot be denied, however, is that African policymakers have recognised the need for major trade policy reforms if the ‘Africa rising’ narrative is to fulfil its potential. What is more, they have taken the first steps on this journey.
Authors: Zodwa Mabuza is a trade expert currently coordinating the Tripartite FTA negotiations at the Common Market for Eastern and Southern Africa (COMESA) Secretariat. David Luke is the coordinator of the African Trade Policy Centre, Regional Integration and Trade Division, UNECA.
In Tripartite jargon, COMESA and SADC countries are known as member states, EAC countries as partner states.
Building on the acquis is one of the negotiation principles for the TFTA, which means building on what has been achieved or agreed.
 See http://www.ictsd.org/bridges-news/bridges-africa/news/low-ambition-in-tariff-liberalisation-cited-as-a-key-challenge-in; and D.Luke and S.Mervel ‘The Option of a Framework Agreement in the Continental Free Trade Area Negotiations’ (www.uneca.org/ATPC).
[i]Economic Report on Africa 2015 – Industrializing through Trade, UNECA