New Tripartite Free Trade Area Agreement to scale up economic integration for Africa

The 19th century British colonialist Cecil Rhodes’ dream of unifying Africa from “Cape to Cairo” was not too far-fetched after all.

In a poetic sense, tinged with a dash of de ja vu, this dream was fulfilled with the launch of the Tripartite Free Trade Area Agreement (TFTA),in the idyllic Egyptian city of Sharm el Sheikh on the Red Sea when 26 African Heads of State endorsed an economic integration plan for the continent on a scale never witnessed before.

The new trade arrangement, signed on Wednesday, June 10 2015, was described by President Robert Mugabe of Zimbabwe as creating a “borderless continent”. It assembled three regional economic communities (RECs) into a single free trade area that establishes a framework for preferential tariffs to ease the movement of goods and people in the region.

“We have told the world today…of our desire to adopt practices that are necessary to increase trade among ourselves. We will do whatever is possible to activate this agreement,” said Egyptian President Abdel Fattah al-Sisi when he hosted 26 heads of state representing the largest trading bloc in Africa and one of the biggest free trade areas in the world. The Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and Southern African Development Community (SADC) combine a population of over 625 million people, making up over half of Africa’s population and a GDP of over USD 1 trillion.

According to a study by the Institute of Development Studies at the University of Sussex, an enlarged Free Trade Area market within which all tariffs and non-tariffs on trade are eliminated is projected to generate annual welfare gains of at least US$ 3.3 billion per annum. Other benefits include better policy coordination across sectors, especially in industry and infrastructure development and the absence or reduction in overlapping membership in RECs will also promote greater policy coherence.

Negotiations for the TFTA were undertaken in two phases. Phase I covered trade in goods, while Phase II covered trade-related aspects; in particular trade in services, intellectual property rights, competition policy, trade and development and cross-border investments. An agreement on the movement of business persons was to be negotiated parallel to that on trade in goods.

Numerous players and development partners were delighted by the pact signed by the African leaders and hoped that respective parliaments will expedite the process of authenticating the agreement. One such partner said in a statement: “As a strong active supporter of the EAC in the negotiations leading to the TFA, TradeMark East Africa is proud to be associated with this momentous event.”

The World Bank President Jim Yong Kim said that with the launch of the TFTA:”Africa has made it clear that its open for business,” while the final communique signed by the 26 heads of sates stated that: “The establishment of TFTA will bolster intra-regional trade by creating a wider market that would increase investment flow…and ensure regional infrastructure development.”

The TFTA takes a development approach to integrating the economies of the 26 member-States and is based on three main pillars – market integration, infrastructure development and industrial development and follows the logic of integration efforts in the three RECs in the eastern and southern parts of the continent in the face of a myriad obstacles to trade in the region that hold back the proliferation and diversification of industrial production, movement of people, services and goods.

It is envisaged that by harmonising trade policies, removing trade barriers and promoting trade facilitation it will create enormous benefits for the regions’ economies and populations.The goal is 100% liberalization of tariff lines. Earlier Tripartite trade negotiations agreed that no country should face higher tariffs under the new tariff regime. It is also expected that member countries of existing free trade areas in the RECs will consolidate their existing tariff liberalisation levels into the TFTA in line with the principle of ‘Building on the Acquis’(the accumulated legislation, legal acts, and court decisions acquired or obtained for an economic community). Furthermore, upon entry into force of the TFTA, 60-85% of tariff lines should have been liberalised and thereafter, the remaining tariff lines will be liberalised over a period of five to eight years.

The 26 countries are: Kenya, Uganda, Tanzania, Angola, Burundi, Botswana, the Comoros, the DRC, Djibouti, Egypt, Eritrea, Ethiopia, Libya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Sudan, Rwanda, Seychelles, South Africa, Swaziland, Zambia and Zimbabwe

However, a few sticky points remain in the new arrangements. Within FTAs, trade is governed by rules referred to as rules of origin that ensure that only goods produced in the region benefit from the preferential trading arrangement. Nevertheless, each Tripartite REC has its own rules of origin and a set of rules of origin for the Tripartite is to be negotiated. Although interim rules of origin have been agreed upon, these are not conclusive. It has been agreed that negotiations should be finalised within six to twelve months of signing the agreement even as each member state awaits parliamentary approval of the TFTA. A separate agreement of movement of business persons is being negotiated to facilitate trade in the Tripartite by making it easier for business persons to move freely within the TFTA although progress towards agreement has been slowed down by considerations relating to security and protection of domestic labour markets. The agreement is that negotiations on movement of business persons be finalised as soon as possible after the agreement is signed.

Trade in the TFTA will always be limited if production and trade in industrial goods remains low in the region. This applies particularly to production of intermediate and capital goods which are necessary inputs to enhance the productive capacities to address supply side constraints. The Tripartite Summit has set up a committee to promote industrial development with draft modalities, a programme of work and the road map for cooperation in the sector.A similar committee was established to promote infrastructure development with the objective of reducing the cost of doing business. The TFTA agreement is expected to increase trade in an expanded market in at least two ways: by ensuring Angola, DR Congo, Eritrea, Ethiopia, that are currently not in any FTA, are involved in the tariff liberalization process; and that countries in different FTAs but not trading under any preferences, exchange and negotiate tariff offers among themselves with a view to eliminating them over a 5-8 year period.

The Tripartite TFTA will be truly functional when all the non-FTA countries have fully participated in their regional economic communities’ FTAs and the necessary tariff offers have been exchanged and duties eliminated. This reality is expected by July 2016.

Cecil Rhodes’ dream of an amalgamated Africa has come full circle in the span of a century, transcending the limitations of previous economic and political arrangements to embrace the enormous potential from a well thought out economic integration plan in the context of the continent’s diversity.