A Protectionist African Continental FTA Will Not Boost intra-Africa Trade

That intra-Africa trade is low, at 11.78 percent of total imports, has been lamented for decades. A key objective for establishing the Continental Free Trade Area covering all the 55 African countries has therefore been  to boost intra-Africa trade, with a target of doubling it by the year 2022 over a 2014 baseline.

All this has been discussed and agreed by Africa’s leaders at the highest political level, and written into decisions taken at their summits since 2010 to date.

With the negotiations for establishing the Continental Free Trade Area (FTA) now in high gear to meet the December 2017 deadline, there is a real risk that in this rush, the FTA might be designed in a manner that, through too many exceptions and high tariffs on key exports, reduces even further the paltry intra-Africa trade, which would be a self-inflicted tragedy.

A whole raft of exceptions might end up in the Continental FTA Agreement, based on a fear of imports from other African countries.

A standard trade agreement must of course be balanced between liberalisation and safety-valves to address possible adverse developments such as destruction of the environment or existing and planned industries, to ensure peace and security, and to recognise the policy space for governmental interventions to assist social economic transformation. There are therefore standard general and security exceptions as well as trade remedies.

In addition a number of trade agreements have provision for protection of balance of payments and external reserves and infant industries. Sensitive and excluded products might in some cases cover up to 600 tariff lines, as indeed proposed for the Continental FTA; yet most African countries export to each other on less than 300 tariff lines. These exceptions should, however, be designed to be used sparingly, so that domestic industries can have access to large regional and global markets required for their growth.

Large markets that support more trade in goods, services and assets produced by job-creating enterprises, including small-to-medium-scale-enterprises, assist in employment and income generation, thus meeting the public policy objectives of jobs- and wealth-creation. Large open markets support value chains, specialisation and efficiency through sharing of tasks in modern production lines and processes. This calls for creating a large open Continental FTA as a rule of thumb in the negotiations.

On the basis that the bulk of imports into Africa, upwards of 88 percent of total imports, are from outside Africa, a fear of an avalanche of imports from other African countries needs to be properly assessed. A starting point is that such a fear needs to be addressed with respect to the sources of those imports, which are outside Africa, which means that restrictions on such imports as might be deemed appropriate should be addressed under other frameworks such as the World Trade Organisation but not the Continental FTA.

However, should in fact there be an increase in imports from other African countries resulting from the Continental FTA, then that should be a very welcome development as the objective of boosting intra-Africa trade would be seeing the light of day.

The fear should not be of imports from other African countries. The issue to focus on is how to boost exports through scaling up production especially of products that can have niche markets through product differentiation or wholly new products and industries, within the overall framework of industrialisation, agricultural productivity, and infrastructure development.

There are more specific interventions to focus on in the negotiations. Regarding trade policy instruments, while tariff protection can be considered but bearing in mind that high tariff negate the very idea of building a Continental FTA, the more appropriate interventions should seek to grow the industries.

These include market intelligence, elimination of non-tariff barriers, forms of subsidies, quality infrastructure and capacity building for familiarity with the CFTA trade rules for instance rules of origin, customs and trade facilitation procedures, and reporting and resolution of non-tariff barriers.