INTRODUCING THE COMMON AGRICULTURAL POLICY IN THE AFRICAN REGIONAL INTEGRATION MODEL

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1 INTRODUCING THE COMMON AGRICULTURAL POLICY IN THE AFRICAN REGIONAL INTEGRATION MODEL Abstract The major question Africa has to ask itself is whether it has a working model for regional integration. For more than fifty years, Africa despite its efforts to create the African Economic Community (AEC) still remains the poorest continent. Where is Africa getting it wrong? Can Africa develop its model based on other integration models such as the European Union (EU) and the Association for the South-East Nations (ASEAN)? Based on a number of researches undertaken by several scholars, it has been revealed that the fundamental basis for EU and ASEAN models was peace and the desire by leaders to maintain that status quo and achieve economic development. The question remains, which model is best for Africa? After careful analysis, this research recommends that Africa should not fully adopt either of the models, however, it should consider some of the fundamental principles of the EU model such as the Common Agricultural Policy (CAP) and gradually strategize on how the African economies can diversify away from primary agricultural industry to manufacturing and eventually to the producing for high income elasticity products. (Key words: EU, ASEAN, AEC) Introduction African regional integration dates back as early as 1910 with the setting-up of the Southern African Customs Union (SACU). Since the early 1960s when most African

2 countries had achieved their independence, efforts were stepped-up towards the achievement of the AEC. Currently, the African Union (AU) recognizes eight (8) RECs in Africa namely: the Common Market for Eastern and Southern Africa (COMESA); the Southern African Development Community (SADC); the East African Community (EAC); the Economic Community of Western African States (ECOWAS); Economic Community of Central African States (ECCAS); the Arab Maghreb Union (AMU); the Economic Community of Sahel Saharan States (CEN-SAD); and the Intergovernmental Authority on Development (IGAD). Since then, Africa has tried hard to adopt a number of integration models as a medium towards Africa s economic development and transformation strategy. However, Africa s statistics have been far from impressing. Its share of world trade is only 3.2 per cent. The roots are constraints that inhibit trade within Africa and trade to developed markets, and include physical transport and communications infrastructure, customs procedures and border administration, weak financial and capital markets, lack of a diverse production base and absence of regional policy coordination. These challenges are not new. In 1991 African Heads of State and Government signed the African Economic Community (AEC) also known as the Abuja Treaty to provide the guiding principles and goals as well as a region wide framework to strengthen the integration agenda. The aims are further underpinned by the Regional Economic Communities (RECs) various treaties and protocols Constitutive Act of the AU, which came into force in May The idea is to build the AEC as an integral part of the AU. The AEC is to be formed in six phases over 34 years with the first phase for five years aiming at strengthen existing RECs and create new RECs in regions where they do not exist. The second phase which is for eight years has the objective of ensuring consolidation within each REC, with a focus on liberalizing tariffs; removing

3 non-tariff barriers (NTBs); harmonizing taxes; and strengthening sector integration regionally and continentally in trade, agriculture, money and finance, transport and communications, industrial development and energy. The third phase which is expected to run for ten years has the objective of setting-up in each REC a free trade area (FTA) and customs union (with a common external tariff and a single customs territory). From this phase comes the fourth stage which is expected to last for two years with the objective of coordinating and harmonizing tariff and non-tariff systems among the RECs with a view to establishing a continental customs union. The fifth phase expected to last a maximum of four years has the main objective of setting up an African common market. Then comes the sixth phase which is expected to last for five years with the main objective of establishing the AEC, including an African Monetary Union and Pan- African Parliament. The idea behind the six stages is that economic integration should first be consolidated regionally, through the creation of RECs that would eventually merge into the AEC. The RECs are expected to serve as the building blocks for the AEC. In an effort to keep the momentum going, a tripartite FTA was launched involving COMESA, EAC and SADC. It covers 26 African countries which is almost half of the AU membership, a population of 530 million (57 per cent of Africa s population) and a total gross domestic product (GDP) of US$ 630 billion (53 per cent of the continent s). This move seriously galvanized interest in the much broader continental FTA (CFTA) (at the 6th Ordinary Session of the AU ministers of trade, on November 2010 in Kigali. After assessing the progress made in carrying out the FTAs and customs unions in the various RECs, the Ministers recommended that the creation of a CFTA should be fasttracked to help address unresolved development issues.) The January 2012 African Union Summit endorsed this recommendation, agreeing on an indicative date of 2017.

4 The Pan-African Parliament was set up earlier than the Abuja Treaty envisaged, and the launch of other key continental institutions namely the African Investment Bank, the African Monetary Fund and the African Central Bank is also being accelerated. It is in this same spirit of accelerated integration that the birth of the continental customs union should be considered. Under the Abuja Treaty, it is to be established in about eight years from now. And indeed the programme for realizing the AEC expects that all the RECs should satisfy the requirements of an FTA hopefully by the indicative date of Many researchers have argued that regional integration and cooperation are the most appropriate way to improve weak intra-african trade as well as internal (domestic) trade. Many of the more popular arguments rest heavily on the possibilities of generating large economies of scale from activities typically associated with expanded trade and overall economic growth in a country. The path to African integration has not been easy, however. It has been marked by a series of major initiatives and political decisions to accelerate it or infuse new momentum, and to integrate variables of new imperatives in international economic relations. The Abuja Treaty which was signed on 3 rd June, 1991 and become operational from 12 th May, 1994 stipulates that African states must endeavour to strengthen their RECs, in particular by coordinating, harmonizing and progressively integrating their activities in order to attain the AEC, which would gradually be put in place during a 34-year transition period subdivided into six stages. Another major initiative came on 9 th September, 1999, when the Heads of State and Government of the Organization of African Unity issued the Sirte in the much broader continental FTA (CFTA) Declaration calling for the establishment of an African Union, with a view, among other things, to accelerate integration on the continent to enable it to play its rightful role in the global economy while addressing multifaceted

5 social, economic and political problems compounded by factors such as the negative aspects of globalization. Yet despite the adoption and implementation of the current initiatives, results remain mixed. Whereas certain RECs have achieved tangible outcomes in some specific sectors, others have had relatively disappointing results in terms of the objectives of the Abuja Treaty. The AU being the principal architect was to manage and assess the success of the process, but faces some challenges in fully fulfilling the role given to it, particularly in coordinating, harmonizing, monitoring and assessing activities, projects and programmes destined to boost integration. The RECs also face a number of implementation challenges including inadequate financial and manpower resources to support their numerous integration processes. These challenges have contributed to slowing progress towards regional and continental integration. In order to address them, the AUC, working closely with the RECs, has undertaken a range of initiatives, including a Minimum Integration Programme (MIP). Several RECs have made some progress in accelerating the regional integration agenda, although they still need to make tremendous efforts to harmonize policies, especially Africa-wide. Some RECs such as COMESA, EAC, ECCAS, ECOWAS and SADC have successfully managed to set up an FTA, while CEN-SAD and IGAD are still doing that. COMESA and EAC have initiated a customs union with COMESA having launched its Customs Union in June 2009 with an implementation framework of three years; EAC has a fully operational customs union. Other RECs plan to become fullyfledged customs unions in the coming years. In West Africa, there is a growing rapport between ECOWAS and UEMOA, leading to their adopting a common programme of action on a range of issues, including trade liberalization and macro-economic policy convergence. In Central Africa, ECCAS and CEMAC are making efforts to increase their

6 working relationships towards harmonizing their programmes. In Eastern and Southern Africa, IGAD and the Indian Ocean Commission (IOC) are applying most of the integration instruments adopted within COMESA. EAC and COMESA have a memorandum of understanding to help harmonize their policies and programmes, while COMESA and SADC have set up a task force to deal with common issues and invite each other to their policy and technical meetings. And currently, the tripartite FTA between COMESA, EAC and SADC is under negotiations. These negotiations are expected to be concluded in Although virtually all the regions (and the AUC) have, in the first stage, strengthened the institutional framework of existing RECs and created new RECs where they did not already exist, difficulties have started to emerge in the second stage in terms of coordinating and harmonizing activities, and in completely eliminating tariffs and NTBs. CEN-SAD is working to build its own FTA. Since the 5 th Conference of Leaders and Heads of State and Government held in Niamey, Niger in March 2003, its general secretariat has launched activities to move towards implementing the project, which covers 29 countries. For example, with support from the AfDB, it carried out a technical study to help member countries identify tariffs and NTBs, and to adopt measures to boost intra-community trade. The findings of the study were structured around three tariff elimination scenarios which include solidarity, equality and freedom. The solidarity scenario took into account development differences among member countries. It proposed a specific scheme. For the least-developed countries: eight years ( ), with an annual tariff relief of 12.5 per cent; for other countries, four years ( ) to eliminate tariffs: 20 per cent per year for 2007 and 2008, and 30 per cent per year for 2009 and The equality scenario did not accommodate discrimination. It provided for an identical scheme for all countries,

7 starting from 1 January 2007: 10 per cent for the first two years, and 20 per cent for the remaining four years. In the freedom scenario, each state presented a scheme over eight years ( ). Theories and Empirical Literature Review of Africa s Regional Integration This chapter focuses on the theoretical gains and losses to Africa from FTAs in general and the CFTA in particular. The standard theory of regional integration posits that integration can take several forms, depending on the levels of political and economic commitment of member countries. Crucially, these arrangements can move beyond a mere tariff-reducing exercise to a more ambitious form of economic integration, with provisions for common monetary and fiscal policy. The theory outlines a menu of integration options, where regional integration deepens as restrictions on trade and investment diminish. The growing enthusiasm for most of Africa s regional arrangements stems from the underlying principles of traditional trade theory, which postulates that liberalizing trade and investment among two or more countries generally has positive welfare effects for the countries concerned and leads to economic growth and poverty reduction. One of the strongest justifications for regional integration on the continent is the overriding desire for greater economic independence and development. The theory of FTAs is largely rooted in the theory of customs unions, and can be defined as a process to reduce or abolish tariff and non-tariff restrictions on trade of goods and services among a group of countries in a given geographical area. The theoretical literature shows a wide consensus that FTAs most important benefits are heavily anchored in the expected gains from an enlarged market. With free and unrestricted movement of goods and services, investment is expected to more easily respond to the requirements of market demand and supply in the FTA, leading to more

8 efficient resource allocation. But to fully reap the benefits of an FTA, members have to meet certain conditions: a stable and predictable trade policy environment; the removal of restrictions on competition among firms within the region; and trade-facilitation measures reducing barriers to trade including NTBs. In addition, measures to protect foreign direct investment (FDI) through broader property rights and special regional arbitration courts provide incentives for investors. The traditional approach to integration theory does not provide a full analysis of the welfare gains and losses to countries adhering to free trade principles and particularly not for developing countries. Jacob Viner s (1950) custom union theory has been widely used to analyse net gains and losses of regional integration. According to Viner, preferential trade arrangements, including FTAs, bring important changes to national and global welfare through two distinct effects namely the static and dynamic. The former refers to resource allocation resulting from changing relative prices associated with the changed pattern of tariffs, and the latter refers to the ability to exploit economies of scale and to achieve levels of investment and economic growth due to efficiency and size The phenomenon of regional integration and FTAs in particular has posed serious analytical challenges for trade theorists mainly because regional integration schemes conceptually combine elements of both free trade (within the union) and protectionism (against non-members). Of course, while the trade liberalization aspect of regional integration is consistent with the neoclassical perception of a welfare-enhancing trade policy regime, the discriminatory aspect of the arrangement is potentially detrimental to attaining both regional and global welfare. According to the Viner model, static effects of integration result from a one-time reallocation of economic factors of production and natural resources and entail negative and positive impacts on welfare. The model provides a

9 tool for analyzing the welfare effects of FTAs by introducing the concepts of trade creation and trade diversion. The extent to which the changes in welfare occur depends greatly on the predominance of either one of these effects. Trade creation refers to the increased level of trade that results from the abolition of trade barriers within the regional integration bloc. According to the assumptions of trade creation the pattern of trade heavily reflects the differences in comparative advantage among member countries. Trade is said to have been created when countries give up on the production of goods and services that they produce less efficiently in exchange for the same goods and services produced more efficiently by a partner country. Thus regional and global welfare is said to have been enhanced when the changes introduced by the FTA produce a shift in consumption from a higher-cost domestic product to a lower-cost partner-country product. So, what are the conditions for a trade-creating regional integration arrangement? Robson (1984) states that trade is more likely to be created when the economic area of integration and the number of member countries is large; tariffs and NTBs have been reduced or eliminated as a result of the FTA; and the economies of the integrated countries are competitive, having comparable levels of development and a complementary resource base. The trade diversion effect, in contrast, is seen as a cost to the region and the world at large. Trade is said to have been diverted when the shift in consumption is more in favour of higher-cost products and services from the region than lower-cost products and services produced by countries outside the region. Thus trade diversion could produce an uncompetitive environment, inefficiency and loss of consumer surplus. Although it is generally accepted as a theoretical fact that trade creation and trade diversion are potential outcomes of preferential trading systems and that they tend to move economic welfare

10 in opposite directions (Viner, 1950),the net effect of the two phenomena is an empirical issue(see next section).for Africa, a focus of static economic theory with the impact of trade diversion on global welfare may overlook the fact that the continent s integration objectives often transcend narrow economic considerations. Its integration approach is developmental, and it has cogent, development-related justifications, which lie outside the framework of conventional static theoretical analysis for its regional integration. Dynamic gains from FTAs are attained over the long-run. They are more than a one-off enhancement of welfare through spillover effects. These effects often result from economies of scale (due to an enlarged market); efficiency gains (due to the competitive environment and transfer of technology); increased inward FDI flows; and removal of contingent protection and trade barriers. The most important economic gains may stem from the cheaper unit costs induced by economic cooperation and coordination of policies (De Melo, Panagariya and Rodrik, 1993), including those for region-wide transport and communications. Africa itself may see dynamic gains from regional integration in six main areas. The enlarged regional markets provide incentives for FDI as well as private cross-border investment. Appropriate trade and macro-economic policy regimes can encourage businesses to set up optimum-sized industrial and service projects, which were formerly held back by the small size of national markets. Most African economies are too small to launch viable steel projects, for example, yet this industry s pivotal role for developing countries to industrialize is widely recognized. The combination of a stable investment climate, development of transport and communications infrastructure as well as sound regional economic policy could provide the incentives for large investments in the manufacturing and service projects that require economies of scale. Regional integration is likely to improve efficiency as a

11 result of competitive pressures among rival firms. Monopolies and oligopolistic market structures are major impediments to efficient production in most African countries. Inefficient national enterprises (including government monopolies) often keep reaping abnormal profits either because laws protect them or because industry offers no credible rivals. Adopting and enforcing regional competition throughout the FTA is likely to enhance (or spawn) the free competition needed for an efficient industrial structure. Potential terms-of-trade effects of possible trade diversion from a regional FTA may lead to welfare improvements in that REC. This is because an increase in the relative price of exportables can expand that sector, stimulating further investment and so raising output and employment. Greater intra-african trade is expected to generate faster growth and income convergence within RECs. Market integration within RECs is likely to stimulate regional growth poles that are capable of generating sufficient externalities to the FTA s less developed member states. As production structures diversify from primary products, Africa s long dependence on developed market economies for manufactures should weaken. The existing structure of commodity specialization in Africa has placed the continent at a long-term disadvantage not only seen in terms-of-trade losses but also in loss of self-esteem and growth. One of the potential dynamic effects of FTAs in Africa is that they can provide a better environment for industrial diversification and regional complementarity than when each country goes its own way. The apparatus of regional arrangements provides an excellent platform for dialogue, conflict resolution and ensuring peace and security. Sub-regional political stability and peace may be some of the non-economic effects of regional integration, especially as Africa has suffered too many internecine wars and civil conflicts. Over many decades, absence of stability and peace may have constituted potent non-

12 economic determinants of poor growth in Africa. This particular notion of dynamic gain highlights the potential significance of the effects of regional integration in Africa. Steps to remove tariffs will only secure gains in these six areas if other policy measures accompany them, such as reducing the NTBs stemming from weak infrastructure, lengthy border processes, duplicated procedures and corruption. Regional efforts at upgrading infrastructure and reducing NTBs are therefore fundamental to successful integration. Two decades after the Abuja Treaty was signed, both intra-african and external trade are stubbornly low (UNECA,2010). To boost such trade and achieve sustained socio-development, in November 2010 AU ministers of trade strongly recommended fast-tracking the CFTA. Intra-African trade in the first decade of the 21st century did not increase much. In 2009 it accounted for only 11per cent of the continent s total trade, a meagre 1 percentage point increase from 9.7 per cent in 2000 (Comtrade,2009/2010). This is far less than trade within other regions. Regional integration faces multiple challenges, which underline the need to strengthen coordination among the RECs where individual countries cannot overcome them alone. Hence African leaders must accelerate integration by reviewing current methods, by removing all obstacles that hinder integration, by making strong commitments to reach these goals and by providing more resources to the AU and the RECs. Various challenges stand out. Energy access and security constitute one of the greatest constraints on sustainable and inclusive growth. Despite the continent s vast energy resources, its energy access lags far behind that in the rest of the world. In addition, energy supply is hampered by inefficient utilities, and weak cross-border collaboration in energy trade. Hence some sub-regions need to spur themselves further, in order to harness the benefits of, for example, gas and power supply pools and regional energy

13 markets. The multiplicity of schemes holds back integration, by imposing a huge burden on countries inadequate administrative and financial capacities and by leading to conflicting obligations. A smooth integration process is also held up by the lack of selffinancing mechanisms for the RECS, limited progress on fostering production integration and regional complementarities, or for developing regional infrastructure (especially transport and communications) to drive market integration. What is the best model for Africa The EU and the AEAN pose as successful regional integration models to have existed on the world. To begin with the EU, currently, contains 27 countries with a combined population of 372 million and a combined GDP larger than the USA. The EU began development in 1951 when the European Coal and Steel Community (ECSC) was formed providing for elimination of tariffs and quotas for the coal and steel industries between Belgium, France, Italy, Luxembourg; the Netherlands; and West Germany. The basic idea was to promote free trade in two important commodities (coal and steel) as a deterrent to future military conflicts in Europe. However, the key feature was that during the time the ECSC was established, Europe was peaceful as witnessed by the ceasefire agreement that was reached soon after the second world-war. Though this may seem contrary to the African set-up where regional integration efforts have been met with conflicts which are existent in almost all the regional groupings, however, African can adopt the fundamental policies from the EU. The first fundamental policy that African can adopt is the EU Common Agricultural Policy (CAP) which is an agreement among European countries to subsidize the agricultural sector. When the countries form the FTA or customs union, free trade in agriculture is potentially a problem because every country subsidizes its farmers. If the subsidy programme among countries vary, then

14 free trade among member countries becomes problematic, hence the EU adopted the CAP for all members. The CAP guarantees prices for all farm commodities within the EU and the EU purchases whatever the farmers cannot sell on the open market. Africa can adopt the same policy and empower its farmers. All in all, the EU model is practical for Africa. Once Africa adopts this CAP policy, then efforts can be put in place to bring in the the strategy to move the African continent from being an overall primary agricultural producing continent to basically agro-based continent. The entire point of the subsidies is to enable Europe be self sufficient in the production of its food. For food import loving Africans, this might seem like a strange idea, but Africa should and must know that food is becoming a national security issue and there are several good reason for keeping its production domestic. In fact, a lot of the developed countries have subsidies in the spirit and style of the CAP. In a perfect world, much of Africa s chronic food shortage problems could be solved by adopting a CAP style arrangement for Agricultural production. There is no sense is trying to open a European market for African agricultural products when even with huge volumes of food imports, we can barely satiate the starving people on our own continent For regional groupings such as SADC which have already started the process of introducing the common agricultural policy, there is need to strengthen the efforts and make sure that the targeted individuals are poor rural farmers. 1 The SADC Secretariat 1 SADC Secretariat, , Report of the Executive Secretary: Activity Report of the SADC Secretariat The SADC regional Agricultural Policy (RAP) is expected to be a binding legal instrument for the implementation of the regions food, agriculture, natural resources and environmental strategies in the region. The Rap intends to deal with challenges facing the regions agriculture value chain from the supply side (production, productivity and competiveness) through to trade and markets of agricultural products on the demand side.

15 has managed to facilitate the drafting of the SADC RAP Technical Background Document and the Policy Document which finalizes the key policy directions for the region which includes the purpose, objectives, priority areas for intervention, potential intervention forms and general planning, implementation and financing mechanisms of the RAP. The approved policy will be followed by the development of the RAP investment plan and the signing of the SADC Regional Comprehensive Africa Agriculture Development programme (CADP) compact. Africa needs to diversify away from the primary agriculture industry and it has to move to the secondary manufacturing industry and thereafter to the more advanced industrial stages. This has to be done gradually. Africa for a long periods faced food challenges in almost the regional integration blocs as many countries depend their agricultural farming on rainfall. Most countries have a uni-modal system of farming such that when there is poor rainfall, there are widespread droughts hence widespread food shortages. According to SADC member countries, although member states had not submitted their 2012/13 vulnerability assessment and analysis results, current indicators point to an increase in the number of people requiring humanitarian assistance in terms of food and non-food assistance. According to SADC report to the Executive Secretary of 2012/13, about 3,808, 167 were likely to be food insecure. However, the effectiveness of this is dependent upon the level of financing and investment attributed to agriculture.

16 Conclusion In conclusion, Africa needs to adopt a home grown model of regional integration. The model that targets its people and the people s needs. The model that will take on board all African people from farmers to poor villagers who lack even the basic land to cultivate their crops. Africa s model of regional integration needs to have a vision of graduating African economies from being primary industry dominated to other high income elasticity production. African needs to adopt policies from successful regional groupings that will and can only work given the present circumstances in Africa. LIST OF REFERENCES Mwapachu J.V. (2012), Challenging the Frontiers of African Integration: The Dynamics of Policies, Politics and Transformation in the East African Community, E&D Vision, Dar es salaam UNECA (United Nations Economic Commission for Africa), 2004, Assessing regional integration in Africa, Addis Ababa Assessing regional integration in Africa II: rationalizing regional economic communities. Addis Ababa Assessment of progress on regional integration in Africa. Fifth Session of the Committee on Trade, Regional Cooperation and Integration, Addis Ababa, October Assessing regional integration in Africa III: towards monetary and

17 financial integration in Africa. Addis Ababa, Assessing regional integration in Africa IV:enhancing intra-african trade. Addis Ababa Assessing regional integration in Africa V:Towards an African Continental Free Trade Area. Addis Ababa.