UNITED NATIONS ECONOMIC COMMISSION FOR AFRICA FINAL REPORT

Transcription

1 UNITED NATIONS ECONOMIC COMMISSION FOR AFRICA FINAL REPORT STUDY ON THE ESTABLISHMENT OF INTER-RECs FREE TRADE AREAS IN AFRICA DRAWING ON LESSONS FROM THE COMESA-SADC-EAC FTA EXPERIENCE UNECA, ADDIS ABABA, ETHIOPIA 2 MAY 2011 i

2 TABLE OF CONTENTS Page List of Acronyms...iii Executive Summary Introduction Aims and Objectives of the Study Justification Theoretical Concept Study Methodology Types of Data Data Collection Techniques Sampling Technique The Survey Method of Data Analysis Results and Discussions Procedures and Experience in Establishing inter-recs FTA Challenges and Potentials in Establishing inter-recs FTA Challenges Low Level of Technology Multiple and Overlapping Memberships Varying Stages of Economic Integration among RECs Multiple and Undifferentiated Products Lack of Political Will Limited Human Capacity Financial Constraint Potentials Larger Markets, Specialization and Industrialization, and Economies of Scale Trade Liberalization Achievements Infrastructural Development...18 i

3 5.3 Trade Liberalization and Facilitation Efforts of RECs and their Impacts on Intra-Africa Trade Trade Liberalization Trade Facilitation Role of the Customs Infrastructure Funding for Infrastructure Development Guidelines on the Establishment of Inter-RECs FTA with Emphasis on the COMESA-EAC-SADC Tripartite FTA Objectives and Principles Implementation Procedure Consultations with Stakeholders Assessment and Comments Guidelines on the Establishment of Inter-RECs FTA Expected Direction of Intra-Africa Trade with Inter-RECs FTA Costs, Benefits and other implications in Establishing inter-recs FTA Costs and other implications of Integration Benefits from Integration Issues regarding Rules of Origin Revenue implications Issues regarding Customs Laws Implications of the On-going EPA Negotiations on the Inter-RECs FTA EU Stand on the Negotiations Positioning Africa in the Negotiation Framework African Union Stand Conclusions and Recommendations...37 References...39 ANNEXURE...41 ii

4 List of Acronyms AfDB - African Development Bank AFT - Aid for Trade AGOA - African Growth and Opportunity Act ARIA - Assessing Regional Integration in Africa AU - African Union CEMAC - Monetary and Economic Community of Central Africa CEN-SAD - Community of Sahel-Saharan States CIF - Cost Insurance and Freight COMESA - Common Market for East and Southern Africa CEPGL - Community of Great Lakes Countries CU - Customs Union DFID - Department for International Development DTI - Department of Trade and Industry EAC - East African Community EBA - Everything but Arms ECOWAS - Economic Community of West African States EPA - Economic Partnership Agreement ESA - Eastern and Southern Africa EU - European Union FTA - Free Trade Area ICT - Information and Communication Technology IGAD - Inter Governmental Authority on Development LDCs - Least Developed Countries M & E - Monitoring and Evaluation MFN - Most Favoured Nation MOU - Memorandum of Understanding NEPAD - New Partnership for Africa s Development NSC - North-South Corridor iii

5 NTB - Non-Tariff barrier OAU - Organization of African Unity OECD - Organization for Economic Cooperation and Development OSBP - One Stop Border Post PAYE - Pay as You Earn PIU - Project Implementation Unit REC - Regional Economic Community SACU - Southern Africa Customs Union SADC - Southern African Development Community SPS - Sanitary and Phytosanitary Measures TTF - Tripartite Task Force TMEA - Trade Mark Eastern Africa TMSA - Trade Mark Southern Africa UMA - Arab Maghreb Union UMEOA - West African Economic and Monetary Union UNCTAD - United Nations Conference on Trade and Development UNECA - United Nations Economic Commission for Africa USD - United States Dollar VAT - Value Added Tax WCO - World Customs Organization WTO - World trade Organization iv

6 Executive Summary The sustained quest to achieve the African Economic Community in response to the Treaty Establishing the African Economic Community (Abuja Treaty) and its mandate to use the regional Economic Communities (RECs) as building blocks for Africa s economic integration agenda received a big boost on 22 October On that day, three Regional Economic Communities (RECs) Common Market for East and Southern Africa (COMESA), East African Community (EAC), and Southern African Development Community (SADC) at their Tripartite Summit held in Kampala, Uganda resolved to establish a free trade area (FTA) for their Member States. The Tripartite FTA as it is called encompasses the 26 countries of the three RECs with a combined population of 527 million people, a total Gross Domestic Product (GDP) of US $624 billion and GDP per capita of US $1,184. The three RECs make up nearly half the African Union (AU) membership of 53 countries, contribute over 58% of the continent s GDP, and account for 57% of the total population of the African Union. The single FTA is to be established on a tariff-free, quota-free, exemption-free basis, and should adopt the principle of variable geometry by simply combining the existing FTAs of the three COMESA, EAC and SADC into a single FTA. The plan is that by 2012, all the three RECs would have eliminated any exemptions or sensitive lists in their trading regimes. The Inter-REC FTA is expected to cushion and control internal and external trading shocks; enlarge markets for goods and services for Member States; increase the critical mass of trading facilities; eliminate the problem of multiple memberships; promote inter-rec and intra-african trade; and enhance the economic and social wellbeing of the people in the region. The Tripartite FTA is expected to stimulate the formation of other FTAs in other regions of Africa and thus fasttrack the establishment of a Grand Africa FTA in accordance with the recommendation of the 6 th Ordinary Session of the African Union (AU) Council of Ministers, which was held in Kigali from 29 October-2 November This study investigated the prospects and potentials of other RECs copying the efforts of COMESA, EAC and SADC to establish other FTAs, and how such inter-recs FTAs will help to fast-track the establishment of a Grand intra-africa FTA and Customs Union. The study further examined the challenges of forming inter-recs FTAs and ways of surmounting them to boost intra-africa trade. Using the experience gained from establishing the COMESA-EAC-SADC Tripartite FTA, the study investigates and analyses the challenges to be faced and the costs and benefits associated with the establishment of inter- RECs FTAs. It specifically looks at the imperatives of establishing free trade areas such as trade liberalization and facilitation; customs laws and Rules of Origin; government policies; and the economic, social, legal and political implications of the establishment. The ways inter-recs FTAs will affect African economies in terms of revenue receipts, Rules of Origin, and customs laws were also investigated. The study further evaluated the potential impact of the ongoing EU-Africa EPA negotiations on the establishment of inter-recs FTAs and on regional integration in Africa. The importance of evaluating the impact of external interventions on the inter-recs FTA and intra-africa FTA is crucial because of the expected benefits from the continental initiatives. Inter-REC FTAs and the Grand Intra-Africa FTA are expected to enlarge intra- Africa markets, create economies of scale in production, solve the problem of multiple memberships, and enhance direct capital and foreign investment flows into the continent. The study builds on the Abuja Treaty s underpinnings of using RECs as building blocks for regional integration. It is predicated on the concept that successful implementation of the Tripartite FTA will send positive signals to other RECs to join the FTA or form new FTAs, which will eventually snowball into a Grand African FTA. Empirical data to validate these a priori assumptions were collected from the Secretariats of the three RECs COMESA, EAC and SADC in Lusaka, Arusha and Gaborone respectively, and from relevant Ministries of Trade in the region. The Secretariats of the three RECs, the Kenyan Ministry of Trade and Industry, and the South African Department of Trade and Industry (DTI) were visited to interview officials involved with the Tripartite FTA, regional trade, and regional integration on the prospects of forming and using inter-recs FTAs as a vehicle for regional integration and for fast-tracking the Grand Africa FTA. 1

7 The survey showed that a Draft Tripartite FTA Agreement and Draft Roadmap for the implementation of the FTA were developed and submitted to Member States for their comments and inputs in November The Draft Agreement was to be launched during the Second Tripartite Summit in the first quarter of However, the Second Summit and the launching of the Draft Agreement did not take place have been moved to the second quarter of Similarly, the date slated for the implementation of the Tripartite Agreements has been extended by one year from January 1, 2012 to January 1, The establishment of the Tripartite FTA has faced a number of challenges, including the issue of multiple memberships, which affect trade liberalization, negotiations, and the rules of origin. Other challenges reported include the low level of technology in the region, limited human capital, poor infrastructure, preponderance of non-tariff barriers (NTBs) to trade, and financial constraints facing Member States, especially those in the least developed countries (LDCs) category.the NTBs have been a major obstacle to regional trade and integration. Cases of unofficial corruption, delays and disruptions by unauthorized road blocks by the army, police and customs were reported. The prospects for increased intra-african trade under inter-recs FTAs trading regimes are found to be high. This optimism is buttressed by several accounts, which reported a boost in intra-regional trade following the formation of FTAs in the tripartite region in which exports rose from US $ 7 billion in 2000 to US $ 27 billion in The trade boost is attributed to the trade liberalization and supportive policies initiated in the three RECs. Over the same period, imports grew from US $ 9 billion in 2000 to US $ 32 billion in The AU also reported substantial growth increases in intra-regional trade in COMESA from US $3.1billion in 2000 to US $ 13.7 in 2008.This study has further documented an increase in the three RECs share of African trade in which the EAC share rose from 15.6% in 1995 to 21.7% in 2005 and to 33.4% in The corresponding figures for COMESA are 14.8%, 21.2% and 23.2% in 1995, 2005 and 2009 respectively while those of SADC are 16.6%, 19.9% and 16.4% in 1995, 2005 and 2009 respectively. Inter-RECs FTA establishment is accompanied by direct and indirect costs. There are costs due to direct expenditures on trade facilitating infrastructures such as transports services, information and communication technology (ICT), and energy. The Department for International Development (DFID) of the United Kingdom through its subsidiary company Trade Mark Africa is helping to offset the costs by providing financial support for the infrastructural development through the North-South Corridor (NSC) development programme. There are also indirect costs that might arise from revenue losses due to tariffs removals, and possible loss of jobs from mergers and consolidations from integration. The costs however are likely to be outweighed by the anticipated gains and benefits from increased inter-recs FTAs and the Grand Africa FTA. The benefits include enlarged intra-africa market, increased volume of trade, improved form and value adding on products, and economies of scale in production and distribution of products. Certain government policies such as protection of domestic infant industries, cultural interferences in trade, and multiple memberships in RECs constitute serious bottlenecks to regional integration and impede the propensity to use inter-recs FTAs to boost intra-african trade. The Rules of Origin are also considered very complex instruments of trade which need careful and painstaking evaluations in their use as they could easily damage relations between states involved in inter-recs FTA establishment. The case of Kenya s sugar industry where due to government protection and application of the Rules of Origin, locally produced sugar in the country costs much more than imported sugar is cited. The report indicates that Kenyan sugar costs 55 Kenya shilling per kilogram while the CIF value of imported sugar landing at the Mombasa port is only 30 Kenya shillings. Other sources report a local cost of US $590/metric ton against a landing cost of US $225/metric ton at the Mombasa Port for sugar imported from Swaziland, Mauritius and Zambia. There are economic, social, legal and political implications associated with joining an FTA of the nature being established by the three RECs. While there are economic gains and losses or winners and losers from 2

8 the establishment, there are strong reasons already adduced on the potentials that the benefits will outweigh the costs. The social benefits and costs are also viewed from the optimistic view point that the jobs and employments lost due to mergers and closures might be recreated in much bigger dimensions by large markets and economies of scale that will emerge from the inter-recs FTAs and much more from the Grand Africa FTA. Legally, the terms and articles of association including the memorandum of understanding (MOU) are binding and seem to restrict rights and freedom. However, as far as countries do not breach the law and rules of association, they will continue to enjoy the expanded rights and privileges offered by the bigger trading bloc. In the same light, the citizens enjoy freedom of movement into the partner countries and the right of association and to do business in member countries of the FTA. Many political skeptics fear that signing up to an inter-recs FTA is tantamount to mortgaging the political authority and sovereignty of their countries. In the contrary, membership in an inter-recs FTA is a mere delegation of authority to a supra-national body and not a forfeiture of national rights and privileges or the relinquishing of national authority and sovereignty. On the ongoing EU-Africa EPA negations, the general opinion across the regions covered in the study and across Africa seems to be that the negotiations do not favour Africa. The conditions and terms of the negotiations as demanded by the EU are seen to be fragmenting and disintegrating rather than integrating Africa. Fundamentally, the framework for the negotiations, which stratifies Africa into diverse negotiating blocs do not tally with the traditional regional groupings on which Africa s integration is based. The AU has cautioned that EU s demand for 80% liberalization of trade will make Africa a perpetual exporter of raw materials and stifle Africa s chance to industrialize. It will also suppress her regional market, which is a major source of revenue in the continent. The AU has emphasized the imperative for the EU to relax its stringent rules and extend EPA negotiations beyond FTAs to include regional integration and Africa s development in order to maintain interest by African countries in the EPAs. The study concludes that there are several challenges to overcome in the establishment of inter-rec FTAs. They include limited transport and communication infrastructure as weak as energy; limited quantum of investment capital and investment; inadequate quality and quantity of human capacity; and preponderance of various and variety of non-tariff barriers (NTBs). Multiple and overlapping memberships still persist and contribute significantly to trade liberalization challenges facing the states. However, resolving the multiple and overlapping memberships problems is one of the major benefits to be achieved in the inter-recs and ultimate Grand Africa FTA establishment. Inter-RECs FTAs are however likely to create economies of scale and improve competitiveness of goods regionally. The study concludes that from the COMESA, EAC and SADC experience, establishing an inter-recs FTA may take some time as efforts are made to bring stakeholders, Member States, and Partner RECs at par on the modalities and to let them have good understanding of the potential impacts of the single FTA on their economies and overall development, and as negotiations take their course amongst states given that many of them are at different levels of integration and trade agreements within and outside the region. In general the study shows that there is great prospect for successful establishment of inter-recs FTAs and in their use to fast-track the formation of a Grand African FTA to boost intra-africa trade. Commonalities that favour such single inter-recs FTA as seen in COMESA, EAC and SADC also exist in CEN-SAD, ECOWAS and UEMOA on the one hand and ECCAS, CEMAC and CEPGL on the other. A single but powerful Grand Africa-FTA and customs union will authoritatively and effectively represent Africa in international trade negotiations, and pave the way for a speedy realization of the African Economic Community in line with the Abuja Treaty. \ 3

9 1.0 Introduction 1. The African Union s strategy to forge closer cooperation between Member States and their people led to the recognition of five geographically-based regional economic communities (RECs) as pillars for integration and development in Africa. These regional bodies include the Arab Maghreb Union (UMA) in North Africa, Economic Community of the West African States (ECOWAS) in West Africa, East African Community (EAC) in East Africa, Economic Community of Central African States (ECCAS) in Central Africa, and Southern African Development Community (SADC) in Southern Africa. Two more RECs namely Common Market for Eastern and Southern Africa (COMESA) and Community of Sahel-Saharan States (CEN-SAD) cutting across subregions, and Inter-Governmental Authority on Development (IGAD) are also recognized by the AU to bring the AU sponsored RECs to eight. Although, many more RECs have sprung up thereafter, a phenomenon that tends to compound regional cooperation and integration efforts, the eight RECs remain the principal pillars of the AU s agenda for integration. 2. The Lagos Plan of Action of 1980 had also prescribed the use of the (RECs) as building blocks for regional integration in Africa. Ten years later, the Abuja Treaty adopted and endorsed the use of RECs for regional integration in accordance with the Lagos Plan of Action with the establishment of the African Economic Community in The formation of the New Partnership for Africa s Development (NEPAD) in 2001 as a strategy for faster development through regional economic integration further attests to Africa s bid to accelerate the pace of development (NEPAD, 2001). African leaders and stakeholders believe with much optimism that increased trade ties among RECs through the use of inter-recs FTAs will quickly metamorphose into a Grand intra-africa FTA. The continental union will better leverage and harness Africa s human and material resources; boost intra-africa trade and the pace of development; and quickly realize the continental dream of an African Economic Community and Common Market. 3. Trade has emerged and is widely recognized as a formidable instrument for inter-regional cooperation and economic emancipation nationally and internationally. Over the years, Africa s political and socio-economic upheavals have impaired its capacity to effectively use trade as a veritable instrument of economic growth for her development. Attempts at using regional integration as a vehicle for continental integration in Africa spans many years and dates back to the years of independence in 1960s. The later years of post-independence Africa has witnessed the emergence of new paradigm shift towards recreating closer ties and cooperation between member countries of regional economic blocs. The new moves led to the establishment of several organs of state designed to act as rallying points and centres of gravity around which Africa s development will gravitate. These neo-development efforts culminated in the formation of the Organization for African Unity (OAU) in 1963 and its later transformation to African Union (AU) in 2001 as a continental flagship to steer the course of political emancipation in the continent and propel it to an era of economic prosperity. 4. Subsequently, a proliferation of sub-regional economic blocs ensued from within the traditionally known and existing RECs in Africa, causing phenomenal increases in the number of RECs from the original five to more than ten. The new regional blocs adopted economic oriented development paths to forge their 4

10 regional cooperation and integration relationships. The popular areas of commonality used as criteria for cooperation include common currency affiliations, common language, identical colonial history, and homogeneous geo-political locations. 5. The RECs and their Member States are now seeking closer cooperation through intra- and inter-rec trade by forming trading blocs in order to achieve faster regional integration and speed up the establishment of an African Common Market. The formation of COMESA and CEN-SAD to cover wider areas and to include more states from existing RECs demonstrates further efforts by African states to expand the frontiers of regional cooperation in trade as a strategy for faster regional integration. Furthermore, the AU Ministers of Trade, at their 6 th Ordinary Session in Kigali in November 2010, after due assessment of the progress made in the implementation of FTAs and Customs Unions in the various RECs, and guided by the views expressed by ECA, AU and AfDB (2010) in their joint publication - Assessing Regional Integration in Africa IV (ARIA IV), recommended the fast-tracking of the establishment of an African FTA to help address the unresolved development issues to reap the benefits from successful action. 6. The EAC, COMESA and SADC Tripartite Summit of October 2008 and the resultant Tripartite FTA Agreement, demonstrate the compelling desire for RECs to forge inter-rec cooperation in trade to enhance regional integration and overall economic emancipation of the continent. The 26 countries that make up the three RECs have a combined population of 527 million people, a total Gross Domestic Product (GDP) of US $624 billion, and GDP per capita of US$1,184 (Newsline, 2010). They constitute half the African Union (AU) membership of 53 countries, over 58% in contribution to GDP, and 57% of the total population of the African Union (COMESA, EAC and SADC, 2009: Ministry of East African Community, 2010). The Tripartite FTA is to be established on tariff-free, quota-free, exemption-free, and should adopt the principle of variable geometry by simply combining the existing FTAs of COMESA, EAC and SADC into a single FTA (COMESA, EAC and SADC, 2011). The plan is that by 2012, all the three RECs would have eliminated any exemptions or sensitive lists in their trading regimes. The Inter-REC FTA is expected to cushion and control internal and external trading shocks; enlarge markets for goods and services for Member States; increase the critical mass of trading facilities; eliminate the problem of multiple memberships; promote inter-rec and intra-african trade; and enhance the economic and social wellbeing of the people in the region. 7. The initiative takes place against the backdrop of numerous obstacles to trade imposed by both internal and external forces. Internally, there have been poor infrastructures including low level of information and communication technology (ICT); paucity of skilled human capacity; lack of political will; complexity of the African trading environment especially with multiple memberships in RECs; and limited domestic capital. Externally, the continent remains marginalised in the globalized and international scheme of things especially in trade. Getting out of the global marginalization doldrums is one of the primary 5

11 objectives of the New Partnership for Africa s Development (NEPAD), one of AU s initiatives for development. Thus, grappling with the challenges of global integration without jeopardizing the regional integration interests has become a major challenge in Africa. 8. The inter-recs FTA initiative seeks to enlarge African markets and create economies of scale in production. Investments motivated by economies of scale are expected tro help unlock the productive potential of Member States and harness existing human and material resources to take advantage of the enlarged market. Through the envisaged coordinated and mutually supportive actions of intra-africa FTAs, Africa will be better equipped for bargaining at the international forums such as the World Trade Organization s Doha Development Round Negotiations as well as in the economic partnership agreements (EPAs) with the European Union (EU). An active and functional inter-recs FTA will make the economic bloc more attractive to foreign investors and therefore increase the flows of foreign direct investment (FDI) into Africa. Expectations are rife and projections optimistic that the success of a single FTA such as the COMESA-EAC-SADC Tripartite FTA would motivate other RECs within the same or adjacent subregions to establish inter-recs FTAs thereby creating more tariff-free and quota-free zones in other regions of Africa. Eventually, the inter-recs FTAs will coalesce into a single African FTA and a Customs Union (CU), which will enhance intra-africa trade and boost regional integration. 9. This report presents and analyzes the prospects, challenges and possible impacts of establishing inter-recs FTAs drawing from the experience so far in establishing the COMESA-EAC-SADC Tripartite FTA. The study was undertaken from February 2011 during which the Secretariats of the three RECs were visited and interviews conducted with officials, dealing with the Tripartite FTA. The primary aim of the study is to assess the progress made towards the establishment of the Tripartite FTA; identify the key challenges and bottlenecks being encountered by the RECs in the process; determine the prospects of other RECs replicating the COMESA-EAC-SADC Tripartite FTA example to form other FTAs; and the potentials of the new FTAs quickly converging to form a Grand Intra-Africa FTA to boost intra-africa trade. The study is to further make recommendations on how to surmount the challenges and obstacles encountered in using inter-rec FTAs to fast-track the formation of the intra-africa FTA and customs union to set the continent on the path of achieving the goal of an African Economic Community in line with the Abuja Treaty. 2.0 Aims and Objectives of the Study 10. This study has been undertaken to analyze the potential impact of inter-recs FTA on African economies. The anticipated benefits and costs as well as the legal and political implications of forming inter- RECs FTAs are investigated. The study further assessed the effect on the inter-recs FTAs of the on-going Economic Partnership Agreements (EPAs) that African countries are currently negotiating with the 6

12 European Union. The outcome of the study is expected to inform the process of establishing inter-recs FTA across Africa. 11. The specific objectives of the study are to: i. Conduct an overall assessment of the procedure in establishing inter-recs FTA and the ii. iii. iv. challenges and benefits by drawing from the experience of the on-going COMESA-EAC-SADC Tripartite FTA s. Assess and analyze trade liberalization and facilitation efforts of the REC s (including progress in the establishment of free trade areas and customs unions) and their implications for intra- African trade. Assess and analyze the likely direction of intra-africa trade following the establishment of inter- RECs FTAs. Assess and make proposals for the establishment of inter-recs FTAs drawing from the experience in the COMESA-EAC-SADC Single FTA. v. Provide guidelines or recommendations for the establishment of the inter-recs FTA based on vi. vii. viii. ix. 2.1 Justification the assessments. Analyze government policies and their impact on the inter-recs FTAs. Outline the potential economic, social, legal as well as political implications of African Member States joining the inter-recs FTAs. Discuss the impact of the inter-recs FTA on African economies including rules of origin, revenues, and customs laws. Assess the implications of the on-ongoing EPA negotiations on the inter-recs FTAs in Africa. 12. The cooperation of the three RECs to form the Tripartite FTA is a practical demonstration of an action plan that is geared towards the implementation of the Lagos Plan of Action that prescribes the use of RECs as building blocks for regional integration to achieving the Abuja Treaty, which prescribes the establishment of African Economic Community by 2028 (Madakufamba, 2008). Inter-RECs FTAs represent ideal interventionist models for addressing most of Africa s perennial trade and regional integration challenges, which have lingered due to social, political and economic divergences. The coming together of RECs in unity of purpose to pursue the common objective of using trade to foster development is crucial and comes at a time when the continent remains highly marginalized in global trade and lacks competitiveness in industrial production due to low level technology, poor infrastructure, and limited value addition. The domestic drawbacks limit the flow of investment and investment capital into the continent. 13. The inter-recs FTAs, therefore, seek to unlock the trade potentials of the continent and position it adequately in the global trading arena. The inter-recs FTA initiative will promote customs cooperation and broader trade facilitation; harmonization and coordination of trade instruments and nomenclature; use of simpler rules of origin, and broader relaxation of restrictions on movement of goods, persons and services.. The collaboration and cooperation of RECs through inter-recs FTAs should further improve regional infrastructure and consolidate regional markets through improved interconnectivity in all forms of transport 7

13 and communication as well as promote energy pooling to enhance the regions competitiveness. Finally, through liberalization, harmonization, and facilitation in trade, inter-recs FTAs would eliminate the complex problem posed by multiple memberships. 3.0 Theoretical Concept 14. The concept of an inter-recs FTA and its role in fostering regional integration derives from the Lagos Plan of Action and the Abuja Treaty (reemphasized by the Constitutive Act of the African Union) that seeks to use RECs as building blocks for regional integration and Africa s economic development. The theoretical basis for forming trade regimes and in creating enabling environments to facilitate trade by forming FTAs pivots on the law of supply and demand. The presence of a willing buyer and a willing seller sets up market and creates conditions for trade negotiations at a micro level. The same principle delineates the supply and demand sides in the market and escalates the trading partners from the individual (micro) level to the national and regional REC (macro) levels. Thus, when Member States and RECs find goods and services of mutual interest for their growth and development, they try to set up trade regimes that will facilitate their negotiations and eventual exchange of the goods and services of interest to them. They begin with setting up preferential trade agreements (PTAs) and graduate to free trade areas (FTAs) by eliminating tariff and non-tariff barriers, and eventually to a Customs Union by adopting common external tariffs. The transformation in 1994 of COMESA from its original status of a PTA to an FTA, and then to a partial Customs Union followed this process. Indeed the African RECs are by and large following the same linear trajectory. 15. The conceptual framework in this study is predicated on the assumption that within the three RECs there are willing states acting as buyers and sellers of goods and services obtainable in the region. It is to get the potential trading partners together that has led to the establishment of the Tripartite FTA. By virtue of the principle of variable geometry that guides the establishment, the states in the three RECs or willing ones outside the three are not under obligation to join the FTA at the inception. However, with time, the non participating states would have realised the benefits or would have dismantled the obstacles that prevented them from joining initially and thereby fulfil the requirements for membership and join the FTA. Alternatively, other RECs might find favourable conditions that would motivate them to form separate FTAs in their own regions and using the experience gained from the Tripartite FTA, form their own FTA(s). This assumption presents the likelihood that more FTAs would be established in addition to the COMESA-EAC- SADC FTA. Finally, the regional FTAs could harmonize their policies, principles and laws to produce one Grand African FTA and customs union. The benefits of such an FTA are immense and include the enlargement of the market, economies of scale, increased economic and political muscle for international negotiations, and leveraging the potential of speedily achieving an African Common Market. 8

14 Figure 1. Hypothetical Structure of Proposed FTAs 16. The process and anticipated outcome in forming the Tripartite FTA and other possible inter-rec FTAs as conceptualized in the study are illustrated in Figure 1. In the figure, the ongoing COMESA-EAC- SADC FTA is indicated as FTA1. It is envisioned that IGAD might join them in due course. Already, IGAD is closely linked to the three Tripartite FTA RECs through the North-South Corridor (NSC) transport infrastructure development. According to Dinka (2007), it is possible that following the Referendum in Sudan, the independent state of Southern Sudan as well as the DRC might join the EAC to become members of the Tripartite FTA. On the other hand, RECs with identical geo-political, socio-economic, and sociocultural commonalities like the three RECs in the Tripartite FTA might group themselves to form other Single FTAs. The likely groupings based on these a priori assumptions could be ECOWAS/ UEMOA, UMA and CEN-SAD coming together to form FTA2 and ECCAS and CEMAC teaming up to form FTA3 with CEPGL (Economic Community of the Great Lakes Countries) possibly joining this FTA3. The commonalities that would facilitate the proposed formations include the predominance of CEMAC countries in the Central Africa region and the fact that CEMAC is a monetary union in ECCAS. Similarly, the grouping of CEN-SAD and ECOWAS in the same FTA will be easily facilitated by the presence of majority of ECOWAS countries in CEN-SAD. 4.0 Study Methodology 17. The study was conducted using both a field survey and literature review methods. The field survey was conducted from February 2011while the literature review spanned over the period before and 9

15 after the survey. A structured questionnaire was used for oral interviews during the survey or mailed to respondents who could not be visited. The literature review was conducted through online search, review of published works from relevant local and international organizations, and through library search at RECs Secretariats and related United Nations libraries. 4.1 Types of Data 18. Two types of data were collected and used in the study. They include primary data collected from the field survey and secondary data from the literature search. Primary data and information were extracted from responses given by interviewees at the REC Secretariats and the Ministries/Departments of Trade and Industry. Secondary data include materials and information published in books, journals, statistical abstracts, and periodicals. Sources of such data include UNECA, World Bank, African Development Bank (AfDB), United Nations Conference on Trade and Development (UNCTAD), African Union Commission, REC Secretariats, Private Sector Periodicals, and Member States publications. 19. Information and data sought and procured from the two sources focused on inter-recs FTA trade and trade-related issues as they affect or might affect regional integration and intra-african trade. Interviews at the RECs Secretariats delved into the processes in the formation of the Tripartite FTA and inter-recs FTA in general, with a view to determining the possibilities of establishing other RECs in Africa. Specifically, information was sought on the progress made so far in the establishment of the single Tripartite FTA with emphasis on implementing the agreements and negotiations, trade liberalization and facilitation, and identifying the obstacles prevailing in the implementation. On trade, statistical data was collected on inter-rec and intra-africa export and imports including their sources and destinations. Information on present and potential impacts of external interventions such as the Economic Partnership Agreements (EPAs) on the formation of, inter-recs and African FTA was also collected. 4.2 Data Collection Techniques 20. Several techniques were applied in procuring secondary data from the various sources. They include Internet downloads of materials published online from the websites of the authors of such publications using Google or World Wide Web based search engines. Among the sites visited from where data was collected are the World Bank, Organization for Economic Cooperation and Development (OECD), European Union, and United Nations agencies, especially the United Nations Conference on Trade and Development (UNCTAD) web sites. 21. Primary data was collected with the use of structured questionnaire during the oral interviews. The questionnaire was also sent electronically to be completed by agencies that could not be visited physically during the survey. (A copy of the questionnaire is attached in the Annexure). Some primary data were collected from visual observations and informal interviews with people during the survey using reporters and computer notebooks. The questionnaire has open-ended questions intended to give the interviewees 10

16 enough scope and space to provide sufficient information. Thus, the questions were not coded, and therefore did not require entering of figures or checking and ticking of boxes with Yes or No answers. The merit of open-ended questions lies in their ability to provide sufficient room for more comprehensive answers and data. 4.3 Sampling Technique 22. Africa is vast, RECs are many, and trade and traded goods are diverse. Thus, it was not practicable to carry out a census of the trade liberalization and facilitation, trade negotiations, and actual trading activities (imports and exports) in all the 26 countries in the Tripartite FTA or the 53 counties of the AU in case of the African FTA. Therefore, only samples of these populations in the RECs were selected and used in the study. Since the populations are non-homogenous, a combination of cluster and judgement or purposive sampling techniques was adopted in selecting the RECs, other government and non-government agencies, and the persons interviewed in the field. The same sampling techniques were applied in the selection of secondary data sources. However, in either case, effort was made to ensure that the clusters and sample sizes were representative of the population so that inferences made from the findings based on the samples will be credible and reliable. 4.4 The Survey 23. The field survey took place between February 2011 with visits to Botswana, Zambia, Tanzania and Kenya. Interviews were conducted at the SADC Secretariat in Gaborone amidst library search in the SADC library at the Secretariat. In Zambia, the COMESA Secretariat in Lusaka was visited and interviews conducted with the officers responsible for trade and regional integration. The EAC Secretariat in Arusha was the destination in Tanzania. While in Arusha, the officials in the Trade and Regional Integration and the Tripartite FTA Unit were interviewed. The period of the visit coincided with the signing of the memorandum of understanding (MOU) between the EAC Secretariat and TradeMark Eastern Africa. The opportunity was seized to interview officials of TradeMark Eastern Africa. Finally, the Ministry of Trade and Industry was visited in Kenya and interviews were held in their office in Nairobi. Further library search was made at the United Nations library in Nairobi. The Department of Trade and Industry (DTI) of South Africa could not be interviewed orally because the dates scheduled for their interviews coincided with the dates of a workshop which the entire trade team attended in Nairobi, Kenya. However, an electronic copy of the questionnaire was sent to the senior officials in the Trade Unit of the Department for completion. 4.5 Method of Data Analysis 24. The data study adopted mainly qualitative and descriptive methods of data analysis. The concept of with and without inter-recs FTA was applied in the analysis. The condition without the inter-recs FTA (without project) is taken as the baseline and benchmark for analysis. Then, the scenario in which the inter-recs FTA exists (with project) was introduced and the two conditions compared. This comparative 11

17 analysis interrogates the difference between the conditions that prevailed without the FTA and the expected conditions with the FTA fully established and functional. In other words, the processes involved in planning and developing, and implementing the FTA are identified and analyzed from the perspectives of trade facilitation and negotiations, revenues and costs, trading capacity, investment and capital flows, and freedom of movement of business people, goods and services. Also analyzed are the roles of infrastructure, information and communication technology (ICT), and energy in trade facilitation and promotion of intra- Africa trade. The merits and demerits, the challenges to inter-recs FTA establishment, the costs and benefits associated with its establishment; and the effects of outside interest groups actions, especially the EU Economic Partnership Agreements (EPAs) on the formation of inter-recs FTAs are also discussed. The data and information procured were analyzed and presented using descriptive statistical tools namely tables, charts and pictures. 5.0 Results and Discussions 5.1 Procedures and Experience in Establishing inter-recs FTA 25. The survey showed that after the Tripartite Summit in Kampala, Uganda on 22 October 2008 the governments of the three RECs commissioned a team of consultants to undertake a study on the establishment of the single FTA and the Roadmap. Furthermore, a Task Force was constituted from the three RECs to complement the work of the consultants. After 14 months of the Summit, the Task Force produced a Draft Report, Draft Tripartite FTA Agreement with 14 Annexes, encompassing all complementary areas that engender effective functioning of a regional market and the Road Map for its implementation. The Draft Road Map is a performance-based and goal-driven document with clear phases, timelines, target dates, and benchmarks. The documents were presented for endorsement at their 11 th meeting on 29 th November 2009 in Dar Es Salaam, Tanzania (COMESA, EAC and SADC, 2009). 26. The documents were sent to Member States of the three RECs for comments and contributions (COMESA, Per Comm). The three RECs have discussed the contents of the Draft FTA Agreements at their national and regional levels, during which time the governments and the private sector have made contributions to the report. The report has thus been revised several times following the contributions from the stakeholders. The Final Draft Tripartite FTA Agreement was to be launched in the Second Tripartite Summit of the Council of Ministers and Heads of State of the three RECs, which was originally scheduled for the first quarter of Following unforeseen delays the Summit and the launching of the FTA Agreement will now take place during the second quarter of the year. (DTI, Pers Comm). After the launching of the Draft FTA Agreement, Member States will enter into negotiations to reach accords in the respective areas of engagement in trade in the agreement. With diversity in the nature and levels of trade agreements between Member States, some of which might already be trading at FTA level, it follows that only states that are trading at less than FTA level such as at preferential trade areas (PTAs) or not trade agreements at all will engage in the negotiations. For example, with respect to tariff liberalization, there are 5 EAC, 14 COMESA and 13 SADC countries, which are already trading on FTA terms that will not engage in negotiations (COMESA, EAC and SADC, Undated). Negotiations will generally focus on consolidation of tariff liberalization achieved in existing FTAs and other trading arrangements; automatic extension of duty-free, quota-free market access achieved in existing FTAs and other trading arrangements in the RECs to the countries in the Partner RECs; and negotiations for countries that are not implementing any FTA. 12

18 27. The foregoing shows the logical sequence of establishing an inter-recs FTA. It begins with a consensus agreement between the cooperation RECs on the need to establish the regional trading bloc. It then proceeds with the assignment of responsibilities to representatives of the RECs to produce working documents as well as guideline and timeline for implementation. The document, which comes in form of a Draft Agreement, is essentially a list of trade complementing issues that will form the basis for trade negotiations, developed and made available to all stakeholders for their inputs. Finally, the agreement is negotiated by Member States of the regional body that might be trading at less than FTA level. 5.2 Challenges and Potentials in Establishing inter-recs FTA Challenges 28. Evidence from the field suggests that some feeling of nostalgia exists in some states, which can be interpreted as the natural inertia that greets any process of change or introduction of a new agenda. Some states still want more time to study the full implications of involvement while others strive to gather more information on the impacts of the FTA on their economies and people s welfare. There are other states that nurse some fear of being dominated by wealthier or more powerful states or ceding power to a supranational body. There is also the challenge arising from trade negotiations especially with some of the countries that are not in any form of FTA at the moment. Experience in COMESA, EAC and SADC RECs show that whereas as many as 20 of the 26 countries in the region are in some form of FTA, there are others that are not in any trade arrangement. The challenge facing the Partner RECs is how to convince and include the remaining six which have not been in any form of FTA before. Four of these countries namely Angola, DRC, Eritrea and Ethiopia are currently not in any form of FTA. There is also the fundamental problem of slow and limited flow of goods in the existing FTAs at the REC level because of such non-tariff barriers (NTBs) as road blocks along the trading routes, bribery and corruption, poor road and communication infrastructure, and robbery or piracy. These create the fear that it might be more problematic to make goods flow at the much larger inter-rec level Low Level of Technology 29. The African economies and trading environments are fraught with impediments that hinder trade. There are problems of energy, infrastructure, and lack of productive capacity based on value chain, limited or virtually non-existent value adding mechanisms in production. Sugar production in Kenya is cited as a typical example where both technical and economic efficiency standards are low. The industry supports as many as 6 million people or 25-30% of the population in the country. Due to heavy government subsidy and limited technical capacity, the industry s production is not at optimal efficiency and its products are uncompetitive in price and quality. The sugar industry, thus only supplies sugar to the domestic Kenyan market, with very little surplus for the overseas EU market. Being a member of EAC and COMESA, both of which are trading on FTA terms, the Kenyan borders were opened and the highly protected and subsidized sugar industry became vulnerable. While the price of locally produced sugar stands at 55 Kenya shilling per kilogram, the CIF value of imported sugar landing at the Mombasa port is only 30 Kenya shillings. The same price differential translates to US $590/metric ton, for locally produced sugar versus the landing cost of US $225/metric ton at the Mombasa port for sugar imported from Swaziland, Mauritius and Zambia. Meanwhile, the industry is being protected while the industry is undergoing some restructuring in order to address the issues of limited capacity, inefficiency and lack of competitiveness in the industry. Options being proposed in the restructuring include privatization and the removal of the sugar safeguard policy in The same protection is extended to the cement plants in Malawi, Zambia and Zimbabwe, which also face problems of inefficiency and lack of competitiveness Multiple and Overlapping Memberships 30. Multiple and overlapping memberships are largely seen as significant obstacles to regional integration in Africa because they hinder harmonization, and normalization as well as the enforcement of rules of origin. For example, the EAC is already a Common Market and has four of its members in 13

19 COMESA and one in SADC. Five SADC Member States (Botswana, Lesotho, Namibia, Swaziland, and South Africa) are members of the Southern African Customs Union (SACU) as shown in Figure 2. Thus, 10 countries in the region already belong to customs unions and are involved in negotiations towards establishing other customs unions. The multiple memberships pose a big challenge and problem in the negotiation process that will lead to the final outcome of Single FTA. For instance, there are seven members of COMESA and SADC that do not belong to a customs union. Yet, they are participating in the negotiations for the single FTA. At the same time, 17 of those already in some customs union are engaged in negotiations and also belong to other CUs. These twists and turns tend to compound matters in the inter- RECs FTA negotiations (SADC Pers Comm; EAC, 2011). 31. Similarly, in other regions of Africa, the issue of multiple and overlapping memberships persists. In the Central African region for instance, Cameroon is in both CEMAC and ECCAS; Burundi and Rwanda both of which are members of EAC are also members of CEPGL and ECCAS while DRC is in CEPGL, ECCAS and in SADC. In this scenario, DRC and Angola as members of ECCAS are not in any form of trade integration arrangements with other countries while CEMAC is a Customs and Monetary Union (Figure 3). Similar conditions prevail in West and North Africa with many countries in UEMOA, which is also a Customs and Monetary Union being members of ECOWAS as well as members of CEN-SAD. ECCAS Angola Sao Tome and Principe CEPGL CEMAC Cameroon, Chad, CAR, Congo Brazzaville, Equatorial Guinea Burundi, DRC, Rwanda 14 Figure 3. Member States of ECCAS, CEMAC and ECCAS