The CFTA: Elements, Expectations, Schedules and Challenges Prudence Sebahizi Lead Technical Advisor on the CFTA 1 March 2016 Accra, Ghana
Outline 1. Why the CFTA? 2. Background 3. The Road Map for Establishment of the CFTA 4. Objectives of the CFTA 5. Negotiating Structure and Stakeholders Participation 6. Implications of MRTAs 7. The Scope of the CFTA 8. Challenges 9. Policy Recommendations
Why The CFTA? The CFTA is critical NOT ONLY for its potential benefits, BUT ALSO to mitigate the costs associated with inaction.
Why The CFTA? (Cont d ) Africa is the world s poorest and most underdeveloped continent with a continental GDP that accounts for just 2.4% of global GDP. Africa has approximately 30% of the earth s remaining mineral resources. The Continent has the largest reserves of precious metals with over 40% of the gold reserves, over 60% of cobalt, and 90% of platinum reserves.
Why The CFTA? (Cont d ) Intra- African trade is about 12%. In North America it is 40%, and 63% between countries in Western Europe, 30% in ASEAN; It is estimated that 40% of intra-african trade is informal trade 46% of goods traded between countries are manufactured goods such as garments, leather goods, etc. Africa is the world s second largest continent Key to improving low intra-african Trade The CFTA will bring 54 countries with combined population of over 1 billion people and combined GDP of USD3.4 trillion.
Why The CFTA? (Cont d ) Developments in Africa Africa on the rise, and must rise with its people (70% of cross border traders are women) Demographic dividend (Africa is the Second most populous continent with about 1.1 Billion people. About 70% of Africans under 30 years of age and over half are females). Over 55% of Africa s labour force is working in food production with vast areas of arable and pastoral lands supporting agricultural economies. Almost 40% of adults in Africa are illiterate two-thirds are women.
Why The CFTA? (Cont d ) Africa's biggest economies trading on MFN basis Better terms when exporting overseas under such programs as EPAs, AGOA, GSP Africa remains 3% of global trade and DDA at the WTO, AGOA, EPAs have not enabled Africa s successful integration into the Global Economy Europe and USA are major destination for African products, Asia and China are becoming more important;
Why The CFTA? (Cont d ) Positioning Africa to benefit: Many of Africa s 54 countries are small, with populations of fewer than 20 million and economies of less than $10 billion. National markets are therefore too small to justify investments, since both adequate supply of inputs and sufficient client bases (demand) remain too expensive or out of reach. CFTA as a tool for Structural Transformation Dynamic impact of increased trade among African countries for industrial development, better infrastructure connectivity, economies of scale, enhanced competitiveness and structural transformation.
Why The CFTA? (Cont d ) Achieving the African Economic Community under the Abuja Treaty of 1991 The Treaty provides for establishment of African Economic Community through the following stages: Strengthening of Regional Economic Communities; Establishment of a Continental Customs Union; Implementation of Common Sector Policies; and Establishment of a Continental Common Market and ultimately African Economic Community.
Background: The Continental Free Trade Area (CFTA) The Continental Free Trade Area (CFTA) initiative is in line with the Abuja Treaty (signed on 3 rd June 1991) the Treaty Establishing the African Economic Community. That s why the January 2012 Summit of Heads of States and Government endorsed the Action Plan on Boosting Intra African Trade (BIAT) and decided on the establishment of a Continental Free Trade Area by an indicative date of 2017.
Background: CFTA Framework June 2015 Summit Launched the Negotiations Adopted Decision and Declaration launching the negotiations Endorsed the following documents: The Negotiating Principles for the CFTA Institutional Arrangements for the CFTA negotiations The Terms of Reference for the CFTA-NF The Indicative Roadmap for the CFTA negotiations.
CFTA Road Map (Timelines) The Assembly 18 th Ordinary Summit in January 2012, decided that the CFTA should be operationalized by the indicative date of 2017, with the following milestones: Finalization of the EAC- COMESA-SADC Tripartite FTA initiative by 2014; The four other AU-recognized RECS (ECOWAS, CEN-SAD, ECCAS and UMA), to negotiate a parallel FTA should they wish to do so, by 2014. They could also choose to join the CFTA directly Consolidation of the Tripartite and other regional FTAs into a Continental Free Trade Area (CFTA) initiative between 2015 and 2016; Establishment of the Continental Free Trade Area (CFTA) by 2017 with the option to review the target date according to progress made.
The CFTA Negotiations Roadmap RATFICA FINLSE TION AGMNT RATIFICATION ENTRY INTO FORCE DEC 2017 Oct 2017 FINISH NEG FINALISATION PHASE LEGAL SCRUBBING SIGNATURE TR TT Ro O Apr 2016 2nd NF Feb 2016 START NEG JUNE 2015 LAUNCH
Objectives of the CFTA Achieve a comprehensive and mutually beneficial trade agreement among the Member States of the African Union. Enhance competitiveness at all levels and more specifically at the industry and enterprise level through exploiting opportunities for scale economies, reducing business costs, continental/global market access and better reallocation of resources including through the development of trade-related infrastructure; To overcome dependence on exportation of primary products and promote social and economic transformation for inclusive growth, industrialization and sustainable development in line with Agenda 2063; Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes;
Objectives of the CFTA (Cont d) Realize the potential to expand and accelerate the growing diversification and dynamism of intra-african trade including the aim to increase by 50 % trade among African countries by 2022 through better harmonization, coordination and implementation of trade liberalization and facilitation regimes and instruments across RECs and across Africa in general; and In the context of boosting intra-africa trade and realizing the transformational potential of increased trade among African countries, to create a freer market for goods and services, building upon the trade agreements within the regional economic communities and associated commitments and thus pave the way for accelerating the establishment of the Continental Customs Union;
CFTA Negotiating Structure Assembly of Heads of States and Government (HATC) African Union Ministers of Trade (AMOT) Committee Senior Officials CFTA-Negotiating Forum (CFTA-NF) Stakeholders Participation Technical Working Groups (TWGs) Continental Task Force
MRTAs and their Implications for Africa s Continental Integration The rise of Mega-Regional Trade Agreements (MRTAs) is reshaping global trade with meaningful implications for Africa. There are currently three major MRTAs: the Trans-Atlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP), and the Regional Comprehensive Economic Partnership (RCEP). Trans-pacific partnership (TTP) 12 countries incl. US, Japan, Canada, Australia, Singapore, Mexico, Chile, New Zealand, Brunei, Peru, Vietnam and Malaysia. TPP members share of global trade is significant: approximately $2 trillion, or about 40 percent of global trade, in 2012. Transatlantic Trade and Investment Partnership (TTIP) between EU and US Trade between the EU and the US accounts for nearly 30 percent of world merchandise trade, 40 percent of global trade in services, and almost half of global GDP. Regional Comprehensive Economic Cooperation (RCEP), 16 countries of which 10 ASEAN countries (Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam); Australia, China, India, Japan, S. Korea, New Zealand. If successful, RCEP would constitute the world s largest trading bloc. The agreement would comprise more than three billion people (over 45% of the global population) and a combined GDP of over $17 trillion (about one third of current global GDP). The rise of MRTAs brings significant economic and geopolitical implications for Africa. The CFTA is Africa s own MRTA
Implications of the MRTA First, MRTAs would fragment the global trading system. This would leave larger countries to negotiate the future of that system without granting Africa a seat at the table. Preference Erosion in Key markets including EU, US and China - African total exports would be reduced by USD 2.7 bn in all main categories of products with industrial goods affected the most negatively; Impact on international rules and standards. Independently, each MRTA could drive the global rule and standard-making agenda.
Implications of MRTAs: EPA The EPA process may pose challenges to Africa s integration agenda because of two main issues. African countries negotiate the EPAs in five different blocks, of which only two replicate existing African Regional Economic Communities (EAC and ECOWAS) may create institutional complication on the roadmap enshrined in the Abuja Treaty. At the end of the transition period, African countries may end up granting a more favourable treatment to a number of EU-originating imports, than to similar African products originating outside their own REC.
MRTAs contd Key recommendations Establish the Continental Free Trade Area (CFTA) The establishment of the CFTA will strengthen the geopolitical position of African countries in global trade negotiations. It will also increase market size, economic development, and job creation, making African countries less dependent on the policies of their developed-country trading partners. It is critical in offsetting potential negative effects MRTAs will have on African economies and to support Africa s structural transformation. Promote African Competitiveness African countries will need to take steps to increase their global competitiveness. This will include making necessary investments in increasing productivity, improving infrastructure, and making it easier to trade across borders. It will also include the monitoring of MRTA negotiations, so that African countries can design policy that best takes advantage of new opportunities that arise. Engage in Global MRTA Discussions African countries should advocate on their own behalf with regards to the MRTAs Regarding TTIP, for example, African countries should leverage their relationships with the EU and US to encourage that preferences and standards be harmonized in a way that does not threaten African growth and development.
Scope of the CFTA Trade in goods Tariff liberalization, NTBs, RoO, Trade Facilitation Customs cooperation Harmonization of Doct Transit & Transit facilities, Trade remedies, Safeguards Standards, Technical Barriers 2 Trade Sanitary and phytosanitary Dispute settlement Institutional arrangements Trade in Services Transportation Air, maritime Financial Services banking, insurance, Tourism, Energy, Other Issues Competition policy Intellectual Property Rights, Investment Movement of business persons, Phase I: Trade in goods and trade in services will be negotiated concurrently. Phase II: Other Issues (Investment, IPR, Investment)
AU Agenda 2063 Boosting Intra- African Trade BIAT Africa We Want: Continental Free Trade Area CFTA AIDA, PIDA, CADAAP, Etc. 1. A prosperous Africa based on inclusive growth and sustainable development 2. An integrated continent, politically united and based on the ideals of Pan Africanism and the vision of Africa s Renaissance Trade Policy Trade Facilitation Trade in Goods Trade in services Agricultural Transformation Food Security 3. An Africa of good governance, democracy, respect for human rights, justice and the rule of law 4. A peaceful and secure Africa 5. An Africa with a strong cultural identity, common heritage, values and ethics 6. An Africa where development is people-driven, unleashing the potential of its women and youth 7. Africa as a strong, united and influential global player and partner. Productive Capacity Trade Related Infrastructure Trade Finance Trade Information Factor Market Integration Investment Intellectual Property Rights Competition Policy Industrial Development Energy Transport ICT Water Resources
Key Challenges Lack of a Productive capacity is one of the barriers to Intra African Trade. There is the question of what to trade between African countries. The absence of critical connecting infrastructure as well as Non Tariff Barriers is another challenge to overcoming fragmentation of African markets. For example, one study estimated that regional trade could increase by $10 billion to $30 billion per year if the road connections between the Central African Republic and the Democratic Republic of the Congo were upgraded. Commitment to integration varies across countries. Some countries have not undertaken any liberalization within their respective RECs FTA. Accordingly if they cannot commit themselves to a smaller FTA, it will be difficult for them to commit to a CFTA. Some countries also remain skeptical of regional integration fearing domination by richer or more powerful states or ceding power to a supranational body.
Policy Recommendations Addressing supply-side constraints and weak productive capacities. Addressing infrastructural bottlenecks. Eliminating trade barriers through improved trade facilitation. Promoting free movement of people as an important ingredient of cross border trade. Involvement of key stakeholders: Through closer collaboration between the AUC and RECs, the private sector and member states, the engagement of civil society, parliamentarians, and the private sector through innovative means, we foresee a different approach and outcomes for the CFTA. An advocacy and communication strategy has been developed to ensure that there is a buy in from all these stakeholders, so that they can play their respective roles in this critical process.
The CFTA is critical NOT ONLY for its potential benefits, BUT ALSO to mitigate the costs associated with inaction Thank You