Increased Market Access For Products

Published Date: 02 Nov 2017

A Tripartite FTA agreement has been negotiated with contracting parties to provide numerous advantages not only in the area of trade but also in many associated areas which have been put forward in the following paragraphs:

Increased market access for products

With the advent of Tripartite FTA, the enlarged market will attract a pool of investment and will stimulate large scale production which has contributed highly to economic growth of those Regional Economic Communities (RECs), i.e., COMESA, EAC and SADC. Along with the increased economic growth, the whole tripartite region will benefit from enhanced social and economic development of the region through job and wealth creation and the elimination of poverty, hunger and disease through building skills, innovativeness and hard and soft infrastructure and through improving the location of factors for sustainable generation of national, regional and foreign investment and of trade opportunities. Tripartite countries are in dire need of FDI to further diversify its sectors in agriculture, mining, forestry, manufacturing, financial services, telecommunications and energy. The 26 countries in the three RECs constitute half of the AU’s membership and their combined population constitutes 57% of the AU’s total population. However, it is noted that not all COMESA and SADC member states such as Angola, DRC, Malawi, Eritrea and Ethiopia are in COMESA and SADC FTAs due to the principles of variable geometry and asymmetry leading to different level of trade liberalization within these tripartite regions which will increase market access by eliminating tariff/non-tariff barriers or other restrictions of commerce.

Elimination of challenges associated with overlapping membership

A need to overcome the challenge of overlapping membership will enable the ongoing harmonisation and coordination initiatives of the three organisations to organise programs and activities which will contribute significantly to continental integration process. As such, the more we trade with each other, the less likely we are to war; for our swords will be plowshares. Each of the three RECs has conspicuously accomplished lots of progress such that out of 26 partner countries, 13 already belong to at least two regional groupings. SADC launched its FTA in 2008 and is scheduled to launch its Customs Union in 2010. COMESA launched its FTA in 2000 and went on to launch its customs union in 2009. The EAC launched its customs union in 2004 and is presently working on setting up its Common Market. It is a need to deal with overlapping trade arrangements of the three RECs and there is also no need to accentuate much on the harmonisation or merging of those three RECs’ programmes because it may increasingly become problematic as a result of deepening regional integration.

Stimulant for increased industrialization

As there is an increased demand for products and enlarged markets in Tripartite region, this will motivate businesses to join hands with partnerships from foreign investors to enlarge their production capacities and open new industries that can make diverse products in order to take advantage of the new and bigger African market. With the advent of industrialisation, there will be better returns to ensure value addition of primary products in the tripartite region, e.g., the current intra-COMESA trade figures is US$15.2 billion. Therefore, the producers will benefit from low-cost materials and the tripartite region will contribute greatly to wealth and employment creation. The Tripartite countries of those joint infrastructural development programmes will further encourage industrial expansion across the FTA region as connectivity improves and manufacturers will rather exploit the cost-benefits arising from proximity to essential raw materials.

Improved competitiveness of products

Countries within the tripartite region will take advantage of low-cost materials due the eradication of import duties which will further reduce the cost of production for exported goods in order to render the regional and international market more competitive. Moreover, some tripartite regions have competitive advantage due to different natural and other endowments which can attract FDI in different countries. However, there are certain circumstances where raw materials have to be requested from outside Africa which may involve substantial costs such as huge transport and other shipping costs but may ultimately render the commodities uncompetitive on the local, regional and international markets. Thus, Tripartite FTA will need to solve the problems of increasing costs associated with inefficiency in production systems or border delays among others which have hitherto contributed to the uncompetitiveness of some of the regions’ products on markets.

Exploitation of untapped natural resources

The combined COMESA, EAC and SADC region is presently endowed with abundant valuable natural resources around 49% of Africa’s total land mass which could be exploited for the benefit of the region as a result of FDI. Therefore, some of the resources remain untapped due to low FDI in mining, forestry, agriculture, energy and manufacturing sectors. Once the proposed Tripartite FTA manages to create a conducive environment for investment, the region would be in a better position to exploit its hitherto untapped natural resources through cheaper and more efficient processes of beneficiation and other value addition processes which can again make the finished products more valuable and competitive on both regional and international markets.

Development of good infrastructure

Nowadays a good infrastructure represents an attractive factor to new investment which gives rise to low cost of production and aims at producing efficiently. However, lack of good infrastructure may hinder efficient and cost-effective production, effective marketing and smooth cross border movement of raw materials and finished goods, among other important areas of the Tripartite FTA. Consequently, the mere establishment of the FTA will almost certainly encourage investment in joint infrastructural development programmes as partner countries seek out to release all the potential benefits of trading under the Tripartite FTA.

CHALLENGES

The challenges that have been met by the individual RECs may be magnified in the larger FTA if not dealt with effectively. These relate to possible polarization, forces of external parties’ agreements, fiscal challenges, institutional weaknesses and the political instability.

Political will and stability

There is also a necessity for political will as there has been rhetoric of continental unity which is not matched by practical action. There is a growing concern that the proposed roadmap for regional integration may be unrealistically ambitious given the diversity of economies involved and the reality that economic integration takes time. Others have warned that care must be taken to make sure that such cross‐border liberalisation actually gives the desired outcomes. Notably, the desired results can be attained with full implementation of the commitments to eliminate tariffs and other barriers of trade in the region. Political instability in some of key member states including Sudan and the DRC can make the investors reluctant to invest in the region and the benefits of the envisaged trilateral FTA may also be compromised.

Fiscal challenges

Among the majority of countries in the three RECs, South Africa and Egypt are not highly dependent on trade taxes for fiscal revenue but it may lead to a major constraints for others to tariff liberalization. For instance, some countries such as Lesotho, Namibia and Swaziland trade taxes account for over 50% of their total fiscal revenue. The proposed trade arrangement can move to greater transformations in the construction of individual economies that could lead to a contraction of previously import‐substituting industries that represent the main sources of revenue. Therefore, an excuse should not be made to delay the implementation of the initiative. On the other hand, care and diligence should be taken to widen the effective tax base and hunt for alternate sources of revenue but if it is limited, better expenditure control should be stressed on.

Economic polarisation

With the enlarged FTA, all the 26 member countries have enhanced their market share and development of new markets for member states. However, there are certain more developed areas such as Kenya, Egypt and South Africa where they are best positioned to export their products. As such, this also raises a concern over possible polarisation as investment may be attracted towards these economies which can critically weaken the proposed integration effort.

Negotiations with external parties

The forces of the three blocs’ external trading partners pose challenges to the envisaged trilateral FTA because the lack of common policies amongst the RECs may compromise their positions when dealing with them.Greater co‐operation and eventually common approaches is necessary amongst the three RECs in their interaction with key partners.

Institutional harmonization

A major challenge for the new arrangement will be how to wind‐up the current configurations. These legal entities have mandates bestowed upon them by member states. The modus operandi is expected to be spelt out in the MOU that the Summit has directed be developed. However, the replacement of the current arrangements by a single one necessarily means SADC, COMESA and EAC have to be provoked. Member states have not yet declared themselves on this enlargement. Indeed, events have occurred within the existing RECs since the trilateral summit do not propose even a moratorium on further enlargement within the existing RECs. It can be suggested that the replacement FTA would have to coexist with the existing RECs until such time that all legal instruments have been dealt with so as not to create a vacuum.

It can be claimed that these developments within the RECs are created to make the future merger easier for the member states, especially when there is a very strong likelihood that the RECs would adopt similar common external tariffs. The study commissioned by the three RECs is expected to give in‐depth recommendations on this front. The fate of the three RECs is same for the three secretariats. Currently, within each current arrangement, the trend is toward stronger institutions although not supranational, nor apex organizations, possessing a notable degree of sovereign power. "National governments remain the main if not sole actors for the foreseeable future, while the regional "secretariats" serve as cooperation facilitators or coordinators, monitoring agencies as well as ‘think tanks’ within their respective regional domains."

As mentioned above, the dissolution of the three RECs would mean dissolution of the secretariats. Hence, any process of REC merger or rationalisation, that is, adopted will also cover their secretariats and other institutions that play a supportive position such as the SADC Tribunal and COMESA Court of Justice. However, these institutions may be vested interests and may not be wished away through the creation of new institutions. In addition, the Tripartite Summit did not suggest a timetable for the implementation of the FTA idea, save for the fact that the MOU on cooperation and integration was expected six months from date of Summit whilst the road map for implementation was expected to be considered at its next meeting scheduled for 2011. This means that the future current institutions in the three RECs will continue to operate as usual, including collaborating with each other in the current tripartite fashion. There will also be no amendments to the performance and mandates of the SADC Tribunal and the COMESA Court of Justice.

Time framework

One of the major problems of the FTA turned out to be its time framework. The decade given for the negotiations confirmed to be too lengthy and time consuming. While lesser developed REC members can always sign on later to a trilateral FTA, agreement among the major countries must be seized in a time frame that does not admit too many changes of government. While ten years proved to be excessively drawn out for this process, two years would clearly be too short, so a period not longer than four to five years should probably be a reasonable one for such negotiations. A fixed deadline would be necessary, however, in order to focus efforts from the outset.