how regional cooperation evolved in practice

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How regional cooperation evolved in practice

March 18-20, 2017 Oman, Jordan

Economic Research Forum 23rd Annual Conference1

Dr. Abdalla HamdokExecutive Secretary, a.i.


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Outline

Challenges of RTAs

Africa’s regional integration efforts

Key features of RTAs

Potential for RTAs to support growth


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Introduction

RTAs give rise to trade-offs: there are gainers and

losers Africa stands to benefit from regional trade agreements

There is a wide variety of RTAs worldwide that differ in

terms of their ambition and development over time RTAs use various mechanisms to ensure that all members

benefit – Africa has used a variety of these

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Challenges of RTAs



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CHALLENGES WITH RTAs (1/2)

TRADE AGREEMENTS PRODUCE

Trade creation (trade becomes possible where it was not before, enhancing efficiency)

BUT also trade diversion (preferences vs third countries means that imports may be sourced from less efficient producers)


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CHALLENGES WITH RTAs (2/2)

Trade agreements give numerous rise to trade-offs with gainers or losers– consistent finding across theoretical models of international trade

Those employed in sectors that become uncompetitive (outside of comparative advantage) lose employment, even as other sectors expand


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RTAs BENEFIT AFRICA

Diversity of African economies (manufacturing hubs, natural resource producers, agrarian economies, services hubs) means plenty of potential for gains from trade

Costs of intra-African trade currently very high – including tariffs (intra-African average applied tariffs faced greater than those faced vis-à-vis rest of world)

This potential is unexploited (intra-African trade share in Africa’s total trade is low)


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GREATER INTRA-AFRICAN TRADE POISED TO SUPPORT INDUSTRIALIZATION

Intra-African trade relatively industrialized (40 per cent of intra-African trade in goods is manufactured products)

Removal of barriers should allow African manufacturers to capture even more market share

ECA modelling work shows increase of $60 bn in Africa’s manufacturing exports as a result of CFTA + trade facilitation reforms


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MILESTONES OF AFRICA’S INTEGRATION VISIONThe Lagos Plan of action was launched in 1980 - a critical agreement in the history of regional integration

The Abuja Treaty was signed in 1991- the most important agreement as it lays out the guiding principles to establish an African Economic Community

The New Partnership for Africa’s Development (NEPAD) was ratified by the African Union in 2002, in Durban : a comprehensive and integrated development plan.

Agenda 2063 was adopted at the African Union Summit in January 2015, in Addis Ababa : the continental, sequenced, forward-looking vision for the next fifty years.


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MAP OF AFRICA’S REGIONAL ECONOMIC COMMUNITIES : Building blocks for Regional Integration

Phases Duration Key milestones

First stage 1994–1999•Strengthening of existing regional economic communities; establishing new regional economic communities in regions where they did not exist previously

Second stage 1999–2007

•Stabilization of tariff and non-tariff barriers, customs duties and internal taxes in each regional economic community•Schedules for the removal of such barriers•Harmonization of customs duties•Strengthening of sector integration•Coordination and harmonization of the activities of regional economic communities

Third stage 2007–2017 •Establishment of a free trade area and customs union in each regional economic community, leading to a CFTA

Fourth stage 2017–2019 •Coordination and harmonization of tariffs and non-tariff systems among regional economic communities, leading to a continental customs union

Fifth stage 2019–2023•Common sector policies•Harmonization of monetary, financial and fiscal policies•Free movement of persons and rights of residence and establishment

Sixth stage 2023–2028

•African Common Market•Pan-African Economic and Monetary Union•African Central Bank•Pan-African Parliament•Development of African multinational enterprises

ECAAdaptation of the six successive stages envisaged by the

Abuja Treaty in view of establishing the African Economic

Community

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Key features of regional trade agreements



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REGIONAL TRADE AGREEMENTS ARE MANY AND DIVERSE (1/2)

Include APTA, ASEAN, CARICOM, COMESA, EAC, ECOWAS, EU, Eurasian Economic Union, GAFTA & customs union, MERCOSUR, NAFTA & SADC.

Bring together developed and developing, least developed, landlocked developing countries

Differ in terms of ambition: some stop at FTA, others take FTA+ measures on services, NTBs etc; others proceed to customs union, common market


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REGIONAL TRADE AGREEMENTS ARE MANY AND DIVERSE (2/2)

Some FTAs are subregional building blocks to achieve a larger regional or mega-regional FTA

e.g. : Treaty Establishing the African Economic Community foresees subregional customs unions to be combined into a continental customs union


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ESSENTIAL TO ENSURE THAT ALL MEMBERS

BENEFIT

Given the economic diversity of economies brought together in RTAs, flanking measures are sometimes necessary to ensure that all benefit

e.g. : EU solidarity fund , COMESA fund for compensation of tariff revenue losses, Tripartite Free Trade Area – flanking measures on industrialization and infrastructure development


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DIFFERENCE IN COVERAGE

Some RTAs only include trade in goods, others include services and investment

African CFTA – include services negotiations in parallel with goods

To ensure that CFTA delivers on industrialization (given importance of services for manufacturing competitiveness)

Credibility on industrialization essential for all African countries to be on board

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Role of RTAs in promoting growth and peace



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AFRICA’S EXPERIENCE WITH RTAs: CONTRIBUTION TO GROWTH

All functioning African RTAs in AU-recognised Regional Economic Communities experienced significant increases in real-terms, per capita growth among RTA members after introduction of RTAs and outstripped growth

Expected to continue with Tripartite and Continental FTAs


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TRIPARTITE FREE TRADE AREA (1/3)

Covers 26 countries in Eastern and Southern Africa To liberalize 100 per cent of tariff lines (with general, specific and security exceptions) – 60 – 85 on entry into force, remainder to be negotiated over 5-8 years

20 countries offered 100 per cent liberalization on reciprocal basis

Mechanism for removing non-tariff barriers


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Product-specific rules of origin – rules for products covering 50% of trade agreed so far

Anti-dumping, countervailing & safeguard measures, dispute settlement body

Quotas for imports to be eliminated Commitments to trade facilitation and transit trade, infant industry protection and balance-of-payments


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Second phase of negotiations on services, competition policy, intellectual property rights, movement of business persons, inter alia

Entry into force after ratification of 14 members From agreement on trade in goods alone, forecast to increase intra-regional trade by around 1/3 ($8.5 billion), mostly in industrial goods, > Also $2.4 billion forecast increase in welfare


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REGIONAL TRADE AGREEMENTS: ROLE IN PROMOTING PEACE

European Union is obvious example: members had fought each other for centuries since establishment; no interstate conflict since

Same is true in Africa : no two African countries have gone to war while members of the same Regional Trade Agreement (since 1946) – ECA analysis based on Uppsala Conflict Data Program


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AFRICA REGIONAL INTEGRATION INDEX: MONITORING IMPLEMENTATION

Tool to monitor countries’ progress in implementing regional integration commitments

Based on the range of African commitments in legal instruments

First edition published in April 2016 – second edition (with improved methodology) foreseen for April 2018


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CONCLUSION (1/2)

There are misgivings for RTAs, especially as gainers and losers are associated with relating trade-offs

In Africa, there are strong reasons to expect the effect of RTAs to be overall positive – boost trade and industrialization

In view of the wide variety of RTAs, with different scope and objectives, various mechanisms must be put in place to ensure that all member benefits from it.


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CONCLUSION (2/2)

RTAs benefit Africa, and are expected to continue to do so both in terms of growth and in terms of peace

Africa Regional Integration Index will track implementation of regional integration commitments

THANK YOU!

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how regional cooperation evolved in practice

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