Tripartite FTA COMESA-EAC-SADC Launched

The Tripartite FTA has been launched and encompasses 26 Member/Partner States from the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC), with a combined population of 625 million people and a Gross Domestic Product (GDP) of USD 1.2 trillion, will account for half of the membership of the African Union and 58% of the continent’s GDP.

The Tripartite FTA popularly known as the Grand Free Trade Area, is the largest economic bloc on the continent and the launching pad for the establishment of the Continental Free Trade Area (CFTA) according to the Abuja Treaty by 2017. This might be accomplished possibly by the Tripartite FTA negotiating with ECOWAS. 

The Tripartite FTA offers significant opportunities for business and investment within the Tripartite and will act as a magnet for attracting foreign direct investment into the Tripartite region. The business community, in particular, will benefit from an improved and harmonized trade regime which reduces the cost of doing business as a result of elimination of overlapping trade regimes due to multiple memberships. 

The launching of the Tripartite Free Trade Area is the first phase of implementing a developmental regional integration strategy that places high priority on infrastructure development, industrialization and free movement of business persons. Integration under the Tripartite is a developmental process with infrastructure development, industrial development and market integration as three critical, interdependent pillars. The second phase of negotiations, should address liberalization in services, movement of people, investment, as well as competition policy and intellectual property rights, and is yet to be undertaken.

For full copies of documents check here

EAC/EABC Monitoring of NTBs

The EAC in collaboration with EABC has developed the Non Tariff Barriers (NTBs) mechanism as envisaged in Article 13 of the EAC Customs Union Protocol. The mechanism provided for the establishment of the National Monitoring Committees in the Partner States and the Regional Forum on NTBs to assist in identifying, monitoring and the elimination of NTBs.  The mechanism is also replicated at a Tripartite level in the COMESA-EAC SADC NTB Monitoring Database. 

Currently the EAC has undertaken a study on the development of a legally binding enforcement mechanism based on international best practice for elimination of NTBs in the region.  The study is expected to analyse the effectiveness of the EAC mechanism on identifying, monitoring and elimination of NTBs as per the EAC Time Bound Programme.  The study is also expected to categorize NTBs into categories to be subjected to legally binding enforcement mechanisms based on proposed criteria and propose NTBs to be arbitrated by the East African Court of Justice.  Hence a key outcome of the study will be proposals to strengthen the EAC Mechanism through introduction of legal enforcement clauses in the current system.

In addition, EAC is coordinating preparation of an EAC position on the elimination Non-Tariff Barriers under the on-going negotiations for the Tripartite Free Trade Area to ensure that the issue of elimination NTBs in the FTA is well articulated.  In this respect the monitoring of services barriers should be included, which will expand on the approach which currently lends itself mainly to trade facilitation issues.

COMESA-EAC and SADC Launch Climate Change Intitiative

The East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA) and the Southern Africa Development Community (SADC) have launched a joint five-year Programme on Climate Change Adaptation and Mitigation. The focus of the Programme is increasing investments in climate resilient and carbon efficient agriculture (climate-smart agriculture) and its linkages to forestry, land use and energy practices by 2016. The programme has received $20 million funding from the Royal Government of Norway, the European Union Commission and UK’s Department of International Development (DfID), signifying an exemplary partnership between Africa and Europe on climate change.

The three RECs comprising the Tripartite will synergize on their respective comparative advantages that include: main-streaming climate change in national and regional policies and strategies; climate resilient and climate smart agriculture; vulnerability assessment and disaster risk reduction approaches; and climate change policy negotiations to provide African solutions to climate change.

EAC’s key achievements in the area of climate change over the last few years include: approval of the EAC Climate Change Policy and issuance a Declaration on Food Security and Climate Change by the EAC Summit; the establishment of the EAC Climate Change Fund and Climate Change Coordination Unit at the EAC Secretariat; as well as the development of a Regional Climate Change Position as input to the African Common Negotiating Position on Climate Change.

See full article here and previous articles on climate change here.

EAC to review Rules of Origin

Business Daily

The East African Community is set to review border passage rules for goods, paving the way for more Kenyan exports to access the regional market. The bloc’s custom and trade division has invited consultants to align the rules of origin with changes in manufacturing to facilitate intra-regional trade in the region.

“We expect the reviewed rules of origin to capture as many changes including transport costs that have grown in importance for firms,” Peter Kiguta, EAC’s director-general in charge of trade and custom said in a telephone interview.

Mr Kiguta also said the review would prepare the region for an eventual merger with Comesa and SADC. The rules will also be phased out once a single EAC revenue collector is set up.

Trade Mark East Africa has floated the tender asking consultants to simplify the rules of origin so that they can be implemented easily.

The present rules of origin only allow goods produced wholly from local inputs to cross national borders without attracting custom taxes.

Goods produced from imported raw materials also enjoy duty-free treatment where the exporter can prove that at least 35 per cent of the ex-factory value was added within the region.

The proof is usually that the local transformation process has moved the product to a tariff category different from that of imported parts or inputs.

The application of this rule has been controversial, with traders claiming it is selectively applied by customs officials to bar Kenyan products from entering Tanzania, Uganda, Rwanda and Burundi.

The partners phased out duties on Kenyan goods that meet these rules from January after the end of the transition period. Some of the vehicles from the Nairobi-based General Motors East Africa and CMC Motors are among products affected by the rules of origin.

While assemblers stake their claim to the regional market on the number of jobs and operations involved, border officials have maintained that the process entails very little transformation on the completely knocked down vehicle parts.

The beauty products sold by Inter-consumer Products Ltd; Nido, Milk and Nescafe produced by Nestle Kenya; television sets manufactured by Aucma Digital Technology Africa; and lubricants manufactured by Kenol/Kobil have also encountered similar restrictions at border posts.

“Our market share has grown significantly in the region since the EAC’s verification mission cleared our products last year with Uganda becoming our largest market,” Charles Njogu, KenolKobil’s spokesman, said on Tuesday.

Kenya Revenue Authority officials said the rules of origin are now outdated because of rapid changes that have taken place since they were conceived more than six years ago.

The officials said they are encountering cases where genuine goods are being locked out simply because the rules are blind to their unique circumstances. The use of technology and other cost-efficient production techniques has rendered the 35 per cent value addition threshold irrelevant, KRA said, adding that a change in tariff heading alone would be more objective.

“Use of total cost to determine local value addition is not objective,” an official who could not be named under KRA protocols said yesterday. “An operation that contributed 35 per cent to total cost six years ago may have fallen to 20 per cent due to cost cutting. The RoO does not factor in investments that contribute to efficiency

Lately, Kenyan edible oil firms such as Kapa Oil and Bidco Oil have been fighting to defend their markets from custom officials who maintain the refining of imported crude palm oils does not meet the value addition threshold.

The firms import crude palm mainly from Asia to manufacture products such as cooking fats and soaps which they export to EAC and Comesa countries.

“In this case, refining process is the huge but hidden investment that must be recognised for the rules of origin to make sense to exporters,” said the KRA official.

BRICS- SA's Role

Interesting analysis below from the business day. Should note that SA's BRICS membership also adds another dimension to the tripartite  FTA consisting of COMESA-EAC-SADC Member States.

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There is wide consensus that SA’s place in the emerging-market bloc that groups Brazil, Russia, India and China together, is only justified by SA’s strategic importance on the continent.

That means the country needs to tread a careful path between touting its own interests and facilitating links to the rest of Africa.

"It would be in SA’s interest to see this as a bargaining opportunity for the continent rather than just being expedient," said Standard Bank ’s group chief economist, Goolam Ballim. "Otherwise this could be harmful in the longer term for inter- African relationships."

It is a delicate task as SA does not have a mandate at this point to speak for any other African country. Jim O’Neill, the banker from Goldman Sachs who invented the acronym for the first four Bric countries, has said that Nigeria is in a better position to join the grouping.

SA’s economy is only a quarter the size of Russia’s, the next-smallest Brics member, and its share of world trade has been stagnant at 0,5% over the past decade. Its pace of growth also lags well behind the bloc’s other members.

But SA has a lot to offer the group, which analysts say could evolve into a political force rivalling the Group of Seven developed nations, campaigning for the interests of emerging economies. SA has one of the strongest financial sectors in the world, and receives about 95% of Africa’s portfolio inflows — foreign buying of local shares and bonds.

It could provide capital for companies looking to expand into the continent and is rated as the easiest place to open a business among all the other BRICS countries.

That would make it the logical choice for firms to establish their headquarters in SA.

The country is already the services hub for the continent and has significant corporate clout in the global arena.

Where it falls short is on transport infrastructure, both within the country and linked to its African neighbours.

Nonetheless, SA’s place on the continent is seen as key to its debut in the Brics club this week at the meeting at a Chinese resort.

"We are not individually important enough but if we can fill the role of an entry point to Africa, it will be an enormous opportunity," says Absa Capital economist Jeff Gable.

Sub-Saharan Africa has become the second-fastest growing region in the world after Asia and has been more resilient to the global financial crisis then Asia, Latin America and Eastern Europe. It offers an untapped market of hundreds of millions of people.

Standard Chartered’s regional research head for Africa, Razia Khan, thinks that the summit is unlikely to come up with concrete measures that will immediately affect the Brics economies.

But some analysts are expecting preferential trade agreements and developmental finance deals, given the participation of state-owned financial institutions.

Iraj Abedian, chief economist for Pan African Capital Holdings, hopes that the Brics summit will establish a "credible institution" to underpin its political clout. If that does not happen, it will remain a political multilateral rather than an economic leadership forum, he says.

For another piece on BRICS see here.

Tripartite FTA COMESA-EAC-SADC

The Second Tripartite Summit of Heads of State and Government (COMESA-EAC-SADC) took place on 12 June, 2011, in Johannesburg, South Africa. A major achievement of the summit includes the official launch of negotiations on the Tripartite Free Trade Area (FTA). Agreement was reached on the negotiating principles, processes, scope and institutional framework. A roadmap and timelines for establishing the FTA were also agreed.

Negotiations will be open to all the 26 countries of the COMESA-EAC-SADC Tripartite. It was agreed that the first phase of negotiations will address tariff liberalisation, rules of origin, customs cooperation and customs related matters, non-tariff barriers, sanitary and phytosanitary measures, technical barriers to tade and dispute settlement. The second phase will focus on negotiation trade in services and trade related issues, including intellectual property rights competition policy and trade development and competitiveness, . Facilitating movement of business persons within the region will be negotiated in parallel with the first phase as a separate track..

A timeline of 36 months has been set for completion of negotiations for the first phase and the movement of business person which will run concurrently. No timeframe has, however, been indicted for the second and final phase of FTA negotiations. .

Once in place, the Tripartite FTA will establish a larger market for Eastern and Southern Africa - leading to improved trade performance and competitiveness for the region.

Resource materials can be accessed here.

The negotiations were concluded, see related materials here.

Why Investors are Flocking to Mauritius

Foreign companies with an eye on Africa’s emerging markets are apparently flocking to Mauritius to incorporate local subsidiaries in a move that could deny more than a dozen African governments billions in corporate taxes and position the island nation as the region’s economic hub.

Possibly the the range of incentives available to foreign firms in Mauritius. This includes a 15 per cent charge on a company’s taxable income such as business or trading profits. This amount is half the almost 30 per cent rate that other countries in the region apply to  similar income.

Foreigners living in Mauritius are also apparently spared royalty taxes compared to other countries in the region who in some cases tax at the rate of 20 per cent.  In addition, Mauritius has more than 30 double taxation treaties with African countries alone and has recently entered into Investment Promotion and Protection Agreements (IPPAs) with its double taxation partners.

Finally an efficient judicial and dispute resolution mechanisms has also given Mauritius an edge over the competition in Africa, with the The World Bank’s Doing Business 2011 report, ranking Mauritius’ judicial system as the best in Africa in terms of reforms aimed at facilitating business and investment transactions.

See related full article here.

TBT Issues in Bilateral and Regional Trade Agreements: An African Perspective

Study from the OECD on  TBT issues in Africa.

TBT measures in African RTAs are apparently (with few exceptions) only vaguely addressed.  Interestingly, this paper also observes that there is an import-export bias in the sense that generally Africa seems to favour low technical requirements in respect of their imports (i.e. by virtue of their TBT border protection levels) whereas they face high TBT requirements for their exports to more developed regions. Products are often re-tested in export markets, leading to large cost penalties for exporters, whereas products of sub-standard quality often find their way into the markets of the region, because the TBT infrastructure is underdeveloped.

This June 2010 paper  also examines whether and how eight major regional integration agreements within the African region address TBT issues and implement the  WTO  TBT Agreement whose objective is to ensure that technical regulations and other TBT measures do not unnecessarily constitute barriers to trade. However the agreement also recognizes countries’ rights to adopt the standards they consider appropriate and it is acknowledged that domestic regulations and region-wide standards, are essential for protecting economies and common markets, from business practices that may bring harm to humans, plant, animal life, the environment, industry, and to national security.  

While only one of the 8 agreements surveyed by the authors refer explicitly to the WTO TBT Agreement, most of the RTAs refer to the elimination of TBT-related barriers or harmonisation of legitimate measures, but they use broad and non mandatory language. Few of the eight RTAs require or encourage parties to accept as equivalent the other parties’ regulations and conformance procedures. Mutual recognition is envisaged by some, but mostly as a goal and only in broad terms. None of the agreements reviewed require that parties explain the reasons for non-recognition.

Finally, there are no clauses prescribing transparency and no procedures for dealing with disputes over TBT matters.  Existing provisions for eliminating TBT-related barriers or harmonising legitimate technical regulations are formulated mostly in broad and nonprescriptive terms.

The paper provides concrete steps that parties to these RTAs have taken in order to reduce technical barriers. However, while TBT policy reform could be advanced through WTO negotiations, the authors recommend the following measures in order to facilitate TBT policy alignment among countries of the region:

• African RTAs should be revisited, reviewed and amended to include more stringent TBT provisions.
• A targeted review of TBTs should be undertaken in light of the development needs in meeting the basic requirements of standards systems and implementation of current obligations to support expanded trade opportunities with developed economies.
• It should be investigated whether African countries benefit from Mutual Recognition Agreements for national product testing and certification.
• Performance of enquiry points should be assessed throughout the region on an ongoing basis.
• A programme of assistance in infrastructure modernisation should be considered, comprising inter alia a long-term plan for infrastructure modernisation and enhanced access of African countries to the development of voluntary standards activities. 
• More attention should be paid to trade with India and China, with which the RECs in Africa and specifically the tripartite SADC/EAC/COMESA alliance have no trade agreement or TBT arrangements.Because of the sheer size of these economies, trade in unregulated low-priced products may be harmful to consumers and economies of the sub-Saharan region. (a controversial point might I add given the reports of dumping from the west as well).

The publication is useful but I should also mention a few additional facts. African enterprises need to link with global supply chains to market their products internationally however such linkages (beyond the supplies of raw materials) are few and far between. In addition, African exporters are largely small scale- even SMEs, when compared to their  international counterparts. SMEs have inherent difficulties with access to capital, productive capacity, technology and servicing because of resource limitations. Therefore my additional recommendations would be for increased investment in capacity building, testing and technology at the the enterprise level.

This publication can be accessed here.

East and West Africa World's Apart on Trade

East and West Africa may be on the same continent, just five hours flight from each other, and with complementary economies that would make it natural enough for a high level of interaction.

But, in reality, they are virtually cut off from one another.

With a combined population of two-fifths of a billion, and well-matched resources, East and West Africa have some of the lowest trade between them of any regions in the world, according to a UN report, with just one carrier running costly and often half-empty flights between the regions, no road route, and negligible traffic between the two continental hubs.

To fly to West Africa from East Africa costs twice or thrice as much as flying from Africa to Europe, including to London, which is eight and half hours away.

As example, flying to Dakar on economy and business costs $1,281 and $4,076 on Kenya Airways and is possible on three flights a week.

Read the full article here.

Tripartite FTA and East and Southern African States Participating in EPAs

The Tripartite FTA (see text of the agreement) between COMESA, EAC and SADC which was finally signed and s expected to facilitate the largest Free Trade Area in Africa by creating a more liberal regime between the Members of the three RECs COMESA< SADC and EAC. However some Members of the three RECs have various other trade agreements (e.g. Mauritius-Pakistan) and notably the Economic Partnership Agreements with the EC (ie EAC-EPA, SADC-EPA, ESA- EPA, TDCA and EC-Egypt FTA). The Grand FTA will require the free circulation of goods among the three RECs however its not clear how this will be feasible in the short to medium term in light of the 11 different schedules of liberalisation with the EC.

It is not practical to erect a barrier between cross border States that join and those that do not join an EPA. In practical terms therefore, little is achieved by staying outside of an interim EPA (which applies only to goods) when one is in FTA with neighbouring States that have signed, however one could assert that the cost of implementation and reciprocity is not borne since the principal reason to remain outside a goods EPA is to avoid reciprocity. However this goal would be undermined by cross-border trade if the outsider also participated in an effective FTA or customs union with countries that were also EPA members. Therefore the question arises whether countries that are currently not in trading regime with the EC, namely Angola, DRC, Djibouti, Ethiopia, Eritrea, Sudan and Malawi, would join a grand FTA with countries that are in an EPA. The problems of incompatible trade policy arise for countries that are not liberalizing on any product and those that are- hence a potential barrier to regionalism has been created between signatories of EPAs and other agreements that are different from those of their regional partners.

In any case the Tripartite agreement is now signed and the MFN clause applies. Article 7 says:

Nothing in this Agreement shall prevent a Tripartite Member/Partner State from maintaining or entering into new preferential trade agreements with third countries provided that any advantage, concession, privilege or favour granted to a third country under such agreements are offered to the other Tripartite Member/Partner States on a reciprocal basis.