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

SADC Trade, Investment and Integration

South Africa's Skills Shortage Dilemma

There is no doubt that the conundrum of an acute skills shortage alongside mass unemployment constitutes the most critical issue threatening the future of South Africa. This year the country has recorded a growth rate of 2.7% and the unemployment rate is about 33%, including those who have given up looking for work. Seventy percent of those unemployed are said to be under the age of 35. A woman leaving school in Limpopo stands a one in eight chance of ever getting a job. 

The skills shortage and high unemployment interact with each other in a devastating way. It is insightful to note that SA’s key problem is how it is going to maintain the growth rate it needs to feed its growing population. SA won’t be able to use the method employed by the Southeast Asian ‘tigers’ of using cheap labour to undercut its export competitors while it grows its economy and expands its skills base, because its labour unions will prevent that.

One solution is to develop a skills-training model based on systems that have been used for years in Germany, Switzerland and several Scandinavian countries. This would involve not only vastly improving the education system but also integrating it with a system of apprenticeships. 

The essence of the German education system is that it is channelled into different streams. There are three streams, actually, but for our purposes we need focus only on two — an academic and a vocational stream. Students should be given a choice, after passing, say, grade 9 or 10, whether they want to continue in the academic stream and go on to university, or learn a vocational skill through an apprenticeship programme. 

Those who drop out of high school earlier should also have the opportunity of entering an apprenticeship course. 

These apprenticeships should be wide-ranging, from becoming a skilled baker or hairdresser, to a motor mechanic, a construction worker or an electrician. A student deciding to enter an apprenticeship must find an employer who will take him or her on to train for the career the individual has chosen — which is usually three years. 

During that time, the student will spend part of his time gaining practical on-the-job experience working for the employer, and part of it attending classes at a vocational school. The classes will focus mainly on the technical side of the job; the shop-floor work on the practical side. Running records have to be kept by both the employer and the vocational school instructors so that the training can be co-ordinated. 

The apprentices are paid a small salary throughout the apprenticeship period, which usually goes up a little each year as their skills advance. At the end, they have to write an exam run by the Chamber of Commerce and Industry. When they pass that they are qualified as a skilled professional in the chosen work category — and receive a certificate testifying to that. 

School-leavers in SA today have no craft certification of any sort, which makes getting that critical first-time job in the face of sceptical employers faced with labour regulation requirements cruelly difficult. 

However salary is the thing that troubles the trade unions. 

But the suggestion of how to get around this political problem is to enact a law establishing that the apprenticeship period falls under the Department of Education, not the Department of Labour. 

The Congress of South African Trade Unions actually recognises the need for on-the-job training at lower pay, but it has become so entrenched in its commitment to the principle of "decent work" that it can’t lose face by backing off from it. 

Classifying an apprenticeship as part of an individual’s education may be a way around that difficulty, because the labour regulations could remain unchanged and become applicable to the apprentice only after he has graduated from his apprenticeship. 

A further advantage of the German system is that, after successfully completing a full apprenticeship course, a student can continue at the vocational school for another year or two to acquire higher certification as a "master" baker, mechanic or whatever, which rates as the equivalent of matric — thus opening the way to go to university and, beyond that, to a graduate school of business for an MBA. 

SA's graduates would then be able to seek a job in management with the special advantage of knowing what life is like for workers on the shop floor and earning their respect in turn for having that knowledge. 

Flexibility is the essence of any such system, so that German students from the academic stream can also switch to become apprentices after passing matric if they so wish, enabling them to follow the same route to a job in management. 

SA is going to need skilled workers every bit as much as she needs to reduce the unemployment rate. 

Original Article by Allister Sparks: Business Day

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.

July 2010 SACU Summit

SACU continues to enjoy its centenary and uniquely, this year we have seen 2 SACU Summits with a third anticipated by the end of October 2010. The first Summit was held in April 2010, whereby the Heads of State and Government adopted a new mission and vision for SACU.  They also agreed on the institutionalization of the meetings of the SACU Heads of State and Government.

The second summit was held on July 16th 2010, and the Meeting issued a Communique which mandates Ministers to address challenges that SACU needs to resolve. The Summit further reiterated that SACU should be converted into a vehicle for regional integration and also recognized the role that SACU can play in Southern Africa as a building block for deeper regional integration. 

Some of the challenges mentioned in the communique are mandated in the 2002 SACU Treaty (e.g. revenue sharing, common policies, institutions etc). Some were also highlighted in the 2009 WTO Trade Policy Review of SACU. Other challenges highlighted by the Summit include: financing options for cross border projects, increasing intra-SACU trade, new generation issues, reviewing the 2002 SACU Agreement and development of a roadmap for an Economic Community and Monetary Union. 

One observation is that a unified SADC EPA position is not expressly mentioned.

The Communique can be accessed here.

Deeper Regional Integration among SACU Member States

The Southern African Customs Union (SACU) will be transformed from a customs union into a body to deepen regional integration (See attached Communique by Heads of State) in southern Africa beyond the existing five member states and to "serve as building block of an ever closer community" among the peoples of Southern Africa.

The decision was taken yesterday by the heads of state and government of the five member countries: Botswana, Namibia, Lesotho, Swaziland and South Africa.  A joint communiqué to declare that a new vision and mission had been defined for SACU was signed by President Hifikepunye Pohamba and the visiting heads of state King Mswati III of Swaziland, President Jacob Zuma of South Africa, Botswana President Ian Khama and Prime Minister Pakalitha Mosisili of Lesotho.

They held a closed-door meeting yesterday morning and then proceeded to the site where the new SACU headquarters will be built, in order to sign the communiqué during a ceremony that also marked the start of the centenary celebrations of the world's oldest customs union.  Although the communiqué stopped short of declaring that SACU might become the envisaged larger customs body for the 15-member state Southern African Development Community (SADC), this might well be so, a well-placed source told The Namibian.

In December last year, the SACU Council of Ministers decided in Windhoek to work towards "a defined roadmap for moving towards and economic community and monetary union" and further decided to "position SACU at the centre of the SADC economic integration agenda," according to a statement released afterwards.  "This underscores the aim to make SACU the nucleus for the envisaged SADC Customs Union," the source added.  President Hifikepunye Pohamba said yesterday that all five SACU states had underscored unity and vowed to hold a common position when it would come to trade negotiations with external trading partners.

"Our negotiations with third parties over the years have brought to the fore the need to develop common positions. This is particularly true of the ongoing talks for an Economic Partnership Agreement (EPA) with the European Union.  This situation, if not arrested, has the potential to undo all the gains realised in our deepening economic integration, both in SACU and SADC," Pohamba stated. According to South African President Jacob Zuma, the founding of SACU in 1910 was based on colonialism by the then Union of South Africa.

"Today, as we mark one hundred years of SACU, we must look at how to strengthen the arrangement, how to eliminate all vestiges of colonial systems of domination and dependency, and how to operate within a changing geopolitical environment," Zuma said. The combined trade contribution of developing countries now stood at 37 per cent and was rising rapidly towards 50 per cent, he said. "We must therefore engage with this international reality to enhance our collective development objectives. "We feel strongly that SACU's external strategy could include serious exploration of South-South cooperation, since this has excellent prospects for advancing our economic development," he said, hinting at Brazil and India, among others.

The vaguely drafted communiqué stated that the heads of state agreed that SACU had to be transformed into "a vehicle for regional economic integration capable of protecting equitable development."

Tasks that have not yet been completed are the establishing of a SACU Tariff Board, the SACU [trade] tribunal, a common negotiating mechanism and strengthening the Secretariat.  A common industrial and agricultural policy must still be drawn up and four of the five member states must still set up their own SACU national offices. Yesterday's meeting was preceded by three days of talks by the Council of Ministers. Another meeting of the SACU Heads of State will be held in July in South Africa.

By Brigitte Weidlich 23 April 2010 WINDHOEK

Intra- SADC Trade Flows are Predominantly with South Africa

Regional Trade Agreements (RTAs) are influenced by the share of trade with partner countries as well as the composition of trade and production linkages.  Intra-regional trade in the SADC region is influenced by both the 2008 SADC Trade Protocol and bilateral trade agreements, which Member States negotiated prior to entry into force of the Trade Protocol. It should be noted that  the SADC Trade Protocol provides for the continuation of existing bilateral arrangements as long as they do not contradict the Protocol.

Despite the several bilateral agreements among SADC Members and the SADC FTA, a high proportion of intra-SADC trade is bilateral trade flows with South Africa.  South Africa is the largest importer and exporter in SADC as shown in the figure above (World Bank Data).  

Furthermore the bulk of trade flows is among the 5 Members of the Southern African Customs Union (SACU) and hence trade flows between 15 SADC Members outside of SACU is very low (less than 10% of total trade) with possible exception for Zambia.  The predominant role of South Africa is in part a reflection of its role as a logistical hub for the region’s trade with the rest of the world.  This may explain why the highest trade dependence is displayed by countries that are logistically connected to South Africa, possibly landlocked and are able to take advantage of her larger market, infrastructure and connectedness with world markets. 

Despite this high percentage of SADC trade with South Africa, overall the SADC region trades predominantly with the rest of world as shown in a previous post here.  This trend applies for both  exports and imports and implies that Africa's future trade expansion may lie in the fastest growing export market which is East Asia and in particular China.

Extra-SADC Trade are Flows Predominantly with the Rest of the World

The Members of the Southern African Development Community (SADC) formed a Free Trade Area (FTA) according to the SADC Protocol on Trade in 2008 in order to stimulate trade amongst the 15 Members. However a significant portion of the SADC Region's import/export trade is with the rest of the world and not among the 15 Members of this regional economic community. Since the coming into force of the SADC FTA, trade flows have in deed increased however these trade flows have been with trade partners in other parts of the globe and not among the SADC Members.  

As shown in the charts, even though the European Union continues to be the largest trade partner for the SADC region, East Asia has consistently been the fastest growing trade partner for the SADC region.  East Asia in 2005 was the second largest source of imports for the SADC region at 12,075US$ and with an increase of 140% from 2000. This trend is only likely to increase given that East Asia has a competitive advantage in manufactured products.

SADC export trade was also conducted largely with the EU (24,376US$) in 2005 and East Asia (6,573US$) the same year. However in 2000, SADC exports were predominantly destined for the EU (14,484US$) and NAFTA (3,746US$).  Between 2000 and 2005, SADC exports to the EU increased by over 55% while exports to the NAFTA increased by about 75% and increased by about 163% to East Asia. Data obtained from the SADC..

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.