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

Promoting Intra-African Trade and Private Sector Dynamism

According to the Economic Development in Africa Report 2013 promoting entrepreneurship and building private sector supply capacity are vital to enhancing the capacity of African enterprises to produce and export goods to both regional and global markets. Efforts to promote entrepreneurship and intra-African trade must address the challenges presented by five distinctive features of Africa’s enterprise structure, namely (i) high and rising levels of informality, (ii) the relatively small size of African firms, (iii) weak inter-firm linkages, (iv) low levels of competitiveness and (v) the lack of innovation capability. 

There is therefore a need for policy actions to stem rising informality in Africa through facilitating the transition of firms from the informal to the formal economy. This requires simplifying procedures for obtaining permits for business registration, government provision of information to all citizens on how to start a business and on the rights and responsibilities of entrepreneurs, simplifying the tax system to reduce the cost and complications of complying with laws and regulations and strengthening the capacity of government agencies to administer laws and regulations.

African Governments should also facilitate the upward mobility of enterprises and the growth of firms by providing better access to finance and business services, particularly for SMEs. The establishment of credit bureaus and registries to reduce information asymmetry between lenders and borrowers is one feasible mechanism for enhancing access to finance for SMEs. Furthermore, developing the capacity of SMEs to meet the needs of large firms through training and the provision of business services and market information will promote inter-firm linkages and should be a priority for African Governments. 

Large firms (both domestic and foreign) can also contribute to the development of business linkages by providing SMEs with information on opportunities in their supply chain and also investing in education and training aimed at building the skills of the local community. 

African Governments should also address the constraints on intra-African trade imposed by the lack of transport, energy, communications and water infrastructure. The report argues that, given the scale and scope of African infrastructure needs, there is a need to strengthen domestic resource mobilization on the continent and also catalyze more private investment into infrastructure through public–private partnerships. It also recommends that regional development finance institutions should float infrastructure bonds to mobilize more funds for infrastructure development. Furthermore, it recommends that African Governments also address the issue of the lack of competitiveness of African enterprises, perhaps through granting subsidies to reduce the cost of factor inputs for exporting enterprises,

The establishment of a credible mechanism for effective relations between the State and business is also needed to unlock private sector potential, build productive capacity and enhance prospects for boosting intra-African trade. African Governments need to have regular consultations with the private sector for a better understanding of the constraints they face and how to address them. Purposeful and predictable leadership will also be needed to build trust between Governments and the private sector and create an environment that can enhance and sustain dialogue between both stakeholders. Checks and balances are also needed to ensure that close collaboration with the private sector does not exacerbate rent-seeking behavior. Transparency in dealings with the private sector and also the inclusion of civil society in dialogues between firms and Governments is a good way to reduce the scope for rent-seeking and corruption.

Rethinking the approach to regional integration

There is a need for a move towards a development-based approach, which pays as much attention to the building of productive capacity and private sector development as to the elimination of trade barriers. While the elimination of trade barriers is important, it will not lead to a significant expansion of intra-African trade if productive capacities are not developed. This requires deliberate government measures to strengthen the domestic private sector and promote industrial restructuring and economic transformation. It also requires a strategic approach to trade policy, coordination of investment into priority areas and strengthening of the institutions and capabilities of African Governments for implementing economic policies. The report identifies industrial policy, development corridors, special economic zones and regional value chains as important tools and vehicles for promoting intra-African trade within the context of developmental regionalism.

There is therefore a need for more direct intervention by the highest levels in government with regards to private sector concerns e.g. at the presidential level.

India, China now Kenya's Top Import Trading Partners

The East African

India has overtaken the United Arab Emirates (UAE) to become Kenya’s top source of imported goods, newly released data show.

The world’s second most populous nation grew its exports to Kenya by 27.1 per cent to Sh174.6 billion in the first 11 months of last year or 15 per cent of Kenya’s total imports.

That growth allowed New Delhi to topple UAE from the top trading partner position it has occupied for the past two decades — helped by exports of petroleum products.

Official statistics show that the UAE’s share of Kenya’s total imports dropped to 11.9 per cent saddled by a 22 per cent drop in the value of its merchandise to Sh138.2 billion.

India’s stride to the top spot came on the back of big-ticket contracts in healthcare and energy sectors that were concluded in the past 12 months.

The Indian High Commission in Nairobi said Indian investors had intensified their search for business opportunities in Kenya and that the effort was bearing fruit.

“Kenya has become an important market for Indian firms and most have intensified their search for business opportunities with very positive results,” said Tanmaya Lal, the deputy High Commissioner at the Indian embassy.

Mr Lal said that geographical proximity has made it easier for Indian companies to export to Kenya while keeping prices close to what they charge at home.

The world’s most populous nation and the world's second largest economy China also grew its exports to Kenya by 16.4 per cent to Sh154.7 billion beating the UAE to the third position.

Chinese goods now account for 13.3 per cent of Kenya’s total imports, affirming the rise of Asia as an important trading partner for East Africa’s largest economy.

UAE has consistently featured as the top source of imports in Kenya in the past 10 years save for 2010 when China sold Sh120.6 billion worth of goods more than UAE’s Sh116 billion.

The relegation of UAE to the third trading spot has been linked to a decline in Kenya’s intake of petroleum products that form the bulk of Abu Dhabi’s exports.

Kenya’s imports of fuel and lubricants fell 5.3 per cent to Sh305.7 billion in the 11 months to November compared to Sh323 billion a year earlier.

The decline in the petroleum shipments – that accounts for a quarter of Kenya’s imports — also pulled down the value of total imports by 3.3 per cent to Sh1.19 trillion in the same period.

India and Kenya have tightened their economic ties in the past three years, paving the way for Delhi to sign major supply deals with Nairobi and deepen its export position.

New Database On Global Value Supply Chains

The European Union has launched the new "World Input-Output Database" which allows trade analysts to assess the global value chains created by world trade. These added-value chains have become an essential feature of economic reality as trade is becoming increasingly globalised as today's traded products are not produced in a single location but rather are the end result of a series of steps carried out in many countries around the world. Instead of counting the gross value of goods and services exchanged, the new database reveals the value added embodied in these goods and services as they are traded internationally. The findings are significant as they change the perception of the competitiveness of certain sectors in some countries. 

In addition, policy makers and societies at large are facing increasingly pressing trade-offs between socio-economic and environmental developments. Increases in production induce growth in the use of non-renewable resources such as fossil fuels, materials, land and water. Furthermore, they generate higher levels of waste and emissions of environmental pollutants. Simultaneously, increasing global integration through international trade and technological developments creates a tension. In this regard, the database considers satellite accounts with environmental and socio-economic indicators, from which industry-level data can provide the necessary input to several types of models used to evaluate policies aimed at striking a suitable balance between growth, environmental degradation and inequality across the world.

Karel De Gucht, the EU commissioner for trade has said that the change in statistical accounting for trade applied in the database has been developed to determine the consequences of the fragmentation of supply chains. For example a third of world trade happens within firms while two thirds of European imports are not of final products but of intermediate goods and raw materials, to which EU firms add one or more layers of value before they are finally sold, often for export.  The EU trade commissioner gave the example of a Nokia smartphone, "it is listed as being made in China, but in reality 54% of its value comes from tasks that are carried out in Europe. Key components are produced in other parts of Asia and only the assembly itself actually happens in China.  Today, we measure trade by counting the total price of the good that is being exported or imported, but because we do this both for components and for final products we get a distorted picture of what is really happening.  Hence according to the database, when we look at trade in value as opposed to traditional statistics, EU trade deficit with China is reduced by 36%. In 2011, the trade deficit between the EU and China stood at EUR155.9 billion however using this new method China-EU deficit starts to look like less of a problem."

On services, interestingly when looking at trade in supply chain terms,  the classic distinction in trade policy between goods and services is increasingly artificial. This is because services represents almost 60% of the value European firms add to the products exported from Europe. 

The database covers 27 EU countries and 13 other major countries in the world for the period from 1995 to 2009. It is notable that not a single African country is included in the database which possibly says something about Africa's non-participation or rather minuscule contribution to global supply chains. In addition, all BRICS economies are included in the database with the notable exception of South Africa.  One wonders why the EU wants African countries to eliminate export taxes (under the EPAs) when in essence the contribution of African exports to global trade and supply chains is too insignificant to be in included in the database.

African countries generally export largely raw materials (e.g fuels, metals) and some agricultural products to the EU and generally lack capacity to add value domestically especially for manufactured products. Other supply capacity barriers to Africa's participation in global value chains include limited foreign ownership and lack of global networks which are a significant factor in characterizing the intensity of global exports but not necessarily for regional exports. The lack of technological advancement is also a significant barrier especially in global exports. Public infrastructure constraints, such as inferior power services and customs delays, seem to have more immediate impacts on regional exports as does customs efficiency and poor trade facilitation which is also hampers the competitive participation of African producers in global supply chain industries. 

In a related article, we saw that China overcame similar challenges by exploiting joint ventures.  China allowed foreign firms access to the domestic market in exchange for technology transfer through joint production or joint ventures. In fact, 100% foreign owned firms were a rarity among the leading players in the industry in China, unlike Export Processing Zones in Africa. China’s openness to foreign investment and its willingness to create Special Economic Zones (SEZs) where foreign producers could operate with good infrastructure and with minimum hassles must therefore receive considerable credit. However if China  welcomed foreign companies, she always did so with the objective of fostering domestic capabilities.

A Look at Turkey's Trade Policy and FTA with Mauritius

Turkey concluded an FTA with the first Sub Saharan African country, Mauritius, on September 9th 2011 and is expected to initiate negotiations with other EPA and EC FTA signatories.  This is because the customs union between Turkey and the EU, which entered into force on 1 January 1996, has been the main factor shaping Turkey's foreign trade policy.  In addition, the EU opened accession negotiations with Turkey in October 2005 and guidance on reform priorities is provided through the Accession Partnership, adopted in February 2008.

In the EU-Turkey customs union, the EU unilaterally eliminated all customs duties and equivalent measures for industrial products and processed agricultural products when the trade-related provisions of the Interim Agreement of the Protocol entered into force in September 1971, whereas Turkey as a developing country was accorded a transition period of 22 years.  

The EC-Turkey customs union also provides for a common external tariff for the products covered, and foresees that Turkey will align its trade-related legislation with the EU acquis in several areas essential for market access, e.g. with respect to product standards.  The customs union covers all industrial products as well as the industrial component of processed agricultural goods, TRIPS, and competition policy, but does not extend to agricultural commodities, services, or government procurement.  The EU however offers Turkey a preferential regime on imports of certain agricultural products. Negotiations on services and government procurement were launched in 2000, but are now part of Turkey's accession process. 

The customs union also provides provision for:

• free movement (elimination of customs duties and quantitative restrictions) 
• alignment of Turkey on the EC common external tariff, including preferential arrangements (even GSP), and harmonisation of commercial policy measures;
• approximation of customs law, and
• approximation of other laws (intellectual property, competition, taxation, etc.)
• the adoption by Turkey of measures equivalent to the EU's common commercial policy

The European Union remains Turkey's most important trading partner and investor.  For instance, the EU accounted for nearly 70% of total FDI inflows into Turkey during 2005-10.  Nearly 40% of its imports come from the EU, and just over 50% of exports go to the EU. Machinery and transport equipment dominate EU imports from Turkey followed by manufactured articles which account for 24.3%. Main EU exports to Turkey are machinery and transport material (45.1%), chemical products (17.1%) and manufactured goods (15.1%).Globally,  Turkey ranks 7th in the EU's top import list and 5th as an export market.  However, the dominance of the EU in Turkey's foreign trade has declined markedly over the last five years, reflecting a notable shift in Turkish exports towards growth markets in its neighbourhood, in North Africa, certain CIS countries, and in Asia. 

Other main Turkish export markets in 2010 were Iraq (5.3%), Russia (4.1 %), USA (3.4%), United Arab Emirates (2.9%) and Iran (2.7%). Imports into Turkey came from other key markets include: Russia (11.7%), China (9.4%), USA (6.7%), Iran (4.2%) and South Korea (2.6%). 

Turkey currently has about 17 FTAs in force which include one with the EFTA countries, Israel, Macedonia (FYR), Croatia, Bosnia-Herzegovina, Palestinian Authority, Tunisia, Morocco Syria, Egypt, Albania, Montenegro, Serbia, Georgia, Chile, Jordan, Lebanon and Mauritius.

The Mauritius-Turkey FTA provides enhanced duty free access on most industrial products.  All Mauritian industrial products will enter Turkey duty free with the exception of some 70 lines related to textiles which will be phased on four years.  Mauritius in return will offer duty free access to more than 80% of its tariff lines to Turkish industrial products.  In any case Mauritius is a duty free island with over 80% of applied tariffs at zero. 

Why the exclusion of agricultural products? Turkey, even though a member of the G-33 , ranks amongst the largest agricultural producers in the world and the main crop is wheat of which the country is over 90% self-sufficient. With corn, Turkey is about 80% self-sufficient and is a net-exporter of barley. Other major crops include fruit and vegetables, nuts, tobacco, cotton, and sugar. Turkey is also one of the major milk producers in the world, predominantly for domestic consumption of cheese and yoghurt.  While Turkey has specialized feed lots and dairy farms, and large-scale commercial poultry farms, livestock production is mainly extensive and small-scale.  

Useful to note that Turkish agricultural policy was adopted with a view to aligning it more closely with the EU Common Agricultural Policy.  Turkey's main policy objectives are food security and food safety, and raising the self-sufficiency level for selected net-imported products;  improving productivity and competitiveness;  ensuring sustainable farm incomes;  rural development;  and improving institutional capacity.

For comparison, by the end of 2007, the 6 ESA EPA States: Comoros, Madagascar, Mauritius, Seychelles, Zambia and Zimbabwe agreed an interim EPA with the EU. Mauritius in that agreement submitted an individual schedule which is annexed to the interim EPA and liberalises 96% of EU imports into Mauritius compared to a liberalisation of 80% with Turkey, possibly due to the inclusion of some agricultural products in the EPA.

What appears unfortunate in the Mauritius-Turkey FTA is that Turkey seems to have offered market access predominately in industrial goods, where Turkey is competitive. However few SSA African countries are neither productive nor competitive in industrial manufacturing. With Turkey being an emerging industrial exporter, the loss of revenue on the import side for African countries could be an area of concern. In agriculture, Turkey provides subsidized support which is equivalent to the EU Common Agricultural Policy.  

Lamy Warns on WTO DDA Negotiations

At a meeting in Kenya last week, Mr Pascal Lamy said the risk of failure of the talks — commonly referred to as Doha Development Agenda (DDA) after the Qatari city that first hosted them — is higher today than it was a few years ago. 'Should the talks fail, this could lock exports from poor countries out of major world markets'. See full report here.

Manufacturing share of African GDP falling

Interesting piece.  In fact, Africa's agricultural and manufacturing GDP is falling. These realities should also be considered in light of the long standing WTO negotiations on agriculture and  non agricultural products. 
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Africa is uncompetitive, insufficiently export-driven, and situated too far from the world's main markets, argues economist Tony Hawkins.

"Africa has not been industrializing; it has de-industrialised. Since the 1990s, the GDP share of the continent's manufacturing sector has declined and now accounts for about 10% of the continent's GDP," said Tony Hawkins, economist and professor at the graduate school of management at the University of Zimbabwe.

"Over 60% of the industrial output from the whole of sub-Saharan Africa is generated in one country - SA."

"Asia's manufacturing industry, on the other hand, is growing fast. One of the reasons is that the industry in this part of the world is export-driven. In Asia, manufacturing accounts for 70% of the continent's total annual exports. In Africa, this is 20%," he said.

One of the reasons why Africa would not able to compete with China lay in the market it produced for. "Africa is manufacturing goods for their own, local markets," he added.

Africa is a small and poor market, with a low demand for high-tech products and a high demand for cheap goods. The problem is that the market for cheap goods is growing much slower than the high-tech markets the Asian manufacturing industries are producing for.

Let's not forget that Asia also produces cheap products for the export market and these are much more inexpensive compared with the goods made in Africa. They are often of a better quality. This hampers Africa's competitiveness.

Another major disadvantage was Africa's geographical location, Hawkins noted. Many African countries, especially in sub-Saharan Africa, are situated far away from the world's major markets such as Europe, Asia and Latin America. Exporting goods to these parts of the world requires high transport costs.

"Asia in this respect has taught us that having a competitive advantage globally no longer depends on natural resources and cheap labour," Hawkins continued. "It is about knowledge, strategic locations, and skills - among other things."

The situation in Africa could change for the better, he noted: "But only if African governments invest in their manufacturing industries and make them more competitive while upgrading the continent's export structures to overseas markets."

US State Department to aggressively increase FDI in Africa.

Its about time we linked AGOA to FDI.  So far, US companies have played a more limited role in boosting AGOA exports from Africa. 

Regarding the linkage between AGOA and FDI, especially in the textile and apparel industry in SSA, an example is the textile and apparel industry in Lesotho, one of the largest in SSA, which has been boosted in recent years by the influx of Asian investors who have taken advantage of the AGOA program.

However this is not investment coming from the US.

See related article here.

SA Services Firms Making Inroads into the Kenyan Market

South African firms have in the last 2 years increased investments into Kenya, hoping to be second time lucky in a market that previously proved difficult to penetrate and effectively buried a number of corporate SA giants.  The major difference this time round is that SA investors have changed their strategy, in favour of mergers and acquisitions while doing away with the setting up of new establishments. 

Previously South African firms appeared to concentrate their investments in the retail distribution services sector- mostly consumer goods through home grown giants such as MetroCash and Carry, Shoprite, Wool Worths etc. Recently however, investments have cut across nearly all sectors including banking, capital markets and ICT.

In the ICT sector, SA service providers entering the Kenyan market include MTN Business, which acquired UUNet Kenya (to become MTN Business Kenya) and Telkom South Africa (with a SA Government shareholding of 39.8%) and which has gained a strong local presence through a series of direct and indirect acquisitions of local firms such as a local satellite data transmission services company, Afsat Communications and Internet Service Provider Africa Online in a series of complex transactions that also involved other companies.

In financial services, Nedbank one of South Africa’s largest banks, entered Kenya through the Eco bank-Ned bank alliance where their customers can use any or both of the banks’ services without any changes in shareholding structure. The alliance is the largest banking network in Africa, with more than 1000 branches in 33 countries since Ecobank, has a presence in more African countries than any other bank in the world.  The alliance offers clients a 'One Bank' experience across Africa and the arrangement enables Nedbank, which had operations in only five African countries, to extend its footprint to the 29 countries where Ecobank has operations without moving in directly. ingenious.

Interestingly Ecobank Transnational International (ETI), is a public limited liability company which was established as a bank holding company in 1985 under a private sector initiative spearheaded by the Federation of West African Chambers of Commerce and Industry with the support of ECOWAS. In the early 1980’s the banking industry in West Africa was dominated by foreign and state-owned banks as there were hardly any commercial banks in West Africa owned and managed by the African private sector. Ecobank was founded with the objective of filling this vacuum and today its the leading African bank with offices in 29 countries and consisting of 746 branches. 

Nationalisation of SA's Mining Sector Ruled out

All Africa 24th September 2010

South Africa is among the world's largest producers of gold, platinum and chromium, having reaped thirty-two billion euros in 2008 alone from its mining industry.

South African president Jacob Zuma ruled out the nationalisation of the country's mining sector as he closed a tense congress of the ruling party in Durban.

The week-long ANC National General Council was marked by fiery speeches and calls by the the party's left for the state take-over of the the economy's largest export sector.

Nevertheless, Zuma assured the 3,000 delegates that the ANC regards South Africa's minerals and petroleum as strategic national assets over which the state would retain custodianship.

Need for Capacity for Value Addition in Natural Resources

We need to build capacity in Africa in order to add value to natural resources. 

In a recent post, we discussed a proposal from African countries to ban exports of natural resources. Tanzania reportedly has in place a ban on the export of raw gemstones. However, in a recent news piece, the Tanzania Government Ministry of Minerals and Energy has proposed to lift the ban on exports of gem stones with a weight of over one gram, due to lack of local capacity to cut stones, stating "as there is no point of people staying with uncut stones while there is no capacity."

The Ministry's Commissioner for Minerals, Dr Peter Kafumu, also stated that the government move was propelled by the fact that the lapidary is still at infant stage and exporters need additional time. He also added "In actual fact we were not ready when we imposed the ban. I think politicians pushed us a bit harder."

It is interesting to note that investors such as TanzaniteOne are pushing for exemption from the export ban while the labour market opposes lifting of the ban, which could reduce employment opportunities locally. What is Government to do?

Discouraging Exports of Raw Materials

Delegates at a recent meeting proposed that Africa should ban or discourage exports of raw materials to developed countries. Instead these resources should be developed and added value locally. The AU commission may be requesting Presidents to put their political weight behind such a proposal ahead of the 3rd Africa-Europe Summit in November in Libya.

Indeed such an approach would put local content and value addition policy at the heart of Africa's development plans. Local content is where foreign companies are obliged to procure a percentage of labour, goods and services from the host country. Norway pioneered it. See related post on the Norwegian case study. Brazil, a rising oil giant, is using it.

Two questions to ask are: how many African countries currently have the regulatory, investment and governance environment necessary to efficiently manage and add value to natural resources?  Additionally are there legal agreements- regional or bilateral including other barriers that would prohibit such an approach at a national level?

The WTO dimension.

Tariff escalation in developed countries e.g. in fuels, forestry and mining sectors would continue to be a concern. Non tariff barriers e.g. technical regulations, import licensing and prohibitions in value added products would also be prohibitive.

WTO rules (e.g. GATT Articles I, III, XI, XIII) would ordinarily not permit a WTO Member to undertake a legal measure to ban or discourage exports, even for reasons of poverty. It may be possible to use export taxes especially where natural resources dominate an economy. However there are proposals and/or disputes in the WTO and EPAs seeking to phase them out. There could also be possibilities for developmental flexibility for the economic development of LDCs. GATT Article XI:2 also provides an exception to the ban of export restrictions to prevent critical shortages. In addition, general exceptional measures found in GATT Article XX, could be relevant. These include measures:

XX (g) for the conservation of exhaustible natural resources. However measures taken pursuant to this provision, would need to be implemented in conjunction with restrictions on domestic production or consumption. This is therefore a two part legal requirement- a need to show conservation of exhaustible resources such as fossil fuels and metallic ores and restrictions on domestic production. However even renewable resources can be exhausted if over-traded or mismanaged hence export restrictions may be necessary.

XX (i) involving restrictions of exports of domestic materials necessary to ensure essential quantities of such materials to a domestic processing plant during periods when the domestic price of such materials is held below world price as part of a government stabilisation programme. This is a periodic measure applicable specifically to export restrictions undertaken to ensure sufficient quantities for domestic processing, specifically when domestic price is below world price and as part of an internal price stabilisation scheme. Given the extreme price volatility of certain natural resources, this provision maybe relevant however the precise requirements require dual pricing mechanisms. 

XX (j) essential to the acquisition of products in general or local short supply. However such measures must be consistent with the principle that all members are entitled to an equitable share of the international supply of such products.

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Daily Monitor Uganda

Participants at a meeting of the African Union’s Trade and Industry Commission yesterday proposed that the continent adopts policies to discourage the export of raw materials to the developed world.

During a media briefing at Munyonyo, Kampala, Ms Elizabeth Tankeu, the Trade and Industry Commissioner, said: “We have been exporting our raw materials to Europe since the colonial times when the Europeans came to Africa. They still come here for our resources but we have remained the poorest continent”.

“The European Union through its Economic Partnership Agreements wants Africa to trade with them at zero per cent tariffs. They say they want reciprocal trade. But we are saying Africa still needs a lot in place for reciprocation to begin. We’re telling them we are not going to continue exporting raw materials.”

More 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.

Proposed West Africa Solar Power Commission

ECOWAS. Tapping into solar energy.  This is useful.

In a previous post we discussed the announcement by the EU Commissioner for Energy on the EU's plans to start importing solar power from Northern African countries; Algeria, Tunisia, and Morocco, through the the Desertec Industrial Initiative, launched in July 2009. 

Along similar lines, West Africa is also gearing up to develop solar resources given the abundance of sunshine and near possession of the largest desert in the world. In this regard, the Heads of State and Government of ECOWAS have endorsed an initiative by President Abdoulaye Wade of Senegal that will enable the region to harness its solar energy potentials through the construction of solar power plants that will provide cheap energy as a complementary source for meeting West Africa’s energy needs. 

The move reiterates a proposal at the Copenhagen World Summit on Climate Change for Africa to commit to solar energy not only because of its availability but also because it is a less expensive source of energy that would help improve the competitiveness of the continent’s industries.

As evidence of support for President Wade’s initiative, the regional leaders urged each Member State to attach technical and financial experts to President Wade ‘in view of establishing the Commission on solar power that shall operate under President's Wade's chairmanship and authority.

EPA Rules of Origin and Value Added Methodology

My article on Tralac website republished here. (original dated March 2007)

In a March 2005 communication, the European Commission (EC) proposed a radical change to its origin rules and suggested that the reform would simplify processes and make the rules more development friendly. The EC envisages sweeping away the present multiplicity of rules of origin and replacing them with a single rule, based on value addition in the beneficiary country. Under this methodology, a product resulting from the working or processing of imported non-originating materials would be considered as originating if the value added in the country (or in a region where cumulation is permitted) amounted at least to a certain threshold (a minimum "local of regional value content") expressed as a percentage of the net production cost of the final product. 

Value addition is one of the three major criteria to determine last substantial transformation for non-originating inputs in the ACP-EU Cotonou Partnership Agreement. The other two criteria are the Change in Tariff Heading (CTH) test which requires that the tariff-heading of the final product should be different from the tariff-headings of its inputs at the four HS digit code and the Specific Process (SP) test, which requires a product to undergo certain stipulated processes before originating status can be conferred. 

As agreed by ACP Ministers in Port Moresby, Papua New Guinea in June 2006, the negotiating mechanism for the rules of origin in the EPA negotiations will be at the level of the ACP-EU. In this regard, while the harmonisation of the methodology for determining substantial transformation in the EU rules of origin regime is understandable, given that the EU has about forty preferential arrangements with third countries or groups of third countries in total, a proposed move to a single value addition methodology in the ACP-EU EPA negotiations would undermine the ACP negotiating position given its less frequent usage as a sole criteria and comparatively infant stages of regional integration in the ACP.

With regard to the usage of the value added methodology, the recent study by ODI Creating Development Friendly Rules of Origin in the EU found that the value added test has been aplied as the originating test for only about one tenth of the products that poor countries such as ACP countries actually export to the EU. Furthermore the study indicates that the value added test is the second most frequently applied sole substantial transformation criterion after specific processes, with a utilisation of 23.5% across all EU agreements. Taking this into account, a move to this single approach within the ACP could erode the benefits accruing in the EPA negotiations, unless the methodology can accommodate the CTH rules and SP and production methods already triggering trade within the Cotonou Agreement.

Given that the future ACP-EU rules of origin are expected to be an outcome of the EPA negotiations, a single value added approach by the EC would still need to accommodate ACP interests as part of the outcome of the negotiations. The ACP-EU negotiations would therefore need to take into account sound regional economic analysis that meets the objectives of the EPAs, which is development. Any benchmarks under consideration would need to enhance and stimulate trade for this methodology to be feasible across the sectors of interest to the ACP.

In addition, the ACP countries may also consider the following in their negotiations:

The value addition criteria, where it is utilized would rather be costs based rather than the ex-works price. The ex works price currently applied in the Cotonou Agreement may compromise the value of the EPA preferences particularly for landlocked and LDC countries.

Methodology for the valuation of non-originating materials will need to consider that some ACP States to date, still do not have the capacity to implement and apply the WTO or WCO customs valuation agreements.

The methodology should provide reduced local value added thresholds for LDCs and small, vulnerable, island and landlocked States given their unique challenges.

Value added thresholds where they are agreed upon should be as low as necessary to accommodate the diverse objectives of the different EPA regions and sectors of interest given that high or low wages and rents can conceal the true value added levels.

Thresholds will need to be achievable by firms and enterprises across the board and be based on EPA regional economic analysis and specific sectors of interest given that percentages for minimum value addition thresholds can vary significantly between products and sectors. This may arise due to the prevailing labour costs, capital and technology, cost of inputs and the import dependence of the region in terms of intermediates.

Reciprocity in rules of origin will need to be considered given that thresholds will need to accommodate the variance between developed, developing and least developed countries. This may need to be sector specific, such as clothing, textiles and fisheries, given that the ODI study on rules of origin has indicated that value added is not always lowest in low-income countries with some EU countries meeting lower value added thresholds than ACP States in certain sectors in light of technological advances for instance.

ACP defensive rules of origin will need to complement the objectives of ACP sensitive sectors vis a vis the EU and hence the value added methodology may need to consider EU sectoral processes and production advantages as well.

Detailed regional analysis will need to supplement the ACP-EU level negotiations both on the substance and objectives of EPAs. The negotiations should therefore take into account the highly unequal levels of the Parties with regard to regional integration. The concerns around overlapping membership in regional trade agreements and thereby overlapping rules of origin are relevant, if EPAs are to promote regional integration and enhance competitiveness.

The task ahead is indeed momentous. Rules of origin have frequently been identified as the root cause of underutilization of the long standing ACP-EU preference regime. Fortunately, the ACP States now have a historic opportunity to improve upon these rules in order to expand trade and development in their economies. However given the complexity of this issue, divergence in the negotiating strength of the two Parties and ACP regional variances, one wonders if ACP countries will be adequately prepared this year to negotiate reciprocal rules of origin using the value added methodology as the cornerstone of the negotiations.