Africa’s Limited Participation in Trade Remedy Actions

As reported by the below piece by ICTSD, Africa has limited participation in trade defense actions.

Africa’s limited participation in trade remedy actions (anti-dumping, countervailing and safeguards) is due to: the absence of national legal and institutional frameworks, the lack of expertise, the high cost of trade remedies, the availability of alternative instruments, the disorganization of the African business community, as well as political factors. 

National legal and institutional frameworks are the basic requirements for trade remedy actions but majority of African countries do not have such frameworks. Only five African countries have comprehensive national legislation on these trade remedies and only two countries – South Africa and Egypt – have fully fledged institutions. 

Putting in place national trade remedy legal frameworks and institutions can prove costly and time consuming as trade remedy investigations require a high level of expertise (well-trained specialized lawyers and economists), which many African countries can ill-afford. For instance, the WTO training programmes for poor countries have seen many beneficiaries of the programme leave government jobs to join the private sector or international institutions. This also remains a hurdle for African countries. 

Also the availability of substitute instruments such as tariff increment within WTO-bound limits, import prohibitions, and voluntary export restraint (VERs) arrangements is another reason for the low usage of trade remedies in Africa. For instance between 75 and 80 percent of African countries’ tariff lines are unbound, which means they could raise tariffs up to any rate without necessarily violating WTO law (WTO 2009). Also, though imports prohibition has been banned within the WTO, some African countries continue to resort to it with varied frequencies. 

Voluntary export restraints (VERs), which are banned within the framework of the WTO, are parts of some African countries’ trade defence strategy. In 2006, for instance, South African government struck a deal with China to restrict the latter’s textile exports to South Africa in order to relieve its beleaguered textile industry. 

Externally, African countries’ challenges also stem from the necessity to meet WTO standards and legal requirements. Many African countries do not have the economic and legal expertise, and the resources, to fully meet these requirements in carrying out investigations. Moreover, trade remedies are among the most challenged measures before the WTO Dispute Settlement Body and many African countries would have to hire international lawyers to defend their cases. In some cases, African countries producers and even trade officials have low knowledge about how to file a case, even where the laws exist. For instance, in the West African Economic and Monetary Union (WAEMU) countries, an anti-dumping regulation has existed since 2003 but only one case has been brought so far whilst many instances clearly show dumping red-flags could be raised. To avoid similar situations, Mauritius has incorporated a capacity building programme of the private sector in its trade remedy framework worth emulating in other African countries. 

Many African countries are also aid-dependent and this may influence their decision to resort to trade remedy actions against their trading partners, particularly if these partners are their main aid donors, source of investment, or former colonial powers. 

African countries also face the challenge of porous borders fraught with corrupt customs officers. Customs rules are circumvented or violated on a daily basis. 

Additionally, most African countries are part of regional economic communities. In this regard, adopting individual trade remedy schemes could be harmful to these customs unions or common markets. Indeed, the two key features of a customs union or common market are free movement of goods between the members and common external tariffs (CET) toward third countries. As a consequence, any border trade measure, such as anti-dumping or countervailing duties, has to be adopted and implemented by all the members at the same time.

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Implementation of Free Trade Agreements

To implement a Free Trade Agreement (FTA) within a national jurisdiction, one must take a number of domestic actions which include the giving of legal effect to the FTA in accordance with the constitution either through an act of parliament, amending existing legislation and/or through the proclamation of the head of state. The implementing legislation would typically contain sections on customs and the agreed tariff reduction according to the schedules of commitments, trade remedies, rules of origin, national treatment etc, as agreed under the FTA. The law would authorize the President/ parliament to proclaim the tariff modifications, amend existing legilsation and provide the rules of origin for preferential tariff treatment as provided for under the Agreement, including the setting up of new institutions/departments. The Implementation Act would also specify the general rules of origin to be used in determining if a good qualifies for preferential tariff treatment under the Agreement in addition to proposed regulatory amendments and a new regulations in the customs act.

In addition, there would be the setting in place of an implementation unit/department or focal point to manage implementation of the agreement in the relevant ministry of foreign trade. The implementation unit must not be constrained by insufficient financial and personnel resources. For a regional trade agreement, the establishing a regional implementation unit to provide direct support and to coordinate technical assistance to Member States is of utmost importance for instance in the EPAs with the EU. The regional implementation unit can work with Member States in organizing seminars, workshops and other outreach activities to address the information deficit at almost every level in the public and private sectors. The private sector in particular needs to be sensitized in simple language on the provisions of the agreement and how to take advantage of the benefits of the agreement.  Aid for trade could be an important facilitation consideration in this regard.

Thirdly, there would be joint mechanisms for engagement pertaining to the FTA such as joint trade committees, councils, summits, working groups to provide oversight to the FTA and for exchanges of information, laws and regulations including engagement among the private sector to enable them to take advantage of the benefits of the agreement. These can also include parliamentary committees, customs and trade facilitation etc.

Vietnam and Malaysia predicted to be winners of TPP agreement

The Trans-Pacific Partnership involves 12pacific rim countries but some look set to benefit more than others from the agreement, with Vietnam and Malaysia singled out as two likely winners. The Trans-Pacific Partnership (TPP) is a trade agreement concerning a variety of matters of economic policy, which was reached on 5 October 2015 after 7 years of negotiations. 

Each of the 12 countries that signed up to the landmark Trans-Pacific Partnership (TPP) agreement expects to benefit greatly from a deal that will open up a vast new market of 800 million people for their products and spans a large portion of the globe. However, none has higher expectations than Vietnam, which experts say has emerged as the big winner of the TPP agreement, with Malaysia as the runner-up, in the struggle to boost exports and attract FDI. 

The agreement’s 30 chapters cover various trade and trade-related issues, including reducing tariff and non-tariff barriers in sectors as diverse as agriculture, industrial goods, pharmaceuticals, service industries, financial services and telecommunications. 

The agreement also deals with investment, intellectual property, labour, the environment, good governance and methods for dispute settlement. Novel features of the agreement include addressing the roles of state-sponsored enterprises and e-commerce, and its commitment to assisting small and medium-sized enterprises so that they benefit from the new trade openings. It will also work towards facilitating the development of production and supply chains and seamless trade.

FDI boost

That so many countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam – at such different levels of development were able to reach agreement on so many complex and domestically sensitive issues is remarkable. 

The TPP, though primarily about trade, is also expected to generate a significant increase in FDI. Indeed, its chapter on investment specifically emphasises that each country’s markets and services sector will be fully open to foreign investors – unless the country has put a specific sector on a 'negative list' that is not open to foreign investment.

“The big winners on trade are likely to be the big winners on investment, especially over a 10-year period,” says Dr Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, DC.

In percentage terms, Mr Hufbauer expects Vietnam to be a big winner in both categories because it is coming from far behind the rest of the field. In addition, its tariffs on many imports – among the highest in the TPP trade area – will be lowered or eliminated. To get the maximum benefit from the TPP, Mr Hufbauer says Vietnam will need better technology and financial services, both of which will require FDI. “If Vietnam carries through on the reforms in the TPP, it will get a ton of investment,” he says.

Vietnam’s burgeoning textile and apparel sector, which currently exports about $17.5bn-worth of goods a year, is expected to benefit most under the TPP. Its other major exports are telephones, consumer electronics, footwear and seafood.

The Nafta effect

Mr Hufbauer expects that under the TPP, Vietnam could enjoy the benefits of “the Nafta effect”, which enabled Mexico to increase the FDI it received from $3bn to $4bn a year to $15bn to $20bn annually after Mexico, the US and Canada signed the North American Free Trade Agreement. To get the full benefit of the TPP, however, both Vietnam and Malaysia will need to improve their infrastructure and tackle corruption, he says.

Dr Deborah Elms, executive director of the Asian Trade Centre in Singapore, is also bullish on Vietnam. “The consequences of the TPP for the [Vietnamese] economy are huge. A lot of the reforms they have to make are hard and challenging. By using TPP as the mechanism to get reforms done, we are more likely to see them,” she says. 

Inward FDI has already begun, she adds, with large-scale investors from China, South Korea and Indonesia already moving to Vietnam to take advantage of the TPP. Ms Elms points out that the trade benefits of the TPP are based on where the product is made, not on the country in which the corporate headquarters are located. Therefore companies with operations in other countries are likely to move those operations to locations within the TPP to benefit from zero or lowered tariff barriers on their products. 

Malaysia too has high hopes for the TPP. It sees a competitive advantage for its key exports of electrical and electronics goods, as well as chemical, palm oil, rubber, wood, textiles and automotive products. In a statement, the Malaysian government reported that a number of foreign companies in non-TPP countries were exploring Malaysia as a base for their operations to take advantage of the agreement.

Sector winners

The TPP also opens up vast new opportunities for the services sector in member countries – an arena in which the US is extremely competitive, says Ms Elms. The agreement states that member countries’ markets must be fully open to services, except those on the 'negative list'. 'Services' include professional services such as legal and accounting, as well as retail and restaurants, travel and tourism, and telecommunications. At the same time, Ms Elms expects openings to be created for domestic companies to become competitive.

Another industry she expects to benefit from the TPP is the food and agricultural sector, where markets are traditionally very protected and closed to foreign products. Tariffs will be eliminated or reduced over time, food will not have to be repeatedly tested as it crosses borders, and special rules will expedite the processing of perishable goods through customs. Ms Elms expects these advantages to attract FDI, especially in food processing. 

“If a company can figure out how to take advantage of this agreement, the upside is great. But it takes a fair amount of effort to figure out what is in it and how to harness it,” she says.

It will also take a fair amount of effort for each of the 12 governments that signed the deal to get their parliaments to go along with it. In each country there are powerful groups that see their own special interests as being damaged, whether in the agricultural, biopharmaceutical or automotive sectors. Labour groups also worry that production will be outsourced to workers in low-wage countries. US presidential candidate Hillary Clinton has announced her opposition to TPP, even though it was negotiated by a fellow member of the Democratic Party.

Expect a fierce fight on all fronts before the dust settles.

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WTO Ministerial Conference in Nairobi

The just concluded 10th WTO Ministerial Conference (MC10)  was held on 15th-19th December 2015 in Nairobi Kenya.  Four issues of interest to Africa — more favorable preferential rules of origin for LDCs,TRIPS agreement, the operationalization of the services waiver for LDCs, and elimination of export subsidies — were resolved during the 10th Ministerial Conference. The meeting also concluded the Information Technology Agreement in which tariffs on over 201 technology products will be eliminated for the benefit of participating importers all for the expansion of trade in information technology products.

The 10th Ministerial Conference has come more than 20 years after the conclusion of the Marrakesh Agreement in Morocco which led to the creation of the WTO in January 1995. The Ministerial Conference is the top-most decision-making body of the WTO. It usually meets every two years, and brings together all members of the WTO.  This is first time the meeting has been held on African soil.

For related documents see here.

Made in Africa

November 20th marked yet another “Africa Industrialization Day” by the United Nations. There have now been 25 such events, and they seem to have come and gone with relatively little notice. This year may be different: Africa’s failure to industrialize has come to the attention of a growing number of observers, noting with some alarm at the fact that many African countries are de-industrializing while they are still poor, raising the worrying prospect that they will miss out on the chance to grow rich by shifting workers from farms to higher-paying factory jobs.

By any measure Africa’s failure to industrialize is striking. In 2013 the average share of manufacturing in GDP in sub-Saharan Africa was about 10 percent, half of what would be expected from the region’s level of development. Moreover, it has not changed since the 1970s. Africa’s share of global manufacturing has fallen from about 3 percent in 1970 to less than 2 percent in 2013. Manufacturing output per person is about a third of the average for all developing countries and manufactured exports per person, a key measure of success in global markets, are about 10 percent of the global average for low income countries.

This lack of industrial dynamism is a growing matter of concern to Africa’s political leaders, as well. Historically, industry is the sector into which resources have first moved in the course of economic development. Industry is the pre-eminent destination sector at early stages of development because it is a high productivity sector capable of absorbing large numbers of moderately skilled workers. Between 1950 and 2006, about half of the catch-up by developing countries to advanced economy levels of output per worker was explained by rising productivity within industry combined with labor moving out of agriculture into manufacturing. 

The objective is clear—Africa needs more industry—but the path forward, remains 'more a marathon than a sprint'. One of the major constraints to Africa’s industrial development is a lack of the “basics”—infrastructure, skills and institutions. While industrialization cannot succeed without these, they are not enough. Three closely related drivers of firm-level productivity—exports, agglomeration and firm capabilities—have been largely responsible for East Asia’s industrial success, and their absence goes a long way toward explaining Africa’s lack of industrial dynamism. For example, in Tanzania, special economic zones (SEZs), which are export-oriented industrial clusters, contain about 40 firms, employing around 10,000 people. Vietnam on the other hand has 3,500 firms in its export processing and industrial zones, employing 1.2 million workers. Putting policies in place that promote manufactured exports, encourage the development of industrial clusters and attract more capable foreign direct investors outside of the natural resources sector are essential first steps in reversing Africa’s industrial decline.

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.

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South Africa Leads on Inward Foreign Investment

South Africa leads as the top destination in Africa for inward foreign direct investment (FDI) and shows clear economic potential, according to new research from fDi Markets.

Between 2010 and 2014, the country saw the highest number of inward FDI projects in Africa with 667 investments chiefly in the business services sector (19 percent). This is closely followed by software and IT services (17.86 percent) and financial services (12.62 percent). 

South Africa’s vast mining industry saw precious mineral reserves and prices dwindle in 2014. The country also relinquished its status as Africa’s biggest economy to Nigeria, following the latter’s recalculation of its GDP base. Unemployment continues to have a crippling effect on the nation - with youth unemployment hovering at 54 percent - and growth is set to average 2 percent. However, good corporate governance and transparency keeps South Africa’s Johannesburg Stock Exchange (JSE) - the continent’s oldest and largest equity market - a draw for overseas investors. Further, following an acute depreciation of the rand to its lowest in 15 years, the economy is showing signs of embarking on an export-led recovery.

Meanwhile a World bank report states that the continent of Africa has become the second most attractive investment destination in the world – ranking just behind North America.

Lesotho Making Billions Selling Water to South Africa

Even though Lesotho has high debt levels and high unemployment, it is raking in billions by selling water to South Africa. South Africa gets water from the landlocked mountainous kingdom through a series of tunnels and dams given that Lesotho receives 60 percent more rain than its neighbor. This transfer is accomplished through a series of rivers which include the Malibamatso, Matsoku, Senqunyane and Senqu, while in in South Africa it involves the Vaal River. This water transfer is said to be Africa's largest water trade scheme.

There is a signed Treaty between the two governments which sets out the structures required to implement the water transfer Project on behalf of the two governments, through an implementing management structure known as the Lesotho Highlands Water Project will also generate hydro-electric power.

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New Database on Trade in Services

A new services database has been developed and it may be an interesting tool for policy makers. I-TIP Services is a joint initiative of the World Trade Organization and the World Bank. It is a set of linked databases that provides information on Members' commitments under the WTO's General Agreement on Trade in Services (GATS), services commitments in Regional Trade Agreements (RTAs), applied measures in services, and services statistics.

In its four modules (GATS, RTA Commitments, Applied Regimes, and Statistics), the integrated database permits searches by Member, sector, agreement, or source of information.

To access the database click here.

Tanzania's Labour Laws and the EAC

According to sources, the Association of Tanzania Employers (ATE) has disagreed with President Jakaya Kikwete’s position on closing the labour market to other East African nationals. ATE executive director Aggrey Mlimuka said freely allowing skills to flow in will expand the economy, which in turn will create more jobs.

Delivering a speech to the National Assembly recently, President Kikwete said Tanzania’s stand against opening up its labour market in accordance to the East African Common Market Protocol is among the reasons why the country is being sidelined by other member states. The EAC Common Market Protocol was adopted and signed on November 20, 2009, by member Heads of State, and entered into force on July 1, 2010, officially allowing for free movement of labour. Recent World Bank findings show that East Africa would benefit greatly from free trans-border flows of labour, as they would allow for a more efficient allocation of skills that are relatively scarce in some partner states as well as provide employment to idle skill resources in others.

Mr Mlimuka said it was wrong for Tanzania to close the labour market wholesale. He suggested that Tanzania review its laws to allow foreigners to work in the country and complement the weak local labour force. He said Tanzania could stipulate that the foreign worker have a local person understudying them during the contractual period. That way, the local labour force would become competitive across the region. 

It is important to note that the cost of a work permit in Tanzania is $2,000, Zanzibar $150, Burundi charges 30 per cent of the salary; in Kenya, Rwanda and Uganda the permits are issued free of charge to East African nationals.

According to other sources, an ongoing crackdown on EAC immigrants in Tanzania is fueling fresh doubts about the country’s commitment to the East African Community as Tanzania and its partners within the bloc continue to pull in different directions on regional integration.

According to a study titled An Assessment of the Implementation of the EAC Common Market Protocol Commitments on the Free Movement of Workers commissioned by the East African Business Council (EABC) and the East African Employers’ Organisation, Tanzania’s work permit regulations emphasize immigration control measures instead of work related requirements. According to ATE, the cost of work permits and the complicated procedure for their approval are the biggest impediments to free movement of workers into Tanzania. The EABC study reveals that East Africa is facing a middle-level skills vacuum. In Tanzania, for example, middle-level professionals account for only 12 per cent of the total number of professionals in engineering and just six per cent in accounting. According to the Study, "the figures for accounting seem particularly low if compared with Kenya, where accounting technicians exceed the number of qualified accountants by a factor of four. In Tanzania, qualified accountants exceed accounting technicians by a factor of 16,” the research reveals. This means that in Tanzania, for every 16 qualified accountants there is only one accounting technician, the opposite of the normal pyramidal labour structure in a modern economy. In addition, according to the Study, there is a shortage of mid-level skills in most of the EAC.

Last month, the Tanzanian government said it would not waive work permit fees for East Africans seeking jobs in the country until some of the laws to do with immigration, capital flows and security have been assessed and revised.