Where is International Trade headed and what does it mean for Africa?

nairobiAs we welcome the New Year, it is time for the African continent to take stock of developments in international trade policy that occurred in 2015. The year ended with the 10th Ministerial Conference of the World Trade Organization (WTO), which took place in Nairobi, Kenya from 15 to 19 December 2015, a first such meeting to be hosted by an African nation. The Conference was opened by Kenya’s President, Uhuru Kenyatta and hosted by Kenya’s Cabinet Secretary for Foreign Affairs and International Trade Amina Mohamed. They were joined at the Opening Ceremony by President Ellen Johnson Sirleaf of Liberia, whose country concluded its WTO membership negotiations on 16 December 2015. It is interesting to note that the round of trade negotiations being discussed in Nairobi, the Doha Development Agenda (Doha), was launched in Marakesh, Morroco in 2001.

Reviews of the outcome in Nairobi were mixed at best. It culminated with the adoption of the “Nairobi Package”, a series of six Ministerial Decisions on agriculture, cotton and issues related to least-developed countries (LDCs). The decisions include a commitment to abolish export subsidies for farm exports, which was hailed by WTO Director-General Roberto Azevedo as the “most significant outcome on agriculture” in the WTO’s 20-year history. Yet, many developed countries, including the United States and the European Union, have publicly called for the conclusion of Doha claiming that its framework has been problematic in failing to produce substantive outcomes and arguing that members now need to address new issues outside of the single undertaking, such as electronic commerce, investment and competition.

Developing countries counter that continuation of Doha is needed, expressing concern that closing the round would have their priorities, such as special and differential treatment, be lost in the shuffle and overtaken by new ones favored by the developed world. India claimed a successful outcome based on its ability to ensure the continuation of three of its key priorities: (1) the special safeguard mechanism (SSM); (2) the permanent solution to public stockholding for security purposes; and (3) special and differential treatment for developing countries. Contrary to the views expressed by the U.S. and the E.U., Indian Minister of Commerce and Industry Nirmala Sitharaman proclaimed that Doha is not dead, based on a commitment by WTO members to finish the “unfinished pillars” of Doha.

The specifics of the Ministerial can be analyzed at length and in depth at another time. The point of mentioning it in this piece is to illustrate the uncertainty associated with the WTO and the future of multilateral trade negotiations. While there were some successes, it is also uncertain whether the Doha Development Agenda negotiations will continue at all in its current form. It calls into question the future of the “single undertaking” approach of the WTO. The WTO (and its predecessor the General Agreement on Tariffs and Trade (GATT)) has historically taken a consensus-based, all-or-nothing approach of seeking a single accord that must be approved by all members. A departure from this approach was taken with the conclusion of the Trade Facilitation Agreement (TFA) at the 9th WTO Ministerial Conference in Bali in December 2013. I will discuss the importance of TFA to the African Continent later in this article.

Probably more significant for the African Continent and the rest of the world was the conclusion on October 5, 2015, of the Trans-Pacific Partnership (TPP), a regional trade pact involving 12 countries, including the United States, Japan, Canada, Mexico, Australia, Vietnam, Malaysia, and Chile. TPP countries represent 40 percent of global GDP, 25 percent of global exports, and 30 percent of global imports {Ref:1}. TPP is a high standard 21st Century Agreement which includes comprehensive market access, eliminating tariffs on all goods representing some 11,000 tariff lines as well as non-tariff barriers to goods and services and investment.

It seeks to promote a regional approach to commitments by facilitating the development of production and supply chains among TPP members and addresses cross-cutting trade issues, such as regulatory coherence, competitiveness and business facilitation, digital trade among other things. It also contains special provisions for small-and medium-sized enterprises to enable them to engage more effectively and successfully in the global marketplace and provides capacity building for lesser developed countries in the pact. TPP also builds on the labor and environment provisions of past free trade agreements. The impact of TPP provisions, such as regulatory coherence, digital trade and covering small- and medium—sized enterprises will be discussed in future blogs.

Meanwhile, the United States is also negotiating with the European Union the Trans-Atlantic Trade and Investment Partnership (TTIP), which combined with TPP would cover nearly 60 percent of global GDP. TTIP is described as an ambitious, comprehensive and high-standard trade and investment agreement. It differs from TPP in that it is an agreement between two major trading partners as opposed to TPP which involves 12 countries at different levels of development.

As Mr. Meltzer, Senior Fellow for Global Economy and Development at Brookings, remarks, the combination of two such significant regional trade agreements will have the effect of becoming de facto global standards. He questions whether “[t]he risk for Africa” will be “that new rules and market access preferences agreed under the mega-regional FTAs will make it increasingly difficult for African businesses to compete globally, confining Africa to a shrinking share of international trade and diminish its attractiveness as a destination for investment.”{Ref:2}

As Mr. Meltzer points out, these agreements present some significant and difficult challenges for African countries. What should African countries be doing to expand trade and promote investment? Let’s examine some opportunities for Africa.

Regional Integration:

In 2008, negotiations to integrate Africa’s economies began with the Tripartite FTA (TFTA) between three major regional African communities. TFTA will come into force in January 2016 will ultimately cover 26 countries, 640 million people with a total GDP of $12 trillion. TFTA only covers goods and not services, which is a major omission.

It is anticipated that TFTA will serve as a building block for a Continental FTA (CFTA). The African Union has committed to completion of the CFTA by 2017. Such an agreement would cover 54 African countries, representing over 1 billion people and $3 trillion in GDP. It is predicted that successfully completing a Continental Agreement would stimulate intra-African trade by around 50 percent ($35 billion) by 2022 {Ref:3}. That would be an important step towards bringing the Continent into global value chains.
It is important that these agreements are consistent with the global rules and standards evolving from agreements such as TPP and TTIP.

Implementation of the Trade Facilitation Agreement (TFA)

TFA Agreement provides for harmonization and simplification of customs procedures, mandating reforms that provide transparency, risk based management by customs administrations, a “single window” for all government agencies with decision-making concerning imported merchandise, automation, electronic payment of duties and the separation of the payment of duties from the release of cargo, among other things. These measures are intended to facilitate trade across borders and are projected to boost global trade by as much as $1 trillion and global GDP by nearly 5%. In February 2014, the Organization of Economic Cooperation and Development (OECD) reported a potential impact in trade cost reductions ranging from 11.7% to as much as 15.1%. Improvements in customs procedures are also seen as vital to promote regional integration so important to the African Continent.

The Agreement also offers donor assistance and capacity building to developing and least developing countries so that they can enjoy the well-documented benefits of implementation.

Important progress was made toward entry into force and implementation of TFA in Nairobi. There were six new acceptances of the Agreement, bringing the total at the time to 63 WTO members. As noted by the USTR, “[t]he diversity of members who have submitted these 63 acceptances demonstrates the global interest in this agreement.” USTR further notes that “[t]he 63 acceptances come from members representing every region of the world, 28 of whom are developing countries, including five LDCs.”

In addition, the U.S. announced additional funding to assist developing countries implement TFA through a multi-donor partnership with the private sector called the Global Alliance for Trade Facilitation (GATF). To fulfill their commitment in the TFA to help developing countries and LDCs implement the agreement, the U.S., together with Australia, Canada, Germany and the United Kingdom, are bringing together donor countries, global businesses, and international institutions, including the World Economic Forum, the International Chamber of Commerce and the Center for International Private Enterprise, to assist developing countries implement TFA reforms. The U.S. will contribute $50 million for GATF over five years. GATF appears to be the largest pool of resources dedicated to TFA implementation so far.

As of January 4, 2016, 65 countries have ratified TFA. Two-thirds of WTO members are needed to ratify the Agreement. There are currently 159 countries that are members of the WTO so 108 members are needed for ratification. African countries that have already ratified include: Mauritius, Botswana, Niger, Zambia, Cote d’Ivoire, Kenya and Lesotho.

As noted by numerous studies, there are substantial economic benefits that can be reaped from implementation of TFA. Border and customs modernization is critical for regional integration and for African countries to find their place in global value chains. Countries that have not already ratified are encouraged to seriously consider so doing. They could also provide their notification of commitment categories for implementation and donor assistance.

The African Growth & Opportunity Act (AGOA)

A renewal was finally passed by U.S. Congress and signed into law by President Obama in June 2015 for an additional 10 years. AGOA grants trade preferences of most products from qualifying countries from sub-Saharan Africa. While AGOA exports have been dominated by petroleum products in the past, it has also grown trade in apparel, vehicles and some agricultural products {Ref:4}. Still the volume of trade originating from Africa should be improved.

Renewal was important for sub-Saharan Africa. AGOA is the cornerstone of the U.S. relationship with Africa. AGOA renewal eliminates – at least for the time being – the uncertainty that existed about the future of the duty preference program giving business the confidence to invest in Africa and Africans a duty preference to export goods to the US.

During the legislative process for renewal, it was noted that AGOA has never been fully utilized. The new law encourages countries to develop “biennial AGOA utilization strategies,” so that countries can better utilize the law and increase their export of manufactured goods. Being proactive in the development of strategies to confront obstacles to trade and investment will thus be an important first step towards better utilization of AGOA.

Yet, AGOA cannot match the free trade agreements such as TPP and TTIP. As noted by U.S. Trade Representative Ambassador Michael Froman, there is a need for a post-AGOA trade strategy that will enable African nations to integrate into international supply chains and develop the capacity to meet the high standards of these agreements. That is why AGOA once again calls for USTR to assess the prospects for negotiating FTAs with African countries and to submit a report by June 2016. Since the initial passage of AGOA in 2000, the EU negotiated an FTA with South Africa and Economic Partnership Agreements (EPAs) with 40 African countries. While the preferential non-reciprocal approach will continue until 2025, it is not sustainable and it would be wise to begin planning now for a post-AGOA trade strategy as Ambassador Froman suggests. There should be a call to action for sub-Saharan and other African countries to develop a sustainable plan for increased trade with the U.S.

While there are challenges for African countries, there are certain measures that can be taken to promote more trade and investment with and in Africa. Future blog posts will address many of these points in more detail.

{Ref:1 Joshua P. Meltzer, Senior Fellow, Global Economy and Development, Expanding African Trade: Creating a Comparative Advantage and Strengthening Regional Partnerships (Brookings 2016). Ref:2 Id.} {Ref:3 Id citing Cheong, David, Jansen, Marion, and Ralf Peters (eds.). Shared Harvests: Agriculture, Trade, and Employment. Geneva: International Labour Office and United Nations Conference on Trade and Development, 2013.} {Ref:4 AGOA: Trade and Investment Performance Overview, Inv. No. 332-542, USITC Pub. No. 4461 (April 2014)}