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- Policy question
In June 2015, the 54 member states of the African Union made a decision to commence negotiations for a Continental Free Trade Area (CFTA). This ambitious integration project presents an opportunity to customise an agenda to address the specific competitiveness and development challenges that African countries face in the 21st century.
Africa’s continent-wide regional development plan dates back to 1991, with the signing of the Abuja Treaty. This treaty mapped a detailed plan for African integration with a step-wise process that started with the formation of Regional Economic Communities (RECs), followed by customs unions, after which the process shifted focus to the continental level, with the ultimate aim of establishing an African Economic Community (AEC). To date, regional integration schemes have followed a linear economic integration model consisting of the establishment of a free trade area as the first step, then moving to a customs union and common market, with the eventual aim of political integration. However, regional integration is a complex political and economic process that takes time, especially when integrating very unequal partners, as in Africa. Due to this complexity, the timeline for the Abuja Treaty has not been adhered to and a number of RECs are still consolidating their free trade areas.
Much has happened in Africa and in the global economy since 1991, and the June 2015 decision to establish a CFTA arguably represents an important shift in the thinking about African integration. It provides a new pathway to the AEC envisaged in the Abuja Treaty. The decision is now to move to continental integration before all RECs have established customs unions, which is a pragmatic response to 21st century global and continental realities.
There is an emerging discourse in Africa on ‘developmental regional integration’. This focus on development is not new; all the founding instruments of Africa’s RECs claim that they strive to achieve development outcomes. However, this new discourse focuses on inclusive growth, in recognition of the fact that mere growth does not always enhance development outcomes. Growth that is predicated on inclusion addresses qualitative or distributional aspects, thereby consolidating development outcomes. The developmental regional integration approach is now anchored in three pillars – market integration, industrial development and infrastructure development. This high-level articulation of this approach is persuasive, but lacks the details of a practical agenda focusing on competitiveness and development challenges in the 21st century.
Any practical agenda for development in Africa must address the fundamental challenge of producing tradeable goods and services competitively. The central thrust should be to enhance the competitiveness of all economic activities and provide investment opportunities to expand and diversify the productive base of Africa’s economies in order to create income generating opportunities, especially for youth. Competitiveness is, in some sense, the flip-side of development. After all, it is competitive enterprises that will grow and generate income and employment opportunities. However, it is important to involve investors, producers, traders, workers and consumers in the debates and deliberations on the finer details of this agenda. These people are the agents of integration, responding to the incentives created in the integration instruments negotiated by governments.
The proposed ‘comprehensive’ CFTA will cover trade in goods, trade in services and trade-related matters. Negotiations will take place in two phases. The first phase will cover trade in goods and trade in services, with negotiations taking place in separate tracks. The second phase will cover trade-related issues, such as investment, competition policy and intellectual property rights. The establishment of a comprehensive free trade area is significant, as the focus is no longer only on trade in goods, but also encompasses trade in services and trade-related matters, which are essential to support competitiveness.
The interconnections between the agendas on trade in goods, trade in services and trade-related matters reflect the reality of 21st century production, which is organized in global value chains with the increasing servicification of production. It is, for example, not possible to be competitive in industrial production without competitive services inputs. Given the interconnectedness of these agendas, it would make sense to start negotiations on trade in goods, trade in services and trade-related matters simultaneously, using a plenary forum to ensure internal consistency and coherence in the final agreement. The sequencing of negotiations should reflect priority matters. For example, on trade in goods, tariff negotiations are notoriously difficult and sensitive. Starting with non-tariff barriers, trade facilitation, and customs and border management would, therefore, make sense. On trade in services, regulatory reform and equivalence or harmonization may be an appropriate starting point to support the broader services sector development priorities of African countries. Negotiations on investment should be comprehensive covering all investment matters.
The CFTA presents an opportunity to make regional integration work to enhance competitiveness, inclusive growth and development in Africa. While the important decision to establish a comprehensive CFTA has been made, member states could go a few steps further to ensure that the agenda, negotiating guidelines and principles map a pathway for Africa to enter the 21st century.
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