The AFCTA – lessons from the free trade area of the Americas

PUBLISHED ON March 27th, 2019

The AFCTA – lessons from the free trade area of the Americas

The proposed African Continental Free Trade Area (ACFTA), currently being negotiated by 55 African countries, is a positive inter-regional initiative, one that is intended by its architects to be the largest free trade zone in the world, with a population of approximately 1.2-billion and a combined GDP of $2.5-trillion.

The effort to unite the economies of Africa into a single free-trade agreement began at the 18th ordinary session of the assembly of the African Union (AU) heads of state and government, held in January 2012 in Addis Ababa. The participants agreed to progressively eliminate barriers to trade, services, intellectual property and investment in the context of an ACFTA. Such a pact would build on existing sub-regional and bilateral arrangements and help create a more integrated market in the continent.

Since its signing in March 2018, the agreement and its associated protocols and annexes have been open for country-level ratification. For the treaty to enter into force, a minimum of 22 countries must ratify it. Ratification processes vary by country, but generally include approval by the legislative body and consent by the executive branch of the country.

It is important for African countries to recognise that signing a trade pact is not the same as achieving free trade. To be sure, constructing a free-trade area (FTA) linking some of the middle-income and poorest countries, and largest and smallest countries in Africa, is a daunting task. Given the diversity of incomes, factor endowments and comparative advantages of these nations raises the question as to what the impact of the ACFTA will be in their economies.

The question is particularly relevant for the least developed countries of Africa, since the ACFTA will require a considerably larger commitment towards liberalising their economies.

The architects of the ACFTA can learn from the failed Free Trade Area of the Americas (FTAA). The FTAA, which was being negotiated by 34 widely diverse (in terms of size and levels of development) countries of the Americas, was intended to be the most far-reaching trade agreement in history. The FTAA negotiating process was designed to be a lengthy one — about 10 years — as it was felt that many of the participants needed time to prepare adequately for negotiations.

For nine of these 10 years the negotiating process was very intensive and tremendous progress was made. However, in the very final stretch, the gradual diversion of negotiating attention from the FTAA towards the Doha Round, combined with major changes in the political governance and economic circumstances of countries in the western hemisphere in 2002, changed the focus of key participants and altered the basis of consensus on which the FTAA negotiations had been conducted.

Eventually, these changes proved to be so large that the FTAA negotiating process foundered before it could be brought to a successful conclusion. It has been stalled since early 2004 and seems unable to recover.

Lessons from failure

Lessons from the FTAA experience for the ACFTA should be useful ones to consider so the same fate does not meet a similarly ambitious undertaking.

First, for the ACFTA to be successful, there must be a unity of vision on the objective and finality of a continental agreement among the major economies in the region, namely, Egypt, Kenya, Nigeria and SA. This unity of vision must be present at the beginning of the process and must be maintained until the end of the process. If these economic giants do not see the objective and the finality of the ACFTA with a positive eye, or do not maintain a common purpose, the ACFTA will not succeed.

It was after the unity of vision between the US and Brazil disappeared that the FTAA negotiations stalled. And in spite of 30 of the 34 countries in the western hemisphere continuing to actively support the objective, it did not prove possible to put the negotiations back on track.

Secondly, the ACFTA negotiating agenda should not be overly ambitious, or this may derail the process. Reaching a region-wide agreement among so many widely divergent economies will certainly prove challenging. If SA and other major economies in the region were to insist on an ambitious agreement, then the alternative to an ACFTA in the first instance might be a staggered approach.

For example, economies that consider themselves ready to take on the disciplines of a “state-of-the-art agreement” could do so at the time of completion of the FTA, while the other members could do so when they consider themselves ready. An integral component of the ACFTA would then consist of a strong trade capacity-building programme, much like the hemispheric co-operation programme of the FTAA.

This programme would be designed to assist those less advanced economies in reaching the necessary levels of institutional sophistication that would allow them to assume the new FTA disciplines. No specific timeframe would be attached to this accession process, which would be limited to those members.

Minimal distraction

Thirdly, for the ACFTA negotiations to succeed there should be minimal distraction from outside or other negotiating efforts. The FTAA negotiations proceeded at a rapid pace until the Doha Round was launched and attention was diverted between negotiating arenas. This became even more apparent after the US obtained the Trade Promotion Authority in 2002 and began to seriously engage in bilateral trade agreements.

This effort sapped the negotiating attention (and the ability to act in an independent manner) of both the Central American countries and the Andean countries and weakened those in favour of pushing the FTAA forward. And, although it is not impossible for negotiators to participate in various negotiating forums, it was clear in the western hemisphere that the amount of human resources required for multiple negotiations is much greater and the attention is subsequently less than would otherwise be the case.

Capacity-building efforts to train and support trade negotiators would be particularly important for the negotiations to succeed, given the diversity of economies in Africa. For this reason, a standstill agreement at the outset to cease negotiating other regional trade agreements during the period of the ACFTA discussions would be strongly desirable; otherwise too much distraction will be generated by parallel efforts.

Additionally, the negotiating leverage of large trading partners with smaller ones in bilateral trade agreements could take away their ability to be full participants in the ACFTA negotiating process.

Likewise, a clause similar to what was agreed in FTAA should be included at the outset in the negotiating principles of the ACFTA to clarify the status of existing or previously negotiated trade agreements and their relationship to a future region-wide agreement. This clause could make it clear that the ACFTA, once finalised and put in place, would prevail over all previous agreements, unless the disciplines of these pre-existing trade agreements were deeper and went beyond the ACFTA.

Civil society

Lastly, one of the most unique aspects of the FTAA was the creation of a committee on civil society. This created a platform for civil society to make submissions to the negotiating process. It was further coupled with periodic meetings to table various issues on the negotiations agenda, which were then forwarded to the relevant FTAA negotiating group or committee. A business forum was also established to allow for the business community to meet prior to each trade ministerial meeting and to discuss and provide recommendations on all of the issues under negotiation.

The proposed African Business Council and Africa Trade Forum as part of the governance structure would serve to inspire the outreach efforts of the ACFTA.

Each set of trade negotiations, whether bilateral, regional or multilateral, faces its own particular challenges. The ACFTA undertaking, by its very uniqueness and its large number of participants, will face a considerable number of challenges that are much larger than those that a more reduced group of countries would have been able to face and possibly overcome.

The FTAA experience has shown that without a united vision among key economies and without a balanced agreement that addresses the issue of differences in the levels of development and size of economies of the region, through various provisions and mechanisms, a trade agreement is as good as dead. African governments do not have to repeat the same mistake.

Source: Business day

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.