Africa, TPP, and TTIP: Integration or isolation?
With the demise of the Doha Development Round at the World Trade Organization Ministerial in Nairobi this past December, the multilateral approach to global trade negotiations has largely ended. Given that the number of regional trade agreements has increased from 70 in 1990 to more than 270 today, it appears that it is every region for itself when it comes to global trade.
Tripartite Free Trade Agreement and Continental Free Trade Agreement
In certain respects, Africa is well positioned in this new era regional trade relations.
The Tripartite Free Trade Agreement (TFTA), signed in Sharm-el-Sheikh, Egypt in June 2015, brings the Common Market of Eastern and South Africa (COMESA), the East African Community (EAC) and the Southern Africa development Community (SADC) into the continent’s largest free-trade zone covering 26 countries and stretching from Cape Town to Cairo.
Already, it is estimated that the volume of intra-regional trade among these three blocks has increased from $2.3 billion in 1994 to $36 billion in 2014, a more than 12 fold increase from 7 percent to 25 percent of trade over 20 years. While low compared to the EU (70 percent) or Asia (50 percent), it is a positive trend line.
The TFTA is an important boost for regional integration in Africa and is seen as a stepping stone for Africa to realize its ambition of creating a Continental Free Trade Agreement (CFTA). Implementation is behind schedule, however, and efforts are being made to complete the negotiations within the 36 months set out in the roadmap. Many challenges include poor infrastructure, high transaction costs, and low levels of industrialization.
Africa and the Trans-Pacific Partnership
While Africa moves internally to increase trade among the 54 nations on the continent, a large portion of the global economy is moving toward more integrated trade across regions, as exemplified by the Trans-Pacific Partnership (TPP).
The 10 countries in the Asia-Pacific region with the U.S. and Canada make up the TPP countries and collectively account for 40 percent of the world’s GDP and 26 percent of the world’s trade. The TPP is also likely to expand to include South Korea, Indonesia, and other Asian nations in the future.
While the TPP does not appear to work against Africa’s global trade interests in the short term, it bears watching closely. Vietnam, for example, exported $7.7 billion worth of textiles and apparel to the U.S. last year even though there was a 17 percent tariff in place. In 2014, African countries, such as Ethiopia, Kenya, Lesotho, and Tanzania exported nearly $1 billion worth of clothes to the U.S. under the African Growth and Opportunity Act (AGOA) with no tariffs.
Under TPP, Vietnam’s tariff on apparel exports to the U.S. will be cut significantly, and baseline growth in apparel exports to the U.S. could increase by 50 percent by 2025, according to the Eurasia Group. This growth is expected to displace a share of China’s apparel exports to the U.S. but could be detrimental to some African countries, such as Ethiopia and Kenya, who are seeking to ramp up their AGOA apparel exports.
Africa and the Transatlantic Trade and Investment Partnership
The negotiation over the Transatlantic Trade and Investment Partnership (TTIP) is a more complex and immediate challenge to the U.S.-Africa trade relationship. Over the past decade the EU has put in place reciprocal Economic Partnership Agreements (EPAs) with most African nations. Last year, the U.S. last year renewed the non-reciprocal AGOA through 2025. If the U.S. does not address this asymmetry in the context of the TTIP negotiations, it will be ceding a long-term commercial advantage to European firms investing in Africa and exporting to that market.
For example, under the terms of its free trade agreement with the EU, South Africa allows imports from Europe at a 4.5 percent general tariff rate. In contrast, U.S. exports to South Africa face an average general tariff of 19.5 percent. According to the U.S. Trade Representative, the competitiveness of U.S. exports to South Africa “will further erode” once the EU-SADC EPA comes into force. The disadvantage to U.S. products and companies will increase across Africa in coming years as the EPAs enter into effect unless the U.S. takes steps now to address the imbalance.
Transitioning From AGOA
In his January 28 remarks at a hearing on the post-AGOA relationship, the U.S. Trade Representative, Ambassador Michael Froman, noted that the U.S. has free trade agreements with 20 countries today, compared with three in 2000. However, none of these are in sub-Saharan Africa, and Ambassador Froman did not propose one. He did say that he would make recommendations in June on advancing the U.S.-Africa trade and investment agenda.
Given the amount of time required to negotiate and ratify trade agreements, it is not too soon to begin laying the groundwork for the post-AGOA relationship. Clearly, reciprocity will have to be a key element of this new relationship.
In practice, the emerging trade relations with the East African Community (EAC) could serve as a precursor to a new relationship. In February 2015, the U.S. and the EAC signed a cooperation agreement that focuses on implementation of the WTO’s Trade Facilitation Agreement, enhancing food safety, plant and animal health, and building capacity to meet Global Trade Standards. In fact, over the next several years, it would be beneficial to start negotiating agreements in areas such as services, intellectual property and investment, which could provide the foundation for an free trade agreement (FTA). Indeed, if the U.S. can be successful in creating a free trade agreement with the EAC, it is conceivable that other countries, such as Ethiopia, Mozambique and Mauritius could become part of, or “plug into,” an increasingly regional FTA with the U.S.
As for TPP, an informal mechanism should be established so that African governments can be informed about the implementation of this agreement and how it might impact Africa’s trade relations with the U.S. and Asian partners. One recommendation would be to establish a working group or advisory committee of the TPP Commission and the African Union that might meet every two years.
TTIP presents a more immediate issue. At minimum, there should be some type of advisory mechanism so that the AU can stay informed of the progress of the TTIP negotiations, given that the EU is Africa’s largest trading partner, that the importance of U.S.-African trade relations continues to grow, and that there is a need to balance the asymmetry of the EPAs and AGOA. In the spirit of reciprocity, it would also be helpful if the U.S. was invited as an observer to Africa ministerial meetings related to the TFTA and CFTA.
The global trading system may be becoming more regionalized, but Africa needs to be active in this process if it is to transcend its marginalized position of 3.3 percent of global exports. Having a place at the table, however informal, while TPP is being implemented and TTIP is negotiated, would help to ensure that Africa does not become more isolated as it works to integrate regionally.