Monday, July 15, 2019

AfCFTA Implementation Strategies-Part-2: The Challenges of Regional Trade Agreement-1

It is great to know that Nigeria has finally signed the African Continental Free Trade Agreement (AfCFTA), however, it is also very important to point out that this is not an end in itself but rather a means to an end. This is because, regional free trade agreement like the AfCFTA presents an opportunity to do more trade with member countries and thereby increasing productivity, GDP, per capita income, wealth and lifting many people in the countries involve out of poverty. However, this will only happen if the agreement is well implemented. 

The signing of bilateral and regional Free Trade Agreements (FTAs) among nations has become a common place in today’s world. The aim of this kind of agreement is to remove the tariff and non-tariff barriers that hinders the free flow of trade among them. Apart from the elimination of tariff and non-tariff barriers, other important features that are generating attention in the FTAs signed in recent times has include rules relating to the protection of rights to intellectual properties, rules on competition, rules on labour rights protection and on environmental protection. 

The FTAs have been described as viable tool that contributes significantly to the growth of export trade volumes of nations involve. Studies have shown that the bilateral trade volumes of some nations involve in an FTA experienced 100% growth within a period of 10years. This has been corroborated by other reports that showed an increase of over 400% in the trade volume of China within a space of 35years. This probably explains the reason why the number of both bilateral and regional FTAs signed among nations of the world has been on the increase since 1990s. According to World Trade Organisation (WTO), 319 regional FTAs were already in force as at January 2012. Another report showed that the number FTAs in force as of January 2013 have increase to 354. 

Despite the huge opportunities made available to businesses in nations around the world by continental, regional and bilateral FTA, it is sad to know that the utilisation of these agreement has remained low especially among the developing and under developed countries. Several surveys have been conducted across the world by numerous researchers in different countries and for different bilateral and regional trade agreements, to ascertain the level of utilization of the various FTAs and hence the impacts of these agreements on different countries and trading blocs. According to the report of the survey done by Thomson Reuters and KPMG International In 2016 only 23% of the respondent were fully utilising all the FTAs that are available to them. Contrary to this, the report of PricewaterhouseCoopers on the same subject in 2018 showed that in Australia,  78% of the importers used at least one FTA when procuring any item from abroad while 62% of the exporters use at least one FTA to penetrate an export market. 

Other researchers, in 2017 reported that China exported 55.87% of the total products available for concession under the FTA between Pakistan and China while Pakistan could only utilise 5%. On the contrary, the utilisation among the member states of the European Union (EU) is reasonably high. The report from the Commission to the European Parliament, the Council showed that the EU utilisation of the FTA between Switzerland and EU in 2018 is about 80%. This report from EU was corroborated in another study carried out by Ecorys on The Netherlands in 2018 which showed that 83% of the respondent make use of FTAs in their import-export transactions while the remaining 17% do not use any form of FTAs in their international trade transaction. 

Unlike the case in Europe, Australia and some other part of the world, the situation in Africa is very different because of the very low intra-African trade which consequently leads to a much lower FTA utilization. According to the United Nations Conference on Trade and Development (UNCTAD) report, in 2015, only 18% of the total export from Africa were traded with other countries within the continent. This trend is also seen in all the regional FTAs within the continent. According to the this report, the share of intra-regional trade among countries that made up Southern African Development Community (SADC) was 20.7% and this is the highest among all the regional FTAs on the continent. The next to this is Eastern African Community (EAC) which has intra-regional trade share of just 10.6%. This is very close to that of Economic Community of West African States (ECOWAS) which equally recorded a very low intra-regional trade share of 10.0%. 

The question then is, while are some FTA very successful while the others are not? This will be the focus of the part 3, which is the next edition of these series of articles on the AfCFTA Implementation Strategies. It is my hope that the government will adopt some of the recommendations that will be put forward at the end of these series of articles in order to make the implementation of the AfCFTA create the necessary jobs that will lift out of penury, the tens of millions of Nigeria that are currently living below the poverty line.

Bamidele Ayemibo

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