The Political Economy of Regional Trade Agreements in Africa

SEATINI Bulletin
Vol 7, No 6
31 March & 15 April 2004

The Political Economy of Regional Trade Agreements in Africa

Oduor Ong’wen*

Throughout history, international trade has generated considerable controversy. While conceding that some trade was imperative, Aristotle observed that trade was disruptive of community life. Until the 19th Century, most European powers viewed trade as a form of undeclared warfare. Their objective was - and still remains - the maximization of benefits accruing to themselves and minimization of those accruing to rival nations. The weapons of choice in this warfare were import barriers.

The idea of trade as a mutually beneficial activity only gained currency and political momentum following David, Ricardo’s elaboration of the theory of comparative advantage in 1817. Today the free trade doctrine reigns supreme. Trade negotiations - at multilateral, plurilateral and bilateral levels - all focus on reduction and eventual elimination of trade barriers (a kind of disarmament treaty).

The removal of trade barriers in rich countries can accrue certain benefits for impoverished countries. But this can only occur when the economies of underdeveloped countries are accorded the right space to respond first and foremost to the fundamental developmental needs of these countries. Rapid import liberalization imposed on underdeveloped countries via structural adjustment programmes has more often than not intensified poverty and inequality.

The IMF, the World Bank, and most industrialized country governments are strong advocates of trade liberalization. In the case of the two Bretton Woods institutions, advocacy has been backed by loan conditions which require countries to reduce their trade barriers. Largely as a result of these loan conditions, poor countries have been opening their economies much more rapidly than industrialized countries. Average import tariffs have been halved in Sub-Saharan Africa and South Asia, and cut by two-thirds in Latin America and East Asia.

Problems with Trade Liberalization
The popular view is that trade liberalization is an outcome of negotiated trade agreements. But, the UN Conference on Trade and Development (UNCTAD) emphasizes that the principal vehicles for trade liberalization are the conditions attached to IMF and World Bank loans. That is, the IMF and World Bank disburse loans as, or when, borrowing governments comply with conditions, including trade-related conditions that are sometimes part of Structural Adjustment Programmes. The work programme of the Doha Agenda have been incorporated in IMF and World Bank SAPs for years.

Trade As If Nothing Else Mattered
Economists’ training prepares them to build and have unshakeable belief in models that have not been successfully challenged. But they are not very well trained in how to -rigorously verify their policy relevance for policy relevance for specific contexts. The models are often deployed on the assumption that they are relevant to a specific context without the benefit of supporting justification.

The assumption of applicability is perhaps the most widely deployed, yet unstated, auxiliary assumption used in economic policy analysis. It is especially concerning models dealing with underdeveloped countries where many of these assumptions below are routinely violated - especially those based on smoothly mobile labour and capital, complete and functioning markets, and perfect information flows.

Regional Integration and Regional Trade Agreements
Integration is once again a concept so much in vogue. The promoters of economic globalization are using it to justify the unprecedented expansion of the power of transnational corporations. The underdeveloped world, especially Africa, is being constantly reminded that it has to be integrated into the world economy if it is survive. The validity of this position will be examined briefly at some later stage. Integration means different, things to different people. For some, it is an all-embracing union of contiguous countries and includes both economic and political areas. The United States of America, the United Kingdom and the former Soviet Union are perfect examples of this type of integration. For others, it is agreement among a group of countries to remove various kinds of trade barriers. In between these two extremes lie numerous types of arrangements. In all these arrangements, the overarching concern is the formation of a body with a common purpose, usually to increase human welfare.

Integration in Africa has been driven by two competing forces - one internal and the other external. Internal impetus to integration of African economies has been provided by the realization that the continent has over the centuries suffered wanton exploitation of its natural, material and financial resources at the hands of imperialist forces. The global economic arrangement since the 15th Century has defined for Africa its place in the international economic division of labour - to produce and export primary commodities in line with its perceived comparative advantage. Value adding by way of processing, manufacturing, packaging, branding etc. is left to industrialized countries. In other words, Africa produces what it does not consume and consumes what it does not produce.

The motivation for internally-driven integration derives from the following expected benefits:

- More efficient use of the region’s capital, labour and natural resources, which are often less than optimally utilized nationally and has been exploited extensively by the industrialized countries.
- Developing the market, so that instead of fighting and bending backward to be ’granted’ access to the markets of Europe and North America, Africa can begin producing first and foremost for its own markets.
- Reduced Costs of transaction within the region, as a result of reductions in tariff and non-tariff barriers. This reduces monopolistic profits and leads to efficiency gains.
- Training effect, as national producers are gradually exposed to the regional market before the world market, since it is easier to compete in the regional market than in the global market. This could be a stepping stone to the outside world.

External interests also push for regional integration in Africa but for different reasons. The overarching motivation for externally-induced regional integration is to maintain the historical division of labour that assigns Africa the role of green field that feeds Northern industry with raw materials. Below are characteristics of externally-driven integration.

High-tech, Low-value ghettoes: With the increasing demands for higher wages, improved working conditions and environmentally sound production methods, many transnational corporations are increasingly looking at Africa as possible sites for the assembly of their high technology exports such as electronics, auto and engineering products.

Raw material reservoirs: In order to keep feeding the Northern industries with the necessary raw input, it is in the interest of industrialized economies to secure the source of minerals, agricultural commodities and other natural resource-based inputs. As it is cheaper to deal with a bigger entity with uniform policies and procedures than individual states with differing policies and often changing political moods.

Entry points for multilateral negotiations: As resistance to many issues fronted by industrialised countries in the multilateral for a like the WTO intensifies, the North finds it easier forcing the issues through regional fora.

Captive markets: Trade and trade negotiations are about accessing markets. Expansion and securing of African markets rank very high in the scheme of corporate interests in industrialized countries. It is the essence of integration of Africa into the global economy.

Cotonou Agreement
Perhaps the most important trade agreement outside the WTO agreements is the African, Caribbean and Pacific (ACP) and the European Union (EU) relation under the Cotonou Agreement signed in June 2000. As a successor to the Lome Convention, which had guided these relations since 1975, the Cotonou Agreement has the following new characteristics:

- It breaks the solidarity of ACP countries by creating regional differentiation through negotiation of Economic Partnership Agreements (EPAs).
- It introduces reciprocity.
- It seeks to be WTO compatible (Indeed, the EU proposals are WTO-plus).
- Creates uncertainty and confusion among Least Developed Countries.

The African Growth and Opportunity Act (AGOA), though not a trade agreement, deserves serious attention for its destructive effect on Africa’s economy. The eligibility criteria undermine policy autonomy of African countries. Some of the worrying items in the criteria include:

- US strategic interests clause (War against terrorism).
- Rules of origin
- Free Trade Areas with SSA
- Monitoring and review
- Study on improving agricultural practices in Africa (GMOs?)
- Elimination of restrictions to US investments

* Oduor Ong’wen heads the SEATINI Office in Kenya.