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Waiting for an FTA

Southern Times, Namibia

Waiting for an FTA

By Felix Njini

27 August 2013

Windhoek - Southern Africa countries’ restrictive trade practices continue to undermine the potential gains of a regional free trade area (FTA).

The SADC FTA is a trade enhancement platform formally agreed to in 2008 as the engine to drive greater regional integration.

Analysts say the FTA, which came into force in 2008, has made notable progress in advancing the region’s trade liberalisation agenda. However, they note, significant policy milestones still need to be achieved if the region is to attain full economic integration.

Furthermore, the 15-member regional bloc should speed up a review of its Regional Indicative Strategic Development Plant (RISDP).

The RISDP is the bloc’s strategic blueprint which envisages an FTA, a customs union, single currency and visa-free travel.

Key amongst the sticking issues which the region needs to tackle urgently is adherence to the SADC Protocol on Trade, signed by all member countries but which these same parties appear hesitant to fully implement.

Political backing of the Trade Protocol and its full implementation are critical to full realisation of the FTA’s benefits.

Most SADC members are yet to domesticate some of the clauses in the Protocol.

Failure by SADC members to adhere to the rules provided for in the Protocol on Trade means that the FTA remains largely a pipe dream.

Potential benefits which can be derived from the FTA are lost due to some restrictive product-specific rules of origin, particularly rules on clothing and textiles and agro-processed products, Trudi Hartzenberg, executive director of Cape Town based Tralac, says.

“Such rules are out of tune with the characteristics of 21st century global production and trade,” Hartzenberg argues.

More flexible rules of origin, which require lower thresholds of regional value addition, would enable many smaller SADC countries to expand their production capacity and enhance their trade performance.

A single-stage transformation rule, for example, would allow producers to source competitively-priced inputs from global sources, thereby increasing their export competitiveness.

“The proliferation of non-tariff barriers (NTBs), many of which violate specific provisions of the SADC Trade Protocol, can also erode the potential gains from the FTA.

“Imposing new NTBs, quantitative import and export restrictions and export duties on intra-SADC trade are prohibited by the Protocol and should only be applied in exceptional circumstances.

“NTBs affect in particular intra-SADC trade in agricultural products which is closely linked to food security and poverty (reduction),” Hartzenberg explains.

Trade analysts say that costly and time consuming border crossings for goods and people continue to frustrate regional integration within the region.

“Trade facilitation and addressing immigration bottlenecks, especially issues related to simplified and streamlined border management processes, including one-stop border posts should receive serious attention in SADC,” Hartzenberg adds. “This calls for improved government-private sector relations to facilitate cross-border trade.”

The region has also made limited progress towards implementation of a Protocol on Trade in Services, despite availability of concrete evidence of enormous development opportunities in enhancing regional trade in services.

“The cost of trade in services remains high in the region with adverse implications on growth and competitiveness.

“The implementation of the SADC Protocol on Trade in Services should, therefore, receive greater priority as liberalisation of services in the region will create economic development opportunities for many SADC countries,” Hartzenberg outlines.

The trade expert has also raised concerns that on-going negotiations to bring together COMESA, EAC and SADC into a single FTA might fail to produce the desired outcome.

The Tripartite-FTA is a grandiose idea aimed at collapsing the three regional economic communities into a single trading and economic bloc with the ultimate aim of bringing down barriers to trade and easing the movement of goods and services and people from the Cape in South Africa, to Cairo in Egypt.

Should the Tripartite FTA be successful, it would bring together 26 countries and a market of 533 million with a combined GDP of US$835 million - which is about 58 percent of Africa’s combined GDP.

But Hartzenberg says the Tripartite-FTA’s clause on “variable geometry” is its main handicap as it will allow the continued coexistence of different trading arrangements which have been applied within COMESA, EAC and SADC.

The Tripartite-FTA will also likely agree that tariff negotiations be among member states which have no preferential arrangements in place.

Hartzenberg says this could be interpreted to mean that the Tripartite-FTA will not involve all members of COMESA, EAC and SADC but only countries without FTAs between them at present.

“The overall outcome is likely to be messy and more overlapping complications will result as there will be not be a single new FTA but co-existence of new FTAs with existing ones,” she explains.

For the full benefits of the FTA to be realised, the region needs to review its RISDP and foster in a new thinking which embraces a competitiveness development agenda as well as practical constraints which inhibits the region from interacting with itself and the rest of the world.

“There is need for an explicit shift from traditional thinking on regional economic integration in SADC, which takes into account global developments and lessons from the region’s experience.

“The potential for growth and development of the SADC region is inhibited by pressing competitiveness challenges such as high transaction costs of doing business.

The competitiveness problem is due to high regulatory barriers that undermine efficient flow of goods, services, labour and capital across borders as well as infrastructure deficits,” Hartzenberg says.