On 10 June 2015 the TFTA was signed in Cairo, uniting three of Africa’s principal trading blocs: the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA). The TFTA consists of a US$1.2 trillion free trade area, incorporating 26 African nations, a population of 632 million, and an area of 17.3 million square kilometres, stretching from Cape Town to Cairo.
During recent years there has been much talk of the potential benefits of creating an integrated African commercial bloc; the TFTA may be seen as the first tangible sign of action being taken.
Following signature of the TFTA, negotiations to broaden its territorial ambit to West African nations opened on 15 June 2015 at the African Union (AU) summit in Johannesburg. According to the AU, the ultimate aim is to establish an intra-continental market benefiting from a youthful, fast-growing population of about 1 billion and a combined GDP of US$3 trillion.
Objectives and actions under the TFTA
The overall aim of the TFTA is to remove barriers to trade and to ease the movement of people between its signatory nations. According to a statement issued by South Africa’s Department of Trade and Industry, the TFTA nations will now work towards agreeing and ratifying tariff rules in line with the agenda agreed at the launch of the trade bloc.
The TFTA is founded upon three main pillars: market integration, infrastructure development and industrial development. The first actions to be taken by the TFTA nations focus primarily on market integration, above all by way of the removal of tariff and non-tariff barriers to trade (particularly trade of goods), followed by a more gradual promotion of trade of services. The TFTA aims to promote the mobility of business people, cooperation in respect of infrastructure development, and the promotion of an equitable society and of social justice. The TFTA also establishes an institutional structure, formed of a central committee, supported by various sub-committees.
Application of the TFTA trading rules will be realised in accordance with the principle of “variable geometry”, in order to allow different countries to progress their integration efforts at different speeds. In addition, the agreement incorporates the principle of the “acquis“, whereby any pre-existing preferential terms of trade between countries within each of the three regional blocs constituting the TFTA will remain valid. Both of these principles played a key role in the launch of the TFTA being achieved, stimulating buy-in on the part of the TFTA nations. However, both will also create an additional layer of complexity in the geographical and temporal application of the TFTA trading rules. The agreement also features other basic principles of free trade, such as “most favoured nation”, whereby TFTA nations are to extend to all other TFTA nations any new preferential trade terms awarded to each other or to third countries, and “national treatment”, whereby products originating in other TFTA nations are to be treated no less favourably than national products.
The TFTA establishes a multi-tiered dispute resolution procedure, whereby, where there is a dispute between two TFTA nations, they should first seek to resolve the conflict amicably, failing which the dispute is ultimately referred to the Tripartite Council, to be considered by a panel established for that particular case. The purpose of the panel is to consider the facts of the case and the arguments of the parties, and to present a report of its findings to the Tripartite Council, which then considers the report for adoption and signature. Alternatively, two TFTA nations which are parties to a dispute may agree to submit the dispute to arbitration, to be governed by such rules as are chosen by the parties.
A potential forerunner to the creation of an African free trade bloc
The TFTA has been welcomed as a stepping stone which may pave the way to uniting the African continent as one commercial bloc, by way of boosting the currently low levels of intra-regional trade in Africa.
The TFTA includes a number of key African economies, such as South Africa, Egypt, Angola and Kenya; indeed, the nations constituting the bloc account for approximately 60% of Africa’s economic output. The creation of the TFTA may serve to simplify Africa’s complex overlapping trade zones, which in turn, it is hoped, will assist in attracting investors to the region.
A key element of the TFTA agenda is the removal of trade barriers, primarily by way of tariff liberation of approximately 60-85%. Based upon the results of a similar approach taken in EAC, it is reported that the removal of such barriers could potentially lead to the share of intra-regional trade amongst the TFTA nations doubling in a decade. The TFTA nations will be able to build upon not only the recent period of significant economic growth for each of SADC, EAC and COMESA, but in addition, the increased level of trading which has developed between the three blocs over the past decade. The creation of a larger market may also serve to strengthen the position of small isolated economies within the bloc, which will have the opportunity to take advantage of improved policies and human resources to diversify their economic output.
The positive economic effects of the TFTA are predicted to extend beyond an increased level of regional trading of goods and services. It is hoped that the launch of the bloc will serve as an impetus for much-needed investment in Africa’s cross-border infrastructure, above all by way of improved communication and cooperation between African nations, spanning multiple pre-existing free trade blocs. It is argued that the low level of infrastructure investment in the past has partly been due to poor coordination across the different trading blocs. It is hoped that investment in infrastructure will trigger industrial development, creating jobs, helping the diversification of Africa’s economies and creating new industries by way of technological advances. It is also hoped that creation of the TFTA bloc will stimulate the development of trade of services in the financial sector. The consolidation and liberalisation of financing will have the knock on effect of creating a more attractive business environment for foreign investors.
Significant work yet to be done
The TFTA has received a less enthusiastic reception from some quarters. In particular, the potential beneficial effects of the launch of the bloc should be considered within the context of key legislative and administrative steps yet to be taken. In order for the TFTA to truly take effect, parliamentary endorsements will be required from all of its signatory nations. There is no guarantee at this stage that national governments will endorse the agreement’s terms once they have undertaken a more detailed analysis. For example, smaller economies may be reluctant to endorse terms which would see them competing with larger industries in other nations, which could in turn threaten their already weak economies.
Furthermore, the TFTA does not currently include key West African economies, most notably Nigeria. Although negotiations to extend the area incorporated into the TFTA are underway and an estimated timeline for the conclusion of such negotiations has been set at two years, the prospect of obtaining a positive result is highly dependent on negotiators having learnt valuable lessons from the seven-year period of negotiations which culminated in the recent signature of the TFTA. The conclusion of such an agreement requires strong political will from the nations concerned in order to fuel progress and manage the process, for example, by way of approving a work program, creating a roadmap for negotiations, sticking to a clear and achievable timetable and utilising technical groups.
The tariff-focused nature of the TFTA has also come under scrutiny. It is widely recognised that there is a vital need for the improvement of regional infrastructure in Africa if intra-continental trade is to increase. Although, as mentioned above, it is argued that the TFTA may trigger investment in infrastructure, others argue that for intra-regional trade to truly be strengthened, infrastructure development must be addressed as a priority, before the removal of tariff barriers. The potential positive effects of the TFTA may be stifled in reality by the continuing existence of infrastructure-related barriers to trade.
Although there may still be ratifications to be realised, negotiations to be had, and a lot of work to be done to achieve a fully integrated trade bloc spanning the African continent, above all, by way of extension of the TFTA to key economies in West Africa, signature of the TFTA nonetheless represents a significant step in the process.
Some have gone so far as to praise negotiation of the TFTA as being possibly the most significant event in Africa since the formation of the Organization of African Unity in 1963. Critics, on the other hand, would argue that this view represents an exaggeration of the benefits which will come to fruition as a result of the agreement. Fatima Haram Acyl, the AU commissioner for trade and industry, insists that the initiative is not mere rhetoric. Rather, signature of the TFTA and the recent launch of negotiations in Johannesburg are representative of recognition on the part of African leaders of the important role to be played by improving trade on a continental scale.