Trade Policy at Work

The African Continental Free Trade Area: Can it be Leveraged to Promote the Multilateral Trading System?

This paper analyses the consolidated text of the African Continental Free Trade Area (CFTA), in the context of the following issues: (i) How will Regional Economic Communities (RECs) integrate into the CFTA?; (ii) What are the opportunities and challenges for trade under the CFTA?; and (iii) How can the CFTA complement and/or revamp the multilateral trading system?

In Africa, the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union held in Addis Ababa, in January 2012, established a continental free trade agreement. Following negotiations amongst members, in March 2018, the African Continental Free Trade Area (CFTA) was launched. Its objectives include market liberalization, free movement of business persons and investments, laying the foundation for a customs union, expanding intra-African trade, enhancing competitiveness etc. Presently, the founding treaties have been signed by 44 out of 55 African Union members, however they need to be ratified by 22 states, but so far, by July 2018, only Niger, Rwanda, Kenya, Ghana, Chad, and eSwatini (former Swaziland) had ratified the consolidated version of the CFTA. This treaty is the focus of this paper. As a whole the Africa market covers roughly 1.2 billion people, with a combined gross domestic product of US$3.4 trillion. In all, the CFTA seeks to create a single continental free trade area, which has free movement of business persons and investments, to accelerate the production of the Customs Union.

Meanwhile. the predecessor to the World Trade Organization (WTO), the General Agreement on Trade and Tariffs (GATT) was established after World War II and grew in the wake of other multilateral institutions such as the International Monetary Fund (IMF) and the World Bank, all part of the Bretton Woods Institutions. For 47 years, the GATT provided the base rules for world trade, and saw some of the highest growth rates in international commerce. Building on that progress, the biggest reforms of international trade took place on January 1st, 1995 with the birth of the WTO. For years, the GATT had been dealing with the trade of goods, and now the creation of the WTO saw the multilateral trading system expanding its coverage to include inter alia services and intellectual property.

To take further the reform of the international trading system, the Doha Development Round (DDR) was launched, as a round of negotiations among the WTO member states, at the WTO’s Fourth Ministerial Conference, in Qatar in November 2001.

The DDR, however, despite many years of negotiations has stagnated with no clear indication of whether or when it will be concluded. Developing countries are insisting on completion of the negotiations, given that a major objective of the round was to address significant issues of their interest hence being termed a “development round”. The impasse in WTO negotiations has seemingly made it more attractive to negotiate other trade agreements, such as bilateral, regional or plurilateral agreements.

Irrespective of the complications, the multilateral trading system has its merits, especially for the developing countries in Africa, as it is comprised of commerce treaties between numerous nations, with agreements requiring the reduction of tariffs and the easing of imports and exports. As multilateral trade agreements involve several countries, the impact on economic growth is more prevalent when compared to bilateral or similar trade agreements, which only associate with a few countries. The multilateral trading system also aims to generate a level playing field, which is especially important for emerging market countries. This gives multilateral trading agreements an advantage over bilateral or regional trade agreements which typically favour countries with the better economy, putting weaker nations at a disadvantage. The multilateral trading system is also more likely to increase trade amongst every participant, as a result of low tariffs which make exports cheaper. Furthermore, commerce regulations in most areas are standardized for trading partners, which allows for more predictable trade. As developing countries progress, the population below the poverty line transitions to the middle class, creating a set of newly affluent customers for developed countries.

However, the biggest disadvantage to multilateral trade agreements is that they are heavily complicated and time-consuming to negotiate. The WTO DDR negotiations are a manifestation of the complexity involved in multilateral negotiations, which has to some extent resulted in other trade arrangements taking shape at a faster pace.

Bilaterally, countries with large economies are unlikely to conclude trade agreements with small developing countries (such as those in Africa) that serve the interests of the smaller economies. However, in the multilateral trading system smaller countries can gain leverage by forming blocs and getting the support of larger economies.

This paper ananylses the consolidated text of the CFTA in the context of the following issues: (i) How will Regional Economic Communities (RECs) integrate into the CFTA?; (ii) What are the opportunities and challenges for trade under the CFTA?; and (iii) How can the CFTA complement and/or revamp the multilateral trading system?