The CFTA: Elements, Expectations, Schedules and Challenges

Prudence SebahiziLead Technical Advisor on the CFTA

1 March 2016

Accra, Ghana

Outline 1. Why the CFTA?2. Background3. The Road Map for Establishment of the CFTA4. Objectives of the CFTA5. Negotiating Structure and Stakeholders

Participation6. Implications of MRTAs7. The Scope of the CFTA8. Challenges9. Policy Recommendations

Why The CFTA?

•The CFTA is critical NOT ONLY for its potential benefits, BUT ALSO to mitigate the costs associated with inaction.

Why The CFTA? (Cont’d…)

Africa is the world’s poorest and most underdeveloped continent with a continental GDP that accounts for just 2.4% of global GDP.Africa has approximately 30% of the earth’s

remaining mineral resources.The Continent has the largest reserves of precious

metals with over 40% of the gold reserves, over 60% of cobalt, and 90% of platinum reserves.

Intra- African trade is about 12%. In North America it is 40%, and 63% between countries in

Western Europe, 30% in ASEAN;

It is estimated that 40% of intra-African trade is informal trade

46% of goods traded between countries are manufactured goods such as garments, leather goods, etc.

Africa is the world’s second largest continent

Key to improving low intra-African TradeThe CFTA will bring 54 countries with combined population of

over 1 billion people and combined GDP of USD3.4 trillion.

Why The CFTA? (Cont’d…)

Developments in AfricaAfrica on the rise, and must rise with its people (70% of cross

border traders are women)Demographic dividend (Africa is the Second most populous

continent with about 1.1 Billion people. About 70% of Africans under 30 years of age and over half are females).Over 55% of Africa’s labour force is working in food production

with vast areas of arable and pastoral lands supporting agricultural economies.Almost 40% of adults in Africa are illiterate – two-thirds are

women.

Why The CFTA? (Cont’d…)

Africa's biggest economies trading on MFN basis

Better terms when exporting overseas under such programs as EPAs, AGOA, GSPAfrica remains 3% of global trade and DDA at the WTO,

AGOA, EPAs have not enabled Africa’s successful integration into the Global EconomyEurope and USA are major destination for African

products, Asia and China are becoming more important;

Why The CFTA? (Cont’d…)

Positioning Africa to benefit:• Many of Africa’s 54 countries are small, with populations of

fewer than 20 million and economies of less than $10 billion. • National markets are therefore too small to justify investments,

since both adequate supply of inputs and sufficient client bases (demand) remain too expensive or out of reach.

CFTA as a tool for Structural Transformation• Dynamic impact of increased trade among African countries for

industrial development, better infrastructure connectivity, economies of scale, enhanced competitiveness and structural transformation.

Why The CFTA? (Cont’d…)

Achieving the African Economic Community under the Abuja Treaty of 1991• The Treaty provides for establishment of African Economic

Community through the following stages: • Strengthening of Regional Economic Communities; • Establishment of a Continental Customs Union; • Implementation of Common Sector Policies; and • Establishment of a Continental Common Market and

ultimately African Economic Community.

Why The CFTA? (Cont’d…)

• The Continental Free Trade Area (CFTA) initiative is in line with the Abuja Treaty (signed on 3rd June 1991) – the Treaty Establishing the African Economic Community.

• That’s why the January 2012 Summit of Heads of States and Government endorsed the Action Plan on Boosting Intra African Trade (BIAT) and decided on the establishment of a Continental Free Trade Area by an indicative date of 2017.

Background: The Continental Free Trade Area (CFTA)

Background: CFTA Framework

June 2015 Summit Launched the Negotiations

Adopted Decision and Declaration launching the negotiations

• Endorsed the following documents:• The Negotiating Principles for the CFTA • Institutional Arrangements for the CFTA negotiations• The Terms of Reference for the CFTA-NF • The Indicative Roadmap for the CFTA negotiations.

CFTA Road Map (Timelines)

The Assembly 18th Ordinary Summit in January 2012, decided that theCFTA should be operationalized by the indicative date of 2017, with thefollowing milestones:

Finalization of the EAC- COMESA-SADC Tripartite FTA initiative by 2014;The four other AU-recognized RECS (ECOWAS, CEN-SAD, ECCAS and

UMA), to negotiate a parallel FTA – should they wish to do so, by 2014.They could also choose to join the CFTA directly

Consolidation of the Tripartite and other regional FTAs into aContinental Free Trade Area (CFTA) initiative between 2015 and 2016;

Establishment of the Continental Free Trade Area (CFTA) by 2017 withthe option to review the target date according to progress made.

The CFTA Negotiations Roadmap

LAUNCH

FINISH NEG

STARTNEG

2nd NF

RATFICA

TION

FINLSEAGMNT

JUNE 2015

Feb2016

Apr2016

DEC2017

RATIFICATION ENTRY INTO FORCE

TR

TTRoO

FINALISATION PHASELEGAL SCRUBBING

SIGNATURE

Oct2017

Objectives of the CFTA Achieve a comprehensive and mutually beneficial trade agreement among the Member States of the African Union.

• Enhance competitiveness at all levels and more specifically at the industry and enterprise level through exploiting opportunities for scale economies, reducing business costs, continental/global market access and better reallocation of resources including through the development of trade-related infrastructure;

• To overcome dependence on exportation of primary products and promote social and economic transformation for inclusive growth, industrialization and sustainable development in line with Agenda 2063;

• Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes;

Objectives of the CFTA (Cont’d)

• Realize the potential to expand and accelerate the growing diversification and dynamism of intra-African trade including the aim to increase by 50 % trade among African countries by 2022 through better harmonization, coordination and implementation of trade liberalization and facilitation regimes and instruments across RECs and across Africa in general; and

• In the context of boosting intra-Africa trade and realizing the transformational potential of increased trade among African countries, to create a freer market for goods and services, building upon the trade agreements within the regional economic communities and associated commitments and thus pave the way for accelerating the establishment of the Continental Customs Union;

CFTA Negotiating Structure

Continental Task

Force

Stakeholders Participation

Technical Working Groups (TWGs)

CFTA-Negotiating Forum (CFTA-NF)

Committee Senior Officials

African Union Ministers of Trade (AMOT)

Assembly of Heads of States and Government (HATC)

MRTAs and their Implications for Africa’s Continental Integration• The rise of Mega-Regional Trade Agreements (MRTAs) is reshaping global trade with

meaningful implications for Africa.

• There are currently three major MRTAs: the Trans-Atlantic Trade and Investment

Partnership (TTIP), the Trans-Pacific Partnership (TPP), and the Regional Comprehensive

Economic Partnership (RCEP).• Trans-pacific partnership (TTP) – 12 countries incl. US, Japan, Canada, Australia, Singapore, Mexico, Chile, New Zealand, Brunei, Peru,

Vietnam and Malaysia.

• TPP members’ share of global trade is significant: approximately $2 trillion, or

about 40 percent of global trade, in 2012.• Transatlantic Trade and Investment Partnership (TTIP) between EU and US

• Trade between the EU and the US accounts for nearly 30 percent of world merchandise trade, 40 percent of global trade in services, and almost half of global GDP.

• Regional Comprehensive Economic Cooperation (RCEP), 16 countries of which 10 ASEAN countries (Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam); Australia, China, India, Japan, S. Korea, New Zealand.

• If successful, RCEP would constitute the world’s largest trading bloc. The

agreement would comprise more than three billion people (over 45% of the global

population) and a combined GDP of over $17 trillion (about one third of current

global GDP).

• The rise of MRTAs brings significant economic and geopolitical implications for Africa.

• The CFTA is Africa’s own MRTA

Implications of the MRTA

• First, MRTAs would fragment the global trading system. This

would leave larger countries to negotiate the future of that system

without granting Africa a seat at the table.

• Preference Erosion in Key markets including EU, US and China -

African total exports would be reduced by USD 2.7 bn in all main

categories of products with industrial goods affected the most

negatively;

• Impact on international rules and standards. Independently, each

MRTA could drive the global rule and standard-making agenda.

• The EPA process may pose challenges to Africa’s integration agenda because of two main issues.

• African countries negotiate the EPAs in five different blocks, of which only two replicate existing African Regional Economic Communities (EAC and ECOWAS) may create institutional complication on the roadmap enshrined in the Abuja Treaty.

• At the end of the transition period, African countries may end up granting a more favourable treatment to a number of EU-originating imports, than to similar African products originating outside their own REC.

Implications of MRTAs: EPA

MRTAs contd

Key recommendations

• Establish the Continental Free Trade Area (CFTA)

• The establishment of the CFTA will strengthen the geopolitical position of African countries in

global trade negotiations.

• It will also increase market size, economic development, and job creation, making African

countries less dependent on the policies of their developed-country trading partners.

• It is critical in offsetting potential negative effects MRTAs will have on African economies and

to support Africa’s structural transformation.

• Promote African Competitiveness

• African countries will need to take steps to increase their global competitiveness.

• This will include making necessary investments in increasing productivity, improving

infrastructure, and making it easier to trade across borders.

• It will also include the monitoring of MRTA negotiations, so that African countries can design

policy that best takes advantage of new opportunities that arise.

• Engage in Global MRTA Discussions–

• African countries should advocate on their own behalf with regards to the MRTAs

• Regarding TTIP, for example, African countries should leverage their relationships with the

EU and US to encourage that preferences and standards be harmonized in a way that does

not threaten African growth and development.

Scope of the CFTA Trade in goods• Tariff liberalization, • NTBs, • RoO,• Trade Facilitation

• Customs cooperation• Harmonization of Doct

• Transit & Transit facilities, • Trade remedies,• Safeguards • Standards, • Technical Barriers 2 Trade • Sanitary and phytosanitary• Dispute settlement • Institutional arrangements

Trade in Services • Transportation

• Air, maritime • Financial Services

• banking,• insurance,

• Tourism, • Energy,

Other Issues • Competition policy• Intellectual

Property Rights, • Investment • Movement of

business persons,

Phase I: Trade in goods and trade in services will be negotiated concurrently.Phase II: Other Issues (Investment, IPR, Investment)

AU Agenda 2063

1. A prosperous Africa based oninclusive growth and sustainabledevelopment

2. An integrated continent, politicallyunited and based on the ideals of PanAfricanism and the vision of Africa’sRenaissance

3. An Africa of good governance,democracy, respect for human rights,justice and the rule of law

4. A peaceful and secure Africa

5. An Africa with a strong culturalidentity, common heritage, values andethics

6. An Africa where development ispeople-driven, unleashing the potentialof its women and youth

7. Africa as a strong, united andinfluential global player and partner.

Boosting Intra-African Trade –

BIAT

Trade Policy

Trade Facilitation

Productive Capacity

Trade Related Infrastructure

Trade Finance

Trade Information

Factor Market Integration

Continental Free Trade Area – CFTA

Trade in Goods

Trade in services

Investment

Intellectual Property Rights

Competition Policy

Industrial Development

AIDA, PIDA, CADAAP, Etc.

Agricultural Transformation

Food Security

Energy

Transport

ICT

Water Resources

Africa We Want:

Key Challenges

• Lack of a Productive capacity is one of the barriers to Intra African Trade. There is the question of what to trade between African countries.

• The absence of critical connecting infrastructure as well as Non Tariff Barriers is another challenge to overcoming fragmentation of African markets. • For example, one study estimated that regional trade could increase by $10 billion to $30

billion per year if the road connections between the Central African Republic and the Democratic Republic of the Congo were upgraded.

• Commitment to integration varies across countries. Some countries have not undertaken any liberalization within their respective RECs FTA. Accordingly if they cannot commit themselves to a smaller FTA, it will be difficult for them to commit to a CFTA.

• Some countries also remain skeptical of regional integration fearing domination by richer or more powerful states or ceding power to a supranational body.

Policy Recommendations

• Addressing supply-side constraints and weak productive capacities. • Addressing infrastructural bottlenecks. • Eliminating trade barriers through improved trade facilitation.• Promoting free movement of people as an important ingredient of cross

border trade. • Involvement of key stakeholders: Through closer collaboration between

the AUC and RECs, the private sector and member states, the engagement of civil society, parliamentarians, and the private sector through innovative means, we foresee a different approach and outcomes for the CFTA.

• An advocacy and communication strategy has been developed to ensure that there is a buy in from all these stakeholders, so that they can play their respective roles in this critical process.

“The CFTA is critical NOT ONLY for its potential benefits, BUT ALSO to mitigate the costs associated with inaction”

Thank You