Promoting Regional Integration

A proposal making the rounds in Washington would have the Obama and Zuma administrations make common cause in favor of international trading rules designed to promote Africa’s economic integration. The proposal is timely and could, if it gets traction, help to restore trade relations bruised by the failure of negotiations on a US-SACU free trade agreement under the Bush and Mbeki administrations.

The need to increase the capacity of African countries to trade with each other has been brought into sharp focus by the global economic slump. Currently less than 10% of African trade is intraregional. Africans would be richer, healthier and far less dependent on foreign aid if they were selling the goods and services to each other rather than simply exporting raw commodities to the rest of the world.

As Lord Malloch Brown, the British minister for Africa, argued in Maputo recently, “if Africa is to weave the social safety nets that lift its people out of poverty… build the businesses that give its people jobs (and) deepen democracy to put sovereignty firmly in the hands of its people, then it’s through the regional push that it will get there.”  The theme is developed more fully in the 2009 Africa development report put out last week by the UN Center for Trade and Development (UNCTAD).

Greater integration has been a holy grail for Africa since independence and over the years has resulted in a tangle of overlapping regional economic communities (REC’s) and other groupings  that have been more talk than action. That now seems to be changing. Obstacles remain, however.

Steve Lande and Tony Carroll of Manchester Trade, a Washington consultancy, identify two important ones in a new paper: current WTO rules and ongoing EU mercantilism. SA and the US have a shared interest in dealing with both these issues, they argue, which could form the basis of a reinvigorated relationship.

In their present form, WTO rules prevent sub-Saharan Africa or most of its REC’s from being treated as single units for trading purposes. This is because they divide African countries into two categories, least developed (LDC) and not least developed, based on UN definitions unrelated to trade competitiveness. Rich countries are not permitted to treat LDC’s and non-LDC’s equally. They may grant unilateral preferences to the former but not to the latter.  35 of the sub-Saharan Africa’s countries are LDC, the remaining 13 which include countries like South Africa, Botswana, Kenya, Tanzania, Nigeria and Ghana, are not.

Technically, the US African Growth and Opportunity Act is in conflict with WTO rules because it grants unreciprocated access to the US market without distinguishing between LDC and non-LDC. A waiver is in the offing. The EU on the other hand has restricted its AGOA-like unilateral preferences to LDCs while pushing others to enter into Economic Partnership Agreements (EPA’s) granting it reciprocal access to their markets.

The EU now is pressing for EPA’s with regional African groupings like the SADC and the West African communities ECOWAS and UEMOA which include both LDCs and non-LDCs. The EU says its intent is to promote regional integration. Others, including Lande and Carroll, contend that it is doing quite the opposite.

“It is difficult if not impossible to form a customs union within a REC if some members are committed to zero duties for EU imports of goods and services and others prefer to maintain MFN (most-favored-nation or standard) rates,” they write.

In southern Africa, the EU approach has put Botswana, Lesotho and Swaziland, who have agreed to enter into a comprehensive EPA, at loggerheads with SA, Angola and Namibia. SACU — the Southern African Customs Union, the oldest grouping of its kind in the world, is in crisis. Similar cleavages are appearing in West Africa.

“This is a no-win situation for economic integration within the region,” Lande and Carroll argue. Not only has it caused serious divisions, but even if these are dealt with and the EU gets it way, “the overall development of the region will be compromised by premature opening of markets, trade diversion from more efficient suppliers  and a return to pre-independence colonial trading systems.”

They believe there are better ways of promoting regional integration that could be part of a shared US-SA strategy. This could include getting developed economies to agree that all sub-Saharan countries belonging to REC’s should get preferences otherwise reserved for  LDC’s  if a majority of the REC’s members are least developed.

In the context of the ongoing Doha round of international trade negotiations, the US and SA might press for rules allowing such REC’s to put off making commitments on access to their own markets for 5 to 10 years, giving their members time to agree on a common external tariff to which they could commit as a group.

Upcoming meetings between US and SA officials, including the AGOA Forum in Kenya in August, may provide an opportunity to flesh out these ideas.

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One thought on “Promoting Regional Integration

  1. Simon — The acronym’s drive one wild!!!There are 13 in this article alone — 4 unidentified (SADC, ECOWAS, UEMOA, Doha).Hard to get to the substance of the article unless you are Africa-literate. For whom are you writing????

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