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Free trade will bully small states

2015-06-14 17:28
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Johannesburg - The most ambitious step since the formation of the African Union (AU) was taken this week in Egypt, with a formal tripartite agreement among the Community for Eastern and Southern Africa, the Southern African Development Community (SADC) and the East African Community (EAC) to establish a free trade area.

At the same time, the latest AU summit in Sandton will pay more attention to its Agenda 2063, which was adopted at its summit in January.

Is there any correlation between the two developments?

The free trade area is an integral part of the AU’s integration model, which was announced in 1991 in the Abuja Treaty on the African Economic Community. The treaty identified six stages for implementation over a 34-year period. They include a carbon copy of the European integration process, commencing with a free trade area, followed by a customs union, then a common market and concluding with a monetary union.

The latest tripartite agreement is therefore stage one.

This integration model is premised on the notion that subregional integration will be the foundational pillar of continental unification in the form of the AU, the New Partnership for Africa’s Development (Nepad) and others.

It implies that the four (or six) stages have to be duplicated at subregional level by several regional economic communities. The tripartite agreement takes it to another level by linking the SADC and EAC subregions.

These developments lead to Agenda 2063. One of its pillars is the promotion of Pan-Africanism and, therefore, regional integration. This vision provided an opportunity to raise the question of whether the next 50 years could realistically be premised on the current integration model.

This question was raised in preparatory consultations conducted by the department of international relations and cooperation but it appears to be a diplomatic minefield too dangerous to enter.

The main question remains: Can Africans realistically expect successful integration processes based on a European model – itself in crisis because of Greece and others – while the prerequisites of that model are excluded?

The European model accepts members only when they have met the Copenhagen criteria on harmonisation. These have to be complied with throughout the membership lifetime, which has been the main violation committed by the Greeks.

The African practice is to accept all states as members, irrespective of the conditions of their economies. No harmonisation measures are required and therefore weak and strong economies are expected to ignore market dynamics and live in harmony together. The free trade area is a good illustration of this point.

A free trade agreement introduces trade practices among states in which tariff and non-tariff barriers are removed. The markets of these states are then open for trade and no measures can be taken by a weaker economy to protect its products against the more competitive products of a stronger economy.

An example of such dynamics is the recent negotiation between South African and US poultry producers to open the South African market in exchange for inclusion in the African Growth and Opportunity Act. The same has applied with Chinese pressure on South Africa to open its textile market – with devastating results.

Because of these negative market distortions, the integration approach that commences with a free trade agreement should be questioned. If it is difficult to implement a free trade agreement, which serves as a prerequisite for a customs union, the integration model’s point of departure might be inappropriate. We have seen how difficult this is to establish even among smaller groupings.

SADC adopted its trade protocol in 1996 and amended it in 2005. By its target date of 2008, three members (Angola, the Democratic Republic of the Congo and the Seychelles) remained outside the agreement. Mozambique was exempted from its implementation in its relationship with South Africa until this year. Was Agenda 2063 therefore not the opportune moment to revisit the model?

The current model of regional integration is synonymous with market liberalisation. Liberalisation is always detrimental for the smaller or weaker economy.

The majority of African economies are based on populations of fewer than 10 million and if they are not export-based energy producers, their prospects of surviving a free trade agreement are minimal. Regional integration, and therefore free trade agreements, emphasise the formation of bigger, combined markets and the potential for increased intracommunity trade.

It is often presented as a response to globalisation trends of multiple economic poles, ie, the US, the European Union and China. However, these trends are only geographical-regional, as illustrated by the Brazil, Russia, India, China and South Africa or India, Brazil and South Africa economic groupings. Is it too far-fetched to expect an African energy- or oil-producing organisation in the future, instead of free trade agreements?

The tripartite agreement might encourage some visionary initiatives to revisit the African-integration paradigm. Current paradigms might be suitable for developed or industrialised economies, but the AU has the opportunity to explore integration paradigms for developing economies instead.

Kotzé is a professor in the department of political sciences at Unisa

 

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July 14 2019