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Tripartite FTA: does it make economic sense?

Matthew Stern and Yash Ramkolowan

 
Heads of state from COMESA, the EAC and SADC met on 12 June 2011 to launch a substantive programme to harmonize the trade arrangements amongst the three regional economic communities (RECs), with a view to establishing a single Free Trade Area (FTA) encompassing all member states by 2013.  The objectives of the ‘Tripartite’ integration process are necessarily ambitious and the planned FTA is an important first step in bringing large parts of Africa together into a sizeable economic and trading area.  But there are a number of practical building blocks that need to be put in place for such an arrangement to work; and a number of pre-conditions that need to be met for it to make economic sense.   


As a general rule of thumb, the economic impact of any free trade agreement depends on the pre-existing level of the tariff between the countries concerned; and the relative levels of bilateral trade.  In order to assess the merits of this initiative, it is worth considering how South Africa’s current relations with the EAC and COMESA stack up against this rule of thumb.  

The dominant feature of inter-regional trade flows across Africa is that South Africa exports a diverse range of manufactured products up into the continent, and then imports a narrow set of commodity goods from EAC and COMESA member states.   As a result, South Africa’s exports to the EAC and COMESA have more than doubled over the last decade and South Africa now ranks amongst the top 5 sources of imports for most countries across the continent.   On the other hand, total exports from COMESA and the EAC into South Africa have stagnated over this period at around 20% of South Africa’s corresponding export value. 

The EAC and COMESA markets are also more protected than South Africa, with the average applied tariff (trade weighted) in the EAC almost double that of SACU. Moreover, a much larger number of goods face tariff protection in the EAC and COMESA: in SACU, less than half of all product lines are protected by tariffs, while in the EAC and COMESA, between 75% and 60% of products are protected. 

The fact that bilateral trade between South Africa, COMESA and the EAC is important (from their perspective), that South Africa exports a diverse range of manufactured goods to the continent, and that tariff protection in COMESA and the EAC is relatively high, suggests that the benefits from such an agreement for South Africa could also be high.  The immediate trade benefits of a Tripartite FTA to the member countries of COMESA and the EAC are less clear, but if such an agreement reaches beyond tariff barriers and is able to make transport and trade between Southern, Eastern and Northern Africa less difficult and less costly, then the wider and long-term gains to all participants could be considerable.

A free trade agreement between COMESA, SADC and the EAC would bring together 26 countries, a combined population of over 560 million people and total GDP of around US$1 trillion.  This would undoubtedly shake-up the economic profile and structure of the continent.  In practise, however, negotiating an effective agreement between such a large and diverse group of countries will be extremely difficult.  South Africa’s negotiators will need to be pragmatic and very patient.