Imports to Africa to Cost Less Under New Pact
Traders and manufacturers in Africa will soon access an expanded market of over one billion people, following the launch of a mega trade deal expected in March.
The Continental Free Trade Area (CFTA) agreement to be launched by heads of state in Kigali, comes amid fears that trade liberalisation could lead to a loss of tariff revenue for smaller economies.
The CFTA is expected to remove taxes from up to 90 per cent of the 200 items traded on the continent, making them cheaper for consumers.
Only 10 per cent of goods will be classified as "sensitive" and accorded protection to enhance growth of industries. Sensitive items are those that require protection from cheap imports to allow infant industries to grow.
The EastAfrican has learnt that the proposed CFTA agreement will be signed on March 21 in Kigali at an extraordinary summit of the African Union, to be hosted by President Paul Kagame.
However, no deal has been reached on negotiations touching on the items to be classified as sensitive and those to be excluded from taxation, as the least developed and developing economies are worried about losing their key revenue streams.
"These issues are still being negotiated. No one knows until the countries say which products they will designate as sensitive and which ones they will exclude.
But from experience, sugar and milk tend to be sensitive. And some Muslim countries exclude alcohol and pork. But Nigeria tends to exclude products produced by important personalities in order to limit competition on the market," said the director of trade, Customs and monetary affairs at the Comesa Secretariat, Dr Francis Mangeni.
In the East African Community, maize, wheat, milk and its by-products, rice and textiles are treated as "sensitive" and therefore attract higher duty ranging from 35 per cent to 60 per cent.
The CFTA agreement
The tripartite free trade area, which brings together the 26 countries of the three economic blocs -- EAC, Comesa and SADC -- has agreed that 80 per cent of tariff lines will be liberalised upon implementation of the agreement, and that the remaining 20 per cent will be negotiated over five to eight years.
However, the regional trading blocs are yet to agree on tariff offers.
The CFTA agreement, which had initially been slated for signing in December 2017, has four legal instruments: The framework agreement establishing the CFTA; the protocols on trade in goods; protocol in trade in services; and the protocol in dispute settlement.
The signing of the agreement is expected to pave the way for the conclusion of negotiations on outstanding issues which include tariff offers and rules of origin, and the commencement of the next phase of talks covering investment, competition and intellectual property.
It is estimated that 10 per cent of the tariff lines on the continent will be excluded from tariff reduction but for countries like Zambia which has fewer tradable goods, this could cover all intra-African imports.
It is feared that excluding even a small portion of the products from taxation could easily affect the most traded products in Africa as the continent trades on only a few product lines estimated at 200 or even 70 for some countries.
According to a report by the United Nations Conference on Trade and Development (UNCTAD) released in February, African countries could gain $3.6 billion per annum by completely eliminating tariffs on all goods traded among them.
However applying taxes on even a modest five per cent of products reduces this gain to $1.5 billion.
Comparatively, eliminating the non-tariff barriers will increase the monetary gains of the countries by $20 billion.