AU Steps up Merger of Three Top Trading Blocs

George Omondi (Trade Law Centre)--Countries across Eastern and Southern Africa have stepped up plans for the establishment of Africa’s largest economic bloc with the opening of negotiations that may culminate in a Free Trade Area (FTA) spanning Cape to Cairo by May 2010.

A project of the African Union (AU), the new trade bloc that aims to merge the Common Market for Eastern and Southern Africa (COMESA), the Southern Africa Development Corporation (SADC) and the East African Community (EAC), has been under discussion since last year in what is seen as Africa’s latest effort to build the muscle it needs to compete on a global level. The three trade blocs have instructed their secretariats to prepare the legal documents for signing in the first half of next year, renewing hopes in a project that has been in limbo since its launch in 2008. 



Trade experts say that Africa needs to improve how it trades with itself even as it pursues avenues of growing its share of global trade with the signing of pacts such as the Economic Partnership Agreements (EPAs) with the European UnionDoha round of the World Trade Organisation (EU) and the (WTO). The proposed merger of the three regional economic communities (RECs), although seen as representing Africa’s best chance of raising its stature on the global platform, has been moving at a snail’s pace shackled by concerns over its possible impact on weaker economies that fear being swamped by cheaper goods from the low cost producers in Southern and Northern Africa. 


An FTA is the second stage of economic integration in which member countries undertake to eliminate tariffs, quotas, and preferences on goods and services traded among them. It usually comes immediately after the preferential trading area (PTA) and is followed by a customs union, common market, and a monetary union. 
The merger of the three RECs is seen as the best way to tame Africa’s thriving black market whose lifeline is the smuggling of goods to evade official barriers to trade. ‘It should produce positive results if the three trading blocs harmonise their rules and apply them transparently within an expanded FTA’ said Chris Onyango, a regional integration analyst at the Kenya Institute for Public Policy Research and Analysis. 



According to a working document on the project, still to be approved by the heads of state, the new FTA should be the product of the existing COMESA, SADC and EAC FTAs. A statement by the COMESA Secretariat issued on Tuesday also confirms that establishment of the FTA will be top on the agenda of the next tripartite heads of state summit to be held in April or May next year. The project aims at integrating the economies of 26 African countries to create a market of 527 million people (57 per cent of the total African population) and control a combined wealth of $634 million (58 per cent of the African Union’s combined gross domestic product). 



The new impetus to merge the regional blocs comes barely a week after a meeting of the chief executives of the three secretariats in Dar es Salaam that cleared the documents for the proposed FTA for delivery to member states for consideration in readiness for next year’s Tripartite Summit. To the countries of the EAC that just signed a protocol establishing a common market in the region last week, the rollout of yet another pan-African free trade area entails going back to the drawing board in the crafting of new strategies to protect sensitive industries. ‘Some countries might wish to consider shielding a few sensitive products while trading with big partners. For this reason, provisions have been made for countries to request for permission to maintain some sensitive products for a specified period of time’, says the COMESA statement. 



This provision borrows from the path the EAC has taken in its journey to the common market stage that saw the most advanced economy of the region, Kenya, accept to fully open its borders for goods from Tanzania and Uganda on a non-reciprocal basis. Even after the signing of the common market protocol, Uganda is still fighting to be allowed to import some 135 industrial inputs from outside the EAC without attracting the region’s common external tariff (CET) on raw materials of 10 percent, in line with the country’s economic policy of protecting weak industries from external competition. Among the 26 members of the expanded FTA are South Africa and Egypt, the two countries whose low cost producers already dominate the region even without a formal PTA. 



Experts, however, argue that getting into an expanded bloc will open wide doors for negotiation, making it easier for countries already separated economically by the virtue of being members of different economic blocs to negotiate favourable trading terms. ‘The spirit of the tripartite arrangement is to provide a wide platform for negotiation that will eventually eliminate the unnecessary competition among African states’, says Onyango. Unlike a customs union or common market, members of an FTA do not have a common external tariff (same policies to regulate trade deals with non-members), which means that cheaper goods and raw materials from external sources could easily find their way to the FTA

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