The Tripartite FTA

by Gerhard Erasmus, tralac Associate

Introduction

THE recent signing by sixteen African Governments of the Tripartite Free Trade Agreement has been hailed as a breakthrough event.* Commentators claim that this new pact will bring about major trade and development benefits for Africa. It has for example been observed that “the creation in June 2015 of a free trade area from Cape Town to Cairo is possibly the most significant event in Africa since the formation of the Organization of African Unity in 1963. It is a grand move to merge existing regional organization into a single African Economic Community”.

The signing of the TFTA Agreement is indeed an important development; its adoption has been on the cards since October 2008. The implementation of this treaty could change, for the better, the manner in which African trade and integration are conducted. We are, however, a little bit more cautious about the speed at which the potential benefits may materialize. It will take time before this Agreement will enter into force (14 ratifications are required) and domestic follow-up measures in the member states will be in place. Only then could there be tangible results. And important issues are still to be agreed.

It also has to be noted that some countries that have been participating in the negotiations (such as South Africa) have not signed the text of this Agreement. Since South Africa is a member of SACU; which has a common external tariff and a single customs territory, there are major technical issues to be clarified before the participation of all SACU members (Botswana, Lesotho, Namibia, South Africa and Swaziland) as members of the TFTA could follow. In principle it would not be possible to retain SACU while only some of its members join the TFTA. On this score there might be some serious internal SACU discussions; South Africa has already indicated that it wants to re-negotiate the SACU agreement. Recent developments around the TFTA may well put that process at the top of SACU’s internal agenda.

This note contains a brief analysis of the text of the TFTA Agreement, mentions outstanding issues, and discusses some of the broader implications. We also mention the linkages to the other important recent development; the launch of the Continental Free Trade Area negotiations; which took place on 15 June at the African Union Summit in Johannesburg.

Technical Features of the TFTA Agreement

The first aspect to be mentioned concerns the scope of the Agreement and fact that it sets out to establish a Free Trade Area among the Member/Partner States of COMESA, EAC and SADC. An FTA is a trade arrangement in which substantially all trade among the members is liberalized. It also has to be notified to the WTO.

The remainder of the Agreement contains those provisions which are typical of an FTA for trade in goods. The main text provides for basic commitments regarding non-discrimination, tariff liberalization, rules of origin, non-tariff barriers, trade remedies, standards, exceptions, dispute settlement, institutional aspects, infant industries, SPS and TBT issues, and customs cooperation. The detail regarding the nature and scope of obligations appear in a number of Annexes. Some of these (on tariffs, rules of origin and trade remedies) are still to be finalized through further negotiations. Technically this Agreement does not yet constitute a workable FTA.

It will take much more effort and time before such a comprehensive FTA among all 26 member states will become a reality; which cannot be achieved without important trading nations such as South Africa (and SACU) becoming a party. At present it is not yet known whether Pretoria will sign and ratify this Agreement. Pretoria may decide to continue to participate in the negotiations to complete Phase I (the built-in agenda) but to wait for a final outcome on Annex I on the Elimination of Customs Duties, Annex II on Trade Remedies and Annex IV on Rules of Origin before a decision on signing and ratification is taken.

It is also possible to become a party to the TFTA Agreement via subsequent accession: “This Agreement shall remain open for accession by any Member/Partner State of COMESA, EAC or SADC….. [and] shall also remain open for accession to other member states of the African Union. The Tripartite Council of Ministers shall adopt accession regulations.” Subsequent accession will require special negotiations about the terms of accession for a particular candidate.

Whether South Africa (or other Members) will definitely participate in Phase II negotiations is unclear. Article 45 of the Agreement mentions that the Tripartite Member/Partner States agree to negotiate Phase II. Strictly speaking only those Governments which will ratify the Agreement will be formal parties and under a legal obligation to engage in Phase II negotiations. The Phase II results will form an integral part of the final Agreement. There will only be one TFTA legal instrument and arrangement; which should be a comprehensive and fresh trade arrangement once completed along the lines promised in the text. The Protocols and Annexes shall form an integral part of the TFTA Agreement.

A final assessment on the trade in goods component will only be possible once the outstanding negotiations have been completed; the tariff schedules are decided and the rules of origin are known. In terms of the TFTA Agreement as a whole, much will eventually depend on how trade in services will be linked to the goods component. The lessons from elsewhere teach us that this will be a vital aspect. The intention, on paper, is that there should be one comprehensive agreement about all of these disciplines. Article 3 states that this Agreement shall comprise of trade in goods; trade in services; and other trade-related matters.

The parties to this Agreement will be those states that will ratify the Agreement. Sixteen states have signed the text; entry into force requires 14 ratifications. The existing Regional Economic Communities (COMESA, the EAC and SADC) will continue to exist and will not be parties to this Agreement.

Article 29 contains an important clause. It deals with Organs for the Implementation of the TFTA and reads:

1. The organs for the implementation of the Free Trade Area shall be:
a) the Tripartite Summit consisting of the Heads of State and/or Governments of Tripartite Member/Partner States which shall give general direction and impetus for the Tripartite arrangement;
b) the Tripartite Council of Ministers consisting of ministers as designated by Tripartite Member/Partner States for the purposes of the Tripartite Free Trade Area;
c) the Tripartite Sectoral Ministerial Committee on Trade, Finance, Customs and Economic Matters and Home/Internal Affairs; and the Tripartite Sectoral Ministerial Committee on Legal Affairs each of which shall be responsible for policy direction and implementation in their respective sectors ;
d) the Tripartite Task Force of the Secretariats of the three RECs which shall coordinate the implementation of the Tripartite work programme and shall provide secretariat services to the Tripartite arrangement;
e) the Tripartite Committee of Senior Officials which shall be responsible for overseeing and guiding technical work; and
f) the Tripartite Committee of Experts which shall carry out the technical work and report to the Tripartite Committee of Senior Officials.

2. The Tripartite Summit shall adopt its own rules of procedure.
There is no provision for a TFTA Secretariat but this idea has been mooted. Kenya (as well as other countries) has offered to host it. The Tripartite Task Force of the Secretariats of the three RECs will provide secretariat-type support and coordinate the implementation of the Tripartite work programme. Exactly how this will be done needs further explanation. The present clause on institutions in actual fact provides only for intergovernmental platforms.
Concluding Observations

This TFTA instrument is a sui generis agreement which contains provisions on what the participating states found possible to agree on during the four years of negotiations. And these negotiations (for Phase I) are still to be completed. The TFTA text is, nevertheless, an important and signed undertaking to continue with the process and, hopefully, to agree on a modern and comprehensive agreement suitable to contemporary challenges. Some caveats must, however, be mentioned.

The original ideal to transform the three existing RECs into one new FTA, and to find answers for problems on overlapping membership, has not been achieved. There will in fact be additional FTAs now; depending on what the Annex on tariff liberalisation contains. The manner in which the Negotiating Principles, and the acquis in particular, had steered this process contains important lessons. National interpretations of offensive and defensive trade interests and policy needs have dominated the exchanges.

The present Agreement is not a complete foundation for an FTA yet. There will be further negotiations to conclude the outstanding issues under Phase I (Annex I on the Elimination of Customs Duties, Annex II on Trade Remedies and Annex IV on Rules of Origin). This has to happen after the launch of the TFTA; which has now formally happened. And there will be a Phase II of negotiations. The parties have undertaken to negotiate and endeavour to conclude protocols on trade in services within on trade-related matters, including Competition policy, Cross-Border Investment, Trade and Development, and Intellectual Property Rights within 24 months upon entry into force of this Agreement. There are, in addition, plans for TFTA institutions to assist with the implementation.

An assessment of the TFTA benefits will have to await the finalization of the outstanding issues and how implementation will be undertaken by national administrations and regional structures. The establishment of a TFTA secretariat will be a very important development but there is no binding obligation to have one.

The ultimate TFTA benefits will depend on the extent to which private firms, and investors will be able to trade and do business under lower tariffs, harmonized technical standards, and rules of origin conducive to modern value chain conditions. This has direct implications for the domestic governance aspects of trade obligations and the pursuit of regional integration plans. The incorporation of the necessary trade in service undertakings, enforceability, legal remedies for private parties and dispute settlement will provide the benchmarks for a final verdict. There is further work to be done.

What lessons does the TFTA process provide regarding the recently announced plans to negotiate a CFTA?
• The debate has shifted to a new vocabulary. A modern FTA cannot be limited to trade in goods only. A suitable trade in services component (not the GATS formula) is vital for boosting intra-African trade and integration.

• The manner in which such negotiations is conducted (and in terms of what Negotiating Principles) is extremely important. These Principles and procedures should be flexible enough to allow for realistic outcomes; while aiming for a sufficiently high level of ambition. Innovative outcomes should be possible.

• The role of regional hegemons should not be underestimated. The bigger economies need to actively support the ideals of competitiveness for the whole continent.

• Smaller nations need active technical assistance during the negotiating process. This requires an independent facility with the necessary technical capacity. The negotiations will be “member-driven” but the process must involve champions who will actively pursue the bigger picture result.

• Appropriate procedures are necessary to ensure real consensus building and effective outcomes.

* Twenty four Member/Partner States have signed the TFTA Declaration; only Libya and Eritrea have not signed. The following states have signed the TFTA Agreement: Angola; Burundi; Comoros; DRC; Djibouti; Egypt; Kenya; Malawi; Namibia; Rwanda; Seychelles; Sudan; Tanzania; Uganda; Swaziland; and Zimbabwe. Zambia is likely to sign once the Attorney General’s office gives the green light. Botswana indicated it was waiting for legal processing before signing.