2023-03-10Analysis of the current situation of African trade integration: Since the establishment of the Organization of African Unity (OAU), which later became the African Union (AU), African integration has been a top priority. The Abuja Treaty, passed during the 27th OAU meeting in 1991, laid the legal framework for African integration. The treaty established the African Economic Community (AEC) and outlined a step-by-step approach for African integration, including the creation of a seires of free trade areas, customs unions, a single market, central bank, and currency union. However, due to wars and economic factors, the progress of African integration has been slow. The OAU (now AU) has emphasized the importance and urgency of the integration process in several multilateral meetings, urging nations to expedite the integration process. The Sirte Declaration in 1999, the Accra Declaration in 2007, and the African Economic Conference in October 2013 have consistently called for an acceleration of the African integration process. The paramount focus within African integration is trade integration, currently the domain with relatively faster progress. According to the AU's latest November report on the 2013 African Integration Status, the summary and analysis of the progress in African trade integration are outlined below.
Ⅰ. Progress Status
(Ⅰ) Trade flow
Currently, African countries have a relatively low level of trade. Despite representing 14% of the global population, Africa's GDP and foreign direct investment account for only about 3% of the world. The share of merchandise trade exports and imports in the world is only 1.8% and 1.7%, respectively, while the service trade sector has an even lower percentage. Between 2000 and 2010, Africa's average annual imports were USD174 billion, growing at a rate of 7.9% annually, and exports were averaged at USD418 billion, growing at a rate of 14.4% annually. Intra-Africa trade during the same period had an annual average import value of USD29 billion, growing at 14.4% annually, and an average export value of USD30 billion, growing at 14.6% annually. The export and import values of intra-African trade account for only 10.4% and 14.2%, respectively, of the total African exports and imports. Despite a consistent growth in intra-African trade, the levels remain significantly low. Intra-African trade in goods and services represents merely 12% of the overall African trade volume, which is notably lower compared to the levels of 60% in the European Union, 40% in North America, and 30% in the Association of Southeast Asian Nations (ASEAN).
(Ⅱ) Tariff barriers
Currently, multiple Regional Economic Communities (RECs) are advancing the implementation of regional integration within their territories, aiming to form the broader African integration through expansion and convergence of regional integration. However, the progress in the promotion of trade integration varies among these regional economic communities. The East African Community (EAC) has made the fastest progress, initiating the Common Market in 2010. The Common Market for Eastern and Southern Africa (COMESA) launched the Customs Union in June 2009. The Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC) have made progress in constructing their respective Free Trade Areas. The Economic Community of Central African States initiated the Free Trade Area in 2004, but it faces significant challenges at present.
COMESA: The COMESA Free Trade Area construction began in 2000. According to its provisions, internal trade tariffs should be reduced by 60% before 1993, 70% by 1994, 80% by 1996, 90% by 1998, and 100% by 2000. As of now, out of COMESA's 19 member countries, 14 have become full members of the Free Trade Area. Eswatini, having joined the Southern African Customs Union, has reduced its tariff concession requirements for joining the Free Trade Area. Concerns of non-member countries joining the Free Trade Area primarily revolve around the apprehension that participation might lead to a reduction in the country's income, coupled with an inability to safeguard certain vulnerable local industries. Currently, the countries preparing to join the Free Trade Area include Ethiopia, Uganda, Eritrea, and the Democratic Republic of the Congo.
After the initiation of the COMESA Customs Union in 2009, a three-year transitional period was provided for all member countries. This allowed each member to gradually implement the common tariff provisions, unified external tariff rates, and shared customs management rules according to their specific circumstances. Presently, COMESA Customs Union is still within the transitional period. The external tariff rates agreed upon by the Customs Union are as follows: 0% for raw materials, 0% for capital goods, 10% for intermediate goods, and 25% for finished goods.
ECOWAS. To consolidate the Free Trade Area, under the ECOWAS Trade Liberalization Scheme, efforts are concentrated on analyzing and confirming the approval status of this plan in each member country, discussing and coordinating legal documents related to this plan within the ECOWAS community and the West African Economic and Monetary Union and and enhancing the list of goods and companies associated with this plan. Since the agreement on the Common External Tariff (CET) structure in 2006, significant work has been done and notable progress has been made in the construction of the Free Trade Area through joint efforts with the West African Economic and Joint Committee of West African Economic and Monetary Union. Many technical and professional details were thoroughly discussed during meetings, leading to the following outcomes: Consensus was reached on market access offers in the Economic Partnership Agreement (EPA) negotiations and the joint ECOWAS external tariff product classification. The Common External Tariff (CET) rates and statistical standards successfully transitioned from the HS2007 standard to the HS2012 standard.
EAC. EAC began implementing the Customs Union in 2005, fully operational in 2010, and started implementing the Common Market Protocol signed in 2009. The structure of the common external tariff rates is 0% for raw materials, 10% for intermediate goods, and 25% for finished goods.
Economic Community of Central African States (ECCAS). ECCAS officially launched the construction of Free Trade Area on June 1, 2004, adopting preferential tariff rates (TP). It plans to gradually implement tariff concessions for member countries: 100% tariff concession for crude products, excluding handicrafts and non-mineral products from the start of the Free Trade Area, 50% tariff concession for mineral and manufacturing products starting in 2005, gradually achieving 100% tariff concession by 2007. However, the timeline has not been fully adhered to by member countries, and currently, the ECCAS Free Trade Area is not fully operational. The ECCAS Secretariat, mandated by its 15th Summit, plans to jointly assess its Free Trade Area construction with the Central African Economic and Monetary Community (CEMAC) and the Central Africa Subregional Office of UN Economic Commission for Africa. The assessment involves meetings with trade and finance ministers of member countries, producing an evaluation report, and proposing improvement suggestions.
SADC. SADC launched its Free Trade Area in 2008, achieving zero tariffs for 85% of internal trade at that time. The remaining tariffs for sensitive goods were gradually reduced, with most of the tariff concession work completed by January 2012. Despite significant milestones in the Free Trade Area, some member countries have not fully fulfilled their tariff concession commitments. Delays in Free Trade Area construction led to the postponement of the Customs Union, initially planned for 2010, to 2012. If successful, SADC plans to launch the Common Market in 2015, the Monetary Union in 2016, and a single currency in 2018.
(III) Non-tariff trade barriers
RECs eliminate non-tariff barriers (NTBs) through different methods. COMESA, EAC, and SADC reached a tripartite agreement to establish a NTB clearance mechanism. This mechanism includes an online NTBs reporting system that accepts reports from member countries on NTBs and tracks their resolution, aiming to increase transparency and facilitate reporting, identification, and resolution of NTBs. Additionally, to intensify NTB elimination, member countries have established National Monitoring Committees (NMC) and National Enquiry Points (NEP) or National Focal Points (NFP). In the collaboration for NTB elimination, NMCs are responsible for determining NTB elimination procedures, authorizing and assigning responsibilities, confirming action deadlines, and deciding whether to pursue members for non-compliance. It is crucial to note that the NTB clearance mechanism does not replace or affect the resolution mechanism for trade frictions and disputes between member countries. On the other hand, ECOWAS resolves NTB issues by establishing national committees in member countries. Furthermore, ECOWAS has set up complaint centers at borders, accepting complaints from traders and resolving them through bilateral working groups composed of customs and finance departments from both countries.
(IV) Customs management and clearance processes
Information system. Currently, COMESA has 6 member countries using the same ASYCUDA information system, which allows the pre-acceptance of authorized users' customs declarations and transit guarantee forms. Other COMESA member countries use different information systems that are compatible with ASYCUDA. EAC member countries use the Revenue Department's electronic data interchange system, connecting customs management departments to exchange customs data, especially import and export receipts. In addition, a new information interconnectivity project will soon be completed to seamlessly connect with customs data. ECOWAS has established an information system enabling software used by customs within the region to internally connect and share data. Furthermore, through the World Bank-supported Abidjan-Lagos Trade and Transport Facilitation Project, customs declarations and import/export data from Benin and Nigeria are consolidated, allowing both countries' customs to view all customs declarations and import/export data in the system. This achieves a one-stop customs clearance for both countries, reducing clearance time, procedures, and processes for traders and transportation service providers. SADC, in 2007, first established legal benchmarks for coordinating customs laws in member countries through the Customs Acts. Additionally, SADC has standardized management documents and tariff terms. Currently, SADC is developing an automated cargo transit management information system and signed a memorandum of understanding with COMESA in 2011 to jointly develop this information system.
In terms of clearance processes, COMESA has developed a simplified trade regime (STR) to encourage and attract small-scale traders to adopt formal clearance processes, enjoy the benefits of the Free Trade Area, and help customs collect more statistical data. Currently, STR is implemented in 6 COMESA member countries: Malawi, Zambia, Zimbabwe, Uganda, Kenya, and Rwanda. Additionally, COMESA is working on another tool called the Traveler and Goods Inventory System, complementing STR's data collection capabilities and facilitating border clearance for travelers.
II. Analysis of Current Status
The progress of regional trade integration in Africa is uneven slow and, and most RECs have experienced varying degrees of delays compared to their planned schedules. There are low commitment levels from member countries and lackluster tariff concession fulfillment. This can be attributed to the following primary reasons:
(I) Overall economic levels in Africa is relatively low, with varying development levels among countries. In many African countries, the economy is predominantly agriculture-based. In addition to a well-developed mining sector in some nations having due to high resource endowments, the overall level of manufacturing is low, and the service industry is particularly underdeveloped. Additionally, even within the same regional context, there is a significant disparity in the industrial capabilities of different countries. Many nations are reluctant to witness the potential impact of free trade on nascent industries, fearing the consequent loss of corresponding revenue. In this context, the varying levels of economic and legal development among nations further complicate the coordination of trade regulations.
(II) Some agreements reached cannot align with their domestic development plans and objectives. Due to insufficient prior communication and discussion within their countries, agreements or plans collectively endorsed at conferences fail to effectively integrate with domestic development plans and objectives. This mismatch can lead to resistance from various interest groups, making the implementation of these agreements or plans challenging and progress slow.
(III) There is a lack of experts with relevant experience. In African regional economic communities, especially among the member countries, there is a shortage of individuals not only well-versed in the formulation of international trade rules, multilateral and bilateral trade negotiations, and industrial development, but also understanding the national conditions of African nations.
(IV) Peace and security issues persist. While a considerable portion of Africa now exhibits a prevailing state of peace, the foundation of peace in Africa is more robust, and the trend is more evident, isolated instances of unrest and localized conflicts still occur. Ongoing regional and domestic conflicts seriously impede the integration process in affected countries and regions.
III. Work Recommendations
African integration will not only significantly boost trade levels within Africa and optimize internal resource allocation but will also strongly promote the development of China's trade and investment in Africa. Therefore, it is essential for China to appropriately pay attention to and actively support the African integration process for its timely completion.
(I) Strengthen support for the capacity building of African multilateral organizations.
It is recommended to increase training programs for the AU and African regional economic communities in foreign aid training. In terms of content, additional emphasis should be placed on training related to the formulation of trade rules, international trade negotiations, trade promotion, and industrial development. Regarding the training participants, there should be a greater focus on involving individuals from sectors such as trade, industry, infrastructure development, and energy policy. Simultaneously, it is suggested that international seminars hosted or led by China should prioritize and increase the participation of African personnel to enhance bilateral and multilateral personnel exchanges between China and Africa.
(II) Pay attention to African reforms and seize reform opportunities.
During the process of economic integration in Africa, reform is the key theme, offering ample opportunities. Chinese commercial offices abroad and Chinese enterprises should not only pay attention to the economic situation and policies of the host country but also focus on regional economic communities, and observe trends in policy changes resulting from the economic integration process; expedite adjustments in host country policies favoring businesses even by making the best use of the circumstances; and encourage and guide Chinese enterprises to proactively seize opportunities arising from trade and fiscal policy adjustments for securing a foothold in the African market. In the face of unfavorable trends in policy adjustments, timely alert pertinent Chinese enterprises in specific industries to ensure preparedness and effective responses.
(III) Enhance communication to exert Chinese influence on the formulation of African trade rules.
On the one hand, further leverage existing multilateral platforms and mechanisms to increase discussions and exchanges with the AU and RECs on regional integration, industrial openness, and tariff reductions. On the other hand, place greater emphasis on communication and exchanges with the AU and African RECs. Where appropriate, expand existing bilateral exchange platforms and mechanisms or develop new multilateral exchange mechanisms tailored to African RECs. Additionally, it is recommended to strengthen personnel exchanges between China and the AU, as well as regional organizations. Explore the possibility of sending Chinese talents in international trade negotiations, industrial policy formulation, and customs inspection to work in the AU and African regional organizations, with an aim to showcase China's experience, exert Chinese influence on their trade and industrial policies, and ultimately serve the purposes of China's "going global," industrial transfer and energy supply security.
