preliminary results on the implications of the tripartite fta stephen n. karingi chief of trade and...
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Preliminary results on the implications of the Tripartite FTAPreliminary results on the implications of the Tripartite FTA
Stephen N. KaringiChief of Trade and International Negotiations
UN Economic Commission for Africa Addis Ababa, Ethiopia
Stephen N. KaringiChief of Trade and International Negotiations
UN Economic Commission for Africa Addis Ababa, Ethiopia
Outline of the Presentation Outline of the Presentation Outline of the Presentation Outline of the Presentation
1)Background2)Why is Africa integration different?3)Basic economic structure4)State of play in Eastern and
Southern Africa5)Methodology 6)Results 7)Concluding remarks
1)Background2)Why is Africa integration different?3)Basic economic structure4)State of play in Eastern and
Southern Africa5)Methodology 6)Results 7)Concluding remarks
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1. Background1. Background1. Background1. Background Economic and political justifications often cited for
regional and multilateral integration. Europe: Peace and stability Africa: Ideal of Pan-Africanism
UNECA (2006) identified the main driving forces in regional integration in Africa:
Geographical proximity and contiguity Political cooperation Continental and global institutions (e.g. NEPAD
and WTO)
The Abuja Treaty recognized five regions:North AfricaWest AfricaCentral Africa East Africa and Southern Africa
Economic and political justifications often cited for regional and multilateral integration.
Europe: Peace and stability Africa: Ideal of Pan-Africanism
UNECA (2006) identified the main driving forces in regional integration in Africa:
Geographical proximity and contiguity Political cooperation Continental and global institutions (e.g. NEPAD
and WTO)
The Abuja Treaty recognized five regions:North AfricaWest AfricaCentral Africa East Africa and Southern Africa
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2. Why Africa Integration is Different?2. Why Africa Integration is Different?2. Why Africa Integration is Different?2. Why Africa Integration is Different?
Currently, there are 14 RECs on the Africa continent. Of 53 Africa countries:
27 belongs to two RECs; 18 belongs to three RECs;One country belongs to at least four;Only 7 Africa countries hold membership to 1
RECs. The multiple membership:
Constraint to economic efficiency; Endanger collective vision of Africa Economic
Community;Fragmented economic spaces and approaches to RI;Increased cost of membership in RECs;Contradictory obligations/loyalties for member
countries;Inconsistent objectives & conflicting operational
mandates.
Currently, there are 14 RECs on the Africa continent. Of 53 Africa countries:
27 belongs to two RECs; 18 belongs to three RECs;One country belongs to at least four;Only 7 Africa countries hold membership to 1
RECs. The multiple membership:
Constraint to economic efficiency; Endanger collective vision of Africa Economic
Community;Fragmented economic spaces and approaches to RI;Increased cost of membership in RECs;Contradictory obligations/loyalties for member
countries;Inconsistent objectives & conflicting operational
mandates.
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2. Why Africa Integration is Different? (Cont’d)2. Why Africa Integration is Different? (Cont’d)2. Why Africa Integration is Different? (Cont’d)2. Why Africa Integration is Different? (Cont’d)
Membership in more than one Custom Union is technically impossible.
In addition to overlapping problem, the following points are identified as a problem in regional integration: Lack of complementarities;Limited market size;Inadequate infrastructure;Absence of a system composition for losers;Structural constraints;Lack of political commitments; Lack of effective supra-national institutions.
Does this mean lack of political will?
Membership in more than one Custom Union is technically impossible.
In addition to overlapping problem, the following points are identified as a problem in regional integration: Lack of complementarities;Limited market size;Inadequate infrastructure;Absence of a system composition for losers;Structural constraints;Lack of political commitments; Lack of effective supra-national institutions.
Does this mean lack of political will? 5
2. Why Africa Integration is Different? (Cont’d)2. Why Africa Integration is Different? (Cont’d)2. Why Africa Integration is Different? (Cont’d)2. Why Africa Integration is Different? (Cont’d)
The potential gains of rationalization includes: Efficient allocation of resources;Increased trade between member countries
and countries outside the region;Gain in the economies of scales;Strong negotiating positions;Welfare gains;Improved productivity; Higher wage;Policy credibility;More efficient provision of public goods;Fewer regional conflicts.
The potential gains of rationalization includes: Efficient allocation of resources;Increased trade between member countries
and countries outside the region;Gain in the economies of scales;Strong negotiating positions;Welfare gains;Improved productivity; Higher wage;Policy credibility;More efficient provision of public goods;Fewer regional conflicts. 6
3. State of Play in COMESA, EAC and SADC3. State of Play in COMESA, EAC and SADC3. State of Play in COMESA, EAC and SADC3. State of Play in COMESA, EAC and SADC
COMESA has 19 member states:14 member states participate in COMESA FTA4 are members of EAC8 are members of SADCAnnual intra-COMESA trade grew by 20% (2000-
06)Already a customs union
EAC has 5 member states:It’s is already a common market. Privilege Uganda and Tanzania to get access in
the Kenya market beginning to 2010 4 are members of COMESAOne member is part of SADCIntra-EAC trade increased by 42% (2004 to
2007).
COMESA has 19 member states:14 member states participate in COMESA FTA4 are members of EAC8 are members of SADCAnnual intra-COMESA trade grew by 20% (2000-
06)Already a customs union
EAC has 5 member states:It’s is already a common market. Privilege Uganda and Tanzania to get access in
the Kenya market beginning to 2010 4 are members of COMESAOne member is part of SADCIntra-EAC trade increased by 42% (2004 to
2007).
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3. State of Play in COMESA, EAC and SADC (cont’d…)3. State of Play in COMESA, EAC and SADC (cont’d…)3. State of Play in COMESA, EAC and SADC (cont’d…)3. State of Play in COMESA, EAC and SADC (cont’d…)
SADC has 15 member states:8 belongs to COMESA; 1 is member of
EAC and 5 are members of SACU Intra-SADC trade accounts 20% of
total SADC trade.South Africa accounts for majority of
the trade flow.
This paper assumes eliminating overlapping membership will significantly improve the effectiveness and efficiency of the RECs.
SADC has 15 member states:8 belongs to COMESA; 1 is member of
EAC and 5 are members of SACU Intra-SADC trade accounts 20% of
total SADC trade.South Africa accounts for majority of
the trade flow.
This paper assumes eliminating overlapping membership will significantly improve the effectiveness and efficiency of the RECs. 8
3. State of Play in COMESA, EAC and SADC (cont’d…)3. State of Play in COMESA, EAC and SADC (cont’d…)3. State of Play in COMESA, EAC and SADC (cont’d…)3. State of Play in COMESA, EAC and SADC (cont’d…)
Products Common External Tariff
Proposed date for
CET
Proposed date for common market
Proposed date for
monetary union
EAC
Raw materials
0% January 2005
Capital goods
0% January 2005
Intermediates
10% January 2005
Finished 25% January 2005
COMESA
Raw materials
0% June 2009
Capital goods
0% June 2009
Intermediates
10% June 2009
Finished 25% June 2009
SADC
2010 2015
2010 2015
2010 2015
4. Basic Economic Structure of the three RECs4. Basic Economic Structure of the three RECs4. Basic Economic Structure of the three RECs4. Basic Economic Structure of the three RECs
COMESA, EAC and SADC comprises nearly half of African States
Population: more than half billion (535.32 Million in 2006)
GDP per capita for COMESA-EAC-SADC: 1522 USD (2006 estimate) Highest ($): Libya (7067) and Seychelles (7005).Lowest ($): D.R.C. (91), Burundi (101) and Malawi
(144). On Average, between 2000-2006, (as a bloc):
COMESA GDP increased by 3.02%EAC GDP increased by 4.61%SADC GDP increased by 3.93% Best performance: Angola (10.6%), Sudan (7.5%),
Mozambique (7.4%)
COMESA, EAC and SADC comprises nearly half of African States
Population: more than half billion (535.32 Million in 2006)
GDP per capita for COMESA-EAC-SADC: 1522 USD (2006 estimate) Highest ($): Libya (7067) and Seychelles (7005).Lowest ($): D.R.C. (91), Burundi (101) and Malawi
(144). On Average, between 2000-2006, (as a bloc):
COMESA GDP increased by 3.02%EAC GDP increased by 4.61%SADC GDP increased by 3.93% Best performance: Angola (10.6%), Sudan (7.5%),
Mozambique (7.4%)
4. Basic Economic Structure of the three RECs (Cont’d…)4. Basic Economic Structure of the three RECs (Cont’d…)4. Basic Economic Structure of the three RECs (Cont’d…)4. Basic Economic Structure of the three RECs (Cont’d…)
Agriculture contributed 23% of COMESA-EAC-SADC GDP (2001-2006)Highly agriculture dependent economies:
D.R.C., Comoros and Ethiopia (> 45 per cent)Less dependent: Botswana, Seychelles, South
Africa, and Djibouti (< 4%) On average, industry contributed 26 per cent of
COMESA-EAC-SADC GDP (2001-2006)Highly dependent: Angola (68%) and Botswana
(55%) Least industrialized: Comoros (12%) and
Ethiopia (14%) Service contributed to 47% of GDP and grow by
4% (2000 – 2006).
Agriculture contributed 23% of COMESA-EAC-SADC GDP (2001-2006)Highly agriculture dependent economies:
D.R.C., Comoros and Ethiopia (> 45 per cent)Less dependent: Botswana, Seychelles, South
Africa, and Djibouti (< 4%) On average, industry contributed 26 per cent of
COMESA-EAC-SADC GDP (2001-2006)Highly dependent: Angola (68%) and Botswana
(55%) Least industrialized: Comoros (12%) and
Ethiopia (14%) Service contributed to 47% of GDP and grow by
4% (2000 – 2006).11
5. Methodology5. Methodology5. Methodology5. Methodology
Data and modelThe scenariosDescriptive results of the base
year
Data and modelThe scenariosDescriptive results of the base
year
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5.1. Data and Model5.1. Data and Model5.1. Data and Model5.1. Data and Model
GTAP model is used to investigate the cost-benefits of establishing a Grand COMESA-EAC-SADC (CES) and Grand CES-EU FTA.
GTAP Africa database employedA special version of GTAP 6 benchmarked to
2001Include 57 sectorsCover 39 regions Of which 30 of them Africa countries/regionsSignificantly improve the coverage of Africa
countries/statesConstructed by giving sufficient emphasis on
RECs in Africa, which facilitated our analysis.
GTAP model is used to investigate the cost-benefits of establishing a Grand COMESA-EAC-SADC (CES) and Grand CES-EU FTA.
GTAP Africa database employedA special version of GTAP 6 benchmarked to
2001Include 57 sectorsCover 39 regions Of which 30 of them Africa countries/regionsSignificantly improve the coverage of Africa
countries/statesConstructed by giving sufficient emphasis on
RECs in Africa, which facilitated our analysis.13
5.1. Data and Model (Cont’d…)5.1. Data and Model (Cont’d…)5.1. Data and Model (Cont’d…)5.1. Data and Model (Cont’d…)
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EAC COMESA SADCTanzania Egypt BotswanaKenya Ethiopia South AfricaUganda Sudan Rest of South Africa
CUMadagascar D.R.C.Rest of COMESA
Malawi
Madagascar MauritiusMozambique ZambiaZimbabwe Rest of SADC
5.2. Scenarios5.2. Scenarios5.2. Scenarios5.2. Scenarios
Two scenarios are constructed to simulate the possible impact of Grand CES and CES-FTA.Scenario I: Grand CES in which all tariffs among
the EAC, COMESA and SADC are removed for all traded commodities and standard GTAP closure is assumed.
Scenario II: Scenarios I but with unemployment closure.
Scenario III: Grand CES – EU FTA (unemployment closures). Under this scenario, all tariffs are removed with the exception of agricultural commodities in CES.
Two scenarios are constructed to simulate the possible impact of Grand CES and CES-FTA.Scenario I: Grand CES in which all tariffs among
the EAC, COMESA and SADC are removed for all traded commodities and standard GTAP closure is assumed.
Scenario II: Scenarios I but with unemployment closure.
Scenario III: Grand CES – EU FTA (unemployment closures). Under this scenario, all tariffs are removed with the exception of agricultural commodities in CES.
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6. Results – Income changes 6. Results – Income changes 6. Results – Income changes 6. Results – Income changes
Percentage Change in GDPPercentage Change in GDP
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-0.75
0.00
0.75
1.50
2.25
EAC COMESA SADC
Per
cent
age
Change in Percentage of GDP
CES FTA-1 CES FTA-2 CES-EU FTA
6. Results – Welfare results6. Results – Welfare results6. Results – Welfare results6. Results – Welfare results
Substantial welfare change is observed under the three scenarios.
For EAC: CES-FTA 2: EV increases by 90 Million USD CES-EU FTA: EV increases by 116 Million USDAs expected, the main gain comes from allocative
efficiency and endowment effectsThere is also an improvement in TOT under CES-FTA 2
For SADC: CES-FTA 2: EV increases by 966 Million USD CES-EU FTA: EV increases by 2401 Million USDPositive gain in allocative efficiency, endowment effects
and TOT.
Substantial welfare change is observed under the three scenarios.
For EAC: CES-FTA 2: EV increases by 90 Million USD CES-EU FTA: EV increases by 116 Million USDAs expected, the main gain comes from allocative
efficiency and endowment effectsThere is also an improvement in TOT under CES-FTA 2
For SADC: CES-FTA 2: EV increases by 966 Million USD CES-EU FTA: EV increases by 2401 Million USDPositive gain in allocative efficiency, endowment effects
and TOT.
6. Results – Welfare results contd…6. Results – Welfare results contd…6. Results – Welfare results contd…6. Results – Welfare results contd…
For COMESA: CES-FTA 2: EV decreases by 47 Million
USD CES-EU FTA: EV increases by 532 Million
USDResults indicate a likely decline in
allocative efficiency under CES-FTA 2 TOT deteriorates under CES-FTA 2 and
CES-EU FTAPositive gain allocative efficiency under
CES-EU FTA.Positive gain in endowment effect in
CES-FTA 2 and CES-EU FTA EU improves consumer welfare.
For COMESA: CES-FTA 2: EV decreases by 47 Million
USD CES-EU FTA: EV increases by 532 Million
USDResults indicate a likely decline in
allocative efficiency under CES-FTA 2 TOT deteriorates under CES-FTA 2 and
CES-EU FTAPositive gain allocative efficiency under
CES-EU FTA.Positive gain in endowment effect in
CES-FTA 2 and CES-EU FTA EU improves consumer welfare.
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6. Results – Sectoral VA in EAC6. Results – Sectoral VA in EAC6. Results – Sectoral VA in EAC6. Results – Sectoral VA in EAC
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Percentage change in sectoral value added, EAC
-3.60
-2.60
-1.60
-0.60
0.40
1.40
2.40
Gra
insC
rops
Mea
tLst
k
Ext
ract
ion
Pro
cFood
Tex
tWap
p
Lig
htM
nfc
Hea
vyM
nfc
Util_
Cons
Tra
nsC
om
m
Oth
Serv
ices
Per
centa
ge
CES FTA-1 CES FTA-2 CES-EU FTA
6. Results – Sectoral VA in COMESA6. Results – Sectoral VA in COMESA6. Results – Sectoral VA in COMESA6. Results – Sectoral VA in COMESA
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6. Results – Sectoral VA in SADC6. Results – Sectoral VA in SADC6. Results – Sectoral VA in SADC6. Results – Sectoral VA in SADC
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6. Results – Export view6. Results – Export view6. Results – Export view6. Results – Export view
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Percentage change in export
CES FTA-2 CES-EU FTA CES FTA-2 CES-EU FTA CES FTA-2 CES-EU FTAGrainsCrops 1.7 5.01 1.33 10.9 0.32 7.54MeatLstk 3.08 6.18 1.47 24.88 1 77.53Extraction -1.76 0.41 0.2 2.85 -1.8 -2.29ProcFood 2.89 10.5 1.27 8.57 6.72 50.72TextWapp 10.92 15.76 1.04 8.46 8.15 5.7LightMnfc 14.08 14.13 3.8 15.66 0.86 -0.83HeavyMnfc 11.66 11.62 1.89 15.29 2.34 -1.48Util_Cons -0.17 3.94 0.33 6.65 -0.92 -1.78TransComm -1.11 1.1 0.25 3.49 -2.52 -4.65OthServices -1.17 1.3 0.3 3.5 -3.17 -5.7
EAC COMESA SADC
6. Results – Import view6. Results – Import view6. Results – Import view6. Results – Import view
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Percentage change in import
CES FTA-2 CES-EU FTA CES FTA-2 CES-EU FTA CES FTA-2 CES-EU FTAGrainsCrops 7.64 6.78 0.18 -0.76 5.87 12.27MeatLstk 10.4 8.48 0.08 -0.89 3.84 9.2Extraction 1.73 -1.39 1.44 8.82 1.31 -0.85ProcFood 9.51 15.76 0.93 9.74 6.19 13.56TextWapp 3.86 5.19 4.54 29.73 5.4 9.8LightMnfc 2.4 6.26 0.26 5.75 3.65 14.3HeavyMnfc 2.77 5.72 0.3 5.58 3.52 8.07Util_Cons 1.05 -0.75 -0.1 -1.23 1.13 1.94TransComm 0.95 0.13 -0.09 -1.46 1.9 3.87OthServices 0.83 0.06 -0.07 -1.17 2.08 4.2
EAC COMESA SADC
7. Concluding remarks7. Concluding remarks7. Concluding remarks7. Concluding remarks
Overall, for the group of 26 countries, the formation of Grand CES FTA might have substantial benefits.
However, the benefit might not benefits the groups equally.
SADC appears to drive most of the benefits followed by EAC and then COMESA.
This might be partly due to the initial conditions SADC has (e.g. relatively least protected)
This imbalance suggests that as the three RECs moves towards the creation of Grand CES, they should also initiate cooperation in other areas.
Overall, for the group of 26 countries, the formation of Grand CES FTA might have substantial benefits.
However, the benefit might not benefits the groups equally.
SADC appears to drive most of the benefits followed by EAC and then COMESA.
This might be partly due to the initial conditions SADC has (e.g. relatively least protected)
This imbalance suggests that as the three RECs moves towards the creation of Grand CES, they should also initiate cooperation in other areas.
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7. Concluding remarks7. Concluding remarks7. Concluding remarks7. Concluding remarks
In other words, the CES Tripartite Framework should not only focus on the realisation of a harmonized trade regime, but should work towards measures that would address supply side constraints in each of the RECs, e.g. through joint infrastructure projects among other measures.
In other words, the CES Tripartite Framework should not only focus on the realisation of a harmonized trade regime, but should work towards measures that would address supply side constraints in each of the RECs, e.g. through joint infrastructure projects among other measures.
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