Economic pacts with Europe that centre on more efficient and competitive banking and insurance services will offer opportunities to grow intra-Africa trade, a new study by a UN agency said.
“The institutional landscape on which intra-Africa trade takes place will change dramatically depending on the model of liberalisation that the economic partnership agreements (EPAs) adopt,” the UN’s Economic Commission for Africa (ECA) said in a report presented at the ongoing annual conference of the African Development Bank (AfDB) in Abijan, Cote d’Ivoire.
Like many other countries under the umbrella of the African Caribbean and Pacific (ACP), Kenya and other member states of the East African Community (EAC) are negotiating new EPAs with the European Union (EU).
“The services economy being the new frontier for the expansion of trade, intra-African trade would be positively affected if EPAs could lead to more efficient and competitive banking and insurance sectors on the continent,” the agency said in its report, Assessing Regional Integration in Africa IV.
Trade relations between the ACP countries and the EU had, since the 1980s, been guided by non-reciprocal trade preferences which granted nearly all products originating from the ACP states duty-free access to the European market.
Despite this preferential treatment, the ACP states were frustrated by a narrow export product range and other challenges.
Their share of total EU imports fell steadily over the years.
To correct the situation, the two blocs sought to negotiate an alternative trade agreement that took not only north-south trading opportunities into account, but factored in south-south trading and regional co-operation as well.
Even as the ACPs pursued new EPAs with Europe, concerns have been raised over possible negative effects of such pacts to trade among African countries.
Some critics have warned that the EPAs could erode the competitiveness of African countries and even ruin the trade profile among them.
The ECA, however, said it was possible for trade between African countries within the same EPA to expand.
It said the extent to which the positive change would occur depended on the binding agreements between the EU and negotiating African countries on services liberalisation citing the rules of origin (ROO) as an example.
“One set of rules of origin should not only enhance trade across the EPAs groupings but also bring coherence to the rules of origin in the different regional economic communities,” the ECA said.
The commission, however, warned that the implementation of EPAs may lead to the diversion of trade within the various regional economic communities especially in cases where there was lack of harmonisation of the common external tariff (CET), list of sensitive products, and divergent rules of origin.
Except for a few disputes over development assistance and the most favoured nation (MFN) clause, Kenya and other EAC members are close to signing an EPA deal with Europe.
“Only a few issues on development assistance and the most favoured nation (MFN) clause are holding back consensus,” David Nalo, Kenya’s permanent secretary in the EAC Affairs ministry told Business Daily in a recent interview.
MFN status is granted to one nation by another in international trade and offers the recipient nation trading advantages such as low tariffs that others do not enjoy.
Under WTO rules, any country granting another the MFN status to lower a trade barrier or open up a market must do so for the same goods or services for all its trading partners whether rich or poor.
The EAC is concerned that the EU could lock them into a water-tight trade agreement at a time when they are deepening integration of their economies with the planned merger of the Common Market for Eastern and Southern Africa (Comesa), the Southern African Development Community (SADC), and the EAC.
The EAC argues that the EPA may lock them into a single commercial relationship without room to diversify target markets.
Although the WTO prohibits a country from using the MFN clause to discriminate against any of its trading partners as the EU is demanding from the EAC partner states, some exceptions are allowed.
According to the WTO, countries can establish a free trade agreement that applies only to goods traded within the group, thereby discriminating against those from outside, or offer developing countries special access to their markets.
A country can also raise barriers against products considered to be traded unfairly from specific countries.
In trade in services, countries are allowed, under conditions, to discriminate.