With elections around the corner, trade agreement discussions appear to have fallen off the policy agenda. Talks on trade deals that were a key policy of this Government in its first three years in power have gradually fallen off headlines as political parties shift to campaign mode. But elsewhere in the world agreements to increase trade are gaining more traction.
African leaders met over the weekend to launch a continental free-trade zone that if successful, would unite 1.3 billion people, create a $3.4 trillion economic bloc and usher in a new era of development.
After four years of talks, an agreement to form a 55-nation trade bloc was reached in March, paving the way for Sunday’s African Union summit in Niger where attendees will unveil which nation will host the trade zone’s headquarters, when trading will start and discuss how exactly it will work.
It is hoped that the African Continental Free Trade Area (AfCFTA) – the largest since the creation of the World Trade Organisation in 1994 – will help unlock Africa’s long-stymied economic potential by boosting intra-regional trade, strengthening supply chains and spreading expertise, Reuters reported.
However, the prospect of increasing trade between 55 nations is daunting, given the historical, political and economic complications between the different countries. Africa has much catching up to do; its intra-regional trade accounted for just 17% of exports in 2017 versus 59% in Asia and 69% in Europe, and Africa has missed out on the economic booms that other trade blocs have experienced in recent decades.
Economists say significant challenges remain, including poor road and rail links, large areas of unrest, excessive border bureaucracy and petty corruption that have held back growth and integration. It is also a question of competition. Some countries can be more vulnerable to trade deals than others. Members have committed to eliminate tariffs on most goods, which will increase trade in the region by 15-25% in the medium term.
But there will have to be complicated negotiations to bring big economies onto the same page. For example, oil-rich Nigeria has to face the challenge of galvanising its weak manufacturing sector or lose out to more imports from South Africa, which has the power to flood the market. The wide differences between economies in the region could mean that this effort could go the same way as other agreements that have seen mixed results. But it is interesting that the countries are pushing ahead, nonetheless.
Even though Asia has a high level of exports, this is largely dominated by East Asia. India has been attempting to get a slice of the action with Prime Minister Narendra Modi ramping up his ‘Made in India’ campaign, but the rest of South Asia has not really jumped on board. Sri Lanka’s Government kicked off discussions for an Economic and Technology Cooperation Agreement (ETCA), extending the existing FTA with Pakistan and several Free Trade Agreements (FTAs) with China, and Thailand. It was also doing feasibility studies to start negotiations on an FTA with Bangladesh. Only one FTA with Singapore was signed.
Trade deals alone will not increase foreign exchange earnings. But their ceasing should not mean that other reforms for improving trade, making Sri Lanka more competitive and increasing growth should be forgotten.
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