Africa opens world’s largest single market (4)

MULTILATERAL TRADE PACTS outside the World Trade Organisation (WTO) are growing numerically and are becoming widespread globally. The sizes of economies and number of countries under each accord are also showing signs of increase. In November 15, 2020, just weeks before African Continental Free Trade Area (AfCFTA) began trading, a summit of the Regional Comprehensive Economic Partnership (RCEP) Agreement, involving 15 countries, was held albeit remotely by virtual means.  The participating 10 member countries of the Association of Southeast Asian Nations (ASEAN) and five regional partners, including Australia, China, Japan, Korea and New Zealand attended. However, India, the sixth regional partner opted out for several issues which, it argued, prevented it from signing the agreement. Whenever RCEP Agreement enters into force 60 days after six ASEAN Member States and three non-ASEAN Member States must have ratified the Agreement, RCEP might overthrow AfCFTA in terms of market size in volume and value, thus becoming the new largest global regional single market. Those days may be nearer than expected. In Asia, RCEP would also have overtaken the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was signed by the 11 countries without the US on March 8, 2018 in Santiago, Chile. The CPTPP entered into force on December 30, 2018 for Australia, Canada, Japan, Mexico, New Zealand, Singapore and on January 14, 2019 for Vietnam.

Can it be altogether argued with validity that any of the emerging trading blocs were unprecedented? The African, Caribbean and Pacific and the European Union (ACP-EU) trade relations began under different nomenclatures and metamorphosed into what it eventually became, after many rounds of unsuccessful but repeated talks. Back then, it was seen as a reciprocal free trade arrangement between some of the poorest economic regions and what was then considered as the world’s largest single market. The world multilateral trading system began with different descriptions before finally taking shape as the World Trade Organisation. Now that RCEP is a reality, Asia’s place in global economy is becoming more prominent.

Reasons to believe that RCEP will be a regional giant are not far-fetched. Nature abhors vacuum. The Asian bloc is a veritable market in a world of growing prosperity and increasing personal and national affluence. A recent publication from the Brookings Institution, noted that RCEP will “connect about 30 per cent of the world’s people and output and, in the right political context, will generate significant gains.” The institution revealed that its recently published computer simulations showed that RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030.” As agreements are now configured, “they forcefully stimulate intra-East Asian integration around China and Japan,” Brookings continued. In that piece, titled “RCEP: A new trade agreement that will shape global economics and politics,” Brookings added that the new agreements will make the economies of North and Southeast Asia more efficient, linking their strengths in technology, manufacturing, agriculture, and natural resources.

To put it in context, the failure of the World Trade Organisation (WTO) to fulfil its promises provided a fertile ground for the emergence of the various large plurilateral regional trading blocs, representing a reaction to the failure of multilateralism by countries and regions willing to move forward with the trade liberalisation process. Doha Development Agenda, formally launched in November 2001 in Doha, headquarters of Qatar, ran a 14-year bumpy course. The ambitious WTO deal, originally scheduled to have been concluded and sealed by January 2005 but pushed to 2006, went into coma in 2008. It was, however, kept alive by the hopes of the optimistic promoters until December 19, 2015, at the tenth Ministerial Conference in Nairobi – attended by trade ministers representing over 160 countries – where the death knell was sounded after many years of wasted time and resources without any headway.  Its end signalled a decline in relevance of the WTO as a global trading platform. The WTO has been stagnant since then, five years on, despite spirited efforts to revive it. Although a New York Times editorial opinion of January 1, 2016, posited that “regional agreements threaten to segregate the world into overlapping trading blocs with different rules….,” it nonetheless affirmed that “many countries have been so frustrated by the Doha stalemate that they have been negotiating bilateral and regional trade deals.”

Andrew Charlton, analyst and co-author with Nobel laureate Joseph Stiglitz of “Fair Trade for All: How Trade can Promote Development,” wrote in one brief on the collapse of the Doha trade round, published in CentrePiece journal of Autumn 2006, that “the first new element is the (welcome) presence of the poorest countries as an organised force in the negotiations. These countries are right to say that their circumstances should give them special treatment. But the political reality is that by offering nothing in return, they are a drag on the system. The preference-dependent countries (mainly small states in Africa, the Caribbean and the Pacific) have a vested interest in the round’s failure: for them, no deal is a good deal and they have been a thorn in the side of the round from day one.” Some proponents of development thoughts may strongly disagree with this viewpoint or probably consider it prejudicial, but Charlton seems to be stating the obvious as pointed out further that, “in the longer run, the collapse of the Doha round may be more significant. There is a long-term economic cost that is difficult to quantify, and there is an obvious symbolic failure. This may undermine the credibility of the World Trade Organisation and ferment distrust in the developing countries whose promised ‘development round’ has conspicuously failed to materialise.” Should the burgeoning regional trading blocs therefore surprise any?

Gains from a successful Doha deal, according to World Bank’s estimates, would have been about $100 billion, mostly to the advantage of the rich countries. Failure to see the round through was a result of some decision somersaults on one hand and rigidity on the other from many influential countries of the global south and global north, particularly India, China, as well as US and EU, respectively. Initial hopes and positivity elicited by the US and the EU began to give way to apathy as years wore on. The matters arising clearly appear to have more political undertone than economic considerations as the prevailing rhetorics in recent times have shown. The initial willingness of the US and EU to make concessions on tariffs froze to cold resistance when big developing countries appeared unwilling to make fundamental concessions. One prominent point was that, although China became a member of the WTO on December 11, 2001, and has undergone tremendous economic transformation within a few short years even into the Doha round of talks, it preferred to keep pleading a developing country status. A report from the Embassy of the People’s Republic of China in the US on August 23, 2007, stated that China was likely to become U.S. third largest export market by that year end or early in the following year, “as the fastest growing U.S. export market.”

The same report revealed that China’s foreign trade volume reached $1.17 trillion in the first seven months of 2007, an increase of 24.4 per cent over the same period the previous year, citing customs sources. “Trade between China and the U.S. reached 262.7 billion dollars in 2006 compared with 2.5 billion dollars in 1979 with farm produce and machinery registering fast growth. The European Union remained its largest partner with a trade value of 190.1 billion dollars, a growth of 28.5 per cent over the same period of last year, followed by the United States with 167 billion dollars, up 17.5 per cent, and Japan with 130 billion dollars, up 15.2 per cent.” The report, that revealed a steadily growing US trade deficit with China, was very specific. “Since 2000, China had become the largest source of U.S. trade deficit,” according to Zhang Yansheng, then a director of the International Economic Research Institute under the National Development and Reform Commission, who alleged “China’s rocketing trade surplus unsettling the U.S., which keeps pressing China to ease currency controls and import barriers.” The report added that “official figures show China’s trade surplus with the United States jumped by 22 times from 1993 to 2006 when it hit 144.2 billion dollars” and, “in the first seven months of 2007, China’s exports to the U.S. topped 127.65 billion dollars while imports from the U.S. reached 39.35 billion dollars.” The contradiction or paradox here was that while China enjoyed plying the high road of convenience leading it to becoming the world largest single trading country, provided by the WTO, it still preferred to keep the developing country status.

It is hard to reconcile the logic behind how and why many economists and some US politicians don’t seem to recognise, let alone admit, that retaliatory tariff measures are sometimes appropriate in an attempt to rein in China on trade, particularly the US-China trade, as the latter seems unwilling to play by others’ rule. It was clear China wanted to have it both ways, ignoring the implications of not adhering to the rules of reciprocity in international trade. China then was reluctant to make expected concessions, prompting officials from the Western countries to renege on their commitment to produce a trade agreement that would have stimulated development in poorer countries without insisting that they reduce import barriers to the same extent as richer, more developed and industrialised nations. To a very great extent, therefore, China was a key factor for the collapse of Doha round of development talks – a missed opportunity for developing countries all this while. The potential positive or negative impact of single powerful countries in plurilateral or multilateral trade deals should therefore not be ignored. In Africa, this should be a good lesson for AfCFTA promoters, to avoid embarking on deals that could end up stalling. Africa’s commodity-dependent economy will need drastic and strategic structural transformation to be able to benefit from the new continental trade platform. A lot needs to be done in areas of trade other than commodities. Apart from agriculture and minerals, service industry will be worth giving prominence as Africa is already experiencing boom in trans-border banking and telecommunication services. Through AfCFTA, Africa has a lot of wealth creation prospects. Its main concerns should revolve around how to use trade to alleviate poverty within the continent. Many pitfalls can be avoided by learning from the experiences of other trade groupings.