African businesses snub regional trade deals for Quad countries

Businesses in the region are making the most of preferential trade agreements with the West, snubbing local free trade treaties in spite of a rising push for more intraregional business. A new study shows that African traders are taking advantage of import duty waivers by the US, Canada, EU and Japan (collectively referred to as the Quad countries) under various preferential trade agreements (PTAs), resulting in large volumes of exports to the West.

On the contrary, the businesses are not fully utilising similar advantages under local regional economic communities (RECs), according to findings by the UN Conference on Trade and Development (UNCTAD) and the Common Market for Eastern and Southern Africa (Comesa).

As a result, intraregional trade in the regional blocs has lagged far behind dealings with the Quad countries.

In 2018, for instance, exports between Comesa member states totalled $9.3 billion, but exports to the EU, US, Japan and Canada were valued at $25.6 billion.

In the same period, 77.3 percent of exports to the Quad countries utilised PTAs, compared to only 60.8 percent of the intraregional exports.

Some countries that reported extremely low levels of utilisation of cross-border free trade agreements while utilising PTAs with the North include Uganda and Burundi.

Burundi, for instance, shipped commodities worth $44.8 million to the Quad countries in 2018, receiving import duty waivers on goods valued at $2 million, out of the total $2.2 million covered under PTAs.

In the same period, however, Burundian traders utilised only 17.3 percent of the waivers provided under Comesa to export to member countries, and 77.5 percent of the duty waivers given under the EAC agreement.

Under-utilising Comesa

Ugandan businesses enjoyed 96.9 percent of the waivers given by Quad countries, but only 17.1 percent under Comesa and 74.7 percent under EAC.

According to UNCTAD, this is primarily due to “complex and stringent” rules of origin, which prevent local businesses from taking advantage of the trade preferences provided for by regional treaties. Rules of origin are the principles that determine if goods originating from a particular country qualify to be exempted from import duty or if they will be taxed less under a particular trade agreement.

“The rules of origin can be complex to comply with – especially for products made using materials from different countries through global value chains – and can make it difficult for products to qualify for trade preferences,” UNCTAD said in a statement last week.

“This complexity can hinder African businesses from benefiting from preferential trade agreements that the continent’s governments have increasingly signed to increase intra-African trade.”

UNCTAD says the figures from the study, “call for policy actions to redress such unbalance.”

“Understanding which trade agreements are working better for African firms will help the continent’s governments improve the outcome of trade negotiations and ensure better trade deals,” said Paul Akiwumi, Director of UNCTAD’s Division for Africa and Least Developed Countries.