The historic $1-trillion African free trade area, the first vital steps towards which were taken over the weekend, will serve as a major boost for the BRICS grouping, says International Marketing Council of South Africa CEO Miller Matola.
Leaders of 26 countries African countries, meeting in Johannesburg over the weekend, agreed to formally launch negotiations to establish a grand free trade area pulling together three regional economic communities, namely the Common Market for East and Southern Africa, the East African Community and the Southern African Development Community.
The agreement centres on creating the continent’s biggest free trade bloc to create a single continent-wide market estimated to be worth $1-trillion by 2013. The countries involved have an aggregate GDP of US$860-billion and a combined population of 590-million.
One massive market
“The BRICS countries [Brazil, Russia, India, China and South Africa] will welcome the prospect of interacting with a combined unit rather than having to deal will the countries in question on an individual basis,” Matola said in a statement on Monday.
“In similar vein, the envisaged grand free trade area would contain considerably more muscle than its constituent parts.”
The BRICS members would then deal with one massive market, instead of 26 separate ones, Matola said. South Africa, being both a member of BRICS and of the soon-to-be free trade area, would be particularly advantaged.
Matola predicted that the free trade area would promote greater interaction between BRICS and Africa, especially in light of the International Monetary Fund’s optimism about Africa’s growth potential, and the likelihood that the free trade area would draw other African countries into joining.
While Africa is a growing opportunity and experiencing the third-fastest growth behind China and India, a mere 10% of Africa’s trade is between fellow countries on the continent.
South Africa ‘will not dominate’
Briefing journalists in Parliament in Cape Town on Monday, Trade and Industry Minister Rob Davies said that although South Africa was by far the largest economy of the 26 across the three regions, it would not dominate trade when the free trade area was set up, as all members would play a role in negotiations.
Added to this, the 25 other member countries did not hold any expectation that South Africa would finance all the continent’s necessary infrastructure development projects, he said.
But Davies was quick to point out that South African companies should get involved in key infrastructure projects, such as the North-South Corridor which cuts through Zambia and Zimbabwe.
He said formal trade blocs would never reach full fruition unless the continent’s infrastructure backlog was addressed. To this end, about 80 projects were already on the go in the North-South Corridor.
Countries outside the FTA
Davies also stressed that the planned free trade area would not necessary affect any trade relationships South Africa had with African countries outside the free trade area.
Davies said the idea was to set up a single regional economic community covering all three existing blocs.
Next up for discussion would be to include West African countries in the free trade negotiations, he said, explained that practical considerations meant the three grouping that met in Johannesburg were already predisposed to working together.
Many of the members of the three blocs were already members of more than one of these regional economic communities, which meant they had to work together, particularly in achieving a unified customs union. Under World Trade Organisation rules, member countries cannot be a member of more than one customs union.
First phase ‘in three years’
The first phase of setting up the 26-country free trade area is expected to come into effect in three years, Davies said, noting that member countries had agreed to carry out negotiations in two phases, with the first to be concluded within 36 months.
Phase one, the current phase, was a trading goods agreement dealing with tariff liberalisation, rules of origin, dispute resolution, customs procedures and simplification, transit procedures and non-tariff barriers.
The first phase would also include the movement of business people across the three regions, Davies said.
Phase two would tackle trading services, competition policy and intellectual property rights across the three regional blocs. A work programme to address industrial development still needed to be set up. Davies said that although no time-frame had been set as yet for the conclusion of this phase.
He said the time-period for phase one had been set at a rather short three years as each of the regional economic communities already ran free trade agreements confined to their respective communities.
Members from the three regional economic communities had also committed to ongoing monitoring and negotiations.
Two committees had been set up, namely a tripartite trade relations committee, which would file quarterly reports, and a sectoral ministerial committee on trade, which is expected to meet every six months and report to the council of ministers on negotiations.
Davies said negotiations would allow for special differential treatment so that smaller states would be treated more leniently in the implementation of tariffs and other objectives.
Added to this, nothing would be agreed upon until everything was agreed in full, he said.
At home, the South African government would engage at every stage with business and labour through the National Economic Development and Labour Council (Nedlac).