Regional trade agreements, not WTO, are the future

In December last year, Kenya hosted the first ever World Trade Organisation ministerial conference held in Africa.

Heralded as one of the final pushes towards a more open world of trade, the gathering was hallmarked by developed countries agreeing to eliminate export subsidies on agricultural produce.

Liberia also chose this momentous occasion to accede to WTO as its 163rd member state by ratifying the Marrakesh Agreement which established the world trade body.

Unfortunately the good old days, when WTO was unquestioned as the world body to liberalise trade are behind it, for three reasons.

First, the WTO in an exceptional way, has restricted and controlled the free movement of goods and investment.   A prime example can be found in intellectual property protection, where pharmaceuticals have been allowed to extend their monopolies around the world.

In 1999, the Treatment Action Campaign in South Africa later supported by the Act Up Campaign in the United States formed a global movement to contest the move by pharmaceutical companies to advance patent protection of Anti-Retroviral drugs (ARVs) under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

The agreement had the effect of denying generic companies licenses to make cheaper drugs.

The premise of the argument (by the global movement led by Treatment Action Campaign) was that the actual drug manufacturing process is a small part of the cost associated with the medicine.

Pharmaceutical companies, it said, only come at the upstream end of the drug development process, cherry picking and patenting innovations, after national governments have trained scientists and invested in public universities laboratories that are producing these pharmaceutical innovations.

"UPWARD REVISON"

This became a controversial issue and was contested in the 2001 WTO gathering in Doha, Qatar.  After heavy advocacy, the implementation of the TRIPS provision were changed to allow governments to issue what was called “compulsory licenses.” 

These would basically allow generic production of ARV drugs but only for their national markets, restricting countries from importing generic drugs from other producing countries. This was hailed as a major victory at the time, but in truth it was very difficult for countries to activate their new rights.

Only a handful of compulsory licensing processes have so far taken place due to lack of national capacity to produce the generic drugs. This has therefore given patent holders the ability to extract monopoly rents from their intellectual property over a wider market, blocking the free flow of life-saving medicines.

A second source of grousing has been the implementation of WTO Sanitary and Phytosanitary Standard Agreement. This provision effectively grants United States and Europe Union – which are rich and technologically advanced – leeway to set Sanitary and Phytosanitary standards. It is the US and EU national standards that are used in benchmarking the international standard for this rule.

Thus these countries have used the provision to protect their markets by imposing stringent regulations on horticultural exports. African countries have found it difficult keeping up with the upward revision of standards regulations for exports to EU and US markets.

On the other hand, genetically modified foods companies (a highly contentious and inconclusive subject on the risks they pose on human life) making inroads in the continent are invoking this same SPS rule.

This makes it hard for national governments to keep out foreign agricultural goods on the basis that they were made using certain kinds of pesticide, herbicide or growth hormones without overwhelming scientific evidence, even when the concept behind those barriers to entry is to protect national consumers.

MISPLACED FACTS

Third, the democratic qualities of the WTO have also been heavily questioned. Though the trade body provides for a dispute settlement tribunal, its proceedings are secret, in the sense that they are closed off critical commentary from a variety of stakeholders.

Only trade representatives and their lawyers are allowed to debate and participate in the discussions. This discretion has enabled developed countries to exert their influence and have their way with finality, since most African countries are bound by WTO commitments.

 In a recent article in Foreign Policy magazine titled “Africa’s boom is over” Rick Rowden launched a scathing critique of the failures of the industrial policy centred on free trade and free markets that African countries have adopted.

Pan-African movements, together with trade protection advocates, have also telegraphed a similar critique, that neoliberal policies are solely to be blame for Africa’s slow industrialisation progress.

Yet beneath this veneer of free trade and market criticism is a layer of misplaced facts. The major reason for Africa’s dismal industrialisation performance is the preferential trade agreements that African countries have entered into as individual economies with the developed world, making it cheaper for them to trade outside the continent and more expensive to trade with each other.

These agreements have constrained African economies’ capacity to consolidate markets and invite economies of scale that would attract the needed investment to bridge their existing industrial and infrastructural gaps.

It is a worrying concern that intra-Africa trade is not converging with international levels when, matter-of-factly, it promises higher industrial prospects.

The World Economic Forum’s Africa Competitiveness Report 2015, estimates that the world’s second largest continent’s share of global trade is glumly at 2 per cent with intra-Africa trade standing at a paltry 12 per cent.

In comparison, the EU has intra-regional trade at 60 per cent the North America Free Trade Area (NAFTA) is at 48 per cent while the Association of South East Asian Nation (ASEAN) is at 21 per cent.

A 2015 study by the Institute for Defense Analyses shows that 60 per cent to 90 per cent of intra-Africa trade costs are related to non-tariff barriers like rules of origin, standards, and policies on licenses and permits, too much paperwork and documentation and long cross-border delays.

FOLLOW THE EU

If all African countries raised their performance on just two non-tariff barriers halfway to the level of global best practice, global GDP would increase by 4.7 per cent.

When US President Ronald Reagan declared his support for the Canada-US Free Trade Agreement - one of the early kinds of regionalised trade agreements, he set the ball for a new economic constitution rolling.

Thereafter, regionalised trade agreements started to have fundamental legal power. Today the future of international trade rules is no longer set by the WTO, but by mega-regional trade agreements such as the Trans-Atlantic Trade and Investment Partnership and the Trans-Pacific Partnership.

These comprehensive regional trade agreements, in terms of trade volume and scope of substantive rules, combine negotiations of free trade areas with investment protection and governance.

In Africa, there are spirited efforts to establish a Continental Free Trade Area but its model is spidery and patchy.

The framework is supposed to consolidate Africa's regional economic blocs into one. Yet out of 54 countries, 23 belong to two regional blocs, 17 are members of three, and six countries belong to four, making its acceleration more political than economic.

It’s time the continent borrowed a leaf from the EU, which is distinctively leading in the shaping of 21st century economic law, in addressing its political sticking points.

Starting out as a basic agreement between the French and Germans after World War II over trade on iron, steel and coal across borders of these countries; this basic commitment to trade protected with political agreements on shared sovereignty (European Commission, Parliament and Court) has freed up trade, creating a more traditional free trade agreement.

The realisation that Africa is the next global investment destination should seep through the minds of member states and inform them to pool sovereignty under one economic bloc to facilitate more cross border trade.

Only then will the continent tap into its full economic potential.