Free trade is advocated by many, as it is believed, in theory, to be an advantage for all trading partners. However, had it been the case that free trade is so beneficial as argued, there would not have been that many protective measures (monetary as well as non-monetary trade barriers) in place. And it would not have taken more than a decade for the WTO to make its first agreement (which only came at the Bali meeting in December 2013). But trade is also about politics, both at the international and domestic levels, distribution of its gains and about vested interests. And “trade war” is even part of our vocabulary.
Despite a historical severe global finance and economic crisis hurting production and trade in 2008 and lasting for several years, world merchandise export has almost tripled from 2000 to 2012. And it has also increased as a percentage of GDP. The share of export to GDP has during the first 12 years of the new century increased in both low, middle and high-income groups of countries.
But the export from low-income countries was in 2012 only 100 billion USD, constituting a meagre 0.5% of total world export. The export from Denmark was of the same size. The total export from countries in Africa South of Sahara (SSA) was around 410 billion USD, the same size as export from Finland, Norway and Sweden combined. Of this, export from Angola, Nigeria and South Africa alone constituted two thirds. Export from the remaining 39 countries in SSA was equivalent to only 136 billion USD, less than the export from Hungary and Greece combined.
During 2014, the EU signed Economic Partnership Agreements (EPA) with three regional trading blocks: The East African Community (EAC), Economic Community of West African States (ECOWAS) and the EPA group (South Africa, Lesotho, Swaziland, Mozambique, Botswana and Namibia) of the Southern African Development Community (SADC). The agreements are a supplement to the “Everything but arms” programme by also including non-Least Developed Countries like Nigeria, Ghana, Cote d’Ivoire, Kenya, Namibia and Botswana which are accorded the same privileges of duty free quota free export.
Although there are advantages for the EPA countries there are also challenges, which will influence their possibilities for choosing their own industrial, agricultural, tax and trade policies. They will have to increase their share of duty free imports from the EU (EAC to 80% after 15 years, ECOWAS to 75% over 20 years), which put pressure on the domestic tax collecting systems for finding alternative, domestic objects for taxation in replacement of import taxes. In the SADC EPA there is some policy space for countries to introduce mineral export taxes enabling support to industrialisation programmes aimed at reducing raw material export and increasing domestic mineral processing.
The benefits of expanding the EU’s reciprocal market access to SSA can be contested, as it can damage both industrialisation of the continent and the South-South trade. It is questionable, if the majority of companies within the manufacturing sector in SSA countries will be competitive with EU companies that progressively will benefit from removal of import tariffs. Some SSA countries (e.g. Nigeria) having left the group of Least Developed Countries have started to export manufacturing products and agricultural machinery to other SSA countries and might face heavy competition from EU companies, both within and outside their own country. Also trade of consumer goods across SSA countries are increasing and might face more competition with a gradual higher presence of EU products in the local markets. In addition, there are limits on the possibilities for countries to levy export tariffs in order to take them out of the colonial trading patterns where they were suppliers of cheap raw materials to Europe. This issue has been accentuated with the discovery of new raw materials in several SSA countries.
Photo by Bjarne Larsen Kron.
www.economics.dk bjarne.wes @ gmail.com Bjarne Larsen Kron
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