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Africa does not need an ‘imperfect’ continental Customs Union

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An article published on the Trade Unions and Trade in Africa website, a web platform developed by the International Trade Union Conference-Africa (ITUC-Africa) jointly with the Labour Research Service (LRS), and the Trade Union Solidarity Centre of Finland (SASK), analyses the prospects of the possible evolution of the African Continental Free Trade Area (AfCFTA) into a continental Customs Union to advance the economic integration process in Africa.

In describing the path necessary to establish the African Economic Community, Art. 6.2.d. of the Abuja Treaty indicates as an intermediary step the establishment of a Customs Union at the continental level by means of adopting a common external tariff (CET). Art. 3 of the Agreement establishing the AfCFTA mirrors this provision by stating (art. 3) that one of the general objectives of the AfCFTA is to “lay the foundation for the establishment of a Continental Customs Union at a later stage”.

However, while the Abuja Treaty sets out a precise timetable for when this should happen, with a predetermined (albeit unrealistic) deadline for achieving it, the AfCFTA remains silent regarding when this milestone should be reached.

In order to establish a Customs Union, an agreement among AfCFTA State Parties is necessary. This agreement can only be reached within the African Union Assembly, through an inter-governmental process based on consensus. Because of the peculiar characteristics of this process, the Customs Union is a step extremely complicate to achieve. Currently, Africa hosts 54 countries at very different stages of economic development (55 if we include the Saharawi Republic, which is recognized by the AU as a member). To be also noted that 16 of them are landlocked and that this is a situation that makes extremely complicated the implementation of a revenue-sharing mechanism for the re-distribution of customs duties applied on imports from third countries, that in a Customs Union are collected only at the external borders.

Because of these complications, and keeping in mind the difficulties already encountered in finalising the AfCFTA negotiations -which were launched in 2015 and are still incomplete - the achievement of a continental customs union will be particularly hard, considering that compared to the AfCFTA, this is a deeper form of economic integration witch entails stricter rules.

The main argument in favour of a continental Customs Union is that it would significantly reduce (although not completely eliminate) the problem of trade deflection in the continent, as all African nations would apply a uniform tariff vis-à-vis third countries. This is because in a customs union it is indifferent for traders to import goods through the territory of one state rather than another, since the tariff treatment at the external borders is the same. In a customs union, external border controls are stronger, while internal border controls are minimal because the risk of trade deflection is reduced. However, there is always the risk that traffic flows from third countries are channelled by importers towards the most efficient ports, penalizing those that are not able to guarantee a quick clearance and reduced costs. Trade deflection occurs when traders redirect products that they import from third (non-preferred) countries through the territory of a member of the FTA that has the lowest external tariff, from where they can be shipped to the member country of destination, thereby circumventing the higher tariffs of the latter. This practice, also known as ‘dumping’ or ‘transhipment’ is a plague for Africa, despite all FTAs (including the AfCFTA) have established specific mechanisms to avoid this phenomenon, called "Rules of Origin" (RoO).

But the problem of Africa is the existence of lax border controls and undemarcated, porous borders dotted with many informal trade routes. This situation creates a huge gap in the application of RoO, because it offers an opportunity to dishonest traders to import goods through the territory of those States that have lower tariffs (or that have concluded preferential trade agreements with third countries), and then transport them to neighbouring States by taking advantage of the numerous informal crossing points existing between African nations, thus evading the payment of customs duties in the country of the final destination of the goods. A recent paper provides an example of such practice in Togo and Ghana, where the author reveals a sophisticated smuggling system developed by traders to avoid the payment of customs duties and border authority controls once they cross the border. From Togo, huge quantities of merchandises are splitted in many consignments that are distributed by exporters to local small scale cross-border traders who introduce them in Ghana in small quantities through informal border crossings. Once they are on the other side of the border, these goods are consolidated in bigger shipments and loaded onto cabs, which deliver them to their final destination. This is actually a practice that is adopted by illegal traders in many parts of Africa.

One of the main challenges for the establishment of a continental customs union is that it entails the need for African states to cede part of their national sovereignty: a situation that such States could be unwilling to accept. In fact, the article notes, the deeper the integration, the more onerous the obligations become for State Parties and the greater the loss of sovereignty. This argument is reiterated in the Sutherland Report, published in 2004 by the World Trade Organisation (WTO), which recognizes that “the acceptance of almost any treaty involves a transfer of a certain amount of decision-making authority away from States, and towards some international (NdR. supranational) institution”. The same report underlines that the benefits deriving from the devolution of portions of sovereignty from the national to the supranational level are generally greater than those that would exist if such sovereignty remains rooted in the national states.

The reason is obvious: unity is strength. By joining their territories in a single customs territory, countries can create larger markets, reduce trade barriers, and promote economic growth. True. But provided that this single customs territory is a “perfect” customs union.

A customs union is defined “perfect” when all its member States implement and apply the CET without any exceptions and when all its members fully transfer their commercial policies (including the powers to conclude trade agreements with third countries and to impose both tariff and non-tariff barriers), to a supranational entity responsible for formulating and administering them on a community basis. The problem is that the customs unions existing in Africa do not have any of these two characteristics. They are therefore all “imperfect” customs unions.

An example of perfect customs union is the European Union, where all EU member States apply the CET to the same extent and without national exceptions, and where trade and customs policies are managed at supranational level. EU member States cannot enter into trade agreements individually. In Africa, individualism in negotiation and conclusion of trade agreements is the rule. And the results are visible: since the achievement of a Customs Union, EU member states have benefited from much increased trade and economic integration. African States that are member of customs unions have also registered some advances in these two areas, but more modest than in Europe. Wonder why?

The article also asks the question if it is possible to establish a continental customs union when the Africa’s regional integration arrangements are still a work in progress. It notes that many of the African Regional Economic Communities (RECs) are still struggling to complete their integration roadmaps. The EAC is cited as an example: described as a customs union, in practice it is a sort of "partial" or "variable geometry" customs union, where not all the different members participate (or participate to different extent) in all the obligations under the legislation and legal instruments of this Community.

We note that the EAC is not the only case. The same is true for instance for COMESA, ECCAS and SADC. Formally, they are all described as Free Trade Areas (FTAs), but in practice not all their members participate in such FTAs. For example, only 16 out of the 21 COMESA member states participate in the COMESA FTA. In ECCAS, only 5 member states out of 11 (Cameroon, CAR, Chad, Congo And Gabon) fully participate to the ECCAS FTA, and at the moment these States have liberalized trade only on about 400 products, being the ECCAS FTA still under development. In SADC, the Democratic Republic of Congo, Angola and the Comoros do not yet participate in the SADC FTA.

And what about AMU, IGAD and CEN-SAD? These RECs have not even reached the stage of FTAs, as required by the Abuja Treaty Art. 6.2.c (“At the level of each Regional Economic Community … establishment of a Free Trade Area … and … of a Customs Union by means of adopting a common external tariff”).

Let's take then a look at the current customs unions that exist in Africa. In the EAC, as indicated above, not all member countries participate in the customs union. Furthermore, the EAC Partner States have adopted a mechanism called “Stay of Application” of the EAC CET, which allows them to introduce exceptions to the Common External Tariff as a way of protecting infant domestic industries and boosting manufacturing for export. A similar mechanism exists in ECOWAS, which despite being a customs union as well, allows its member States to maintain national prohibition lists that introduce exceptions to the CET that vary from member to member.

Moreover, in the EAC, member states still individually retain the possibility to enter into separate trade agreements with third parties, provided that they give the other EAC partner states the possibility to formulate their views on the opportunity of their conclusion (Art. 37(4)(b) of the EAC Customs Union Protocol). But the final decision if to proceed with the conclusion of such agreements always rests with partner States: the case of Kenya is an example. This situation qualifies the EAC as an imperfect customs union, i.e. a customs union with many exception to the CET and no transfer of trade policies to the supranational level. The same applies to the other customs unions on the continent. None of them has the power to conclude trade agreements with other third countries as a bloc, and those few attempts by such Customs Unions to conclude regional agreements with external entities (one case being the Economic Partnership Agreements of the EU and the United Kingdom), have all failed, and have led to the conclusion of bilateral agreements (the cases of Kenya, Ghana, Cote d'Ivoire and Cameroon, members of EAC, ECOWAS and CEMAC) or between groups of states (e.g. the EU-SADC and EU-ESA EPAs). An exception is SACU, which is the only customs union in Africa that, although also imperfect (as it does not imply a devolution of trade and customs policies from its member States to the customs union), has managed to develop a coordination mechanism that allows its members to negotiate trade agreements jointly. Indeed, SACU has in place an FTA with the European Free Trade Association (EFTA) States which entered into force on 1th May 2008, and a Preferential Trade Agreement with the Common Market of the South (MERCOSUR) entered into force on 1th April 2016.

The conclusion is that the current RECs in Africa (FTAs and Customs Unions) lack of supranational institutions endowed with powers to act on behalf of the collective or to enforce the relevant legal regimes against their member states. They are all imperfect, and they cannot negotiate as one.

To conclude, if for advancing the process of continental integration, African States plan to create an imperfect continental customs union in Africa along the lines of those currently existing in the various regions of Africa, then better to stick to the AfCFTA. Because Africa does not need this kind of customs union. It would be totally useless. It would not be able to solve the problem of trade deflection, it would not give to African countries a single voice so to exert a greater influence on global affairs.

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