The signing of the declaration launching the Tripartite Free Trade Area (TFTA) by Heads of State and government at Sharm El Sheik in Egypt Saturday is a defining moment both for Kenya and Africa.
The main aim of the FTA is to increase intra African trade by easing trade restrictions to allow easier movement of goods and persons in the region.
The agreement will open up a market of up to 625 million consumers from the Nile to the Cape of Good Hope and more than double trade volumes from the current $1.3 trillion.
The launch is the culmination of work that began in Kampala in 2008, when a technical group was established to work on the first phase of negotiations on the movement of goods in the FTA.
The signed agreement will come into force 30 days after the launch and after ratification by 14 partner states of the regional bloc and implementation of the agreement provisions will take place after ratification. Legal scrubbing of the document is expected to be complete by July.
Despite this roadmap, it will take no less than one year to finalise everything. Though the main text agreement is finished, the negotiations are by no means over and done with. Certain critical elements remain unnegotiated such as the the rules of origin, trade remedies and tariff offers.
This means that EAC partner states will not have tariff preference with members of the Southern African Customs Union (Sacu) and Southern Africa Development Community (Sadc) except Tanzania, which is a member of Sadc. EAC partner states that are members of the Comesa Free Trade Area will continue enjoying the preferential tariff.
In Comesa, trade with other FTA signatories like Kenya and Egypt, is based on preferential tariffs of zero duty for goods which qualify under the Comesa rules of origin.
This means that the goods must qualify under one of the following criteria of Comesa rules of origin; goods must be wholly produced, there has to be value addition of 35 per cent, goods should have local material content of 40 per cent, or a product should have a substantial working process from non-originating materials leading to a change in tariff heading from the raw materials to a finished product or they must be goods of economic importance as approved by the Comesa Council of Ministers.
Trade with countries that are not members of the FTA is however done on a reciprocal basis and Most Favoured Nation (MFN) rates apply. These rates are contained in a country’s tariff book.
Most of the Comesa members who are not FTA members have reduced their national tariffs for Comesa member countries between 60 and 80 per cent of their national tariff rates or MFN rates.
Kenya will continue trading with Sacu and non-Comesa Sadc countries on a MFN status. Transitional provisions have therefore been included in the text to allow for further input arising from subsequent discussion down the lane.
The negotiations on the movement of business persons cluster has also been running concurrently in phase one with negotiations on the movement of goods and could be completed within the next six months. While the draft agreement on movement of people is complete, there are still areas where no consensus has been reached such as work permits.
Phase two negotiations will be on trading services, modalities for industrialisation cooperation, or what is known as the industrialisation pillar, competition policies, trade development and competitiveness and Intellectual Property issues. By 2017 all negotiations should have been completed.
Despite the signing, without the finalisation of tariff offers and rules of origin which are important trade facilitation instruments, the TFTA will be a challenge to operationalise and the inconclusive status of these areas does not bode well for trade in the bloc.
This TFTA should not just be a political commitment on paper only but rather a show of political will to improve trade and should be signified by a quick resolution to the pending issues.
CEO-designate, Kenya Association of Manufacturers