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Economic Diplomacy Programme

P O L I C Y B R I E F I N G 7 9

D e c e m b e r 2 0 1 3

A F R I C A N P E R S P E C T I V E S . G L O B A L I N S I G H T S .

E X E C U T I V E S U M M A R Y

The creation of Free Trade Areas (FTAs) and the rapid growth of largeemerging economies such as those of Brazil, India and China havechanged the global market and shifted the basis of negotiations for concludingthe Doha Development Round. There is uncertainty over whether thenegotiating stance of the emerging economies will advance African interests.

A strong African presence in World Trade Organization (WTO) negotiationsremains critical if Africa is not to be marginalised. A key African strategyshould be to seek partnership with developed and emerging economies;Africa must accommodate partnerships with both groups and co-operate withthem on the basis of common interests, such as trade facilitation and a leastdeveloped country (LDC) package, to inuence the outcome of the WTOministerial conference to its advantage.

I N T R O D U C T I O N

The global political economy has recently undergone profound changes. Mostnotable has been a mushrooming of FTAs and a rapid growth of some emergingeconomies, especially those of Brazil, Russia, India and China (BRIC), whichhave changed the WTO negotiating terrain. These developments havetransformed global markets and international trade ows, and with themthe negotiating ground for concluding the WTO Doha Development Round(DDR). Africa has largely been side lined from DDR negotiations betweendeveloped and emerging economies, instead sheltering behind the leadershipof emerging powers, particularly India and China. A stronger African presencein WTO negotiations remains critical, however, particularly now that Africa isbetter placed to accommodate partnerships with both developed and emerging

economies.This paper suggests a possible strategy for exerting an African presence at

the WTO Ninth Ministerial Conference (MC9) to be held in Bali, and for Africa

Ninth WTO MinisterialConference: The Stakes

for Africa

C o l l i n Z h u a w u1

R E C O M M E N D AT I O N S

Africa must use MC9 andsubsequent opportunitiesto highlight its ability toaccommodate partnershipswith developed andemerging economies. Two specific issuesin which Africa shouldexercise this ability are tradefacilitation and an LDCpackage.

Africa must use itsstrategic power as a bloc toplay a mediating role andblock decisions harmful toits interests.

It is essential that theAfrica Group maintain itsunity in the face of anyexternal threats or promisesfrom developed andemerging powers.

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S A I I A P O L I C Y B R I E F I N G 7 9

N I N T H W T O M I N I S T E R I A L C O N F E R E NC E : T H E S TA K E S F O R A F R I C A

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to act together to avoid being elbowed out of theprocess while pushing for genuine developmentalprogress. The paper starts by briefly analysingrecent changes in the global political economy andtheir effect on WTO negotiations. It then discussesa possible strategy and applies it to two issues ofimportance to Africa in the DDR, namely tradefacilitation and an LDC package. It concludes withsome recommendations.

G L O B A L T R A N S F O R M AT I O N A N D T H E W T O N E G O T I A T I O N S

DDR negotiations have lasted for 12 years withoutany realistic prospects of a successful conclusion,while the global political economy has undergonemajor changes, affecting not only the WTOnegotiating arena but international trade in general.Three of the changes have had a major impact oninternational trade and multilateral negotiations andon the interests of African countries.

First, the rise of emerging powers has shiftedthe balance of market power and changed the WTOnegotiating terrain. Emerging powers are now in aposition to shape outcomes; with this has come the

question of leadership. The DDR does not seem tohave any one leader to guide negotiations, unlikethe earlier Uruguay Round in which the US assumedleadership. This situation has contributed to thecurrent WTO impasse; developed and emergingpowers have been reluctant to make the concessionsnecessary for negotiations to move forward.

Second, an increasing volume of trade nowtakes place outside the WTO, for example throughFTAs and global value chains (GVC). Intra-Africanrelations within the WTO are affected by existingtrade arrangements with various parties, notablythrough EU Economic Partnership Agreementsand the US Growth and Opportunity Act (AGOA),through which the EU and US compete in theirdealings with Africa. 2 At the same time those twoblocs are trying to step up their relations with Africain the face of global competition from emergingeconomies. On the other hand, increasing breadthand depth in GVCs have brought a change in thecomposition and ow of trade, with rising volumes

of exports in intermediate goods. Accordingly, therehave been fears of the WTO becoming irrelevant in

terms of trade liberalisation.Third, Africa has experienced significant

economic growth, particularly in the past decade, duemainly to increased exports to emerging economies.This has transformed the continents established tradeand investment relations. Of late, however, growthin emerging economies has slowed, in turn limitinggrowth in African countries. 3 It is therefore in Africasinterest to press for the conclusion of the DDR, andfor delivery on development issues, if it is to reap thebenets of further multilateral trade liberalisationand ensure continued growth. This process can beadvanced if African countries take centre stage innegotiations at the MC9.

A D I F F E R E N T A P P R O A C H T O N E G O T I A T I O N S

All these changes bring with them increaseduncertainty about whether the emerging powerscan inuence global trade governance sufcientlyto meet African countries interests; especially whenthose powers have divergent interests, including thesearch for new markets and the control of some rawmaterials resources in Africa. Furthermore, emerging

powers are trying to resuscitate their export-driveneconomies, which might mean a completely newnegotiating approach to the WTO by BRIC countries.They have two main negotiating options. First is thepossibility of emerging countries working togetherwith larger, established powers. This may become areality because they fall ideologically and materiallywithin the hegemonic paradigm on which themultilateral trading system is based, although limitedin their capacity to act, with its consequent enforcedacquiescence with the US position. 4 Second, andmost probable, is that the major emerging powersuse their new standing to reach key decision-makingpositions within the WTO hierarchy and therebyfurther their own interests. Already some emergingnations have found themselves invited to participatein informal meetings, such as mini-ministerialforums, by virtue of being granted regional leaderstatus. Such participation signies tacit acceptanceby emerging economies of their unequal status in the

WTO, a situation they can use to their advantage.

Uncertainty over whether the emerging powers willadvance Africas interests makes a compelling reason

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for Africa to seek a different approach to negotiations:one that brings the development dimension back tothe centre of the Doha Development Agenda in orderto generate continued trade-led growth in Africa.This might mean that Africa co-operates with bothdeveloped countries and emerging economies notsolely on the basis of previous or future powerrelations, but on present common interests. Such anapproach would give Africa the leverage to brokerbenecial deals and choose with which powers toalign itself on issues pertinent to Africa. This wouldmark a change from the earlier approach when Africarelied on leadership from emerging economies; thisdid not always bring the desired results, as in someinstances emerging powers interests took precedenceover those of the group. Two examples demonstratethe common interest approach.

T R A D E F A C I L I T A T I O N

An agreement on trade facilitation at the MC9 isseen as key to reviving WTO trade talks. Africancountries, however, are wary of signing up to newlegal instruments that would be difcult for them toimplement, and are therefore seeking more exibility,

and nancial and technical assistance for the capacitybuilding necessary for implementing the proposedagreement. An agreement on trade facilitation isworthwhile because the MC9 Draft ConsolidatedNegotiating Text 5 includes a number of trade-relatedissues that will benet African countries global andregional trade. 6 Evidence at the regional level showsthat trade facilitation has increased trafc throughtrade corridors in Africa with a direct positiveeffect on development. 7 The Draft Negotiating Textincludes several provisions that might improve tradewithin Africa and includes proposals for technicalassistance that could help develop implementationcapacity. Africa could demand the establishment ofa trade facilitation implementation fund within theAid for Trade framework, specically for developingimplementation capacity. Emerging powers mightcontribute to such a fund, given that the drafttext encourages developing countries to providecapacity building to other developing countries. Thetrade facilitation implementation fund should be

accompanied by a clearly dened action plan to meetAfricas priorities.

L D C PA C K A G E

In recognising the importance of market access fortheir products, LDCs submitted a proposal thatduty-free, quota-free market access (DFQF), alongwith other issues of interest to LDCs, be part of thedeliverables in Bali. The US, however, is of the viewthat DFQF should be part of a final Doha Roundpackage, while some African LDCs are concernedthat any expansion of included product, particularlyto textiles, could lead to preference erosion. Giventhe complexity of the negotiations it is importantthat African LDCs take into account developmentsin preferential trade arrangements between Africaand its developed partners. A DFQF package couldbe designed to include the widest range of products;for instance an increase in the number of productscovered by AGOA has been found to deliver majorbenefits for African countries, including higherdiversication of African exports. 8 At the same time,unless complete DFQF market access is granted,expanding product eligibility has only a small effecton exports of AGOA-eligible goods, because the US istrying to exclude its most sensitive sectors (eg sugar,cotton and clothing) from which Africa would have

most to gain. 9 In terms of preference erosion, however,some studies found no evidence of net losses to Africaafter the US extension of DFQF market access to AsianLDCs;10 rather, LDCs in general realise signicantbenets from market access if all products are covered.

Negotiations should take into account, however,issues attending restrictive or inflexible rules oforigin that hamper LDC trade under existing DFQFarrangements. It is in the interests of African LDCs atleast to consider the benets of expanding producteligibility under US DFQF terms. Countries thatmight suffer loss from this could be compensatedby improved special and differential treatment andcontinued Aid for Trade grants to meet adjustmentcosts. 11

African LDCs should also target new marketsin emerging economies, potential gains from whichcould be made much higher should emerging marketsexpand DFQF market access to 100%. 12 Alreadycountries such as India grant duty-free preferencesto LDCs, with less cumbersome rules of origin.

Evidence suggests, however, that these measures havenot been very successful in promoting value-added

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exports from LDCs. 13 African LDCs and theemerging economies can co-operate within the WTOnegotiating framework to improve the effectivenessof those preferences; for example Brazil and Indiaalready have technical co-operation programmeswith a number of African countries, which constitutea key component of the development dimension ofthe rules-based multilateral trading system embodiedby the WTO. 14 Moreover DFQF is not an open-endedarrangement; the issue of graduating beyond LDCstatus is always on the horizon. AGOA has alreadyseen controversy regarding the promotion of somebeneciaries to middle-income country status. It istherefore important for African LDCs to look beyondDFQF schemes.

C O N C L U S I O N

The ability of Africas growing economies toaccommodate partnerships with developed andemerging nations offers an opportunity for Africato co-operate with both those groups on the basisof common interests, in order to influence theMC9 to Africas advantage. The Africa Group is thelargest single strategic grouping within the WTO

and has enough votes to block decisions and tableissues; it is able to mediate between developed andemerging countries and can play them off againstone another. Using the Groups strategic importancein the WTO to its own advantage will also requireskilled intra-Group negotiations to maintain unityin the face of external, divisive threats and promises.MC9 outcomes beneficial to Africa also dependon the kind of trade relationships Africa seeks ina global political economy undergoing profoundchange. Such relationships have to be structured sothat that they contribute to sustainable growth, andAfrican countries must not nd themselves victimsof changing political and economic fortunes, orindividual country interests. Africa has to be a gamechanger, not an observer.

E N D N O T E S

1 Dr Collin Zhuawu is with the International Trade andRegional Cooperation Section in the Economic Division

of the Commonwealth Secretariat.2 Joselow G, US keeps eye on European Competition

for African Trade, How we Made it in Africa, 13 August2013, http://www.howwemadeitinafrica.com/us-keeps-eye-on-european-competition-for-african-trade/29067/#.UgqN25LrzWY.

3 The Great Deceleration, The Economist, 408, 8846, p. 11.4 Alden C & MA Vieira, The new Diplomacy of the

South: South Africa, Brazil, India and Trilateralism,Third World Quarterly , 26, 7, pp. 10771095, 2005.

5 WTO, Draft Consolidated Negotiating Text, Revision TN/ TF/W/165/Rev.17.

6 Ibid.7 Rubiato JM & J Hoffmann, Promoting African intra-

regional trade through trade facilitation negotiations,Bridges Africa, 2, 3, pp. 46.

8 Mevel S, et al., The Africa Growth and Opportunity Act: anEmpirical Analysis of the Possibilities Post-2015, BookingsReport, July 2013, http://www.brookings.edu/research/ reports/2013/07/african-growth-and-opportunity-act.

9 Ibid.

10 See, for example, Bouet A et al., The Cost and Benets ofDuty-Free, Quota-Free Market Access for poor countries:

Who and What matters?, IFPRI (International FoodPolicy Research Institute) Discussion Paper 00990,IFPRI, 2010. Hufbauer G et al., Payoff from the WorldTrade Agenda 2013, Peterson Institute for InternationalEconomics/International Chamber of Commerce, 2013.

11 Ancharaz V & S Laird, Duty-Free, Quota-Free MarketAccess: What in it for African LDCs? Bridges Africa, 2,3, pp. 710.

12 Ibid.; and Hufbauer et al., op. cit.13 Ancharaz V & S Laird op cit.14 WTO, Implementation of the Development Assistance

Aspects of the Cotton-related Decisions in the 2004 JulyPackage and Paragraph 12 of the Hong Kong MinisterialDeclaration, ITEM 2C Coherence Between Trade andDevelopment Aspects of Cotton, Report of the 19th Roundof the Director-Generals Consultative FrameworkMechanism on Cotton, TN/AG/SCC/W/19.

The Economic Diplomacy Programme is funded by the Danish International Development Agency.

SAIIA gratefully acknowledges this support. SAIIA 2013 All rights reserved. Opinions expressed are the responsibility of the individual authors and not of SAIIA.

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