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1997 ECONOMIC COMMITTEE MEETING
Abidjan, Cote d'Ivoire, May 23-24, 1997
Africa and International Trade
 

Document Available
Africa and International Trade: Strategies for Effective Participation in the Global Market.
GCA/EC/NO.2/5/1997

Summary Report of the Chairman

The Economic Committee of the Global Coalition for Africa (GCA) met in Abidjan, Cote dIvoire, on May 23-24, under the chairmanship of Dr. Kwesi Botchwey. GCA Co-Chairperson Minister Jan Pronk of the Netherlands also attended the meeting. African ministers of finance, as well as those responsible for trade, and senior officials from African and northern countries and international organizations participated in the meeting, along with parliamentarians and representatives of the African and international private sectors and non-governmental organizations.

The meeting was opened by H.E. Kablan Duncan, Prime Minister of Cote dIvoire. Mr. Omar Kabbaj, President of the African Development Bank, and Dr. Botchwey also spoke during the opening session. In his welcoming address, H.E. Prime Minister Kablan Duncan emphasized the importance of international trade and reviewed the reforms undertaken by African countries to achieve better integration into international trade. He also stressed the need for improved international cooperation and promotion of economic integration, and urged that African countries take the necessary measures to achieve their potential. Recognizing the importance of trade to development, Mr. Kabbaj called on African countries to sustain the recent improvements in their macroeconomic environments, promote the acquisition of technology through foreign direct investment, and foster economic cooperation and regional integration. Dr. Botchwey also referred to the significant role of trade and emphasized that African countries could either take up the challenge of implementing the strategies and policies which would enable them to share in the growth of world trade, or do nothing and risk further marginalization.

Africa and International Trade: Performance of African Exports

The meeting was primarily devoted to a review of the past performance and future prospects and possibilities for Africa in international trade. The discussion of Africa and international trade first focused on African export performance during recent years, Africas loss of market share for virtually all of its traditional export products, and its failure to diversify into manufactured and non-traditional exports. There was general consensus that inward-looking policies and over-reliance on primary commodities, together with economic mismanagement, had been largely responsible for the poor export performance of African countries and their limited participation in international trade. Moving from this general understanding, a number of key constraints were identified, and the need to determine priorities noted.

The importance of effective, stable and consistent trade and monetary policies and the creation of a policy environment conducive to private sector development was stressed, and there was consensus that those countries which had managed to diversify their economies and become more fully integrated into the global trading system were also those which had been implementing economic reforms for some years. Although there was agreement that privatization is essential, concerns were expressed as to the short-term effects on production of rapid privatization, given the relative weakness of the private sector in most African countries. Some participants commented that lack of human and institutional capacity in both the public and private sectors and overall supply constraints may significantly contribute to the poor performance of exports, while others commented on the need to support and develop the informal sector.

Excessive regulations and bureaucratic controls were also identified as critical constraints to more vibrant export performance. Such controls included the difficulties in obtaining multiple licenses, the number of often overlapping and obsolete regulations, and the time required to clear goods through customs. It was recognized that bureaucratic controls also contributed to the costs of production, which in many African countries are already non-competitive due to high transport and input costs. Poor infrastructure and communications, unskilled labor, lack of technological expertise, and weak managerial capacity were also among the factors identified as increasing the costs of production.

The discussion highlighted that dealing with supply constraints, especially factor costs and bureaucratic impediments, must receive the highest priority. It also emphasized the need for governments to create an enabling environment for both domestic and foreign investments, and to identify and remove restraints on the private sector. However, it was noted that the time lag between the adoption of reform measures by countries and the willingness of private investors to invest remains a problem in much of Africa. It was also agreed that the external environment, including protectionist barriers impeding market access in developed countries, has had a negative impact on African exports.

The importance of political and governance factors, and especially of leadership, was also emphasized, and the need to go beyond short-term fiscal preoccupations and base development on a longer-term perspective was underscored by a number of participants. In this regard, it was recognized that long-term vision and effective public-private sector collaboration were characteristics shared by a number of Asian countries which have developed vibrant export sectors and enjoyed high rates of economic growth.

Trade Preferences and Their Erosion

There was general consensus that while trade preferences can be useful as temporary support to structural changes and the development of competitiveness in Africa, they cannot substitute for strategies and policy measures that promote strong supply response and good export performance. Indeed, after two decades of non-reciprocal trade preferences available to African exports from the European Union under the Lomé Convention, Africas market share in Europe has actually declined compared to competitors in Asia who are not members of Lomé. However, a few African countries, such as Mauritius, Botswana, and Zimbabwe have taken advantage of the Lomé protocols to gain trading advantages for their exports, indicating that preferences can still be useful to Africa if appropriately utilized.

The current Lomé agreement expires in the year 2000, and it is necessary to prepare for negotiations for a new agreement between the EU and the ACP countries. Neither the EU nor the ACP countries have fully defined their respective positions, although a number of meetings on the subject have given indications of emerging views. The ACP countries appear to be leaning toward the maintenance of the status quo, despite the fact that the results have been meager. Within the EU, on the other hand, there are those who are calling for a broadening of the definition of ACP to include all least developed countries. There is also some support for a "differentiation option" which would apply economic criteria for trade preferences in favor of the poorest countries. The ACP countries, however, appear to be resisting this idea out of a sense of solidarity. The ACP countries are emphasizing the need to broaden the trade aspects of Lomé to include programs to strengthen the supply side, although concrete ideas on how to accomplish this have yet to be proposed, and are also asking for greater policy coherence from EU countries.

There was considerable discussion on the utility of preferences and on ways to maintain preferences in the EU for African exports beyond the status quo. It was pointed out that if large numbers of countries have access to preferences, then the benefit is diluted. In part because of this, the idea of "differentiation" appears to have growing support. One possible arrangement could be for the least developed countries to enjoy preferences, while low income countries could benefit from GSP, and those ACP countries with relatively higher incomes could graduate to free trade arrangements.

Regarding possible future arrangements, it was noted that preferential trade agreements between groups of least developed countries and a hub of industrialized countries, such as the EU, are less attractive to investors if the least developed countries do not have free trade agreements among themselves. It was also noted that compliance with WTO rules has implications for the continuation of non-reciprocal preferences under Lomé-type arrangements, and that the existing waivers are good only through the end of the current Lomé Convention in 2000.

Some participants suggested that the failure of most African countries to effectively utilize preferences to expand exports may be explained, to a significant extent, by inadequacies in policies and capacities that in effect exacerbated other internal constraints to supply response. It was also recognized that external constraints, especially growing protectionism among industrialized countries, compound the negative impact of internal constraints. Protectionist barriers in developed countries, including in particular the EU and Japanese agricultural policies, and the EUs high tariffs on clothing, toys, and shoes were cited in this regard.

Although there was general agreement that African countries have underutilized preferences to date, this was not taken as an indication that preferences themselves are unimportant. Overall, therefore, the meeting agreed that preferences should be continued.

The New Multilateral Trading System

In view of their centrality to current trends in international trade, participants were briefed about the Uruguay Round agreements and the trade negotiation and dispute settlement mechanisms of the WTO. Special attention was called to the forthcoming negotiations on agriculture and services, both of which have significant implications for African countries. The discussions focused on a number of related issues, including ways and means of addressing capacity constraints faced by African countries in both trade negotiations and in the implementation of the agreements, the relative benefits of preferences under Lomé versus the increased market access possibilities provided by membership in the WTO, and the overall impact of the Uruguay Round Agreements on African countries. The question of regional integration and trading blocs, and the compatibility of these with WTO rules, was also briefly discussed.

One of the basic elements of the new institutional framework is that membership in the WTO implies full acceptance of all the rights and obligations. As there is an obligation by each member to abide by the rules and disciplines, the resultant stability and transparency in trade regimes may benefit developing countries. Moreover, the new, more stringent dispute settlement procedures mean that a member at fault cannot block the implementation of settlements. The Uruguay Round Agreements also provide for wider liberalization and improved market access for developing countries. Membership and more active participation in the WTO may enable African countries to achieve enhanced policy credibility and improved perception by potential foreign investors. Furthermore, the obligations undertaken may be used by reform-minded governments to resist pressures from domestic interest groups.

Although it was agreed that there are benefits to be gained from new trading arrangements, it was also pointed out that the trade agenda is largely determined by a few powerful countries. In this regard, building alliances may be a useful means to give strength to weaker states. With respect to improving expertise and capacity in trade negotiations, it was suggested that African countries consider representation by sub-regional groupings and perhaps even by regional bodies such as the OAU. The OAU is itself attempting to take measures along these lines. The need to develop national capacities, as well as the importance of sensitizing the private sector and other relevant groups on trade-related issues, were also emphasized. Both the WTO and UNCTAD have been providing technical assistance to developing countries, including those in Africa. Moreover, the WTO and UNCTAD, together with ITC, have been specifically mandated to assist African countries in the implementation of the Uruguay Round agreements. They are organizing a special meeting of least developed countries, in the near future, to further specify their support to these countries.

Proposed African Trade Strategies

Several African ministers reviewed current governmental programs and policies designed to improve export performance, promote private sector activity and facilitate private investments. In addition to deepening macro-economic reforms, necessary actions include making the required investments in infrastructure (telecommunications, transport, power, etc.), revitalizing agriculture, researching new export market opportunities, removing labor market inflexibilities, moving forward to consummate regional economic integration, and taking steps to make currencies convertible. There was consensus that while the private sector must be the motor of economic growth, the state continues to have an important role to play, especially in creating the environment which allows a market economy to function. This includes an effective legal system, predictable and consistent economic policies, and sound financial systems. Continuing constraints cited by the ministers included the heavy burden of debt service, excessively large government sectors, lack of experience in international marketing, and limited capacity in the African private sector.

A number of African and non-African private sector representatives indicated that despite successful macro-economic reform in many countries, significant constraints remained from their point of view. These include problems of access to credit, especially for small and medium-sized enterprises, the high cost of air and sea transport due to monopolistic practices, added costs generated by the heavy hand of bureaucracy and related corruption, and limited access to information. The private sector representatives did not consider trade preferences to be particularly significant, expressing the view that resources would be better utilized in promoting increased competitiveness. Above all, they called for greater dialogue between governments and the private sector in the formulation of national policies, as well as differentiation in addressing country development needs which vary greatly.

In addition to the discussions, representatives of an NGO meeting held in Dakar, Senegal, immediately prior to the Economic Committee meeting, presented a statement. Regarding the future of Lomé, the statement urged that the new arrangements be instruments of true partnership, incorporating mechanisms for enhancing and stimulating production capacity, while ensuring continued and expanded market access for ACP countries' products. It also recommended that national development strategies should give priority to investment in physical infrastructure and social services, focus on improving information and data and on overall capacity building, promote diversification of exports, and strengthen regional integration in order to achieve sustained growth and equitable sharing of wealth.

The NGO common position voiced concerns that globalization may benefit multilateral enterprises but marginalize national businesses. It also cautioned that, largely as a result of inadequate African participation in multilateral trade negotiations, trade agreements may not properly reflect African interests and may in some instances undermine the competitiveness of African export products. Expressing the view that trade should be seen as a means to realize development, the statement indicated that NGOs themselves will undertake measures to gather and disseminate trade data and information, and generally work towards raising public awareness of trade issues.

African governments, donors, NGOs and private sector representatives agreed that constraints to African trade and investment do not all stem from African government policies and actions. Corruption, unreasonable demands for protection, and trade barriers are also practices of some industrialized governments and transnational corporations.

Cooperation by the International Community

There was general agreement that the increasing diversity of African countries has to be recognized and donor policies adapted accordingly. A new development agenda is emerging, in which trade, investment, and strengthening the private sector are critical elements, and several donor representatives highlighted new measures and policies which address these issues. Examples include the trade and investment initiative of the United States, and Sweden's new Africa partnership policy. However, it was also noted that an increased emphasis on trade and investment does not mean that development assistance is no longer necessary. Rather, there was agreement that aid should help to create the necessary environment in which effective trading partnerships can be pursued. Several donors emphasized that assistance will increasingly be targeted toward those countries seriously undertaking political and economic reforms.

The discussion drew attention to a number of areas in which donor assistance could be helpful with regard to trade and investment. These include technical assistance for the development of trade policies, and development of mechanisms to help build capacity for effective participation in international trade negotiations, including contributing to a fund within the WTO which could be drawn upon to pay for specific expertise. Other potential areas for assistance include helping to remove the infrastructural bottlenecks, support for public and private sector capacity building endeavors, and enabling African countries to better access new technologies. However, it was also noted that there is need for greater donor coordination and harmonization of policies, and for more coherence in financing. The need for donors to present African success stories in order to help address the negative perceptions of Africa in many of their countries was also emphasized.

In addition to the general discussion, the representative of the Government of Japan provided a briefing on preparations for TICAD II, which will be held in Tokyo late in 1998. He reminded participants of the first TICAD meeting in Tokyo in 1993 and reviewed measures taken to implement the decisions taken in that meeting, as contained in the Tokyo Declaration.

By way of conclusion, it was recalled that the GCA is a unique forum for countries committed to political and economic reform to engage in frank and informal dialogue, and to arrive at pragmatic and action-oriented consensus. It is hoped that more African countries will join the Forum as and when they start to take concrete and determined reform measures. It was stressed that, while the focus on domestic African issues in the discussion was heartening and proper, this should not be taken to imply that international trade-related issues have all been adequately addressed. In particular, the debt issue remains to be conclusively resolved, market access continues to be impeded by developed countries use of protectionism in various guises, including non-tariff barriers, and more needs to be done by donors to encourage foreign direct investment in Africa. In particular, the international community can take practical measures in assisting the development of African capacity in trade negotiation, and more fair practices can be introduced to "level the playing field" in international trade negotiations, instead of the increasing tendency of the big trading powers to predetermine both the agenda and outcomes of negotiations.

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