Maybe it’s deliberate, maybe it’s a honest mistake but I’m seeing a lot of arguments being made against the CFTA using arguments against free trade agreements. Don’t worry, I am not trying to confuse you either.
There is a significant difference between a Free Trade Area and a Free Trade Agreement. The meaning of CFTA is Continental Free Trade Area. Let’s use a real life example to draw a distinction as follows:
With Brexit, Britain is leaving a Free Trade Area and is now trying to sign a Free Trade Agreement.
One particular article from Le Monde that argues against the CFTA as if it is an FTA is being shared widely. The article was recently published in The Guardian. Here’s the opening:
Pressure for free trade is growing in Africa. The European Union (EU) is urging African governments to sign economic partnership agreements (EPAs) and end non-reciprocal trade preferences: to keep their exports to the EU exempt from customs duties, African countries will have to remove 80% of those they apply to imports from the EU.
The African Union (AU) has started negotiations to establish a huge continental free trade area (CFTA), and a meeting of trade ministers in Niger on 16 June decided to work towards the removal of 90% of duties between African countries.
This rush towards free trade is questionable, especially for the agricultural sector. West Africa faces a triple challenge: a growing food deficit, a population explosion (1) and climate change.
It’s a very clever tactic but it relies on the ignorance of the reader by eliding the distinction between the two. As you can see, the author opens with the EU’s EPA and then jumps to the CFTA making the reader think both are the same thing.
When you check comments by the NLC and MAN you see this same argument being used — free trade will turn Nigeria into a dumping ground for foreign goods and kill the local manufacturing industry. President Buhari, who has presided over the biggest destruction of manufacturing in Nigeria in 25 years, is also promising to protect the local manufacturing industry from foreign invasion. The irony is very rich but maybe he wants a monopoly of destruction.
Free Trade Area
Whatever the faults of the European Union, one of its biggest achievements has been the creation of the single market. The single market is perhaps one of the best examples (if not the best) example of a free trade area in the world. By being in the EU, Britain and France are in a free trade area (the single market) but it does not mean that Britain and France have signed a free trade agreement.
Here’s a nice graphic example of the single market in action from the FT:
The single market turns many countries into one market as if they are all one country. As a result, you can do stuff like the above. Since infrastructure is decent, you don’t have to produce everything in one place.
Free Trade Agreement
Free Trade Agreements (FTAs) are for people outside the single market who want to access it. If you’ve been paying attention to the Brexit negotiations, you would have heard the EU side repeating it over and over that a free trade agreement cannot have the same benefits as being a member of the single market. You can find a list of the EU’s FTAs on this page. Each one is different from the other and covers many different things. Picking Chile as a random example, here is what the EU’s FTA with them does in summary:
The current EU-Chile FTA:
removes tariffs
removes trade barriers
guarantees protection for European intellectual property in Chile
In other words, a Chilean wine maker can export her wine to the EU without paying tariffs and a French wine maker can export his wine to Chile as well. But if I get a job in France today, I will simply move to the France and start the job or even commute from Britain without anyone stopping me — the same way a Nigerian can leave Lagos to take a job in Abuja without anyone asking them for a work permit. A Chilean cannot apply for a job in France and then just carry his bags and head there. While the goal of a single market is to create one market with no restrictions, a free trade agreement simply tries to make trade between countries easier.
For anyone doing business inside Nigeria, Nigeria is a free trade area (subject to police checkpoints and bribes for crossing from one state to another).
So What Is CFTA?
So what is the point of the CFTA and what is it trying to achieve? Again, here’s a good example from The Economist:
Take the example of a large South African retailer with stores elsewhere on the continent. It has a big warehouse where employees take products such as tubes of toothpaste out of the cartons that are used in South Africa and repack them into ones that comply with labelling rules in other countries
One of the most important things in a single market is having common rules and standards and for all products. In the example of the cars above, there is a single standard for all components across the EU such that some guy in Germany doesn’t just make bolts in a size he likes. Everyone produces things to a standard under agreed and harmonised rules.
Thus, once the CFTA is fully in place, there will be one standard for toothpaste contents and packaging across all the countries in the CFTA. A Nigerian toothpaste manufacturer will simply download the rules and produce his toothpaste according to those rules and sell them in Congo, Rwanda and Ghana — as long as he can get them at a decent cost of transport.
The problem that the CFTA tries to solve is the terrible state of trade within Africa. While trade within Europe makes up 67% of trade, in Africa it is just around 12%. That is, every African country trades more with another continent than with their neighbour. The EU or America will not be able to negotiate with a small country and then bring in its goods into the CFTA through that. Anyone who wants access to the CFTA will have to negotiate a FTA. And of course, signing a FTA with the CFTA cannot be the same as being a member of the CFTA, just like with the EU’s single market.
This is all in theory but that is what the CFTA is working towards. There are big advantages. The single market makes the EU a very attractive market which means there is a queue of countries lining up to sign FTAs that allows them access to the single market. Canada just signed one called CETA and it took 8 years. The Americans have been trying to sign another one called TTIP since the 90s but so far it has not been completed. There are small countries in the EU but America cannot bully them individually to sign the deal because it is negotiating with the EU as a whole and all members must agree before a FTA is signed with any external country. In 2016, everyone had agreed to the CETA deal with Canada except the Belgians so it was blocked until the Belgians were placated.
No Magic
There’s no magic here. Implementing a free trade area takes an incredible amount of work. The signing of the agreement in Kigali last week is just the first step. Even after a couple of decades, the EU’s single market continues to be a work in progress that is constantly fine tuned. But it holds very exciting benefits and possibilities. Why will Nigeria not be on board for something like that? Nigeria will be one of the biggest immediate beneficiaries because outside of Nigeria, Kenya and South Africa, there is not much manufacturing going on in Africa. Any manufacturer or company in Nigeria will automatically have a bigger market in which to sell their goods.
Of course there will be competition but no country will have any power over Nigeria that Nigeria also does not have over them. It is not just about competition, it is about cooperation as one of my favourite Professors puts it:
Actually, [the principle of comparative advantage is] dead easy. No math, no arithmetic. It is in fact the soul of common sense. But you have to understand that comparative advantage is the principle of cooperation, as against competition. The word “advantage” gets us thinking of competition, which is perfectly reasonable in our own individual lives — we do compete with other businesses or other writers or whomever.
But the system as a whole, whatever it is, does well of course by cooperating, in business or science or family life. It’s not all we do, admittedly. We also compete. But within a household or a company or a world economy the job is to produce a result in the best way, cooperatively. If you are running a household or a sports team or a world economy, you would want to assign roles to the various contributors to the common purpose sensibly. It turns out to be precisely on grounds of comparative advantage.
If anyone is arguing against the CFTA, that’s fine. But it is important that they are arguing against a free trade area and not a free trade agreement. It is quite frustrating when the same characters like Frank Jacobs just put the same arguments they made against the EPA a couple of years ago inside the microwave and serve it for the CFTA in the same plate.
If you don’t like a free trade area and you don’t like a free trade agreement, maybe it is time for you to tell us how you really feel.
