African traders are taking advantage of favorable import tariffs provided under various Preferential Trade Agreements (PTAs) with the US, Canada, EU, and Japan (the “Quad Countries”), which has led to significant exports to these Quad Countries.
This data showed that enterprises under local regional economic communities are not fully utilizing the comparative advantages according to the findings of the UN Conference on Trade and Development (UNCTAD) and the Common Market for Eastern and Southern Africa (COMESA).
Because of this, trade between the regional blocs lags significantly behind transactions with the Quad countries. For example, exports to the EU, US, Japan and Canada were worth $25.6 billion in 2018, compared to $9.3 billion in trade between Comesa member countries.
During the same period of exports to the Quad, countries accounted for 77.3%, while intra-regional exports were 60.8% Uganda and Burundi are two examples of countries reporting exceptionally low levels of PTA consumption using cross-border free trade agreements.
To put Burundi’s trade in context, the country shipped $44.8 million worth of products to the Quad countries in 2018, receiving import tax exemptions on $2 million worth of goods, of which $2.2 million was covered by PTAs.
Yet, at the same time, Burundian traders used only 17.3% of Comesa-provided tariff exemptions and 77.5% of EAC-provided tariff exemptions for exports to member countries.
Businesses in Uganda received 96.9% of the exemptions granted by the Quad countries, compared to only 17.1% under Comesa and 74.7% under EAC.
The main reason is that UNCTAD’s original “complex and rigid” laws prevent local enterprises from benefiting from the trade advantages provided by regional agreements. Rules of origin are criteria that determine whether products from a particular country are eligible for import duty exemption or are subject to a lower tax rate under a particular trade agreement.
“Rules of origin can be complex to comply with, especially for products made using materials from different countries through global value chains and for products to qualify for trade preferences” UNCTAD said in a statement.
“This complexity may prevent African businesses from benefiting from preferential trade agreements, which the continent’s governments have increasingly signed to boost intra-African trade.” The organization added.
According to UNCTAD, the study’s findings urge policy initiatives to address such disparities.