The number of preferential trade agreements has increased sharply over the past decade as a response to stagnant multilateral trade negotiations. Political economy features centrally in these negotiations, for instance in the context of the Continental Free Trade Agreement (CFTA). In this paper, we discuss the challenges of rule-of origin harmonisation in this process, which is a critical element for any further integration initiative in the continent. In particular, we review different approaches to the formulation of rules of origin, determining which firms qualify to take advantage of negotiated concessions.
We focus on the experiences of the three African regional economic communities (COMESA, EAC and SADC) that are busy merging into the Tripartite Free Trade Agreement (TFTA), and assess the potential for rules of origin harmonisation, drawing also on the examples of similar efforts being made around the globe, such as for the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).
Strict rules of origin – as implemented by the European Union and the United States – require strong state institutional capacities to implement them. Firms incur high compliance costs if they wish to take advantage of them. South Africa insists on strict rules of origin, yet most African countries have weak state capacities, and the private sectors are weak and cash-strapped. Therefore, in order to maximise African countries benefits we caution against adopting rules of origin using the South African model in the CFTA.
Authors: Peter Draper, Cynthia Chikura and Heinrich Krogman. The paper is available on the German Development Institute website.