TRADE
Tanzania, Nigeria and the EU: Free trade discord
From the African Union and the United Nations Economic Commission for Africa( UNECA) to the European Union and African countries’ trade and development ministers, nearly everyone agrees that African economies must industrialise.
MOST AFRICAN COUNTRIES CURRENTLY HAVE DUTY FREE ACCESS TO THE EU SINGLE MARKET FOR THEIR GOODS
Yet despite this broad consensus, when it comes down to the specific policies needed there remains widespread disagreement. The recent refusals of Nigeria and Tanzania to sign on to the EU’ s proposed free trade deals, or Economic Partnership Agreements( EPAs), are the starkest manifestation of diverging agendas. Nigeria has consistently opposed the EPA for west Africa. However Tanzania’ s last minute decision in July to back away from the EPA for the East African Community region stunned European negotiators.
Most African countries currently have duty free access to the EU single market for their goods under several iterations of the Lomé Convention. The new EPAs would, within a decade, give similar tariff-free access for about 80 percent of EU exports into African markets. Europe has warned that African economies could lose Lomé preferences if EPA deals are not concluded.
So why the reticence?
Part of the answer links back to the drive for industrialisation. Both Nigeria and Tanzania recently adopted ambitious industrialisation plans, and new governments in both countries appear more genuine in their desire to implement them. And in both, policymakers claim the rules and restrictions in the proposed EPAs would undermine these strategies.
The popularity of free trade over the last 30 years has made it standard for donor agencies and trade negotiators from rich countries to press developing countries to adopt free trade. The EPAs follow on these assumptions. Nigeria and Tanzania appear to be questioning the prevailing wisdom. Instead, they are looking to the historical record.
Contrary to today’ s free trade ethos, many economic historians point to a basic rule of thumb. In cases as diverse as the UK, Europe, the US, Japan, South Korea and China, today’ s rich countries only lowered their trade barriers once domestic manufacturing had become competitive in world markets – not before. Contrary to the current popularity of the notion of comparative advantage for development – the idea that under free trade countries will benefit by specialising in producing goods they can offer at a lower cost than competitors – historical best practices from today’ s rich countries show that it is not a good idea to only focus on agricultural and extractive industries. These tend to suffer from diminishing returns over time.
Diversifying into manufacturing and services can provide increasing returns. To do so successfully, many industrialised nations intervened aggressively in their economies and trade relations using a variety of industrial policy tools. Many of these have since been discouraged or forbidden by today’ s free trade consensus.
Today, industrial policy is still, in many circles, a dirty word. But industrial intervention cannot be fully written off as a failed concept. Industrial policies in Africa and Latin America in the 1960s and 1970s typically failed because they were applied inappropriately, driven by corruption or were too inwardly focused on small domestic markets, neglecting the need to develop international competitiveness.
By contrast, east Asian countries developed strong institutions that enforced strict rules for industry subsidies and trade protection. These got cut off from them when they failed to meet performance targets. Their industrialisation strategies were internationally oriented. These examples should tell global policy-
40 Business Times Africa | 2016