ECONOMY - 01 MAY 2017

Trade Agreements: To Sign or not to Sign?

Trade Agreements: To Sign or not to Sign?
Apapa contains a number of ports and terminals operated by the Nigerian Ports Authority (NPA), including the major port of Lagos State and Lagos Port Complex (LPC)

For too long, neoliberal ideas have dominated issues in development economics, and it is easy to see why. When richer countries put their success down to increased trade openness and capital mobility, it is understandable that developing countries would want a taste too. The most famous argument for this line of thinking is that as countries move goods more easily between each other, it encourages the flow of ideas and innovation.

The question of how regional trade can promote development in Nigeria is an important one. Over time, regional trade blocs have cropped up across Africa – a response to the argument that Africa's underdevelopment is due to low intraregional trade.

However, have these trade agreements been successful? While the East African Community (EAC) can be lauded for its remarkable achievements, the average businessman still has to pay a tariff rate of 8.7% to sell his goods in Africa (compared to 2.5% overseas). The root of the problem may be the broad and shallow agreements (mostly deals focused on border measures) African trade blocs usually commit to. It is then not surprising that Nigeria has not signed off on the Economic Partnership Agreement (EPA), but we should understand why.

 

Keeping up with the EPAs

As a customs union, ECOWAS is responsible for improving trade opportunities amongst its member countries. However, this is hard to do when its members are mostly export rivals. West African countries are mainly commodity exporters so are less likely to demand goods from each other. So, to boost trade flows, it makes sense that the EPA proposed by European Union nations seems appealing. For starters, it should improve access to EU goods that are different from what our regional neighbours exports. Besides, the EPA will lower tariffs on EU goods, which translates into lower prices for consumers. This would be better for example, than it being cheaper to get Ghanian cocoa into Nigeria.

To directly reap the benefits of signing the EPA however, the type of goods brought in from European countries must contribute to improving production processes. For example, it is expected that the agreement will eliminate tariffs progressively so that equipment and other input items are cheaper for local businesses. In the long run, if Nigeria takes her diversification strategy seriously, the deal should develop her manufacturing and agricultural sectors by increasing access to EU markets

 

Jack of all Trades

However, all that glitters is not gold. Even though the EPA appears to consider the different industrialisation stages of Europe and Africa, a critical assessment of the agreement's wording suggests it may favour African countries less. With 75% of West African export markets liberalised, Nigeria (and other co-signers) run the risk of becoming an extension of the European markets. This could happen if European companies turn West African countries into dumping grounds for their cheaper products, resulting in de-industrialisation for a majority of the countries. So in essence, if the EPA makes German cars cheaper to import, it's hard to see how our local car industry will ever grow in the long run – absent a domestic industrial strategy. 

Furthermore, the EPA could potentially disrupt regional integration processes within African trade blocs. Besides ECOWAS, other regional trade blocs on the continents are either in discussions to sign an EPA or have already done so. The issue with this lies in the differences between the deals each bloc has agreed to. This may cause African unionisation to become unattainable, as trade between regional blocs remains fragmented. 

Regional trade blocs are particularly desirable because of the trade creation opportunities they present. In addition, regional agreements tend to make domestic policy more stable. Given Nigeria's tendency to implement short-term policies (that usually depend on politics), this is a very significant advantage. Lastly, being a member of a strong trade bloc could help strengthen Nigeria's bargaining position when it comes to establishing trade deals with other countries.

With the ambitious goal of a single currency area in sight, Nigeria and her neighbours may do well to avoid further shallow agreements with other countries. More focus on deepening regional ties at home could lead to solutions to the current endemic issues that prevent greater trade flows.

 

Blurred Lines 

Overall, trade agreements are a game of power and political will- one which African countries are likely to lose when they go up against Western powers. In light of this, global trade has been criticised as contributing to an imperialist agenda that is aimed at restricting developing countries such as Nigeria to remain appendages for other developed countries. The EPA claims to be a gradualist approach to liberalisation in Africa, but if ten years on and the arguments for it seem unconvincing, it may be time to seek out an alternative.

When Nigerians gather to discuss potential solutions to our economic woes, diversifying our economy away from oil is always top on the list. However, reaping the benefits from this depends crucially on how well we position ourselves in the international community. And the trade choices we make now will determine that.

Fadekemi Abiru

Fadekemi Abiru

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