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Mr. Sanjeev Gupta and Yongzheng Yang

Abstract

The discussion so far highlights the need to take a broad perspective in thinking about how to make African RTAs work better. Careful design and sustained implementation are necessary to make any RTA deliver, but the more fundamental determinants of RTA performance seem to be policies and conditions that affect the overall environment for trade. In this context, MFN liberalization, improvements in regional infrastructure (particularly transport), and reductions in trading costs at borders are critical. These are all conventional development issues but nonetheless pose difficult challenges for African policymakers. African countries need to protect their revenue base in undertaking MFN tariff reductions, and, when such tariff cuts are implemented in their trading partners, they need to address the consequence of preference erosion.34 Efforts to improve infrastructure and reduce trading costs will require adequate local capacity of implementation, in addition to financial resources. In all these areas, the IMF can lend its support to African countries, beyond its core expertise area of macroeconomic management, which is also essential to create a conducive environment for trade.

Mr. Sanjeev Gupta and Yongzheng Yang

Abstract

Over the past decades, African countries have set ambitious goals for their regional trade arrangements, but the results have so far fallen short of expectations. Most African RTAs started with a low level of intraregional trade. Thus, even if the RTAs had been more successfully implemented, the impact of these arrangements on Africa’s overall trade would have been small—unless they had created a more favorable environment for overall trade. The potential of the RTAs in exploiting economies of scale and enhancing competition has been limited by the lack of trade complementarity among RTA partners, small market size, poor transport infrastructure, and high trading costs at the border. More important, relatively high barriers against trade with the rest of the world have essentially turned RTAs into an import substitution policy at the regional and subregional levels.

Mr. Sanjeev Gupta and Yongzheng Yang