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Regional integration key driver of trade

For years, trade has proven to be a key driver of economic growth for many countries. It has also been the fuel for powering regional integration for continents. This could be the reason why Africa has, in recent decades, experienced a proliferation of sub-regional agreements including in the East African Community (EAC).

The benefits of regional integration cannot be overemphasised as it provides an opportunity for countries to have constructive dialogue and to build mutually beneficial relationships grounded on shared values.

The EAC demonstrates the possible benefits of regional integration in growing regional trade. According to a 2019 World Bank Report, EAC was the fastest growing region in Africa, with the regional economy expanding by 5.7 per cent  in 2018. The growth was attributed largely to infrastructure development that member states prioritised. The total EAC trade grew by 11.7 per cent to $52.4 billion in 2018 from $46.9 in 2017.

EAC member states have been able to enjoy, among other pacts, a Common Market to trade freely on all types of economic resources whilst removing all barriers to trade in goods, services, capital and labour; a Free Trade Area in which EAC countries agree to remove barriers to trade on all originating goods coming from member states; and a Customs Union that harmonises custom duties through a Common External Tarriff.

However, EAC’s potential in regard to growing regional trade is yet to be fully achieved. This is partially because individual member countries pursue their industrial policies and are likely to implement measures that counter regional integration obligations. As a result, trade disputes and non-tariff barriers persist.

Strides, however, have been made in an attempt to regain the trade value within the EAC. In order to address a variety of Non-Tariff Barriers, the community developed and assented the EAC NTBs Act 2017 and established committees to identify and monitor the progress of the implementation of the Act. EAC has  harmonised over 1,400 standards that have been endorsed by the member states to facilitate trade and established one-stop border posts, to reduce the time taken to clear goods at the border points.

EAC also approved the EAC Customs Valuation Manual to guide the implementation and uniformity of the interpretation of EAC Customs Value Provisions.

It is beneficial to encourage the success of the EAC bloc to build trade. In fact, member are likely to benefit more from each other than external partners. Trading within the EAC provides a wide market for partner states, and with an estimated population of over 160 million people, there will be high demand for quality goods as businesses from different nations compete on a level playing field. It also encourages specialisation to better economies of scale.

Tariff removal will also encourage better trade by reducing the cost for consumers while opening opportunities for exporters – this will also encourage scaling up of SMEs.

Jan Tinbergen’s Gravity of Trade Theory suggests that trade with countries in close proximity is the most important and effective due to lower transport costs and similarities in economic ties, resulting in better trading agreements and opportunities.

The writer CEO, Kenya Association of Manufacturers—[email protected]

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