ECA/RCID/43/98/inf.l
United Nations
Economic Commission for Africa
Ad-hoc Expert Group Meeting on Liberalisation of Trade and Factor Mobility within Africa and the Promotion of Emergence of (Complementarities as a Basis for the Expansion of Intra-African Trade:
Case Study for Eastern and Southern African Subregion
Addis Ababa, Ethiopia 25-27 November 1998
AIDE MEMOIRE
I. BACKGROUND:
; The pace of globalization in the world economy has gathered considerable momentum since the mid- 1980s. World trade has nearly doubled, financial markets have liberalized and capital flows to many developing countries have accelerated. The global exports, of goods: represent around 19% of world GDP, and in 1993 foreign direct investment accounted for around 6% of gross capital formation in developing countries (Bergsman and Shen^ 1995)./; Indeed, while some, economies have benefited from globalization, others have been disadvantaged if not completely marginalized by the global liberalization process. It is therefore important to undertake an assessment of the impact of globalization on the African economies as the world economies become more integrated in terms of trade, capital flow and labor mobility. In other words, as factors of production become more mobile.
While liberalization of trade, exchange regimes, removal of tariff and non-tariff barriers, and the, abandonment of restrictive inward-looking policies in favour of outward-looking and open policies in many developing countries have generated the expansion^ diversification and deepening of trade; in Africa, the process has been accompanied by the deterioration in trade and de- industrialization, notwithstanding the establishment of regional trading arrangements,;which are themselves supposed to lead to trade creation.; :>.
The theoretical justification for forming regional economic integration schemes is that it would lead to increased trade expansion, and factor mobility.
The whole process-entails the improvement of efficiency of resource use in both labour supplying and labour receiving countries by removing relative scarcities, and the maximization of output through equalization of factor pricing. The assumption is that* in such an arrangement, labour and capital movement will proceed from "poor" to "rich" countries or regions. '
In a regional cooperation and integration process, the development and expansion of/trade among the: partners is a major objective pursued through trade liberalization measures. These measures aim at achieving a free trade area and a customs union by means of .the adoption of schemes for the mutual abolition of tariffs and non-tariff restrictions to trade and the establishment of a common external tariff in relation to third countries.
x. Trade liberalization programmes, if properly designed^ managed and followed through^ do have the potential to facilitate and increase trade among the participating countries as a result of the trade creating; and trade diversion
effects expected to be generated by the formation of the free trade area and the custom union, with the latter effects generally occurring to the detriment of third countries.
In this regard, the African Regional Economic Communities, including those covering the Eastern and Southern Africa subregion such as COMESA and SADC, have adopted trade liberalization programmes that, in the main, provide for the gradual elimination of customs duties and other non-tariff restrictions to trade among the countries of the grouping. Such programmes, like in the case of COMESA, are reinforced by other trade facilitation and trade promotion measures such as ASYCUDA and TINET.
In general the progress in the implementation of trade liberalization schemes in Africa has been slow as initial plans have had to undergo a number of revisions due to a number of factors which include the following: problems in the t initial design; lack of will and readiness to adhere to agreed plans; and
^uncertainties surrounding the issue of compensation for revenue losses and terms of trade imbalances arising from the application of the trade liberalization
scheme.
In the context of Africa, another fruitful approach that should accompany the process of trade liberalization is the promotion of factor mobility (capital and labour) among partner countries. The argument stems from the general assumption that factor mobility will lead to more efficient allocation of resources among the participating countries. However, it is known from the literature that factor mobility in the presence of trade-policy distortion will not necessarily, lead to efficient allocation of resources and, that under standard assumption, one of the partner will be worse off after migration while it is accepted that factor mobility can lead these unfavourable development. The fundamental reason for promoting capital mobility in poor countries, is one of attracting new capital from developed countries both for augmenting the capital stock, andmore importantly, for effecting the transfer of technology. It is in this context that intra-regional capital mobility by facilitating investment from outside, can be instrumental in stimulating growth.
While the issue of labour mobility is more complex because it involves the movement of human beings, the mobility of labour is supposed to lead to price. equalization.Apart from the equalization of incomes which labour
mobility will generate among countries, in the African context, it should also
enhance trie learning process through the exchange of skills and assist thosecountries which have deficiencies in certain skills to correct the situation
through free movement of labour. ; tj ^ i T
With respect to the emergence of .complementarities as one of the basis for the expansion of trade, it should be noted that blueprints on Africa's development such as the Lagos Plan of .action enjoin, inter-alia, African countries to,lay a solid foundation for industrial development and integration at :the subregional and regional levels, and to achieve self-reliance and at least 2%
of world-production in such key products as agricultural inputs (fertilizers, pesticides, agricultural tools and machinery) as well as intermediate and capital goods industries, as well as intermediate and capital goods industries, especially those intended for other industries and infrastructure building. The industrial development and integration process has therefore to target the establishment of such important industries as: food and agriculture, metallurgical, mechanical, electrical and electronic, chemical, energy, frost and textile industries. The thrust is that, instead of exporting raw materials in an unprocessed form processings upgrading and diversification of products will have to be undertaken in order to ensure maximum utilization of the indigenous factor endowment/natural resources. r
Through the liberalization of trade and factor mobility in the context of the expansion of subregional/regional markets and promotion of linkages between various industrial subsectors and between industry and other sectors at both the national and subregional levels. The comparative strengths of countries in terms of natural and other resources and other infrastructural facilities can be optimally exploited.
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Empirical. evidence suggests that .countries which have integrated themselves into the global economy, and which have attained higher degree of regional economic integration have experienced.: the opening up of production bottlenecks through labour mobility; skill specialization of labour, as highly skilled workers shift towards tradable goods sector production (value added production), while unskilled workers move towards nontradable sectors;
increased productivity, through mobility of factors of production; and equalization in income growth and general economic development. In the African context however, the theoretical assumptions behind the formation of economic blocs cannot be achieved due to a number of factors.;,These include, inter alia: the underdeveloped nature of the African economies which encourages underemployment of resources; the traditional rigidities and national laws which thwart labour, mobility - worsened by entrepreneurial scarcity; and the lack of coordination;of investment and macros-economic policies;, n
The net result is that, liberalization and globalization has put the African economies under great pressure as the relatively weak manufacturing structures become exposed to intensive competition. The cheap imports of manufactured goods continue to flood markets, as investment into Africa continue to decline.
African countries have consequently experienced dramatic decline in their per capita income and in their general standard of living. African countries will therefore have to devise new methods to strengthen their own economic groupings as well as their own individual economies in order to cope with the globalisation and the liberalization process.
II. OBJECTIVE OF AD-HOC EXPERT GROUP MEETING
The aim of the ad-hoc expert group meeting is to have an-in-depth review of the study on: "Liberalization of Trade and Factor Mobility within Africa and the Promotion of Emergence of Complementarities as a Basic for the Expansion
©f-Intra-African Trade: Case Study for Eastern and Southern African Subregion"
with a view to providing additional information and enriching the study before it is published as a technical document. The meetmg will in fact provide a forum where the invited experts will engage in an informed and enlightened debate drawing on their own experiences and knowledge of the issues involved. The
discussion is hoped to stimulate lively exchange of views and to provide
additional inputs for the enrichment of the working document.
In order to enhance the quality of discussion, the participants will be called upon to make adequate preparation before their participation at the meeting on the following issues: trade liberalization; factor mobility (Capital and labour); and the emergence of complementarities as a basis for trade expansion.
Using the Eastern and Southern African subregion as a case study, the Ad-hoc export group meeting will therefore, help in reviewing arid analysing the effects of these key factors in the expansion of intra-regional trade, by focusing on the role trade liberalization, factor mobility and the exploitation of complementarities can play among the countries. Perhaps, the participants to the ad-hoc expert groxip meeting could also have consultation with the appropriate institutions at the country level. This, it is felt would assist in plugging the information and data gaps that have been identified within the study.
At the end of the expert group meeting it is hoped that most some of the information gaps in terms of data and information will have been plugged. The
additional information generated during the ad-hoc expert group meeting will be used in finalizing the draft of the working document.
III. PERIOD FOR ORGANIZATION OF AD-HOC EXPERT GROUP EETING
The Ad-hoc Expert Group meeting will be held from 25-27 November 1998.
The meeting will take a period of three-working days, during which time the experts will be expected to address the key main issues raised in the draft working paper, and spelt out in this aide-memoire.
IV. PARTICIPATION AT THE MEETING
The participants at the ad-hoc expert grouping meeting are expected to be a group of high caliber experts knowledgeable on the subject matter to be discussed. They should be individuals who have first hand experience and who have been involved in research or in the formulation of policies with respect to some aspects of these issues. Indeed, the experts to the ad-hoc expert meeting will be invited on their own merit and on the basis of the contribution they are expected to make towards the discussion during the meeting. The ECA secretariat will bear the cost of participation of each expert at the standard UN rate, in terms of subsistence allowance at the Addis Ababa UN rate prevailing at the time, and the travel cost at economy class from home country and back .
V. VENUE OF THE MEETING
The venue of the meeting will be in Addis Ababa, Ethiopia in one of the small Committee rooms within the premises of the UN Conference Centre. The Committee room number will be given to each expert upon his or her arrival
VI. EXPECTED OUTPUT
The expected output from the ad-hoc expert grouping meeting will be a Technical Publication.
