What Is Regional Trade Agreement

  • Aprile 15, 2021

The debate that has taken place so far underscores the need to take a broad perspective on how African RTAs can function better. Careful design and sustainable implementation are required to deliver all of the results of the SRTA, but the most fundamental determinants of RTA`s performance appear to be strategies and conditions that affect the overall business environment. In this context, the liberalisation of the MFN, the improvement of regional infrastructure (particularly transport) and the reduction of trade costs at the border are of paramount importance. These are conventional development issues, but they do pose difficult challenges for African policy makers. African countries must protect their revenue base when they make MFN tariff reductions and, when these reductions are applied to their trading partners, they must address the consequences of preference erosion.35 Efforts to improve infrastructure and reduce trade costs require, in addition to financial resources, adequate local implementation capacity. In all these areas, the IMF can support African countries beyond its central area of macroeconomic management, which is also essential to creating a favourable trading environment. The question arises as to whether African countries should prioritize investments in infrastructure that reduce transport costs for intra-regional trade or in infrastructure that supports extra-regional trade. For efficiency reasons, the decision should be based on the cost-benefit analysis. However, if the objective is to promote intra-regional trade, there is a second best argument for transport investment in intra-regional trade. The IMF plays a central role in helping its African members promote trade by creating a strong macroeconomic environment. Macroeconomic stability is an essential condition for trade growth. Low inflation and financial stability create an environment conducive to trade growth. A prudent fiscal policy not only helps to keep inflation low, but also allows the private sector more resources to increase its production capacity.

Appropriate exchange rates contribute to maintaining external balance and competitiveness. They also help to reduce opposition to trade liberalization. Africa`s experience has shown that overvalued exchange rates often put pressure on political inversions, even though reforms have been undertaken (O`Connell, 1997). Many African countries have made progress in recent years towards macroeconomic stability. Inflation has slowed and public finances are on a more sustainable path. Many countries have a stronger balance-of-payments position thanks to more flexible exchange rates and higher foreign exchange reserves. Nevertheless, much remains to be done. Trade liberalization does not necessarily result in a loss of revenue. In the early stages of liberalization, revenues may even increase. 36 In the following phases of liberalization, it is possible to recover revenue losses by strengthening domestic indirect taxes, provided the country has administrative capacity (Keen and Ligthart 2001).

probably due to the increase in domestic consumption due to lower prices for tradable goods and stronger growth due to improved resource allocation in the economy. However, the size and timing of these dynamic revenue effects are highly uncertain. Africa`s experience shows that only half of the countries where business tax revenues declined between the early 1980s and the late 1990s were successful in recovering tax revenues from domestic sources. In general, empirical studies show that revenue losses due to trade liberalization vary widely from country to country (Box 2). Regional trade agreements refer to a treaty signed by two or more countries to ensure the free movement of goods and services beyond the