Flourish

BOX 4.2 Providing a Solid Base for the African Continental Free Trade Area to Flourish

With 54 countries, the African Continental Free Trade Area (AfCFTA) will be the largest free trade area in the world in terms of membership, potentially covering a market of 1.3 billion people with a combined gross domestic product of US$3.4 trillion. Although free trade agreements (FTAs) create significant opportunities, history shows that maximizing their potential benefits is not automatic. A key issue is whether and how the AfCFTA institutions and member states address weaknesses that have limited the impact of previous regional FTAs in Africa.

To a great extent, the possibility that the AfCFTA will become a milestone for development in the region will depend on (a) the depth and breadth of detailed commitments to remove trade barriers that are to be negotiated, (b) the extent to which AfCFTA commitments are effectively implemented on the ground, and (c) complementary initiatives that ensure a smooth transition to free trade and induce greater flows of productive investment in nontraditional sectors, leading to more and better jobs.

As part of its engagement with the African Union, the World Bank has been helping AfCFTA stakeholders gather needed evidence to make informed decisions about the negotiation process over the past year. AfCFTA institutions and especially member states, many of which lack a track record on implementing the trade agreements they have signed, will continue to need additional support. The goal of that support is to effectively implement agreements, identify critical domestic bottlenecks, and prioritize actions to ensure a smooth transition to free trade and to attract more investment. It will thus be key to ensuring fairness and a level playing field for traders.

Drawing on the experience of similar negotiation exercises by other developing countries, we find that designing a complementary agenda to maximize the potential benefits of an FTA entails concrete actions on at least three fronts.

■ Implementation and administration of the AfCFTA agreement. Capacity building (in the form of training, direct advice, and implementation support) benefits not only the ministries of trade but also other key ministries as well as border management agencies (especially customs) tasked with the future implementation of an agreement that they may previously have had only exposure to during the negotiation phase. This is essential to enable the compliance, administration and problem solving, economic monitoring, and socialization of the AfCFTA. ■ Trade-related institutional support for implementation. Capacity building to agencies (other than the ministries of trade) that are in charge of trade and investment-related matters that in practice affect the correct functioning of the AfCFTA. ■ Transition to free trade. Sector-specific initiatives aimed at enabling domestic firms (notably small and medium enterprises) to address economic distortions affecting competitiveness in a free-trade environment.

A Global Policy Agenda That Delivers for the Poor

Strengthen the effectiveness of the multilateral trade system At a global level, defending the multilateral trading system is more essential than ever as the WTO faces growing challenges to its legitimacy (see Akman et al. 2018;

World Bank 2020). Such an effort will necessitate continued support to a rules-based system and a strengthening (and where needed, reform) of the WTO to increase its effectiveness in the context of rising protectionism. For a new WTO director general, this will mean tackling numerous urgent challenges with strong distributional implications such as resolving the crisis in the dispute settlement system, improving compliance, and resolving differences on special and differential treatment for developing countries (Fiorini et al. 2020).

What can be done to make the international system work better? Lowering trade barriers, notably in agriculture, would have a large impact on bringing greater gains from trade to the poorest. In the current pandemic, supporting multilateralism and international cooperation is particularly essential for ensuring a stable supply of medicine and food products, as well as supporting a robust recovery. There are also numerous areas beyond trade that require increased cooperation, including taxation, competition, state subsidies, and the regulation of international data flows (OECD 2017; World Bank 2020). Many of these were noted as national policy and regulatory priorities earlier in this chapter, but their integration into multilateral processes could enable agreement on certain baseline principles and minimum standards. Similarly, international cooperation in establishing and monitoring minimum labor standards and promoting responsible business conduct can improve conditions, especially for low-skill workers in developing countries (Hollweg 2019).

Address the trade-related impacts of exogenous shocks As the spread of the COVID-19 pandemic has shown, exogenous shocks unrelated to trade can also have significant trade-related distributional impacts. The COVID-19 crisis hit service workers particularly hard, hindering the recovery of the trade in services (particularly travel and tourism) far more than that of merchandise trade (Ferrentino et al. 2020). In Bangladesh, workers in export sectors such as the apparel industry were affected by factory closures and wage losses, which affected female workers the most (Genoni et al. 2020). The aftermath of the current crisis is likely to result in a reshaping of GVCs to better manage risk, as well as potentially increasing the scale and scope of government intervention. Ensuring that the latter primarily addresses coordination failures rather than undermining openness and predictability will be essential. The poorest are particularly vulnerable when food value chains are disrupted and workers are unable to access inputs or to transport goods to market. This further increases the need to ensure that trade remains open, especially to expedite the flow of essential goods and services.

The pandemic is likely to increase the relevance of digital technologies in trade and augment the role of services. This has the potential to increase the gap between small and large firms and between advanced and low-income countries. It also creates opportunities for broad-based gains as lead firms realize the need to diversify