Upside, Downside For China's Tariff-Free Africa Deal

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A handful of research papers have explored earlier Chinese trade preferences for Africa. For example, policy researcher and economist Adam Minson estimated that the least developed country tariff-free arrangements of 2005 would bring some countries as little as an additional US$100,000 annually.

My own PhD research found that by 2009 these preferential trade policies had not had any significant impact on exports. More recently, economists Zhina Sun and Ehizuelen Michael Mitchell Omoruyi found that the existing zero-tariff policy had promoted diversification of manufacturing exports to China and of regional trade. But there had been little effect on agriculture and mining export diversification.

One recurring recommendation has been to expand equal tariff treatment across African regional blocs. These include the East African Community, Southern African Customs Union and the Economic Community of West African States.

This could lead to production for export being organized regionally rather than distorted or even hampered by tariff differentials. The reforms announced by Xi in February are a shift in this direction.

An incentive to cooperate?

By extending zero tariffs to almost all African countries, China has neutralised an element of distortion in its earlier tariff policy. When only some countries enjoyed tariff-free export benefits, investors and producers had incentives to locate export production in least developed countries to secure tariff-free access.

This worked some of the time, but not all the time. The reason for this is that least developed countries find it difficult to become exporters because they face inhibiting barriers to trade in general. Examples include unreliable electricity and poor infrastructure.

The zero tariff will put least developed countries at a disadvantage as they will lose the“special status” afforded them in the old regime. But the change could open another door.

Production decisions can now take advantage of existing and potential cross-country and intra-regional supply chains based on comparative advantage – in place of being located where export tariffs were lowest.

Also, lowering tariffs for more developed African economies may enable African entrepreneurs to work across borders to engage in trade without facing different trade barriers by locality. That in turn may support Africa's own agenda of trade integration.

To boost trade, China has also signaled it will expand trade facilitation measures. This includes upgraded“green lanes” for African imports. Prospective examples include:

faster customs clearance streamlined phytosanitary procedures (rules governing food safety). An example would be setting up a clear set of criteria that enable an approved exporter, say of Kenyan avocados, to enjoy pre-approval for customs clearance. greater investments in training and trade-related logistics.

China has also set up a dedicated China-Africa trade facilitation hub in Changsha, the capital of Hunan province. The aim is to have a central point of trade-related expertise and industries, making it easier for African and Chinese firms to do business.

The risk of uneven gains

There is a risk that the new tariff regime will mean that production for export will concentrate in more developed countries, such as South Africa, Morocco and Kenya. These economies are better positioned to expand exports when it comes into effect.

In contrast, least developed countries will continue to struggle with:

constructing efficient trade-related infrastructure like telecommunications, electricity and port connectivity production at export scale reaching trade-related compliance standards such as the necessary fruit sizes and colour consistency.

China's policy change calls for Africa's frontier exporters to China to build trade-related supply chains across African borders to garner the scale and competitiveness to expand their own – soon tariff-free – exports to China.