Towards a green trade strategy for Africa
The future of trade is green, and the future of trade is African. But with the global economy increasingly shaped by geopolitical and climate imperatives, how can the continent best advance its development goals?
Ministers gathered in Geneva on 12 June for the Twelfth Ministerial Council meeting of the World Trade Organization (WTO). Given the persistent gridlock in the last two decades, a key question is how the WTO can adapt to new imperatives like the climate challenge. To do so will require looking beyond the traditional mandate of the WTO to drive trade liberalisation as the highest priority. While discussion has increased around climate, consensus even on first steps--like reducing tariff barriers for green products--has remained elusive.
In contrast to WTO gridlock, the zeitgeist around African trade brims with optimism. In a few short years, African countries concluded, adopted, and ratified the African Continental Free Trade Agreement (AfCFTA). AfCFTA represents a remarkable achievement in that it seeks to make trade policy a key tool for economic transformation in the continent and shows impressive diplomatic coordination and political cooperation across the continent. Only four countries are yet to ratify the AfCFTA at the time of this writing.
Projections on the future growth of African trade have been optimistic. Estimates by the UN have indicated that AfCFTA would lead to an increase of intra-African trade by more than 50%, contributing to a continental economy worth more US$ 29 trillion by 2050. This is the kind of economic opportunity that leads observers to speak of an “Emergent Africa.”
But Africa’s new trade dynamism is taking place in a rapidly changing global trade policy landscape, shaped both by geopolitical competition and climate imperatives. The continent cannot assume the external environment for its trade going forward will resemble previous experiences.
One of the most significant developments is the introduction of the Carbon Border Adjustment Mechanism (CBAM) by the EU. The CBAM is meant to levy a tax on imports deemed to be carbon-intensive as compared to EU domestic market products. Once politically unthinkable, the CBAM now looks like the first of many changes that could reorient trade rules around climate goals. Other major economies such as the UK, Canada and even the US are considering adopting similar carbon border measures.
Many developing countries have rightly raised concerns over the legitimacy of such measures, arguing they could undermine long-held principles of equity and fairness given developing countries' relatively small contributions to climate change and their need to industrialise.
While it is critically important to voice these arguments, it is equally important to be clear-eyed about both the need for action on climate change and the powerful domestic political imperatives developed countries face to adopt carbon border measures. It would also be unwise to assume that multilateral fora like the WTO will block developed countries’ trade policy in the face of climate and geopolitical challenges. For this reason, opposition alone cannot deliver what developing countries in general, and Africa in particular, need from the global economy, which is both climate stability and an expansion of economic opportunity. A more proactive strategy is needed.
Already, some green trade initiatives are underway across the continent, with the focus on understanding how AfCFTA can be leveraged to address climate action and green innovation. We suggest that a broader policy approach will be necessary. Such an approach would mobilise a broad set of trade policy tools to help African countries to not only address climate change, but also achieve other development objectives.
Align AfCFTA implementation plans and Paris pledges
Even though AfCFTA does not include any treaty commitments on climate change - it does not even mention it - there is significant potential to leverage the new agreement to scale climate action, in particular through its role as an “orchestrator”. National AfCFTA implementation plans, for instance, can be aligned with the national climate policies of the member countries - also known as nationally determined contributions (NDCs). Since almost all African countries have ratified AfCFTA and also adopted national climate targets under the Paris Agreement, there is much scope for synergy. Specifically, African countries could include climate policy commitments in the national AfCFTA implementation plans, such as trade measures to support climate action by classifying climate goods and services, labelling and certification schemes, and exempting climate measures from being considered as non-tariff barriers.
Use trade finance to support green industrial policy across Africa
Finance is critical to supporting exports and imports, such as through insurance and credit schemes. Institutions such as Export Credit Agencies (ECAs) play a central role in financing trade. At the continental level, the African Export and Import Bank (Afrieximbank), in coordination with national ECAs, can integrate climate policy into their activities. At present, this alignment is largely missing, although awareness of this necessity is growing. Trade finance, for example, could be used to support green industrial policy across Africa, e.g. in supporting renewable energy and other climate technology exports.
Align trade facilitation and government procurement with climate policy
By determining the rules of imports and exports, governments usually play a significant role in facilitating trade. A key objective of trade facilitation is to remove administrative barriers to allow the freer movement of goods and services across national borders. Governments are also major importers of commodities related to infrastructure projects. To align, countries can prioritise and facilitate the trade in climate goods and services, especially those identified in various climate policies. For instance, governments can support export market promotion for climate technologies for both intra-African and external trade. Also, governments can include climate policy as a legitimate policy objective of trade facilitation and streamline customs procedures to avoid climate measures being treated as non-tariff barriers (NTBs). Government procurement policy can also prioritise the purchase of climate technologies such as renewable energy, climate-smart agriculture technologies, among others.
A green innovation policy for the continent
Through the African Green Innovation Framework, and the constitution of a High-Level panel, African countries have recognised the need for green innovation. While the framework includes policy commitments on climate change, there is a need to speed implementation. Green hydrogen, for example, is emerging as a viable energy solution for industrial production. The launch of the African Green Hydrogen Alliance is an important step in consolidating these steps. But there are other sectoral initiatives on cutting-edge technologies that fit well with Africa’s industrialisation aspirations. Linking such initiatives, such as the Glasgow Breakthrough Agenda launched at the UN climate change negotiations in 2021, which seeks ‘to make clean technologies and sustainable solutions the most affordable, accessible and attractive option in each emitting sector globally before 2030’. A Green Innovation Fund for the continent could be established to support these initiatives. One revenue stream for such a fund could be revenue redirected from developed countries’ carbon border taxes.
Participate in standards-setting
Standards are an important element in the design of market products. Major standard setting bodies such as the International Standards Organization (ISO) and other national bodies are in the process of orienting their standards to climate goals. Through the London Declaration to combat climate change through standards, the ISO set the ball rolling with aligning its thousands of standards with climate targets. Other transnational carbon market regulations are also being developed. As African countries have ambitious industrialisation plans, early and engaged participation in standard-setting would provide the opportunity to include their priorities in the standards. Doing so would also position African traders to comply with the evolving climate-related standards and regulations in overseas export markets.
Pair carbon measures with green infrastructure investments in the African economies
African countries need a global strategy for ensuring that carbon border measures such as CBAMs do not undermine the green transition in Africa and elsewhere but are instead part of a global climate transition. For Africa, this means building the infrastructure needed for green industrialization. The continent could therefore push for carbon border measures to be paired with investments through the major infrastructure initiatives such as the EU’s Global Gateway and the US’s Build Back Better World (B3W). To the extent China seeks to support green supply chains through trade policy, similar investments could be sought via the Belt and Road Initiative (BRI).
Strengthen institutional linkages on climate cooperation
Much attention has been on AfCFTA as the lynchpin for policy including on climate action. But the trade policy environment in Africa is complex, given the existence of eight regional economic communities (RECs) and overlapping country memberships. Strengthening the links amongst the RECs and also with AfCFTA can contribute to scaling climate action. A good example is the EAC-SADC-COMESA tripartite climate initiatives where the three RECs cooperate on climate change.
Africa’s trade policy holds much promise. But it must adapt to the rapidly changing global context to deliver not only trade benefits, but also realise other policy goals as outlined in the AU Agenda 2063, the continent’s landmark development blueprint. Proactively “climate-proofing” Africa’s trade is an opportunity that countries cannot ignore.