Transcript Slide 1

STUDY ON THE ESTABLISHMENT OF
INTER-RECs’ FREE TRADE AREAS IN
AFRICA DRAWING ON LESSONS FROM
THE COMESA-SADC-EAC FTA EXPERIENCE
RITD UNECA, ADDIS ABABA, ETHIOPIA
May 31 2011
Background
 AU creation of RECs as pillars for integration and
development in Africa
 Hence the creation of five RECs namely UMA) in the
North, ECOWAS in the West, EAC in the East, ECCAS in
Central Africa, and (SADC) in the South.
 Three more RECs namely COMESA, Community of SahelSaharan States (CEN-SAD), and (IGAD) have received the
AU endorsement and have joined the earlier five to bring
the AU sponsored RECs to eight.
 The Lagos Plan of Action of 1980 prescribed the use of
the (RECs) as building blocks for regional integration in
Africa
Background
 The Abuja Treaty of 1991 endorsed the use of RECs for
regional integration
 NEPAD formed in 2001 as a strategy for faster development
through regional economic integration further buttresses
Africa’s bid to accelerate the pace of development
 UNECA, the AUC and the AfDB all support these development
initiatives as Africa’s benchmark achievements and springboards
for economic transformation and integration in Africa and for
launching Africa into the global geo-politics and economy
 African leaders and development pundits believe that increased
trade ties among RECs through the use of inter-RECs’ FTAs will
quickly metamorphose into a Grand intra-Africa FTA to boost
intra-Africa trade to quickly realize the continental dream of an
African Economic Community and Common Market.
Introduction
 Trade has emerged as a formidable instrument for inter-regional
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cooperation
However, Africa’s political and socio-economic upheavals have
impaired its capacity and capability to effectively use trade as a
veritable instrument of economic growth for her development
The immediate post-independence era saw a gradual disintegration
of these trans-regional infrastructural facilities owing to perceived
attempts at establishing national identity and sovereignty.
Currently new political agendas and paradigm shift towards
recreating closer ties and cooperation between member countries of
regional economic blocs have emerged
The formation of the Organization for African Unity (OAU) in 1963
and its later transformation to African Union (AU) in 2001 is one of
such efforts at enhancing the continent's economic prosperity
Introduction
 Efforts to fast-track development through regional integration region saw the
emergence of more RECs along diverse lines that include common currency
affiliations, common language, identical colonial history, and homogeneous geopolitical locations
 The new formations have created conditions for multiple memberships in the
RECs, thereby creating new problems in the wake of new orientations in the pursuit
of regional integration in the continent
 The RECs are now seeking closer cooperation through intra- and inter-REC trade by
forming trading blocs for faster regional integration and to speed up the
establishment of an African Common Market
 The formation of COMESA and CEN-SAD to cover wider areas and to include more
states from existing RECs demonstrates further efforts by African states to expand
the frontiers of regional cooperation in trade as a strategy for faster regional
integration
 The AU Ministers of Trade, at their 6th Ordinary Session in Kigali in November 2010,
after due assessment of the progress made in the implementation of FTAs and
Customs Unions in the various RECs, and guided by the views expressed by ECA,
AU and AfDB (2010) in their joint publication - Assessing Regional Integration in
Africa IV (ARIA IV), recommended the fast-tracking of the establishment of an
African FTA
Introduction
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The EAC, COMESA and SADC Tripartite Summit of October 2008 and the resultant Tripartite FTA Agreement,
demonstrate the compelling desire for RECs to forge inter-REC cooperation in trade to enhance regional integration
and overall economic emancipation of the continent
The 26 in the three RECs have a combined population of 527 million people, a total GDP of US $624 billion, and
GDP per capita of US$1,184 (Newsline, 2010), over 58% contribution to GDP, and 57% of the total population of the
African Union (COMESA, EAC and SADC, 2009: Ministry of East African Community, 2010)
The Tripartite FTA is to be established on tariff-free, quota-free, exemption-free, and should adopt the principle of
variable geometry by simply combining the existing FTAs of COMESA, EAC and SADC into a single FTA (COMESA,
EAC and SADC, 2011)
The Inter-REC FTA is expected to cushion and control internal and external trading shocks; enlarge markets for
goods and services for Member States; increase the critical mass of trading facilities; eliminate the problem of
multiple memberships; promote inter-REC and intra-African trade; and enhance the economic and social wellbeing
of the people in the region
The initiative takes place against the backdrop of numerous obstacles to trade internally and externally. Internally,
there are protracted political unrests; poor infrastructure including low level of information and communication
technology (ICT); paucity of skilled human capacity; lack of political will; complexity of the African trading
environment especially with multiple memberships in RECs; and limited domestic capital. Externally, Africa lacks
attractiveness for foreign capital and investment flows and the continent remains overly marginalised in the
globalized and international scheme of things especially in trade.
The Inter RECs’ FTA seeks to address these problems by aiming at a larger market with prospects for economies of
scale.
This report presents and analyzes the prospects, challenges and possible impacts of establishing inter-RECs’ FTAs
drawing from the experience so far in establishing the COMESA-EAC-SADC Tripartite FTA.
Introduction
 The initiative takes place against the backdrop of
numerous obstacles to trade imposed by both internal and
external forces. Internally, there have been protracted
political unrests; poor infrastructure including low level of
information and communication technology (ICT); paucity
of skilled human capacity; lack of political will; complexity
of the African trading environment especially with multiple
memberships in RECs; and limited domestic capital.
Externally, Africa lacks sufficient attractiveness for foreign
capital and investment flows. In addition, the continent
remains overly marginalised in the globalized and
international scheme of things especially in trade
Introduction
 The study assessed the progress so far made in the
COMESA-EAC-SADC Tripartite FTA; identify the
challenges and bottlenecks in the process; determine the
prospects of other RECs replicating the Tripartite FTA
example to form other FTAs; and the potentials of the new
FTAs converging to form a Grand Intra-Africa FTA to boost
intra-Africa trade.
 It made recommendations on how to surmount the
challenges and obstacles in using inter-REC FTAs to fasttrack the formation of the intra-Africa FTA and customs
union to achieve the goal of an African Economic
Community in line with the Abuja Treaty
Aims and Objectives
 This study has been undertaken to analyze the potential impact
of inter-RECs’ FTA on African economies, the challenges , the
costs, as well as the political and legal implications of the
undertaking
 It further assessed the effect on the inter-RECs’ FTAs of the ongoing Economic Partnership Agreements (EPAs) that African
countries are currently negotiating with the European Union.
 The outcome of the study is expected to guide Member States of
the African Union in making sound decisions on joining the ongoing inter-RECs’ FTA or in establishing new ones.
 It is hoped that the inter-RECs’ FTAs will eventually merge to
form a Grand intra-Africa FTA
Specific Objectives
 Conduct an overall assessment of the procedure in establishing inter-RECs FTA and
the challenges and benefits by drawing from the experience of the on-going
COMESA-EAC-SADC Tripartite FTA s.
 Assess and analyze trade liberalization and facilitation efforts of the REC’s
(including progress in the establishment of free trade areas and customs unions)
and their implications for intra-African trade.
 Assess and analyze the likely direction of intra-Africa trade sis following the
establishment of inter-RECs FTAs.
 Assess and make proposals for the establishment of inter-RECs’ FTAs drawing from
the experience in the COMESA-EAC-SADC Single FTA.
 Provide workable recommendations and clear action plans for the establishment of
the inter-RECs’ FTA based on the assessments.
 Analyze government policies and their impact on the inter-RECs’ FTAs.
 Outline the potential economic, social, legal as well as political implications of
African Member States joining the inter-RECs’ FTAs.
 Discuss the impact of the inter-RECs’ FTA on African economies including rules of
origin, revenues, and customs laws.
 Assess the implications of the on-ongoing EPA negotiations on the inter-RECs’
FTAs in Africa.
Justification
 The Tripartite RECs is a practical demonstration of an action plan that is geared towards
the implementation of the Lagos Plan of Action for regional integration and the Abuja
Treaty that prescribed the establishment of African Economic Community by 2028
(Madakufamba, 2008).
 Inter-RECs’ FTAs represent ideal interventionist models for addressing most of Africa’s
perennial trade and regional integration challenges
 Inter-RECs’ FTAs will promote customs cooperation and trade facilitation;
harmonization and coordination of industrial and health standards;; use of simpler and
straightforward rules of origin, promote value added in production; relaxation of
restrictions on movement of business persons; enhance the use of ICT; development of
the cultural industries ; and develop sector strategies to increase the productive capacity
of regions .
 Inter-RECs FTAs will further improve regional infrastructure and consolidate regional
markets through improved interconnectivity in all forms of transport and
communication as well as promote sustainable energy supply to enhance the regions’
competitiveness.
 Finally, through liberalization, harmonization, and facilitation in trade, inter-RECs’ FTAs
would eliminate the complex problem posed by multiple memberships, imposition of
non-tariff barriers (NTBs), and the imbalances in trade and trading capacities (COMESA,
EAC and SADC, 2010b)
Theoretical Concept
Figure 1. Hypothetical Structure of Proposed FTAs
Methodology
 Types of Data
 Data Collection Techniques
 Sampling Technique
 The Survey
 SADC – Gaborone
 COMESA - Lusaka
 EAC –Arusha
 Trade Ministries in Nairobi and Pretoria
 Method of Data Analysis
Results and Discussions
 Procedures and Experience in Establishing inter-
RECs’ FTA
 After the Tripartite Summit in Kampala, Uganda on 22
October 2008 the governments of the three RECs
commissioned a team of consultants to undertake a
study on the establishment of the single FTA;
 A Task Force was constituted from the three RECs to
complement the work of the consultants.
 After 14 months of the Summit, the Task Force
produced a Draft Report, Draft Tripartite FTA
Agreement with 14 Annexes
Annexes
Annex Table 1. Tripartite Agreement Annexes
Annex 1. Illustrative List of Non Tariff Barriers
Annex 2. Rules of Origin
Annex 3. Customs Cooperation
Annex 4. Transit Trade and Transit Facilities
Annex 5. Trade Remedies
Annex 6. Competition Policy and Law
Annex 7. Standardization, Metrology, Accreditation and Conformity Assessment
Annex 8. Sanitary and Phytosanitary (SPS) Measures
Annex 9. Movement of Business Persons
Annex 10.Intellectual Property Rights
Annex 11.Guidelines for Services Negotiations
Annex 12.Trade Development and Competitiveness Measures
Annex 13. Dispute Settlement
Annex 14.Institutional Arrangements
Challenges and Potentials in Establishing inter-RECs’
FTA
Challenges
 Low Level of Technology
 Multiple and Overlapping Memberships (See
Figure s 2, 3 and 4)
 Varying Stages of Economic Integration among
RECs
 Multiple and Undifferentiated Products
 Lack of Political Will
 Limited Human Capacity
 Financial Constraint
Figure 3. Member States of ECCAS, CEMAC and ECCAS
CEN-SAD
CAR, Chad, Djibouti, Egypt, Eritrea, Libya, Morocco, Somalia,
Sudan, Tunisia
ECOWAS
UEMOA:
UMA
Libya
Morocco
Tunisia
Benin, Burkina Faso, Cote
d’Ivoire, Guinea Bissau, Mali,
Niger, Senegal, Togo
Gambia, Ghana, Liberia,
Nigeria, Sierra Leone
Algeria
Mauritania
Figure 4. Member States of CEN-SAD, UMA, ECOWAS and UEMOA
Guinea
Cape Verde
Challenges and Potentials in
Establishing inter-RECs’ FTA
Potentials
 Larger Markets, Specialization and
Industrialization, and Economies of Scale (Example
of Kenya’s Sugar Industry)
 Trade Liberalization Achievements
 Infrastructural Development
Trade Liberalization and Facilitation Efforts of
RECs and their Impacts on Intra-Africa Trade
 Trade Liberalization
 Progress has been made in the removals of tariffs
barriers through legislation
 Not much progress has been made on NTBs because
most of them (corruption, bribery, piracy, road
blocks) are not subject to legislation
Trade Liberalization and Facilitation Efforts of
RECs and their Impacts on Intra-Africa Trade
Trade Facilitation
 The primary goal of trade facilitation is to reduce the
transaction cost and complexity of international trade
for business and improve the trading environment in a
region, with a view to optimizing efficiency and
effectiveness in government control and revenue
collection (COMESA, EAC and SADC, 2009)
 Inter-RECs’ FTA, hopes to ensure that any insurance
taken in one country should be used in other countries
in the FTA.
Role of the Customs (See Figures 7a and 7b
Figure 7a: Completing Customs Certificates
Figure 7a: Completing Customs Certificates
Figure 7b: Access Granted with Completed Certificates
Trade Liberalization and Facilitation Efforts of
RECs and their Impacts on Intra-Africa Trade
Trade Facilitation – The Partner RECs have agreed to:
 Reduce the cost of processing documents and volume of paper work required for trade
among Member States.
 Ensure that the nature and volume of information required for trade within the FTA
does not adversely affect the economic development of or trade among the Member
States.
 Adopt common standards of trade procedures within the free trade area where
international requirements do not suit the conditions prevailing among Member
States.
 Ensure adequate coordination between trade and transport facilitation within the
FTA.
 Keeping under review procedures adopted in international trade and transport with a
view to simplifying and adopting them.
 Collect and disseminate information on international development regarding trade
facilitation.
 Promote the development and adoption of common solutions to problems in trade
facilitation instruments.
 Initiate and promote the establishment of joint programmes, for the training of
personnel engaged in trade facilitation.
 Establish and promote one-stop border posts (OSBPs).
Trade Liberalization and Facilitation Efforts of
RECs and their Impacts on Intra-Africa Trade
 Trade Facilitation
 Infrastructure -includes transport infrastructure such as roads,
railways, waterways and airways; energy (variety of exploitable
energy - oil, gas, coal, and hydro and solar energy); ICT, etc. The
North-South Corridor (NSC) Programme receives major focus
 Funding for Infrastructure Development
 The three RECs organized a High Level Conference on the NorthSouth Corridor (NSC) in Lusaka, Zambia from 6-7 April 2009. The
NSC Programme is a flagship programme of the Tripartite FTA
programme. It is a Model Aid for Trade Programme engineered by
the Tripartite FTA programme to implement an economic corridorbased approach to trade facilitation and reduce the costs of crossborder trade in the sub-region.
 Pledges for prioritized projects at the conference amounted to US$
1.2 billion. The DFID is reported to have given UK£ 67 million in
support of the prioritized NSC project
Trade Liberalization and Facilitation Efforts of
RECs and their Impacts on Intra-Africa Trade
 Funding
 The Tripartite Partner RECs, in collaboration with
IGAD organized a major infrastructure development
conference in Nairobi on 28th and 29th October, 2010
with financial support from PRO-INVEST. Captioned
“Linking up Eastern and Southern Africa for
Sustainable Economic Development”
Guidelines on the Establishment of Inter-RECs’
FTA with Emphasis on the COMESA-EAC-SADC
Tripartite FTA
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Define Objectives and Principles
Define Implementation Procedures
Consult Stakeholders
Evaluation/Assessment and Comments
A careful assessment of the processes and achievements of the Tripartite vis a vis its set
objectives and principles shows significant divergences. Some of these deviations are
highlighted to serve as a guide for the Tripartite operatives in future and for RECs that will
undertake the establishment of other inter-RECs’ FTAs.
There is a general feeling that the arrangement and the procedure in setting up the Tripartite
FTA might not have given sufficient thought to the cost, time, and resource demands of the
programme at its inception.
The decision making process for the establishment adopted a top-down instead of a bottomup approach. Eventually, trying to communicate the idea to the grassroots always faces
problems of acceptability and might not receive adequate cooperation.
The schedule of activities is somewhat ambitious in terms of the deliverables and the time
within which to achieve them. The timelines are considered too tight for an FTA of that
magnitude. (DTI, Pers Comm).
The deadlines in delivering the outputs of the Road Map have not been met owing probably
due to the tightness of the timelines. For example, consultations on the revised tripartite
document slated for January 2011 could not hold because Member States had not all submitted
their comments on the revised document.
Guidelines on the Establishment of Inter-RECs’
FTA with Emphasis on the COMESA-EAC-SADC
Tripartite FTA
Evaluation/Assessment and Comments
 The Second Tripartite Summit which was slated for the first quarter of 2011
could not be held and has now been shifted to the second quarter. The
launching of the Draft Agreement for negotiations which is to take place
during the Second Tripartite Summit is therefore delayed. Similarly, the date
for implementation of the Tripartite FTA which was originally slated for 1st
January 2012 has now been shifted to 1st January 2013.
 The original plan to set up the Tripartite FTA by combining the three existing
FTAs seems to have been shelved as the formation seems to have started from
the scratch. Second, it appears that the principle of variable geometry, which is
prescribed, seems to have been ignored. The Tripartite FTA Units are not fully
established and functional at the REC Secretariats and this poses a problem in
the implementation process.
 The non-tariff barriers are difficult to identify and eliminate and they vary
widely across states and regions and exist on land, sea and air.
Expected Direction of Intra-Africa Trade with
Inter-RECs’ FTA
 Larger Market for goods and services
 Economies of Scale
 Increased Regional and International Trade (See
Figure 8)
45
40
35
30
25
EAC
COMESA
20
SADC:
15
10
5
0
Export
Import
1995
Export
Import
2005
Figure 8. Trend in the share of intra-Africa trade in COMESA, EAC and SADC
Source Data: UNCTA. 2010
Export
Import
2009
Costs and Benefits in Establishing inter-RECs’
FTA
 Costs of Integration
 Direct costs of providing infrastructure
 Possible job losses from mergers and downsizing
 Revenue losses from tariff removals or reductions
 Benefits from Integration
 Economies of scale
 Better competitiveness
 Possible increase in employment
 Equity in income distribution by adequately
compensating losers
Government Policies and their Impact on the
Inter-RECs’ FTA
 Protectionist Policy
 Influence of Culture
 Multiple and Overlapping Memberships
Economic, Social, Legal and Political
Implications of Joining the Inter-RECs’ FTAs
 Economic
 Social
 Legal
 Political
Impact of Inter-RECs’ FTA on African Economies with
Respect to Rules of Origin, Revenues, and Customs
Laws
 Rules of Origin
 Revenue
 Customs Laws
Implications of the On-going EPA Negotiations
on the Inter-RECs’ FTA.
 EU Stand on the Negotiations
 Positioning Africa in the Negotiation Framework
 African Union Stand
Conclusions
 The Tripartite FTA has set the pace
 The prospects of others joining are high and the
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conditions are favourable
There could be challenges but they are surmountable
Strong political will is needed to achieve success
The expected benefits outweigh the costs and these
make the initiative worthwhile and desirable
Inter –RECs’ FTA if it gives rise to a Grand Africa FTA
and Customs Union will quicken the realization of
Abuja Treaty on African Economic Community
Recommendations
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5.
The principle of variable geometry should form the basis for establishing the inter-RECs’ FTAs. In what can be termed
“the coalition of the ready and willing ”, the states that meet the requirements for immediate membership within the
stipulated time frame should form the FTA. Other states willing to join but have not met the conditions can join later
when they fulfill the requirements. This will help speed up the process.
Other RECs should be vigorously sensitized to use the experience gained from the Tripartite FTA to form other inter-RECs’
FTAs and through those FTAs form a Grand African FTA and customs union.
The establishment of the new FTAs should take advantage of any f symmetrical or homogenous conditions such as
common culture and language, common currency, level of trade liberalization and commonality in trade and trade
facilitations such as connectivity in transport, energy and information and communication technology.
Starting from areas of commonality will reduce the complexity and costs in money and time to be spent in achieving the
goal.
In establishing the inter-RECs’ FTAs, it is vital to be realistic and avoid ambitious, costly and complex formations. It is
advisable to adopt simple, productive, and cost-effective models of integration through development projects based on
the region’s comparative and competitive advantages in producing the products and in facilitating their imports, exports
and distribution.
6.
On international negotiations with particular reference to the EU’s EPA and the WTO trade negotiations, the African
Union Commission should as a matter of urgency develop a common African stand and set of rules and conditions on all
the issues that relate to Africa and that might impact significantly on the continent’s development. The set of rules and
conditions will form the benchmark for Africa which all African states should use as tools for negotiations. In this way,
Africa will be proactive and not reactive in global and multilateral negotiations.
7.
The manpower shortage in both quality and quantity and their significant contribution to the delays and lagging
behind in the implementation process should be addressed by incorporating capacity building in the inter-REC
and the intra-Africa FTA Agreements.
Recommendations
8. While the financial support from overseas partners, especially in the infrastructural development is appreciated,
the danger of Africa ceding much authority to and becoming over dependent on these foreign agencies cannot be
overlooked. It is therefore expedient for Africa to start looking inwards in raising funds for its projects. They can
do this through a well organized and coordinated tax system on governments and through the involvement of the
private sector.
9. A thorough situation analysis should always precede the launching of a programme to determine the feasibility
and viability of the programme and should include the assessment of quantum of resources available for the
execution and the time frame over which to execute the programme. Allowance should be made about
contingencies so that programmes do not face delays or the dangers of running out of funds or time midstream.
10. Partners in the FTA should ensure that the negotiations result in a win-win situation for Member States and the
participating RECs. Otherwise unfair treatment leading to inequitable distribution of losses or gains will lead to
disenfranchisement and unwillingness to cooperate.
11. Compensation and budgetary support as a result of revenue loss occasioned by the inter-RECs’ FTA agreements
should be a once-off exercise and time bound to avoid the creation of indolence and over indulgence of states,
which could breed inefficiency and uncompetitive trading regimes.
12. Trade agreements in an FTA should prescribe discriminatory interventions in investments and infrastructural
development with the aim of supporting highly disadvantaged states and regions as a way to boost their
confidence and guarantee fairness.
13. A bottom-up rather than top-down approach should be adopted to ensure that all stakeholders especially those at
the grassroots are involved in the planning and conceptualization stage of the programme. This will also correct
the disruptive effects encountered in using ministers as programme implementation whose frequent turnovers
cause projects built around them to be abandoned or delayed.
Action Plan
Statement of the Goal
The goal is to achieve a Grand Africa FTA by 31 December 2013
IMPLEMENTATION
What is to be done?
By whom and when?
Two more inter-RECs’ FTA to be
formed to add to the on-going
Tripartite FTA
1. ECCAS, CEMAC and CEPGL to
do the same by the same date
(Figure 7a)
2. CEN-SAD, AMU, ECOWAS and
UEMOA to meet and discuss by
September 2011
The Task Force for the three interRECs’ FTAs to meet prepare
integration plan by March 2012
The three inter-RECs’ FTAs hold a
Summit to establish a Task Force
and delegate authority to them to
oversee the integration
Task Force to prepare Agreement
and
Roadmap
for
the
implementation of the Grand Africa
FTA
Presentation of the Draft Agreement
by the inter-RECs’ FTA Joint Task
Force for approval
Review of the Grand FTA Draft
Agreements
Launching of the Grand Africa FTA
Draft Agreement
Commencement of implementation
The Task Force composed of
representatives from the three interREC FTAs to prepare Draft
Agreement by December 2012.
Inter-RECs’ FTA Joint Task Force
in June 2012
Partner Inter-RECs’ FTAs, RECs
within the inter-REC FTAs, and the
Member States on December 31,
2012
The Joint inter-RECs Task Force in
June 30 2013
All three inter-RECs’ FTA and their
Member States on 31 December
2013
EVALUATION
What resources are available?
What determines progress?
How and when to gather evidenc
The Secretariats of the RECs to be
used as coordinating units
Monthly scheduled meetings
Dates and minutes of the schedu
meetings
The Secretariats of the three interRECs’ FTAs to coordinate the
integration of the three inter-RECs’
FTAs
Inter-RECs’ FTA personnel and
facilities as well as private sector,
and donor technical and financial
support
Summit and subsequent monthly
meeting schedules of the three interRECs’ FTAs
Meeting dates and minutes of
meetings
Attendance in meetings of all
participants and stakeholders.
Increased number of donor and
private sector participation and
commitments
Published meeting schedules.
Amount of pledged and collec
from fund drives, records of
meetings held and their dates.
Inter-RECs’ FTA Task Force, interRECs’ FTA personnel and facilities,
and donors
RECs
and
inter-REC
FTA
Secretariats and personnel, private
sector, and donors
Political leaders, inter-RECs’ FTA
personnel,
inter-RECs’
FTA
facilities.
The Secretariats of the three interRECs’ FTAs
Promotions,
sensitization
programmes, advertisements, and
meetings
Schedule of meetings leading to the
launching.
Location and facilities designated
for the Grand Africa FTA
Minutes and dates of meetings;
funds and technical support
procured
Published programs in daily
weekly papers, minutes and dates
monthly meetings,
Copy of The Draft Agreeme
brochure for the launching, report
the launching
Physical structures, equipment a
personnel allocated to the Gra
Africa FTA
I THANK YOU FOR YOUR
ATTENTION