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Thursday/April 26 Level 4 African Free Trade
Thursday/April 26 Level 4 African Free Trade
Level 4
African free trade
Each year, around the end of January, the African Union (AU) holds its annual two-day summit. These
large meetings take place at the AU’s headquarters building in Addis Ababa, Ethiopia’s capital city. The
AU’s 55 member countries, or states, make up the whole of the African continent.
On March 21, the leaders of most AU member countries attended an extra, or extraordinary, summit. It was
held in Kigali, the capital of Rwanda. At the meeting, 44 AU member states signed an important document.
It’s an agreement called the Continental Free Trade Area (CFTA). AU members first discussed the set up
of a free trade area three years ago.
A free trade area is also known as a “trade bloc”. Within a trade bloc, manufactured goods and services
should “flow freely” across the borders of member countries. The purpose of a free trade area is to help
member countries’ economies grow. It should increase trade and improve people’s lives. For example,
better paying jobs may be created and people should have more choice of items they wish to buy. In a free
trade area, companies in different countries, which make similar items, have to compete. Business
competition usually lowers prices and increases quality and innovation.
Within a trade bloc all trading obstacles have to be removed or reduced. These are known as trade
barriers. The most common are import tariffs and non-tariff barriers. Some governments put a tax, or tariff,
on certain imported items, or goods brought into the country. If the tariff (or tax) is very high, companies in
other countries, which make the items, are less likely to export them. Non-tariff barriers are rules,
regulations and complicated paperwork. These also discourage, or deter, exporting companies.
The AU is a “market” of 1.2 billion people. This is the population of all African countries. However, only
about 16% of the AU’s total trade is between member countries. Presently, the highest value exports from
Africa are resources or raw materials. Oil, gold, platinum, copper, diamonds, and other gems and minerals
are examples. Most of these resources are sold to China.
Currently, most African countries have few
manufacturing industries. These are factories
that make everyday goods such as clothing,
household items, cars, and electrical
equipment. It is hoped that the new free trade
agreement will increase this type of
manufacturing. It should also improve
transport links between African countries.
The European Union (EU) is an example of a large trading bloc. It is a free trade area. EU members are
also part of what’s called a customs union. Many have agreed to use the same currency (the euro). A
custom’s union is like a trade barrier “around” the whole free trade area. It is also known as a “common
external tariff”. Goods made in other parts of the world are subject to a tariff if exported to any of the free
trade area members. Some AU members support the future set up of a customs union and single currency.
Eleven AU countries chose not to sign the CFTA agreement. They include Nigeria and South Africa. These
are the two largest economies in the AU. Leaders of these states declared that they need more time before
making a decision. AU leaders said that they hope that all these countries will agree to join the CFTA at a
later date.
Comprehension Questions:
1. What agreement did the 44 AU member states sign?
2. What is the purpose of a free trade area?
3. Presently, what are the highest value exports from Africa?
Discussion Questions:
1. What is a “trade bloc”? How can it help economies to grow?
2. Why did some AU countries choose not to sign the CFTA?
3. What is the importance of competition in business?
4. Is it a good idea to be a member of a large trading bloc?
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