Zeroing in on China – Africa trade tariffs

China’s burgeoning trade relationship with Africa was boosted by last month’s announcement that a zero-tariff scheme has been expanded tenfold to include 4762 products and commodities from 26 least developed African countries. This preferential treatment applies to approximately 60% of current imports and there are plans to broaden it to 90% of imports from all of China’s diplomatic allies in Africa over the next three years.

China’s diversifying engagement with Africa was laid out in the 2006 White Paper and solidified through its pledges at the 2009 FOCAC. In the spirit of South-South cooperation, the zero-tariff scheme provides non-monetary aid these least developed countries with a ‘view of expanding and balancing bilateral trade.’ The official announcement was also accompanied by a pointed reaffirmation of Beijing’s support for the Millennium Development Goals and call for the restart of the Doha round talks.

In addition to providing development assistance and deepening economic links, the preferential access scheme is also an attempt to roll back the resource-driven trade imbalance. Despite an 80% boom in zero-tariff imports to US$2.13 billion in 2009, the significant trade deficits registered by the 21 non-oil producing countries indicate that the new concessions are unlikely to immediately tip the bilateral trade balance, which remains skewed toward import of resources and primary products.

The zero-tariff scheme also faces foreseeable demand and supply side limitations. African exporters face production challenges due to a lack of infrastructure, capital investment, and in some instances, political stability. Demand side restrictions from China include non-monetary barriers such as technical and safety standards. However, this may lend momentum to establishing bilateral mechanisms for regulating product quality. This can address concerns quality issues that have beset some Chinese exports to Africa as well as navigate potential restrictions for African imports.

Over the longer term, supply side initiatives such as loans to small and medium enterprises administered through the Sino-Africa Fund can help stimulate production and exports. The establishment of Special Economic Zones (SEZs) in Zambia and Ethiopia can also help boost industrial competitiveness. However, the increasing influx of cheap Chinese goods has undercut manufacturing sectors in parts of Africa; thereby limiting their export capacity, especially for more profitable value-added goods. On the demand side, the growing African diaspora in China can become a critical economic link to facilitate imports. However, the net benefit for Africa may be offset by Chinese companies in Africa taking advantage of the trade opportunity to profit from exports, particularly through the SEZs.

For China, the zero-tariff scheme consolidates its status as a vital trading partner for Africa by capturing a greater segment of Africa’s exports. At the same time, the unilateral trade preference also reaps decisive diplomatic advantages by enhancing China’s overall image and standing in Africa.