Trade has always served as a fundamental driver for economic growth, regardless of whether a nation is developed or developing. Not only does it encourage economic interdependence it also fosters diplomatic relations among these countries. And we have witnessed nations come together to foster inclusive economic growth in the world.
Last Monday, June 19, 2023, the United Kingdom launched the Developing Countries Trading Scheme (DCTS) which simplifies trading rules and cuts tariffs on products entering the UK from 65 developing countries including African countries. The trading scheme is a replacement for the UK’s Generalised Scheme of Preferences (GSP).
Through the simplification of trading rules, barriers that previously hindered African nations from engaging in trade with the UK would be removed. Also, the lower tariffs would translate into increased competitiveness and profitability for African goods in the UK market. This, in turn, encourages greater production and exportation from Africa, leading to job creation, and income generation.
According to the Uk government, the scheme is aimed at contributing to developing countries’ integration into the global economy, creating stronger trade and investment partners for the future, and strengthening supply chains. Under the new scheme, African countries will be able to participate in global value chains involving raw materials from 95 countries to export their final products to the UK duty-free.
However, it is important to note that all these benefits are contingent upon meeting specific requirements.
The Uk government, says the DCTS will promote free and fair trade, human rights, and good governance. Retention of DCTS preferences is based on respect for human and labour rights and compliance with relevant international conventions, including those on civil and political rights, anti-corruption, climate change and the environment. In essence, the DCTS not only seeks to enhance trade relations but also emphasizes the significance of upholding fundamental values and international standards.
The commendable approach taken by the United Kingdom’s Developing Countries Trading Scheme (DCTS) shares similarities with the African Growth and Opportunity Act (AGOA) implemented by the United States. The AGOA, established in 2000, aimed to provide eligible sub-Saharan African countries with duty-free access to the U.S. market. However, some African countries, including Burkina Faso, Cameroon, Mali, Guinea, and Ethiopia, faced bans due to reasons bordering on unconstitutional change in government, and gross violations of internationally recognized human rights.
Implementing the DCTS now offers a lifeline for these affected African countries and provides them with renewed prospects for trade and economic growth. For instance, Ethiopia, which was the fifth top exporting nation under the act exports more than 90% of its textile products to the United States through AGOA, and that makes up only 6% of its total foreign exchange earnings. In 2020, Ethiopia earned about $245 million in export proceeds to the United States. Unfortunately, the AGOA ban halted these crucial export proceeds.
This reduction in trade barriers and duty not only benefits African countries, but UK businesses are also expected to save over 770 million pounds annually by reducing or eliminating tariffs on imports worth over 9 billion pounds, encompassing items such as clothing, food, and children’s toys.
From enduring high inflation rates and managing robust debt profiles to navigating the far-reaching impacts of the COVID-19 pandemic and the ongoing conflicts such as the Russian-Ukraine war, African nations have faced an array of economic obstacles lately. hence, the implementation of the Developing Countries Trading Scheme (DCTS) presents a significant and timely opportunity for the African continent.
