Two years after its own accession into the World Trade Organisation (WTO), China initiated a scheme to allow 190 products from 30 African Least Developed Countries (LDCs) to enter China duty free.
The announcement for the scheme was made at the 2nd Forum of China-Africa Cooperation (FOCAC) meeting in 2003 and implemented in 2005. At the time, there were 30 African LDC beneficiary countries. By implementing this scheme, China was taking steps, alongside other countries classified as “developing,” such as Brazil, to adopt on a voluntary basis the WTO’s Duty-Free and Quota-Free Market Access (DFQFMA) for LDCs to increase their export competitiveness and promote economic growth, which was adopted in 1999.
Over time in subsequent FOCAC meetings, these commitments were ramped up and by 2018, the number of goods eligible for zero-tariff treatment was 97% and all 33 African LDCs were benefitting from the scheme. In 2021, at the latest FOCAC, China again increased the number of goods eligible for zero-tariff treatment to 98% or 8,000 products and so far, 27 out of 33 African LDCs are eligible for the treatment although the number of beneficiaries is expected to reach 33 in due course (beneficiary countries are based on two conditions: belonging to LDCs and establishing diplomatic relations with China).
China started offering duty free treatment early on into its WTO accession because African governments were calling on China to not only increase its African imports, but also reduce the trade surplus that was already growing between China and Africa, and which remains today. Added to this, Chinese tariffs are often fairly high and especially for agricultural products (a priority export for many African countries to China). This acts as a disincentive to African businesses to export to China and especially when they can export to other markets such as the US and EU – often duty free. Given China has now become the world’s biggest food importer and has the most populous consumer class globally, increasing access to Chinese is becoming increasingly appealing to African governments.
So, how successful has the LDC scheme been so far? Our infographic below explains in depth, but for now here is the synopsis.
Of the 8,000 goods that are eligible for zero tariff treatment, many are priority exports for African countries including agricultural products and agri-processed products, such as wine and roasted coffee. Other products also covered by the scheme include motor vehicles that may become higher priority exports for African countries, especially under the AfCFTA (the vehicle sector is one of four priority sectors under the AfCFTA), such as Algeria, South Africa and Morocco that are currently top motor vehicle manufacturers. On the other hand, some important exports are excluded, such as wheat, rice, cereals, sugar, cotton, wool, soybean oil and palm oil.
Starting from 2005 onwards, the 27 current beneficiary countries for 98% of exports, exported goods worth a total of US $578 billion to China of which almost 99% or US $571 billion were tariff-free goods. However, in the same period, the other 27 non-beneficiary African countries generated US$ 771 billion. So, it is not necessarily the zero-tariff scheme that boosts the volume and value of African exports to China.
Having said that, for the countries that have full and available data, many countries did see significant growth in their zero-tariff exports to China after they became beneficiaries albeit with fluctuations, especially during the Covid-19 pandemic. Some of these countries also saw little to no growth in their tariff exports. This indicates that offering zero-tariffs for many exports from LDCs did make a difference to trade with China.
That said, out of the 27 beneficiary African countries, only 7 have a trade surplus with China, all of whom have consistently exported primarily unprocessed oils and minerals whilst the other 20 continue to maintain trade deficits with China.
So, what next for this policy?
Certainly, China has laid a good foundation for African countries to boost and diversify their exports to China, but if this scheme is maintained as it is, more work must go into increasing the value of Africa’s exports to China to sustainably reduce Africa’s trade imbalance with China as well as continuing to remove trade barriers that limit value-added trade flows from Africa to China. Aligning the scheme with other trade pledges that might be made at the next FOCAC is therefore crucial. For instance, in 2021 Africa and China agreed a plan to export US $300 billion worth of goods to China over 3 years up to 2024, and to create “green lanes” to speed up border processing for African exports, both of which have no doubt complemented the LDC scheme. Similar pledges at the forthcoming FOCAC in September 2024 will help. For example, recognising African geographical indications such as Beninese sugarloaf pineapples, or Nigerien “Kilichi” (a type of ecological dried meat jerky) from LDCs could be a useful way to drive up the value of existing agricultural exports to China.
That said, even more ambition is possible. In particular, now that the AfCFTA is operational, two paths could be followed to boost the value of the LDC scheme from the African side in particular.
First, African governments could look at ways to trade through or together with LDCs to China, taking advantage of AfcFTA’s current rules of origin. For example, Tanzania and Kenya have both secured a SPS agreement with China for their avocados. Thus, Kenya and Tanzania could explore with Chinese partners the possibility of combining exports of their avocados to China to increase the volume and take advantage of Tanzania’s duty-free access.
Second, China could arguably extend its voluntary preferential scheme such as the LDC DFQF scheme to all other African countries, in order to recognise the AfCFTA. This would enable, for example, manufactured products from countries that currently have more industrial capacity to be exported to China, while enabling LDCs nearby to send their raw products or semi-processed products to those countries. This would enable manufacturing countries to act as “hub” countries in their regions, or indeed, for different regional “hubs” to be planned for different products.
As a new member of the WTO, China’s DFQF scheme was pioneering back in 2003. Now, as a central country to global trade, the time is now to use this scheme to lead the way in prioritising Africa.
To better understand these points, check out our graphic below.
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Special thanks go to Yujie Shi and Rugare Mukangaga for their work on the graphics and for collecting/analysing the underlying data and this accompanying article.
The data was collated primarily from a range of sources, including WITS and UNCOMTRADE.
If you spot any gaps or have any enquiries, please send your feedback to us at media@developmentreimagined.com, and we will aim to respond ASAP.
