Theme publications: African regional integration

Publications

The Regime governing Trade under the AfCFTA from 1 January 2021

Working Papers ~ Gerhard Erasmus

The African Continental Free Trade Area (AfCFTA) establishes a Free Trade Area (FTA) for trade in goods (and some services) among the 55 Member States of the African Union (AU). The prerequisites are well-established; an FTA exists when the State Parties implement finally agreed legal obligations about tariff reductions and rules of origin governing trade in goods among all of them. A specific international agreement for establishing an FTA must be in force for the States that are parties to the FTA in question. When these legal elements are not yet in place, there is no FTA.

The AfCFTA presently finds itself being poised between an incomplete founding agreement and a decision by the AU Assembly to “start trading under the African Continental Free Trade Area”. This decision was adopted on 5 December 2020 and provides that trade under the AfCFTA Agreement should begin on 1 January 2021. However, the AfCFTA cannot yet be implemented as designed and a unique legal dispensation has therefore been launched to make this possible.

This paper discusses this interim arrangement for AfCFTA trade and its implications, the ad hoc legal instruments on which it will be based, and mentions the challenges expected to confront the private sector when firms will utilize this unique implementation process. Trade in goods may start in specific bilateral configurations under procedures to be implemented within those State Parties ready and able to put in place the required domestic arrangements. The paper begins by providing an overview of certain basic design features of the AfCFTA and what additional steps will be required to implement a continent-wide FTA. This will be another chapter in the life of this arrangement.


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.

The AfCFTA – implications for Africa’s investment landscape

Working Papers ~ Talkmore Chidede

Foreign investment is essential for the economic development of African countries. Public investments and domestic investments are not enough to achieve social and economic development objectives. African countries need private capital injection (from domestic and foreign firms) to achieve their development goals. If properly managed, good and quality foreign direct investment (FDI) will help Africa to tackle poor economic growth and lack of development, unemployment and abject poverty. It will also transfer advanced technology and know-how into the continent.

African governments are keen to attract FDI. African nations have individually and collectively used several initiatives to attract foreign investment. Despite these initiatives, investment flows to the continent are still at low levels. Also, there is little or no evidence of development benefits in countries that have received increased investment flows. Why are some African countries failing to attract foreign investment? Why is the inward foreign investment not contributing to the development of Africa?

This Working Paper discusses how the establishment of the African Continental Free Trade Area (AfCFTA) could become a useful investment strategy for Africa. The Working Paper reveals that the AfCFTA – if well implemented – could position the African continent as an attractive investment destination through lowering investment barriers and improving investment governance in Africa.


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.

The African Continental Free Trade Area according to its Legal Instruments

Working Papers ~ Gerhard Erasmus

The conclusion of a trade agreement does not guarantee new trade flows. For that to happen, the reasons why trade between certain countries is at low levels must be addressed. Effective remedial action will require more than state policies; private sector initiatives will be critical. One of the reasons why governments negotiate new trade deals is to establish a better enabling environment for attracting investment, for goods and services to be produced and sold to customers elsewhere who want to buy them and can afford them. The reasons why only 15% of the goods produced in Africa are exported to other African markets must be understood and be dealt with when a continental Free Trade Area (FTA) is launched.

The African Continental Free Trade Area (AfCFTA) constitutes an important step in this direction. It is anchored in a collection of international legal instruments negotiated and ratified by sovereign states. Trade negotiations on this scale involve, by their very nature, several aims and objectives. In addition to creating new opportunities for trade to flourish, the participating governments will also strive to balance their offensive and defensive interests and to advance existing benefits. They will not open domestic markets to foreign competition without being guaranteed reciprocal rewards. They would want to make sure that the domestic economy will be able to compete, survive and grow.


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.

Addressing Road Transport Regulatory Issues: An Important Step Towards Realising the Objectives of the AfCFTA

Working Papers ~ Etiyel Chibira

Road transport plays a critical role in facilitating trade and enhancing regional integration in Africa, and it is an indispensable input to international economic cooperation and foreign trade. It provides vital links that connect economic hubs in different countries and facilitates movement of goods between regional economic communities (RECs). Road transport is the dominant mode of transport for overland movement of trade traffic in Africa, carrying more than 80 per cent of trade on the continent. To be competitive at the global level, Africa must be able to move goods on the continent and to and from other regions at the same speed or better than other regions. The cost and quality of road transport services is of critical importance to trade competitiveness.

The African Continental Free Trade Area (AfCFTA) presents a significant opportunity for Africa to improve intra-Africa trade, economic performance and the continent’s share of global trade. However, the continent needs an efficient transport system that enables faster travel, facilitates efficient cross-border movements and achieves the goal of seamless movement of goods, services and people. Therefore, one important step for Africa is to address road transport regulatory fragmentation among trading partners as this is the major source of inefficiencies in the cross-border road transport system.

This paper discusses regulation of cross-border road transport, the fragmentation in the regulatory frameworks, the impact of the fragmentation on cross-border road transport and trade flows between countries, economic development and regional integration. It also provides recommendations to address the regulatory issues which should be elevated in the negotiation of the AfCFTA trade in services. Transport is one of the five priority services sectors in the AfCFTA. Member states are currently preparing offers of specific commitments for these sectors, and will also develop and adopt a framework for regulatory cooperation.


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.

Review of intra-Africa trade liberalisation and the composition of intra-African trade: Implications for the AfCFTA

Working Papers ~ Willemien Viljoen

An objective of the African Continental Free Trade Agreement (AfCFTA) is to create a liberalised market for goods and services. To achieve this, the AfCFTA provides for progressive tariff liberalisation among state parties. This will add to existing intra-Africa tariff liberalisation, since regional economic communities (RECs) will continue to exist.

Currently, there are 13 RECs of which 8 are recognised by the African Union. There are also many bilateral trade agreements and ongoing liberalisation negotiations under the Tripartite Free Trade Area (TFTA). Some RECs have no trade agreements in place; no trade agreement means no intra-REC tariff liberalisation. However, most countries are members of multiple RECs and bilateral trade agreements. This is a challenge for calculating existing intra-REC tariff liberalisation.

In this working paper we aim to establish where the AfCFTA can add to existing intra-Africa tariff liberalisation. In doing so, we address the following questions: What percentage of intra-REC tariff lines is liberalised? What is the composition of intra-Africa trade? Are intra-Africa imports mostly sourced from fellow customs union or FTA members? Are these imports mainly duty-free?


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.

Will the AfCFTA tackle Non-Tariff Barriers as a Governance Issue?

Working Papers ~ Gerhard Erasmus

When one speaks to the private sector operators (freight forwarders in particular) involved in the business of clearing goods for export to African states, their biggest complaints are about non-tariff barriers (NTBs) in the form of border delays, inconsistent clearance procedures and the uncoordinated regulation of cross-border transport. NTBs are some of the most pernicious and costly obstacles to intra-African trade and integration. It has been so for a long time.

Officials from the Regional Economic Community (REC) Secretariats in Southern and Eastern Africa, on the other hand, will often argue that there is an effective mechanism in place to deal with these problems. What they have in mind is the reporting, by private users of border clearance and transport services, of NTB related complaints on monitoring platforms such as tradebarriers.org.

When private sector stakeholders are encouraged to report instances of encountering NTBs on a public monitoring platform there is a built-in assumption that their complaints will be resolved through appropriate remedial action. For that to happen a certain procedure must be in place.


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.

Will the AfCFTA generate NTB related Disputes?

Trade Briefs ~ Gerhard Erasmus

When private sector stakeholders are encouraged to report instances of encountering NTBs on a public monitoring platform such as tradebarriers.org, the assumption is that their complaints will be resolved through appropriate remedial action. The frequently encountered NTBs involve customs operations and border documentation requirements, rules of origin documentation, pre-shipment inspections, sanitary and phytosanitary measures (SPS) and Technical Barriers to Trade (TBTs).

The manner in which African countries trade amongst themselves (the bulk of the exported goods are transported by road and are cleared by different national border agencies and authorities) suggests how many urgent NTB-related problems should be addressed: Corridor management and transport regimes should be harmonized, one-stop border posts should be established and e-filing of clearance documentation should become standard practice.


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.

The African Continental Free Trade Area: A tralac guide | 7th edition

tralac

This booklet provides a handy guide on the African Continental Free Trade Area (AfCFTA) and how it fits within Africa’s broader development agenda – the architecture of the AfCFTA Agreement, what the Agreement covers, institutional arrangements, committees and other AfCFTA initiatives. The booklet also offers an overview of intra-African (based on available data for 26 countries to end August 2020) and intra-REC trade in goods (agricultural trade, trade in commodities, non-commodity and non-agriculture trade), intra-African tariffs and MFN tariffs on key intra-African imports, and trade in services and trade facilitation performance.

Further information on the AfCFTA negotiations, as well as the legal texts of the AfCFTA Agreement and ratification status of the legal instruments, is available on tralac’s AfCFTA resources page.

DOWNLOADS

The African Continental Free Trade Area: a tralac guide | 7th edition August 2020

La Zone de Libre-Echange Continentale Africaine: Un guide du tralac | 7ème édition Août 2020


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged.

Governance under the AfCFTA: Linkages between Implementation and Gains

Working Papers ~ Gerhard Erasmus

There have been several studies about the extensive economic gains that will be generated by the AfCFTA, despite the fact that essential aspects (the extent and tempo of the tariff reductions, how strict or flexible the rules of origin will be and what conditions will govern trade in services) must still to be agreed. The outstanding negotiations are about complex technical matters and involve concessions among a large number of countries at very different levels of economic development. The early predictions about remarkable outcomes are based on assumptions that may fail to materialize.

This Working Paper discusses the AfCFTA as it is, not whether it has an optimal design. The reason is that the legal instruments adopted for the purpose of founding the AfCFTA reveal rather clearly what the sovereign Member States of African Union (AU) have been prepared to accept as the future rulebook for intra-African trade and integration. There are no supra-national institutions to enforce the rules and to monitor compliance. This is a member-driven arrangement.

It is important to form an early understanding of how things will unfold once the outstanding negotiations are concluded and trade under AfCFTA rules and preferences will commence. Private sector players have to prepare for the new dispensation, investors must weigh opportunities and decide about investment opportunities and destinations, while governments have to get their house in order. Specific questions then arise and need to be discussed: How will actual trade governance and regulatory oversight be undertaken and by whom? What remedies will be available when obligations are not respected or when Governments want to postpone or suspend compliance? How to deal with unfair trade practices? And what will happen to existing trade patterns, distribution networks, logistical services and markets in the RECs? How will private parties (the importers, exporters, freight forwarders and investors in the engine room) be affected and what new opportunities will arise with respect to trade in goods and services?


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.

How will AfCFTA State Parties manage Trade Relationships with Third Parties?

Working Papers ~ Gerhard Erasmus

The African Continental Free Trade Area (AfCFTA) is anchored in legal instruments regulating the functioning of this ambitious arrangement. As the AfCFTA deal presently stands, trade in goods and trade in selected services areas will be liberalized. Trade under AfCFTA preferences will presumably start in 2021, once the outstanding negotiations on tariff reductions, rules of origin and the conditions applicable to trade in the five priority services areas are completed.

Since a Free Trade Area (FTA) is an integration arrangement in which the Member States retain policy space over their tariff and trade policies, the AfCFTA State Parties will remain responsible for their own choices and decisions about trade with third parties. They are not precluded from concluding external trade agreements. Neither does the AfCFTA Agreement provide for supra-national institutions or bodies with powers to speak on behalf of the collective when it comes to such trade agreements. Those AfCFTA State Parties that are members of Regional Economic Community (REC) FTAs will have to consider additional legal requirements; the relevant provisions in the respective REC instruments. And sometimes these States belong to more than one REC at the same time. Overlapping REC membership is ubiquitous.

This Working Paper discusses claims that the AfCFTA will be able to speak with one voice when the State Parties conclude trade agreements with third parties, and that AfCFTA State Parties would discredit the spirit of the AfCFTA when concluding their own external trade agreements. Kenya’s decision in early 2020 to start trade negotiations with the United States (US) has caused a stir in some circles. The relevant implications of the USKenya initiative will be examined. The question to be answered is whether the AfCFTA regulates, in some form or manner, the freedom of the State Parties to conclude trade agreements with Third Parties, and if so, under what conditions. When a particular AfCFTA State Party decides to conclude an external trade agreement, the more pertinent question might be whether such an initiative would be compatible with the rules of the REC or RECs of which it is a party.


Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the author and do not purport to reflect the views of tralac.