Building capacity to help Africa trade better

May AfCFTA State Parties conclude new Trade Agreements?


May AfCFTA State Parties conclude new Trade Agreements?

May AfCFTA State Parties conclude new Trade Agreements?

In order to answer the question posed above one has to study the legal instruments adopted for the purpose of establishing the African Continental Free Trade Area (AfCFTA). An important feature of the AfCFTA is that it is essentially a member driven arrangement, and we need to understand the intention of the drafters. The legal texts indicate that the design chosen is an AfCFTA based on practicality and experience. What already exists in terms of economic integration arrangements on the continent is maintained and will continue. The AfCFTA will co-exist with the Regional Economic Communities (RECs) and other African trade arrangements. And it does not re-invent the recipe for African economic integration, but builds on what exists already. Trade agreements with external parties are also foreseen.

The AfCFTA will not suspend the rights and duties that AfCFTA State Parties have under other trade arrangements. Article 18(3) of the AfCFTA Agreement provides: This Agreement shall not nullify, modify or revoke rights and obligations under pre-existing trade agreements that State Parties have with Third Parties. The AfCFTA Agreement defines a Third Party as “a State that is not a party to this Agreement except as otherwise defined in this Agreement”.[1]

Article 19(2) says AfCFTA State Parties “that are members of other regional economic communities, regional trading arrangements and custom unions, which have attained among themselves higher levels of regional integration than under this Agreement, shall maintain such higher levels among themselves”. Article 8(2) of the AfCFTA Protocol on Trade in Goods repeats the very same principle and adds that AfCFTA State Partiesshall maintain, and where possible improve upon, those higher levels of trade liberalisation among themselves”. (Emphasis added.)

Trade agreements will normally contain provisions to ensure that the different trade-related obligations of the Parties are implemented in a mutually compatible manner. The AfCFTA Agreement does the same. Article 4(2) of the AfCFTA Protocol on Trade in Goods provides: “Nothing in this Protocol shall prevent a State Party from concluding or maintaining preferential trade arrangements with Third Parties, provided that such trade arrangements do not impede or frustrate the objectives of this Protocol, and that any advantage, concession or privilege granted to a Third Party under such arrangements is extended to other State Parties on a reciprocal basis.

The highlighted section implies that additional negotiations and acceptable quid pro quos are required in order for new Parties to join African existing trade arrangements. The same provision goes further and states: “Notwithstanding the provisions of paragraphs 2 and 3 of this Article, a State Party shall not be obliged to extend to another State Party, trade preferences extended to other State Parties or Third Parties before the entry into force of the Agreement. A State Party shall afford opportunity to the other State Parties to negotiate the preferences granted therein on a reciprocal basis, taking into account levels of development of State Parties.” Article 4 of the AfCFTA Protocol on Trade in Services repeats the same principle with respect to agreements covering trade in services.

Most African states belong to the World Trade Organisation (WTO) as well as closer integration trade arrangements in the form of Free Trade Areas (FTAs) and Customs Unions (CUs). They are, as a rule, members of more than one African regional trade arrangement; with the complications caused by overlapping membership configurations. Mozambique is about the only exception; it has only joined the Southern African Development Community (SADC). Some have concluded trade agreements with external parties.[2] Several have bilateral trade agreements. Practically all African nations benefit from the European Union’s (EU) Generalised System of Preferences (GSP). The Africa Growth and Opportunity Act (AGOA) provides quota duty free, quota free access to the United States market for goods from eligible Sub-Saharan African States.[3]

The continuation of existing trade arrangements includes the freedom to conclude new agreements within the context of such arrangements; such as the WTO, the RECs and the European Union-SADC Economic Partnership Agreement (EPA). All of them foresee additional deals and extending coverage to include new disciplines such as trade in services, competition, intellectual property rights and investment. Economic integration and trade liberalisation are not static. If there would e.g. be a breakthrough in respect of the Doha Development Agenda discussions and WTO Members agree to conclude a new multilateral agreement, African nations (including AfCFTA State Parties) that are WTO Members, will obviously be free to join it.

Simultaneous WTO and FTA/Customs Union memberships are acceptable when done in terms of Article XXIV of the General Agreement on Tariffs and Trade (GATT). It allows the formation of Free Trade Areas (FTAs) and Customs Unions (CUs) among WTO members as an exception to the most favoured nation (MFN) principle, provided certain conditions are met: The contracting parties recognise the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements. They also recognise that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.[4]

It should also be noted that the AfCFTA establishes an FTA. FTAs are first order arrangements on the road of economic integration. They differ from CUs in that they do not have a single customs territory nor a common external tariff (CET). It means the individual FTA Member States retain the freedom to adopt their own tariff policies, as long as they comply with their respective legal obligations. The adoption of national tariff policies has implications for joining (or not joining) new trade arrangements. This is why the individual members of FTAs such as SADC (that are not members of the Southern African Customs Union, which is fully included in SADC) are submitting their own, separate tariff offers in the context of the AfCFTA tariff negotiations. The Members of the Southern African Customs Union (SACU), on the other hand, must make a joint offer because they are bound by SACU’s CET.

Members of an FTA retain policy space to enter into new trade agreements. The decision to enter into a new FTA with a third party will be informed by the State’s national and regional development policies, obligations already accepted – including the regional integration scheme to which such a State belongs. It would make little sense for States to bind themselves to a programme of deeper integration (for example, to form a CU with the other members of an FTA) and subsequently to undermine the achievement of that objective by concluding external trade agreements detrimental to the jointly accepted regional integration strategy. States cannot belong to more than one CU at the same time.

There are several examples of anomalies in how CU disciplines are implemented in the RECs. Four of the East African Community (EAC) members (Kenya, Uganda, Burundi and Rwanda) are also members of the Common Market for Eastern and Southern Africa (COMESA) FTA. Tanzania is a member of the Southern African Development Community (SADC) FTA. South Sudan is neither part of COMESA nor SADC. There are different preferential tariff rates applicable to imports into the different EAC countries depending on the source (COMESA FTA, COMESA non-FTA or SADC FTA) country and the destination market. As a Customs Union with a CET the EAC countries are expected to negotiate en bloc when it comes to, for example, making AfCFTA tariff offers. They have indicated that they want to do so, but there are practical challenges. Burundi, Tanzania and South Sudan have not yet ratified the AfCFTA; South Sudan and Uganda benefit from unilateral preferential market access granted by Morocco. Overlapping memberships with other African FTAs pose serious challenges to the administration of existing RECs, their plans for deeper integration as well as the functioning of the AfCFTA. The consolidation of an FTA and the formation of a CU require legal certainty. Importers, exporters and investors need a predictable framework.

These difficulties are less likely to arise when agreements with external parties do not include any deeper integration plans such as the formation of a CU. The EU-SADC EPA is, for example, a useful and necessary trade arrangement for the SACU member states and for Mozambique because of the global trade integration benefits it brings. The EU is a vitally important market for these African economies. And that introduces an important policy consideration. Intra-African trade accounts for only 15% of the value of all African trade in goods. Can African nations afford not to conclude trade agreements with third parties beyond Africa? There is nothing in the AfCFTA design preventing them from doing so.

[1] Art 1 AfCFTA Agreement.

[2] Examples are the EU-SADC Economic Partnership Agreement and the FTAs between SACU and Mercosur and EFA respectively.

[3] See tralac’s dedicated AGOA website: www.agoa.info

[4] Art XXIV (4) GATT.

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

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