Building capacity to help Africa trade better

What to expect when all the AfCFTA Pieces have come together?


What to expect when all the AfCFTA Pieces have come together?

What to expect when all the AfCFTA Pieces have come together?

The African Continental Free Trade Area (AfCFTA) Agreement may be in force since 30 May 2019, but this project is still work in progress. What remains outstanding? What can be expected once all the pieces of the puzzle are in place? How long will this take?

The minimum requirements for a Free Trade Area (FTA) are agreed schedules of preferential tariff concessions and preferential rules of origin. When 54 states at very different levels of economic development must adopt tariff cuts for 90% of tariff lines (not 90% of trade) as well as rules of origin, while maintaining existing Regional Economic Community (REC) structures and benefits, difficult and complicated compromises must be reached. The principles for trade in the five priority services sectors, including specific commitments, must also be agreed.[1] Disruptions by COVID-19 travel restrictions caused unexpected delays. The result is that the Phase I AfCFTA negotiations are far from over.

The symbolically important date of 1 January 2021, when trade under the AfCFTA should start, needs to be re-configured. Indications are that the Extraordinary AU Summit of 5 December 2020 (in Johannesburg) will decide that the tariff offers made (but not yet adopted) during the recent rounds of AfCFTA negotiations will be used as temporary AfCFTA Tariff Schedules, with templates for interim Rules of Origin and customs clearance certificates to be added. The Summit will also grant an extension so that tariff reductions and rules of origin negotiations can be finalized in 2021 as part of a built-in agenda.

Trade under the AfCFTA can then be said to have started on 1 January 2021. Subsequent trade data will show to what extent this has happened. Trade under existing REC regimes will continue unchanged.[2]

Phase II negotiations will start in 2021. Protocols on Investment, Intellectual Property Rights, Competition Policy and E-Commerce will be added to the AfCFTA’s compact of legal instruments.[3] These new Protocols shall enter into force 30 days after the deposit of the 22nd instrument of ratification.[4] It will take at least another year for this to happen.

An assessment of the AfCFTA as a comprehensive continental deal to boost intra-African trade will have to wait till the overall picture is clear and the trade data reveals how much trade under AfCFTA preferences, and among which State Parties is taking place. The decisions by firms and investors are a critical yardstick. What will the AfCFTA provide in terms of real commercial prospects and new preferential access to foreign markets? Will a cement producer in Nigeria be able to export its product at preferential tariff rates to buyers in the Southern African Customs Union (SACU)? This will require far-reaching reciprocal market access concessions between ECOWAS on the one hand (it will make a single tariff offer and negotiate concessions collectively – even though not all its members are implementing the ECOWAS common external tariff) and, on the other hand, SACU (a customs union with a common external tariff), which will make a single tariff offer and negotiate as a collective. Making a tariff offer is the opening gambit. Negotiations then follow to find the necessary compromises on tariff concessions. Reciprocity is an important principle of the AfCFTA,[5] and the modalities for the AfCFTA tariff negotiations so provide.

Will the AfCFTA rules allow an investor from Egypt to open a mine in the DRC? Will cell phone operators be welcome in foreign jurisdictions? The answers to these questions will depend on what is agreed in the new Investment Protocol, how Mode Three (commercial presence) of the new AfCFTA services regime will work, and what national investment codes and competition authorities will allow. In most instances national investment policies and competition rules are likely to prevail because market access for new service providers will be scheduled according to national interests. MTN, a South African cell phone company, entered the lucrative Nigerian market several years ago; without a preferential trade agreement between South Africa and Nigeria.

What new integration dynamic could unfold? And what will the implications be for the Abuja Treaty of 1991 regarding the establishment of the African Economic Community (AEC)? The AfCFTA has two personae: Technically it is a continent-wide FTA in the making and politically it is a flagship Project of the AU. This latter aspect falls under Agenda 2063 of the AU. In the former guise the AfCFTA will exist parallel to the FTAs and Customs Unions (CUs) of the RECs.[6] The AfCFTA will, through the AU[7], keep the ideal of the AEC alive; albeit now through a different pathway. The Abuja Treaty does not foresee a continent-wide FTA as is now happening under the AfCFTA. Under the Abuja plan all the RECs had to become Customs Unions first. The next phase was expected to be a continental customs union. The AfCFTA was not provided for in this formula.

Under the AfCFTA Agreement the REC and CU regimes remain in place. The RECs are now the building blocks of the AfCFTA as well as of the AEC. Discussions and decisions about transforming the RECs, via the AfCFTA, into the AEC must involve the institutions established under the AfCFTA Agreement. However, for the time being the real challenge is to make the AfCFTA work.

[1] Transport, communication, financial, tourism and business services.

[2] As Art 8(2) of the AfCFTA Protocol on Trade in Goods provides: State Parties that are members of other RECs, which have attained among themselves higher levels of elimination of customs duties and trade barriers than those provided for in this Protocol, shall maintain, and where possible improve upon, those higher levels of trade liberalisation among themselves.

[3] Art 7, AfCFTA Agreement. E-Commerce has been added through subsequent Summit decisions.

[4] Art 23 (2) AfCFTA Agreement.

[5] See Art 5 of the AfCFTA Agreement.

[6] See Arts 19(2) of the AfCFTA Agreement and Art 8 (2) of the Protocol on Trade in Goods.

[7] According to Art 10, AfCFTA Agreement, the AU Assembly “shall provide oversight and strategic guidance on the AfCFTA….”

About the Author(s)

Gerhard Erasmus

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.

Trudi Hartzenberg

Trudi Hartzenberg

Trudi Hartzenberg is the Executive Director of tralac. She has a special interest in trade-related capacity building. Her research areas include trade policy issues, regional integration, investment, industrial and competition policy.

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