South Africa’s implementation of the African Continental Free Trade Agreement: customs arrangements and technicalities
Trading under the AfCFTA was set to begin on 1 January 2021. South Africa with the rest of the Southern African Customs Union (SACU – Botswana, Eswatini, Lesotho, and Namibia) submitted its tariff offer. The administrative procedures to receive imports under the AfCFTA into the South African market are in place. The tariff offer, rules of origin, and general notes to Schedule 1 of the Customs and Excise Act are gazetted and the AfCFTA preferential tariff column added to the tariff book. But there are delays in South Africa implementing the AfCFTA. Botswana has not ratified the agreement. This delay is halting the implementation of the AfCFTA for all SACU countries. Egypt’s tariff offer is not finalised. This blog review the South African customs arrangements in place and outstanding technicalities.
The 1 January 2021 South African tariff book includes the preferential tariffs for imports from AfCFTA state parties. The general notes to Schedule 1 clarify the meaning of ‘AfCFTA’ and ‘State Parties’ as the non-SADC countries listed in the notes. Currently, Egypt and São Tomé and Príncipe are the only two state parties listed. For South Africa to grant preferential market access, finalised tariff offers submitted by AfCFTA state parties will be scrutinised for reciprocity in overall tariff coverage (zero-rated duties on 90 per cent of tariff lines at the end of the phase-down period) and phase-down periods. This includes tariff offers by individual state parties and customs unions. For the latter, tariff offers are submitted for the reduction in the Common External Tariff (CET) of the customs union. According to the 5 December 2020 decisions by the Assembly of the African Union, a member of a customs union (where not all customs union members have ratified the AfCFTA) can trade under the AfCFTA if legally allowed to individually implement the customs union’s schedule of concessions. It is unclear if South Africa will grant these individual countries preferential access based on the custom union’s tariff concession or only to the customs union once all members have ratified the AfCFTA.
SACU offers the progressive liberalisation of certain tariff lines on a Most Favoured Nation (MFN) basis – the same tariff phase-down schedule applies to all non-SADC AfCFTA state parties (there is one exception). There are no bilateral or differentiated tariff reductions. The SACU Common External Tariff (CET) is progressively liberalised over five years for developing and least developed countries – 20 per cent annual reduction in tariffs. One exception applies. If tariffs of a customs union, with developing and least developed members, are liberalised over 10 years, the SACU CET will also be phased-down over 10 years (10 per cent annual reduction in tariffs). This includes tariff offers by the East African Community (EAC), Economic and Monetary Community of Central Africa (CEMAC), and Economic Community of West African States (ECOWAS).
Are tariff liberalisation schedules and rules of origin finalised? Not yet. In the Draft Modalities of December 2018, state parties agreed to liberalise 90 per cent of tariff lines. In the South Africa tariff book, 1630 tariff lines (20 per cent) are not subject to any liberalisation. The MFN applied tariff for 55 per cent of the tariff lines is duty-free and 25 per cent is earmarked for liberalisation under the AfCFTA. The tariff lines not subject to tariff reductions are sensitive products and those without rules of origin (RoO).
Article 42 (transitional arrangements) of Annex 2 to the AfCFTA lists the outstanding RoO provisions. These include the definition of value added, the rules for goods produced in Special Economic Zones, and some of the product-specific rules. Most notably, product-specific rules outstanding are for fish, leather articles, fabrics, and clothing (Chapters 3, 42, 60, 61, and 62 of the tariff book). RoO are also outstanding for most tariff lines for vehicles, woven fabrics, cheese, manufactured tobacco, sugar, fruit juices, and wheat flour.
80 per cent of the SACU CET is either duty-free or subject to liberalisation. Further tariff liberalisation depends on the conclusion of the outstanding RoO. The outstanding RoO are mostly products sensitive for South African industries. These include clothing and textiles, cheese, wheat flour, vehicles and parts, and fisheries products. Some sensitive goods are already excluded from liberalisation (even though there are RoO):
Carcasses and half carcasses of beef and pork, chicken, ham, and pork-belly
Honey, and flavoured yoghurt
Cut flowers, and most vegetables
Pasta, couscous, peanut butter, olives, and gherkins
Wooden statuettes, and wickerwork
Wooden and metal furniture
Some will be liberalised – items of iron and steel, milk and cream, dairy spreads, eggs, citrus fruit, apples, strawberries, black fermented tea, ginger, most cereal flours and cereal groats, olive oil, and chocolate in packaging smaller than 2 kilograms. Identifying the last 10 per cent of tariff lines for liberalisation will be challenging.
The customs arrangements are in place for South Africa to trade under the AfCFTA. When trading will start is still undetermined. Botswana was expected to deposit its instrument of ratification in December 2020 for trading to commence in January 2021. This did not happen. The implication of this delay must be addressed among the SACU members. The tariff offer of Egypt is also not finalised. When submitted, this offer is subject to ‘technical scrutiny’ by South Africa and the rest of SACU to ensure reciprocity. If found lacking in overall tariff coverage and/or phase-down periods, SACU will not apply its tariff preferences. Trade for South Africa and its trade partners under the AfCFTA may still take some time.
 In Note O to Schedule 1 to the Customs and Excise Act.
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