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Speculating about Phase II of the AfCFTA Negotiations


Speculating about Phase II of the AfCFTA Negotiations

Speculating about Phase II of the AfCFTA Negotiations

The negotiations to adopt the AfCFTA’s Phase II Protocols are being launched and Phase III negotiations should be concluded by 31 December 2021[1]. Phase II will cover investment, intellectual property rights and competition policy. What will the new Protocols provide for and how will they fit into the AfCFTA’s scheme of things? How will they be synchronized with the Protocols of Phase I and the activities in the Regional Economic Communities (RECs)? How should, for example, an AfCFTA Protocol on Investment support the AfCFTA objective to promote “the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and RECs….”.[2]

Article 4 of the AfCFTA Agreement says the State Parties shall “cooperate on investment, intellectual property rights and competition policy”. The aim behind the AfCFTA Phase II Protocols appears to be limited to cooperation. It means the State Parties will retain control over essential aspects of policymaking and implementation. They will prioritize domestic projects for attracting and regulating Foreign Direct Investment (FDI), industrialization and competition issues. It will also mean that domestic oversight and control will be exercised by different government institutions and regulators, including Central Banks. It is not clear how regulatory harmonization, regional value chains and sustainable development will be promoted. The Preamble to the AfCFTA Protocol on Trade in services recognizes “the right of State Parties to regulate in pursuit of national policy objectives, and to introduce new regulations….in order to meet legitimate national policy objectives, including competitiveness, consumer protection and overall sustainable development….

The cooperation model might be in line with what already exists and confirms that the AfCFTA is a member-driven arrangement. However, it is not a realistic approach for advancing continental integration. If domestic control is paramount, the Phase II negotiations will have rather limited outcomes. Protocols restricted to State Party cooperation may result in important matters not receiving sufficient attention. In the area of competition this may well mean an outcome that is more in line with the cooperation model that we see in the Southern African Development Community (SADC) rather than the model of the Common Market for East and Southern Africa (COMESA). SADC Member States signed a Declaration on Regional Cooperation in Competition and Consumer Policies in 2009, which provides for ‘case-based cooperation over time, to be implemented in a phased manner.’ By contrast COMESA has established a regional competition authority, with a Competition Commission and a Board of Commissioners, to enforce the COMESA competition and consumer protection regulations. As integration deepens, so will the cross- border effects of anti-competitive and restrictive practices; making competition policy an increasingly important matter for integration. National policies and laws are necessary, but not sufficient. Regional and now continental policies, legal instruments and effective enforcement are essential. A close partner to competition policy is consumer protection policy - it remains to be seen whether the AfCFTA Protocol on Competition Policy will cover this important area of economic governance.

With regard to investment the relationship between Mode 3 in trade in services and investment will not be addressed. Mode 3 covers the activities of foreign companies when setting up subsidiaries or branches to provide services in another country. Commercial presence activity is typically linked to new FDI. As stated in a recent World Bank study: Of all modes of supply, Mode 3 (commercial presence, or investment) remains by far the most important means of selling services abroad…..This is so even as Mode 3 trade tends to be particularly vulnerable to risks deriving from host country conduct, typically confronts a range of trade-cost inducing measures in host country markets, particularly of a discriminatory nature, and as technological advances induce modal substitution effects favouring the remote (i.e. cross-border) supply of services over digital networks in the long-run.[3]

In this context, an important matter is trade facilitation for services and the links to investment facilitation. The topics are being tackled on separate tracks in the WTO, with trade in services facilitation and investment facilitation featuring in two separate negotiating initiatives at the World Trade Organisation. The work on the trade in services facilitation agenda is convened under the agenda of the Working Party on Domestic Regulation which was established by the Council of Trade in Services. After the Buenos Aires Ministerial Conference in December 2017, investment facilitation has been taken up in a Joint Statement Initiative of the WTO.  Some African countries are participating in these processes. The AfCFTA phase II negotiations, and the ongoing work on the trade in services negotiations provide an opportunity to develop this important agenda beyond what currently exists in the RECs.

However, indications are that developments such as these, receive insufficient attention and the AfCFTA may repeat some of the same mistakes. A further excerpt from the World Bank Study is a reminder of how important this aspect is. “The sheer importance of Mode 3 as a means of delivering services to markets implies that the notion of trade facilitation in services…. relates centrally to steps taken to facilitate foreign investment in services. Investment facilitation encompasses the full life-cycle of the investment process – attraction, establishment, retention/expansion and linkages to the domestic economy…. A company seeking to expand its global presence will assess its options before deciding on a location for its investment. One of the first locational determinants is whether the company is allowed entry and operating rights in a specific market. Post-establishment impediments cover a broad range of limitations, among which are quantitative restrictions on the scale of commercial presence, limits placed on the ability to acquire or lease land, limitations on the nature and geographical scope of operation, restrictions on the hiring of foreign personnel, limits placed on payments and transfers, local sourcing obligations, etc. This can easily deter entry or inflate the cost of operating abroad…….[4]

Phase II of the AfCFTA provides an opportunity to deal with some of the most significant matters on the African integration agenda. The State Parties can now put in place new structures and adopt the right governance principles in order to meet the challenges of tomorrow. This opportunity should not be missed.

[1] As decided by the 13th Extra Ordinary Session of the AU Assembly held virtually in Johannesburg on 5 December 2020. https://www.tralac.org/documents/resources/cfta/4247-au-assembly-thirteenth-extraordinary-session-on-the-afcfta-decision-and-declaration-5-december-2020/file.html

[2] Art 3 AfCFTA Agreement.

[3] Roberto Echandi and Pierre Sauvé, Investment Facilitation and Mode 3 Trade in Services: Are Current Discussions Addressing the Key Issues? World Bank Document

[4] Ibid. Footnotes omitted.

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.

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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