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Why does the AfCFTA provide for Trade Remedies?


Why does the AfCFTA provide for Trade Remedies?

Why does the AfCFTA provide for Trade Remedies?

The AfCFTA legal instruments contain detailed provisions on trade remedies and safeguards. Article 2 of Annex 9 to the AfCFTA Protocol on Trade in Goods says the “State Parties may, with respect to goods traded under the provisions of this Annex, apply anti-dumping, countervailing and safeguard measures as provided for in Articles 17 – 19 of the Protocol on Trade in Goods, this Annex and the AfCFTA Guidelines in accordance with relevant WTO Agreements”.

Why do international trade agreements provide for trade remedies and safeguards?

The standard answer is that trade remedies and safeguards are necessary for governments to deal with unfair trade practices and unforeseen consequences when trade in goods is liberalised. The story behind trade remedies and safeguards as we now know them, goes back to how the original bargain was struck when the General Agreement on Tariffs and Trade (GATT) was adopted in 1947.

The decisions to provide for trade remedies and safeguards were taken as part of the post-World War II negotiations to establish a new international order. The GATT was a “tariff bargain” aimed at preventing tariff volatility.[1] It consisted of a set of obligations about what States could do in regulating trade in goods, as well as a framework for further tariff reductions, which in the long term became one of the successes of GATT. It was agreed that the commitments undertaken by the GATT contracting parties had to be binding, and dispute settlement became part of this deal. For dispute settlement there was a system involving panels.[2]

Exceptions to the rules governing trade among the contracting parties were agreed. They dealt, inter alia, with the formation of Free Trade Areas (FTAs) and Customs Unions (CUs), general exceptions and waivers. Trade remedies and safeguards constituted an important part of these exceptions. Agreeing on antidumping measures and countervailing duties were not that controversial because they had been in use since earlier times.[3] They allowed for sanctions against exporters engaging in “unfair” trading practices that cause material injury to domestic producers.

By contrast, safeguard actions are designed to deal with unexpected circumstances arising in the course of “fair” trade. In this case international obligations to liberalise trade in goods (which takes place on a Most Favoured Nation (MFN) basis) are reconciled with specific domestic needs. When countries lower tariffs there is a risk of a drastic and often unanticipated impact on domestic production from increased imports. Article XIX GATT permitted contracting parties to take “safeguard” action, which involved suspending the obligation or concession that has resulted in increased imports causing or threatening to cause serious injury to domestic producers of like, or directly competitive, products. Specific conditions for the invocation of this power were set out in Article XIX.

GATT entered into force on 1 January 1948 and existed till the launch of the WTO on 1 January 1995. Three separate WTO agreements now deal with trade remedies and safeguards: the Agreement on Implementation of Article VI (the Antidumping Agreement); the Agreement on Subsidies and Countervailing Measures (the Subsidies Agreement); and the Agreement on Safeguards (the Safeguards Agreement). The remedies provided for in these agreements are optional but conditional. Trade remedy and safeguard measures may only be imposed after an investigation has determined that all the applicable conditions have been met. Disputes about the correct application of these Agreements can be referred to the dispute settlement system of the WTO. The majority of WTO disputes have been about anti-dumping measures.

What is the rationale for including trade remedies in the AfCFTA Agreement?

It cannot be predicted whether the AfCFTA State Parties (or some of them) will use trade remedies and safeguards as part of the implementation of the AfCFTA. Present indications are that this is not a likely scenario, not for the foreseeable future. African levels of industrialisation are low and intra-African trade is regionally concentrated, as confirmed by several studies. “Trade within the Southern African Customs Union (SACU) alone represents half of total sub-Saharan African intraregional trade. Moreover, for the Southern African Development Community (SADC), the East African Community (EAC), and the SACU, trade within these regions represents more than 70 percent of their member countries’ intraregional trade.”[4]

To this must be added that SACU is a customs union (CU) and in existence since 1910. Its sui generis roots (which includes a common revenue pool with major benefits for Botswana, Eswatini, Lesotho and Namibia) go back to British colonial times. SACU has a single customs territory in which trade remedies cannot be imposed. Unfair trade practices must be dealt with via internal arrangements, of which the SACU Agreement has none. The SADC Protocol on Trade provides for trade remedies and safeguards in the SADC Free Trade Area (FTA), but they are never used among the SADC Member States.[5]

Trade remedies and safeguards are utilised by Governments when useful or necessary as part of national or regional trade policy implementation. The required domestic arrangements must also be in place. Trade data must support applications and the private sector must consider trade remedies as vital; less cumbersome alternative forms of “protection” such as tariff increases (where possible) or domestic trade restrictions (which are normally suspect) should not be available.

Well-developed trade remedy regimes are part of a rules-based trade governance culture. African States seldom employ trade remedies and safeguards as part of the implementation of REC agreements, despite the fact that they are normally provided for. Neither do they declare disputes against each other of trade issues. They employ other means such as variable geometry qualifications,[6] derogations, or the postponement of deeper integration obligations in respect of CUs and common markets. Rules-based economic integration is difficult, especially among less developed economies and in configurations with high levels of economic divergence.

The use of trade remedies in Africa’s external trade arrangements is also not to be found. China’s total merchandise trade with Sub-Saharan Africa (SSA) has increased by 1,864 percent between 2001 and 2020, while the commercial ties with the European Union (EU) and the United States (US) with SSA have been on the decline.[7] The relationship with China is a unique one and not characterised by the use of trade remedies or formal inter-State disputes. There are ideological affinities and massive Chinese investment in Africa. Whereas the World Bank disbursed around $34 billion to SSA between 2018 and 2020[8], the estimated value of the known Chinese investments and construction projects in SSA reached a value of $54 billion in the same period, $20 billion more than the World Bank Group.[9] Examples include energy, transport infrastructure, real estate, and mining projects financed and/or constructed by Chinese entities, often state-owned enterprises (SOEs).

Sub-Saharan Africa’s trade with the EU and the US happens, for all practical purposes, via non-reciprocal arrangements and under WTO waivers. The EU wants these arrangements to be replaced by reciprocal (albeit asymmetrical) trade deals. The EU-SADC EPA is such a new deal and is in force since October 2016. Its legal text provides for several trade defences.[10] Disputes over safeguards and anti-dumping duties have been declared under the EU-SADC EPA.

The inclusion of trade remedy and safeguard provisions in the AfCFTA Agreement nevertheless signals an important message. When governments employ these measures, they must comply with the applicable rules and procedures. The inclusion of detailed trade remedy and safeguard provisions in the AfCFTA Agreement could also result, over time, in the decline of arbitrary and discretionary measures. Disguised “emergency measures” can be contested, also in terms of national due process requirements. Such measures do not become lawful when employed under a different name.

Will the State Parties use the AfCFTA Trade Remedies and Safeguards?

Trade remedy and safeguard measures are optional. Governments may use them. They will do so when necessary, suitable, and justifiable. The fact that the AfCFTA Agreement allows for these policy instruments means that those State Parties that find them useful and necessary, will be entitled to use them. The necessary national legislation and investigating authorities must exist in order to make this possible but need not consist of costly and sophisticated structures. Zambia and Madagascar implemented provisional safeguard measures in recent times. The laws of several African States already provide for these investigations and for imposing anti-dumping duties.[11]

It is important to note that the AfCFTA trade remedies and safeguards will only apply to goods traded under the AfCFTA tariff schedules and rules of origin. The AfCFTA Agreement expressly provides that the REC FTAs, African CUs, and other preferential trade arrangements will continue and will be used.[12] If the AfCFTA trade remedies will be used, it is to be expected that the same may follow in REC FTAs.

It is quite likely that the existing picture will continue and that only a few State Parties (the more industrialised ones) will use trade remedies in trade with third parties and perhaps in intra-African trade too.

Part of the explanation for why the AfCFTA Agreement provides for trade remedies and safeguards is because they are part of the African integration narrative, not because there has been a sudden realisation that they will be vital for attaining the objectives of the AfCFTA. They have been on the scene for a long time and appear in the REC legal instruments too. There has not been an in-depth debate during the AfCFTA negotiations about the inclusion or exclusion of trade remedies and safeguards, or that they are vital for rules-based trade. The Preamble to the AfCFTA Agreement does however recognise, amongst other things, “the need to establish clear, transparent, predictable and mutually-advantageous rules to govern Trade in Goods… among State Parties.

This is the intention. The final proof will lie in the actual practice. Trade remedies and safeguards, if applied, provide protection to private parties and firms, adds to transparency, and will increase an awareness about the importance of due process requirements generally. Domestic judicial review remedies are part of the practice around trade remedy investigations and measures. It will benefit rules-based governance across a wider spectrum. The use of trade remedies and safeguards by governments is optional but could have important multiplier effects and benefits, beyond intra-African trade relations and about more than only trade remedies and safeguards.

[1] Petros Mavroidis. 2013. Trade in Goods, 2nd ed, OUP, 2013 at 12.

[2] Donald M. McRae. 2021. General Agreement on Tariffs and Trade, Geneva, 30 October 1947.  United Nations Audiovisual Library of International Law. https://legal.un.org/avl/ha/gatt/gatt.html

[3] Canada enacted its first national anti-dumping law in 1904. The US followed in 1921. The first references in South Africa to trade remedies appeared in Sec 8 of the Customs and Tariff Act of 914.

[4] Francisco Arizala, Matthieu Bellon, and Margaux MacDonald. 2018. Africa comes together. Finance & Development, Vol. 55, No 3. https://www.elibrary.imf.org/view/journals/022/0055/003/022.0055.issue-003-en.xml

[5] Arts 18 to 20 and Art 20 BIS SADC Protocol on Trade. Art 3, instead, provides for “derogations”.

[6] The EAC Treaty defines variable geometry as a principle of flexibility which allows for progression in co-operation among a sub-group of members in a larger integration scheme at different speeds.

[7] Amin Mohseni-Cheraghlou, 2021. China and Sub-Saharan Africa trade: A case of growing interdependence. Atlantic Council. https://www.atlanticcouncil.org/blogs/china-and-sub-saharan-africa-trade-a-case-of-growing-interdependence/

[8]  The World Bank Annual Report 2020: Supporting Countries in Unprecedented Times. https://openknowledge.worldbank.org/handle/10986/34406

[9] Amin Mohseni-Cheraghlou. 2021. Development finance in Sub-Saharan Africa: The Chinese model. Atlantic Council. https://www.atlanticcouncil.org/blogs/development-finance-in-sub-saharan-africa-the-chinese-model/

[10] Arts 32 to 38 EU-SADC Economic Partnership Agreement.

[11] National laws on customs and excise contain provisions for undertaking anti-dumping investigations and for levying anti-dumping duties. Competition commissions may, in some cases, investigate anti-dumping practices as predatory pricing cases.

[12] Art 19(2) AfCFTA founding Agreement and Art 8(2) AfCFTA Protocol on Trade in Goods.

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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