Should the AfCFTA accept a Flexibility Modality to launch preferential Trade?
The African Continental Free Trade Area (AfCFTA) is designed to function as one continental trade arrangement in the form of a Free Trade Area (FTA) for all the Member States of the African Union (AU). The Protocols on Trade in Goods and in Services have already been adopted but remain incomplete. Protocols on investment, competition policy and intellectual property rights must be negotiated and be adopted during Phase II. More Protocols will follow. The final pact could be a game changer. Getting there has turned out to be a very difficult process. Several deadlines have been missed.
An AfCFTA for which all the Phase I building blocks are in place and in respect of which the State Parties as well as non-State Parties (the latter actively participate in the outstanding negotiations) have reached consensus, is a complex challenge. Fifty-four States (they include 33 Least Developed Countries) at different levels of economic development and with different policy ambitions for industrialization and economic development, must reach consensus. This involves tough negotiations at the best of times; Covid 19 has made matters more difficult.
The State Parties will eventually trade under preferences in respect of which there are often domestic sensitivities. The conditions for trade in services in five priority areas must also be finalized. Some of these (like transport services) are vital for unlocking the potential for trade in goods. (More than 90% of the goods traded on the continent are transported by road.) Services are regulatory intensive, and the State Parties have qualified their commitment to pursue services trade liberalisation in line with Article V of the GATS “by expanding the depth and scope of liberalisation... while fully preserving the right to regulate and to introduce new regulations.”
Agreement on all the outstanding Phase I issues in the form of a single package remains (for now) beyond the grasp of the 54 participating States. The inherent complexities and the extent of the obligations in the original AfCFTA design have become serious obstacles. Lack of consensus over all the elements prevents the AfCFTA from being implemented. Trade in goods under AfCFTA preferences can only commence once the required tariff schedules and the Annex on RoO are agreed in terms of the original modalities, have been adopted in terms of the procedure mentioned in Article 22 of the AfCFTA Agreement, and national tariff books are customs ready. Vital aspects are still outstanding, almost three years after the AfCFTA Agreement entered into force on 30 May 2019. By mid-January 2022 44 State Parties and non-State Parties that are participating in the negotiations had submitted offers of tariff concessions. These are listed in the Table below. Of these, we understand that 29 offers comply with the negotiating modalities.
Table: Offers of tariff concessions submitted (mid-January 2022)
Regional Economic Communities
- DR Congo
- Sao Tomé and Principé
Cameroon, Chad, the Central African Republic, Equatorial Guinea, Gabon, and the Republic of Congo
Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda
Benin, Burkina Faso, Cabo Verde, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.
Botswana, Lesotho, Namibia, South Africa, and Swaziland
Note: all countries in bold, have not ratified the AfCFTA
This raises the question as to how the negotiating process can be unlocked. We believe the impasse in the negotiations provides a reality check. The persistence of the impasse is an indication of the seriousness of national concerns about liberalisation. Revenue considerations remain key; add to that the industrial development ambition of all African countries, and the role that both tariffs and rules of origin can play to protect domestic industry from import competition. Then it is not surprising that there is a lack of enthusiasm for opening domestic markets by lowering tariffs and agreeing on less restrictive rules of origin. This suggests that a modality on flexibility may well be necessary. Trade under an interim AfCFTA deal or deals might be the way forward. The question is how can this work?
Decisions about the way forward require a careful assessment of options and of longer-term implications. An interim deal or deals should recognize the need for an adjustment to the original design of a single undertaking ab initio. In a single undertaking nothing is completed till everything is completed. It should also be noted that the AfCFTA Agreement does not allow for reservations.
At the Extraordinary AU Summit of 5-6 December 2020, it was decided to allow ad hoc trade on the basis of reciprocal tariff offers for which RoO have been agreed and customs ready domestic arrangements existed. This plan did not work. The modalities that would deliver an FTA meeting the World Trade Organisation (WTO) rules, were not complied with. Notably some tariff offers did not reach the level of ambition to liberalise 90% of tariff lines and the required levels of reciprocity did not yet exist. It became clear that there was decided reluctance to offer tariff concessions for tariff lines for which rules of origin had not been agreed. Governments will not commit to vague and incomplete outcomes that deviate substantially from the modalities originally accepted. In an FTA substantially all trade must be liberalized within a reasonable period of time. An arrangement clearly falling short of these basic requirements, is not an FTA.
The AfCFTA negotiations continued during 2021. The conditions might now be ripe for launching interim trade arrangements among those State Parties that have found sufficient consensus. This route is not without serious risks. Interim trade arrangements for the sake of generating evidence that trade under AfCFTA rules has finally arrived, may become permanent ad hoc FTAs. The will to return to the negotiating room may have dissipated. Some may argue that they will rather pursue another avenue, the one mentioned in Article 4(3) of the Protocol on Trade in Goods:
Nothing in this Protocol shall prevent two or more State Parties from extending to one another preferences which aim at achieving the objectives of this Protocol among themselves, provided that such preferences are extended to the other State Parties on a reciprocal basis.
However, this provision can only be invoked once the AfCFTA is complete. A failure to respect the original design will cause fragmentation and will undermine the benefits of a single set of preferences and rules for everybody.
A decision to proceed with interim deals should contain a plan and a timeframe for completing the AfCFTA negotiations as originally agreed, and for tidying up all loose ends. The definition of an AfCFTA building block, of a State Party and on how to undertake Phase II negotiations, will be some of these loose ends. If this does not happen, commentators may start toying with an alternative appellation for an AfCFTA that could not arrive.
 Transport, tourism, communications, financial and business services.
 Art 3(g) AfCFTA Protocol on Trade in Services.
 The AU Assembly must adopt them.
 See the Blog in this Newsletter on when the AfCFTA will be “customs ready”.
 Art 8(2) of the AfCFTA Agreement provides that the “Protocols on Trade in Goods, Trade in Services, Investment, Intellectual Property Rights, Competition Policy, Rules and Procedures on the Settlement of Disputes and their associated Annexes and Appendices shall form part of the single undertaking, subject to entry into force”. It means the Annexes of these Protocols must also have been adopted.
 Art 25 AfCFTA Agreement.
 As spelled out in Art XXIV GATT.
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