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What needs to be done to begin commercially meaningful trade under the AfCFTA?


What needs to be done to begin commercially meaningful trade under the AfCFTA?

What needs to be done to begin commercially meaningful trade under the AfCFTA?

A press statement by the Secretariat of the African Continental Free Trade Area (AfCFTA) released on 29th January 2022 contains an announcement on the start of trade in goods under the AfCFTA Agreement. The Eighth Meeting of the AfCFTA Council of Ministers Responsible for Trade (which convened in Accra-Ghana on 28-29 January 2022) assessed the status of negotiations on outstanding issues “and agreed on the steps towards the start of commercially meaningful trading under the AfCFTA”.[1]

The Council of Ministers noted the progress made towards the conclusion of negotiations on Rules of Origin and agreed that trading under AfCFTA regime proceeds on the basis of agreed rules of origin covering 87.7% of total tariff lines. It requested that the necessary steps be undertaken to gazette the schedules of tariff concessions, in accordance with the applicable national legislations. It means the implementation ball is now in the court of individual State Parties.

With regard to trade in services it was noted that these negotiations are in an advanced stage of completion with 46 African Union (AU) Member States having submitted their Schedules of specific commitments. The Council directed that these negotiations be concluded by 30 June 2022.

For these decisions to become binding the AU Assembly has to adopt the outcomes of the Ministerial decision.[2] This Summit of the Heads of State and Government took place on 5-6 February 2022. We are waiting for the Summit Decisions and Declarations.

Agreement on rules of origin covering 87.7% of total tariff lines signifies substantial progress, albeit that these negotiations have been going on for a considerable period of time.[3] A final assessment of this interim tariff reduction picture will have to wait till information about specific reductions, exclusions, qualifications, and rules of origin becomes available. Forty-one AU Member States have now ratified the AfCFTA Agreement, but the full set of Tariff Schedules and Rules of Origin must still be finalised.

The decision taken at the end of January this year will launch an interim trade arrangement under the AfCFTA. Discussion of the rules of origin for sugar (Heading 1702 and 1704) and tobacco (Heading 2402 and 2403) must now be fast-tracked in view of previous discussions about these tariff lines, with a view to agreeing the rules of origin by March 2022. For textiles and apparel products (Chapters 51-63), the discussions continue. The aim is to finalise the rules of origin by September 2022.

The Council of Ministers also noted the progress made on Trade Facilitation on the Abidjan-Lagos Corridor and the approach to corridor interventions towards the implementation of the AfCFTA, the progress made in operationalising the AfCFTA institutions, the Dispute Settlement Body (DSB), and the Establishment of the Appellate Body, including the adoption of the Modalities agreed by the DSB.

It also referred to the work of the Committees on Phase II Negotiations, namely Investment, Competition Policy, and Intellectual Property Rights. Negotiations about digital trade, and Women and Youth in Trade, must also begin. The Council directed that the negotiations on the relevant protocols be concluded by September 2022, for subsequent adoption by Heads of State and Government. It hailed the operationalisation of the Pan-African Payments and Settlements System (PAPSS) and its commercial launch on 13 January 2022, in Accra, Ghana. The mobilisation of a facility of US$ 1 billion by Afreximbank for the development of the African automotive value chain (to support industrialisation in Africa) was mentioned. Ongoing efforts to collaborate with the private sector and the conclusion of the AfCFTA private sector engagement plan are promised.

What is “commercially meaningful trading under the AfCFTA”? This is a new term and has not been defined in the press release. Presumably it refers to an interim state of affairs underpinned by a sufficiently clear and binding regime (or regimes) between specific countries with the potential to convince the private sector to invest and prepare for commercially viable trade with trading partners in countries where trade was previously conducted on an MFN basis. Before firms will start doing so, the relevant Governments have to promulgate domestic changes to tariff books and how to issue AfCFTA certificates of origin, as well as other documentation such as those signifying compliance with applicable standards. For each African customs union there must be collective arrangements in respect of its common external tariff. These domestic actions will only be taken if reciprocal, predictable and “meaningful” progress has been recorded. It is unlikely that minor advances will trigger the required follow-up action.

In the light of these circumstantial factors, the most likely outcome under the decision of the end of January 2022 will be different sets of interim preferential trade arrangements, which will last as long as the official negotiations on all tariff reductions and rules of origin continue.

It is also not clear how non-State Parties[4] are expected to respond in order to give effect to the recent Council decision. They are involved in the tariff reduction and rules of origin negotiations but since they are technically not yet State Parties (because they have not yet ratified the AfCFTA Agreement) they will have to expedite their ratification procedures or effect unilateral changes to their tariff books and domestic arrangements for trade in goods. Few may have the legal and constitutional space for doing the latter.[5]

The earlier decision of the Assembly on interim AfCFTA preferential trade announced after the December 2020 Summit did not contain a qualification in the form of a requirement involving commercially meaningful trade.[6] Reciprocity was then the main guiding principle. The AfCFTA process then found itself in the same position in the sense that negotiations to finalise tariff reductions and rules of origin had to proceed. It is in the nature of a preferential trade agreement that reciprocity will remain a requirement.

This is the second effort to begin with preferential trade under the AfCFTA.[7] It is one year later and trade under the AfCFTA has not yet commenced. This confirms that a rules-based trade regime in the form of an FTA (aiming to liberalise 90% of tariff lines) is a difficult exercise. It also indicates that in a member-driven process involving countries at very different levels of economic development, the required negotiations will never be a walk in the park. With one single continental trade regime being the goal, there is no alternative but to engage in these difficult negotiations till an inclusive deal has been agreed. It is then when the national legal adjustments will be relatively straight forward, and a familiar procedure will be available to private parties for cross-border commercially meaningful trade involving new continental markets.

[1] https://www.tralac.org/documents/resources/cfta/4450-8th-meeting-of-the-afcfta-council-of-ministers-press-release-29-january-2022/file.html

[2] As required by Art 22 of the AfCFTA Agreement. The term “Agreement” is defined to include the AfCFTA “Protocols, Annexes and Appendices which shall form an integral part thereof”.

[3] They started in 2015. The AfCFTA founding Agreement entered into force on 30 May 2019, but without all outstanding negotiations being concluded.

[4] This term refers to AU Member States that have not yet become AfCFTA State Parties.

[5] National Parliaments are normally involved in the domestic procedures before ratification is permitted.

[6] See Decisions and Declaration fog the African Union Assembly, 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

[7] The first one was promised to begin on 1 January 2021 but did not bring about the breakthrough that some had hoped for.

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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