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With the SACU tariff offer in the bag, what happens next to AfCFTA trade?


With the SACU tariff offer in the bag, what happens next to AfCFTA trade?

With the SACU tariff offer in the bag, what happens next to AfCFTA trade?

It has been reported that the five member states of the Southern African Customs Union (SACU) have recently submitted their joint AfCFTA offer of tariff concessions, and that it meets the required level of ambition.[1] All SACU member states[2] have also ratified the AfCFTA Agreement. The Botswana ratification was the last outstanding one.

This offer is currently going through the verification process, which involves an investigation by the AfCFTA Secretariat to ensure that the AfCFTA modalities for trade in goods negotiations are complied with. The AfCFTA aim is to liberalise 90% of tariff lines (not trade) over 5 years; least developed countries (LDCs) will implement their agreed tariff reductions over 10 years. The remaining 10% of tariff lines are divided into two categories – 7% of the tariff lines may be designated sensitive products and liberalised over 10 years (LDCs have 13 years). The remaining 3% of the tariff lines (not exceeding 10% of the value of trade) may be excluded from liberalisation.

The AfCFTA column must also be inserted in the national Tariff Books of the AfCFTA State Parties. Importers and exporters will have to study this instrument in order to determine what is required to comply with the applicable rules and procedures. New preferential trade schedules must be promulgated by national authorities in order to become part of the law of the land.

Firms in the SACU members states will soon be able to start trading under lower AfCFTA preferences with counterparts in other AfCFTA State Parties which have also submitted AfCFTA tariff offers and have implemented the required legal measures. Most Favoured Nation (MFN) rates apply to goods traded among States that do not belong to the same Free Trade Area (FTA) or customs Union (CU).[3] Lower AfCFTA rates will apply to goods traded under AfCFTA rules, provided the AfCFTA rules or origin applicable to such goods have also been agreed, adopted, and implemented by the relevant AfCFTA State Parties. Intra-REC trade in goods will continue since the necessary preferences and rules of origin exist as part of these arrangements. Private firms will make the choices of how and under what regimes they will import and export goods.

The international legal basis for trade in goods under the AfCFTA is in place. The AfCFTA Agreement entered into force on 30 May 2019, but the required negotiations had not yet been completed at that stage. Trade under AfCFTA rules can only happen once all the legal arrangements are in place. The AU Heads of States and Government decided on 5 December 2020, at the 13th Extraordinary Session of the Assembly of the Africa Union, to launch trade on 1 January 2021, even though at that stage tariff schedules and Rules of Origin (RoO) had not yet been finalised. The 7th Council of Ministers (CoM) responsible for trade of the AfCFTA adopted the Ministerial Directive 1/2021 on the Application of Provisional Schedules of Tariffs Concessions (PSTC) on the 10th of October 2021. This Ministerial Directive provided a legal basis for the countries that had submitted their tariff schedules in accordance with the agreed modalities to trade preferentially amongst themselves. However, without a finalised Annex II on Rules of Origin, trade under the AfCFTA cannot take place. The Ministerial Directive was adopted by the Assembly of Heads of State and Government in February 2022; this paved the way for various activities and initiatives towards the start of commercially meaningful trade under the AfCFTA.

What will happen to the Guided Trade Initiative (GTI)? The GTI will eventually become redundant since full AfCFTA-based trade in goods becomes possible once the applicable tariff schedules and rules of origin are in place. During the 9th Meeting of the Council of Ministers held in July 2022, the Secretary General of the AfCFTA, Mr Wamkele Mene, announced the Guided Trade Initiative (GTI).[4] The GTI was launched on 7 October 2022. It seeks to demonstrate that trade is possible in the AfCFTA’s operational, institutional, legal and trade policy environment. Eight state Parties are trading goods under the GTI: Ghana, Kenya, Rwanda, Tanzania, Mauritius, Egypt, and Cameroon. Others, who have had their PSTC verified, could join this interim arrangement. Firms in State Parties that are part of the same REC (or CU) are more likely to trade under the relevant REC regime, as they have been doing for some time, and not under the GTI regime. Products traded under the GTI included ceramic tiles, batteries, horticulture products and flowers, avocados, palm oil, tea, rubber, and components for air conditioners. A Committee has been established to coordinate and operationalise GTI trade transactions, and Ad Hoc Committees have been established in the participating State Parties.

Legal certainty now becomes particularly important. Article 22 of the AfCFTA Agreement says the AfCFTA Agreement must be adopted by the African Union Assembly. This Agreement includes the relevant Protocols, their Annexes and Appendices which shall form an integral part thereof.[5] The formal adoption of the Tariff Schedules and the Annex on Rules of Origin of the AfCFTA Protocol on Trade in Goods should therefore be undertaken, and the relevant date be published by the AfCFTA Secretariat.

Would national legal procedures be necessary? The answer depends on the domestic constitutional requirements of the relevant State Party. If a particular country has already complied with the requirements of its national Constitution when it ratified the AfCFTA Agreement (as most have done), it might be that the new AfCFTA tariff column can be promulgated through a notice in the Government Gazette. This is a quick procedure. If more formal requirements apply and the Constitution so dictates, Parliament may have to play a role. That may take much longer.

The normal procedure is that international agreements are not ratified before they have been finalised and all negotiations have been completed. When a national Parliament then approves the full text and all its parts as one package, there will be legal certainty. If this process is a fragmented one (as happened in the case of the AfCFTA), questions about compliance with the requirements of a supreme national constitution could arise. The ratification of the AfCFTA Agreement followed a sui generis path. The Agreement was opened for signature and ratification before the negotiations were complete, and the required number of ratifications (22) was deposited by end April 2019. The Agreement entered into force 30 days later on 30 May 2019. It would be prudent to ensure that domestic legal uncertainties about the implementation of the AfCFTA do not arise.

Trade in services under the AfCFTA will not yet be possible. At the July 2017 Summit, the Assembly of the African Union adopted modalities for trade in services negotiations. A Services Protocol was signed as part of the consolidated text of the Agreement Establishing the AfCFTA at the March 2018 Kigali Summit. The Services Protocol entered into force on 30 May 2019, when the AfCFTA Agreement entered into force. Under Article 22 of this Protocol, each State Party must provide a schedule of specific commitments in respect of the five priority areas. At the July 2018 Summit, the Assembly adopted five priority services sectors for initial commitments. The priority services sectors are transport, communications, tourism, financial, and business services.

Services negotiations are undertaken on a request-offer basis. Each State will make an initial offer to all other members. Other members may request improvements in the sectoral coverage of commitments or level of liberalisation – i.e. by the reduction or elimination of restrictions. State Parties may make requests to all other State Parties, to a single party or to a group of parties. Negotiations are expected to be reciprocal, and while members may negotiate bilaterally or under the auspices of a REC, negotiations are to be transparent, so all negotiated outcomes must be transmitted to the AfCFTA Secretariat for dissemination among the members.

At the February 2019 Summit, the Assembly adopted the Guidelines for Development of Specific Commitments and Regulatory Cooperation Framework for Trade in Services and the new Roadmap for Finalisation of the AfCFTA negotiations. The Assembly set June 2022 as the deadline to finalise the development of schedules of specific commitments in the five priority sectors, including legal scrubbing. However, some schedules of specific commitments are still outstanding. As of December 2022, 47 services offers have been submitted and 16 of these offers have been technically verified and adopted by the Council of Ministers[6]. The Framework Document on Regulatory Cooperation is required and is still to be finalised.

Additional AfCFTA Protocols are outstanding.[7] In October 2022, Protocols on Investment, Intellectual Property Rights, and Competition Policy protocols were concluded. In January of 2023, the legal scrubbing of these three protocols was complete.

These Protocols have to be adopted by the AU Assembly once agreed and be ratified according to the constitutional requirements of the State Parties. Article 23 (2) of the AfCFTA Agreement explains how these later Protocols will enter into force: “The Protocols on Investment, Intellectual Property Rights, Competition Policy and any other Instrument within the scope of this Agreement deemed necessary, shall enter into force thirty (30) days after the deposit of the twenty second (22nd) instrument of ratification.” For acceding States, the Protocols shall enter into force on the date of the deposit of the instrument of accession.

[1] Eswatini Daily News, SACU states will soon trade under AfCFTA

[2] Botswana, Eswatini, Lesotho, Namibia, and South Africa.

[3] MFN rates are also referred to as “General Rates”.

[4] tralac. 2022. The AfCFTA Secretariat’s Guided Trade Initiative has been launched: How will it work and where does trade under AfCFTA rules now stand? https://www.tralac.org/documents/events/tralac/4625-tralac-special-trade-brief-afcfta-guided-trade-initiative-october-2022/file.html

[5] Art 1(b) AfCFTA Agreement.

[6] https://www.afdb.org/fr/documents/multinational-institutional-support-project-africa-union-continental-free-trade-area-implementation-ipr-december-2022

[7] In addition to the Phase 2 Protocols discussed here, we note that the Protocols on Digital Trade and Women and Youth in Trade are in the early stages of negotiation.

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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