How will the AfCFTA co-exist with other African Trade Arrangements?
The text of the Agreement establishing the African Continental Free Trade Area (AfCFTA) contains several provisions about how this new trade arrangement will co-exist with the Regional Economic Communities (RECs), as well as other trade agreements with third parties. This Discussion Note examines them in order to find out how an increasingly crowded field of overlapping African trade structures may be managed.
“What is wrong with belonging to as many regional trade agreements as possible? More benefits can be had this way.” This question was once put (by a trade official) to a workshop discussing African regional integration issues and the difficulties flowing from overlapping memberships. Perhaps it needs to be answered again.
Regional trade agreements are about preferences. They usually take a long time (several years) to negotiate, especially if comprehensive and deep in coverage. And the benefits (preferential treatment for exported goods and services) must be paid for; by granting preferences to all like goods and services imported from other partner states. Preferences are reciprocal. (The preferences granted under an arrangement such as the US’ African Growth and Opportunity Act (AGOA) do not flow from an international agreement and have not been negotiated and agreed as a trade agreement. They are based on national legislation of the US Congress, are unilateral, are not unconditional, and can be withdrawn. The relevant national law can also be amended. The same is generally true of other unilateral preferential schemes such as the Generalized Systems of Preferences of the EU.)
Multiple and overlapping memberships are, in addition, costly and cumbersome to implement. The rules and disciplines associated with a particular regional trade arrangement are unique. By belonging to several of them simultaneously compliance requirements are duplicated. Different sets of rules have to be met with regard to the same product when exported to separate destinations.
Preferential rules of origin are the typical example. They need to be studied carefully since they define the conditions that a product must satisfy to be deemed as originating in a country that is eligible for preferential access to a partner’s market. Goods that are trans-shipped from a nonqualifying country will not get preferential treatment, which typically comes in the form of low or zero tariffs. Preferential rules of origin can often be restrictive and be designed to protect local producers. They will then constrain international specialization. Simple, consistent, and predictable rules of origin are more likely to foster the growth of trade but not all regional trade deals are characterized by generous and simple rules of origin.
If the producer of a particular product must change the inputs or manufacturing process in order to comply with different rules of origin every time the same product is exported to a different destination, the private sector will not be enticed to use such arrangements. Trade will not increase. The same applies to technical and safety standards, quality controls, packaging etc.
What is the AfCFTA’s approach to overlapping membership challenges? Its rules of origin have not been negotiated and therefore the “basic philosophy” behind this endeavour must be looked at. The Preamble of the AfCFTA Draft Agreement says, as a general statement, that the Member States are conscious “of the need to establish clear, transparent, predictable and mutually-advantageous rules to govern Trade in Goods and Services, Competition Policy, Investment and Intellectual Property among State Parties, by resolving multiple and overlapping trade regimes to achieve policy coherence, including in our relations with external partners.”
One of the General Objectives listed in Article 3 reads: Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes. How it will be done is not explained.
There are indications in the Draft Agreement that the aim of resolving the challenges of multiple and overlapping memberships is subject to a more overriding aim, to preserve the RECs and their acquis.
The AfCFTA is designed to be a project of successive rounds of negotiations and future work. It contains a rendez-vous clause in which the State Parties undertake to continue negotiations in the outstanding areas. This is its “built-in agenda”. While this process continues, the RECs will remain in place and implement their own regional agendas. However, it is not foreseen that they will be replaced any time soon. That can theoretically only happen once a continental customs union (suggested in Article 3) is formed. The RECs will in fact be the “building blocs” of the AfCFTA. That is why Article 21 is so important.
In the event of any inconsistency between this Agreement and any regional agreement, this Agreement shall prevail to the extent of the specific inconsistency, except as otherwise provided in this Agreement.
Notwithstanding the provisions of Paragraph 1 of this article, State Parties that are members of other regional economic communities, regional trading arrangements and custom unions, which have attained among themselves higher levels of regional integration than under this agreement, shall maintain such higher levels among themselves.
The conclusion to be drawn is that although the AfCFTA is a new chapter on the road of Africa’s trade and integration plans, the RECs are alive and well. The plan is definitely not to abolish them. We need new thinking and an action plan for resolving the problems of overlapping membership on the African continent.
 See article 5 (f).
 Article 7.
 Article 5 (b).