The African Continental Free Trade Area: The day after the Kigali Summit

The African Continental Free Trade Area: The day after the Kigali Summit
Photo credit: M. Johannsen | Fotolia

13 Jun 2018

The African Continental Free Trade Area is a remarkable achievement. At a time when trade is questioned in some parts of the world, African leaders gathered in Kigali on 21 March 2018, and took a bold step in favour of trade and of the economic integration of the continent.

This policy brief examines the expectations for the Free Trade Area and outlines areas that require prompt action by African nations for the agreement to deliver on its expectations. In the challenges that lie ahead, including the next chapter of the Kigali pdf Agreement on the African Continental Free Trade Area (973 KB) , UNCTAD will continue supporting African nations.

The ambition of the African Continental Free Trade Area

The Framework Agreement on the African Continental Free Trade Area, the Protocol on Trade in Goods and the Protocol on Trade in Services and related annexes and appendices (some of which remain to be completed) were signed by 44 of 55 African Union member States. The Free Trade Area will be constructed on the principles of substantial liberalization, flexibility and building on what has been accomplished so far, especially under the African regional economic communities. A dedicated institutional framework on the Free Trade Area, including a secretariat, will be set up to manage and administer it.

The single market in goods would be created over a transition period of 5 years by the 21 non-least developed countries, and 10 years by the 33 least developed countries. Some 90 per cent of all tariff lines would be subject to progressive tariff cuts. The remaining 10 per cent of tariff lines would comprise (a) sensitive products that can be liberalized over 10 years by the non-least developed countries and 13 years by the least developed countries; and (b) products excluded from liberalization (the list of such products could be reviewed after 5 years through negotiations). The sensitive and exempted product lists should be carefully identified, negotiated and agreed upon, as the exemptions of products actually traded among African countries may undermine the benefits of trade growth.

The agreement will be buttressed by cooperation on measures relating to trade in goods, namely rules of origin, customs cooperation, transit, trade facilitation, non-tariff barriers,4 technical barriers to trade, sanitary and phytosanitary measures, and trade remedies. These can increase connectivity and efficiency of trade, adding to the gains realized from the Free Trade Area.

The agreement on trade in services includes the progressive elimination of barriers to the movement of African services and service suppliers by lifting restrictions to the various means of supplying services, including the temporary movement of natural persons, supply across borders and commercial establishment. The liberalization, consistent with article V of the General Agreement on Trade in Services of the World Trade Organization, will take place through successive rounds of services negotiations on sector-specific obligations and would bring further stimulus to intra-African trade and welfare improvement.

Expected effects of the African Continental Free Trade Area

The implementation of the Free Trade Area over the transition period is expected to boost African welfare, intra-African trade and GDP. UNCTAD estimates that under a full liberalization scenario – 100 per cent liberalization of tariffs on trade in goods – the continent would realize the gains depicted in figure 1.6 For example, total employment is expected to increase by 1.2 per cent, and most of these gains will be in the manufacturing and agricultural sectors. With GDP presently valued at $2.1 trillion, most African countries will register an increase of between 1 and 3  per cent GDP. The growth rate may not be even among African countries, and some may experience a slight decrease in the absence of compensatory measures and built-in flexibilities. Overall, Africa will benefit from the agreement, which should bring about $16.1 billion in welfare gains.

Dynamic economic gains could arise from improved trade facilitation and customs operations, services trade reform and collaboration on investment, intellectual property and competition. These connectivity improvements with the larger market can attract investment to stimulate the development of regional and continental value chains, diversification and industrialization across Africa. Moreover, trade within Africa has better quality than its trade with the rest of the world. The former has higher manufacturing (46.3 per  cent), and medium- and high-technology content (27.1 per cent), as well as more product diversity than the latter. Therefore, the Free Trade Area can help African countries expand domestic productive capacity, climb up the value chain and diversify local production and export baskets by facilitating the transformation of commodity-dependent economies into exporters of more sophisticated, processed goods.

The economic gains expected from the Free Trade Area are made at an aggregate level and may not be equally distributed among countries. As a result, a few countries may experience unintended tariff revenue and welfare losses, as well as the costs of adjustment to a competitive environment, including potential job losses. This is a major concern for several countries that can be addressed by way of built-in flexibilities in liberalization schemes, compensatory measures and adequate flanking policies and adjustment measures. At the same time, such losses could be smaller, as the current level of intra-African trade is lower. Further, the expected expansion in intra-African trade can minimize fiscal revenue losses resulting from reductions in tariffs.

Policy recommendations

  • In the global economy where megaregional trade agreements are designed to navigate world trade, the Free Trade Area will provide African countries with an opportunity to counteract and respond to current trends. Therefore, the Free Trade Area should be put into effect as soon as possible to maximize its benefits.

  • Urgent ratification of the signed agreement by 22 signatory countries is essential. It should not follow past experiences of low ratification of treaties.

  • After the Kigali summit, unfinished business concerning some of the detailed market access conditions should be concluded urgently, including national schedules of tariff concessions and rules of origin. The second phase of negotiations should also be undertaken.

  • The sensitive and exempted product lists of the Free Trade Area should be considered with caution, as the exemptions of products actually traded among African countries may undermine the trade benefits.

  • African countries should build and bolster the infrastructure linkages among them, especially in the least developed, landlocked and small island economies, to facilitate the smooth flow of goods across Africa, to boost intra-African trade and make it more inclusive.

  • To increase the connectivity and efficiency of trade in the Free Trade Area, cooperation on rules of origin, customs, trade facilitation, transit, non-tariff barriers, technical barriers to trade, sanitary and phytosanitary measures, and trade remedies should be enhanced.

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Date 13 Jun 2018
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