AFRICA CONTINENTAL FREE TRADE AREA (AfCFTA)
The African Continental Free Trade Area (AfCFTA) is a free trade area founded in 2018, with trade commencing as of 1 January 2021. It was created by the African Continental Free Trade Agreement among 54 of the 55 African Union nations.
The free-trade area is the largest in the world in terms of the number of participating countries since the formation of the World Trade Organization. Accra, Ghana serves as the Secretariat of AfCFTA and was commissioned and handed over to the AU by the President of Ghana Nana Akufo-Addo on August 17, 2020 in Accra.
The African Continental Free Trade Area Agreement (AfCFTA) is the latest effort by African states to restructure the international economic order from below. The AfCFTA aims to create a large single African market for goods, services and movement of persons.
The AfCFTA Phase I negotiations comprise three key agreements: the Protocol on Trade in Goods; the Protocol on Trade in Services; and the Protocol on Dispute Settlement. While the Protocol on Trade in Goods includes provisions relating to the elimination of duties and quantitative restrictions on imports, rules of origin, trade facilitation and transit, trade remedies, protections for infant industries and general exceptions among others, the Protocol on Trade in Services provides for transparency in service regulations, progressive liberalization of service sectors and mutual recognition of standards, licensing and certification of service suppliers among African states.
The formal commitments enshrined in the AfCFTA will build on the modest gains recorded in the context of formal and informal intra-African trade. To the extent that an integrated African economy would strengthen the competitiveness of the local industries, enhance the realization of economies of scale for domestic producers, boost industrialization, enhance better allocation of resources and attract foreign direct investments, the AfCFTA has the potential to restructure both international and intra-African economic relations. However, viewed against the background of struggles by African states to maximize the economic integration aspirations of the existing regional economic communities, the AfCFTA is an ambitious agreement
The AfCFTA Agreement is a mega-regional trade agreement that creates a pan-African trade bloc that has the potential to unite 1.2 billion people and create a $3.4 trillion economic area,
The International Monetary Fund predicts that the AfCFTA could be an economic game-changer for the continent. As of July 2019, 54 states had signed the AfCFTA Agreement and 27 states had both signed and ratified the AfCFTA Agreement. The AfCFTA provides immense opportunity for domestic and foreign investors. With its potential to overcome the historic fragmentation of African economies and open up huge investment and trading opportunities, investors stand to reap rich dividends while contributing to sustainable development.
Dispute settlement under the AfCFTA
An important feature of the AfCFTA is the Protocol on Dispute Settlement which provides the rules and procedures for the settlement of disputes within the AfCFTA. Unlike the majority of the African regional economic community courts that are modeled after the Court of Justice of the European Union, the AfCFTA Dispute Settlement Mechanism (AfCFTA-DSM) is modeled after the World Trade Organization Dispute Settlement Understanding.
A few questions are of concern under this agreement;
- What is the legal framework for investment liberalization and investor protection under the AfCFTA Agreement?
- What can investors expect in terms of dispute settlement mechanisms in general and investor-State dispute settlement (ISDS) in particular?
1. What is the legal framework for investment liberalization and investor protection under the AfCFTA Agreement?
egarding the legal framework for investment liberalization and investor protection under the AfCFTA Agreement, three points can be made.
First, the AfCFTA is more than a traditional free trade area and is more like a comprehensive economic partnership agreement. Investment liberalization is clearly in the works. Article 6 of the AfCFTA Agreement stipulates that
“This Agreement shall cover trade in goods, trade in services, investment, intellectual property rights and competition policy”.
The plan is for a single continental market for goods and services, with free movement of business persons and investments. In January 2018, the Protocol to the Treaty Relating to the Free Movement of Persons, Right of Residence and Right of Establishment, opened for signature and ratification.
Second, although investment liberalization and investment protection are in the works, the Investment Protocol of the AfCFTA Agreement is not yet finalized. The AfCFTA negotiations are occurring in phases. Phase I of negotiations produced four legal instruments: the AfCFTA Agreement, the Protocol on Trade in Goods, the Protocol on Trade in Services, and the Protocol on Rules and Procedures on the Settlement of Disputes (“Protocol on the Settlement of Disputes”). Article 7 of the AfCFTA Agreement stipulates that Member States
“Shall enter into Phase II negotiations in the following areas: (a) intellectual property rights; (b) investment; and (c) competition policy”.
The Protocol on Investment, when in force, shall form an integral part of the AfCFTA Agreement and form part of the single undertaking. AU Ministers of Trade have been directed to conclude negotiations on outstanding instruments and submit the draft legal texts for adoption by January 2021.
Third, to boost investment and trade in the AfCFTA, plans are in the works to tackle Africa’s infrastructure deficit and fully integrate the continent’s infrastructure frameworks. January 2018 saw the launch of the ‘Single African Air Transport Market’ in line with the Yamoussoukro Decision of 1999 and the Declaration on the Establishment of a Single African Air Transport Market (Assembly/AU/Decl.1(XXIV)) of 2015
Dispute Resolution and Investment Arbitration under the AfCFTA Agreement
A dispute is defined as “a disagreement between State Parties regarding the interpretation and/or application of the Agreement in relation to their rights and obligations.” The “Agreement” includes the “Agreement Establishing the African Continental Free Trade Area and its Protocols, Annexes and Appendices which shall form an integral part thereof”. The AfCFTA legal instruments shall be interpreted in accordance with the customary rules of interpretation of public international law, including the Vienna Convention on the Law of Treaties of 1969.
One of the objectives in the AfCFTA Agreement is indeed to “establish a mechanism for the settlement of disputes concerning… rights and obligations”.
Part IV of the AfCFTA Agreement is titled “Dispute Settlement” and establishes a Dispute Settlement Mechanism (DSM).
The Protocol on Dispute Settlement (DS Protocol) was adopted and signed in Kigali on 21 March 2018, when the AfCFTA was launched. It proclaims dispute settlement to be “a central element in providing security and predictability to the regional trading system”.
Dispute settlement systems play a key role in international economic integration. An active, independent, efficient and reliable DSM is essential to not only settling disputes between the state parties in upholding a rules-based regime but also critical to developing relevant jurisprudence that will guide the attainment of the aspirations of the constituent trade agreement.
- Article 20 of the AfCFTA establishes the DSM. The DSM shall be administered in accordance with the Protocol on Rules and Procedures on the Settlement of Disputes (‘Dispute Protocol’).
- Article 3(1) of the Protocol on the Settlement of Disputes, the DSM applies only to the settlement of disputes arising between State Parties.
- The procedure for the settlement of disputes under the AfCFTA consists of Consultations, Good Offices, Conciliation or Mediation Panels and an Appellate Body. Disputing parties can explore arbitration at first instance as a means to settling their dispute as envisaged under 20 Article 27 of the Dispute Protocol.
- The Dispute Protocol applies to disputes between state parties relating to their rights and obligations thereunder, subject to such special and additional rules and procedures on dispute settlement contained in the AfCFTA. To guard against forum shopping, where a state party has initiated proceedings under the Dispute Protocol regarding a specific matter, the state party shall not invoke another forum for dispute settlement on the same matter as stipulated under 21 Article 3(4) of the Dispute Protocol.
- The Dispute Protocol establishes a Dispute Settlement Body (DSB) and provides for the settlement of a dispute in a transparent, accountable, fair and predictable way that is consistent with the provisions of the establishing agreement as envisaged under 22 Article 2 (Objective) of the Dispute Protocol.
- Article 9 (Establishment of Panels) envisages that the formal step towards the resolution of disputes is initiated by the constitution of a dispute settlement panel. Where consultations fail, upon the request of a complaining state party, a panel shall be established by the DSB .
- Article 20 (Appellate Body) stipulates that A standing appellate body (AB) composed of seven persons, with three forming a quorum on any case, shall be established by the DSB to hear appeals from panel case.
The DSB will comprise of the representatives of the AfCFTA state parties and shall have a chairperson to be elected by the state parties. The DSB has authority to establish Dispute Settlement Panels and an Appellate Body; adopt Panel and Appellate Body reports; maintain surveillance of the implementation of the rulings and recommendations of the Panels and the Appellate Body; and authorize the suspension of concessions and other obligations under the Agreement. Decisions to be taken by the DSB shall be by consensus.
The chairperson of the DSB shall be elected by the state parties and will meet as often as necessary to discharge its functions.
In conclusion, it is worth emphasizing that the measure of the success of the AfCFTA and its DSM remains intricately dependent of the political will that backs its implementation.
