Author: Francis Muwonge
Briefly;
With the world on the verge of modernizing into a one global village, Africa has embarked on the implementation of African Continental Free Trade Area (AfCFTA) as means of competitively integrating into the global economy, reducing poverty, and promoting inclusiveness in economic unity. In as much as for the recent past Africa has made efforts in combating poverty and fostering economic development to improve its people’s standards of living, increasing trade can provide the impetus for reforms that boost productivity and job creation, thereby further curbing poverty. There is no better way of achieving this than through economic integration given how much Covid-19 has ravaged and devastated economies in the past years. During the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia in January 2012, a decision to establish a Continental Free Trade Area by an indicative date of 2017 was adopted, although this deadline however was not met.
In March 2018, an agreement on AfCFTA was signed in Kigali Rwanda and out of which 41 of 55 member states of the African Union, save for Eritrea that’s not a signatory to the AfCFTA agreement, have both signed and deposited their instruments of ratification to the AfCFTA agreement as at February 2022. The AfCFTA is targeting to cover a market of more than 1.2 billion people, including a growing middle class, and a combined gross domestic product (GDP) of more than US$3.4 trillion that will quickly accelerate intra-African trade and boost Africa’s trading position in the global market by strengthening Africa’s common voice and policy space in global trade negotiations.
At the very inception of this initiative, its immediate impact in poverty alleviation, social and economic development is some of the most anticipated outcomes by the year 2063. However, this will call for an absolute input of all stake holders in this with the majority here being the various heads of states and policy makers who are accountable to the African people.
The main objectives of the AfCFTA are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. It will also expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation and instruments across the RECs and across Africa in general. The AfCFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources.
Is AfCFTA already starting to take shape?
Article 23 of the African Continental Free Trade Area Agreement stipulates that entry into force occurs 30 days after the 22nd instrument of ratification is deposited with the Chairperson of the Understanding the African Continental Free Trade Area (AfCFTA) and its Operational Instruments.
African Union Commission (AUC), who in this case is the designated depositary for this purpose, an essential step for the AfCFTA to enter into force. The Agreement entered into force on 30 May 2019 for the 24 countries that had deposited their instruments of ratification before this date.
As at February 2022, 41 of the 54 signatories (76%) have deposited their instruments of AfCFTA ratification with the AUC Chairperson.
For AfCFTA to fully come to life its implementation negotiations will have to be in phases, the first phase comprised negotiation of three protocols: Trade in Goods, Trade in Services, and Rules and Procedures for Settlement of Disputes. The second phase of negotiations will focus on investment, competition, and intellectual property rights, with the potential of deepening AfCFTA. Now Phase 3 negotiations to be conducted on e-commerce after 1 year of deliberation and capacity building.
In June 2018, negotiations on services began and countries identified five priority sectors i.e. financial services, transport, telecom/information technology, professional services, and tourism.
Benefits of services liberalization extend far beyond the service sectors themselves; they affect all other economic activities in which services are inputs.
There are always different dynamics at play when it comes to the implementation of such multilateral trade agreements like AfCFTA. Just like the different Africa’s sub regional Partner Trade agreements, a score of factors has to be first settled at different state levels prior to the actual realization of impact in implementation of such agreements, of which AfCFTA is no exception in this case. This looks more like an arduous journey and one cannot help but to question, if the regional trade agreements have not done so well in the realization of the intended goals of their establishment what guarantee is there that this one, (AfCFTA) would be an exception?
Some states will always comply right in time before others actually get on board and this often delays implementation thus frustrating the realization of the intended objectives within the stipulated time-line. A case in point is that; at the time the AfCFTA commenced in January 2021 only a few countries like Ghana, Egypt and South Africa had proper requisite custom infrastructure in place to facilitate the implementation of AfCFTA in its true sense.
This implies that most of the other member states that had already ratified the agreement were yet to put in place such basic custom tools to aid the proper implementation of the agreement.
However this weakness has not deterred the agreement from taking effect as heads of states in their subsequent meetings, came to an agreement that for countries that haven’t set up the
required custom infrastructure to facilitate the trade, means should be devised such as recognition and awarding of credit points that will later translate into a form of compensation to the traders for any tariffs they may be incurring in the time being.
While assessing AfCFTAs economic and distribution effect in the data provided by Ofmann, Osnago, and Ruta (2017) contained in a “report”1 submitted to the World Bank, it indicated that AfCFTA does not cover environmental laws and labor market regulations among its policy areas leaving a grey area that could be exploited as a point of weakness.
The AfCFTA is governed by five operational instruments, i.e. the Rules of Origin; the online negotiating forum; the monitoring and elimination of non-tariff barriers; a digital payments system and the African Trade Observatory. As at January 2022, Rules of Origin have been agreed on 87.7% of total tariff lines and the operationalisation of the Pan-African Payments and Settlements System (PAPSS) has been officially launched.
PAPSS will help in cost reduction in terms of currency trading say; a trader from Uganda will now be able to purchase goods from Nigeria in local Ugandan shilling without having to first convert the shillings into dollars and at the other end the business man in Abuja will be directly receiving payment in naira.
Operational Instruments.
Rules of Origin (RoO): The Rules of Origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports. Rules of Origin (RoO) are legal provisions that are used to determine the nationality of a product in the context of international trade and these can basically be of two kinds i.e.; non-preferential and preferential RoO.
Non-preferential RoO involves national laws used to allocate origin to traded goods for purposes such as trade statistics, trade remedies, labeling requirements and various other purposes, while Preferential RoO are the regulations contained in the agreements of preferential trade areas between two or more countries (such as those forming part of the AfCFTA), and which prescribe the minimum amount of processing and other criteria that must be complied with in order to make a determination on the preferential trade status of a product.
As at January 2022, tariff and rules of origin (RoO) negotiations under the AfCFTA were not yet complete. Agreed RoO cover 87.7% of tariff lines. June 2022 is the deadline to complete the RoO and tariff negotiations although for the time being, there is an interim arrangement to facilitate trade which commenced from 1st January 2021. The trade in goods, for which RoO are finalized, is already taking place under the tabled tariff offers provided that these offers mandatorily comply with the agreed modalities for tariff negotiations.
Schedules of tariff concessions: Modalities for tariff liberalization were adopted with a level of ambition of 90% of tariff lines to be liberalized in a linear form over a period of 5 years for Non LDCs and years for LDCs (Least developed countries). The percentage for Sensitive
Products was agreed to be maintained at 7% of total tariff lines subject to negotiation and tariff dismantling to start on the 6th year. It was further agreed that Non-LDCs shall liberalize their
sensitive products within 10 years and LDCs within 13 years counted from 1st January 2021 when liberalization of 90% started. The Exclusion List shall not exceed 3% of total tariff lines with intra-Africa import value limit of not more than 10 percent subject to negotiation and review every after 5 years. This will be supported by the AfCFTA Tariff Negotiations online portal where Member States will upload their tariff offers.
The AfCFTA Online Negotiation Tool: The tool is accessible to all parties and it assists them in their negotiations. It also serves as a collaborative platform to exchange the lists of products defined at the tariff line level as well as the applicable tariff.
The tool allows each party to: define their own product lists; share lists with selected parties for discussion; comment on shared lists; and suggest counter proposals.
In order to facilitate the creation of initial product lists, a module analyses various factors among which are: – fiscal revenues; employment by sector; production; potential trade; existing tariffs;
commitments; and Infant industries.
Based on this methodology, the tool automatically suggests product lists as a potential starting point for negotiation, considering the tariff-dismantling schedules.
In summary, the AfCFTA online negotiation tool;
I. Facilitates the negotiations on tariff liberalization between State Parties, Customs Unions
or Regional Groupings under the AfCFTA;
II. Provides tools to ensure the technical quality of the offers made;
III. Increases transparency while safeguarding confidentiality; and
IV. Provides tools for users/negotiating groups to interact.
Non Tariff Barrier elimination tool: Non Tariff Barriers (NTBs) are trade restrictions such as quotas, embargos or sanctions that countries use to further their political and economic goals. The South African Development Community (SADC) defines a non tariff barrier as “any obstacle to international trade that is not import or export duty. They may take the form of import quotas, subsidies, custom delays, technical barriers, or other systems preventing or impeding trade.”2 AfCFTA recognizes the fact that (NTBs) are a greater hindrance to intra-African Trade than Tariff Barriers.
Therefore, AfCFTA has made it one of its mandate to progressively eliminate existing NTBs and refrain from introducing new ones in order to enhance and facilitate intra Africa trade. The Continental tool will ensure NTBs are monitored with a view to ensuring they are eliminated.
The elimination of NTBs is critical to boosting intra-Africa trade and achieving of the objectives of the AfCFTA. It will further reduce the costs of trading across borders and ease the cross-border movement of goods. The bulk of the AfCFTA benefits will be realized if State Parties efficiently manage and eliminate NTBs.
Annex 5 of the Protocol on Trade in Goods establishes a reporting, monitoring and elimination mechanism where traders can file a complaint on a specific trade obstacle they have encountered during the process of moving goods and services across borders.
The African Trade observatory: This is a trade information portal that will address hindrances to trade in Africa due to lack of information about opportunities, trade statistics as
well as information about exporters and importers in countries.
This instrument is to purposely address the issue of lack of up-to-date and reliable trade data and statistics which is one of the contributing factors to the low level of official intra-African trade this tool will further resolve instances abound of goods and services, which could have been sourced from other African countries that are being imported by African countries instead.
According to ITC (2018), more than 40 per cent of African companies identify lack of access to information and absence of inquiry points as factors affecting the business environment across the continent.
Whereas, a number of African countries and Regional Economic Communities (RECs) have established trade information portals and systems several challenges remain such as: outdated information; uniformity of data; absence of data and information on non-tariff measures and informal trade and limited collaboration between various government agencies as well as
countries and RECs.
The trade observatory acts as a central repository providing exhaustive qualitative and quantitative trade data and information at the continental level to enable policymakers and the
private sector to make evidenced-based policies and business decisions.
The Pan African Payments and Settlement Systems (PAPSS): This is a trade information portal designed to address hindrances to trade in Africa due to lack of information about opportunities, trade statistics as well as information about exporters and importers in countries. The trade observatory will have all this information and other relevant data which will be provided by AU member states.
PAPSS is a centralized payment and settlement infrastructure for intra-African trade and commerce payments. This project which is being developed in collaboration with the African Export-Import Bank, Afreximbank and it will facilitate payments as well as formalize some of the unrecorded trade due to the prevalence of informal cross-border trade in Africa.
It will also provide alternative to current high-cost and lengthy correspondent banking relationships to facilitate trade and other economic activities among African countries through a simple, low-cost and risk-controlled payment, clearing and settlement system.
The benefits of PAPPS for cross-border payments include cost reduction; reduction in duration and time variability; decreasing liquidity requirements of commercial banks; decreasing liquidity requirements of central banks for settlement as well as its own payments; and strengthening Central Banks’ oversight of cross border payment systems.
Conclusively,
AfCFTA’s goals and objectives are not delusional but given the state of affairs in the RECs and its diversity, their realization stand a big test of time as the entire world will be waiting and
watching to see how this mega continental plan will be executed.
Even when the AfCFTA is still at its infancy stage of growth, the degree and level of seriousness with which it has been accorded by the member states so far is a clear indication that they are fully committed to seeing this work. But unless and until the political will of heads states is in unison towards the progress of this treaty, nothing much will come out of it.
The AfCFTA is an opportunity for countries and companies to help each other grow, if they fall prey to trade liberalization and Western control which are most likely to harm the poor and local
producers in these countries, and Africa will repeat the mistakes of the European Union.
Although infrastructure is improving very slowly, there is still a long way to go to facilitate trade between countries. It is impossible to build a supply chain across the continent when there are
countless customs stamps, signatures and certificates required to simply move a container from one country to another.