The African Continental Free Trade Area I – An Introduction to AfCFTA

This is a free trade area that has never been seen in the world. It’s going to be the largest integrated market on the African continent, which is a clear demonstration that indeed Africa is not only on the rise but Africa is on the move

- President Cyril Ramaphosa to the Africa Investment Forum, November 2018[1]

Introduction

The African Continental Free Trade Area (AfCFTA) is a flagship project of the African Union expected to bring together 54 African states with a total population of over a billion people and a combined GDP of $ 3.4 trillion.[2]

As the largest free trade area since the establishment of the World Trade Organisation (WTO), AfCFTA has the potential to boost intra-African trade by 52.3% through the elimination of import duties, and by over 100% through the elimination of non-tariff barriers.[3]

The agreement has roots as far back as the Non-Aligned Movement (NAM) – the intergovernmental crusade against imperialism and dependency, founded by some of history’s most exceptional anti-colonial leaders. NAM laid the foundation for the Organisation of African Unity (OAU) established in 1963, and its 1980 Lagos Plan which called for an African customs union. The OAU was plagued with weak institutions and lack of resources and was replaced by the African Union (AU) in 2002. By 2012, the AU Heads of State adopted a decision on the establishment of AfCFTA.[4]

If achieved, the CFTA will contribute to economic growth, job creation, food security and poverty reduction. It will empower Africa to better finance its own development and reduce its dependence on fluctuating oil and mineral prices. In Paul Kagame’s words, AfCFTA would ‘deliver the end point of the [AU] reform’ – an Africa that is cooperating, developing and independent from Western assistance.[5]

The ins and outs of AfCFTA

Intra-African trade is currently very low. In goods, trade between African countries accounts for only 10% of total trade. It is limited by high applied tariff protection rates which average 8.7%, but often reach 20% and are known to climb up to 45%.[6] Other inhibitors are the low development of African economies and their excessive dependence on commodity production and exports, weak transport infrastructure, poor trade logistics, high security risks and non-tariff barriers (NTBs).[7] NTBs include import prohibitions, quotas, export subsidies, export restrictions as well as Technical Barriers to Trade (TBTs) and Sanitary and Phytosanitary measures.[8] NTBs are well positioned to serve national policy objectives when grounded in genuine issues like health and the environment, but become harmful when they are applied to restrict trade for “political economy” reasons.[9]

AfCFTA addresses each barrier to African trade simultaneously. Aspiring to a final African Customs Union, the agreement calls for the progressive elimination of tariffs and non-tariff barriers and cooperation in TBTs.[10] Other central aspects of AfCFTA are trade facilitation measures, a carefully crafted Dispute Settlement Body (DSB) and predetermined exceptions to liberalisation as per anti-dumping[11], Special and Differential Treatment (SDT)[12] and infant industry protection[13]. Trade facilitation will be funded by the AU, member states and external investors, and will address transport infrastructure, customs clearance, technical assistance and capacity building.[14]

The agreement does not prevent states from adopting measures that are, amongst other general exceptions, necessary to protect public morals or to maintain public order; necessary to protect human, animal or plant life or health;imposed for the protection of national treasures of artistic, historic or archaeological value; or undertaken for essential security interests.[15]

Managing, monitoring and dispute settlement bodies and panels will be crafted to these ends.

The status of negotiations

Negotiations were launched in June 2015 and have been divided into phases.

The first phase is complete, having dealt with the Single Market for Trade in Goods, Services and Settlements of Disputes. Ministers of trade must now submit schedules of tariff concessions and specific commitments on trade in services to the Assembly at the 32^nd AU summit in Addis Ababa in 2019. These schedules require the liberalisation of 90% of products by each State Party, as well as a list of sensitive products that are to be temporarily exempted.For trade in services, scheduling will call for a deep review of the regulatory framework of the identified sectors, in view of preparing, subsector by subsector, mode by mode, the initial market access offers which will then be subject to negotiations.[16]

The second phase will establish the rules for Continental Investment, Intellectual Property and Competition Policy, the latter critical for restraining monopolies in larger economies. The deadline for this phase is January 2020.[17]

Subsequent phases will bring AfCFTA from negotiation to implementation.

The eight African Regional Economic Communities (RECs) will serve as important implementation partners. They will be integral to the process of coordinating and monitoring implementation and harmonising standards.

Once the agreement has twenty-two ratifications, it will enter into force. So far, only six countries have ratified (eSwatini, Chad, Rwanda, Niger, Kenya and Ghana), but officials believe the goal is in sight. South Africa is one of many countries rushing to get the ratification through parliament.[18]

Six countries are yet to sign the CFTA – Benin, Botswana, Eritrea, Guinea Bissau, Nigeria and Zambia. The presidents of Zambia and Botswana have promised to sign at the next AU summit. Botswana is a low tariff country already, so its hesitance is likely a matter of due process. Guinea Bissau and Eritrea may be reluctant to forgo their high tariff revenue and expose their underdeveloped agricultural economy to larger regional players. Benin is likely weighing up the costs and benefits of liberalising its cotton-reliant economy. While Nigeria, central to the success of the agreement, confronts strong resistance from trade unions and private stakeholders.[19]

If Africa ready for AfCFTA?

The steps made towards AfCFTA in 2018 have been met with enthusiasm across a continent eager for change. But how hopeful should we be?

Part II in this series considers the projected effects of AfCFTA on the South African economy, with conclusions for whether South Africans should be pushing for ratification. Part III addresses obstacles to implementation, asking what AfCFTA – the most ambitious FTA since the WTO – will take to achieve.

Tove van Lennep
Researcher
tove@hsf.org.za

[1] Daily Maverick, 8 November 2018. Ramaphosa pushes African free trade agreement, private investment