Launch of trade under the AfCFTA on 1 January 2021- What traders need to know

JacobProjects, Research in the Region

The African Continental Free Trade Area (AfCFTA) – Africa’s new trade agreement with its own legal instruments –was officially launched on 1 January 2021. The long-term objective of the AfCFTA is “boosting intra-African trade, integration and development by creating an integrated market for goods, services, promoting the cross-border movement of capital and persons“. The Agreement entered into force on 30 May 2019 for the 24 countries that deposited their ratification instruments with the African Union Commission (AUC). Negotiations and implementation are member-driven, and negotiations are done under the AUC. The AfCFTA is to be governed by 12 core principles (Article 5). Some of these include transparency, reciprocity, liberalisation, and preservation of the legislation.

State Parties are expected to progressively eliminate tariff and non-tariff barriers and liberalise trade in services to fulfil the modus operandi of the AfCFTA. State Parties should cooperate on all trade-related areas, investment, IP rights and competition policy, and customs matters and implement trade facilitation measures. Furthermore, they are expected to establish a mechanism for dispute settlements and establish and maintain an institutional framework for the implementation and administration of the AfCFTA.

As part of the AfCFTA, some institutions were established to assist in negotiations and decision-making. These institutions include the Assembly (of the AU’s highest decision-making organ), the Council of Ministers (Trade Ministers of State Parties), the Committee of Senior Trade Officials, a secretariat, other ad hoc bodies, etc.

The Dispute Settlement replicates the WTO’s dispute settlement unit in the protocol. Trade disputes are often settled via consultation. As the AfCFTA does not aim to replace or undermine regional economic communities (RECs). Rather, REC courts which are already in existence will continue. It is important to note that these courts can only invoke their jurisdictional powers.

This arrangement means that State Parties’ governments are in control, it is not, for example, like the EU, where State Parties surrender their sovereignty. Because the AfCFTA is member-driven, implementation is a domestic matter, and the Agreement is not self-executing.

To liberalise trade, the AfCFTA expects State Parties that have ratified the Agreement to liberalise 90% of tariff lines over a phased period of 5 years. Annually, this means approximately 20% of tariff lines. On the other hand, Least-Developed Countries (LDCs) have a bit more leeway and have ten years to reach this goal. State Parties have ten years (LDCs have 13 years) to liberalise a further 7% of tariff lines. Finally, 3% of tariff lines may be excluded.

Although 3% of tariff lines do not seem much, Africa’s trade is relatively concentrated towards specific sectors (such as agricultural goods and primary intermediates), which still amounts to a considerable portion of total trade. Nevertheless, the five services sectors that have been identified for liberalisation are financial, tourism, transport, communication, and professional services.

To trade under AfCFTA outstanding negotiations should be concluded. Furthermore, the results of tariff negotiations need to be adopted, tariff books must be updated, and domestic laws and procedures need to be put in place.

The RECs recognised by the African Union are the Arab Maghreb Union (UMA), Common Market of Eastern and Southern African Union (COMESA), the Community of Sahel-Saharan States (CEN-SAD), the East African Community (EAC), the Economic Community of Central African States (ECCAS), the Economic Community of West African States (ECOWAS), the Intergovernmental Authority on Development (IGAD), and the Southern African Development Community (SADC). The Southern African Customs Union (SACU is not recognised as a REC).

It is imperative to note that AfCFTA will not disband or nullify the FTAs established by RECs but will use them as building blocks for freer trade in Africa. All the regulations and tariffs under existing RECs remain in place.There are no further negotiations on trade liberalisation within existing RECs such as COMESA, ECOWAS, SADC, etc. Negotiations are between member states of the AU/customs unions and customs unions that are not in the same REC. In conclusion, AfCFTA’s implementation will be its most significant test of value. Since the implementation will be member-driven, governance integration and reforms will be crucial, especially for harmonising regulatory regimes. The AfCFTA institutions need to guarantee that trade will be rule-based and transparent, a vital pillar relied upon by the private sectors. The difficulty in integrating unequal economies will be the most significant task, especially when considering that 33 of the world’s 47 LDCs are found in Africa. Linking these countries with the rest of Africa makes the successful implementation of the AfCFTA only that much more critical.