Regional integration makes sense for Africa. Addressing the challenges of small markets, small economies, the lack of infrastructure and the pernicious effects of non-tariff barriers (NTBs) require regional initiatives to complement and support national efforts. The COVID-19 pandemic has further highlighted the interconnectedness of Africa’s economies, and the need for regional responses to challenges that transcend national borders. But integrating unequal partners is a difficult task.
The 55 Member States of the African Union differ considerably in terms of size, levels of economic development and diversity of economic structure. And thirty-three of these Member States are least developed countries (LDCs). These factors contribute to the complexity of Africa’s regional integration agenda. It is no surprise that the track record of African integration remains mixed, with lack of implementation often cited as a particular challenge. It is against this background that Heads of State decided in 2012 to initiate the process to establish the African Continental Free Trade Area (AfCFTA).
There is no doubt that the AfCFTA is a very ambitious initiative. Could this continental integration initiative mark a departure from previous sub-regional integration experiences? There are several factors to consider. Regional integration, and specifically the AfCFTA, are currently enjoying significant political support. Political support is essential to the success of regional integration, but it has to translate into practical implementation programs, supported by the necessary improvements in governance. Private sector interest in, and support for the AfCFTA, is also running high. Active engagement in the negotiations and implementation processes by the private sector is required for the AfCFTA to succeed. Global interest in the AfCFTA is also notable. Foreign direct investment can play an important role to support the achievement of the AfCFTA’s objectives, by expanding and diversifying productive capacity. If a global investor establishes a commercial presence in one of the State Parties (country which has ratified the Agreement), that enterprise will enjoy the benefits of the AfCFTA. This could bring positive effects, especially for consumers, but new competition may also pose challenges to domestic enterprises.
These developments, together with the impact of the COVID-19 pandemic noted earlier, provide strong impetus for regional integration, and specifically for the AfCFTA. The AfCFTA arguably now becomes not only an important continental integration initiative, but also holds potential as a contributor to post-COVID recovery and transformation strategies. These factors could well be creating a perfect storm for the AfCFTA. For this to materialize, the negotiations must be completed expeditiously and the AfCFTA must be fully implemented.
Update on the AfCFTA negotiations
The AfCFTA aims to create an integrated market for goods, services, to promote cross-border movement of capital and persons, and specifically to boost intra-Africa trade. NTBs enjoy particular attention in the AfCFTA, reflecting empirical evidence that eliminating NTBs will yield even more benefits that tariff liberalisation.
Negotiations were launched in 2015 and proceeded at an impressive pace, so much so the Agreement establishing the African Continental Free Trade Area was presented for signature at an Extra-ordinary Summit of the African Union in March 2018, in Kigali, Rwanda. Ratifications of the Agreement followed and by 30 April 2019 the requisite 22 instruments of ratification had been deposited with the Chair of the African Union Commission - the designated depositary for this purpose. In accordance with the provisions of the Agreement, the AfCFTA entered into force at the end of May 2019, despite the fact that the negotiations were not yet complete. The stated aim was to complete the negotiations so that trade under the AfCFTA could begin on 1 July 2020.
For trade in goods, negotiations on tariff concessions and rules of origin are still ongoing. Reciprocal tariff concessions and preferential rules of origin are the basic requirements for a free trade area. Without agreement on these issues, trade in goods under the AfCFTA is not possible. Tariffs and rules of origin are also amongst the most difficult issues to negotiate. Tariff revenue remains, especially for LDCs, an important source of fiscal revenue. Tariffs can also be used selectively and strategically to protect domestic industry from import competition. As such the import tariff is used as an instrument of industrial policy. Rules of origin determine the economic nationality of a product, and serve a ‘gate-keeper’ function to ensure that only those products that meet the specific rules determining national origin, gain market access under preferential tariffs.
Trade in services negotiations are also ongoing for the 5 priority services sectors - financial, transport, communication, professional services and tourism. Member States are still making offers of specific commitments for these sectors. Services are important not only because of their economic significance to all African countries, but key services such as transport, communication and financial services are essential for trade in goods. These services facilitate trade.
Impact of the COVID-pandemic on AfCFTA negotiations
The World Health Organization declared a global pandemic on 12 March 2020. African countries joined the global response to the pandemic and introduced restrictive measures to curb the spread of the COVID-19 virus. These measures included border closures, travel and business restrictions and in some countries national lockdowns. These measures impacted all African economies. They also affected international trade. Africa’s intra-regional trade was restricted as trade corridors were impacted by the measures implemented by the countries along the corridors and those that provide access to global markets. As an example, South Africa closed 35 of its 53 land borders. This immediately stopped the cross-border movement of persons, including small-scale cross border traders. Although cargo was permitted to flow, trade in essential products such as medical equipment, pharmaceutical and some food products required permits. Ironically, of course, at a time when international trade is essential for access to medical supplies and other essential products including food, restrictions implemented to curb the spread of COVID-19 and protect domestic markets, were hampering trade.
Travel restrictions and social distancing measures also impacted the AfCFTA negotiations. After a brief break in the negotiations process, negotiations resumed virtually. Negotiations at the best of times, are usually difficult and time consuming. Virtual negotiations proved to be even more daunting. It soon became clear that negotiations would not be complete so that trade could begin on 1 July 2020. While negotiations continued, new timelines were proposed by Senior Trade Officials and Minsters of Trade in preparation for a decision by the Assembly of the Africa Union about the completion of the negotiations and the start of trade under the AfCFTA.
Launch of trade on 1 January 2021
Heads of State and Government convened for the 13th Extraordinary Session of the Assembly of the African Union, on the AfCFTA, on 5 December 2020. They decided that trade under the AfCFTA should be launched on 1 January 2021. Given that negotiations on key issues, including tariff concessions and rules of origin are still ongoing, this decision is in effect for the launch of trade under an ‘interim arrangement’ pending the conclusion of the negotiations. The aim is to complete the negotiations on the outstanding issues for trade in goods and trade in services by 30 June 2021.
In terms of the ‘interim arrangement,’ trade for those products whose rules of origin have been finalized, will be possible under the tariff offers made by the State Parties. Rules of origin for products such as fish, knitted/crocheted fabrics and automotive products are not yet agreed, so there products cannot be traded under the ‘interim arrangement.’ To be able to trade under this arrangement, State Parties must also be customs ready. This means that they must complete the domestic implementation processes. This includes updating the tariff book to reflect the tariff offer that has been made, amending customs and related regulations, for the issue of the necessary documentation for standards and rules of origin compliance. Hopefully these processes will be adapted to implement digital trade solutions.
Meanwhile negotiations on the outstanding issues for trade in goods and services will continue and as negotiating outcomes are achieved these will be adopted, eventually completing the negotiations and the implementation of the full AfCFTA Agreement. Simultaneously, negotiations on phase 2 and phase 3 issues – investment, competition policy, intellectual property and e-commerce – will proceed. The aim is that these negotiations will be completed by end 2021.
The AfCFTA is an important integration initiative for Africa, not only because it stands to address some of the most pernicious barriers to regional integration, but also because it could contribute to supporting post-COVID reconstruction and transformation. While boosting intra-Africa trade is an important AfCFTA objective, the dynamic benefits of the AfCFTA could well be even more important for the continent. The larger, integrated markets could well attract foreign direct investment to expand and diversify productive capacity, promote innovation and increase digital trade including e-commerce. To achieve these objectives, the negotiating effort must be supported so that the outstanding negotiations can be completed. And then full and effective implementation is essential to provide the legal certainty for business to take up the opportunities of the AfCFTA.