African Continental Free Trade Area completes first month of trading

STORY HIGHLIGHTS

To date, 35 of the African Union’s 55 member States have ratified the agreement.

Fifty-four AU member States have signed the AfCFTA, with the exception of Eritrea.

The AfCFTA’s secretariat is headquartered in Accra, Ghana, with Wamkele Mene (South Africa) serving as the first Secretary-General.

The AfCFTA is a stepping stone to an African Economic Community and Customs Union, as envisioned two decades ago under the 1991 Abuja Treaty

 

The African Continental Free Trade Area (AfCFTA) has wrapped up its first month of trading, having kicked off at the start of the new year. The nascent and wide-reaching trade area will be watched closely given its scope, size, and potential development impacts, along with what it means for existing regional communities and trading ties with other partners.

While the agreement and Phase 1 protocols were adopted in early 2018, the process of securing the necessary signatures and ratifications for entry into force continued through 2019. To date, 35 of the African Union’s (AU) 55 member States have ratified the agreement, meaning that the AfCFTA is in effect for those countries but not for the others. Fifty-four AU member States have signed the AfCFTA, with the exception of Eritrea.

“Now, we are about to witness the realisation of one of the flagship projects of Agenda 2063,” said AU Chairperson and President of South Africa Cyril Ramaphosa in December, when the AU Assembly confirmed that trading under the new accord would kick off in January 2021.

Agenda 2063 is the continent-wide policy roadmap that includes among its objectives “inclusive growth and sustainable development” and an “integrated continent.” It is currently undergoing its first implementation plan, due to wrap up in 2023, which included the AfCFTA’s completion and a series of other trade-related goals. Among these is the target of increasing trade within the continent twofold by next year, relative to 2015.

The AfCFTA’s secretariat is headquartered in Accra, Ghana, with Wamkele Mene (South Africa) serving as the first Secretary-General. The AfCFTA is also a stepping stone to an African Economic Community and Customs Union, as envisioned two decades ago under the 1991 Abuja Treaty.

Negotiations on future provisions

The AfCFTA has been designed as a multi-stage process, meaning that the agreement will continue to evolve over time, and more negotiations are planned. The first phase, covering goods and services trade, took effect this year, though talks to finalize tariff schedules and the rules of origin provisions for Phase 1 remain ongoing.

Officials say that, given the rules of origin talks cover approximately four-fifths of tariff lines, the AfCFTA’s terms will already apply to trade on those products. Rules of origin, in trade parlance, refers to how much content must be produced locally to be treated as being from that country. According to the UN Conference on Trade and Development (UNCTAD), simplified and flexible rules of origin are vital for the region, which lags behind the levels of intra-regional trade seen across most other world regions. The UNCTAD’s report on Africa’s economic development notes that the impact of preferential rules of origin could be muted if these are too complex and if improvements are not seen in industrial production capacity, among other factors.

Negotiators will now undertake Phase 2, which involves developing protocols on investment, competition policy, and intellectual property rights (IPR). A third phase will involve the negotiation of an e-commerce protocol.

As trading continues under the AfCFTA, the delay in talks on schedules and rules of origin has fueled concerns among trade watchers and officials that full implementation is still some way off. Moreover, some experts have noted that the agreement’s success in making trade operate more seamlessly across the continent will also hinge partly on developing better infrastructure, especially transport.

Another factor is the impact of the COVID-19 pandemic, which the World Bank and others warn will lead to a recession in Africa, even as the full extent of the damage is not yet known. The delay in obtaining the necessary vaccines to inoculate people against the virus is another concern, with a recent study suggesting that the economic impact is likely to be felt globally. Another effect of COVID-19 was the late launch of trading under the new agreement, which was postponed from July 2020 until January 2021.

Interplay with the regional economic communities

Along with the AfCFTA’s implementation and the negotiations that still lie ahead, trade watchers are also looking to see how this new agreement will operate relative to a series of eight regional economic communities (RECs) that exist in Africa, many of which have overlapping memberships.

These RECs also approach economic integration differently, which analysts have noted when considering what the AfCFTA means for future integration efforts within the RECs. Some RECs have formed their own customs unions, for example, or have negotiated free trade areas of their own. Some are in the process of doing so. Others have not attained that level of economic integration.

The AfCFTA text acknowledges this interplay and the potential for incoherence, stating that those countries involved in “other regional economic communities, regional trading arrangements and custom unions, which have attained among themselves higher levels of regional integration than under this Agreement, shall maintain such higher levels among themselves.” Otherwise, the AfCFTA text is meant to take precedence, unless otherwise specified.

The same applies to RECs that are further along in slashing tariffs and other trade barriers, the AfCFTA text says.

Another consideration is what the AfCFTA will mean for regional and national trading arrangements with other countries, such as the economic partnership agreements (EPAs) that some African countries and country groups have negotiated with the EU, or are in the process of doing so. Furthermore, some AU member States, such as Kenya, have embarked on bilateral negotiations with other trade partners such as the US.

As the AfCFTA enters its second month, it is clear that while challenges lie ahead, there are important lessons to be learned about the different routes that regions can take to pursue economic integration efforts, if they so choose, while balancing varying development levels and other considerations. Other regional groupings, for example the Association of Southeast Asian Nations (ASEAN), are exploring their own models, having adopted the ASEAN Economic Community in 2015 along with an associated blueprint for the subsequent decade. Meanwhile, the Free Trade Area of the Asia-Pacific (FTAAP) remains a stated objective of the 21 economies of the Asia-Pacific Economic Cooperation (APEC) forum.

While there is no one-size-fits-all approach, sharing experiences, best practices, and lessons learned can be a valuable exercise in the years ahead, in order to ensure that these various regimes are supportive of sustainable development, are cognizant of local realities and development priorities, and do not create further incoherence in an already complex trading system.

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By Sofía Baliño, Communications and Editorial Manager, Economic Law and Policy, IISD