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tralac Newsletter • Issue 21 • July 2020
Update on the African Continental Free Trade Area
Welcome to the tralac’s July 2020 newsletter. We’re focusing on the African Continental Free Trade Area (AfCFTA), providing an update on progress to date, and looking at the plans to complete outstanding work so that trade under the AfCFTA regime can begin, and the AfCFTA institutions become operational.

The launch of the negotiations in June 2015 was followed by impressive progress; the Agreement establishing the African Continental Free Trade Area, the Protocol on Trade in Goods, the Protocol on Trade in Services and the Protocol on Dispute Settlement were concluded. Several annexes to these Protocols were also concluded. By 29 April 2019, the requisite 22 ratifications had been deposited with the African Union Commission (AUC), the designated depositary for the AfCFTA. As per the provisions in the AfCFTA, the Agreement entered into force 30 days later, on 30 May 2019. Despite the fact that the AfCFTA Agreement is in force, it cannot be implemented. This situation has come about as a result of the fact that ratification of the AfCFTA has taken place before the finalisation of the negotiations. For trade in goods, tariff concessions and rules of origin, and for trade in services, specific commitments for the five priority services sectors, are not yet in place. A free trade area (FTA) needs at minimum tariff concessions covering substantially all trade, and preferential rules of origin to prevent trade deflection. These are still under negotiation, so no trade under the AfCFTA is possible yet. The aim was to have trade under the AfCFTA regime begin on 1 July 2020; this has now been moved forward to 1 January 2021.

The AfCFTA is designed to build on what has already been achieved by the regional economic communities (RECs). This is confirmed by the AfCFTA principle of the acquis and Article 19 (2) of the Agreement establishing the AfCFTA. The RECs will continue to exist and member states of the trade regimes of the RECs (FTAs or customs unions) will continue to trade with one another on the terms of those trade arrangements. Some REC member states have yet to join the trade regimes of their RECs, and some of these FTAs or customs unions are still to be consolidated. It is not surprising that there is still a great deal of work in progress – integrating unequal partners is a complex and difficult process.

An important question is ‘who will be negotiating with whom’? Tariff concessions for the AfCFTA will be negotiated by member states of the African Union that are not, together, in an existing FTA or customs union. The preferential rules of origin (RoO) of the AfCFTA will be applicable to those tariff concessions. Much progress has been made in the RoO negotiations, but there is some outstanding work related to rules for clothing and textiles, automotive products, edible oils and sugar, reflecting the interests of some member states in protecting and developing these domestic industries. This means that the AfCFTA will create an additional free trade area among those member states that are currently trading with each other on non-preferential (Most Favoured Nation – MFN) terms. We closely monitor the release of trade data by member states and study the applicable MFN tariffs. So far, 26 of the 55 African Union member states have updated their trade data for 2019 (see a summary here). Our trade data updates suggest that the AfCFTA stands to contribute meaningfully to liberalisng trade, for example, between the member states of the Southern African Customs Union (SACU), and the Economic Community of West Africa States (ECOWAS). SACU and ECOWAS are each making a collective tariff offer in the negotiations – as customs unions they are protecting their common external tariffs. At this stage though, not all of their respective members have ratified the AfCFTA. It is also important to note that while tariff concessions are important to promote trade amongst these countries, elimination of non-tariff barriers, and reducing the transaction costs of trade between the countries in these two fairly distant sub-regions, is essential. The availability and quality of trade data are essential for trade policy making and for trade negotiations. The establishment of the African Trade Observatory (ATO) is envisaged to become the repository for trade and trade-related data for AU member states. Once fully functional, and provided that member states submit data timeously and consistently to the ATO, it will be a very important resource for the continent.

Dispute resolution is an integral component of a robust rules-based system – this is true for trade too. The AfCFTA Protocol on Dispute Settlement provides for inter-state dispute resolution, modelled on the dispute settlement system of the World Trade Organisation. This means that only State Parties (those member states that have ratified or acceded to the AfCFTA Agreement) will have standing to enforce their rights. Private parties will not have standing, as they do in the Courts of Justice of the Common Market for East and Southern Africa (COMESA), the Economic Community of West African States (ECOWAS) and the East African Community (EAC). This Blog examines the kind of disputes that the AfCFTA Dispute Settlement Mechanism could hear.

May State Parties of the AfCFTA conclude new agreements with third parties? This issue is usually covered in trade agreements to ensure that obligations of different agreements will be implemented in a consistent manner. The matter has recently featured prominently in the media with respect to the proposed FTA to be concluded by the United States and Kenya. Article 4 (2) of the Protocol on Trade in Goods provides pragmatic recognition of the negotiation of trade agreements with third parties – providing that such agreements should not ‘impede or frustrate the objectives’ of the Protocol on Trade in Goods. Intra-Africa trade for 2019 accounted for 15% of Africa’s total trade. Global trade partners will continue to be important and it can be expected that member states of the AfCFTA will pursue national development objectives through the conclusion of trade agreements. What is important is that existing obligations be complied with.

A World Bank report launched on 27 July concludes that most of the income gains from the AfCFTA are likely to come from the reduction of ‘red tape and simplification of customs procedures’. This resonates with a tralac study from 2015, which suggests that a 20% reduction in time in transit (time at border posts and on the road – noting that approximately 80% of intra-Africa trade is transported by road) will yield greater welfare gains than complete elimination of tariffs across the continent. The impact of non-tariff barriers such as these is well recognised, and Annex 5 of the Protocol on Trade in Goods deals with NTBs, providing for institutions for the elimination of NTBs. The important question is, ‘Does the AfCFTA have a formula to tackle Africa’s Non-Tariff Barriers?

The AfCFTA matters for Africa’s trade and sustainable development. While there are still prohibitive tariffs on trade in specific goods between select trading partners, COVID-19 is confirming that non-tariff barriers pose even more pernicious barriers to intra-Africa trade and also erode Africa’s trade competitiveness with global trade partners. Eliminating NTBs will not only reduce the transactions cost of trade irrespective of our trade partners but will also provide positive impetus to the development of regional and continental value chains. This is essential to achieve the dynamic benefits of the AfCFTA, which include the attraction of foreign direct investment to expand and diversify Africa’s productive capacity.

The pandemic has forced a slowdown in the negotiations; however, the processes are continuing. What the pandemic is also doing, is to prompt us to appraise where we stand in the negotiations process. What needs to be added or expedited to ensure that the AfCFTA is fit-for-purpose for a post-COVID-19 trading and economic environment to provide incentives for recovery, reconstruction and transformation of Africa’s economies? Indications are that e-commerce negotiations will be expedited – this is good news. Now it is important to look at the broader imperatives of the AfCFTA in the 21st century digital economy to ensure that what is on the negotiating agenda, will provide effective trade governance for Africa’s sustainable development.
We look forward to hearing from you
The tralac Team
  • tralac’s Virtual Annual Conference 2020: 21-22 September

  • tralac’s 2020 Alumni Workshop: 28-29 September

Details will be provided very soon – we hope you will join us for these events.

tralac Daily news service

As of Monday 3 August, tralac will be providing an updated daily news service. We will be harnessing digital technology for news aggregation to assist us to continue to bring you important international, continental and national trade-related news and developments.

We would like to thank Richard Humphries who has worked with us to make the tralac news service an essential daily update on trade news. Sam Smith, who has worked with Richard, will now be our contact person. She will be in contact on Monday.

Working Paper
Completing and Implementing the AfCFTA in difficult times
by Gerhard Erasmus and Trudi Hartzenberg

Realising the African Continental Free Trade Area (AfCFTA) was never going to be easy. The challenges are about agreeing on a design for integrating a large number of economies at very different levels of development, the nature of the obstacles hindering intra-African trade, the prevalence of governance blockages, and the economic policy landscape to be traversed. Pushing for the early entry into force of the AfCFTA Agreement before essential aspects had been negotiated didn’t help. The COVID-19 pandemic has further derailed the workplan for completing the outstanding AfCFTA negotiations. This paper discusses the steps still required to finalise the AfCFTA framework and to implement the relevant technical aspects as provided in or required by its legal instruments. Click to download.
Summary of intra-Africa trade 2019
As of the end of July 2020, 26 of the 55 African countries have updated their official trade data to reflect 2019 trade figures. Intra-Africa trade for 2019 this far was valued at US$69 billion; 5 per cent less than in 2018 (with data from 35 of the 55 African countries). Intra-Africa trade accounted for 15 per cent of Africa’s total trade in 2019; the same as for 2018. Over the last 10 years, intra-Africa trade has remained low; the highest was recorded in 2015 and 2016 with 19 per cent and 20 per cent of total trade. Most intra-Africa trade is among countries which are members of the same regional economic community (REC); in particular, where the countries are members of the Free Trade Agreement (FTA) or Customs Union (CU) of the REC. Download the summary here and view the infographics.

tralacBlog is a forum to share and engage with the views of tralac researchers and Associates, as well as guest contributors, on pressing regional integration and trade policy issues affecting African countries in order to encourage relevant, topic-related discussion and debate. View more here.

Brexit – Some Implications for Financial Services
Dirk de Vos and Trudi Hartzenberg
COVID-19 and the gender-related economic consequences for Africa
Gavin van der Nest
The costs of driving smoking underground
David Christianson
The Looming Brexit Cliff – What it means for South Africa and for SACU
Dirk de Vos and Trudi Hartzenberg
Climate Change in times of COVID-19
Gavin van der Nest
South Africa’s trade data update – the May 2020 data reveals the effect of eased lockdown restrictions
Willemien Viljoen
Strict lockdown regulations – medical and electronic equipment flown in and cross-border road traffic reduced by two-thirds
Willemien Viljoen
Trade-related policy responses to COVID-19
tralac is monitoring trade-related policy measures and responses to the COVID-19 pandemic, adopted and implemented by African countries and beyond. Take a look at our resources pages to find out more:
Key trade stats for AGOA beneficiaries to end May 2020
Aggregate exports to US: 2020 YTD to May: $ 7.42 billion
(Share) of AGOA exports: 2020 YTD to May: $ 1.47 billion (represents 21% of total exports)

Aggregate exports from AGOA beneficiaries to the United States are down 9.4% year-to-date to the end of May 2020, compared the comparable previous period. The main factor for this headline decline is the much lower value of oil exports to the US from Nigeria and to a lesser extent Angola (lower demand combined with much lower oil prices). The economic impacts of the Covid-19 pandemic are also likely to continue to have an impact on exports to the US. Exports from some AGOA beneficiaries however remain stable or have grown, including from Kenya, Ethiopia, Madagascar Côte d’Ivoire and Tanzania. In terms of legislation, Mali recently completed the AGOA apparel visa requirements and from 4 August 2020 will be able to export apparel using third country fabric to the United States.

Kenya – US Free Trade Agreement

On 6 February 2020, US President Trump announced that the United States intends to initiate trade agreement negotiations with the Republic of Kenya following a meeting at the White House with Kenyan President Uhuru Kenyatta. The announcement came while the US-Kenya Trade and Investment Working Group held its third meeting in Washington (see naugural meetingsecond meeting) – having been established earlier by President Trump and President Kenyatta in 2018 in order to lay the groundwork for a stronger bilateral trade relationship. On 18 March 2020, the Trump Administration, through the USTR, formally notified the US Congress in line with the Bipartisan Congressional Trade Priorities and Accountability Act (Trade Promotion Authority) which, inter alia,  subjects “trade agreements to congressional oversight and approval, consultations…”. In May and June respectively, the United States and Kenya published their negotiating principles. The negotiations started on 7 July 2020.

The AGOA Business Connector is an online facility on to help enable trade and business connections between producers, exporters, importers, sourcing agents, trade-related service suppliers including trade finance, logistics and related services, support organisations (such as business chambers and exporter associations and others), both from within sub-Saharan African AGOA beneficiary countries and the United States. Registered users are also able to list their businesses or professional trade-related service on the platform, and to communicate with other listings through a messaging facility.

> Download the AGOA Business Connector Brochure at this link

Download: AGOA guides and info-graphics

tralac has produced a number of info-graphic type brochures (see section on / Exporter Toolkit) covering a range of AGOA-related topics, including on AGOA’s legal provisions with regard to eligibility and annual/out of cycle reviews, rules of origin, AGOA FAQs, sector-focused brochures (textiles and clothing, agriculture), as well as national AGOA brochures relating to Botswana, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Mauritius, Namibia, Nigeria, South Africa and Tanzania.

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