10 May 2018

Africa's Free Trade Agreement Hinges On Commitment and Implementation

Photo: Capital FM
Traders of Africa.

Forty-four African countries recently signed a framework protocol for the African Continental Free Trade Area (AfCFTA), inching the continent closer to becoming one of the world's largest free trade areas.

In Kigali, Rwanda, where the framework protocol was signed last March, African leaders were in an upbeat mood. If - or when - all 55 African countries ratify the free trade area, it would amount to over $4 trillion in combined consumer and business spending and a market size of 1.2 billion people.

Signing the framework protocol does not straight-away establish a free trade area. Countries have yet to finalize negotiations on protocols on Trade in Goods and Services, Intellectual Property Rights and Investment and Competition.

The free trade area can only take effect when all protocols are finalized and ratified by at least 22 countries.

The framework itself states that participating countries will need to remove tariffs on 90% of goods they produce by 2022 and eliminate non-tariff barriers to trade, such as long customs delays at the borders, import quotas, subsidies, regulatory bottlenecks and so on.

In the short term, countries can protect or impose tariffs on 10% of goods deemed "sensitive items," but such protections will be removed in the future.

Removing import duties could potentially boost intra-African trade by over 50% while a reduction in non-tariff barriers will double trade volumes, notes the Economic Commission for Africa (ECA).

Intra-African trade is currently only 16%, compared with 19% intra-regional trade in Latin America, 51% in Asia, 54% in North America and 70% in Europe.

"As well as boost GDP and trade figures, this [the African Continental Free Trade Area], in a very practical sense, helps to create jobs for Africa's bulging youth population," says Vera Songwe, ECA's executive secretary, in an interview with Africa Renewal.

Ms. Songwe adds that, "This is because the types of exports that would gain most are those that are labour-intensive, like manufacturing and agro-processing, rather than the capital-intensive fuels and minerals, which Africa tends to export."

She maintains that a free trade agreement could help "diversify Africa's exports, which in turn reduces the volatility of Africa's economies and leads to more sustainable economic growth." In other words, the agreement could decrease Africa's dependence on extractive commodities such as oil and minerals, whose prices often fluctuate in the international market.

Between 2012 and 2014, over 75% of the continent's exports were extractives; yet, less than 40% of intra-African trade were extractives during the same period, according to the African Union (AU), underscoring the need to boost trade within the continent.

The AU's commissioner for trade and industry, Albert Muchanga, tells Africa Renewal that Africa's free trade area agreement will not be a traditional trade agreement that focuses on reducing tariffs. Instead, the Kigali agreement will aim to liberalise the services sector.

"This is crucial as services constitute roughly 60% of Africa's GDP and in 2014, for example, services accounted for 30% of world trade... . domestic services markets are to be opened for service suppliers from other African countries," says Mr. Muchanga.

Businesses frustrated by trade barriers could take advantage of a "non-tariff barrier mechanism" in the agreement to report and demand solutions to trading problems, explains Mr. Muchanga.

Notwithstanding its historic significance, more work must be done before countries can benefit from a free trade area. Countries committing to the agreement are expected to submit by next year their schedules of concessions for trade in goods and services. The schedules of concessions outline the products and services that countries will cease to tax.

Countries must also provide information on the "rules of origin" to ensure that products are produced exclusively in Africa.

Ms. Songwe says that, "The tremendous show of political commitment at the March Summit helps fuel optimism in a speedy process, ideally within the space of a year."

To ensure effective implementation, the AU will establish an AfCFTA Secretariat, which will consist of an African business council, a trade observatory and a dispute settlement body.

The free trade area will not unravel the "good work" of Africa's regional economic communities, including in facilitating regional trade liberalisation and integration in Africa, assures Ms. Songwe. Instead, it will allow for regional economic blocs with high-levels of integration to maintain such levels.

Trudi Hartzenberg, the executive director of Trade Law Centre, a South Africa-based think tank, tells Africa Renewal that while the free-trade zone could significantly enhance competitiveness and foster intra-African trade, it also requires "strong leadership and technical capacity to assist member states in the negotiations that lie ahead... . We are also witnessing strong streams of protectionism in the global economy."

Africa does not need to embrace protectionism (taxing imports as a strategy to shield domestic industries from foreign competition), advises Mr. Hartzenberg. "It may be tempting to retreat behind protective barriers, but there is ample evidence that this is not conducive to economic growth, especially for small economies. And by global standards Africa's economies are small, and the continent is fragmented."

Yet 11 countries, including economic giants Nigeria and South Africa, did not sign the framework protocol in Kigali, although both countries indicated they are likely to join the bandwagon after further consultations with domestic stakeholders.

The Manufacturers Association of Nigeria (MAN) praised the Nigerian government for not signing the framework protocol because, it claims, the proposed agreement is vague on market access and enforcement of rules of origin.

MAN's president Frank Jacobs told the Nigerian press that the country's private sector was not consulted on AfCFTA, and warned that the agreement could kill Nigerian industries and stoke unemployment. He said the government must explain its plan to protect 10% of products and to enforce the "rules of origin" provision.

Despite MAN's concerns, Ms. Songwe insists the agreement has in-built protections for vulnerable sectors. "The agreement also explicitly recognises and provides for special protections for any threatened infant industries as well as for essential security interests or circumstances of critical balance of payments difficulties," she explains.

The strongest protections are in the form of "trade remedies," one of which is that countries can apply anti-dumping duties on imports priced at below fair market value to offset the effect of duties on unfairly subsidized imports.

Nigeria's former President Olusegun Obasanjo told the media in Kigali that, "This [AfCFTA] is where our salvation lies: trading amongst ourselves and consequently developing our economies. The agreement will inspire a change in perception of the continent by the rest of the world."

Ms. Hartzenberg expects some of the 11 holdout countries to sign the agreement at the next AU Summit, in June 2018. She advises countries to "Subscribe to rules-based governance. They must implement their commitments consistently, and if they don't, there should be consequences for those countries. This means that dispute resolution is an essential part of a rules-based AfCFTA."

Africa is building bridges at a time that protectionism and anti-globalism is rising in other parts of the world, posits Ms. Hartzenberg.

The 44 countries that signed the AfCFTA

Angola, Algeria, Benin, Burkina Faso, Cameroon, Cape Verde, Central Africa Republic, Chad, Comoros, Congo, Cote d'Ivoire, Democratic Republic of Congo, Djibouti, Egypt, Ethiopia, Equatorial Guinea, Gambia, Gabon, Ghana, Guinea, Kenya, Liberia, Libya, Madagascar, Malawi, Mali, Mauritius, Mauritania, Mozambique, Morocco, Niger, Rwanda, Saharawi, Sao Tome and Principe, Senegal, Seychelles, Somalia, South Sudan, Sudan, Swaziland, Togo, Tunisia, Uganda, Zimbabwe.

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