Agreement Establishing African Continental Free Trade Area Goes into Effect

What is the African Continental Free Trade Area?

The African Continental Free Trade Area (AfCFTA) is a free trade area currently composed of 54 of the 55 African Union (AU) member states. It is the foundation of a single market for goods and services among the participating countries. The AfCFTA is the largest free trade area established since the founding of the World Trade Organization (WTO) in 1994. It will create a market of over 1 billion people with a gross domestic product (GDP) of more than US$3 trillion and has the potential to increase intra-African trade by 53 percent through the reduction of tariff and non-tariff trade barriers.

AfCFTA States Parties gradually will eliminate tariff and non-tariff barriers (NTBs) to trade, liberalize trade in services, cooperate on intellectual property rights, investment, competition policy, and customs and trade-related matters, and fulfill the other objectives of the agreement.

Development of the AfCFTA

AU member states began negotiating the establishment of the AfCFTA in 2015 in order to promote intra-African trade and deepen regional economic integration.

After 10 rounds of Phase I negotiations, the Agreement Establishing the AfCFTA, its Protocol on Trade in Goods and its annexes, Protocol on Trade in Services, and Protocol on Rules and Procedures on the Settlement of Disputes and its annexes were opened for signature on March 21, 2018. The agreement entered into force on May 30, 2019, 30 days after the requisite 22 instruments of ratification were deposited at AU headquarters in Addis Ababa, Ethiopia.

Fifty-four of the 55 AU member states have signed the agreement. Twenty-seven of the signatories are “States Parties,” meaning they have ratified or acceded to the agreement and it is now in effect for them. The only non-signatory is Eritrea, which is considered a “Third Party.”

Framework of the AfCFTA Agreement

The AfCFTA agreement establishes the AfCFTA institutional framework, requires States Parties to provide each other with most-favored nation (MFN) status with respect to trade terms, and creates a dispute settlement system.

Several protocols supplement the agreement. They contain the detailed technical and institutional provisions that will enable the participating countries to implement the AfCFTA agreement.

The Protocol on Trade in Goods includes the rules and procedures concerning import and export duties, tariff concessions, quantitative restrictions, customs cooperation, trade facilitation, trade remedies, and product standards. It also establishes exceptions to the agreement by allowing member states to impose tariffs and non-tariff barriers when dealing with goods that could affect public health and safety, security, and balance of payments. This protocol contains nine annexes:

• Annex 1: Schedules of Tariff Concessions – still under discussion;

• Annex 2: Rules of Origin – distinguishes between “wholly obtained products” (produced completely in a State Party), “sufficiently worked or processed products” (which are “not wholly obtained” – or produced completely in a member state – but fulfill criteria to be considered originating), and “working or processing not conferring origin” (not considered to have originated in a State Party and thus not subject to preferential treatment under the AfCFTA agreement);

• Annex 3: Customs Cooperation and Mutual Administrative Assistance – addresses topics such as harmonization of customs tariff nomenclatures, valuation, harmonization and simplification of customs procedures, information exchanges, and communication of customs information;

• Annex 4: Trade Facilitation – requires member states to publish information on the Internet to facilitate trade and addresses advance rulings, pre-arrival processing, electronic payment, risk management, post-clearance audit, authorized operators, single window systems, and other trade facilitation measures;

• Annex 5: Non-Tariff Barriers – establishes categories of NTBs and mechanisms for identifying, reporting, resolving, monitoring, and eliminating NTBs;

• Annex 6: Technical Barriers to Trade – provides for member state cooperation and transparency in goods standardization, technical regulations, conformity assessment, accreditation, and metrology;

• Annex 7: Sanitary and Phytosanitary Measures – establishes risk assessment procedures to enable authorities to determine the appropriate level of sanitary and phytosanitary protections; provides for import and export inspections and fees, among other elements;

• Annex 8: Transit – requires States Parties to grant transit traffic freedom to goods traveling between States Parties, from Third Parties to a State Party, from a State Party to a Third Party, or between Third Parties; establishes the AfCFTA Transit Document, which provides for transit procedures and conditions for the exemption of transit goods from customs examination; and

• Annex 9: Trade Remedies – includes measures for the application of anti-dumping, countervailing, and safeguard measures, notifications, and investigations of violations.

The Protocol on Trade in Services applies the MFN principle to trade in services and outlines other obligations for States Parties, such as transparency in relevant areas, application of mutual recognition in a non-discriminatory manner, and limits on monopolies and exclusive service suppliers.

The Protocol on Rules and Procedures on the Settlement of Disputes creates a formal dispute settlement process and provides for dispute settlement mechanisms such as good offices, conciliation, and mediation.

Implementation

Signatories must negotiate certain elements in order to operationalize the AfCFTA.

Phase I negotiations, which began in June 2015, focus on liberalization of trade in goods and services. Outstanding areas include:

• Schedules of tariff concessions: Signatories are discussing which 10 percent of their imports will be subject to tariffs and which 90 percent will be exempt. Signatories that are not considered to be least-developed countries (LDCs) will remove tariffs on 90 percent of imports (“non-sensitive products”) within 5 years. The majority of LDCs will remove them over 10 years. Of the 10 percent of goods subject to tariffs, each signatory is to select 7 percent of tariff lines as “sensitive products,” which will be liberalized over 10 years for non-LDCs and 13 years for LDCs. Each signatory will designate 3 percent of tariff lines as “excluded products,” which will remain subject to member states’ existing tariffs. This “10 percent rule” is meant to enable members to protect their most valuable and emerging industries from competition. These decisions are anticipated to be submitted for adoption by January 2020.

• Rules of origin: Member states still must agree on rules of origin for certain sectors, such as automotive and textiles, in order to determine which goods qualify for preferential treatment.

• Schedules of specific commitments in services: States Parties have identified business, communications, financial, tourism, and transport services as priority sectors and are negotiating specific offers in each of these areas. AU member states agreed to submit their offers by January 2020.

In February 2019, signatories began negotiations on Phase II or “behind-the-border” issues (trade barriers not occurring at the border). These are the Protocols on Investment, Intellectual Property Rights, and Competition Policy. Signatories are to conclude Phase II negotiations and submit draft legal texts for these protocols by January 2021.

On July 7, 2019, AU officials launched the “operational phase” of the AfCFTA agreement. Officials agreed to rules of origin in selected sectors. Moreover, they initiated an online portal for negotiating tariff concessions; an online mechanism for monitoring, reporting, and eliminating NTBs; the digital Pan-African Payment and Settlement System (PAPSS), which will facilitate the payment of goods and services in local currencies; and the AU Trade Observatory, which is an online repository for and analysis of African trade data. These five instruments are necessary to begin and facilitate preferential trading of goods and services in the African market. Furthermore, AU members identified Accra, Ghana, as the site of the AfCFTA secretariat.

AU heads of state selected July 1, 2020, as the starting date to trade under AfCFTA preferential treatment. Preferential trading can begin once outstanding Phase I negotiations are complete.

The AfCFTA will impact significantly the laws, regulations, procedures, and practices of AU member states. Traders in Africa should monitor developments closely, while traders in non-member states should maintain awareness of AfCFTA advancements if they trade with States Parties to the agreement. SECURUS will continue to provide traders with up-to-date information on AfCFTA developments.

Authors: Emily Holub, Emily.Holub@SECURUSTrade.com, and Natalia Zamora, Natalia.Zamora@SECURUSTrade.com, July 2019