African Leaders Launch Continental Free Trade Area
African leaders gathered at an extraordinary summit of the African Union (AU) in Kigali, Rwanda, on Wednesday 21 March to launch the African Continental Free Trade Area (AfCFTA), with high hopes across the continent that this mega trade pact will boost intra-African commerce and lead to important development gains.
The five-day summit, which saw a series of meetings in various configurations, culminated in the signing ceremony of the Agreement Establishing the African Continental Free Trade Area (AfCFTA Agreement) by African leaders. This occurred during an Extraordinary Session of the AU’s Assembly of the Heads of State and Government, which was preceded by meetings of the AU’s Permanent Representatives Committee (PRC) and Executive Council, as well as a business forum.
With the legal framework of the AfCFTA now agreed, African countries will need to tackle the next steps for making the free trade area a reality on the ground. This includes defining members’ schedules of commitments – the concessions they will offer to other AfCFTA members – for both goods and services and the preparation of product-specific rules of origin.
If successfully implemented, the AfCFTA will constitute the world’s largest free trade area in terms of membership, comprising the 55 member states of the African Union. It will span a market with a total population exceeding one billion people and a combined GDP of more than US$3.4 trillion, according to the African Union.
“This is a historic pact which has been nearly 40 years in the making, and it represents a major advance for African integration and unity,” said Paul Kagame, President of Rwanda and new Chairperson of the AU, ahead of the summit.
“Our peoples, our business community and our youth, in particular, cannot wait any longer to see the lifting of the barriers that divide our continent, hinder its economic take-off and perpetuate misery, even though Africa is abundantly endowed with wealth,” said Moussa Faki Mahamat, Chairperson of the African Union Commission, during the opening of the signing ceremony.
The summit was marked, however, by the fact that two of the continent’s economic giants, namely Nigeria and South Africa, were among the handful of countries that did not sign the AfCFTA Agreement for the time being, although for different reasons.
State of play
When negotiations towards the establishment of the AfCFTA kicked off in June 2015, the initial objective was to wrap up a first phase covering trade in goods and services by the end of last year. Eight meetings of the African Continental Free Trade Area Negotiating Forum (AfCFTA-NF) were held between June 2015 and December 2017 with this target in mind.
Although AfCFTA members were able to achieve significant progress at the end of 2017, including on the drafting of the agreement itself, the protocol on trade in services, and most parts of the protocol on trade in goods, this indicative deadline could not be met. In particular, sticking points remained in the area of trade in goods. (See Bridges Africa, 8 December 2017)
After talks resumed last month, African negotiators deployed significant efforts to resolve outstanding issues and finalise legal scrubbing ahead of the Kigali summit to allow heads of state and government to sign the legal texts. They also agreed to a Transition and Implementation Work Programme to guide their future work.
On Wednesday in Kigali, 44 African heads of state and government signed the AfCFTA Agreement, including its protocols, annexes, and appendices, which form an integral part of the accord. These legal texts had been approved at the Fifth Meeting of AU Ministers of Trade in early March.
African heads of states and government and ministers present in Kigali also signed the “Kigali Declaration” on the launch of the AfCFTA, which had 43 signatories, as well as a protocol on the free movement of persons that was adopted at the last ordinary session of the AU Assembly, with 27 signatories. (See Bridges Weekly, 8 February 2018)
The AfCFTA Agreement – a copy of which has been seen by Bridges – includes a framework agreement and three fundamental protocols, which relate to trade in goods, trade in services, and dispute settlement, respectively.
Before the agreement can become operational, however, one important remaining step lies ahead in the development and submission by member states – or potentially customs unions in the case of trade in goods – of their respective schedules of commitments for both goods and services. This process is expected to involve substantial negotiations between countries.
“We urge our hardworking chief negotiators to continue these negotiations in the same spirit of solidarity and cooperation that they negotiated the main texts,” declared Hope Tumukunde Gasatura, Chair of the AU’s PRC, in opening the PRC meeting in Kigali on 17 March.
As part of the Transition and Implementation Work Programme, members are also expected to prepare a list of product-specific rules of origin, which along with the general rules of origin will enable countries to apply preferences provided under the AfCFTA. Rules of origin defines the criteria that determine the origin of products traded across borders, and thus whether they qualify for preferential treatment.
Harmonising rules of origin across the various regional economic communities has proven quite divisive among members. The debate has focused on the use of product-specific rules – an approach favoured by countries willing to tailor the design of the rules in relation to a particular sector of economic interest– versus general rules of origin that normally apply to all sectors, irrespective of product.
The protocol on trade in goods contains nine annexes related to rules of origin, customs cooperation and mutual administrative assistance, trade facilitation, non-tariff barriers, technical barriers to trade, sanitary and phytosanitary measures, transit, and trade remedies.
On trade in goods, AfCFTA members agreed last June to liberalise 90 percent of tariff lines, while keeping the flexibility to classify the remaining 10 percent as “sensitive” products with longer liberalisation periods, or as “excluded” products that will keep the same tariff level. (See Bridges Africa, 24 August 2017)
A key factor will be how countries apply these modalities in defining their market access commitments, as this could substantially affect the trade-related impacts.
“On the whole, African trade already comprises relatively few product lines, which means that if the most-traded products are excluded, intra-African trade will suffer, and the entire CFTA will be rendered redundant,” wrote Francis Mangeni, Director of Trade, Customs, and Monetary Affairs at the Common Market for Eastern and Southern Africa (COMESA), in an op-ed published by Project Syndicate.
Regarding trade in services, the dedicated protocol provides that parties “shall undertake successive rounds of negotiations based on the principle of progressive liberalisation accompanied by the development of regulatory cooperation, and sectoral disciplines.”
AfCFTA members have chosen to proceed through a positive list approach and are expected to identify nine priority sectors that will be subject to liberalisation. Under a positive list, countries that are party to a trade deal outline which sectors they wish to liberalise, as opposed to a negative list where all sectors are included unless indicated otherwise. (See Bridges Africa, 8 December 2017)
“The challenge has been that all countries want their important sectors prioritised, and if you prioritise everything you prioritise nothing,” noted a source close to the negotiations in his comments to Bridges.
Integrating Africa for development
Many in the African and global trade and development communities have shown particular enthusiasm about the AfCFTA. The hope is that the agreement will significantly boost intra-African trade, which is very low compared to intra-regional trade in other world regions, and help put the continent’s economies on a path towards structural transformation and robust economic development. (See Bridges Africa’s special issue on the AfCFTA)
The establishment of such a continent-wide free trade area is one of the 12 flagship projects of Agenda 2063, the continent’s own development vision piloted by the African Union.
A 2012 study by experts from the UN Economic Commission for Africa has estimated that the AfCFTA could lead to a 52.3 percent increase in intra-African trade flows by 2022, compared to a baseline scenario without such an agreement.
Despite the currently low level of intra-regional trade on the continent, African countries trade more sophisticated products between themselves than with the rest of the world. In 2014, manufactured products represented 14.8 percent of African exports to the rest of the world, compared with 41.9 percent of intra-African exports.
In this context, various analysts have noted that by strengthening intra-African trade, the AfCFTA could play a significant role in supporting the diversification of African economies away from low-value-added products and commodities as well as the development of regional value chains with considerable upgrading potential.
“The promise of free trade and free movement is prosperity for all Africans, because we are prioritising the production of value-added goods and services that are ‘Made in Africa’,” said Kagame in opening the signing ceremony.
Beyond regional dynamics, proponents hope that the AfCFTA will also help strengthen Africa’s position in global trade. In recent years, many analysts have been putting a growing focus on the potential role of regional value chains in helping African producers to better integrate into global markets.
For the potential economic benefits of the agreement to materialise, however, various observers have noted that African countries will need to show sustained and solid commitment towards its operationalisation.
“There are sometimes political statements of solidarity which are not matched by concrete action,” said UN Conference on Trade and Development (UNCTAD) Secretary-General Mukhisa Kituyi at the summit’s business forum. At a time of “rising protectionism,” African leaders need to “put their back into African integration,” he added.
Another key element for success might lie in adopting adequate accompanying measures, including via the thorough implementation of the AU’s broader Action Plan for Boosting Intra-African Trade (BIAT). This plan is made up of seven priority clusters – trade policy, trade facilitation, productive capacity, trade-related infrastructure, trade finance, trade information, and factor market integration.
“The BIAT Action Plan provides the framework that member states can use to prioritise the policy reforms required to derive the full benefits of the CFTA,” said David Luke, Coordinator of the African Trade Policy Centre at the UN Economic Commission for Africa, and Jamie MacLeod in a piece published last year by Bridges Africa.
Last minute hurdles
Wary of the potential impacts of the AfCFTA with regard to his country’s national economy and industrialisation efforts, Nigerian President Muhammadu Buhari signalled over the weekend that his country would refrain from signing the agreement and will initiate additional consultations with various stakeholders.
This development came as a surprise to observers, as Nigeria’s Federal Executive Council – which is the cabinet of Nigeria – had previously approved the signing of the agreement. The country has also played an active role in the negotiations and expressed interest in hosting the CFTA Secretariat, which will administer and implement the trade agreement.
“We are therefore widening and deepening domestic consultations on the CFTA, to ensure that all concerns are respectfully addressed. Any African free trade agreement must fairly and equitably represent the interest of Nigeria, and indeed, her African brothers and sisters,” said Buhari in a series of tweets.
“Nigeria fully recognises and appreciates the efforts of the African Union Commission so far, regarding the implementation of a sustainable Continental Free Trade Agreement (CFTA) for Africa. We also acknowledge that our continental aspirations must complement our national interests,” he added.
Several business organisations, including the Manufacturers Association of Nigeria, had called upon the government to weigh carefully the competitive pressures that could arise from the implementation of the AfCFTA. Proponents of the AfCFTA have argued, however, that the agreement can include various safeguard mechanisms that would allow Nigeria’s industries and priority sectors sufficient space to strengthen their competitiveness and thrive in a wider context.
South Africa, another major economy involved in the process of establishing the AfCFTA, participated in the summit and signed the Kigali Declaration, while putting on hold the actual signature of the AfCFTA Agreement given its domestic constitutional requirements, which impose a national consultation process to be carried out prior to the signing of international treaties.
According to the Transition and Implementation Work Programme, which sets out a roadmap for the work ahead, the 11th Meeting of the AfCFTA-NF will take place in early May – in parallel with technical working groups – and focus on the “implementation and practical application” of agreed modalities for the negotiations on both trade in goods and trade in services.
AfCFTA members will then participate in a signalling conference on trade in services, as well as a “Workshop on the Schedule of Tariff Concessions and Schedule of Specific Commitments on Trade in Services” during the 12th Meeting of the AfCFTA-NF in late May.
The AfCFTA and related protocols will enter into force 30 days after 22 countries have deposited their instruments of ratification.
“The time is no longer for hesitation. I, therefore, call upon all the Member States to sign and ratify the Free Trade Area Agreement. Our ambition must be to ensure its entry into force before the end of this year,” said Moussa Faki Mahamat at the summit.
The full coverage of AfCFTA is meant to include disciplines on competition policy, investment, and intellectual property rights, a group of issues that will be covered during a second phase of negotiations that are due to begin in August.