The 55 members of the African Union embarked on an ambitious project to create a single African Continental Free Trade Area (ACFTA). The primary objective is to create a single market. The European Union is a good example of a territory with a single market were there is free movement of goods and services. In the case of the EU, there is also the free movement of people, an objective of this agreement which may be more difficult to realise.
South Africa is party to CFTA which is set to potentially become the biggest free trade area in the world, in terms of membership. The agreement will cover a market of approximately 1.2 billion people and a gross domestic product (GDP) of over $3 trillion.
What has been signed so far?
The Agreement establishing the ACFTA was signed on 21 March 2018 in Kigali. Its important to understand what was signed as some media reports created the impression that the signing of the Agreement means trade under the ACFTA regime is now taking place or will take place soon. This is far from the truth.
The Agreement signed on 21 March is simply the “umbrella” agreement. The heart of the ACFTA or any Free Trade Agreement for that matter, is the duty treatment of different products across a vast number of tariff lines and the Rules of Origin (RoO). RoO are used to determine how much value needs to be added to a raw material in order for the origin to change. So if steel is imported from China into Kenya, how much value must be added to the steel for the origin to change from Chinese to Kenyan. This becomes incredibly important if Kenya has duty-free access to SA, whilst China retains a duty of 10%.
Negotiations around this area have not yet commenced. Member governments will need to consult with their industries and relevant stakeholders on which products will be liberalised under the trade regime. Negotiations on RoO are at very early stages.
What is the aim of the ACFTA?
Although the ACFTA has a number of objectives, its primary aim is to create a single liberalised African market for goods and services. This is of course something similar to that of the European Union.
In the long term the Agreement may assist in resolving the historical anomaly in which Africa trades less with itself and trades more with the rest of the world. This is one of the lingering effects of colonialism.
What will be covered in the ACFTA?
The ACFTA is an extensive agreement and will not only cover trade in goods but will also cover trade in services. Moreover, apart from this it will cover competition policy, intellectual property rights and investment facilitation.
How will the negotiations unfold?
Trade negotiations are complex and time consuming because of conflicting interests. The challenge maybe even greater in this case given the number of countries involved. Now that the tariff line negotiations in the Tripartite Free Trade Area are at an advanced stage, attention is shifting to the ACFTA. In fact there appears to be political will and pressure for the negotiations to gain traction. Given that the ACFTA encompasses the whole of the Tripartite region, it is also quite possible that the Tripartite agreements ends up being subsumed into the bigger ACFTA, rather than being implemented separately.
Nevertheless, the above mentioned issues that will be covered will not all be negotiated at once. The first phase will be the negotiation of duty eliminations or reductions and RoO.
The second phase will cover competition policy, intellectual property rights and investment facilitation. The ACFTA will come into force when it has been ratified by 22 Member States.
Importance of understanding how your products of interest will be treated
Trade agreements are by nature a product of negotiations and many rounds of negotiations can be expected. However, an obvious benefit that will flow from the negotiations is the elimination or reduction of import duties across the 55 countries. Sensitive products will certainly be excluded for duty elimination or reductions.
It is vital that local manufacturers be aware of, provide input and closely monitor the ACFTA tariff negotiations as they unfold to ensure that duty protection that may currently be in place on imports from competitive manufacturers from elsewhere in Africa is not lost.
At the same time lobbying for removal of duties in African export markets of interest is vital as this is a huge opportunity to access new markets. But here we run into the very common South African participation apathy. These agreements can be of tremendous value (and pose risks), but very little value is realised for companies and industries which do not participate actively in the process. The biggest losers in trade agreements are almost always the silent.
If you want to know more about how we can assist you to utilise trade agreements or lobby for duty positions you desire, send an e-mail to email@example.com.