The African Continental Free Trade Area enters into force

 

 

On May 30 2019 Africa made history as the agreement establishing the African Continental Free Trade Area (AfCFTA) officially entered into force. With 54 out of the 55 member states of the African Union signing the agreement, Africa brought into being the largest trading block since the formation of the World Trade Organisation. The entry into force of the AfCFTA is also marked by the speed at which African countries worked together within a year to establish a regional trading block to promote intra-African trade, following the adoption of the AfCFTA on March 21 2018 in Kigali, Rwanda.

Following the ratification and entry into force of the AfCFTA, five supporting operational instruments were launched during the AU Summit held in Niamey, Niger in July 2019. These instruments are the key tools that will support the launch of the operational phase of the AfCFTA, with start of trading scheduled for July 2020. The occasion also marked the announcement of the Republic of Ghana as the country to host the AfCFTA secretariat.

The operational instruments of the AfCFTA

  1. The Rules of Origin: A regime governing the conditions under which a product or service can be traded duty free across the region.
  2. The Tariff concessions: It has been agreed that there should be 90% tariff liberalisation and the deadline is July 1 2020. Over a 10-year period, with a five-year transition, there will be an additional 7% for “sensitive products” that must be liberalised. This will be supported by the AfCFTA Trade in Goods online portal, where Member States will upload their tariff offers covering 90% of the tariff lines.

The AfCFTA Online Negotiation Tool

This will:

  • Facilitate the negotiations on tariff liberalisation between state parties, customs unions or regional groupings under the AfCFTA;
  • Provide tools to ensure the technical quality of the offers made;
  • Increase transparency while safeguarding confidentiality; and
  • Provide tools for users/negotiating groups to interact.
  • The tool will be accessible to all parties to assist in their negotiations and will be a collaborative platform to exchange the lists of products defined at the tariff line level as well as the tariff that could be applied. The tool will allow each party to: define their own product lists; share lists with selected parties for discussion; comment on shared lists; and suggest counter proposals. 


    In order to facilitate the creation of initial product lists, a module will analyse various factors, among which are: fiscal revenues; employment by sector; production; potential trade; existing tariffs; commitments; and infant industries. Based on this methodology, the tool will automatically suggest product lists as a potential starting point for negotiation, taking into account the tariff-dismantling schedules.

    3. The Continental Online Tool/Mechanism for monitoring, reporting and elimination of Non-tariff Barriers (NTBs): NTBs are a greater hindrance to intra-African Trade than Tariff Barriers. One of the key objectives of the AfCFTA is to progressively eliminate existing NTBs and refrain from introducing new ones in order to enhance and facilitate intra-Africa trade. The continental tool will ensure NTBs are monitored with a view to ensuring that they are eliminated.

    4. The Pan-African Payments and Settlement System (PAPSS): Is a centralised payment and settlement infrastructure for intra-African trade and commerce payments. This project, which is being developed in collaboration with the African Export-Import Bank, Afreximbank, will facilitate payments as well as formalise some of the unrecorded trade due to prevalence of informal cross-border trade in Africa. It will also provide an alternative to current high-cost and lengthy correspondent banking relationships to facilitate trade and other economic activities among African countries through a simple, low-cost and risk-controlled payment clearing and settlement system.

    The benefits of PAPPS for cross-border payments include cost reduction; reduction in duration and time variability; decreasing liquidity requirements of commercial banks; decreasing liquidity requirements of central banks for settlement as well as its own payments; and strengthening central banks’ oversight of cross-border payment systems.

    5. The African Trade Observatory: A trade information portal that will address hindrances to trade in Africa due to lack of information about opportunities, trade statistics as well as information about exporters and importers in countries.

    The lack of up-to-date and reliable trade data and statistics is one of the contributing factors to the low level of official intra-African trade. Instances abound of goods and services, which could have been sourced from other African countries being imported by African countries. According to ITC (2018), more than 40% of African companies identify lack of access to information and absence of inquiry points as factors affecting the business environment across the continent. 

    Where a number of African countries and Regional Economic Communities (RECs) have established trade information portals and systems, several challenges remain such as: outdated information; uniformity of data; absence of data and information on non-tariff measures and informal trade and limited collaboration between various government agencies as well as countries and RECs. 

    The trade observatory will act as a central repository, providing exhaustive qualitative and quantitative trade data and information at the continental level to enable policymakers and the private sector to make evidenced-based policies and business decisions.

    To find out more about Agenda 2063 and AfCFTA visit www.au.int

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