Groundwork for AfCFTA laid by governments, but private sector will drive its success

Trade agreements do not guarantee trade; they are not self-executing and require enormous energy, reform and governance. This, according to Gerhard Erasmus, a Trade Law Centre (Tralac) founder and associate, is why the groundwork surrounding the African Continental Fair Trade Area (AfCFTA) is vital for its implementation and future success. Erasmus was in conversation with Tralac’s executive director Trudi Hartzenberg during a webinar on The start of ‘commercially meaningful trade’ under the AfCFTA — what businesses should know, hosted in partnership with the Mail & Guardian. 

While concerns that the negotiations launched in 2015 about the agreement are taking so long are valid, Erasmus said the delays serve as a reminder that the matters on the agenda are important and complex, and that finding a consensus between 54 countries at very different economic levels is no small feat. At the end of the day, however, governments can only do so much; the private sector will be the engine for success. 

The establishment of the trade area aims to bring together 1.3-billion people in a $3.4-trillion economic bloc — the largest free trade area since the launch of the World Trade Organisation in 1995. The World Bank has estimated that it could lift tens of millions of Africans out of poverty by 2035 by boosting trade among neighbouring states while allowing the continent to develop its own value chains.

Signed in 2018, the AfCFTA was officially — but largely symbolically — launched in January 2021 after a number of delays. “The reality, however, is that trade has not yet begun,” said Hartzenberg. While the Covid-19 pandemic was partly responsible, she said a number of other factors have also played a role. A number of states have come onboard since the AfCFTA officially came into force on 1 January 2021, with a total of 44 countries now having ratified the agreement. Of the 55 African Union nations, only Eritrea has not signed amid ongoing tensions with neighbouring Ethiopia. A further 76 percent of signatories have deposited instruments of ratification. 

She said the most difficult negotiations have proved to be on the two foundational requirements — the minimum requirements — for a free trade area, namely tariff concessions and rules of origin: “The rules of origin are in fact those rules which determine eligibility for the tariff concessions and the tariff preferences that are negotiated in a free trade area. They play a gatekeeper role. If your products comply with the applicable rules of origin, then you will trade under the preferential tariff regime. If not, then by default, you would attract the higher duty under the World Trade Organisation rates that are applicable for the export destination.” 

While the official start date for trade has not yet been announced, Hartzenberg said new developments look promising. “What we see now is an interim arrangement, taking into account that even though we may not have reached the 90% [tariff line] threshold, we will make a start for ‘commercially meaningful trade’ — a term coined by the Council of Ministers Meeting, which took place on the 28th and 29th of January,” she explained. Rules of origin had been reached for 87.7% of tariff lines, and while this falls short of the ambition of achieving 90%, she said it is important to keep the sensitivity of negotiations in mind. 

This sensitivity is fuelled by the fact that many countries on the continent are developing domestic industries and supporting local enterprises. She said the Rules of Origin should be completed by 2022. The trade governance needed to make the AfCFTA a success, both in the interim and in its final phases, will also improve trade relations between Africa and the rest of the world. 

Hartzenberg also noted that there was a lot of global interest and confusion surrounding the AfCFTA and what it will mean for investment, investment location decisions and market access. “When a foreign company establishes a commercial presence in one of the state parties it gets access to all the benefits under the AfCFTA, and that is so important,” she explained. “This means that if domestically incorporated, a foreign corporation would be able to register on [all the relevant] portals.” Erasmus added that those companies could also avail themselves to the benefits of trade arrangements and administrative benefits in other African countries.

Although called a free trade area, the AfCFTA is a comprehensive arrangement, covering trade in goods and services, with protocols for dispute settlements, while also making provision for intellectual property rights and investments. Ongoing negotiations also cover areas like competition policy and digital trade, as well as the protocol on women and youth. 

Regarding dispute settlements, Erasmus emphasised that the AfCFTA will not replace any of the existing trade arrangements on the continent; instead, these will be used as building blocks and the free trade area will serve to advance deeper integrational agendas. This might, however, see the emergence of streams of preferential trade across the continent, both in goods and in services.

Erasmus said trading services are vital for the success of the agreement and the bigger picture achievements: “Only about 16% of the goods that we produce in Africa are destined for other African markets, and that has obvious implications and shows that there is a large opportunity for boosting intra-African trade in goods. Many of the commentators and politicians have started to emphasise that the AfCFTA is actually a framework for industrialisation and development of value chains. Trade in services is so obviously at the centre of this strategy, as 90% of our goods are being transported by road. Therefore services such as transport, communication, and payments are not only important as boosters of trade in services; they are very important in terms of boosting trade in goods and making it possible to trade, particularly in our part of the world.” 

The start dates for trade in goods and trade in services will, however, differ, as the “fairly ambitious” deadline for service negotiations is only in June 2022. Overall, there have been more concerted efforts to engage the private sector in the AfCFTA processes, which, as Erasmus points out, is critical to its success: “At the end of the day, it is the private sector that trades, so this is important the context of the fair trade area and facilitating trade across the continent.”