The African Continental Free Trade Area Gets Off to a Rocky Start

The African Continental Free Trade Area Gets Off to a Rocky Start

Saturday, March 24, 2018 5:00 pm

African Union

By Muktar Usman-Janguza

Fifty African leaders gathered at a five-day 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 that this mega trade pact will boost intra-African trade and catalyse industrialisation.

“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” said Moussa Faki Mahamat, Chairperson of the AU Commission, during the opening of the signing ceremony.

A 2012 study by experts from the UN Economic Commission for Africa estimates that the AfCFTA could lead to a more than 50 percent increase in intra-African trade flows by 2022. 

The low level of intra-regional trade notwithstanding, African countries trade more value-added products between themselves than with the rest of the world. In 2014, manufactured products represented about 15 percent of African exports to the rest of the world, compared with 42 percent of intra-African exports. 

In this context, by strengthening intra-African trade, the AfCFTA could play a significant role in diversifying African economies as well as catalysing the development of regional value chains. 

With the legal framework of the AfCFTA now agreed, the next step will be translating this into reality on the ground. This includes defining members’ “schedules of commitments” – i.e. the concessions they will offer to other AfCFTA members – for both goods and services and the preparation of product-specific rules of origin. 

If fully implemented, the AfCFTA, potentially comprising the 55 states of the AU, will constitute the world’s largest free trade area in terms of membership. It will span a market with a total population exceeding one billion people and a combined GDP of more than US$3.4 trillion. 

The summit was marked, however, by the fact that two of the continent’s largest economies – Nigeria and South Africa – were among the six countries that did not sign the AfCFTA, although for different reasons. 

Where we are
When negotiations for the AfCFTApicked up pace in June 2015, due in large part to the leadership of Nigeria’s Chief Negotiator Chiedu Osakwe – an effort saw him chosen as the Chairman of the Negotiating Forum of the AfCFTA – the initial objective was to have an agreement covering trade in goods and services by the end of 2017. Eight meetings of the AfCFTA Negotiating Forum (AfCFTA-NF) were held between June 2015 and December 2017 with this target in mind. 

Although significant progress was madeby the end of 2017, this deadline was missed. Trade in goods remained a bone of contention.

After talks resumed last month, African negotiators made significant efforts to resolve outstanding issues. 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.

African heads of states and government and ministers present in Kigali also signed the “Kigali Declaration” pledging support to the AfCFTA, which had 43 signatories, as well as a protocol on the free movement of persons, with 27 signatories.

South Africa, notably, only signed the Kigali Declaration. Critics of Nigeria’s no-show also feel Abuja should have, at least, similarly signed the Kigali Declaration given the leadership role the country played in driving the AfCFTA process.

Before the AfCFTA can become operational, however, one important remaining step lies ahead in the submission by member states of their respective schedules of commitments for both goods and services. This process is expected to involve extensive negotiations between countries say trade experts. 

Members are also expected to prepare a list of product-specific rules of origin whichwill determine the origin of products traded across borders, and thus whether they qualify for preferential treatment under the AfCFTA. This is also expected to be a divisive and contentious process.

On trade in goods, AfCFTA members agreed last June to liberalise 90 percent of tariff lines, while retaining the flexibility to classify the remaining 10 percent as “sensitive” products with longer liberalisation periods, or as “excluded” products all together.

A key factor will be how countries apply this rule in defining their market access commitments, as this could have a substantial impact on the AfCFTA. ”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, AfCFTA members have chosen a “positive list” approach and are expected to identify nine priority sectors to be liberalised. Under a positive list, countries will listthe sectors they wish to liberalise.

Stumbling Blocks
Wary of the potential impacts of the AfCFTANigeria’s national economy and industrial take-off,President Muhammadu Buhari pulled out from signing the agreement and has initiated additional consultations with various stakeholders. 

This development came as a surprise to observers, as Nigeria’s Cabinet had a few days prior approved the signing of the AfCFTA and had greenlighted Nigeria’s negotiators expressing an interest in hosting the AfCFTA Secretariat. 

Powerful domestic interest groups, including the Manufacturers Association of Nigeria and the Nigerian Labour congress, to fully assess and widely consult on the economic and security impact of the AfCFTA. Proponents of the AfCFTA, however, have argued that the agreement includes safeguards, such as the dispute resolution mechanism and the flexibility of excluding 10 percent of tariff lines, that would allow Nigerian industries and manufacturers sufficient space to strengthen their competitiveness.

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, though this was due to its domestic constitutional requirements which requires a national consultation process prior to the signing of international treaties.

Attention now turns to the 11th Meeting of the AfCFTA-NF will take place in early May. By then, it will become clearer whether President Buhari’s decision was a suspension, as the government insists, or is a withdrawal, as supporters of the AfCFTA fear.

Muktar Usman-Janguza is a Geopolitical Analyst.
Twitter: @JanguzaArewa

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