by Fabien Lanteri-Massa
With the ratification by 22 African states, the African Continental Free Trade Area agreement (AfCFTA Agreement) came into force on May 30, 2019 to establish the African Continental Free Trade Area (AfCFTA). Having met its minimum threshold of 22 ratifying states, the AfCFTA Agreement can now be implemented to allow the trade of goods and services with virtually no restraints. The AfCFTA Agreement counts 30 other signatories who have yet to ratify it, bringing the total to 52 member states out of a total of 55 African states.
On March 21, 2018, in Kigali, 44 African states signed an agreement to establish the AfCFTA. Now in force, the AfCFTA Agreement is considered the largest free trade agreement since the World Trade Organization was created and constitutes a prime example of the continent’s current trend towards economic integration. Indeed, if all 55 African states ratify the AfCFTA Agreement, it would cover 1.2 billion people with combined economies of over US$2.5-trillion.
The AfCFTA Agreement has numerous objectives. It seeks to create a single liberalized African market for goods and services facilitated by the movement of capital and persons that will increase intra-African trade by removing trade barriers, such as tariffs and importation quotas. Moreover, it aims to establish a Continental Customs Union, promote industrial development and enhance the competitiveness of the economies of state parties within the continent and the global markets. To fulfill its ambitions, the AfCFTA Agreement requires that 90 per cent of tariffs be removed by 2024 while the remaining 10 per cent of tariffs on certain “sensitive” goods and services be phased out gradually until 2029. It is estimated that intra-African trade will increase by more than 50 per cent or approximately US$35-billion by 2022 as a result of this shift in continental economic policy. In turn, this would bring an estimated US$3.6-billion in welfare gains for African states through a boost of production and the availability of more affordable goods.
To date, the AfCFTA Agreement contains three protocols:
The protocol on trade in goods
The protocol on trade in services
The protocol on rules and procedures on the settlement of disputes.
The protocol on trade in goods sets out the state members’ general obligations regarding the most-favoured nation principle, which prevents members from discriminating between each other’s goods, and the national treatment principle, which prevents members from discriminating between domestically produced and imported goods. It also establishes the progressive elimination of tariffs and trade remedies such as anti-dumping, countervailing and safeguarding measures.
The protocol on trade in services sets members’ obligations for a continental mutual recognition of domestic standards, thus regulating trade in services, monopolies and exclusive service suppliers.
The protocol on rules and procedures on the settlement of disputes establishes the Dispute Settlement Body, its procedures, powers and authority to establish dispute settlement panels and an appellate body.
The AfCFTA Agreement does not automatically replace other regional trade agreements across the continent, such as the agreements establishing ECOWAS (the Economic Community of West African States) in West Africa, EAC (the East African Community) in East Africa, SADC (the Southern African Development Community) in Southern Africa or COMESA (the Common Market for Eastern and Southern Africa) in East and Southern Africa.
The AfCFTA Agreement will prevail over such regional agreements only to the extent of a specific inconsistency. Moreover, if member states have attained among themselves higher levels of regional integration than under the AfCFTA Agreement, they can maintain those levels of integration among themselves, as this would be in line with the AfCFTA Agreement’s overall ambition.
Now that the AfCFTA Agreement is in force, member states will launch the operational phase of the agreement at the Extra-Ordinary Heads of State and Government Summit in Niger on July 7, 2019. During this phase, member states will be required to remove tariffs and liberalize trade in services by January 2020, enter phase II negotiations in the areas of intellectual property rights, investment and competition policy, and establish a mechanism for dispute settlement. Phase II protocols require their own instruments of ratification and negotiations aim to be finalized by June 2020.
Although the implementation of the AfCFTA Agreement is likely to enhance intra-African trade and help member states to increase their industrial capabilities, there are still many milestones to be achieved. More than half of the African states have yet to ratify the AfCFTA Agreement and many key protocols are still being negotiated.
We will continue to monitor in the coming months any developments regarding the ambitious AfCFTA Agreement.
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© 2019 Blake, Cassels & Graydon LLP.