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AfCFTA digital trade protocol: Unveiling critical flaws

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Source: UNCTAD / flickr / CC BY-SA 2.0 Deed

9 April 2024

AfCFTA digital trade protocol: Unveiling critical flaws


In the turbulent waters of the digital economy, where technological innovation is outpacing regulatory frameworks, the final draft of the African Continental Free Trade Area (AfCFTA) protocol on digital trade, leaked on 9 February 2024, raises deep concerns.

Scope and concerns

The protocol aims to liberalise electronic commerce and the digital economy in Africa, but the proposed rules would restrict the right of African governments to regulate in the public interest. African states could be taken to a dispute settlement body and found liable if they introduce new laws that restrict the ability of technology corporations to operate in an almost unregulated environment, even in the face of new scientific evidence.

The protocol’s scope extends far beyond intra-African digital trade, sparking fears that more developed countries could exploit its provisions without reciprocal concessions. This expansive reach, including measures such as paperless trade, risks allowing global players to run roughshod over African economies. Large corporations, such as Google, Amazon, Meta, Alibaba and Temu, could emerge as the ultimate winners.

The text also includes clauses previously rebuffed by the United States (US) during World Trade Organisation (WTO) negotiations on e-commerce because they limited its ability to regulate. While US interests arguably differ from those of African policymakers, such provisions could leave African nations vulnerable to uneven playing fields.

In addition, Article 46 of the protocol states that the parties to the AfCFTA "shall, after the adoption of this protocol, develop [several] annexes", including on cross-border data transfers, disclosure of source code and financial technology. However, the protocol does not specify the content of these annexes, even though their content could have a significant impact on the way digital trade is conducted on the continent. The main text of the AfCFTA sets out the procedure for the entry into force of the agreement and the protocols, but does not mention the annexes (Article 23). It is therefore unclear when the annexes will be finalised and whether they will be debated democratically or negotiated behind closed doors, after the entry into force of the protocols.

Undermining the right to regulate

One of the most controversial aspects of the protocol is its severe restrictions on regulatory autonomy, which go beyond even the restrictions of past US free trade agreements. This poses a serious threat to various regulatory frameworks, including those governing crucial sectors such as finance.

African governments, already grappling with labyrinthine regulatory landscapes, face a dilemma. Many existing laws and regulations may be at odds with the protocol, casting doubt on effective governance in various sectors.

One glaring problem lies in Article 4, which deals with the right to regulate. While ostensibly granting this right, the wording of the protocol leaves it open to interpretation, potentially hampering effective regulatory action. For example, the word "legitimate" has been interpreted by WTO dispute panels or arbitration tribunals under trade and investment agreements to mean respect for widely recognised good regulatory practice, which usually excludes political or ethical considerations from government rule-making, and favours corporate interests. The burden of proof is on the defending party to show that it has not imposed "unnecessary" barriers to trade.

The protocol could have included specific carve-outs to effectively protect the right of states to regulate, such as the one found in the digital trade chapter of the New Zealand-European Union trade agreement, which excludes New Zealand’s measures to protect indigenous rights from the scope of the chapter. It would also shift the burden of proof to the claimant. But the aim of the protocol seems to have deliberately excluded robust exceptions, leaving governments at risk of being shackled by opaque legal rules that hamper their ability to protect the public good and pursue appropriate policy objectives.

Prohibiting digital customs duties

Article 6.1 states that the prohibition of tariffs on digital products is subject to the annex on rules of origin, raising concerns about loss of revenue for African countries. Many developing countries still tax imported products at the border through tariffs or duties. This generates revenue to fund government and public services. In 1996, WTO members agreed to a temporary ban on tariffs for electronic transmissions. This ban has been extended every two years. In 2020, this moratorium cost African countries more than US$2 billion in lost revenue. The ambiguity surrounding the inclusion of large digital companies such as Amazon, Netflix or Spotify adds to concerns about the potential loss of revenue that African countries could face as it has become very common to download books, films, music and other content electronically, rather than buy physical copies.

Enabling cross-border data flows

The central focus for technology corporations lies in the realm of data-to-data transactions, where the collection, storage and sale of personal data across borders has become a cornerstone of their business. This data not only shapes individual experiences, but also holds immense value for diverse sectors, including insurance, education and healthcare providers, financial lenders and government agencies. Beyond the individual, however, the true crux of this digital economy is in the colossal datasets and metadata that fuel the algorithms underpinning profiling, targeting and predictive analytics. Article 20 of the AfCFTA digital protocol mandates unrestricted cross-border data flows, a provision that clashes with the existing regulations of many African governments. The protocol also states that a specific annex will further define the rules around data flows, but there is no timeline for its development. While ostensibly promoting digital integration, this part of the protocol poses significant challenges for governments seeking to regulate the digital landscape and protect personal data, raising key questions about privacy, regulation and democratic governance in the digital age.

Restrictions on data localisation

Article 22’s restrictions on data localisation pose a direct challenge to the national interest, privacy and security laws of many African countries. By curtailing the ability of governments to enforce data localisation requirements, the protocol threatens effective regulatory oversight. Tech corporations describe ’forced localisation’ requirements, such as the obligation to use servers located in the countries in which they operate, as ’barriers’ to digital trade. By resisting such requirements, they seek to retain control over where data is stored, often opting for jurisdictions with lax regulations such as the US. However, this stance directly contradicts the data localisation laws enforced by numerous African countries, including Botswana, Kenya, Nigeria and others, which mandate local data storage for a variety of reasons, like security, tax compliance and privacy. These regulations serve broader government interests by enabling effective crisis management, financial regulation and law enforcement.

Intellectual property tensions

The protocol introduces a controversial provision limiting the ability of governments to demand access to source code (Article 24.1). This restriction, which goes beyond what is required by the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, imposes significant intellectual property protections. Non-WTO members, as well as least developed countries in Africa, will be required to comply with this TRIPS+ clause. Yet governments need access to or transfer of source code for various purposes, such as enforcing competition laws, tax regulations, financial oversight, ensuring car safety, regulating gambling activities, facilitating court proceedings, managing government procurement, and enabling technology transfer. That is one of the reasons why it has been criticised by the US, which has withdrawn its support from the WTO negotiations on e-commerce over concerns that it’s stifling regulatory options, particularly in light of advances in artificial intelligence (AI). This divide underlines a wider debate about the balance of power between private entities and regulators.

The dilemma of emerging technologies

Article 34.1 promises to facilitate the adoption of emerging and advanced technologies, but behind the veneer there is a potential minefield of risks. The advent of emerging and advanced technologies has revealed inherent risks and issues, particularly as we face the unknown landscape of future technological advances. However, the broad scope of this agreement fails to distinguish between beneficial innovations and potentially harmful technologies. Recent incidents involving AI, from ChatGPT’s privacy concerns to AI-generated robocalls manipulating public opinion, highlight the dangers. As governments grapple with the implications of the looming uncertainties associated with future innovations, the need for stronger regulation becomes more urgent.

Enforcement challenges

The enforcement mechanisms within the AfCFTA’s dispute settlement protocol raise concerns about the influence of transnational corporations. Past cases have shown how such corporations can subtly shape legal proceedings, raising questions about the integrity of the dispute settlement process. For example, in the past, large corporations have incentivised governments to pursue WTO disputes in their favour. Companies such as Google, Amazon and Meta could potentially fund cases against African governments for failing to comply with the protocol’s provisions that benefit their interests. As the digital trade landscape evolves, navigating the complex interplay between trade agreements, corporate influence and government sovereignty will be critical to protecting the interests of African nations.

Urgent need for wider public debate on the AfCFTA and its adverse impact on Africans

Under the promise that digital trade will bring economic growth and jobs, the AfCFTA digital trade protocol sacrifices safeguards for regulatory sovereignty. Tech corporations appear to be the biggest beneficiaries, raising serious concerns about the need to defend public interests and domestic regulatory autonomy.

The AfCFTA has been negotiated in secrecy since its inception. Very few Africans are aware of its implications, let alone its existence. The digital trade protocol confirms this trend and highlights the urgent need for a wider public debate about the free trade deal and its potentially damaging impact on the lives of Africans. A trade agreement based largely on neoliberal concepts from the North, which have contributed to growing inequalities, social and economic tensions, environmental degradation and climate change, cannot be the answer to the various challenges the continent is facing.