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African Continental Free Trade Agreement: Red tape delays start of trading under new pact

Daily Maverick | 14 January 2021

African Continental Free Trade Agreement: Red tape delays start of trading under new pact

By Peter Fabricius

Trading under the African Continental Free Trade Agreement (AfCFTA), the ambitious continent-wide free trade agreement which has been signed by 54 of Africa’s 55 states officially began on January 1. But Pretoria says no goods have yet been exported or imported under its zero or reduced import tariffs.

That is because all the necessary red tape has not yet been cleared away by all member states.

There has been some confusion about this, with official indications that South Africa, Egypt and Ghana had begun trading. But it turns out that while these countries have put in place the necessary customs procedures to start trading, they have not cleared other bureaucratic obstacles to do so.

Ambassador Xavier Carim, deputy director-general for international trade negotiations in South Africa’s Department of Trade, Industry and Competition, confirmed to Daily Maverick that South Africa and Egypt had not yet begun trading under the AfCFTA.

He said this was because Botswana had not yet ratified the AfCFTA and because Egypt was still finalising its revised tariff reduction offers. South Africa and Botswana, plus Namibia, Eswatini and Lesotho are members of the Southern African Customs Union (SACU), which will trade in the AfCFTA as a single bloc.

This means in effect that all SACU members need to ratify the AfCFTA before any of its members can start trading under it.

Carim said that South Africa had hoped that Botswana would ratify the agreement in December to enable trading to start on January 1. But it had not done so. He expected it would do soon, especially as that did not require parliamentary approval.

However, Carim said he did not know when trading between SACU and Egypt would start because it was not clear when Egypt would submit its new tariff reduction offer.

He noted that other customs unions such as the East African Community and the Economic Community of West African States (Ecowas) were facing the same problem, as in each one some member states had not yet ratified the AfCFTA.

So no trading under the AfCFTA terms had begun on January 1, he said. It remained a historic date, nonetheless, because any country or customs union that met three basic conditions could have started trading then and could do so now.

The preconditions for any country or customs union to begin trading were for it to ratify the agreement; to make an offer to start reducing import tariffs to zero on at least 81% of tariff lines over five years – where the rules of origin had been agreed; and to pass domestic legislation to enable customs authorities to allow imports into the country at the new tariff rates.

Carim noted that participating countries had originally agreed to eliminate tariffs on 90% of goods, but had only managed to agree last year on rules of origin for about 81% of tariff lines. So they agreed to begin trading on this 81% on January 1 and to negotiate the remaining rules of origin by June this year.

Rules of origin are critical to free trade deals as they determine how much of a product must be made within the free trade area, for it to qualify for tariff-free movement within the area.

Carim also clarified the position around reimbursing traders for trade that had taken place since January 1 this year but where customs procedures had not yet been put in place to apply the new zero or reduced AfCFTA tariffs.

AfCFTA Secretary-General Wamkele Mene had said this week that African trade ministers had agreed last year that the 34 countries that had ratified the AfCFTA would retrospectively credit importers if they had to pay the higher pre-AFCTA import tariffs from January 1.

Carim said South Africa was prepared to do this but the measure would only apply reciprocally – ie, if trading partners had the requisite legislation and agreed to it. Some countries had expressed concern that if they put in place new customs procedures only in June, for example, they would have to backdate reimbursements six months and this could have negative fiscal implications.

Carim said that this year participating countries would work towards increasing the tariff reductions, from the present 81% of tariff lines to 90%. Also, the remaining countries would need to ratify the AfCFTA.

 source: Daily Maverick