Tralac | 16 April 2021
Regional Economic Communities and the AfCFTA investment protocol
By Gerhard Erasmus
The legal regimes of the eight Regional Economic Communities (RECs) recognised by the AfCFTA Agreement as building blocks of the African Continental Free Trade Area will not disappear when the AfCFTA is implemented. These arrangements are founded on legal instruments for the promotion of their own integration agendas. Investment regulation and facilitation in Africa will, to the extent provided for, also be governed by the relevant REC arrangements. Investment may, in addition, also be governed by the national legislation (regarding matters such as incorporation and regulation) of the member states of the RECS. This is and will be the case where REC instruments allow for cooperation on investment among the relevant Member States.
The RECs are at different levels of integration. It means that an assessment of the regional legal regime of each such REC needs to be made in order to form a final picture of how and by what legal instruments Foreign Direct Investment (FDI) will be governed in specific configurations. An investment in a particular industry or economic sector in for example a State which is a member of the Southern African Development Community (SADC), will fall under the jurisdiction of the SADC Finance and Investment Protocol (FIP). Since the FIP is a decentralised and cooperation arrangement, the laws of the SADC Member States will also enter the equation.
The effect of overlapping membership must also be considered. Most African States belong to more than one REC or regional trade arrangement. To use another example: Several members of the East African Community (EAC) are members of the Common Market for Eastern and Southern Africa (COMESA). Overlapping membership may increase the number of potentially relevant investment regimes. One would assume that these complications will be tackled and tidied up at some future point when the jurisdictional issues pertaining to the advancement of the goals of the AfCFTA will have to be be clarified. One of the general objectives of the AfCFTA is to “resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes”.
The jurisdictional implications of each investment choice need to be analysed. This will have to take note of ongoing and future developments. The AfCFTA Protocol on Trade in Services for example provides that “... two or more State Parties may conduct negotiations and agree to liberalise trade in services for specific sectors or sub-sectors in accordance with the objectives in this Protocol. Other State Parties shall be afforded opportunity to negotiate the preferences granted therein on a reciprocal basis”.
Investors incorporated in a particular REC member state would obviously want to use the wider market access opportunities made possible as a result of the integration agendas of the RECs as well as the AfCFTA, once fully operational. One of the AfCFTA’s potential benefits is the fact that all the AfCFTA State Parties will eventually belong to a continent-wide regime for trade in goods and services, as well as cooperation in investment, competition, intellectual property rights and other disciplines (e.g., e-commerce) to be added in a third and subsequent phases of AfCFTA negotiations. However, even in these relationships there will be layers of investment regimes stemming from agreements with third parties and from national laws. The AfCFTA is a member-driven arrangement in which the State Parties will retain the right and flexibility “... to regulate within their territories ... to achieve legitimate policy objectives in areas including public health, safety, environment, public morals and the promotion and protection of cultural diversity”.
The implementation of the goals of the AfCFTA will be a complex process and will take time. The AfCFTA is a framework for advancing continental integration incrementally. The objectives behind the AfCFTA are, amongst other things, “to establish and maintain an institutional framework for the implementation and administration of the AfCFTA” and to “create a liberalised market for goods and services through successive rounds of negotiations”. The AfCFTA’s Protocol on Trade in Services confirms that the objective is a particular one, namely to “promote and enhance common understanding and cooperation in trade in services amongst State Parties in order to improve the capacity, efficiency and competitiveness of their services markets”.
Economic integration through the structures of the AfCFTA and of the RECs will continue as dynamic developments shaped by particular histories, needs and achievements. The challenge will be to ensure their convergence. This will require a well-designed plan of action, because the AfCFTA instruments allow different layers and levels of economic integration to continue. Article 8(2) of the Protocol on Trade in Goods for example provides that “State Parties that are members of other RECs, which have attained among themselves higher levels of elimination of customs duties and trade barriers than those provided for in this Protocol, shall maintain, and where possible improve upon, those higher levels of trade liberalisation among themselves.
And trade with the rest of the world and with each other will continue. In the Protocol on Trade in Services it is, for example, stated that “[no]thing in this Protocol shall prevent a State Party from entering into a new preferential agreement with a Third Party, in accordance with Article V of the GATS provided such agreements do not impede or frustrate the objectives of this Protocol. Such preferential treatment shall be extended to all State Parties on a reciprocal and non-discriminatory basis”.
New trade and investment agreements with third parties (Kenya has e.g., announced that it will negotiate such agreements with the United States and the United Kingdom) will introduce a whole new challenge to ensure jurisdictional clarity and effective implementation. In some ways the AfCFTA, despite aimed at promoting continental integration, will complicate matters. This is not a design flaw; it is a consequence of global integration and national sovereignty.