Borderlex | 24 March 2020
The AfCFTA and the European Union : ‘sister continents’ in the decade ahead?
by Françoise Guei
The European Union is investing political capital the African Continental Free Trade Area. What’s the state of play in getting the world’s largest free trade area off the ground? And why does the project matter so much for Europe?
While the international trade community is transfixed by trade tensions and the fallout from the coronavirus, Africa is embarking on the operationalisation of its continental free trade area.
The strong political commitment of 54 African Union member states demonstrated by the signing of the Agreement Establishing the African Continental Free Trade Area comes at a time when multilateralism is under attack by some of leaders of the world’s major economies and bilateral free trade agreements proliferate whilst increasingly being put into question.
Going by the number of participating countries, the AfCFTA is set become the world’s largest free trade area since the formation of the World Trade Organization.
During her second visit to the African Union for a tenth Commission-to-Commission meeting in Addis Ababa last month, Ursula von der Leyen said: “The plan for an Africa continental Free Trade agreement is a major opportunity that can unleash the great potential of the African continent.”
The successful implementation of the AfCTA is not only a concern for the African Union, but also for the EU. It is one of the top priorities in its new EU’s strategic alliance with Africa issued earlier this month.
The EU and Africa are “sister continents” the European Commission’s president also said in Addis Ababa. But beyond ‘sisterhood’, the EU is also Africa’s largest trading partner. The EU has very early recognised the benefits of a single continental market of around 1.3 billion of people at its gates.
The AfCFTA process reached a new stage this month: the South African Wamkele Mene took the oath of office as Secretary General of the AfCFTA Secretariat – the newest African Union institution. This new body will start functioning by 31 March of this year in Accra, Ghana, and will be charge of coordinating the implementation of the treaty.
The AfCFTA’s objectives
The AfCTFA provides a framework for trade liberalisation in goods and services and for deepening levels of integration in investment, competition policy and intellectual property rights.
Its main objectives are to create a single continental market for goods and services – with free movement of business persons and investments – to expand intra-Africa trade across the regional economic communities and the continent in general, to enhance competitiveness and to support economic transformation.
The signing of the AfCFTA on 21 March 2018, in Kigali, Rwanda, was a major historical landmark for Africa. Economists agree that the AfCFTA could represent a game changer for the continent’s economy. About 60 percent of its 1.3 billion people are below the age of 25 years. It boasts a growing middle class. Its estimated combined current GDP is US$2.5 trillion.
The AfCFTA marks a pivotal shift for Africa in terms of accelerating trade, investment and industrialisation within the continent by helping reduce its rising dependency on overseas markets: 80 to 90% of African countries’ exports go to the rest of the world. (UNCTAD, 2019).
The AfCFTA agreement is built as an umbrella instrument comprising protocols which cover trade in goods, trade in services, rules and procedures on the settlement of disputes, investment, competition policy and intellectual property rights.
The first three protocols were the subject of the first phase of the part of the AfCFTA negotiations launched on 15 June 2015 and concluded on 21 March 2018.
The second phase of the negotiations for the three last protocols – investment, competition policy and intellectual property rights including e-commerce – was expected to start in the coming weeks and be completed by June 2021 – although there are expected delays due to the COVID-19 situation.
The AfCFTA parties commit to removing tariffs on 90 percent of goods – to be eliminated within 5 years for non-LDCs and 10 years for least-developed countries. Of the remaining 10 per cent of tariff lines, 7 per cent can be designated as sensitive and benefit from a longer phase-in period; 3 per cent of tariff lines may be excluded from liberalisation.
Signatories also commit to progressively liberalise trade of five priority services sector: transport, tourism, business, financial and communication services. They pledge to address a range of non-tariff barriers that represent a critical obstacle to intra-regional trade.
Negotiations on Phase I are still ongoing on a number of critical technical issues including schedules of tariff concessions, schedules of specific commitments for the five priority sectors, and rules of origin.
As long as these negotiations are pending, it remains unclear which products will be subject to tariff cuts and which services sectors will be liberalised.
As for rules of origin, it remains unclear what approach negotiators will take, given the complexity and incompatibility of different sets of rules of origin across pre-existing regional trading blocs in Africa. The key challenge is therefore to achieve the harmonisation of rules of origin within Africa.
As of January 2020, 30 countries had ratified the AfCFTA, i.e. half of the African Unions member states. The speed of this ratification process is qualified as “unprecedented in African Union history”. The Agreement is effective in those 30 countries, meaning that the rights, provisions and obligations of the agreement now apply.
Although the road ahead to an African single market is still long and beset with challenges the EU has made the strategic choice to stand by Africa throughout this long process, relying on its decades of experience in matters of European integration.
The EU is supporting this continental project politically, technically as well as financially since its launch in 2015. Financial support has already grown from EUR 12.5 million in 2014-2017 to EUR 60 million in 2018-2020.
Africa features high on the EU’s trade policy agenda. Commissioner Phil Hogan’s mission letter enjoins DG Trade to put greater emphasis on Africa. This clearly demonstrates the new impetus that the EU wants to give to this trade relationship, which Brussels says must now be based on mutual interests and shift away from their traditional ‘donor-aid recipient’ relationship.
All of this is taking place as emerging partners such as China, India, Turkey, and Russia increase their commercial relationship with Africa. Meanwhile trade with the EU is stagnating, and that with the US is dipping. The EU’s engagement with and support of the AfCFTA becomes even more important in such a context if it wants maintain its status as Africa’s main trading partner in the decade ahead.
Françoise Guei is a Brussels-based trade and development policy advisor.