Update on the Status of the African Continental Free Trade Agreement and a Look at the Road Ahead

On April 16, 2019, CCA hosted a lively discussion on the current status of the African Continental Free Trade Agreement and implications for U.S.-African trade and investment. The event began with Witney Schneidman of Covington and Burling and Katrin Kuhlmann of New Markets Lab reviewing the highlights of the U.S.-Africa Trade and Investment Forum, which CCA held in Addis Ababa on February 11-12.  Trudi Hartzenberg, Director of the Trade Law Center in South Africa, summarized the latest developments in AfCFTA and some of the key issues raised during TRALAC’s annual summit in April.  South Africa’s AfCFTA negotiator, Wamkele Mene, offered his perspectives on the current status of negotiations and what the future looked like.  Manchester Trade’s Stephen Lande offered comments on the significance of AfCFTA for U.S.-African trade.

Highlights from the U.S.-Africa Trade and Investment Forum

Witney Schneidman began with a brief review of the main issues that arose during the panel on services that he chaired at the TIF.  Services are growing significantly faster than manufacturing (6.4% versus 4.5%) across the continent, and now account for more than 50% of most countries’ GDP.  It’s clear that the digital revolution is already happening in Africa, and that it’s spread beyond cellphones.  On the panel, the World Bank stressed the importance of developing the skills and infrastructure to realize the sector’s potential, including putting in place the right regulatory structure.  During the panel discussions, the question about who controls information and data, as well as information nationalism, came up, and there was a general consensus that the degree of regulatory coherence will determine the speed of Information Communication Technology sector developments.  There was also a clear sense that companies need to step up and be much more active in offering their opinions and advice.

Katrin Kuhlmann noted that her panel on trade was much more energetic than discussions in past, and that the nature of the conversation was much more constructive.  There was a lot of focus on the fact that the Africa Growth and Opportunity Act (AGOA) only has six years left, and that countries should find ways to maximize their advantages while this program remains in place.  It is also important to build on the gains from AGOA as countries begin building the follow-on trade and investment relationship with the United States.  There was also a clear sense that AfCFTA discussion needed to be linked to using remaining opportunities under AGOA.  There was also agreement that AfCFTA will reshapes international trade law as African countries design some truly unique implementation procedures for what will be the world’s largest free trade agreement.  There was also a sense that countries need to pay more attention to critical sectors, including agriculture, and improve regulatory coherence across regions.

TRALAC Review of AfCFTA

Trudi Hartzenberg provided a very helpful update on the status of AfCFTA ratification, when 20 of the 22 countries required to bring the agreement into effect had already ratified it.  She noted that African countries have reached this point in record time.  AfCFTA is a modern trade instrument, and very different than other regional agreements in that it goes well beyond liberalization.  There are a number of provisions that will directly boost the competitiveness of African companies, including through improving economic governance.  AfCFTA is coming at the right time, in that Africa’s median age is only 19, meaning that the development of provisions for the digital economy is critical, including regulatory reform and harmonization.  Hartzenberg laid out the next steps, beginning with the operational phase which will launch in July.  Before that starts, negotiators are set to complete discussions on Rules of Origin in May, and finalize their list of tariff concessions by July.  She noted that discussions have made significant progress to date.  Services are set to be completed by January 2020, with a focus on five priorities selected to boost competitiveness; transportation, communication, financial services, tourism and business services.  Countries are also setting up the African Trade Observatory, which will be a repository for data and agreements.  Once these negotiations are completed, countries also have a lot to do at the national level. 

South African Perspective

Wamkele Mene agreed that progress has been remarkable in less than four years, which in turn is a testament to the enormous political will of African leaders to get this agreement done.  He noted the enormous complexity involved in finding common positions among countries that vary widely in annual per capita income, from Equatorial Guinea’s $22,000 to Somalia’s $100, countries that speak five different languages, and have different legal systems.  Leaders told negotiators that the agreement must address the infrastructure deficit, increase inter-African trade beyond the current level of 17% of the total, and must place Africa on the trajectory of industrial development, boosting value added operations in the continent.  Thus, AfCFTA is far more than “just” a trade agreement, but also aims to address concerns about the investment climate, IPR and boosting competitiveness 

He described AfCFTA as a “mother” agreement with several subsidiary agreements.  The latter include protocols on dispute settlement, trade, etc, as well as annexes on tariffs, which are being taclked in the first stage that will soon be wrapped up.  The second stage starts in August, and will cover subsidiary agreements on investor protection, competition policy and IPR. 

Mene described AfCFTA as an opportunity for Africa to include new trade regulations that position Africa to be part of the Fourth Industrial Revolution, including the digital economy and the internet of things.   He said that the current discussions are a great opportunity to set the right legal framework and principles for important issues like data access and data storage.  He also talked about the importance of financial services, which must boost inclusion and lower transaction costs.  Mene said that the goal is ultimately to create a single payment system across Africa, much like the one Europe uses.  On trade, he said that the customs and trade facilitation agreement chapters go well beyond the provisions of the last WTO discussions in Bali, creating an instrument to ‘unstick’ trucks and harmonize customs procedures.

He also stressed the importance of the provisions on dispute settlement, which set up a time frame and a panel to handle disputes.  Companies are not forced to go to a local court, and have the right to appeal to a body of international experts.  There will also be an enforcement capability, including elements of the New York Convention.  Mene said that these provisions will be far reaching and unique, defining the state of the art of “WTO Plus.” 

Mene conceded that AfCFTA will face a number of challenges.  The first is implementation, although he underscored the strong political support from leaders across the continent that he believes will get the agreement done.  He cautioned that not all 55 African countries will start implementing the agreement on day one.  Some countries are ready to implement the provisions of the agreement today, and are already working on the required domestic reforms.  Mene noted that AfCFTA will set up a dedicated secretariat to help countries with implementation issues, which will function independently from the African Union.  Countries will need to pass domestic legislation providing for trade remedies.  Currently, only South Africa and Egypt have such a law.  There will also be a need to work with countries that are heavily reliant on tariff income to facilitate their adjustment.  Afreximbank is already working on some provisions. 

Implications for the United States

Stephen Lande welcomed the attention on AfCFTA, and stressed the importance of U.S. companies learning much more about it very quickly.  He lauded the impact that AfCFTA will have on helping integrate African economies, and boost their competitiveness and growth.  He also underscored the importance of getting the details right on issues like rules of origin to make sure that these support regional integration and foreign investment.