African Continental Free Trade Area

Meeting in Kigali on 21 March 2018, leaders from 44 out of the 50 attending member states of the African Union (AU) signed the Agreement establishing the African Continental Free Trade Area (AfCFTA). On 25 April 2018, Rwanda ratified the agreement, including the protocols and has been followed by Kenya, Ghana and Niger. The agreement and associated protocols will come into force 30 days after 22 countries ratify the agreement and the hope is that this will happen by the end of 2018.

The AfCFTA will make Africa the largest free trade area created since the formation of the World Trade Organisation (WTO) and is intended to particularly benefit SMEs and young people. Nevertheless the AfCFTA initiative faces many challenges. Nigeria, Africa’s largest economy and most populous nation, and South Africa were among 11 countries that chose not to participate. The Nigeria Labour Congress opposes the plan, calling it a "renewed, extremely dangerous and radioactive neo-liberal policy initiative". Others pointed to potential job losses and adverse effects on the development of domestic manufacturing capabilities. Leaders at the Kigali meeting made a strong plea for the private sector to work with government to make the AfCFTA a reality since the provisions in the agreement will need to be implemented through legislative changes and administrative action at national level. 

Source: UN Economic Commission for Africa (ECA)

The Agreement establishing the African Continental Free Trade Area covers trade in goods, trade in services and dispute settlement in separate protocols which are an integral part of the agreement. Further protocols on investment, intellectual property rights and competition policy are to be negotiated in a second phase. Signatories will also need to notify and agree schedules of tariff concessions and specific commitments. States which already have higher levels of regional integration through other regional agreements will be able to maintain these higher levels among themselves.

The Protocol on Trade in Goods has the objective of boosting intra-African trade in goods through:

• Progressive elimination of tariffs and non-tariff barriers
• Enhanced efficiency of customs procedures, trade facilitation and transit
• Enhanced cooperation in the areas of technical barriers to trade and sanitary and phytosanitary measures
• Development and promotion of regional and continental value chains
• Enhanced socio-economic development, diversification and industrialisation across Africa

The protocol reiterates the commitment to “most favoured nation” treatment which is one of the key points of the main agreement – that is that signatories shall not treat other signatories any less favourably than any third party.

The Protocol on Trade in Services aims to create a single liberalised market for trade in services across the African continent enhancing competitiveness of services, promoting sustainable development and elimination of barriers. The protocol envisages six annexes including schedules of specific commitments, most favoured nation exemptions, air transport services, priority sectors and regulatory co-operation, none of which are attached to the published draft, and notes that parties may develop further annexes.

The Protocol on Rules and Procedures for the Settlement of Disputes sets out the details of the Dispute Settlement Body and mechanism referred to in Article 21 of the main agreement for settlement of disputes between parties and aims to ensure that the process is transparent, accountable, fair, predictable and consistent. Following the precedent of the WTO Dispute Settlement Mechanism, the Protocol provides for the establishment of a Dispute Settlement Body made up of representatives of parties with power to establish Dispute Settlement Panels and an Appellate Body made up of persons with a demonstrated expertise in law and international trade, not affiliated to any government. Proceedings at both levels will be confidential. Where the Panel or the Appellate Body concludes that a measure is inconsistent with the AfCFTA Agreement, it is to recommend that the government concerned brings the measure into conformity with the agreement. The Protocol provides that parties may by mutual agreement refer their dispute to arbitration instead of the Dispute Settlement Body.

The Assembly of the AU and the Council of African Ministers responsible for Trade provide the institutional framework for AfCFTA. Decisions of the Council are binding on the member states. The Committee of Senior Trade Officials implements the Agreement and the Council’s decisions. An independent AfCFTA Secretariat within the AU will oversee, coordinate, facilitate and support the implementation and enforcement of the AfCFTA Agreement, and decisions of the institutions.

In the light of the controversial decision by the European Union to choose an investment court (yet to be set up) to resolve differences between investors and states in some of its recent free-trade agreements (with Vietnam and Canada), the proposed form of Investor-State Dispute Settlement (ISDS) under AfCFTA is awaited with much interest.

See further our report Investing in Africa: A guide to mitigating risk.