In this tralac Newsletter, we cover topics ranging from standard issues (such as dispute settlement and developments in the African Continental Free Trade Area (AfCFTA)) to new trade-related disciplines that require attention when negotiating additional agreements with a continental reach. An example of the latter is digital trade. This newsletter contains a contribution on digital trade principles, and it discusses what outcomes to focus on when negotiating the AfCFTA Protocol on digital trade, and why.
 
In John Stuarts’s Blog on Digital Trade in Trade Agreements, there is a paragraph which merits repeating here: “Markets function best when regulatory intervention is for welfare-raising reasons, such as the regulation of competition, prevention of price distortions, prevention of the abuse of market power and the facilitation of the flow of information. Regulatory measures for the sake of increasing tax receipts, surveillance and discriminating against foreign suppliers are not efficiency raising but rather create costs, distort prices, and flows of services and ultimately compromise the business sector and growth.”
 
This observation applies to other trade-related disciplines too, as well as to domestic policies. The considerations listed in Gerhard Erasmus’ Blog, The role of Negotiating Principles in the design of the AfCFTA, are guiding principles for trade governance and policy making generally. Trade governance and trade policy should be a coherent and integrated enterprise. Governments should focus on a number of policy areas simultaneously. Industrial policy, for example, will not succeed unless there are also strategies in place on attracting and facilitating investment, skills development, improving trade facilitation in general, and undertaking regulatory reforms. Transparency and respect for the rule of law should also be on this list.
 
That brings us to an important feature of the AfCFTA: it is a member-driven Free Trade Area. (This aspect is discussed in the Trade Report, Why legal Certainty and Remedies matter for African Trade and Integration). In a Free Trade Area (FTA), the State Parties retain policy space over matters such as the use of the import tariff for industrialisation, concluding trade agreements with third parties, and regulating service providers and investors. This is, we believe, the correct choice for the AfCFTA design for now. A Customs Union (CU), on the other hand, requires compliance with far-reaching legal obligations that impact on Member States’ individual policy space. The Common External Tariff (CET) and the common customs territory aspects of a CU must be enforced. Tariffs and anti-dumping duties cannot, for example, be levied on goods traded among the members of a CU. The CET eliminates the ability to conclude third-party trade agreements individually or to use the import tariff for purely domestic needs. A CU must, therefore, have institutions with the powers to adopt collective and binding decisions in respect of areas traditionally falling under national jurisdiction.
 
When should such deep integration regimes be established? The ideal position would be when the conditions in the Member States are right and deep integration obligations are required in order to advance economic development. Domestic policy, legal and institutional development for complex digital economy developments, for example, also require new thinking about and new approaches to investment, competition policy and intellectual property rights, amongst other areas.
 
In the real world, there are additional considerations such as historical and political factors. Economic integration makes sense in and for Africa, and there is a strong tradition to support and promote solidarity. These are valid objectives. However, when binding legal arrangements are the instruments for anchoring economic integration initiatives, there must be a balance between the ability and need to adopt the required rules and moving forward on the path of deeper integration. This is a specific challenge faced by the AfCFTA. It should ensure an effective arrangement for now but must not neglect the pursuit of the long-term objective mentioned in Article 3 of the AfCFTA Agreement, namely to “create a single market for goods, services, facilitated by movement of persons in order to deepen the economic integration of the African continent….”
 
For now, specific obligations and measures must be adopted to make the AfCFTA regime work. This includes matters such as the harmonisation of domestic regulations, customs administration, and trade facilitation. (See the Trade Brief on Customs Administration and the Role of Disruptive Technologies in facilitating cross-border trade in Africa.) Non-Tariff Barriers in particular should be targeted through joint action and specific undertakings. The Regional Economic Community Free Trade Areas are the building blocks of the AfCFTA. They should be effective trade liberalisation arrangements within the African context and for their own Member States.
 
The AfCFTA has moved into the second phase of negotiations and important new Protocols are being negotiated. They will deal with investment, competition, intellectual property rights, digital trade, and women in trade. Stakeholder involvement should be part and parcel of this process, as well as benchmarking with best practices elsewhere. tralac will monitor these developments and report about them.
 
In this Newsletter, we speculate about the possibility that the AfCFTA State Parties might use the AfCFTA Protocol on Dispute Settlement and move away from their traditional approach not to litigate against each other over compliance with legal obligations in their trade and integration agreements. (See the Blog by Gerhard Erasmus, Will Dispute Settlement Proceedings be a feature of the AfCFTA?). We would like to argue that the AfCFTA dispute settlement mechanism can be an attractive option for the settlement of disputes arising under the AfCFTA Agreement. (The Trade Report attached to this Newsletter spells out the reasons in more detail.) It is better placed than the REC Courts for hearing inter-governmental disputes about compliance with obligations to liberalise trade. Private Parties do not have standing to file applications under the AfCFTA dispute settlement Protocol, while they may do so in terms of rules on standing applied by the REC Courts. Sensitive policy matters are less likely to be referred to the ACFTA dispute settlement mechanism.
 
There are indications that trade under the AfCFTA may start soon. There is the “guided trade” pilot project which will be launched towards the end of September or early October. And there are indications that the AfCFTA negotiations on tariff schedules, rules of origin and trade in services commitments might soon be completed. This will be a milestone event. tralac will report about these developments as soon as the technical detail becomes available.

We look forward to your feedback.
 
The tralac Team

More recent Publications

Customs Administration and the Role of Disruptive Technologies in facilitating cross-border trade in Africa

The SADC Trade Facilitation Agenda: Lessons for the African Continental Free Trade Area 

The new EU rules for citrus imports from South Africa: Background, applicable legal texts and processes, and the dispute declared by South Africa under the rules of the World Trade Organisation (WTO)

 

Southern African Development Community-European Union Economic Partnership Agreement (EPA): Booklet

The SADC-EU EPA is a comprehensive economic partnership agreement between the European Union and South Africa, Botswana, Lesotho, Namibia, Eswatini, and Mozambique. Angola has applied to accede to the EPA. It is a reciprocal trade agreement, meaning that both the EU and the SADC EPA group offer preferential market access to each other; however, the EU provides greater preferential and duty-free access, while the SADC EPA group are allowed to maintain protection of sensitive sectors.

To be eligible for preferential treatment under a trade agreement, a product needs to originate (fully or partially) in a country that is party to the trade agreement. The criteria for what percentage of inputs can be sourced externally depends on the specific rules of origin (RoO) contained in the agreement. The SADC EPA RoO are formulated to support the development of regional value chains and enable producers to source inputs from various other countries without losing free access to the EU.

For more info, download the full booklet (pdf)
 

This booklet has been prepared by tralac and Wesgro, the official tourism, trade and investment promotion agency for Cape Town and the Western Cape. This activity was supported by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ)

* Excludes Ethiopia, Mali and Guinea, for comparison purposes

 

* Excludes Ethiopia, Mali and Guinea, who lost AGOA beneficiary status at the start of 2022.