End-of-the-year Newsletters should be well-balanced, to the point, and conclude with good news for the new year. tralac’s final Newsletter of 2022 does not fully meet these criteria. In several ways, 2022 was a year of upheaval, with few signs of matters improving soon. For the sake of balance, we therefore start by mentioning Morocco’s success at the soccer world cup of 2022. It has progressed further than any African team before, beating Belgium, Spain, and Portugal before it lost to France in the semi-finals.
 
But the soccer world cup, and its aftermath, also shows how interdependent the world is and that different political systems can be hard to reconcile. This event had to showcase Qatar to the world, but there has been reputational damage in the form of criticism about the rights of migrant workers and official intolerance to LGBTQ pride symbols.
 
More than 700,000 soccer fans descended on Doha, the capital of Qatar. When they have all returned home, the world’s attention will shift elsewhere but there will be some awkward questions to be answered. There are now allegations about bribery and efforts to buy influence. The office of the Belgian federal prosecutor has announced that it had charged four people with corruption and other crimes as part of an investigation into suspected bribes from Qatar to current and former officials and lawmakers in the European Parliament. A prominent Greek politician has been asked to step down as a vice president of the European Parliament. In the United States, an indictment has been filed in which several FIFA officials are accused of receiving payments to back Qatar’s bid to host the 2022 soccer world cup.
 
These developments will continue to draw attention to aspects which the Qatari authorities would prefer to forget about. They will not go away soon, despite the fact that this country supplies almost a quarter of the liquefied natural gas imports Europe is relying on to get through the winter of 2022. But that is another story.
 
The current international situation has been described as one of “multiple crises”. It started with Russia’s invasion of Ukraine in February 2022. International trade relations and global supply chains have been disrupted, resulting in food, fertiliser, and energy price increases, while high domestic inflation rates have proven difficult to tame. Polarisation in the domestic politics of many countries is making it more difficult to generate the policies required to deal with the challenges facing individual nations and the international community.
 
The Russian invasion of Ukraine has gone terribly wrong for President Putin but has not convinced him to actively pursue a diplomatic settlement. It has damaged Russia’s military and political reputation, disrupted the Russian economy, and profoundly altered the geopolitical picture facing Moscow. The new year will see more political manoeuvring to bring about a settlement, while the human suffering and destruction of infrastructure in Ukraine continue. Present indications are that President Putin will proceed with his military campaign to drag Ukraine back into Russia’s sphere of influence. He is forging new alliances with countries such as Iran, which has started to supply drones to Moscow. Iran finds itself in the middle of serious civil unrest and popular uprisings.
 
Most modern wars are settled through diplomatic initiatives. In this instance, there are no indications of this happening any time soon. Recent media reports speculate that Russia is preparing for a major new offensive in the next few months. This is in line with Putin’s strategy to alter the geopolitical and historical picture and to strengthen Russia’s position vis-à-vis Europe and the United States. For this to happen, he must win the war in Ukraine and bring a large swathe of central Europe under Russian control.
 
The War in Ukraine has contributed to another important development: how the multilateral consensus on global value chains is changing. 2022 will probably be viewed as the year in which a major shift occurred in terms of how global value chains are being transformed. The implications of Europe’s dependence on natural gas imports from Russia have been a rude awakening. Global value chains have already been hit hard by the COVID-19 crisis. There have been additional impacts in the form of economic nationalism, new production processes and security concerns.

If the multilateral trading system had been a soccer game, the World Trade Organisation (WTO) would have been the tournament organiser and the WTO’s Dispute Settlement Understanding the referee. But it has become increasingly difficult to reach consensus among the 164 member states of this organisation and to resolve tensions among some of the major players such as the US, the European Union and China.

In June this year, the WTO did score a few goals, in the form of the package of agreements secured at the 12th Ministerial Conference (MC12) held in Geneva from 12 to 17 June 2022. The outcomes reached on fisheries subsidies, the WTO response to the pandemic, food insecurity, e-commerce and other issues were hailed as a demonstration that the multilateral trading system can respond to some of the most pressing challenges in the world. The Director-General of the WTO said the deal showed to the world that “WTO members can come together, across geopolitical fault lines to address problems of the global commons, and to reinforce and reinvigorate this institution.”

Towards the end of 2022, the tone was different. The WTO Director-General’s annual overview of developments in the international trading environment showed that trade restrictions are increasing in a context of economic uncertainty exacerbated by the COVID-19 pandemic, the war in Ukraine, and the food security crisis. According to the latest WTO Trade Monitoring Report presented on 6 December 2022 at a meeting of the Trade Policy Review Body, WTO members are introducing restrictions at an increased pace, particularly on food, feed, and fertilisers. These import restrictions continue to grow. WTO Director-General Ngozi Okonjo-Iweala said that “Members have increasingly implemented new trade restrictions, in particular on the export side, first in the context of the pandemic and more recently in the context of the war in Ukraine and the food security crisis.”[1]

On 9 December 2022, the WTO circulated the panel reports in the cases brought by China, Norway, Switzerland, and Türkiye against the United States in “United States — Certain Measures on Steel and Aluminium Products”[2] This Panel found that the tariffs on steel and aluminium imports that were imposed by the United States under former President Donald Trump violate global trade rules. The Trump Administration had claimed national security concerns when these tariffs were announced in 2018. The Panel has now given the reasons why this argument is flawed. It found that the American duties did not come “at a time of war or other emergency”, as required by Article XXI of the General Agreement on Tariffs and Trade. The US said it stood by the tariffs and that it has no intention of removing them. It argues that American national security interests must be protected by ensuring the long-term viability of its steel and aluminium industries.

This is a serious development. It comes at a time of growing geopolitical tensions and the increasingly shaky consensus around how to govern global trade. The original thinking behind Article XXI of the GATT was to take care “of real security interests and, at the same time, so far as we could, to limit the exception so as to prevent the adoption of protection for maintaining industries under every conceivable circumstance.”[3] The American view is that the use of Article XXI by WTO member states is a matter of national security and cannot be reviewed by the WTO dispute settlement system.
 
The WTO Panel Report says the US should bring its trade policy into compliance with its obligations. If it does not abide by the decision, the other member states who brought the complaints are entitled, under WTO rules, to impose retaliatory tariffs on American products. Under present conditions, the US cannot appeal these findings because the WTO Appellate Body is not operational; the US refuses to agree to the appointment of new Appellate Body members. That leaves this dispute in limbo.
 
The American strategy behind its refusal to allow the appointment of new Appellate Body Members is to force the WTO to adopt reforms on matters such as Chinese trade policies and practices (e.g. subsidies to Chinese firms) claimed to be in violation of basic WTO norms. These developments do not bode well for the multilateral trade governance system as a rules-based enterprise.
 
There have been renewed multilateral efforts to deal with the challenges of climate change. In November 2022, the Government of the Arab Republic of Egypt hosted the 27th session of the Conference of the Parties of the UNFCCC (COP 27). The aim was to build on previous efforts and to tackle climate change challenges more effectively. The outcome document, called the “Sharm el-Sheikh Implementation Plan”, was adopted on 20 November 2022, after long and difficult negotiations.

An issue of particular interest for developing countries was the creation of a fund for Loss and Damage. This has been a contentious issue. An agreement to establish such a fund was an important outcome at COP27, at least from the perspective of developing countries. This Fund must assist these countries in mobilising “new and additional resources” for Loss and Damage. This new mechanism will “complement and include sources, funds, processes and initiatives under and outside the Convention and the Paris Agreement.”

The adjustments required in national energy sectors are an urgent priority but the international context is not helpful. Plans to phase out nuclear power in several European countries and the EU’s goal to reduce coal consumption and thereby lowering greenhouse gas emissions, might be postponed unless answers are soon found to reduce the dependence on Russian gas.
 
Domestic adjustments in the energy sectors of poor nations are a major and expensive challenge, in Africa in particular. It is also a governance issue. South Africa faces a major energy crisis, with serious implications for the national economy.

South African industries, businesses, the agricultural sector, and households are scrambling to generate their own electricity in the face of a widening power shortfall, which is set to persist and probably worsen. The private sector must play a much bigger role in meeting the country’s energy needs but government policies are incoherent and lacking a clear strategy.

Eskom, South Africa’s electricity supplier, has been forced to implement rotating power cuts, or load-shedding, since 2008 in order to protect the national grid. Breakdowns have become more frequent due to Eskom’s inability to catch up on maintenance. A skills shortage, slow procurement process, theft and sabotage have all exacerbated the challenges of fixing the power plants.[4] Eskom also supplies electricity to neighbouring countries.

One of tralac’s most important activities over recent years has been the monitoring of the negotiations to launch the African Continental free Trade Area (AfCFTA). The AfCFTA is intended to bring about preferential trade in goods and services across the continent but will exist alongside Regional Economic Communities (RECs) that have already formed Free Trade areas (FTAs) or Customs Unions (CUs). The AfCFTA will make preferential trade possible among those African nations presently trading with each other under MFN/General rates.
 
The AfCFTA is also viewed as an additional framework for Africa’s economic development and industrialisation. The South African Ministry of Trade, Industry and Competition, for example, believes that “Rules of Origin should incentivise the expansion of Africa’s manufacturing capacity, including the development of supply chains and maximum value addition within the Continent. These rules must serve to spur increased investment in local African productive capacity and job creation.”[5]
 
The AfCFTA does not provide for a plan or a strategy on industrialisation (it is a member-driven arrangement) but in the Preamble to the AfCFTA Protocol on Trade in Goods, it is stated that the State Parties have resolved to “enhance competitiveness at the industry and enterprise level through exploiting opportunities for economies of scale, continental market access and an efficient allocation of resources”. Article 2 of the same Protocol lists the objective to enhance “socio-economic development, diversification and industrialisation across Africa”.
 
Where does the AfCFTA stand? In December 2022, the outstanding matters for Phase I are tariff schedules, rules of origin, the Trade Remedy Guidelines, and services commitments for the five priority areas which will be liberalised at the outset.[6] The negotiations to conclude the outstanding Protocols of Phase II are said to be well advanced. These negotiations have been disrupted by the COVID-19 pandemic and are, since the beginning of 2021, conducted under the Council of Ministers and the committee of Senior Trade Officials of the AfCFTA, with the assistance of the AfCFTA Secretariat in Accra, Ghana. These institutions constitute the “Institutional Framework for the implementation of the AfCFTA”.[7]
 
It is too early to write about the outcomes of the AfCFTA because trade under AfCFTA rules has not yet started. It has proven very difficult for the 54 participating countries to agree on the liberalisation of 90% of all tariff lines (which was set via prior modalities for the tariff reduction negotiations) and to adopt rules of origin for all the relevant products.
 
A Guided Trade Initiative (GTI) of the AfCFTA Secretariat was launched in October 2022 for a limited number of products and involving eight African States. According to a statement by the Secretariat, this project wants to test the readiness of participating State Parties under the AfCFTA, demonstrate that the AfCFTA trading documents are operational and viable, and confirm that the Customs and Revenue Authorities of the participating countries are ready to process imports and exports.[8]
 
The negotiations to have a complete AfCFTA and to begin with continent-wide preferential trade continue under the auspices of the AfCFTA Council of Ministers.
 
There will now also be a Guided Trade Initiative for trade in services, as announced by the AfCFTA Secretariat in late December. The AfCFTA State Parties who want to participate in this initiative will be those countries with adopted schedules of specific services commitments. They must indicate the sectors or sub-sectors in which they want to start trading in services and with which other State Parties they intend to do so. The negotiations to launch this initiative will begin in January 2023.
 
Why does it take so long to finalise the AfCFTA legal instruments? Economic integration among 54 countries at very different levels of economic integration is a difficult undertaking. Africa has the highest number of Least Developed Countries (LDCs) in the world, with many of them being land-locked or island economies. Some participating countries are concerned about revenue losses when trade in goods is liberalised. Others want to protect domestic industries and local employment.
 
The consensus principle is another explanation. The outcomes of all negotiations must be adopted through consensus and provide for reciprocity. This will tend to push outcomes to the lowest common denominator. It has to be noted that all AU member states, including those that have not yet ratified this Agreement, participate in the outstanding negotiations.
 
The global community has been showing a new interest in Africa since the AfCFTA negotiations have been launched. Hopefully the long delay to get it up and running will not cause this interest (and that of the private sector) to peter out. But there are other reasons and political factors keeping Africa on the radar.
 
During a three-day US-Africa Leaders Summit, held from 13 to 15 December 2022 in Washington, President Biden announced his administration’s “U.S. Strategy Toward Sub-Saharan Africa”. He outlined a plan to bolster economic ties with countries in the region and to meet “shared challenges and opportunities”. He also announced plans to travel to Africa. The last US president to travel to Sub-Saharan Africa was Barack Obama, who visited Kenya and Ethiopia in 2015.
 
President Biden has now pledged to work with Congress to invest $55 billion in the continent over the next three years in an effort to boost the economy, security, and health systems. An initiative on a $2 billion humanitarian aid package to tackle food insecurity in Africa was also announced. He called for the African Union (AU) to join the Group of 20 (G20) and is pushing for a permanent seat for Africa on the UN Security Council. Exactly how the Security Council membership idea will be implemented will be a challenge; only individual countries have seats on the Security Council of the United Nations.
 
Most commentators see these announcements as part of the Biden administration’s efforts to revitalise the US relationship with Africa, which has floundered in recent years as competitors like China have made inroads. Washington wants to demonstrate that it is committed to and involved in sub-Saharan Africa. In order to promote its own security interests, the US needs a “partnership” with Africa.
 
Exactly how the competition with China will play out has yet to be seen. But this is an important initiative. To find that one voice capable and mandated to speak on behalf of Africa might be one of the first challenges. The official US policy seems to be one of “working with the African Union to strengthen democracy and the core values that unite all our people, especially young people: Freedom, opportunity, transparency, and good governance.”
 
The tralac offices closed on 23 December 2022 and will reopen on 9 January 2023.

We would like to thank you for your support and interest in our work this year, and wish you all the best for a happy and safe holiday season. We look forward to meeting in the new year.

With our best wishes,

The tralac team