African businesses are gearing up for the opening of the 1.2 billion people market, amid challenges on tariff concessions, rules of origin and trade in services.
The African Continental Free Trade Area (AfCFTA), which brings together 55 countries with a combined gross domestic product of $3 trillion, had initially been scheduled to be launched on July 1. The implementation was postponed for six months due to the Covid-19 pandemic that led to restricted movement and lockdowns.
The 13th Extra-Ordinary Session of the Assembly of the Union (AU) held on December 5, under the chairmanship of President Cyril Ramaphosa of South Africa, stressed the need to quickly operationalise trading under AfCFTA to break the dominance of South Africa, Egypt and Nigeria that control 50 per cent of the African market.
However, The EastAfrican has learnt that while African traders are eager to start exploring new markets, full implementation of the proposed agreement is facing teething problems including non-completion of discussions on tariff concessions, Rules of Origin and schedules of commitments in trade in services.
In addition, Eritrea has not signed the continental trade agreement, while 20 countries including Tanzania, Burundi and South Sudan have signed but have not ratified it.
Hindrances to implementation
Other hindrances to the effective implementation of AfCFTA, according to the Kenya Association of Manufacturers, include overlapping membership to regional trade blocs, underdeveloped transport infrastructure (road, rail and air), unfamiliar or different Customs and trade procedures, and weak value chains.
Tanzanian senior trade officer in the Ministry of Trade Ombeni Mwasha said the country has delayed ratifying the agreement because the pact had to undergo the “laid down” formal procedure of confirmation, which coincided with the October general-election.
In Kenya, the government said the country is doing all the necessary internal preparations to exploit trade opportunities, including training businesses on how to trade in AfCFTA.
“AfCFTA is a young baby, and this baby is facing a lot of challenges, from Covid-19 to the economic consequences of the pandemic. Although AfCFTA has come into force, there are a number of areas that are still not concluded. These areas are important for the full realisation of the AfCFTA,” Kenya’s Principal Secretary in the State Department for Trade and Enterprise Development, Johnson Weru, told The EastAfrican in an interview last week.
“We have made some progress on Customs, trade facilitation, rules of origin, tariff schedules and non-tariff barriers, but there is still some outstanding work,” he added. Intra-Africa trade has remained low, at 15 per cent, — comparing unfavourably with Europe at 68 per cent, North America at 37 per cent, and Latin America at 20 per cent — largely due to trade barriers, and poor transport and telecommunication connectivity.
It is estimated that the average tariff on intra-African trade stands at around 6.1 per cent, higher than that imposed on exports outside the continent.
Under the AfCFTA, liberalisation of trade is being carried out through regional trading blocs — the East African Community (EAC), Common Market for Eastern and Southern Africa (Comesa), Southern African Development Community (SADC) and the Economic Community of West African States (Ecowas) — which run separate Customs unions.
Each bloc is required to prepare its tariff offers, rules of origin and schedules of commitments in trade and services and submit them to the AfCFTA Secretariat.
However, in East Africa, negotiations on tariff concessions, trade in services and rules of origin for items such as motor vehicles, clothing and textile, sugar and edible oils are yet to be concluded.
In addition, there are conflicts amongst EAC partner states on the modalities of preparing schedules of tariff offers for goods meant for liberalisation.
Burundi, Kenya, Rwanda and Uganda say the EAC should continue with the preparation of the initial tariff offer based on the adopted modality specifying 90 percent for immediate liberalisation, seven per cent sensitive products and three per cent exclusion.
Tanzania, on the other hand, is of the view that the tariff offer be aligned to the agreed rules of origin based on the Decision of the 12th African Ministers of Trade Meeting, which decided that agreed Rules of Origin should be used as the basis on which tariff offers are submitted and finalised, to facilitate the start of preferential trade on January 1, 2021.
The EastAfrican has learnt that some of the EAC member states have opted to submit their tariff offer concessions and schedules of commitments in trade in services as individual countries, while leaving room for amendments by other partner states in future.
“Countries that have not completed their tariff offers shall do so, but some of its specific commitments are also not well defined in terms of the regional blocs. For example, trade in services is not fully concluded within the EAC. So what we have done is to submit the commitments bilaterally,” said Mr Weru.
“Within the EAC there are some countries that have not ratified the agreement. This means that if you are going to make any commitments within a regional configuration like EAC, there must be an understanding within the bloc as to why the other parties have not ratified it. What we agreed in the last EAC meeting is that we can make the submissions, but there is room for improvement by other member states if they wish to do so.”
Ecowas is yet to submit its liberalisation instruments and must do so before the EAC can trade with the region.
“In terms of tariff concessions, if you are in a Customs union you are required to make one offer and that is what we have done for tariffs, with a rider (member countries that have not ratified the agreement),” said Mr Weru.
“We also submitted the tariff offers in the name of EAC, with the understanding that the other member states that have not ratified the agreement will join. Submission was made on the understanding that when they ratify the agreement, they will have an opportunity to either concur formally or propose an amendment that the rest of the member states will support.”