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In 2012, the African Union (AU) announced its intention to establish a Continental Free Trade Area (CFTA) by 2017. The CFTA would bring together (54) African countries with a combined population of more than one billion people and a combined gross domestic product of more than US$3.4 trillion. Consequently, the Agreement establishing the African Continental Free Trade Area (AfCFTA) was signed on 21 March 2018 and entered into force on 30 May 2019.

The AfCFTA seeks to establish a single market for goods and services, reduce tariffs and lay the foundation for a continental customs union. The AfCFTA is substantiated by protocols and annexes on trade in goods and services, dispute settlement and rules of origin, amongst others. Implementation of the AfCFTA Agreement has two phases: Phase I covers trade in goods and services and the Dispute Settlement Mechanism, whereas Phase II will cover investment, intellectual property rights, competition policy, digital trade and women and youth in trade. AfCFTA is expected to boost Africa’s income by US$450 billion by 2035.

54 AU Member States had signed the AfCFTA Agreement as of June 2022, with 43 of these countries ratifying the agreement. The AfCFTA is, thus, the largest free trade area in the world measured by the number of countries participating.

Trade under the AfCFTA was due to commence on 1 January 2021 based on legally implementable and reciprocal schedules of tariff concessions. In particular, it was agreed that an offer covering at least 90% of products is required, and the rules of origin that determine the nationality of a good must be decided upon for trade to commence under the AfCFTA. This is because a free trade area requires only reducing tariffs on goods from countries that are party to the free trade agreement. According to the AU, on average, an African exporter faces non-agriculture applied tariff protection rate of 7.8%, which is higher than what the same exporter would be liable to when exporting to Europe and the United States of America. Because of the delays in countries agreeing on their schedules of concessions and rules of origin, as well as the failure of all African countries to ratify the agreement, trade under the AfCFTA had never occurred.

Enter the Ministerial Directive on the Application of Provisional Schedules of Tariffs Concessions of 10 October 2021, agreed to by the AfCFTA Council of Ministers responsible for Trade. This Ministerial Directive provides a legal basis for the countries that had submitted their tariff schedules in accordance with the agreed modalities to trade preferentially amongst themselves. This Ministerial Directive was adopted by the AU in February 2022.

However, as commercially meaningful trade had not commenced under the AfCFTA, the AfCFTA Secretariat sought a solution-based approach in the form of an AfCFTA Initiative on Guided Trade. This was endorsed by the AU in July 2022. The specific objectives of the AfCFTA Guided Trade Initiative are to allow commercially meaningful trading under the AfCFTA, to test the operational, institutional, legal and trade policy environment under the AfCFTA, and to galvanize the African economic operators. This is essentially a pilot project with eight State Parties – Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania and Tunisia participating in it. The interested State Parties represent five African regions.

The initiative will serve as a gateway to encourage continued trade under the AfCFTA. The products earmarked to trade under the initiative include ceramic tiles, batteries, tea, coffee, processed meat products, corn starch, sugar, pasta, glucose syrup, dried fruits, and sisal fibre, amongst others, in line with the AfCFTA focus on value chain development. On 5 October, the first consignment of Kenyan tea destined for Accra, Ghana, under this initiative was sent. The goal is to sustain this project beyond October 2022.

It matters that this works. If we can’t get such a limited amount of trade happening, then it is not clear how we will manage this on greater scale. South Africa you will see, is not unfortunately included as we are still haggling mainly over imports of clothing and textiles. We have to get to 90% of the products in our tariff book covered by the agreement (these will move down), but over 10% of the tariff book is clothing, so you can see how this is a problem.

XA spends a lot of time looking into this very important agreement. Drop us a line at info@xagta.com, if you wish to know more.

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