eBusiness Weekly
On January 1, the African Continental Free Trade Area (AfCFTA) came into force.
The 55-nation pact is an ambitious work-in-progress that could change how African nations trade with each other, and with the global economy. To deliver on its promise, AfCFTA needs to be built up as a complement to the World Trade Organisation (WTO), rather than as a substitute.
Like so many things in 2020, AfCFTA had been delayed by Covid-19. Its launch was seen as largely symbolic, given that much work remains to be done. That said, AfCFTA could be big. The members’ combined gross domestic product is $3,4 trillion, and the World Bank predicts it may help 30 million people escape extreme poverty. AfCFTA goes well beyond tariffs to address non-tariffs, competition policy, intellectual property rights and other cutting-edge issues.
Trade agreements are political balancing acts, and AfCFTA is no different. The pact calls for 90 percent of tariffs to be eliminated, but only after five to 10 years. These are rather long phase-out periods, and the prospect of political back-sliding will undercut business confidence in these promises. Likewise, rules of origin, which legally define the percentage of inputs that have to be sourced regionally in order to qualify a good for duty-free treatment, have not yet been agreed. Kicking this can down the road helped get AfCFTA up and running, but the negotiations to come will test the fabric of the bloc.
AfCFTA is an interesting read. There is a provision, for example, that allows governments to protect “an infant industry having strategic importance at the national level.” The text clearly wants to keep potential abuses in check, but the politics of infant industry protectionism will be difficult to manage.
The “general exceptions” also merit attention. Most of them are standard fare, but two are not. First, members can put export restrictions on materials their domestic industries need if prices are below market because of state-led “stabilisation” programs. Second, members can stock or distribute food in “short supply” locally or beyond. These exceptions come with limits, but both could be politically contentious.
Then there’s the fact that 22 of the treaty’s 77 pages are about dispute settlement. The text says dispute settlement is “a central element in providing security and predictability to the regional trading system.” But will AfCFTA dispute settlement deliver consistency, or undermine it?
On the one hand, AfCFTA’s dispute settlement process mirrors the WTO’s system, from consultations to a panel and appellate review. On the other hand, AfCFTA does not mention if, or when, its members should have recourse to the WTO. Given that 44 of the 55 members also belong to the WTO, and seven of the 11 non-members have observer status, the pact needs to write a clear “forum shopping” provision. Article 3 precludes sequential or simultaneous filings, but it’s not clear whether this is a claim of exclusive jurisdiction. Are members allowed to file at the WTO? Without a clear forum shopping provision, rival bodies of case law could be a serious concern. Indeed, this would undermine the predictability of rules-based trade within Africa, and between AfCFTA and the rest of the world.
Some consideration of “anti-forum shopping” provisions might also be given. The pact’s annexes make a lot of references to WTO law, as well as to the work done by WTO committees. AfCFTA, like the U.S.-Mexico-Canada Agreement (USMCA), could require that cases strictly about WTO law to be heard in Geneva. This would ensure consistency in rulings across regional and multilateral dispute settlement.
Much of the commentary on AfCFTA points out that it is the largest free trade deal since the advent of the WTO. Yes, but that doesn’t mean it’s a substitute for the multilateral body. On the contrary, AfCFTA is more likely to deliver on its promise as a complement to the WTO.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, a nonresident senior fellow at the Atlantic Council and host of the podcast TradeCraft.
