Free trade rocket launching again and again

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Implementation of the Africa-wide free-trade agreement has had many false starts. This is costing importers money. 

Like a multiple-stage rocket, the African Continental Free Trade Agreement (AfCFTA) has been launched several times. It “entered into force” on 30 May 2019 for the 24 countries which had then ratified it. Its “operational phase” began on 7 July 2019 at an extraordinary African Union (AU) summit in Niamey, capital of Chad. And at another extraordinary AU summit on 5 December 2020, the continent’s leaders announced that trading under the AfCFTA’s preferential terms would start on 1 January 2021.

Yet the agreement, which will create a market of 1.2bn people and a combined GDP of $2.5tr, doesn’t seem to be quite in orbit yet. South Africa was one of few countries ready to go on 1 January and officials indicated that it would start AfCFTA trading with Egypt that day.

But then it emerged that Botswana had not yet ratified the AfCFTA. And because Botswana and SA are both members of the Southern African Customs Union (SACU) which will participate in the AfCFTA as a bloc, SA has not yet been able to trade in the new deal. And as for Egypt, SA couldn’t start trading with it anyway, because Cairo is revising its tariff offers.

Why Botswana has not ratified the deal is not clear. Unlike SA and some other countries which had to ratify it through parliament, the Botswana executive can do it on its own.

Egypt’s delay in submitting its tariff offers is more understandable. It originally submitted an offer of tariff reductions to cover 90% of all goods. That was the original agreed continental minimum. But then all the African countries decided on 5 December 2020 that in order to meet the 1 January deadline, they would lower that minimum to 81% of all goods – because they hadn’t been able to agree on the crucial rules of origin for more tariff lines than that. They would negotiate the remaining 9% of rules of origin by June this year.

So, Egypt is now revising its tariff offer to cover only the 81% of tariffs for which such rules of origin have been agreed.

Some trade sources are saying that it’s not just a matter of SA waiting patiently for Egypt to submit its revised offer. They insist that SA has not yet submitted a tariff offer for all 81% of goods covered by the agreed rules of origin.

But South Africa denies this.

“We have an offer on the table.”
Ambassador Xavier Carim, deputy director-general for international trade negotiations in SA’s department of trade, industry and competition.

“We are waiting for Botswana so that we move as a (SACU) bloc. Egypt took back its original offer, indicating it would revise it and resubmit – basically their offer needs to cover lines where there are agreed rules of origin. We are waiting their new submission.”

But some trade consultants are alarmed, on the other hand, that far from being slow to make an offer, SA has been too fast.  They believe it has shown its hand prematurely by officially publishing its tariff concessions before important trade partners like Egypt have put their offers on the table. This, they say, has severely circumscribed SA’s bargaining manoeuvrability.

Carim seems unconcerned. “Once offers are on the table we can engage to see if both sides are comfortable. This will apply to all members and custom unions.”

The trade consultants also worry that the apparent false start of the AfCFTA might compromise some SA traders who have already switched their suppliers to Africa to take advantage of prices as much as 20% lower than their existing non-African suppliers.

It’s also rather unclear yet whether any other countries have started trading under the AfCFTA, but it seems no 0ne have. By 15 January 2021, 35 countries had ratified it and therefore could have started trading, provided they had made the necessary tariff offers and put the necessary customs procedures in place to grant the new tariffs.

There have been suggestions that trading did in effect start on January 1 on the improved AfFCTA terms as countries would retrospectively reimburse their importers who paid the old higher tariffs back to that date.

However, Carim clarified that while SA was prepared to do this, the measure would only apply reciprocally, thus if trading partners agreed to it. Some countries had expressed concern that if they only put in place customs procedures to cover the new tariffs in June, for example, they would have to backdate reimbursements six months, and this could have negative fiscal implications.

Wamkele Mene, the South African who is secretary-general of the AfCFTA, based in Accra, is not too perturbed about the teething problems, noting that these occur with all free trade deals the world over – and that the AfCFTA has been one of the fastest to get to this point.

What’s important, he told a recent press conference, is that in 20 to 30 years’ time, Africa can look back and say the AfCFTA boosted industrialisation on the continent, making it far less reliant on outside imports.

Peter Fabricius is a consultant to the Institute for Security Studies and a freelance foreign affairs journalist.

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This article was written exclusively for finweek's 29 January newsletter. You can subscribe to the weekly newsletter here.

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