HARNESSING AFRICA’S FREE TRADE AGENDA – TRADE IN GOODS UNDER THE AFCFTA
This is the third in a series of articles on the African Continental Free Trade Area (AfCFTA) agreement. The aim of the series is to unpack the agreement’s various protocols and related matters and highlight:
- key opportunities and potential inhibitors for business to consider in undertaking a regional growth strategy;
- the roles of legal advisors in navigating the AfCFTA institutions and member states in supporting a regional trade or investment strategy; and
- avenues for the private sector to influence the trajectory of the implementation of the AfCFTA instruments.
The Protocol on Trade in Goods aims to achieve the free movement of physical goods throughout the African Union, and the liberalisation of trade through the implementation of preferential (reduced or duty-free) tariffs. Trade in goods under the AfCFTA officially commenced on 1 January 2021, although relatively few Member States have met the requirements to formally commence trading under the AfCFTA.
One of the prerequisites for trade in goods under the AfCFTA is the submission and verification of an agreed schedule of tariff concessions, which must be submitted by each Member State, or where agreed, a customs union or regional economic community (REC) representing its members collectively.
The five member states of the Southern African Customs Union (SACU) being Botswana, Eswatini, Lesotho, Namibia and South Africa, have now all ratified the AfCFTA agreement. SACU has recently submitted its joint offer of tariff concessions, which is currently in the process of verification by the AfCFTA Secretariat to ensure that the proposed concession schedule complies with the AfCFTA requirements and aims for trade in goods.
The AfCFTA requires the liberalisation of 90% of tariff lines over five years, with Least Developed Countries (LDCs) having 10 years to implement their agreed tariff reductions. The remaining 10% of tariff lines are divided into sensitive products (7%), to be liberalised over a longer period to minimise economic disruption and risk, and excluded products (3%), which need not be liberalised at all, but may not exceed 10% of the value of total trade.
From a South African perspective, the remaining administrative procedures to facilitate imports and exports under the AfCFTA are largely in place. The tariff offer, Rules of Origin, and general notes to Schedule 1 of the Customs and Excise Act 91 of 1964 have been gazetted, and the AfCFTA preferential tariff column has been added to our tariff book.
Stress-testing African continental free trade: the Guided Trade Initiative and the impact of the AfCFTA on existing customs unions and RECs
The Guided Trade Initiative (GTI) was launched by the AfCFTA Secretariat on 7 October 2022, between eight AfCFTA Member States (Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda and Tanzania). The GTI was intended as a pilot project demonstrating the benefits of preferential intra-African trade in goods, to facilitate the early collection of data on important aspects of trade under the AfCFTA, such as logistics implementation and the identification and elimination of tariff and non-tariff barriers to trade, and to test the readiness of both governmental administration and the private sector to participate in preferential intra-African trade.
Products currently being traded under the GTI include avocados, batteries, ceramic tiles, components for air conditioners, horticulture products and flowers, palm oil, rubber and tea.
Trade in goods under the AfCFTA will co-exist with existing trade between customs unions and RECs, rather than directly replacing these institutions. In terms of the AfCFTA agreement, members of existing RECs and customs unions who have achieved higher levels of regional integration and elimination of tariff and non-tariff barriers amongst themselves will not need to negotiate further tariff concessions with each another under the AfCFTA. Thus, only those members of the African Union that are not party to the same REC trading arrangements or customs unions will use the AfCFTA as an overarching framework to negotiate preferential trade and tariff concessions with one another.
Preparing for success: key takeaways for clients engaged in cross-border trade in goods and logistics
With the tariff concession schedule submitted for ratification and progress being made on the Rules of Origin, businesses engaged in intra-African trade should begin preparing for the trade in goods under the AfCFTA:
- Retail sector businesses currently engaged in cross-border trade should identify which of their products will fall into the liberalised tariff lines, and which products fall under sensitive or excluded tariff lines, with the latter potentially including certain meat and vegetable products, cheese, clothing and textiles, fisheries products, honey, sugar, vehicles and automotive parts and wheat flour.
- Cross-border traders should consider the impact of Annex III to the Protocol on Trade in Goods (Customs Co-operation and Mutual Administrative Assistance). We are likely to see an increase in the sharing of information between customs and revenue authorities across the continent. Over time, it will likely become easier for revenue authorities to identify and prosecute customs noncompliance. Traders should review their standard operating procedures and supplier terms, to ensure that risk areas are adequately addressed.
- Annex VIII to the Protocol on Trade in Goods governs transit under the AfCFTA, and aims to grant all transiting traffic the freedom to traverse AfCFTA Member States’ territories through, inter alia, the global licensing of transiters and carriers and the adoption of intra-continental carnets (i.e. guarantee of customs compliance and free transit). Cross-border traders and logistics and carriage service providers should carefully consider the impact of these measures on their liability and insurance coverage obligations.