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Harnessing Africa’s free trade agenda – AfCFTA Protocol on Trade in Services

17 October 2023
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Overview

  • This is the fifth part in a series of articles on the African Continental Free Trade Area (AfCFTA). It outlines the Protocol on Trade in Services, which is the second protocol to the AfCFTA agreement.
  • The Protocol aims to create an open, transparent, and integrated single services market, fostering economic growth and development across sectors.
  • Building upon existing progress in services liberalisation and regulatory harmonisation at regional and continental level, the focus is on leveraging the potential of service providers on the continent to participate in regional and global value chains.
  • While recognising the sovereignty of State Parties to regulate services within their territories for national policy goals, the emphasis is on responsible regulation that does not compromise consumer protection, environmental safeguards, and overall sustainable development.

This is the fifth 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 businesses 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 Services is the second protocol to the African Continental Free Trade Area (AfCFTA) agreement. In this Protocol, State Parties commit to establishing a framework of principles and rules for trading in services (in addition to goods) to enhance intra-African trade.

The Services Protocol aims to create an open, transparent, and integrated single services market, fostering economic growth and development across sectors. Building upon existing progress in services liberalisation and regulatory harmonisation at regional and continental level, the focus is on leveraging the potential of service providers on the continent to participate in regional and global value chains. While recognising the sovereignty of State Parties to regulate services within their territories for national policy goals, the emphasis is on responsible regulation that does not compromise consumer protection, environmental safeguards, and overall sustainable development.

The Protocol expressly acknowledges the challenges faced by the least developed, landlocked, island states and vulnerable economies as well as their unique economic circumstances and trade needs. Furthermore, the establishment of a Single African Air Transport Market through the Yamoussoukro Decision is recognised as a vital step in boosting intra-African trade, particularly within the AfCFTA context.

In 2023, the AfCFTA Guided Trade focuses on five priority areas, namely tourism, transport, business services, communication services, and financial services.

We discuss the Services Protocol in two articles. In this, the first article, we provide a broad overview of the key provisions of the Protocol. In the second, we will touch on challenges and measures that are critical to the successful implementation of the Protocol, as well as certain of the Flagship Projects undertaken by the African Union to make this a reality.

Key provisions of the Services Protocol

‘Trade in services’ means the supply of a service across borders and includes any of the following:

  • Provision of services from one country into the territory of another;
  • Provision of services to consumers located in another country ;
  • Provision of services by a supplier of one country to consumers in another, through a commercial presence in that country; or
  • Provision of services by a supplier of one country through the presence of natural persons in the territory of another country.

Part IV of the Protocol introduces 11 general obligations on State Parties. These include:

  1. Most-favoured-nation treatment

AfCFTA State Parties are required to afford one another’s service suppliers treatment that is no less favourable than what they afford to like service suppliers of any third party. (A third party is a state that is not a party to the AfCFTA agreement.)

State Parties may enter into new preferential treatment agreements with third parties, but such agreements must not impede or frustrate the objectives of the Protocol, and must be extended to State Parties on a reciprocal and non-discriminatory basis.

It is envisaged that there will be a Most Favoured Nation exemption list, and preferential treatment to third parties on this list will be permitted.

An express exemption to the principle of Most Favoured Nation is the measures that are taken as a result of a double taxation agreement that binds a State Party.

  1. Transparency

State Parties must publish all relevant measures of general application that pertain to or affect the operation of the Protocol. This includes any international and regional agreements pertaining to or affecting trade in services with third parties that they are party to prior to or after entry into force of the Protocol. State Parties must update this list annually.

  1. Disclosure of confidential information

State Parties are not required to disclose confidential information and data that may impede law enforcement, or that may be contrary to the public interest, or that may prejudice the legitimate commercial interests of particular (public or private) enterprises.

  1. Special and differential treatment

State Parties must consider progressively liberalising service sectors’ commitments and modes of supply to promote critical sectors of growth as well as social and sustainable development. They may also grant flexibilities, such as transitional periods, to accommodate special economic situations; and they may accord special consideration to the provision of technical assistance and capacity-building though continental support programmes.

  1. Right to regulate

State Parties may regulate services within their territories to meet national policy objectives, as long as this does not impair the rights and obligations arising from the Protocol.

  1. Domestic regulation

State Parties must maintain or institute judicial, arbitral or administrative tribunals or procedures that provide for the prompt review of (and, where applicable, appropriate remedies for) administrative decisions affecting trade in services. Such procedures must be objective and impartial and be independent from the agency entrusted with the administrative decision concerned.

  1. Mutual recognition

State Parties may recognise the education or experience obtained, requirements met, or licences or certifications granted in another State Party in the authorisation or certification of suppliers. Such recognition may be achieved through harmonisation and may be based on an agreement or arrangement with the State Party concerned, or may be accorded autonomously.

Where a State Party accords recognition autonomously, it must allow an adequate opportunity for any other State Party to demonstrate that education, experience, licences or certifications obtained in that State Party’s territory should be recognised. Such recognition must not be granted in a manner that would constitute a means of discrimination between State Parties in the application of standards.

Within 12 months of the coming into force of the Protocol, State Parties must inform the Secretariat of their existing recognition measures, and whether such measures are based on agreements between State Parties or not. State Parties must also inform the Secretariat (as far in advance as possible) of the opening of negotiations relating to such agreements, and they must inform the Secretariat when they adopt new recognition measures.

Where appropriate, State Parties must work in cooperation with relevant intergovernmental and non-governmental organisations towards the establishment and adoption of common continental standards and criteria for recognition, as well as common continental standards for the practice of relevant trades and professions.

  1. Monopolies and exclusive service suppliers

State Parties must ensure that a monopoly supplier in its territory does not act in a manner that is inconsistent with the State Party’s obligations under the Protocol, and that it does not abuse its monopoly position to act in a manner that is inconsistent with the State Party’s obligations.

  1. Anti-competitive business practices

The Protocol records that State Parties appreciate that certain business practices may restrain competition and restrict the trade in services. At the request of a State Party, another State Party will be required to enter into negotiations with a view to eliminating anti-competitive practices, and to share publicly available, non-confidential information of relevance to the matter in question.

  1. Payments and transfers

State Parties must not apply restrictions on international transfers and payments for current transactions relating to its specific commitments. The Protocol does not affect the rights and obligations of members of the International Monetary Fund (IMF), including the use of exchange actions. However, State Parties must not impose restrictions on capital transactions inconsistent with their specific commitments regarding such transactions, except as provided under the Protocol or at the request of the IMF.

  1. Restrictions to safeguard the balance of payments 

In the event of serious balance of payment and external financial difficulties, or the threat thereof, State Parties may adopt restrictions on the trade in services on which they have undertaken specific commitments. Such restrictions must not discriminate among State Parties; must avoid unnecessary damage to the commercial, economic and financial interests of other State Parties; and must be temporary and phased out as the situation improves. A State Party imposing restrictions must notify the Secretariat and must consult with the Committee on Trade in Services.

State Parties may:

  • Implement measures that are necessary to protect public morals and to maintain public order.
  • Impose measures necessary to protect human, animal or plant life or health; measures necessary to secure compliance with applicable laws and regulations; and measures that are aimed at the equitable or effective imposition or collection of taxes.
  • Take any action that they deem necessary to protect their essential security interests or comply with their obligations under the UN Charter for the maintenance of international peace and security.

The general principles do not restrict State Parties from applying domestic subsidies to domestic service suppliers in relation to their national development programmes. A State Party that contends that such subsidies adversely affect it may request consultations with the State Party imposing the subsidies.

Liberalisation and market access

The Protocol on Trade in Services seeks to make provision for progressive liberalisation and market access. In this regard, State Parties may not:

  • place limits on the number of service suppliers, whether in the form of numerical quotas, monopolies or exclusive service suppliers;
  • place limits on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;
  • place limits on the total number of service operations or on the total quantity of service output;
  • place limits on the number of natural persons that may be employed in a particular service sector;
  • place restrictions on the types of legal entity through which a service supplier may supply a service.

Enforcement

The Committee on Trade in Services, as established by the Council of Ministers in terms of article 11 of the AfCFTA agreement, is tasked with overseeing the Services Protocol. The Chairperson of the Committee is elected by State Parties. The Committee must prepare annual reports for State Parties to facilitate the implementation, monitoring and evaluation of the Services Protocol.

Capacity building

The importance of technical assistance, capacity building and cooperation to support State Parties’ efforts to strengthen their capacities in the supply of services is recognised. State Parties must accordingly mobilise resources and implement measures to:

  • build capacity and training for trade in services;
  • improve the ability of service suppliers to gather information on and to meet regulations and standards at international, continental, regional and national levels;
  • support the collection and management of statistical data on trade in services;
  • improve the export capacity of formal and informal service suppliers;
  • address quality and standards needs; and
  • develop and implement regulatory regimes for specific services sectors, in particular where State Parties have made specific commitments.

Challenges and exciting African Union projects to address them

While the establishment of a comprehensive framework for trade in services holds great potential for enhancing intra-African trade and economic growth, several challenges may arise during its execution and implementation. Some of these challenges include:

  • Consensus on service quality and recognition of qualifications

Establishing common agreement among State Parties regarding the quality standards of services and the baseline of required qualifications and skills is essential. A leading sector in this regard is the financial services sector which adheres to International Financial Reporting Standards. Similar service standards may need to be developed for other relevant sectors.

  • A pan-African e-network

The information and communications technologies (ICT) sector holds great promise for the continent and enormous strides have been made in the development of ICT infrastructure.

An exciting African Union flagship project is the Pan-African E-Network, which aims to implement policies and strategies that will lead to transformative e-applications and services in Africa. Of particular importance is the intra-African broad-based terrestrial infrastructure making the information revolution the basis for service delivery in the bio and nanotechnology industries, and ultimately transforming Africa into an e-society.

  • Accreditation and skill development

Article 10 of the Protocol provides for State Parties’ rights to recognise the educational qualifications, licences and certifications granted by other State Parties. This creates the opportunity for even greater collaboration and agreement on curricula between universities, colleges and other training institutions across State Parties.

Formal accreditation of colleges, faculties and universities across the continent that meet these criteria may assist in ensuing the free movement of students and faculty, and ultimately the provision of services. Would it be far-fetched to imagine African Union endorsed universities across Africa?

Another one of the African Union’s flagship programmes is the Pan-African Virtual and E-University (PAVEU). It is geared to address the need to accelerate the development of  people, science, technology and innovation. This project seeks to capitalise on the digital revolution in Africa and has the potential to reach large numbers of students in multiple locations simultaneously anywhere and anytime. This project is an open distance learning and e-learning arm of the Pan-African University whose Rectorate is located in Yaounde, Cameroon.

The structure of PAVEU is not yet formally adopted, but to date, 10 online courses, content and curricula have been developed and information technology equipment has been procured.

  • Grassroots up

Goal 2 of the African Union’s Agenda 2063 expresses Member States commitment to ‘well-educated citizens and skills revolution, underpinned by science, technology and innovation’. The Second Continental Report on the Implementation of Agenda 2063 by the African Union recognises that the continent has work to do.

The enrolment rate for pre-primary school in 2021 was only 45% – significantly lower than the envisaged 75% target. For primary school, the enrolment rate was 86%, against the target of 95%. Overall secondary school enrolment was at 52%.

On the bright side, the continent registered significant improvements in the proportion of qualified teachers in the areas of science, technology, engineering and mathematics, which rose from 44% in 2013 to 51% in 2023. Special efforts must be made by State Parties to facilitate access to high quality education on the continent. Our future depends on it.

  • Cross-border work permits

The cross-border provision of services presupposes the movement of people. To enable this, agreement on appropriate work permits within the AfCFTA will be critical. This may require a shift from protectionist national immigration policies towards the establishment of a unified, reciprocal framework for such permits together with their effective enforcement.

  • The African Passport

The African Union recognises the need for lawful cross-border movement of persons and another one of its flagship projects is the African Passport and Free Movement of People project. This initiative aims to transform laws in African countries to facilitate the issuance of visas to citizens of State Parties.