Study on EAC and the AFCFTA
CALL FOR EXPRESSION OF INTERESTTERMS OF REFERENCE
EAST AFRICAN COMMUNITY (EAC) AND THE AFRICAN CONTINENTAL FREE TRADE AREA: CHALLENGES, GAPS AND POTENTIAL IMPLICATIONS ON TARIFF REVENUES.
1.1 . ABOUT ECONEWS
Econews Africa (ENA) is a Pan-African research and advocacy organization based in Kenya that works to bridge the local, national, regional and global information gaps on development issues, in particular on trade and investments; the extractive industry and finance and development. Econews Africa undertakes training, advocacy, research and community engagements on the four focus areas of trade and investments; extractive industry; environment and climate justice; and finance and development to not only bridge the knowledge gap but also increase citizens’ actions on these issues.
1.2 . CONTEXT AND BACKGROUND
In January 2012, during the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union held in Addis Ababa, Ethiopia, a decision was adopted to establish an African Continental Free Trade Area (AfCFTA). The AfCFTA is one of the major undertakings in the African Union 2063 Agenda which seeks to promote African regional integration by creating a single market for goods and services as well as serving as a stepping stone towards the establishment of an African Economic Community and eventually, the full integration of the continent with harmonised policies including agricultural, energy, monetary and fiscal policies, and the free movement of people and capital.The 1991 Treaty Establishing the African Economic Community, also referred to as the Abuja Treaty proposed a model for continental integration where Regional Economic Communities (RECs) would serve as the foundation for full continental integration. It was proposed that by 2019, a continental customs union would be created, followed by an African Common Market Unfortunately, the emergence of Covid-19 among other geopolitical factors have hampered the process of integration.
Trading under the AfCFTA regime officially began on 1st January 2021 after the Agreement Establishing the African Continental Free Trade Area (the “AfCFTA agreement”) entered into force on 30th May 2019. The AfCFTA negotiations are being conducted in phases with Phase 1 covering trade in goods, trade in services, and Rules and Procedures on the Settlement of Disputes. Phase 2 negotiations will focus on investment, intellectual property rights and competition policy while Phase 3 will focus on e-commerce. In July 2019, the operational phase of the AfCFTA was launched at the Niamey Summit where a framework was created for finalizing any issues with respect to the Phase 1 negotiations.
As countries are yet to agree on schedules of tariff concessions on trade in goods as well as the rules of origin for several products, the AfCFTA is not fully operational in the area of goods. With regards to the modalities for tariff negotiations, the tabled offers by parties must comply with the following: (i)
Eliminate 90% of tariff lines on non-sensitive products over 5 years for non-least developed countries and over 10 years for least developed countries (LDCs); (ii) Designate 7% of the tariff lines as sensitive products which will be liberalized (starting in year 6) over 10 years for non-least developed countries and over 13 years for LDCs; and (iii) Exclude 3% of tariff lines from liberalization where the value of these imports may not exceed 10% of total intra-Africa imports. This level of ambition has been critiqued as being too high and may only benefit a few countries unless there is a proper mechanism for facilitating trade under the AfCFTA that ensures shared prosperity for the continent
Currently, countries are participating in the negotiations either as customs unions i.e. CEMAC, ECOWAS, EAC and SACU or as individual countries for those who are not members of a customs union. Given that all customs union contain a mix of LDCs and non-LDCs, questions regarding which phase-out period should apply to customs union are pertinent however, the decision is ultimately left for the negotiating parties. Nevertheless, states will be required to submit their tariff schedules in adherence to the modalities described above.
Certainly, the implementation and success of the AfCFTA in boosting the standard of living for Africans hinges on a number of factors. First is the impact of tariff liberalization on state revenues and the implications of reduced revenues on the ability of governments to support various economic and social programs as well as promoting industrial development which are critical in improving the livelihoods of the citizens. Second is the complementarity nature between the AfCFTA and other policies in the Agenda 2063 such as the Programme for Infrastructure Development in Africa (PIDA) and the Africa Mining Vision (AMV) where there does not seem to be sufficient attention to the linkages between these policies and the AfCFTA which would be detrimental to the success of the AfCFTA. Lastly, is the ability for member states to effectively implement strategies intended to boost the success of the AfCFTA such as those seeking to simplify and streamline the documentation and procedures for cross-border traders where some countries are likely to fall behind in implementing these procedures as their traders lack sufficient knowledge and information.
Therefore, it is critical for policymakers in the EAC region to consider these issues as they seek to institute the AfCFTA to ensure that the intended objectives of the AfCFTA are indeed realized to the benefit of the continent at large.
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