the african continental free trade area (afcfta) update

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The African Continental Free Trade Area (AfCFTA) Update

Jason Blackman -Senior Director -Customs and Regulatory Affairs - DHL Express Sub Saharan AfricaDonald Mackay - Director - XA International Trade AdvisorsMark Goodger - CEO and Founder – GMLSKeith Engel – CEO - SAIT

YOUR KEY TO THE TAX COMMUNITY

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The African Continental Free Trade Area (AfCFTA) Update

20th September 2021Jason BlackmanSenior Director -Customs and Regulatory AffairsDHL Express Sub Saharan Africa

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3 DHL Express Sub Saharan Africa Customs and Regulatory Affairs

Disclaimer

Any regulatory information contained herein is for informational purposes only and DHL assumes no responsibility for the accuracy of the information contained herein. DHL does not provide

specific regulatory or legal advice to the public and you are encouraged to seek your own legal or compliance counsel.

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DHL Express Sub Saharan Africa Customs and Regulatory Affairs4

Background• If anything, the COVID-19 pandemic has reemphasized the fundamental importance of global trade and

creating a transparent and consistent regulatory framework supported by streamlined Customs processes that balance the need for compliance with trade facilitation and will attract foreign Direct Investment and drive economic growth on the Continent.

• The landmark African Continental Free Trade Area (AfCFTA) agreement, which went operationally live in January 2021 (although trade has yet to take place), is intended to create a continental free-trade zone with a combined Gross Domestic Product (GDP) of USD$3.4 trillion, according to the African Union (AU).

• This trade agreement the largest in the world since the formation of the WCO emphasizes the reduction of tariffs and non-tariff barriers, and the facilitation of free movement of people and labor, right of residence, right of establishment, and investment.

• It entered into force in May 2019 with the 22nd ratification but trade was only due to have effectively started 1st January 2021 but that no trade has actually yet taken place.

• 54 signatories that have signed the consolidated text with just Eritrea not yet having signed. • 40 have completed the domestic approval processes in preparation for ratification• 38 countries (70%) have deposited their instruments of ratification with the depository (Chair of the

African Union Commission).

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ObjectivesGeneral• Create a single market for goods, services, facilitated by movement of persons in order to deepen the economic

integration of the African continent and in accordance with the Pan African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063

• Create a liberalised market for goods and services through successive rounds of negotiations• Contribute to the movement of capital and natural persons and facilitate investments by building on the initiatives

and developments in the State Parties and the Regional Economic Communities (RECs)• Lay the foundation for a Continental Customs Union at a later stage and to promote and attain sustainable and

inclusive socio-economic development, gender equality and structural transformation of the State Parties• Promote industrial development through diversification and regional value chain development, agricultural

development and food security;• Enhance the competitiveness of the economies of State Parties• Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental

integration processes

Specific• Progressively eliminate tariffs and non-tariff barriers to trade in goods• Progressively liberalise trade in services; cooperate on investment, intellectual property rights and competition

policy• Cooperate on all trade-related areas; cooperate on customs matters and the implementation of trade facilitation

measures • Establish a mechanism for the settlement of disputes• Establish and maintain an institutional framework for the implementation and administration of the AfCFTA.

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The Operational Instruments1. The Rules of Origin: A regime governing the conditions under which a product or service can be traded duty free across the region

2. The Tariff concessions: : The aim is to liberalise 90% of tariff lines (not trade) over 5 years; least developed countries (LDCs) will implement their agreed tariff reductions over 10 years. The remaining 10% of tariff lines is divided into two categories - 7% of the tariff lines may be designated sensitive products, and liberalised over 10 years (LDCs have 13 years). The remaining 3% of the tariff lines may be excluded from liberalisation. The AfCFTA Online Negotiation Tool willFacilitate the negotiations on tariff liberalisation between State Parties, Customs Unions or Regional Groupings under the AfCFTA;Provide tools to ensure the technical quality of the offers made;Increase transparency while safeguarding confidentiality; andProvide tools for users/negotiating groups to interact.

3. The Continental Online Tool/Mechanism for monitoring, reporting and elimination of Non-tariff Barriers (NTBs): The Continental tool will ensure NTBs are monitored with a view to ensuring they are eliminated

4. The Pan-African Payments and Settlement System (PAPSS): Is a centralised payment and settlement infrastructure for intra-African trade and commerce payments. This project is being developed in collaboration with the African Export-Import Bank, Afreximbank which will facilitate payments as well as formalise some of the unrecorded trade due to prevalence of informal cross-border trade in Africa

5. The African Trade Observatory: A trade information portal that will address hindrances to trade in Africa due to lack of information about opportunities, trade statistics as well as information about exporters and importers in countries

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The Protocols (those circled are currently in negotiation)

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Key Updates 1/4

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Key Updates 2/441 countries have submitted their schedules of tariff concessions. The tariff offers available are those of CEMAC, EAC, ECOWAS, SACU, Malawi, Mauritius, and São Tomé and Príncipe.

• CEMAC's schedule of tariff commitments includes tariff offers for non-sensitive and sensitive goods and the products excluded from liberalisation.

• For SACU, the tariff offer covers only non-sensitive goods with agreed RoO. Tariff offers will be finalised once all RoO are agreed.

• For ECOWAS, Malawi, EAC, and São Tomé and Príncipe the tariff offers are for non-sensitive goods. The tariff offers include goods with and without agreed RoO.

• 94% of Mauritius' MFN applied tariffs are duty-free

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Key Updates 3/4 • Although a decision for trade to start on 1 January 2021 was taken by the AU Assembly

(5 December 2021), no trade has yet taken place under the AfCFTA – preferential trade can only commence once tariff schedules, ROO and conditions of trade have been finalised.

• Negotiations on the Rules of Origin for goods such as textiles and apparel, dairy, and motor vehicles, have continued

• Some traders have raised concerns that the liberalisation of tariff lines will lead to protectionism through Non-Tariff Barriers

• As of July 2021, 86.1% of the AfCFTA RoO have been agreed, while negotiations on the outstanding* rules are expected to conclude soon.

• The 14% (rounded) in outstanding issues comprise:• Scattered issues: 2%; Textiles: 10.5%; Automotive: 1.4%

• By July 2021, 28 tariff offers had been certified by the AfCFTA Secretariat as meeting the 90% threshold.

• A 3-month extension to allow for the conclusion of RoO negotiations for textile products is being considered.

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Key Updates 4/4 • Of the following seven protocols only the first three have been concluded:

• Protocol on Trade in Goods; two outstanding Annexes (tariff concessions and rules of origin)

• Protocol on Trade in Services (this is completed) but specific commitments for the 5 priority sectors are not yet concluded -financial, communication, transport, business services and tourism (member states are making their commitments)

• Protocol on Rules and Procedures for the Settlement of Disputes (completed)

• Protocol on Investment – currently under negotiation in phase 2

• Protocol on Intellectual Property Rights - currently under negotiation in phase 2

• Protocol on Competition Policy – currently under negotiation in phase 2

• Protocol on e-commerce –to be negotiated in phase 3 date TBC

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The Continued Challenges• There remain several challenges on the road ahead and we need to be practical realists in determining

whether this date is achievable and factoring the following points for consideration in this expectation.

• Lowering and eliminating tariff barriers whilst in theory be easily achievable albeit be in the context of tariff revenue replacement there have numerous delays in finalizing them and reaching agreement but progress is being made.

• Policy and structural reforms including replacing the patchwork of regional agreements,• Streamlining border procedures• Prioritizing trade reforms above own self-interests and enacting the non-tariff and trade facilitation

measures is where the key challenge lies and the difficulty with ongoing negotiations, particularly the services liberalisation, given the number of State Parties and their varying economic positions;

• System integration and technology advances including digitisation• Achieving the AfCFTA’s full potential depends on agreeing to ambitious liberalization and implementing it

in full. Partial reforms would lead to smaller effects• Confusion regarding integration between AfCFTA and the various other regional economic arrangements

already in existence, such as the SADC Protocol on Trade and the Tripartite Free Trade Area (still under negotiation);

• The potential effect of increasing the economic imbalance among member countries due to concentration of economic activities in a few African countries with low production costs

• Communication and private sector involvement and drive Organisational Cultural Change within Customs Administrations

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Why does AfCFTA matter?

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Why did SA implement AfCFTA on 1 January 2021 for Egypt &

São Tomé?

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How do we change our position if we have implemented in law?

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Implications of current

situation in SACU

Eswatini and Lesotho

Localization

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Could we end up with multiple bilateral agreements?

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How will we fund the implementation of the

agreement?

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We need to decide if we want a functional agreement or just talk

about an agreement

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How will the NEW African Continental Free Trade Area (AfCFTA) impact your Company?

AfCFTA Implementation - Effective 1 January 2021

What you will gain from this Webinar:

o Understand the AfCFTA itself – A Continental Customs Union o Understand the potential Value & Opportunities for your Organisationo Understand the Customs Technical Terms of the Principles of ORIGINo Understand the Role of Customs and various Stakeholderso Understand the Operationalization of the AfCFTA and Secretariateo Understand the 8 African Regional Trade Agreements

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AfCFTA Research Report

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Objectives of the Agreement

• Initiate a single market, deepening the economic integration of the continent• Establish a liberalised market through multiple rounds of negotiations• Promote the movement of capital and people, facilitating investment• Move towards the establishment of a future continental customs union• Achieve sustainable and inclusive socio-economic development, gender equality and

structural transformations within member states• Enhance competitiveness of member states within Africa and in the global market• Encourage industrial development through diversification and regional value chain

development, agricultural development and food security• Resolve challenges of multiple and overlapping memberships

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And More = Origin− The World Customs Organization (WCO) hosted the 39th Session of the Technical Committee

on Rules of Origin (TCRO) on 2 February 2021. Chaired by Ms. DING Nan (China) and with a welcome from the Deputy Secretary General, Mr. TREVIÑO CHAPA, the meeting was attended by more than 100 participants from around the world. This included observers from the WTO, UNCTAD and the ICC.

− The meeting was updated on intersessional developments in relation to the WCO Action Plan on Preferential Rules of Origin, the Revenue Package, capacity building, and the practical application of rules of origin, including implementation of Advance Ruling systems. Particular coverage of the progress of the work under the Comprehensive Review of RKC on Specific Annex K was given.

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Given the growing proliferation of Trade Agreements, it is important that new agreements unlock their potential to achieve greater commitments from signatory parties to

enact positive and constructive reform.

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Regional Economic Communities1. Arab Maghreb Union (UMA)

2. Common Market for Eastern and Southern Africa (COMESA)

3. Community of Sahel-Saharan States (CEN-SAD)

4. East African Community (EAC)

5. Economic Community of Central African States (ECCAS)

6. Economic Community of West African States (ECOWAS)

7. Intergovernmental Authority on Development (IGAD)

8. Southern African Development Community (SADC)

Under definition of Article 5

(b) RECs Free Trade Areas as Building blocs for AfCFTA, and ultimately an African Customs Union.

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Customs-related Annexes of the Protocol on Trade in Goods

Annexures

which require

implementatio

n by Customs

Annex 1: Tariffs Liberalisation Schedules of Commitments

Annex 2: Rules of Origin

Annex 3: Customs Cooperation and Mutual Administrative AssistanceAnnex 4: Trade Facilitation

Annex 5: Non-Tariff Barriers

Annex 8: Transit

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Article 8 of AfCFTA – Status of ProtocolsThe Protocols on Trade in Goods, Trade in Services, Investment, Intellectual Property Rights, Competition

Policy, Rules and Procedures on the Settlement of Disputes and their associated Annexes (Annex 2 –

concept of originating products), and Appendices shall, upon adoption, form an integral part of the Agreement.

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Part IV – Transparency – Article 16 - PublicationEach State Party shall promptly publish or make publicly

available through accessible mediums, its laws, regulations, procedures and administrative rulings of

general application as well as any other commitments under an international agreement relating to any trade

matter covered by this Agreement.

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The only certain thing about the future is

That Things will change…

Let us deliver on our

Objectives and Responsibilities !!!

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Important points to Note !!“Certificate of Origin” means the documentary proof of origin issued by a Designated Competent Authority, confirming that a

particular Product complies with the origin criteria applying to preferential trade under the Annex Protocol on Trade in Goods

and in accordance with paragraph 1(a) of Article 17 of this Annex;

“Designated Competent Authority” means a body or organisation designated by a State Party to issue Certificates of Origin;

“Origin Declaration” means an appropriate statement as to the origin of the Goods made, in connection with their exportation

by the manufacturer, Producer, supplier, Exporter or any other competent person on the commercial invoice or any other

document relating to the Goods;

“Producer” includes a mining, manufacturing or agricultural enterprise or any other individual grower or craftsman who

supplies Goods for export;

“Wholly Obtained Products” 1. The following Products shall be considered as wholly obtained in a State Party when exported

to another State Party; EXCLUSIONS !!

“Sufficiently Worked or Processed Products” Value Added; non-originating Material content; change in tariff Heading; or

specific processes.

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More Important Points to Note !!− Working or Processing not Conferring Origin;

− Cumulation of Origin within the AfCFTA- Last State worked;

− A proof of origin shall be valid for twelve (12) months from the date of issue;

− an “Approved Exporter” within the meaning of Article 20 of this Annex;

− any Exporter for any Consignment consisting of one or more packages containing originating Products whose total

value does not exceed five thousand United States dollars (USD5,000);

− Certificate of Origin Issued Retrospectively;

− Issuance of a Duplicate Certificate of Origin;

− Issuance of a Replacement Certificate of Origin;

− Exemption from Proof of Origin:

− Information and Procedure for Cumulation Purposes: And MORE !!!

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Global ImportanceAs noted by the World Bank the AfCFTA is a major opportunity for Africa, but implementation will be a

significant challenge - it will take some time to become a reality and will become fraught with issues

once the participants grasp the impact !!

Are you ready?

the african continental free trade area (afcfta) update

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