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The Era of the African Continental Free Trade Area Begins

By January 27, 2021 No Comments

It’s symbolic, but a start. The African Continental Free Trade Area (AfCFTA) launched on Jan. 1. However, the full implementation of the continent-wide free trade area — the largest since the creation of the World Trade Organization (WTO) — will likely take decades.

AfCFTA, signed in March 2018, aims to bring together 1.3 billion people in a $3.4 trillion economic bloc that the World Bank projects could lift tens of millions of people out of poverty by 2035. According to the bank, the agreement has the potential to boost Africa’s exports by $560 billion and increase wages and the standard of living for skilled and unskilled workers throughout the continent.

How can it do all that? The agreement encourages intra-continent trade, which has historically been low in Africa compared with other continents. Trade between African countries, for example, comprised less than 15% of African exports in 2019. That compares with intra-continent trade percentages of 31%-69% for other continents, including Europe, Asia, and North America.

The global pandemic delayed the launch of the African Continental Free Trade Area from July 2020 to January of 2021 and still makes implementation challenging. Protectionism among some of the area’s members is another challenge, as it is in any agreement of this nature.

Another issue is infrastructure. So far, 54 African countries have signed the agreement (with the exception of Eritrea), with nearly three dozen ratifying it. But of those countries ratifying the agreement, most lack the customs procedures, equipment, and facilities to currently implement tariff-free trade. Other details involved in bringing the agreement to life — such as agreeing on rules of origin — must be worked out. Rules of origin must be set, ratified and ultimately, enforced.

Another issue is legal in nature. A number of African countries have laws that have the potential to be incompatible with the agreement or are definitely incompatible. Those laws will need to be modified to fit within the framework of the agreement, or the agreement must be adapted to work under those laws.

The AfCFTA is definitely a game-changer for Africa that will require commitment, flexibility, investment, and legal resolution for it to succeed. It’s one thing to commit to removing tariffs on 90 percent of goods and promote inter-content trade, though. Now the mechanism of how that will be accomplished must be ironed out. In other words, now the real work begins.

Ehrenstein|Sager’s International Litigation and Arbitration practice has effectively litigated, tried, and arbitrated a wide range of international disputes involving private enterprises and governments.