The African Continental Free Trade Area (AfCFTA) agreement- an initiative of the African Union (AU) and expected to create one boundless continent-wide market of 1.2 billion people worth – is the largest ever free trade area in the world and the biggest in terms of member states.
The Agreement is anticipated to increase intra-Africa trade by 52 percent by 2022 from the current 15 percent. The initiative is also lauded as a valiant move to transform African economies by boosting local manufacturing and trade between and among member states.
Currently, except Eritrea, all African countries have signed the AfCFTA agreement.
The AfCFTA is a landmark achievement in the context of the continents long and rich history, in fostering regional integration to unify the continent. Thus, it is expected to lead the creation of a single continental market of more than 1.3 billion people, with a combined annual output of 2.2 trillion USD, recently launched UNCTAD’s 2019 report states.
As to the report, the transition phase to the Continental Free Trade Area alone could generate welfare gains of 16.1 billion USD and boost intra-African trade by 33 percent. However, realizing the full potential gains from the AfCFTA will require a broad range of complementary policies to address multiple challenges.
According to Dr Joy Kategekwa, Head, UNCTAD Regional Office for Africa, AfCFTA’s member countries to benefit the expected gains from the African Continental Free Trade Area agreement should design Rules of origin which is simple and business friendly.
The Head said that Rules of origin, the criteria needed to determine the nationality of product could make or break the African Continental Free
Trade Area (AfCFTA) that entered into force in May.
Rules of origin, as to her, are a “passport” enabling goods to circulate duty-free within a Free Trade Area (FTA) as long as these goods qualify as originating within the FTA.
Preferential trade liberalization is the most important purpose of free trade area whereby member countries scrap import tariffs and quotas among themselves on most traded goods in order to confer a competitive advantage to firms within the Free Trade Agreement (FTA). But to qualify for such preferences, firms’ within the FTA must meet rules of origin requirements.
The AfCFTA is Africa’s renewed opportunity to steer its economic relations away from a reliance on external donors, foreign creditors and excessive commodity dependence, ushering in instead a new economic and political era focused on resilient cooperation, deeper integration and higher levels of intra-African trade.
UNCTAD Secretary-General Mukhisa Kituyi on her part said that the AfCFTA is a greater achievement in the continent’s history to generate significant gains. However, as to her, countries’ success is highly interrelated with their own Rules of origin. The Rules will determine whether preferential trade liberalization under the AfCFTA can be a game changer for Africa’s Industrialization.
While rules of origin should be context specific, they should be kept simple, transparent, business friendly and predictable, she added.
The report confirms that the AfCFTA could boost African economies by harmonizing trade liberalization at the continental level, promote economic diversification and intra-African trade and foster a more competitive manufacturing sector. According to the report, Rules of origin should neither be costly nor complex for the gains expected from the African Continental Free Trade Area to be realized.
The report indicates that Rules of origin could make or break the African Continental Free Trade Area. To make the Agreement a game changer for the continent and gain the expected benefits, the Rules of origin should be simple, transparent, business friendly and predictable.
Currently intra-African trade is a mere 15percent, compared to around 47 percent in America, 61 percent in Asia and 67 percent in Europe, according to UNCTAD data for 2015 to 2017, but the AfCFTA could radically change that.
UNCTAD estimates that if the agreement is fully implemented, the gross domestic product of most African countries could increase by one percent to three percent once all tariffs are eliminated.
According to the report, the AfCFTA is expected to boost intra-African trade by 33percent once full tariff liberalization is implemented attracting additional intra-African investments and creating market opportunities to foster Africa’s industrialization through regional value chains.
By granting each other trade preference, AfCFTA member countries would source more intermediate and final goods among themselves rather than import from abroad. Through supporting intra-African trade, the agreement would also advance Africa’s industrialization agenda through regional value-chain development, reduce Africa’s dependence on commodities and generate the jobs needed to harness Africa’s demographic dividend.
On the other hand, the report warns that if Rules of origin are made too costly or complex to comply with, firms may instead forego these preferences and choose to trade with partners outside the AfCFTA.
Likewise, to make AfCFTA Rules of origin accessible to firms, an online intra-African trade platform serving as a repository for rules of origin in multiple local languages could be created, the report recommends. Simple rules of origin make it easier to detect origin fraud.
The report also notes that establishing regular platforms for public-private dialogues can help in identifying any challenges to implementation of rules of origin within the AfCFTA to keep them business friendly and supportive of trade for the private sector.
The Ethiopian Herald July 10/2019
BY BETELHEM BEDLU
