Law and Policy of the African Continental Free Trade Area (AfCFTA)

Table of Contents

1. Frontmatter

2. Increasing Trade and Investment in Africa Through the AfCFTA and the WTO: An Introduction

   Tapiwa Victor Warikandwa, Howard Chitimira, Patrick C. Osode

   Abstract

   International trade and investment informed by the World Trade Organisation’s multilateral trade rules are essential for promoting economic growth and prosperity in today’s interconnected world. With a shared objective to make trade and investment more sustainable, efficient and attractive, the African Continental Free Trade Area (AfCFTA) adopted the Protocol on Investment in 2023. The AfCFTA’s Protocol on Investment has emerged on the global stage promising to reshape how nations engage in investment activities. The AfCFTA Investment Protocol may appear complex but, if efficiently implemented, its potential to foster economic development, encourage sustainable foreign investment and create new opportunities for the African continent can transform the international trade and investment landscape. The AfCFTA Investment Protocol aims at promoting, facilitating and protecting intra-African trade and investments. This is in line with its objective to create a single market through intra-African progressive trade liberalisation and, in turn, improve the business environment for Africa. This chapter introduces the AfCFTA and its significance to growing world trade as well as investment in Africa and the rest of the world. It points to the potential that the AfCFTA has in promoting inclusive growth in Africa and the rest of the world.

3. Evaluating the Prospects and Related Challenges of Regulatory Cooperation to Enhance Market Integration in the AfCFTA

   Sharon Munedzi, Howard Chitimira

   Abstract

   The African Continental Free Trade Area (AfCFTA) creates a transformative opportunity for African countries to strengthen economic integration and foster intra-African trade. Regulatory cooperation emerges as an essential aspect to ensure the effectiveness of the AfCFTA. This chapter explores the importance of regulatory cooperation in promoting market integration and efficient continental free trade. In light of this chapter, regulatory cooperation entails collaborative regulatory measures among member states to establish and align regulatory frameworks, best practices and international standards to govern the African continental trade area. Such cooperation is essential for eliminating unnecessary barriers, increased competitiveness, protection of consumer rights, promoting information sharing, reducing trade costs and fostering a conducive environment for business through mutual recognition, harmonization and convergence of regulations. However, the chapter also acknowledges the challenges associated with implementing regulatory cooperation mechanisms. For example, differing regulatory philosophies, institutional capacities and political dynamics. The authors propose collaborated dispute resolution mechanisms and phased regulatory approaches to ensure the implementation of a robust intra-African trade regulatory framework. The chapter underscores the importance of proactive collaboration, information sharing and ongoing dialogue to enhance regulatory cooperation within the AfCFTA so as to maximize its benefits for all stakeholders.

4. COVID-19 Pandemic and the African Continental Free Trade Agreement

   Fostering a More Robust Regional Trade Integration? Tamanda Kamwendo

   Abstract

   The existence of Regional Trade Agreements (RTAs) is not a new phenomenon to the African continent. RTAs are founded on an unwavering desire to foster economic growth and sustainable development in Africa through trade enhancement. Accordingly, the formation of the African Continental Free Trade Agreement (AfCFTA) was aimed at enabling Africa to reach trade liberalisation and ultimately sustainable development. The expectation is that the Tripartite Agreement will be a pivotal step to escape from the constraints of the split-up economies of Africa’s past. However, as inspiring as these objectives are, the existing barriers to trade within the multilateral trade system are still of concern. Trade under the AfCFTA was expected to commence in 2020, but due to the COVID-19 pandemic, this timeframe was pushed back. COVID-19 has tested the fundamental principle that underpins the AfCFTA—enhanced integrated decision-making as States demonstrated the primacy of national interests at the expense of advancing regional trade. This chapter aims to examine whether the AfCFTA can indeed be considered a beacon of hope in ensuring market access for the African region. The chapter also analyzes if the impact of the global pandemic on the inception of AfCFTA trade could be a compelling reason to remodel and build a more resilient AfCFTA.

5. A SADC Perspective on the Selected Challenges Affecting the Use of Mobile Money to Promote Digital Financial Inclusion and Trade in the AfCFTA

   Elfas Torerai, Howard Chitimira

   Abstract

    The use of mobile money has transformed the lives of many poor people across the Southern Africa Development Community (SADC). Millions of individuals who are excluded from the mainstream and formal financial sector are using mobile money to access financial services. In this regard, mobile money plays a huge part in enabling those in the informal sector to use mobile money in furtherance of the African continent’s digital and financial inclusion agenda. Financial inclusion is a central enabler of the African Union (AU)’s growth agenda in line with the United Nations (UN)’s Sustainable Development Goals (SDGs) such as poverty alleviation, expanding economic opportunities and promoting market access. The African Continental Free Trade Area (AfCFTA) seeks to establish one of the world’s biggest trade and economic markets. While the AfCFTA is shaping up, it is important to note that financial technology (fintech) products such as mobile money can greatly assist in improving cross-border trade especially among the poor and small to medium enterprises (SMEs). However, several challenges are hampering the sustainable use of mobile money in the SADC. There are regulatory challenges affecting the use of mobile money in many SADC countries owing to the absence of robust regulatory frameworks. Digital illiteracy is also a challenge because policymakers and the general populace lack the requisite know-how to use fintech products optimally. Some governments in the SADC region have not fully embraced mobile money, making it difficult to drive digital financial inclusion for the poor. In this chapter, the authors argue that the AfCFTA can leverage the goal to create a single common market for goods and services on the proven ability of mobile money to ramp up digital financial inclusion and trade in the SADC region. Although our focus is on the SADC region, the analysis in this chapter is reflective of experiences in other regional economic communities (REC) across the African continent. We further argue that policymakers should consider improving the regulatory frameworks of fintech products in their respective SADC countries. There should be improved digital and financial literacy for the general public, especially the poor, unbanked and financially excluded persons in the SADC region to enhance their participation in the formal trade and businesses in the financial sector.

6. Can AfCFTA Balance and Reconcile the Impossible Trinity

   Promoting Trade Liberalisation, Avoiding Tax Base Erosion and Curtailing Harmful Tax Practices in Africa? Pie Habimana

   Abstract

   Today, the AfCFTA is at the centre of interest among politicians, economists, lawyers, etc., who discuss its plausible outcomes. A successful AfCFTA will greatly change the overall socio-economic situation in Africa through the liberalisation of internal trade. Be that as it may, the AfCFTA can also be viewed from other angles, such as its potential impact on harmful tax competition in Africa. Unlike the European Union, whose success in the single market is due to several factors, including effective regulation of harmful tax competition, this area is still uncharted territory for Africa. There is, therefore, a high risk that a successful AfCFTA will encourage companies to locate in countries with favourable taxation, as businesses will be able to trade across the African continent. As a result, a successful AfCFTA in terms of trade liberalisation risks, on the other hand, to exacerbate harmful tax practices that erode the sovereigns’ tax bases. This chapter shows that a successful AfCFTA carries the risk that multinational companies will shift their profits and relocate in order to minimise the tax payable. To prevent this, this chapter proposes the adoption of an Additional Protocol based on Article 8(3) of the AfCFTA Agreement.

7. Recalibrating the Regulation of Trade in Agriculture Under the African Continental Free Trade Agreement to Realise the Human Right to Food

   Shelton Tapiwa Mota Makore

   Abstract

   The African Continental Free Trade Agreement (AfCFTA) encapsulates a dynamic liberal regime governing Africa’s trade in agriculture. AfCFTA imposes continental-wide commitments for contracting parties to liberalise trade in agriculture through the incremental elimination of tariffs and non-tariff barriers. This liberal regulatory regime promoted under the AfCFTA is recognised as a vehicle for boosting intra-African agricultural trade flows, and lowering of Africa’s dependence on food imports for its food security needs, among other loft objectives. This chapter examines the regulation of trade in agriculture under the AfCFTA with a view to determine whether a liberal model adopted under the aforesaid agreement is accommodative of the food security needs of the African countries. The chapter argues that the underlying free trade thesis which constitutes the very ideological justification for the AfCFTA agricultural trade has wider cracks and is unsustainable when examined in scope of the international and domestic obligations imposed by the human right to food on contracting parties. Therefore, this chapter argues that there is a need for the AfCFTA liberal rules in agriculture to be re-calibrated so that they advance the realisation of the human right to food.

8. The AfCFTA Protocol on Competition Policy

   An Opportunity for Effective Enforcement in Digital Markets? Lulama Edith Gomomo

   Abstract

   The emergence of digital markets has disrupted the enforcement of competition law and policy. Most jurisdictions are grappling with the unorthodox business models characterised by complex market structures, network effects, zero-pricing, multi-sided markets, and monetisation of data. The African Union (AU) conceded that anti-competitive practices may hinder trade liberalisation and sustainable development goals. The digital economy can stimulate economic growth, but high concentration of economic power and anti-competitive conduct by few dominant digital undertakings can increase inequality. But there is a lack of enforcement of competition policy at continental level. The AU has recently adopted the Protocol to the establishment of the African Continental Free Trade Area on Competition Policy (AfCFTA Protocol on Competition Policy) including provisions that distinctively regulate the digital markets. The chapter critically evaluates the AfCFTA Protocol on Competition Policy, whether it incorporates concepts that reflect the realities of the digital markets including, zero-pricing, multi-sided markets, and the small but significant non-transitory decrease in quality in competition analysis. It also explores the novel integration of the gatekeeper’s ex-ante obligations and abuse of economic dependence to specifically deal with dominant digital platforms. Finally, it investigates the interface of competition, consumer protection, and data protection policies.

9. Competition Enforcement for Fair-Trade Practices in the AfCFTA Market

   Ignatious Nzero, Chidochashe Nicolette Ncube

   Abstract

   Multilateral trade seeks to promote market access and in turn economic growth and improved standards of living of the citizens. This is because they will have access to cheaper and quality goods and services including those produced outside their domestic markets. Similarly, domestic producers and suppliers will be motivated to innovate so as to effectively compete with quality and cheaper imports that will have unrestricted access to domestic markets. However, whereas trade liberalisation through the rules aimed at reducing barriers to trade have had significant impact on national spheres, the same cannot be said of the private spheres. Within the private spheres, private business enterprises through anti-competitive practices have eroded the gains of trade by distorting trade and erecting barriers to trade. The place of competition enforcement within the trading system has been a subject of debate for some time. The establishment of the AfCFTA and the adoption of competition system within the continental trading system have aided impetus to this debate. This chapter largely argues that the AfCFTA through its competition agreement, is a welcome development to the African economy for there exists strong mechanism such as capacity building and strengthening of national competition authorities to ensure that they become building block for regional and then continental integration.

10. Developing the Africa Continental Free Trade Area Through the Banking Industry: A Law and Economics Perspective

    Tapiwa Victor Warikandwa

    Abstract

    The African Continental Free Trade Area (AfCFTA) Agreement is one of the flagship initiatives of the African Union’s Agenda 2063’s first ten-year implementation plan. The full implementation of AfCFTA is equivalent to the establishment of a continental market, which would need concerted measures to decrease all trade costs and restrictions. The significance of banks in the successful development of the African economy, and hence in the expansion of the African economy, cannot be overstated. One of the most important functions of banks in Africa and other African economies is to provide the necessary capital to facilitate the establishment of businesses of all sizes in order to stimulate the economy’s development and growth. In this chapter, it will be argued that in the context of the AfCFTA, financial institutions, especially banks, play a key role in Africa’s trade finance policy execution. Banks offer the necessary financial assistance to promote intra-economic activity. They leverage businesses and have a financial mediation role aimed at ensuring the survival and success of businesses. However, the chapter will indicate the challenges which banks operating on the African continent are likely to face in their attempts to finance trade for purposes of driving forward the AfCFTA.

11. The (F)Law Behind the Pan-African Online Payment System

    Dunia P. Zongwe

    Abstract

    This chapter discusses Pan-African Payment and Settlement System (PAPSS), a first-ever continent-wide online payment system. Today, cross-border payments require third currency, usually a hard currency, such as the United States dollar or the Euro, which takes time, increases transaction costs, and poses risks that parties will disagree over exchange rates. The PAPSS aims to make it easier for individuals and businesses to buy goods and services online in local currencies. Afreximbank set up the PAPSS as one of the five instruments specially designed to implement the African Continental Free Trade Area Agreement. However, unless Afreximbank or the PAPSS provides the monetary infrastructure necessitated by deeper levels of regional economic integration, they will doom the PAPSS to fail. Scholars have not yet probed the law and economics behind this digital platform, nor has anyone examined how the system will interact with the electronic transactions laws and payment-and-settlement systems (PSS) of the municipal laws of the African Union. Yet understanding this legal and policy framework, if any, can prevent major disputes from arising a few months or years down the line. The author argues that the biggest flaw of the PAPSS is that it lacks a proper law. This (f)law renders the PAPSS unnecessarily cloudy and complex, while inducing traders to stay away from the PAPSS and weakening public confidence in this payment platform.

12. The Causes and Effects of Poor Customs Administration on the Successful Implementation of the African Continental Free Trade Area Agreement (AfCFTA): The Need to Digitalise Customs Procedures in Africa

    Bella Morufa Ngobeni

    Abstract

    Customs play a significant role in trade. They ensure that domestic trade laws are complied with and implement controls that secure revenue. Nonetheless, many African countries are notoriously known to have bad customs environments. Their borders are gridlocked with manual customs operations which consequently induce time delays at borders, customs offices charging excessive customs fees, goods being in transit for long durations, and unscrupulous payments received by people tasked with regulating customs operations and measures at border crossings. As a result, Africa is considered one of the most expensive continents to trade in and with. The excessive administration at borders, police roadblocks, and checkpoints are considerable barriers that make it difficult to trade within and outside the continent. The effectiveness and coherence of custom measures have a significant influence on the growth of trade in the continent, and the advancement of the African marketplace. It is then the purpose of this chapter to investigate the effects of the continent’s poor custom efficiency on the realisation of the African Continental Free Trade Area Agreement and to show the need to digitalise custom procedures and ensure better enforcement of customs laws, as means of improving the custom inefficiencies in Africa.

13. The Feasibility of an African Monetary Union to Fully Implement the AfCFTA

    Gerda van Niekerk

    Abstract

    As outlined in Agenda 2063, the African Union believes that a successful monetary union on the African continent is an essential prerequisite for the full implementation of the AfCFTA. The challenges of forming a monetary union and the convergence criteria to create such must be investigated to determine whether an African Monetary Union is feasible. Challenges include the formulation of a shared monetary policy and the establishment of a common central bank as well as a single currency for Africa. Achieving a small deficit in the current account and a common interest rate for all African countries may also be problematic. The author argues that an African customs union is more achievable than an African monetary union, and the focus in Africa should preferably be on the former. This would be in accord with the AfCFTA agreement that determines in Article 3(d) that one of the general objectives of the AfCFTA is to lay the foundation for establishing a Continental Customs Union.

14. The Interplay Between Tax and the African Continental Free Trade Area (AfCFTA)

    Lessons from the World Trade Organisation (WTO) Jeffrey Owens, Ruth Wamuyu, Rhodah N. K. Nyamongo

    Abstract

    Despite having similar underlying principles, that is the elimination or reduction of barriers to trade, international tax and trade law have traditionally evolved separately Even so, these disciplines are intrinsically linked. First, while multinationals consider an array of factors when selecting an investment location, tax benefits and incentives, all factors remaining constant, influence the attractiveness of a location. Therefore, offering more attractive tax incentives based on the location or origin of investors would have a distortive effect on international trade. In addition, double taxation of investment income would impede the free movement capital. In this way, tax would constitute a barrier to trade. Unsurprisingly, this has led to an increase in tax related cases at the World Trade Organisation (WTO) dispute settlement body, which confirms that despite protests from tax policymakers and exemptions under trade laws, tax laws may be subject to WTO rules. In respect to the AfCFTA, the question arises on how African countries should react to the inevitable interaction between the two disciplines. In this regard, this chapter aims to evaluate the potential tax implications of the AfCFTA, considers the treatment of tax under WTO and specifically analyses the arguments raised in the tax-related cases at the WTO dispute settlement body. It considers the lessons from the WTO cases and proposes a regional response to the interaction between tax and trade.

15. The Growing Potential of Excise Taxation as a Source of Domestic Revenue Mobilisation in the context of the African Continental Free Trade Area

    Jérôme Duperrut

    Abstract

    African governments are committed to fund the continent’s development and are actively influencing Africa’s destiny. The United Nations’ Sustainable Development Goals (SDGs) of emphasise the need to strengthen domestic resource mobilisation (SDG Target 17.1) through enhanced domestic capacity for tax and revenue collection in order to increase the financial means of implementing the SDGs. The African Union’s Agenda 2063 emphasises that African countries must enhance domestic resource mobilisation by implementing effective, transparent, and uniform tax and revenue collecting processes. One of the main sources of funding, along with government development assistance and private investment flows, is the mobilisation of domestic resources. This chapter demonstrated that, similar to other taxes, excise taxes are the outcome of a combination of appropriate tax policy measures and efficient tax administration procedures. Furthermore, in the African context, the importance and benefits of tax administration methods was emphasised as they are essential to maximising the efficacy of excise taxes. In addressing tax and revenue collection within the framework of the African Continental Free Trade Area, this chapter urged African governments—particularly their finance ministries and revenue authorities—to take the lead in financial resource mobilisation for sustainable development.

16. Unlocking Africa’s Potential Through Customs Reform

    Lessons from Nigeria, Liberia, Rwanda, and Mauritius Chebo Tamajong Nfor, Victor T. Amadi

    Abstract

    A wide range of restrictive practices, like customs and administrative entry procedures, make trade difficult, which can stifle the development agenda. Research shows that most African countries face the challenge of burdensome customs procedures underpinned by complex and poor customs administration and inefficient control of border processes. This chapter conducts a comparative analysis of the legal frameworks and policies enabling customs reforms and facilitating cross-border trade in Nigeria, Liberia, Rwanda, and Mauritius. These countries demonstrate the diverse developmental status of most African countries as either developing (Nigeria and Mauritius) or least developed (Liberia and Rwanda) countries. Further, Rwanda emphasises the landlocked qualities shared by sixteen African countries. As a small island State and developing nation, Mauritius also emphasises the geographical traits shared by five other African countries. This discussion aims to provide recommendations that, if considered or applied in other developing or least developed countries, could result in reforming legal policies and frameworks to facilitate cross-border trade. As a background, the chapter will examine the legal frameworks influencing trade facilitation under the African Continental Free Trade Area (AfCFTA) and selected Regional Economic Communities (RECs), which, if adopted and implemented domestically, would aid domestic reforms and bring about a positive role in facilitating trade in Africa.