The first phase of the African Continental Free Trade Agreement ("AfCFTA") came into force on 30 May 2019, 30 days after the 22nd ratification instrument was deposited with the Chairman of the African Union Commission. On 7 July 2019 Nigeria, Africa's biggest economy, signed the agreement. This is an important milestone for the landmark agreement as it significantly expands the scope of AfCFTA and ensures that the trading bloc is in a much stronger position to potentially negotiate with other international actors. Nigeria's assent leaves Eritrea as the only African country not signed up to the agreement.
Purpose
AfCFTA is an ambitious project, which seeks to create the largest free trade area since the formation of the World Trade Organisation.
The aim of the AfCFTA is to liberalise trade, allow for free movement of business, people, and investment, and create a single currency system throughout the African continent. The initial planning for AfCFTA began in 2013, and substantive negotiations commenced in February 2016.
AfCFTA is to be implemented in two phases, the first phase concerns the liberalisation of trade in goods and services and the mechanism for dispute resolution. The second phase, which is to be negotiated by 2020, will cover investment, competition policy and intellectual property rights.
AfCFTA was opened for signature at the extraordinary Summit of the Assembly of the African Union on 21 March 2018, along with two other legal instruments being the Kigali Declaration (launching the African Continental Free Trade Area) and the Protocol to the Treaty Establishing the African Economic Community Relating to Free Movement of Persons, Right of Residence and Right of Establishment. The majority of African nations signed all three instruments, however, some states selectively signed either only one or two of the instruments.
Scope of the agreement
Key features of the first phase of AfCFTA include:1
- the Protocol on Trade in Goods, requiring the elimination of duties on imports, the elimination of non-tariff barriers to trade, cooperation over product standards and measures for the facilitation of trade and transit;
- the Protocol on Trade in Services, requiring states to increase transparency in service regulations, allow for the mutual recognition of standards, licensing and certification, and liberalisation of services sectors; and
- the Protocol on Dispute Resolution, which provides for a number of methods of state-to-state dispute resolution, including confidential consultations, good offices, conciliation, mediation, panel determination and arbitration. The dispute settlement institutions and processes are quite similar to those of the WTO.
The protocol on investment
As mentioned above, the AfCFTA Agreement will also include a protocol on investment which is to be negotiated in Phase II. A draft has been produced by the African Union Commission, UNCTAD and the Economic Commission for Africa and is expected to be submitted to Member States later this year for negotiation. It is currently envisaged that the Investment Protocol will be adopted by June 2020.
The specific content of the Investment Protocol is unclear and it remains to be seen whether the Protocol will include binding commitments on States. One of the aims of AfCFTA is for States to cooperate on investment and therefore it is likely that negotiations will include discussions on fair and equitable treatment, prohibitions on discrimination and limitations on nationalisation and the qualifying hurdles to be satisfied in order for investors to seek the benefit of any such protections.
Importantly, the dispute resolution mechanism that States will adopt in relation to the investment protocol has also not yet been decided. The effectiveness of the investment protections may turn on whether individual investors from AfCFTA Member States are able to bring enforceable claims against host states, and in particular, whether Member States will agree to international arbitration. The continent has recently seen a trend away from investor-state dispute settlement by way of international arbitration, in part due to a perception that it unfairly favours investors over states. Whether this would however be considered a more viable option in relation to an all-African agreement remains to be seen. Some states might push for the domestic courts of Member States to hear investment disputes, but this would bring concerns about neutrality, certainty and the adoption of consistent approaches across the AfCFTA area.
The form and scope of investment protection included in AfCFTA will be very important to its success, Nigeria's recent signing of the agreement might impact the level of protection afforded, given it has adopted a number of protectionist policies in the past.
Authors: Myfanwy Wood (Senior Associate), Emma Johnson (Partner), Matthew Harnett (Associate) and Julian Lim (Associate)
1. https://web.archive.org/web/20190403214541/https://au.int/sites/default/files/documents/33984-doc-qa_cfta_en_rev15march.pdf
