The African Continental Free Trade Agreement was enforced by the African Union (AU) in May 2019. However, the implementation of its trade benefit was only initiated by South Africa on the 31st of January 2024. Let’s look at what this trade agreement entails, and how it affects South African businesses who import and export.
What is the AfCFTA?
It is the largest trade agreement in the world in terms of the number of participating countries and through its promotion of intra-African trade, it holds the promise of boosting Africa’s income. As a flagship project of the AU, AfCFTA is not an international organisation in itself. It is a member-driven treaty with a communal goal of “boosting intra-African trade, integration and development by creating an integrated market for goods and services, and promoting the cross-border movement of capital and persons”. It does so using independent negotiations between African member states and customs unions.
This means SACU, the South African Customs Union of which South Africa is a member, may enter into negotiations with other member states and trade blocs that ensure unique reciprocal benefits. Because SACU works off one communal tariff book, South Africa may not negotiate as a standalone entity. All negotiations must be with the other four members, namely Namibia, Lesotho, Eswatini, and Botswana.
What is a Customs Union?
Also called a “trade union” or “trade bloc”.
A Customs Union is a free trade area with a common external tariff which consists of more than one country. Typically, the members of a customs union work off one customs policy and tariff book. No customs duties are payable on shipments between members of a customs union.
Trading under AfCFTA
To be eligible to trade under the AfCFTA, the rules of the agreement specify that tariff benefits must be reciprocal to be granted. This means only member countries and customs unions who offer preferential rates of duty on imports may receive reduced tariffs under AfCFTA on their exports.
Currently, besides SACU, the members who have listed AfCFTA preferential duty rates in their tariff schedules are:
- Algeria, Cameroon, Egypt, Ghana, Kenya, Rwanda, Tunisia and Mauritius
Under the rules of reciprocity, only imports from these countries into SACU may receive tariff benefits, and exports from SACU may only get preferential duty rates in these member states. More countries are set to join this list as tariff negotiations are finalised.
Although the agreement is up and running, a lot of its legislation is still in progress of being finalised. This includes the Rules of Origin which are currently finalised for over 88% of tariff lines. Only the rules of origin for the automotive and textile sectors have not yet been completed. All current tariffs and rules are therefore not based on completed negotiations and act as interim measures. For example, until a dedicated AfCFTA certificate of origin may be issued by SARS, SADC certificates linked to an AfCFTA registration are sufficient.
The requirements for implementation
For a member state to trade under AfCFTA:
- Outstanding Negotiations must be concluded.
- Results of tariff negotiations must be adopted (AfCFTA must approve proposed tariff schedules and rules of origin).
- Domestic laws and procedures must be in place. This includes updated tariff books.
- Tariff books in a customs union, like SACU, reflect a common external tariff that all members must ratify.
- Legislation, tariffs, and rules regarding AfCFTA must be published and publicly available (gazetted).
Parallelism in AfCFTA
Although 8 existing trade agreements or regional economic communities (RECs) are recognised in the AfCFTA legislation, these agreements are not affected or superseded by AfCFTA and remain in place. Furthermore, these organisations do not have any rights within AfCFTA. Only state parties (member countries and customs unions) have the right to negotiate and may offer preferential duties. There are also no long-term plans for AfCFTA to result in the disbanding of existing treaties.
What is a Trade Agreement?
A Trade Agreement is an agreements between two or more nations on how they will work together to ensure mutual trade benefit. These agreements determine the tariffs, or taxes and duties, that the countries impose on on e another’s imports. Generally, when countries have a Trade Agreement in place, goods move more easily between those countries, and less duty taxes are imposed on the goods.
The trade agreements that feature in AfCFTA legislation are shown here:
AfCFTA’s implementation plans
The implementation of AfCFTA goals is divided into two phases:
Phase one is focused on the movement of goods and the five priority service sectors, namely financial services, communication, transport, tourism, and professional services.
Practically speaking, for importers and exporters, phase one consists of stimulating intra-African trade by removing duties, setting rules of origin and dispute resolution, and battling non-tariff barriers. Examples of non-tariff barriers are convoluted bureaucracy, unnecessary delays at borders, corruption, and logistical limitations. AfCFTA has set up an online tool traders may use to report non-tariff barriers for an investigation called Trade Barriers Africa. The tool can be accessed here.
Phase two of AfCFTA implementation is focussed on investment, competition, and intellectual property, as well as the development of e-commerce in Africa.
Phasing out import duties to allow free trade
Although state parties have freedom of negotiation, the minimum requirements of AfCFTA in terms of reducing and removing duties are:
- 90% of tariff lines must be liberalised (made duty-free) over 5 years. For least-developed member countries, this deadline is extended to 10 years.
- 7% additional tariff lines must be liberalised over 10 years. For least-developed member countries, this deadline is extended to 13 years.
- 3% tariff lines may be excluded from liberalisation to allow members protection for their most sensitive markets.
- Tariff phasedown must happen in equal installments (20% reduction per annum on 90% of tariff lines, over 5 years).
Therefore, although we are not yet seeing major duty benefits on imports in the South African tariff book, we soon will.
Although the intention of AfCFTA is to assist the movement of goods, it is still required for customs law in the country of export and the country of import to be adhered to. This includes permits for regulated goods and certificates of conformity.
South Africa’s role in the implementation of AfCFTA
In February 2023, SACU offered preferential treatment on 90% of the commodities in its tariff book. This offer was deemed acceptable by the AU in May 2023, making SACU countries eligible for preferential treatment under AfCFTA. On the 31st of January 2024, South Africa took strides towards the implementation of AfCFTA. It became the first SACU country to start trading under AfCFTA when two shipments of goods departed from Durban harbor destined for Ghana and Kenya.
What does this mean for South Africa?
This epochal event will be beneficial to South African entities as it broadens the scope for trade and offers the possibility of growing the economy. South Africa can now trade duty-free or with preferential duties in new African markets. This now includes members of AfCFTA that do not fall under the SADC trade agreement: Algeria, Cameroon, Egypt, Ghana, Kenya, Rwanda, and Tunisia.
What must South African traders do about AfCFTA?
Keep an eye on trustworthy sources (such as this article) for up-to-date news on countries that offer and allow preferential duties, as well as other news regarding AfCFTA implementation.
Importers can consult the South African tariff book to monitor current duties levied on their goods under AfCFTA.
Exporters can monitor AfCFTA implementation in their target countries and anticipate demand from their buyers to become AfCFTA compliant. Practically speaking this means registering as an AfCFTA exporter to supply the relevant certificates of origin buyers need to claim preferential duties.
Need assistance with your import and export registrations, or advice on international trade compliance? We’re here for you. Simply get in touch with our knowledgeable consultants for all the help you need.
