Potential unleashed

African Continental Free Trade Area agreement presents Africa with a unique opportunity to unleash its economic potential

The heads of state of the African Union have underscored the urgent need for member states to start trading under the African Continental Free Trade Area from Jan 1. This was indicated during a virtual meeting of the 13th Extraordinary Session of the African Union Heads of State and Government on the African Continental Free Trade Area on Dec 5.

It means Africa is moving closer to realizing its generations-long ambition of creating a common African market. South Africa President Cyril Ramaphosa, who is also the AU chairperson, declared in his opening remarks to the session that "the commencement of trading under the AfCFTA on Jan 1, 2021, is one of the significant milestones in the continental integration project".

For African leaders, this means the conclusion of a 40-year-long struggle to realize the dream of African integration, beginning with the adoption of the Monrovia Strategy in 1979, followed by the Lagos Plan of Action in 1980, the Abuja Treaty in 1991, and the AfCFTA Agreement that came into force on May 30, 2019.

The AfCFTA Agreement's long-term goal is to strengthen the integration of AU member states. Pursuant to Article 3 of the agreement, its main objective is to create a single market for goods and services, facilitated by the movement of people in order to deepen the economic integration of the African continent in accordance with the Pan African Vision of "an integrated, prosperous and peaceful Africa", as enshrined in the AU's Agenda 2063.

The agreement calls for progressive elimination of tariff and non-tariff barriers to trade in goods among member states, progressive liberalization of the trade in services, and cooperation on investment, intellectual property rights and competition policy, apart from cooperation in all trade-related areas.

The negative impact of the pandemic in Africa this year has made the African leaders realize the importance of multilateralism and cooperation. At the session, they agreed to take necessary measures to implement the AfCFTA, taking advantage of the expanded market so that the economy recovers from the pandemic as soon as possible.

Once implemented, the AfCFTA will create a $3.4 trillion economic bloc having a total population of 1.3 billion people, making it the largest free trade area in terms of the number of participating member states since the formation of the World Trade Organization. It will boost intra-African trade, presenting Africa with a unique opportunity to unleash its economic potential.

Currently, intra-African trade is quite low compared with other intra-regional trade. According to the African Development Bank, intra-African trade constituted a meager 16.6 percent of total African exports in 2017, as compared to 69 percent intra-European trade, 59 percent intra-Asian trade and 31 percent intra-American trade.

A research paper released by the United Nations Conference on Trade and Development in February 2018 predicts that the AfCFTA will increase intra-African trade by 33 percent, cutting Africa's total trade deficit by half.

The AfCFTA is not only a trade agreement but also aims to be an engine driving economic growth, industrialization and sustainable development in Africa. The agreement covers a wide range of issues in its various protocols, from trade in goods and services, investment, competition and intellectual property to the free movement of people and labor, which will enhance the structural adjustment and economic transformation in Africa apart from value addition.

The AfCFTA may also bring some potential benefits to the private sector and individual consumers in Africa. With the elimination of import barriers such as the tariffs and quotas, it will become easier for downstream producers to import raw materials at much lower prices. On the other hand, trade liberalization will give domestic producers access to a bigger market and they can gain from economies of scale. Similarly, local consumers will have more choice and options with more goods coming into the domestic market and the prices may be more favorable thanks to competition between the different producers.

Free trade under the AfCFTA was originally scheduled to begin on July 1, but had to be postponed because of the outbreak of the novel coronavirus pandemic.

Undoubtedly, the AfCFTA will provide vast opportunities for Africans, but there are various challenges that could impede its operation if not addressed promptly and properly.

The challenges include instabilities in some African countries; poor transport infrastructure for cross-border transactions in some African regions; the great diversity in income and development stages in different member states; the lack of necessary capacity building in customs administration; and a fragmented market and over-reliance on export of primary commodities. These challenges manifest the political and socioeconomic realities that the AfCFTA faces.

Besides, the AfCFTA Agreement has legal hurdles to overcome. For example, the agreement does not clearly stipulate how to address overlapping memberships which will lead to the conflict of jurisdiction and application of different legal systems; nor does the agreement provide clear guidance on how to handle the relationship between a member state and a third party which will cause distrust among the member states. The absence of clear provisions to settle such disputes may hinder effective implementation of the agreement. However, the African leaders have expressed their strong determination to walk the long path toward African integration.

Many African countries and regional economic organizations have echoed such determination with their actions. As of Dec 5, when the 13th session was held, 54 African countries had signed the AfCFTA Agreement while 34 countries had deposited their instruments of ratification, and 41 countries and customs unions had submitted their tariff offers, including the East African Community and Economic Community of West African States.

The author is a professor and director of the Center for African Laws at the China-Africa Institute. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.