Introduction
The African Continental Free Trade Area (AfCFTA) agreement was entered into in 2018 with the primary aim of promoting commerce and creating a single market that liberalizes trade among state parties in Africa. One of the ways this goal is to be achieved is by reducing tariffs on goods traded between state parties.
Given the importance of tariff reduction to the liberalization of trade in Africa, we have set out in this newsletter insights on the implementation of tariff reduction under AfCFTA.
Implementation of Tariff Reduction under the AfCFTA: Progress thus far
Since signing the AfCFTA agreement, state parties have been required to develop provisional schedules clearly detailing the concessions on tariffs to be provided to other state parties.
A tariff modalities negotiation document has been drawn up to provide some guidance to state parties on the development of the Provisional Schedule of Tariff Concessions (Provisional Schedule). Under this document, each state party is to reduce tariffs on 90% of goods.
Per the tariff modalities negotiations, the tariff reduction is to be implemented within the following timeline: (i) for state parties categorized as Non-Least Developed Countries (non-LDC), they are expected to implement their tariff concessions on non-sensitive products within 5 years and within 10 years for sensitive products; (ii)while state parties categorized as Least Developed Countries (LDC) are expected to implement their tariff concessions within a period of 10 years for non-sensitive products and 13 years for sensitive products. State parties may categorize products as sensitive or non-sensitive based on metrics such as food security, national security, fiscal revenue, and the level of industrialization within their respective countries.
Provisional Schedule of Tariff Concessions: What is required?
State parties are required to reflect in their Provisional Schedule the most favoured rates applied to customs duties of each state party in effect on the date of entry of the AfCFTA agreement. The Provisional Schedule is to apply to all state parties until a final Schedule of Tariff Concessions is agreed upon. Regardless of the commencement of trade under AfCFTA in January 2021, State Parties that are yet to implement their Provisional Schedule of Tariff Concessions will not be required to refund duties on products imported from other state parties prior to the implementation of their respective Provisional Schedules.
In addition, state parties are to gazette their Provisional Schedules further to its internal procedure and notify the AfCFTA secretariat in writing of its publication.
It is also worth noting that Nigeria recently gazetted its Provisional Schedule of Tariff Concessions, becoming the 23rd state party to publish its Provisional Schedule. This follows similar action by several other countries, including member states of the East African Community (EAC).
Implementation by Regional Economic Communities
For Regional Economic Communities (RECs) such as the Economic Community of West African States (ECOWAS), the East African Community (EAC), the Arab Maghreb Union (UMA), and other economic communities within Africa that have pre-existing trade frameworks on tariff liberalization, the AfCFTA encourages state parties to maintain these frameworks. Where RECs have already implemented tariff reductions or eliminated barriers among their members, they are encouraged to further enhance these frameworks to align with AfCFTA standards.
Opportunities presented by Tariff concessions
For African businesses, the elimination of tariffs presents several opportunities. It will inevitably enhance the ease of doing business within Africa. Some of these opportunities are:
- Reduced Production Costs: Duty-free access to raw materials and intermediate goods will potentially lower the cost of manufacturing.
- Market Expansion: Businesses within Africa will potentially have access to a broader customer base without the burden of excessive cross-border tariffs on items purchased in one country.
- Diversification of Exports: Businesses can tap into new regional markets and reduce dependency on trade partners in other continents.
- Investment Incentives: Uniform trade rules will potentially attract both local and foreign investment into the development of production factories within Africa, be it fashion merchandise, fast moving consumer goods or agricultural machinery.
Conclusion
Where tariff reduction is fully actualized, it will pave the way for a duty-free market across Africa, providing access to raw materials, intermediate goods, or finished products. Effective implementation of the Provisional Schedules could also lead to market expansion for businesses operating within the continent and direct investment within various sectors in Africa.
As Africa advances toward tariff-free intra-continental trade, other global powers are adopting a different approach. For example, the United States has recently increased tariffs on imports from certain countries. This contrast creates a strategic opportunity for African businesses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
