Architects of the African Continental Free Trade Area (AfCFTA) are in talks with the African Export-Import Bank (Afreximbank) to set up an adjustment facility to offset revenue losses for countries that lower cross-border tariffs, according to a senior AfCFTA official.
“We are at advanced stages of negotiating with Afreximbank an adjustment facility, which will address the concerns of countries that will experience short-term revenue losses from liberalising trade under the African Continental Free Trade Area,” Wamkele Mene, the secretary general, said Friday in a virtual tax summit organised by EY.
The first commercial deal under what could be the world’s biggest free-trade area has been moved out to January 1 from July, after talks stalled due to the coronavirus pandemic. These are now being revived and moved online.
The agreement aims to bolster intra-African trade by lowering or eliminating cross-border tariffs on 90% of goods, facilitating the movement of capital and people, promoting investment and paving the way for a continent-wide customs union.
The planned reduction in duties has raised concerns from countries that rely on them for income. However, a World Bank report shows that short-term tariff revenues would decline by less than 1.5% for 49 out of 54 African countries, with total tax revenues set to decrease by less than 0.3% in 50 countries under the deal.
Also read: Ghana hands over AFCFTA headquarters to AU
That’s because only a small share of tariff revenues come from intra-African trade and with the bulk coming from a few tariff lines, which would enable some protectionist measures to be maintained even if countries liberalise, according to the Washington-based lender.
In the long run, African countries should reduce their reliance on import duties for revenue and strengthen public finances, Mene said.
“We should look at tariffs as a tool of industrial policy, we should look at tariffs as a tool to upscale our productive capacity in Africa,” he said. “We have to make that shift from seeing trade as a revenue generation tool to seeing trade as a tool for diversification of our economies in Africa, for enabling Africa to become globally competitive.”
On 21 March 2018 in Kigali, Rwanda, the vast majority of Member States of the African Union (AU) signed the agreement of the African Continental Free Trade Area (AfCFTA).
The AfCFTA is set to create a single continental market for goods and services to boost intra-Africa trade, economic growth and development. Since then, many Member States have also ratified the Agreement. The AfCFTA has come into force on 30 May 2019.
The AfCFTA is due to officially start trading in January 2021.
Non-Tariff Barriers – and how to break them down
Low levels of intra-Africa trade and high costs of doing business are largely caused by Non-Tariff Barriers (NTBs). Non-tariff barriers comprise a wide array of regulatory and procedural barriers to trade, except regular customs duties. See here for some more examples
AfCFTA negotiators recognised that addressing NTBs would be a key ingredient to the effective implementation of the AfCFTA. They set out an ambitious plan: The AfCFTA Protocol on Trade in Goods calls for the elimination of NTBs. Annex 5 to the Protocol on Trade in Goods deals explicitly with NTBs. It establishes a reporting, monitoring and elimination mechanism where private sector can file a complaint on specific trade obstacles. The complaint is then transmitted to the government of the responsible trading partner to react to the complaint and resolve it within concrete timelines. The reported NTBs also feed into national and regional trade policy improvements.
How the mechanism works
The AfCFTA online NTBs reporting, monitoring and eliminating mechanism is available on this website. The web-based NTBs mechanism will enhance transparency, easy follow-up and resolution of reported and identified NTBs.
This is YOUR CHANCE if you are an exporter or importer in Africa, even as a small trader. Register here and report the NTB that you are facing You can also see the status of ongoing resolution processes and already resolved NTBs.
Don’t miss this opportunity to boost your business and to Creating One African Market!
Afreximbank announces US$1B Adjustment Facility, Other AfCFTA Support Measures;
Sources: Bloomberg | UNCTAD | EY | JIC Media