Posted on January 5, 2022 in Uncategorized

Towards the Elimination of Non- Tariff Barriers in the African Continental Free Trade Area (AfCFTA) by Mary Olamiposi Martins

by Diverse Law

African Continental Free Trade Area (AfCFTA) is a flagship project of Agenda 2063 of the Africa Union- Africa’s own development vision. It was approved by the 18th ordinary Session of Assembly of Heads of State and Government, held in Addis Ababa, Ethiopia in January 2012. At this session, the decision to establish a Continental Free Trade Area was reached and adopted. The immediate and successful implementation of this decision, would impact socio-economic development, and enhance the confidence and the commitment of Africans as well as the owners and drivers of Agenda 2063.[1] The aspirations of Agenda 2063 for a continental market with the free movement of persons, capital, goods and services, are crucial for deepening economic integration, socio-economic development, gender equality and more broadly, enhanced competitiveness and industrial development among African nations.[2] Achieving the stated aim of the AfCFTA in record time, ‘to create one African market’ will however, require the elimination of identified trade barriers.

The term, “trade barriers” may, at first glance, appear to present a negative meaning. However, this is not entirely the case as these trade barriers have their own economic significance. Trade barriers are rules and regulations, tariffs, embargos, import quotas etc, which are imposed by a particular government in its trading activities with other countries. There are four types of trade barriers namely: Tariffs, Non- Tariffs, Import quotas and voluntary export restraints.[3] This article primarily focuses on Non-Tariff Barriers (NTBs) and their influence on the Free Trade Area in Africa.

The AfCFTA Protocol on Trade in Goods defines NTBs as “barriers that impede trade through mechanisms other than the imposition of tariffs”. NTBs are restrictive regulations and procedures, other than tariffs, that add to the difficulty and cost of importing or exporting products. NTBs can range from procedural delays at borders to highly technical product safety requirements.[4] NTBs can arise from official measures in the form of laws, regulations, policies, restrictions, labelling requirements, private sector business practices, or prohibitions. They can be used to protect domestic industries from competition.[5]In addition, NTB’s can arise from import bans, import licenses, export subsidies, unjustified sanitary and phytosanitary conditions, restrictive licenses and so on. This paper examines the impact of Non-Tariff Barriers on the African Continental Free Trade Area; and makes a case for their elimination, in furtherance of the AfCFTA’s goal.

   NTBs are government regulations, rules and directive delays that seek to eradicate foreign goods from local markets, while promoting local brands of goods for customer’s satisfaction. Non-Tariff Barriers include a wide range of restrictive practices, other than tariffs, that make trade difficult and costly.[6] Examples are customs clearance delays, restrictive licensing processes, certification challenges, uncoordinated transport related regulations and corruption. The AfCFTA’s general categorization of NTBs also mentions restrictive government practices or their toleration, customs and administrative entry procedures, Technical Barriers to Trade, Sanitary and Phytosanitary Measures, specific limitations, and charges on imports. Some of the notable types of NTBs are: embargo, subsidies, local content requirement and technical barriers.[7]

Embargo

Embargo connotes a total blockage of trade between countries. This type of trade barrier completely bans importation of goods and services from a particular country. With embargoes, there is an official ban by the government from trading on particular goods and services. This is usually done in pursuit of a country’s economic and political goals, as well as to exert its territorial sovereignty against other countries.

Subsidies

Subsidies refers to the policy and action of government which allows local firms to sell their products at low cost compared to the foreign markets. In a situation where foreign firms appear to dominate the sectors of the country’s economy, the government may impose heavier taxes on them and reduce the tax for the local manufacturers to make for a competitive environment. This in turn, drives a demand for locally made goods and shrinks up demand for foreign goods in the local market.

Local Content Requirement

Local Content Requirement requires foreign companies to use locally made goods or services, as opposed to importing same. Thus, government imposes a quota on goods or services to be imported, making way for goods made domestically. Foreign companies are thus compelled to use locally made goods rather than importing and assembling foreign products. This requirement increases the local production margin against the foreign goods margin, automatically. This could also result in increase, in the employment margin in the local market and higher government revenue.

Technical Barriers

Technical Barriers makes it imperative for the products to be exported to and imported from other countries, to be of high quality standards and thoroughly tested and certified by the health department. This is a way of guaranteeing optimal standards and assuring the quality of goods and services.[8]

Other NTBs include but are not limited to quota, licenses, sanctions and voluntary export restraints. Licenses, as used in many countries, gives businesses lawful authority to import goods freely; otherwise such activity would be restricted. Quotas, allow the country in question to designate a limitation as to the quantity of a particular good that can be imported into or exported from its market. Sanctions are those administrative actions or additional customs and trade procedure that a country deliberately adopts to impede trade[9].

Making a Case for the Removal of Non-Tariff Barriers

An International Monetary Fund (IMF) study has also shown that the removal of Non-Tariff Barriers will yield tariff liberalization to low income countries particularly Africa[10]. The AfCFTA on its part, has not remained silent regarding this issue. According to the Provisions of Annex 5 of the AfCFTA on Non-Tariff Barriers, it was agreed that an online mechanism would be set up for the purpose of addressing issues relating to NTBs. Thus, an online tool “tradebarriers.africa” was launched by the United Nations Conference on Trade and Development (UNCTAD) in collaboration with the African Union in January 2020 to support the AfCFTA’s quest to track and settle NTBs. This tool helps traders, freighters and firms who are directly affected by the NTBs to identify and report such obstacles through a short offline messaging service.[11] Upon receipt of these complaints, the appropriate government authorities will then follow up on the complaint to resolve it. These government authorities will be supported by the NTBs Coordination Unit in the AfCFTA Secretariat and NTB Units in each Regional Economic Community (REC), as well as NTB National Focal Points (NFPs) in various member countries. As such, this will ensure that the complaints are resolved at all levels and do not slip through any cracks. Whatever escapes the NFP will be addressed by the REC. There is also provision to escalate queries up to the African Union level for adequate resolution. All complaints will be reviewed and examined through agreed procedure and within specified timeframes.

Addressing these NTBs goes beyond merely setting up a framework for reporting and resolving them. Implementation is more important. In the words of Carl Chirwa, The Head of International Banking at Bank One, breaking NTBs requires a lot of political will because “you can reduce tariffs on everything, but when you get to a border, there may still be a lot of admin and documentation to do, which increases cost” [12]. Observably, there is still some reluctance and holding back in some African Countries when it comes to the AfCFTA. For instance, although the AfCFTA Agreement became operative on 30 May 2019, Nigeria held back from signing the AfCFTA agreement until July 2019[13], after which it turned round to shut its borders to neighbouring African countries just about a month later. Furthermore, there is perceivable distrust amongst member states of the African Union, as each tries to secure its local market from an influx of foreign goods from fellow African countries. This is interesting because this is not the case when it comes to foreign goods from non-African countries.

The pertinent question to ask at this point is whether NTBs actually facilitate or impede free trade relations between member countries of the AU. In other words, are NTBs contrary to the spirit of the AfCFTA agreement or otherwise? The answer to this, is not farfetched. Notwithstanding the role they may play as a check and balance mechanism within intra African markets, NTBs may be inimical to the successful implementation of the AfCFTA agreement in its nascent stages, and the overall success of the Free Trade Area in the long haul. As it were, they currently hinder the smooth operation of the Free Trade Area. An NTB such as an embargo placed on the inflow of goods from particular countries may foster trade hostilities between countries, with a spillover effect on their socio-political relations as well. NTBs such as subsidies and local content requirement interfere with the normal healthy market laws of demand and supply, with the counterproductive potential to upset the market equilibrium sooner or later.

NTBs make intra-African trade more expensive especially for importers and exporters. They slow down the movement of goods and services within the continent, and poses the danger of revenue loss to signatory members of the AfCFTA agreement. A report by UNCTAD said if the trade barriers are removed, the African economy could gain $20 billion, much more than the $3.6 billion it could recover by eliminating tariffs[14].

Conclusion

From the foregoing, it is evident that The African Continental Free Trade Area could be the game changer, trade wise, for the African continent. It offers numerous benefits such as interstate cooperation, poverty alleviation, and increase in GDP amongst other benefits. However, its laudable objectives and potential benefits will remain unaccomplished and unrealized, if concerted efforts and measures are not put in place to overcome the hurdles hindering its implementation. Having identified non-tariff barriers as a key hurdle to be crossed, concerted efforts must be made by stakeholders at the national and regional levels, as well as at the level of the African Union, to ensure a total and swift elimination of NTBs.

References

  1. About the African Continental Free Trade Area (AfCFTA). https://afcfta.au.int/en/about Date Accessed: 6th August, 2021.

  1. Nontariff Barrier Definition. https://www.investopedia.com/terms/n/nontariff-barrier.asp Dare Accessed: 19th November, 2021.

  1. Non-Tariff Barriers to Trade. https://www.tradebarriers.org/ntb/non_tariff_barriers. Date Accessed: 11th October, 2021.

  1. World Economic Outlook, October 2020: A Long and Difficult Ascent. https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020 Date Accessed: 19th November, 2021.

[1] About the African Continental Free Trade Area (AfCFTA). https://afcfta.au.int/en/about Date Accessed: 6th August, 2021

[2] M. Martins (2021). The Strategic Roles African Lawyers Play in the Implementation of the African Continental Free Trade Area (AfCFTA) Agreement. https://diverselaw.org.ng/a-webinar-series-designed-to-sensitise-african-lawyers-on-their-strategic-role-in-engendering-the-success-of-the-african-continental-free-trade-area-agreement-and-optimising-the-benefits-from-implemen/ Date Accessed: 20th November, 2021

[3] https://www.ukessays.com/essays/marketing/four-trade-barriers-government-marketing-essay.php Date Accessed: 18th November, 2021

[4] AfCFTA support programme to eliminate non-tariff barriers, increase regulatory transparency and promote industrial diversification. https://unctad.org/project/afcfta-support-programme-eliminate-non-tariff-barriers-increase-regulatory-transparency-and  Date Accessed: 17th September, 2021.

[5] Non-Tariff Barriers to Trade. https://www.tradebarriers.org/ntb/non_tariff_barriers Date Accessed: 11th October, 2021.

[6] G. Erasmus (2019) Dealing with Non-Tariff Barriers under the AfCFTA: What are the Prospects?

https://www.tralac.org/blog/article/14345-dealing-with-non-tariff-barriers-under-the-afcfta-what-are-the-prospects.html#_ftn8 Date Accessed: 20th November, 2021

[7] Ibid

[8] Four Trade Barriers Government. https://www.ukessays.com/essays/marketing/four-trade-barriers-government-marketing-essay.php Date Accessed: 18th November, 2021

[9] E. Tarver (2021) Nontariff Barrier Definition. https://www.investopedia.com/terms/n/nontariff-barrier.asp Dare Accessed: 19th November,, 2021

[10] World Economic Outlook, October 2020: A Long and Difficult Ascent. https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020 Date Accessed: 19th November, 2021.

[11] Ibid.

[12] M. White (2021) AfCFTA takes effect but lifting non-tariff barriers will prove problematic. https://www.gtreview.com/news/africa/afcfta-takes-effect-but-lifting-non-tariff-barriers-will-prove-problematic/ Date Accessed: 20th November, 2021.

[13] President Signs the Agreement Establishing the AfCFTA. https://andersentax.ng/president-signs-the-agreement-establishing-the-african-continental-free-trade-area/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original. Date Accessed: 30th November, 2021.

[14] Guardian Nigeria (2020) ‘Non-tariff barriers could slow down AfCFTA if not addressed’. https://guardian.ng/business-services/non-tariff-barriers-could-slow-down-afcfta-if-not-addressed/ . Date Accessed: 29th November, 2021.