The African Continental Free Trade Agreement (AfCFTA) was signed by African countries to establish the largest free trade area under the World Trade Organisation. Under the free trade arrangement, African countries agree to give preferential trading terms to each other to trade easily amongst themselves.
Read: The African continental free trade agreement-what it means
The main purpose of the AfCFTA is to ultimately facilitate the AU agenda 2063 and provide us with the “Africa we want.†It targets at boosting intra-African trade and consequently, leading to regional integration. Closely related to free trade agreements are preferential trade liberalisation and preferential treatments. In a free trade area, the members agree to give each other preferential concessions to make trading within that free trade arena more favourable than others who are outside that free trade area. Thus, if tariffs for a product outside a free trade arena is 55%, within a free trade arena, the tariff for that same good may be 2%.
Preferential rules of origin and preferential tariffs are two key elements of any free trade agreement. Arguably, member countries in free trade areas are able to benefit the most from the preferential arrangements based on the rules of origin applicable. By way of definition, rules of origin are concepts in a free trade arrangement where rules are laid down to ensure that the preferential terms of trade and the preferential market access as negotiated by the members of the free trade area are granted to the goods as produced, whether wholly or substantially within the free trade area.[i] Put differently, the rules of origin serve as “passports†to allow the movements of goods within the duty-free area to enjoy the “duty-free†as agreed upon by the parties. In these rules, specific criteria are laid down for the goods to meet. When the goods meet those criteria, then the goods can qualify as a product or good within the free trade area and as such shall enjoy the preferential tariffs due it. The aim of this is to prevent the grant of preferential access and treatment to goods which are “sneaked†into the free trade area camouflaged to enjoy the preferential terms. Under Annex 2 of the agreement establishing the AfCFTA, copious rules are laid down as rules of origin of which goods under the AfCFTA must satisfy to enjoy the preferential trade arrangements. Under article 4 of the annex, goods qualify as originating from the AfCFTA region (and as such satisfy the rules of origin) when those goods are wholly obtained/originate from a country within the AfCFTA or the goods do not wholly originate from the AfCFTA region but has undergone substantial transformation within a country in the AfCfTA. There is a substantial transformation of the good where for instance, value is added to a good which was otherwise imported from a country outside the AfCFTA.[ii] Thus, in the production of a car for instance, if all raw materials are sourced from Ghana, with the assembling of the car done also in Ghana, that car can be deemed as originated from Ghana or has been obtained in Ghana. That car under the rules of origin under article 4 of Annex 2 is eligible to enjoy every tariff concession granted to the production of cars as negotiated by the countries under the AfCFTA.
Read: GUTA welcomes Africa free trade agreement; pledges full support in implementation
Similarly, if parts of the raw materials of the car were obtained in Ghana (such as the engine, the seats etc) and just a few parts like the tyres or the rims are imported from Germany, yet the assembling of the car and all other works on the car are done in Ghana, it may still qualify as the car being obtained In Ghana on the second leg of the rule of it being substantially transformed in Ghana. Such a car will also be eligible to enjoy preferential tariffs negotiated under the AfCFTA. However, where the car is imported wholly from Germany with only its tyres being fixed in Ghana, or just bolts being fitted on it in Ghana, such a car cannot qualify as being produced or obtained in Ghana and as such, it will be treated as a foreign good and foreign tariffs will apply. Essentially, only goods wholly obtained in an AfCFTA country or substantially transformed in an AfCFTA country will enjoy the preferential tariffs and terms being negotiated by the countries under the AfCFTA.
Without the preferential rules of origin, it becomes difficult to differentiate between the goods produced within the free trade area and goods produced outside the free trade area. Without preferential rules of origin, it becomes difficult to determine for instance, the difference between shoes produced in the United States and having small touches done in Africa (with the name of an African country embedded beneath it camouflaging it as an African good) and goods wholly (and actually) produced in Africa. The need for this differentiation is to know which goods are produced in the free trade area in order to apply the preferential tariffs and those produced outside the free trade area to apply the normal tariffs within the normal trading arena.
With these rules of origin then, African countries will be forced to manufacture goods amongst themselves without having to import, since African made goods will be cheaper. This should effectively rule out the imports of goods which can be easily produced in Africa. The imports of foodstuff, clothes, and other products which can be produced easily on the continent must be put to a halt. If producing them on the continent wholly will make them enjoy lower tariffs and preferential treatment, why should countries still take on itself the hurdle of importing?
African countries in manufacturing their goods will promote intra-African trade and as such more trade will ensue in Africa. It will become more prudent to obtain the raw materials of production in Africa for the goods to qualify under the rules of origin. This will further boost the manufacturing and production capacities in Africa.[iii] Additionally, more jobs will be created and that, in the long run, will go to alleviate the poor standard of living, unemployment and the poverty currently
[i] https://www.tralac.org/blog/article/14063-rules-of-origin-tariffs-and-the-afcfta.html (accessed 7 December 2019).
[ii] Article 6 of Annex 2.
[iii] https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2128 (accessed 7 December 2019).
Source: Kweku Attakora Dwomoh |Â attakoradwomo26@gmail.com