The United Nations Conference on Trade and Development (Unctad), in its recently released ‘Economic Development in Africa Report 2019’, called for the continent to give serious attention to the issue of rules of origin – the criteria that establish the nationality of a product, which, the Unctad report cautions, could “make or break” the African Continental Free Trade Area (AfCFTA).
“The AfCFTA has come into force,” highlighted Unctad Africa, Least Developed Countries and Special Projects Division Africa section chief Junior Davis at a briefing at the Industrial Development Corporation’s head office in Sandton, Johannesburg. “It’s a tremendous opportunity . . . the single biggest free trade area in the world.”
Unctad believes that the AfCFTA could increase intra-African trade by 33%, once complete tariff liberalisation has been achieved. It would create market opportunities, attract more intra-African investment, and stimulate the continent’s industrialisation by creating regional value chains. But all these opportunities could be obstructed if the AfCFTA does not have appropriately designed and properly enforced rules of origin.
“Rules of origin are rules that determine the country of origin of goods,” he observed. “They are essential to the free circulation of goods in preferential trade areas . . . Without rules of origin, a continental free trade area, anywhere in the world, cannot work. It’s one of the aspects of trade that people don’t really talk about.”
Appropriately designed rules of origin could significantly boost intra-African trade. In comparison with the other continents, this is currently at a low level. Over the period 2015 to 2017, intra-African trade accounted for just 15.2% of total African trade; the equivalent figures for the other continents were America – 47%; Asia – 61%; and Europe – 67%. It should be noted that the existing intra-African trade was more manufactures-intensive than African trade with other regions.
From 2000 to 2017, 80% to 90% of African exports went to markets outside Africa. The only region with an export dependence on the rest of the world that was higher than Africa’s was Oceania. On the other hand, since 2008, Africa has been one of only two regions – the other being Asia – that has shown an increasing trend in intra-regional trade.
Africa has a number of regional economic communities (RECs) – Unctad lists eight. In 2016, the one with the largest intra-REC trade was the Southern African Development Community, the internal trade of which amounted to $34.7-billion. Second was the Community of Sahel-Sharan States, with intra-regional trade of $18.7-billion. The Economic Community of West African States was third, at $11.4-billion. Fourth was the Common Market for Eastern and Southern Africa, with $10.7-billion. The other four were much smaller. In fifth place, the Arab Magreb Union had intraregional trade worth $4.2-billion, followed by the East African Community, with internal trade worth $3.1-billion. Seventh spot was held by the Inter-Governmental Authority on Development, at $2.5-billion, with eighth and last place taken by the Economic Community of Central African States, at just $0.8-billion.Rules of origin
are not new to Africa. Each of the African RECs has its own rules. The problem is that these existing REC rules vary a lot. This has created an extremely complex situation across the continent.
Unctad hopes that the AfCFTA will be able to achieve convergence between these many diverging sets of rules. But “[i]t is a complex, sensitive thing to do”, noted Davis. A complication is that the rules of each REC reflect the particular concerns of the member countries of that REC. Issues which are sensitive in one REC are not at all sensitive in another.
He emphasised that rules of origin should be simple, transparent, predictable and trade facilitating. They should be designed and implemented to reduce compliance costs. Simple and transparent rules will reduce origin fraud. Unctad has estimated that the implementation of simple and business-friendly rules would, following the elimination of all tariffs, increase the gross domestic product of most African countries by as much as 3%.