Could the African Continental Free Trade Area (AfCFTA) be used by the Far East as a Trojan horse to further penetrate the African market? That is the question policy makers, business leaders and analysts are increasingly asking as concerns about the agreement remain unanswered. According to Professor Gerhard Erasmus of the Trade Law Centre (tralac), while the rules of origin negotiations for the AfCFTA have made significant progress, they are ongoing, with several issues outstanding. One of the biggest worries is that countries – particularly those in the East that have avidly been pursuing African markets – will use the AfCFTA to avoid duties and penetrate the market further. In the case of China, for example, this would hurt local manufacturing far more than it would help in building it up due to the Eastern giant’s massive manufacturing capability. Ultimately the outcome would be contrary to the aim of the free trade agreement which has been signed and accepted by 54 of Africa’s 55 countries. According to Michael Lawrence, executive director of the National Clothing Retail Federation (NCRF), countries are already using regional trade agreements to boost their own manufacturing and move more product into Africa Referring to it as a “transhipment” of sorts, Lawrence said instead of exporting to all the countries, product was only moved to one country and then using a local subsidiary was exported to the rest of the region, dutyfree, under the existing trade agreements. “We are already seeing quite a bit of this in SADC in the clothing and textile space and our concern is that this is going to increase with the AfCFTA,” he told FTW. “There is abuse of rebates happening and by using the country as a transhipment hub they are managing to enter countries that would technically attract duties, duty free.” He said it was essential that under the AfCFTA regulators in South Africa would be able to trust the regulators from all other countries on the continent implicitly. “If we can’t trust the other regulators and they are exporting products that have essentially not been manufactured by them, but rather in China or any other country in the world for that matter, it presents unfair competition to local manufacturers who would have been otherwise protected by tariffs and other non-tariff barriers.” Countries like China, which continue to have very big manufacturing capacity, could for all intents and purposes flood the markets in Africa – all without attracting duty. “Essentially this is a diversion of the rule of origin. The products are coming in at one point and only labelled in the African country from where they are then exported duty free to all countries that African country has a free trade agreement with.” Lawrence said considering that the AfCFTA would see all African countries trading the bulk of goods and services duty free there was cause for concern. Under the AfCFTA countries have agreed that 90% of tariffs on trade in goods will be eliminated. Of the remaining 10%, 7% may be designated as sensitive and 3% of the tariff lines can be excluded from liberalisation. China, in particular, has been a major broker in the AfCFTA, encouraging African countries to sign the agreement. They have been making a big effort to develop free trade development zones on the continent. They are also investing heavily in infrastructure on the continent. These are all developments that have to be closely monitored as the AfCFTA takes off in 2020.
INSERT: One of the biggest worries is that countries will use the AfCFTA to avoid duties and penetrate the market further. – Gerhard Erasmus