With the African Continental Free Trade Area (AfCFTA) now in place, the continent needs to address the many challenges facing its implementation – among these what is defined as locally produced.
During a joint meeting of the portfolio committees on trade and industry and of international relations, Department of Trade, Industry and Competition (dtic) Minister, Ebrahim Patel, said one of the challenges experienced in the AfCFTA included what was defined as “locally produced in Africa” - which could then potentially qualify for tariff concessions.
For example, if a machine is 95% produced in China, but the assembly or packaging takes place in an African country, adding only 5% value, this is clearly not made locally.
The policy challenge is to set the defining line for local content at a level that spurs local investment, since many products will not be 100% locally made. Minister Patel said the approach should be to set out a rule for each product, stipulating the level of local content that must be produced in one or more African countries.
The challenge, however, is that some countries favour a low local content, using products with significant levels of content imported from outside the continent. Minimal assembly then takes place on the continent and it is exported to other African markets. Countries are negotiating to build sufficient consensus on what the minimum level should be. The desired outcome was an agreement on 81% of product lines, covering 4 411 global tariff lines at the World Customs Organisation’s HS6 classification level, Patel told the virtual meeting.
The committee heard that the goal for the level of tariff ambition was 90% of trade, to be covered over a phased-down period of equal instalments within five years for non-low developing countries (LDC), 10 years for LDCs, 97% within 10 years for non-LDCs, and 13 years for LDCs. This will now be done incrementally, with an initial 81% of trade (tariff lines) with agreed rules of origin.
Trade between African countries is small and covers only 16%-18% of traded goods compared with intra-Asian trade (52%), intra-North America trade (50%) and intra-European Union trade (70%). Africa mainly imports finished goods, but intra-African trade is largely in value-added manufactured products.
African countries imported R8 trillion worth of goods in 2019, only R1 trillion of which came from other African countries. Patel said lowering trade barriers presented a massive opportunity for South African industries and for development across the continent.