African Continental Free Trade Area (AfCFTA)

African Continental Free Trade Area (AfCFTA)

February 7, 2020
African Continental Free Trade Area (AfCFTA)
On May 30, 2019, the framework agreement establishing
agreement, including consideration of future amendments.
the African Continental Free Trade Area (AfCFTA) entered
Ultimately, the AfCFTA is intended to lay the groundwork
into force. Trading under the agreement, however, is not
for an Africa-wide customs and monetary union with the
expected to occur until mid-2020 at the earliest, as
free movement of people. The Phase 1 agreement, some of
negotiations continue on critical commitments, including
which is now in effect, includes protocols on goods,
tariff liberalization schedules. If fully realized, the AfCFTA
services, and enforceable dispute settlement, and annexes
would cover 54 countries (the largest of any regional trade
on customs and trade facilitation, sanitary and phytosanitary
bloc), creating a market encompassing 1.2 billion people
standards, nontariff and technical barriers to trade, and trade
with combined economic output in 2018 of $2.5 trillion.
remedies. Annexes covering specific commitments for
goods and services market access, however, are still under
Through the AfCFTA, the African Union (AU) seeks to
negotiation, as are the commitments on Phase 2 issues (IPR,
create a pan-African free trade area liberalizing the flow of
investment, and competition).
goods and services, thereby increasing intra-African trade
and enhancing regional development prospects. All but one
Key Developments Leading to the AfCFTA
(Eritrea) of the AU’s 55 members have signed the

agreement, and 29 had ratified it as of January 2020. Many
1980-2002 - Lagos Plan of Action (1980-2000) lays out a
framework for an African Economic Community (AEC). In 1991,
observers hailed the AfCFTA agreement’s entry into force
the Abuja Treaty sets 34-year timeframe to create the AEC with a
as a milestone in African economic integration. Its impact,
plan to form regional customs and monetary unions, eventual y
however, will depend on future negotiations and on its
merging them into one continental economic community. In 2002,
successful implementation in a region in which some past
the African Union (AU) succeeds the OAU.
trade integration efforts have fallen short of their ambitions.
 2008 - Three RECs in eastern and southern Africa launch plans for
The United States, partly as directed by Congress, has
a Tripartite FTA, potential y covering 27 of the 55 AU members.
provided assistance to expand Africa’s intra-regional and

global trade through various initiatives. The Trump
2012 - AU establishes a plan for creating the AfCFTA in which the
Tripartite FTA and other REC FTAs are to proceed in tandem with
Administration broadly supports the AfCFTA and has
the AfCFTA and later merge.
pledged U.S. assistance for its implementation—but has
also stated interest in negotiating one or more bilateral trade
 2015 - AfCFTA negotiations launched.
agreements in the region, which could potentially
 2017 - Tripartite FTA negotiations concluded (not yet in force).
complicate AfCFTA negotiations and implementation.
 2018 - AfCFTA framework agreement negotiations concluded.
Background
 2019 - AfCFTA framework agreement enters into force.
Aspirations for Africa-wide trade liberalization date to the
1960s and the establishment of the Organization of African
The AfCFTA protocol on goods calls for the “progressive
Unity (OAU), which sought to foster economic cooperation
elimination of tariffs” and AU members have agreed to
among its members. Efforts by the OAU and its successor,
eliminate duties on 90% of tariff lines within five years. An
the AU, created in 2002, have primarily aimed to use
additional 7% of tariff lines, for sensitive products, will
Africa’s eight regional economic communities (RECs, sub-
have longer phase out periods and 3% of tariff lines (not to
regional organizations with varying levels of policy and
exceed 10% of imports by value) may be excluded entirely.
economic integration) as the building blocks for eventual
These tariff schedules remain under negotiation, so no
pan-African integration. Initial plans envisioned
tariffs have been reduced to date. Special treatment for least
transforming the RECs into customs unions (free trade
developed countries, a potentially large category, is also to
among members and a common external tariff rate) before
apply. Existing regional customs unions (such as the East
merging them into a continental trading bloc. These plans
African Community) are expected to negotiate in blocs,
eventually became untenable given the REC’s variable
while member states not in customs unions may negotiate
performance and their increasingly overlapping
individually. Annexes establishing guidelines on rules of
membership. The AfCFTA approach is more flexible; it
origin are completed, but specific rules determining
allows for an agreement that includes commitments
whether a good originates from within the AfCFTA—and is
between both RECs and individual states.
eligible for preferential treatment—are under negotiation.
AfCFTA: Approach, Status, and Issues
Intra-African Trade
The AfCFTA is intended to liberalize trade in goods and
In 2018, 16% of Africa’s total exports were intra-regional,
services and establish rules on competition policy, IPR, and
which was considerably below that of most global regions,
investment, to be enforced through a formal dispute
including North America (30%), Asia (60%), and Europe
settlement mechanism. The AU Assembly heads the
(69%). Long-term trends in Africa, however, suggest such
agreement’s institutional structure and administers the
trade is increasing. Intra-African trade rose from 7% to 16%
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African Continental Free Trade Area (AfCFTA)
of total African trade from 1990 to 2018. During this
That 54 countries with divergent industrial capabilities and
period, intra-African trade generally included more value-
economic interests negotiated a framework for extensive
added content than African trade with the rest of the world.
trade reforms within three years highlights commitment
Manufactured goods accounted for 40% of intra-regional
across Africa to the idea of continental free trade. Whether
trade from 2007-2017, while exports to the world consisted
there is enough political will and administrative capacity
largely of raw ore and energy commodities with
among members to fully implement the accord, however,
manufactured goods accounting for 16%. Growth in intra-
remains uncertain. Events on the ground—such as recent
regional trade, however, occurred primarily within RECs,
border closings by major economies (Nigeria) and between
and such progress was not uniform; 75% of intra-African
trading partners (Rwanda-Uganda)—suggest wariness
trade occurred in just five of eight RECs in 2017.
about integration. Progress over the next year in finalizing
negotiations and beginning implementation of the
Figure 1. African Goods Trade Share by Partner
agreement could contribute to positive perceptions of the
AfCFTA. Lack of progress, conversely, could spur
pessimism and the perception among some observers that
Africa’s integration and trade challenges remain intractable.
Issues for Congress
AfCFTA’s immediate impact on U.S. trade with Africa is
likely to be minimal, but could grow over time. While
increased intra-African trade could displace some U.S.
exports, lower trade costs, greater productive capacity, and
larger markets within Africa could spur demand for U.S.

Source: CRS with IMF Direction of Trade Statistics.
goods and services and incentivize greater U.S. investment
in the region. In the near term, the AfCFTA also may affect
Prospects, Challenges, and Next Steps
U.S. trade negotiation goals in Africa. These include the
Trump Administration’s stated intent to negotiate bilateral
The large market envisioned under the AfCFTA could spur
trade agreements in the region, beginning with trade talks
increased value-added production and trade within Africa,
with Kenya, which the Administration hopes to use as a
achieve economies of scale, and attract greater foreign
model for moving toward more reciprocal trade with the
investment. Increased trade flows resulting from the
region. Supporters argue a U.S. FTA could serve as a guide
removal of trade barriers and the facilitation of cross-border
for future AfCFTA engagement outside Africa, and that
trade could enable countries to develop and specialize in
potentially deeper reforms in such an agreement could spur
specific production activities, potentially fostering intra-
further liberalization throughout the region. Some African
African supply chains. This could particularly benefit
officials, however, would prefer to negotiate as one unit,
smaller countries with limited global reach. Bigger markets
arguing that bilateral deals will disrupt African integration
and more competition could also foster the development of
efforts. AfCFTA allows members to negotiate third-party
new skills and productivity gains. One study estimates that
agreements, as long as the most generous terms are
the elimination of tariffs alone could increase intra-regional
extended to AfCFTA parties on a reciprocal basis.
trade by up to 33% and add up to 1% to annual GDP
growth across Africa, once fully implemented.
To date, Congress has endorsed efforts to spur Africa’s
global and regional trade, including through Africa-specific
At the same time, African countries face diverse challenges
trade facilitation programs and preferential tariff treatment
that may inhibit the full realization of the AfCFTA
for many African imports under the African Growth and
agreement. The region has the highest nontariff trade costs
Opportunity Act (AGOA). In considering U.S. responses to
globally, equivalent to tariffs of 250% on traded goods,
the AfCFTA, Congress may assess: (1) how to prioritize
according to a 2015 World Bank study. Some of these
among varying U.S. trade policy goals in the region (e.g.,
barriers are policy-related and could be addressed through
improving African economic development and integration,
further negotiations under the agreement. However, a
expanding U.S. market access, and encouraging market-
number of impediments (e.g., poor infrastructure and
oriented and liberalizing reforms in line with World Trade
challenging geography) are structural and are likely to be
Organization (WTO) obligations); (2) how the AfCFTA
costly and time-consuming to overcome. Some modeling
may affect these policy priorities; and (3) how future U.S.
suggests that tackling nontariff barriers could increase the
trade negotiations may impact the AfCFTA.
economic benefits of the agreement by as much as four-
fold.
Additional issues for congressional consideration include:
how market integration under AfCFTA may incentivize
Uneven gains arising from the creation of the AfCFTA may
U.S. trade and investment in the region (a goal under the
also pose challenges. A small number of economies
Administration’s Prosper Africa initiative); how U.S. FTAs
dominate intra-African trade (South Africa accounted for
may expand overall U.S-Africa trade, which accounted for
25% in 2017) and account for nearly all value-added
1.6% of U.S. trade in 2018; and the potential effects of
activity. These countries may be better-positioned to benefit
AfCFTA and U.S. FTAs on African utilization of AGOA.
from the AfCFTA, while poorer countries—in which tariffs
still account for a significant share of national budgets—
Brock R. Williams, Specialist in International Trade and
may lose revenue and be less able to exploit the gains
Finance
promised by the AfCFTA.
Nicolas Cook, Specialist in African Affairs
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African Continental Free Trade Area (AfCFTA)

IF11423

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