The AfCFTA; Its Implications on Internal Revenue Generation and the Available Protective Measures

By: Ayobami T. Durodola, Esq.

INTRODUCTION

The African Continental Free Trade Agreement (AfCFTA) was brokered by the member states of the African Union and was signed by forty-four member states at Kigali, Rwanda on March 21, 2018.[1] The agreement stemmed out, particularly from the decision taken by the Assembly of Heads of State and Government during its Eighteenth Ordinary session held in Addis Ababa, Ethiopia from 29th to 30th January 2012.

The agreement is created to further trade liberalization in Africa with respect to tariffs and taxes with the hope that by 2063 Africa will be able to boost its continental market with free movement of persons, capital, goods and services[2]. On March 21st, 2015, forty-four (44) member states of the African Union signed the Agreement which established the AfCFTA, the pact came into force on the 30th of May, 2019 when 22 member States being the required minimum ratified the pact[3]. This ratification and coming into force of the pact therefore supposedly created a platform for trade liberalization and a single market for the African Continent.

AN OVERVIEW OF THE AfCFTA

Article 3[4] of the pact provides comprehensively the general objectives of the pact which include;

(a) create a single market for goods, and services, facilitated by movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063;

(b) create a liberalized market for goods and services through successive rounds of negotiations;

(c) contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and Regional Economic Councils (RECs);

(d) lay the foundation for the establishment of a Continental Customs Union at a later stage;

(e) promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation of the State Parties;

(f) enhance the competitiveness of the economies of State Parties within the continent and the global market;

(g) promote industrial development through diversification and regional value chain development, agricultural development and food security; and

(h) resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.

Art. 4 further imposes certain responsibilities on the state parties for the realization of the pact. It provides that;

(a) progressively eliminate tariffs and non-tariff barriers to trade in goods;

(b) progressively liberalize trade in services;

 (c) cooperate on investment, intellectual property rights and competition policy;

(d) cooperate on all trade-related areas;

(e) cooperate on customs matters and the implementation of trade facilitation measures;

(f) establish a mechanism for the settlement of disputes concerning their rights and obligations; and

(g) establish and maintain an institutional framework for the implementation and administration of the AfCFTA.

Nigeria signed the Agreement on the 7th July 2019,[5] but she is yet to domesticate the agreement as prescribed by Section 12 of the 1999 Constitution.[6] The agreement is compartmentalized into 6 (six) different protocols which touch on:

1. Trade in Goods
2. Intellectual Property Rights
3. Competition Policy
4. Trade in Services
5. Rules and Procedures on settlement of Disputes
6. Investment.

While protocols on Trade in Goods, Trade in services, and procedures for the Settlement of Disputes are resident in the agreement, Protocols on Investment, Intellectual Property rights and Competition Policy are currently being put together.

Art.13[7] of Protocol on Trade in Goods recognizes the Rule of Origin principle which allows preferential treatment for goods produced from a raw material sourced from State parties, subject to terms as contained in the RoO.[8] The Protocol on Trade in Goods is woven in such a manner that it sets out to remove import duties and related tariffs through progressive elimination of tariffs on goods, a progressive elimination of non-tariff barriers on goods, development and promotion of regional and continental value chains, enhanced socio-economic development, diversification and industrialization across Africa.

It is equally crafted in such a manner that it is able to remove the bottlenecks that have characterized the importation of goods within African countries through enhanced efficiency of customs procedures, trade facilitation and transit. The protocol, particularly Art. 5[9] provides for NATIONAL TREATMENT(NT), a principle which posits that goods coming from State parties shall be accorded Treatment No Less Favorable than that accorded to domestic products of National origin, therefore putting imported products from state parties and domestic products on the aggregate and same pedestal. The protocol gives elasticity to the agreement by allowing the state parties to be able to enter into an agreement with third parties as far as it does not affect the obligation of such country to state parties though subject to certain procedures stipulated in the protocol.

Elimination of import duties and tariffs on goods is equally treated in the protocol, and quantitative restriction and protection of infant industries is also provided in the protocol. In conclusion, this protocol is specifically designed to further the trade liberalization objective of the agreement.

PROTOCOL ON TRADE IN SERVICES

The Protocol on Trade in Services focuses on the exchange of services within Africa at a reasonable cost, promotion of sustainable development goals, encouragement of domestic and foreign investment, speedy and concerted efforts in terms of industrial development for the promotion of regional value chain, elimination of barrier to trade in services, foster exportation of services outside Africa, and promotion of research and technological advancement within state parties for the purpose of economic and social development.

As an offspring of GATS[10], it incorporates Article V of GATS into its objectives with trade liberalization in terms of service as its core essence. It equally incorporates the Most-favoured Nation Treatment which makes state parties entitled to the same treatment given to third parties in that sector and the MFN principle[11] recognizes the ability of a State party to put a specific sector or service in its exemption list therefore giving it the ability to contract the MFN principle in such sector.

The protocol also mandates state parties to make public the existence of any local measure or international agreement on trade in services that it may have agreed to before coming to force of this agreement, therefore keeping all state parties abreast of such commitment. In terms of professional licensing and certification, it is stipulated that a certificate issued by a state party to a professional is recognized by another state party. This is very important so as to ensure that license and certification do not become a barrier or a means of discrimination between state parties.

The protocol equally makes it mandatory that monopoly is controlled in favor of state parties so as to allow healthy competition between local and imported goods of African origin for the purpose of trade liberalization. The protocol recognizes the ability of a state party to adopt restrictions as against her commitment under this article for the purpose of Balance of Payment or implementation of her programs on economic development and recovery subject to some guidelines as contained in Article 14 of the protocol.[12]

The National Treatment principle[13] as contained in this protocol is the hallmark of trade liberalization as it posits that a state-party shall accord to other state parties in terms of trade in services the same treatment it accords to her own.

Article 21 and 22 progressively gives state parties the ability to determine the sectors where the National Treatment will be granted and the sectors that will be open to state parties with regards to the agreement. It is therefore safe to say the protocol on the trade of services is drafted to ensure trade liberalization occurs in Africa while the right of state parties to protect and promote their market in the face of trade liberalization and expansion.

THE PROTOCOL ON RULES AND PROCEDURES ON THE SETTLEMENT OF DISPUTES

This protocol makes provision for the settlement of disputes that may arise from this agreement. It establishes the Dispute Settlement Body[14] (DSB) which has the duty to establish Dispute Settlement Panels and appellate Body, adopt Panel and Appellate Body reports, monitor the implementation of the ruling of the Dispute Settlement panel and Appellate Body and authorize concessions and other obligations under the Agreement.

The Dispute Settlement Body is not the body responsible for adjudicating disputes; it is the Dispute Settlement panel that settles and adjudicates disputes arising from state parties. There exists also the Appellate Body[15] that receives appeals from the decision of the Dispute Settlement Panel and reviews such decisions. The Dispute Settlement Body is its own Chairperson and shall be elected amongst representatives of State parties. The Dispute Settlement Body acts as the overseeing body for the Dispute Settlement Panel and the Appellate Panel, it receives complaints from disputing state parties and constitutes the Dispute Settlement Panel to look into the same and the Appellate Panel where exist an appeal.

This Protocol also recognizes Alternative Dispute Resolution as it advises that consultation be made by disputing state parties before a such dispute is forwarded to the Dispute Settlement Body and where this consultation fails, resort may be made to mediation and conciliation. The composition, modus operandi and functions of the Panel and Appellate Body are extensively discussed by this protocol.

The protocol however gives room for self-help[16] where all its laid down framework and mechanism have failed to settle a dispute, as it provides that an aggrieved state party may temporarily suspend concessions allowed to a state party where it fails to implement the recommendations of the Disputing Settlement Body.

THE IMPLICATION OF AfCFTA ON SMES AND INTERNAL REVENUE GENERATIONS

The World Bank through her forecast has posited that an estimated 450 million dollars may be recorded all over Africa through the implementation of AfCFTA. This will be possible particularly through trade liberalization, removal of red-tapism and all African states becoming the confluence market for products of African origin without discrimination. It means a good made in Ghana can easily find its way into the Nigerian market without strict customs restrictions and such a Ghanaian product can compete with its Nigerian counterpart in the Nigerian market without any discrimination. According to a publication by PWC In Nigeria today, SMEs contribute 48% of the National GDP, 84% of employment and 96% of business and nearly 90% of the manufacturing industry.[17]

The manufacturing industry, with regard to SMEs, is currently growing and yet to attain its full potential. This means the government is expected to do everything possible to protect the SMEs the signing of AfCFTA means Nigeria has decided to give manufacturers from other countries an unbridled opportunity to compete with our own manufacturers that are yet to attain maximum dominance in the Nigerian market. It needs not to be said that there is inflation in Nigeria at the moment which equally means the cost of production and sourcing raw materials in Nigeria is also on the rise. It, therefore, follows that a production company in a bid to maximize profit may do any of the following:

1. Move her production out of Nigeria to a more affordable country, produce outside Nigeria and return the produced goods back to the Nigerian market without payment of huge custom duties or any form of custom red-tapism.
2. Decide to source the raw materials outside Nigeria and import same to Nigeria since payment of customs duties is moderate or almost non-existent.
3. Move company completely out of Nigeria to a more affordable African country with the assurance that the product will find easy access to Nigeria based on our commitment to the Af

Where any of the options are explored, the implication is that such a company seizes to pay tax to the coffers of the government which affects revenue generation and the indigenous Nigerian company that produces the same product or goods as the company that has gone to seek foreign refuge as a result of inflation in Nigeria meets a very stiff competition from a such company domiciled outside Nigeria. Where the Nigerian company cannot survive the competition because of the high cost of production in Nigeria, it folds up and the government again loses revenue. When the company does not fold up but decides to equally leave Nigeria, the government again loses revenue.

Conclusively, AfCFTA will make the Nigerian market porous and equally expose the SMEs to the stiff competition which the SMEs may not survive and this will definitely result in job loss and a drastic fall in revenue generation.

THE PANACEA TO THE POTENTIAL THREAT OF INTERNAL REVENUE GENERATION AND UNFAIR COMPETITION WITH OUR SMEs

Article 24 of the Protocol on Trade of Goods provides for the protection of infant industries, this provision gives a state party with an infant industry which may encounter serious setbacks if allowed to face serious competition that may arise as a result of this agreement to take measures aimed at protecting such infant industry and such protective measure shall be applied only on a non-discriminatory basis and for a specific period of time.

Article 13 of the Protocol on Trade of Goods equally provides for Rules of Origin which expects that goods with raw materials sourced from state parties to this agreement shall be given preferential treatment, subject to the agreement of state parties on Rules of Origin. It, therefore, follows that Nigeria can restrict the influx of certain products on the grounds of the source of the raw materials of such products.

Article 11 of the Protocol on Trade in goods equally makes provision for modification of schedules of tariff concessions. This in particular is another shield for the protection of our internally generated revenue as a nation. All that is expected of us to enjoy this shield is to plead the existence of an exceptional circumstance such as a drastic reduction in IGR and untold hardship as a result of the same.

For the purpose of trade in services, Article 14 of the Protocol on Trade in Service makes provisions for restrictions to safeguard the balance of payment. This is one of the most suitable protection for an economy comatose like that of Nigeria. It is created to protect a state party in process of economic development, a state with a deficit in the balance of payment or a state party experiencing a downward economic transition.

Article 4(6) of the Protocol on Trade of Goods provides that a state party may maintain a measure that is inconsistent with its obligations under paragraph 1 of Article 4. There exists an MFN exemption list and state parties are expected to state in this exemption list services and sectors they will not concede under their obligations to AfCFTA.

Finally, Article 22 of the Protocol of Trade in Services provides for schedules of specific commitments. This schedule will include the sectors the state parties intend to give concessions to.

CONCLUSION

Conclusively, the AfCFTA undoubtedly promises trade liberalization which impliedly presents an opportunity to open the Nigerian market to Africa at large. The prosperity inherent in the AfCFTA is not absolute, the state of the Nigerian economy makes it a Greek gift which portends more harm than good except the above-stated remedies and the protections provided in the agreement are triggered and put to use, equally the available manifest hazards that come with the agreement are equally put to mind in course of negotiating our Rules of Origin. Where the available protections are maximized, Nigeria and her economy will be better positioned to enjoy the prosperity inherent in the AfCFTA unhindered and the gifts of the agreement will be made good for all and sundry.

Ayobami T. Durodola, Esq. Is currently an NYSC Associate at Yusuf O. Ali & Co.  He can be reached at: durodolatosin1234@gmail.com

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 Footnotes

[1]https://au.int/en/pressreleases/20180321/au-member-countries-create-history-massively-signing-afcfta-agreement-kigali accessed on 3rd Sept., 2022.

[2]https://au.int/en/agenda2023/overview accessed on 3rd Sept., 2022

[3]https://au.in/en/cfta accessed on 4th Sept, 2022.

[4] Article 3 Agreement Establishing The African Continental Free Trade Area.

[5] <https://www.uneca.org/storys/nigeria-becomes-34th-country-ratify-afcfta-agreement> Accessed on 5th Sep, 2022.

[6] Constitution of the Federal Republic of Nigeria 1999 as Amended

[7] “Goods shall be eligible for preferential treatment under this Protocol, if they are originating in any of the State Parties in accordance with the criteria and conditions set out in Annex 2 on Rules of Origin, and in accordance with the Appendix to be developed on General and Product Specific Rules”

[8] Art. 4&5 of the proposed Rules of Origin defines and elucidates on the term Origin Criteria and equally defines the term Wholly Obtained Products. Available at https://www.tralac.org/documents/resources/cfta/1999-compliled-annexes-to-the-afcfta-agreement-legally-scrubbed-signed-16-may-2018/file.html accessed on 28^th Aug., 2022.

[9] “A state Party shall accord to  products imported from other State Parties treatment no less favourable than that accorded to like domestic products of national origin, after the imported products have been cleared by customs. This treatment covers all measures affecting the sale and conditions for sale of such products in accordance with Article III of GATT 1994”

[10] General Agreement on Trade and Tariffs is a treaty of the World Trade Organization that came in to force in 1995.

[11] ART. 4 of Protocol  on Trade in Services of the AfCFTA

[12] Art. 14 of Protocol on Trade in Services of the AfCFTA

[13] Art.20 of Protocol on Trade in Services.

[14] ART.5 of the Protocol on Rules and Procedures on Settlement of Disputes

[15] This body is established by Art. 20 of Protocol on Rules and Procedures on Settlement of Disputes

[16] Self-help in the protocol is termed Suspension of Concession or any other Obligations, this is evidenced in Art.25 of Protocol on Rules and Procedures of Settlement.

[17] https://www.pwc.com/ng/en/events/nigeria-sme-survey.html Accessed on 5th Sep., 2022.