Cargo and ports_Flickr

A brief guide to the Continental Free Trade Agreement

You're reading

A brief guide to the Continental Free Trade Agreement

Asmita Parshotam

28 Aug 2017

4min min read
  • Free trade
  • Trade regulation

Asmita Parshotam unpacks the continent-wide agreement aimed at accelerating integration and economic development.

What is the Continental Free Trade Agreement?

The Continental Free Trade Agreement(CFTA) is an Africa-wide free trade agreement (FTA) designed to boost intra-African trade and pave the way for the future establishment of a continental customs union. The CFTA builds on existing Tripartite FTA negotiations amongst three African regional economic communities (RECs): the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africsa (COMESA) and the East African Community (EAC),  although it would like to incorporate all other African RECs too. 

The decision to establish the CFTA was adopted as early as 2012 by the heads of state at the 18th ordinary session of the African Union (AU), and negotiations officially begun in June 2015. In bringing together all 54 African countries with a combined GDP of more than US$3,4 trillion, the CFTA is an ambitious project that will connect more than one billion people to a variety of cross-continental goods and services through enhanced trade facilitation and greater movement of people and investments.

Why do we need it?

The CFTA stems, in part, from the realisation that regional integration is stultified and not equitably pursued amongst all African regional economic communities (RECs), and that intra-African trade is at critically low levels compared to African trade with outside partners. 

The CFTA will address seven priority areas related to trade: policy, infrastructure, finance, information, market integration, boosting productivity and trade facilitation. For the CFTA to be successful there is great need to address a variety of inter-linked challenges, some of which are critical for enhanced intra-Africa trade: diversification of the export base, reducing reliance on raw commodities and enhancing regional integration that would facilitate greater movements of goods, services, people and investment.  

"The CFTA has the potential to boost intra-African trade by 52% between 2010 and 2022, while trade in industrial goods will receive the largest boost, increasing by an additional 53% for the same period."

Statistics show there is greater need to enhance intra-African trade because African export markets are already diversified and sophisticated – in comparison, greater intra-African trade will afford African countries with a broader market for their manufactured goods. For example, in 2015, African-manufactured goods accounted for 43% of intra-African exports, compared to 19% of exports to external markets

Similarly, projections by the United Nations Economic Commission for Africa shows that the CFTA has the potential to boost intra-African trade by 52% between 2010 and 2022, while trade in industrial goods will receive the largest boost, increasing by an additional 53% for the same period. Therefore, the CFTA’s role in improving intra-African trade levels will be important for enhanced continental growth, particularly as it will facilitate market access for COMESA, SADC and EAC countries to Central and Western African states.

The CFTA also has an Action Plan on Boosting Intra-African Trade (BIAT), which underscores a framework for regional development, with a particular focus on doubling intra-Africa trade flows between January 2012 and January 2022. The Action Plan is endorsed by the African Union, and implementation of its various programmes will work towards addressing the key constraints hindering intra-African trade, together with promoting sustainable economic development.  

In order to achieve deepened African market integration the plan is divided into seven clusters related to trade: productive capacities, infrastructure, finance, market integration, and trade facilitation, information and policies.

Potential challenges

Regional integration and a continental FTA is an ambitious agenda. In order to be successful, there are a number of potential challenges that will have to be addressed. As it stands, the CFTA is designed to address specific bottlenecks that include streamlining countries’ regional memberships – for example, many countries are partied to more than one REC, which allows them to cherry-pick their commitments. Resolving overlapping memberships will go towards expediting regional and continental integration. 

Similarly, in order for Africa to become a larger player in international trade, the CFTA will also have to improve the flow of goods and services, together with improving productivity levels, market access and incorporating marginalised members of society. 

The CFTA’s success will also depend on how successfully RECs are able to streamline their respective FTAs to be aligned with a future CFTA. One of the essential goals for the CFTA will be to capitalise on previously failed opportunities at regional integration, trade facilitation and similar issues that have been plaguing the African continent at large by providing tangible progress on these fronts. Synergies between bilateral trade and regional trade agreements and the CFTA are essential if regional and continental integration is to have long-term impacts.

The CFTA also needs buy-in from all AU member states, including its smaller and less developed economies. Any implemented agreement has to take into account the needs of both its smaller members and its economic powerhouses: smaller countries need to feel ownership over the CFTA that reflects their interests. 

Harmonisation, coordination and trade liberalisation can only work if the CFTA caters for the needs of all AU members and their differences. In order for the CFTA to have long-lasting impact, capacity building, understanding country-specific realities and implementing plans that encompass a wide array of viewpoints and levels of development and addresses a variety of challenges will be essential.

Lastly, although the CFTA represents a trade-driven agenda, there is a need to address current trends such as the fourth industrial revolution and the digital economy in ways that meaningfully contribute to Africa’s own continental growth. This will help ensure that the CFTA is current and able to address 21st century global developments and challenges. 

The CFTA should also have a human-rights based agenda within the free movement of labour paradigm, labour laws and ensure the protection of migrant labourers, particularly in light of growing anti-migration sentiments at a global level. 

"Synergies between bilateral trade and regional trade agreements and the CFTA are essential if regional and continental integration is to have long-term impacts."

State of play: where are we now?

As it stands, the CFTA negotiations are set to be finalised this year. At the second round of CTFA negotiations in May 2016, AU members approved procedural rules governing the CFTA negotiating institutions, while the third round of talks (held in October 2016) focused on the draft modalities for CFTA negotiations on trade in goods and services.  

Since February 2017, meetings have commenced with the Technical Working Groups to provide experts with an understanding/overview of the draft text that will be used in further negotiations. 

As of March 2017, the CFTA negotiating forum has held five meetings towards finalising the various draft modalities for negotiations,  and the end goal is to have the CFTA implemented in October 2017. An ambitious agenda indeed!

(Main image: Flickr/World Bank)

The opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.