Trading aims: The value of Africa’s deep integration trade agreement

Auf der spanischen Exklave Ceuta befindet sich in direkter Nähe zur EU Außengrenze zu Afrika ein Großhandelsdistrikt mit Händlern sowie Lagerräumlichkeiten. Im Bild: Blick auf die Bunten Wellblechdächer des Areals. Ceuta, Spanien. 13.10.2021 // A whole sale district is located in Spain’s exclave Ceuta next to the EU border fence to Africa. Picture: Colourful roofes made of corrugated iron of the whole sale district. Ceuta, Spain. October 13th, 2021. – 20211013_PD15525 || Mindestpreis 20 Euro
A whole sale district is located in Spain’s exclave Ceuta next to the EU border fence to Africa
Image by Tobias Steinmaurer / picturedesk / picture alliance
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Summary

  • The new African Continental Free Trade Area is the first large-scale agreement on deep integration in Africa to cover areas such as services, investment, competition policy, intellectual property rights, and digital trade.
  • The convergence between regulatory frameworks under the agreement and those of the EU will have a significant influence on European companies’ competitiveness in Africa.
  • The EU should respond to the changes the agreement has brought about by engaging in greater cooperation with Africa as a bloc.
  • This will require a more coherent approach to EU trade agreements with individual African countries, including through a revision of rules of origin.
  • There are many opportunities for EU-AU cooperation on a new trade agenda, particularly the role of trade policy in the green and digital transitions.
  • Through technical cooperation and exchanges of experiences, African countries and EU member states should promote mutual understanding of their approaches to regulation.

Introduction

Trade and investment relations with Africa are increasingly important to the European Union’s strategic goals. Given their geographic proximity and historical ties, the EU and Africa should both seek to build the foundations of comprehensive and mutually beneficial economic cooperation – as this would have economic and political benefits in everything from job creation, migration, and security to the green and digital transitions. The EU should engage in such cooperation: it is Africa’s most important trading partner, accounting for around one-third of African trade, and is a vital source of foreign direct investment (FDI) on the continent. Nonetheless, players such as China and Russia have increasing influence on the African commercial landscape, and could weaken the position of the EU as Africa’s leading economic and political partner.

In this context, EU policymakers should view the recent creation of an Africa-wide market under the African Continental Free Trade Area (AfCFTA) as an opportunity to consolidate and strengthen commercial and geopolitical ties with Africa. The AfCFTA, a flagship project of the African Union’s Agenda 2063, is a blueprint for a prosperous Africa that promotes regional integration and structural transformation as a source of inclusive growth, decent jobs, and sustainable development. Given its comprehensive and ambitious scope, the AfCFTA could be the first large-scale effort at deep integration in Africa. The AfCFTA seeks not only to liberalise intra-African tariffs and other traditional barriers affecting trade in goods (shallow integration) but also to address domestic regulatory measures with respect to services, investment, competition, intellectual property rights, and digital trade (deep integration). The degree of convergence between EU and nascent pan-African regulatory models will be critical to the commercial and geopolitical ties between Europe and Africa. Regulatory convergence can lead to the harmonisation of rules of operation and governance, and to an increase in cross-border production chains.

The eventual creation of an African economic community could involve not only a continental customs union with common external tariffs, but also the harmonisation of broader economic policies for all African countries. An African customs union and economic community could shift the EU’s engagement with Africa away from trade cooperation with individual countries and towards that with another bloc. The EU has concluded 16 free trade agreements (FTAs) with sub-Saharan African countries and four with North African states – more than any other power. Yet many, if not all, of these agreements have done little to develop rules that would create a level playing field in areas such as services, investment, competition policy, and intellectual property rights. By contrast, China has only signed one FTA with an African country (Mauritius) but exerts its influence on a wide range of trade issues through non-traditional instruments such as memorandums of understanding.

The EU has an interest in ensuring that the AfCFTA creates markets in Africa that are open, fair, rules-based, and competitive. European firms are increasingly concerned that they will be displaced from these markets by Chinese, Indian, Middle Eastern, or Russian rivals that can benefit from lower technical standards for products and direct government support at home. The rules, regulations, and governance of the trading system under the AfCFTA – and its convergence or compatibility with European standards – will therefore determine the competitiveness of European firms in Africa. Moreover, the AfCFTA can create the conditions for new investment opportunities beyond Europe’s traditional focus on the extraction of Africa’s natural resources. With a stronger regulatory framework for investment, competition, and intellectual property rights, European firms could not only capitalise on the size of African markets but also local advantages such as low labour costs and links to production and trade with the rest of the world. In short, Africa could become a global hub for manufacturing and exports. This may be a particularly attractive opportunity in the aftermath of covid-19, as European firms look to strengthen their supply chains by diversifying them away from Asia and near-shoring them.

This paper explores ways in which the EU can enhance its economic leadership in Africa through mutually beneficial cooperation on trade and investment. This is important to not only the EU’s bilateral relationships with African states but also to its efforts to protect common interests in international forums. Encouragingly, both the EU and the AU have started to explore more shared initiatives in light of the AfCFTA. However, they have yet to jointly set out a substantive approach to such cooperation.

The EU and the AU should implement a dual-track strategy that strengthens their traditional forms of trade and pursues a new agenda. The first track will require the EU to harmonise its existing FTAs with African countries and work to align the development aspects of these agreements with the effort enshrined in the AfCFTA to promote African countries’ exports of more sophisticated goods and services. In this way, the EU can build a balanced partnership with Africa.

The second track will require the EU to cooperate with African countries on the forms of deep integration laid out in the AfCFTA – starting with services, investment, competition, intellectual property rights, and digital trade. Such a partnership for deep integration will be crucial to creating a level playing field for European countries and firms. Furthermore, the AfCFTA will set a precedent for the international trade system under the World Trade Organization (WTO) that both sides support.

In making a case for a dual-track strategy, the paper examines the structure and significance of the AfCFTA; the interaction between the AfCFTA and the EU’s FTAs with African countries; and the current elements of EU-AU cooperation that could become building blocks of deep integration under the AfCFTA. By implementing this strategy, Europe and Africa can promote sustainable development, stability, and security in both regions.

Structure and significance of the AfCFTA process

Established in January 2021, the AfCFTA is a remarkable trade agreement in many ways. It includes more signatory countries than any other such agreement since the establishment of the WTO. At the time of writing, Eritrea is the only one of the 55 members of the AU not to have signed the agreement.

Diverse trade partners

African states have largely driven the ambitious, large-scale effort to establish the AfCFTA. They include developing countries and 33 of the 46 states that the United Nations classifies as the ‘least-developed countries’ due to their low level of income and their severe structural impediments to sustainable development. These countries have limited experience and capacity in conducting technically demanding negotiations, and have traditionally been exempted from reciprocal trade liberalisation in multilateral agreements. For example, East African Community states aside, most African countries had never negotiated the comprehensive liberalisation of services in a trade agreement other than in the WTO’s General Agreement on Trade in Services (GATS), which dates back to the mid-1990s. Mauritius is the only African country that took part in negotiations in the 2010s on a proposed Trade in Services Agreement.

Moreover, despite being widely referred to as a ‘South-South’ trading arrangement, the AfCFTA brings together countries that are significantly different in their levels of development, economic structures, societies, cultures, and politics. The enormous asymmetries among AfCFTA members add to the complexity of conducting an integration process of this scope.

Unprecedented speed and commitment

Despite the difficulties of integrating many heterogeneous partners, the AfCFTA has been negotiated and ratified with surprising speed and commitment. African institutions have pursued continental integration for many decades, but their past efforts were heavily geopolitical. The AfCFTA has brought a fresher, commercially oriented approach.

AU heads of state and government launched the initiative in January 2012 at a meeting in the Ethiopian capital, Addis Ababa. They made the decision to establish continental free trade, leading to six years of negotiations on how to achieve this. Fifty-four countries signed the AfCFTA between 2018 and 2019; only one party to the talks – Eritrea – has not done so. The AfCFTA entered into force in May 2019 for the 24 countries that had ratified it at that that point. As of February 2022, 41 of them had done so. The AfCFTA is not in effect for countries that have yet to ratify it. Those that have ratified the agreement could start trading with one another in line with the tariff concessions and rules of origin it specifies. But, while the agreement became operational on 1 January 2021, there have been delays in negotiations to finalise tariffs and rules of origin. So, in practice, the parties have not yet begun to trade under the AfCFTA regime. Agreed rules of origin currently cover 87.7 per cent of products as defined in the AfCFTA’s lists of tariff rates. And the completion of these negotiations is scheduled for June 2022. When the new trade regime begins, it will effectively remove 90 per cent of trade tariffs. In the following five to ten years, the AfCFTA will liberalise trade by an additional 7 per cent to cover “sensitive products” – that is, those excluded from general tariff liberalisation. As the exclusion of 10 per cent of tariff lines under the agreement could represent a significant share of trade, it remains to be seen which goods this will cover.

It would be premature to declare victory now, at a time when the AfCFTA free trade regime is not fully in place and some of its details are still unclear. Nonetheless, African countries have achieved a lot in the past decade as they move towards a comprehensive and deep FTA.

The progress of the AfCFTA in the past two years is especially impressive given the effects of covid-19, which has complicated and slowed negotiations, and a global retreat from trade integration. The AfCFTA emerged against the backdrop of the indefinite delay of Doha Round negotiations under the WTO; Brexit; countries’ withdrawal from FTAs such as (in the case of the United States) the Trans-Pacific Partnership; a failure to conclude large-scale plurilateral and bilateral negotiations on deals such as the Trade in Services Agreement and Transatlantic Trade and Investment Partnership; and difficulties in ratifying FTAs that have already been signed, such as the EU-Canada Comprehensive Economic and Trade Agreement. On trade, Africa has moved in the opposite direction to most of the rest of the world.

Africa’s first deep integration agreement

Yet perhaps the most important aspect of the AfCFTA is that it is the first agreement in Africa to comprehensively cover deep integration – the expansion of trade policy from traditional goods-only barriers, such as tariffs and quotas, to a broader range of domestic regulations. While there is no universal definition of the term ‘deep integration’, it normally refers to FTAs that cover at least four core areas: services, investment, competition policy, and intellectual property rights – all of which have a strong domestic regulatory dimension. Deep integration shapes the rules for companies operating in Africa on everything from the recognition of professional qualifications and environmental standards in investments to the role of government support and state-owned enterprises. The more these rules align with policy and standards in the EU, the easier it will be for European companies to expand their presence in Africa. Without regulatory standards as high as those in the EU, non-European firms will continue to displace EU companies. In other words, the compatibility of EU and AfCFTA regulations will help determine the competitiveness of European exports and investments in Africa, as well as the overall strength of trade and investment ties between Europe and Africa.

Moreover, while deep integration used to be a characteristic of FTAs between members of the Organisation for Economic Co-operation and Development, most deep integration FTAs signed since 2000 have been between developed and developing countries, while just one-third of them have been between developing countries. But Africa has not contributed to the former trend: the vast majority of African FTAs are shallow integration agreements, meaning that they focus primarily or exclusively on traditional goods-only barriers. Of the eight sub-regional agreements recognised by the AU, only one – the East African Community – covers services. Deals such as the Southern African Development Community’s Protocol on Finance and Investment pursue deep integration issues, but not in the comprehensive manner of so-called ‘twenty-first century agreements’. The AfCFTA may be the first African twenty-first century agreement with a fully fledged deep integration agenda.

Empirical evidence from recent years shows that FTAs are heterogenous – not all of them boost trade to the same extent. Agreements that cover deep integration are associated with greater trade flows, whereas those limited to shallow integration do not. These studies show that the expansion of global value chains is strongly associated with deep integration arrangements. This can be explained by the fact that these value chains require market access (trade) and market presence (FDI), both areas in which domestic regulations are important. As scholars such as Richard Baldwin have demonstrated, the complementarity between services, investment, and knowledge creation is an important part of trade deals that expand regional and global value chains.

The AfCFTA integration process is structured in three phases, all of which cover important aspects of deep integration. One of the more unusual features of the deal is that, from its first phase, it liberalises trade in goods and services in parallel – a departure from the standard practice of sequencing goods before services. This reflects an appreciation of the fact that goods and services are intertwined: as services are a key input in the production of goods, they determine the competitiveness of manufacturing and agriculture. In this regard, one important facet of the AfCFTA is its inclusion of a Protocol on Trade in Services, which contains the agreement’s basic principles for liberalising trade in services. Negotiators plan to finalise the market access schedules for services by 30 June 2022. Although it remains to be seen how far this liberalisation will go, one remarkable element of the protocol vis-à-vis the GATS is that it does not treat developing and least-developed countries differently.

The second phase of the AfCFTA process, which is already under negotiation, will create new protocols on investment, competition policy, and intellectual property rights. Given that none of the protocols in these areas has been completed at the time of writing, it is difficult to assess them. But the scope of the negotiations indicates a coherent approach to such issues. Indeed, measures on investment are closely linked to those on competition and intellectual property rights. Hence, the negotiation of these protocols in tandem can help ensure that policies in these areas complement one another.

The third phase, which has not yet begun, will be devoted to digital trade. As the AfCFTA’s digital trade agenda has a broad scope, this phase could also touch on a variety of issues.

This road map for deep integration has two particularly significant features. Firstly, there is widespread consensus that most of the potential gains from the AfCFTA will come from the removal of non-tariff measures and other elements of deep integration. As services are subject to greater protectionism than any other aspect of trade and FDI, this is the area in which liberalisation can yield the largest economic benefits. And the removal of barriers to services prompts less trade diversion than the liberalisation of tariffs. Beyond such increases in economic efficiency, deep integration is associated with economies of scale, stimulus of investment, and greater competition and innovation.

The other key feature of deep integration under the AfCFTA is that it sets a precedent for future negotiations involving African countries, including those with its European partners in bilateral arrangements and under the WTO. Unlike tariffs and other barriers at the border that can be applied on a preferential basis for different trading partners, many domestic regulatory reforms linked to deep integration are de facto applied on the basis of most-favoured nations and national treatment – that is, without discrimination between foreign trading partners or between domestic and foreign firms respectively. Accordingly, once a regulatory reform begins at the domestic level, it will mould the commitments a country may be willing to make in future trade agreements. The negotiations and reforms that 54 African countries are undertaking through the AfCFTA integration process will inevitably influence their commitment in future FTAs with the EU, as well as with other members of the WTO under the multilateral trade regime.

Interaction between the AfCFTA and other African trade agreements

The establishment of the AfCFTA has implications for pre-existing trade agreements in Africa, both at the sub-regional level in the framework of Regional Economic Communities, as well as between African countries and extra-regional trading partners such as the EU. As discussed, the EU has far more trade agreements with African countries than any other external partner. It is important that European policymakers understand how these agreements and future ones can shape the AfCFTA integration process.

The benefits of open regionalism

The existence of parallel and even overlapping trading arrangements is not unique to Africa: in the past two decades, there has been a worldwide proliferation of regional and bilateral accords that created multilayered trade regimes. The experience of countries that operate in such multilayered trading landscapes suggests that the response should not be to reduce the number of FTAs but to ensure that they are coherent and complement one another as the building blocks of broad liberalisation.

The concept of open regionalism emerged from Asia-Pacific efforts to address these challenges of complexity. This openness, a departure from the inward-looking focus on import substitution that prevailed in first-generation regional trade agreements, involves a greater emphasis on outward-oriented and internationally competitive strategies. The concept was later endorsed by Pacific countries in Latin America as a way to promote the convergence of diverse initiatives at the subregional, regional, and hemispheric levels, and to adopt an orientation towards the rest of the world based on less rigid, non-exclusive trading partnerships.

On a large scale, FTAs are often vital building blocks of deep integration. These agreements can function as experimentation labs for deep integration, as they have produced many measures that have gone on to be adopted more widely. Even the first agreements on non-tariff measures under the WTO – which concerned technical barriers to trade and sanitary and phytosanitary measures – emerged from deals between smaller numbers of countries in the Tokyo Round of talks on the General Agreement on Tariffs and Trade (GATT). It is hard to believe that these and other aspects of trade regulation would have developed without these initial steps. In this sense, the coexistence of FTAs among smaller groups of countries can help develop the AfCFTA, particularly as it expands to new regulatory horizons in keeping with the demands of a rapidly changing global economy.

Furthermore, not all trade-related issues lend themselves to continent-wide cooperation. Sometimes, international cooperation is most effective on a bilateral or sub-regional scale. For example, there may be little benefit in countries in southern Africa negotiating transport facilitation measures with those in the north of the continent. Such issues are best addressed in sub-regional arrangements rather than the AfCFTA.

But this is not the only reason why regional and bilateral agreements will complement continental arrangements under the AfCFTA. This is the case also due to increasing political cooperation between African states on issues ranging from human rights and disarmament to nature conservation.

Yet, while there are clear benefits to open regionalism, it is important that this openness does not divert attention away from the AfCFTA or otherwise delay or complicate its implementation. It is also important to avoid duplication and inconsistency between agreements, which can raise administrative costs for governments and create confusion and uncertainty for businesses. Therefore, while open regionalism can create useful synergies within the continental integration process, these benefits are not automatic – they require policy coherence and consistency across co-existing trade agreements.

Policy coherence and consistency in the AfCFTA

The AfCFTA addresses the importance of policy coherence and consistency with existing – and, presumably, future – FTAs in Africa. Article 3 of the agreement discusses the need to resolve the problem of “multiple and overlapping membership”, but it does not provide further guidance or mechanisms for doing so. For example, the AfCFTA does not specify whether it or another agreement takes precedence in cases of inconsistency in commitments and rules.

Article 5 of the AfCFTA explicitly describes the FTAs of the Regional Economic Communities (REC) grouping as its “building blocks”. The AfCFTA states that it aims to preserve – and, if possible, improve – what has been agreed on trade within the grouping. Moreover, Article 12 of the AfCFTA specifies that the REC “shall be represented in the Committee of Senior Trade Officials, in an advisory capacity”.

While more precise plans and rules will be required for the REC to blend into the AfCFTA’s architecture, this is a clear recognition of its role in shaping the agreement. Yet the REC contains vastly different models, with some of its members not having signed FTAs with one another and some claiming that the grouping is a customs union or even a common market. So, the REC model for the AfCFTA is unclear. The AfCFTA’s recognition of the need to co-exist with the REC in the long term reflects a desire for different regions to pursue deeper or complementary policies that are tailored to local needs (in areas such as environmental programmes, energy, water, policing, nature conservation, and political cooperation).

The REC’s trade arrangements are the only ones the AfCFTA explicitly describes as building blocks. That said, Article 19 of the AfCFTA states that its signatories “that are members of other regional economic communities, regional trading arrangements and custom unions, which have attained among themselves higher levels of regional integration than under this Agreement, shall maintain such higher levels among themselves”. Accordingly, the AfCFTA stipulates that it will co-exist with regional trading arrangements and custom unions such as those under FTAs between the EU and African countries. The AfCFTA does not abolish any EU trade arrangements with African states or prevent them from expanding or deepening these arrangements.

The constructive role of EU-Africa trade arrangements

The EU’s plethora of trading arrangements with Africa would benefit from greater alignment with those under the AfCFTA and the REC. They could do so in the following ways.

A whole-of-Africa approach

One of the challenges of moving to an intercontinental strategy is that EU trade policy on Africa is fragmented – in terms of its treatment of least-developed and developing countries, and of countries to the north and south of the Sahara. These differences in the EU’s multitude of African trading arrangements could deter region-wide integration. Moreover, the economic and geographical divisions in these arrangements may be outdated or operate differently from the AfCFTA and other AU initiatives. The fragmented approach can create challenges for EU trade policy in engaging with Africa as a single region.

The EU reformed its Africa policy at the turn of the century. Under the successive Lomé Conventions (1975-2000), the EU provided African, Caribbean, and Pacific exporters with greater market access than it had under the Generalised System of Preferences that it applied to other developing countries. These preferences were challenged under the GATT because they involved discrimination between developing countries. In response, the EU adopted in 2001 the Everything but Arms (EBA) initiative, which granted duty-free and quota-free access to most products from least-developed countries. In contrast, the EU policy on states other than least-developed countries focused on the negotiation of economic partnership agreements (EPAs) to preserve this market access. The Cotonou Partnership Agreement is part of the EU’s trading framework with 79 countries in Africa, the Caribbean, and the Pacific.

The split in treatment of least-developed countries and other states in sub-Saharan Africa created tensions and difficulties in the EU’s negotiation of economic partnerships with the REC. Most members of the REC are least-developed countries, which have no incentive to participate in reciprocal negotiations with the EU. This explains why the union’s EPAs have limited scope even when they carry the name of the REC. For example, the EPA with the Southern African Development Community only includes six of its 16 member states (and will include just four in its second phase). In other instances, the union has negotiated EPAs with a group of countries that does not correspond to the REC, such as eastern and southern Africa. Given that trading arrangements under the REC act as building blocks of the AfCFTA, the EU should align its agreements with the grouping.

In North Africa and the Mediterranean, the EU’s many trade regimes include Association Agreements, Deep and Comprehensive Free Trade Areas (DCFTAs), and the Generalised System of Preferences. Given that the sub-regional arrangements would have been complicated by tensions between North African countries, it is understandable that the EU concluded bilateral trade agreements with Tunisia (1998), Morocco (2000), Algeria (2002), and Egypt (2004). These agreements are part of the Barcelona Process and the Euro-Mediterranean Partnership, which form part of the European Neighbourhood Policy. Following the 2011 Arab uprisings, the EU launched new negotiations on DCFTAs with Tunisia, Morocco, and Egypt. Although some DCFTAs seemed to progress well – particularly that with Tunisia, which advanced in the negotiation of services – they have also run into difficulties and suffered from the same problems as EPAs.

The problem with negotiating free trade agreements individually is that, in the absence of coherence and coordination between them, this approach risks fragmenting tariff regimes across Africa. One of the problems with EU agreements in Africa, even under EPAs, is that they have different rules of origin – which can complicate the expansion of supply chains. Therefore, the EU should revise rules of origin in its trade agreements to remove an obstacle to intercontinental integration.

Making structural transformation a shared development goal

The UN’s Sustainable Development Goals and the EU’s transition from a donor-recipient model to partnership-driven cooperation indicate that Europe and Africa should pursue a common development model in their trade relations. The AfCFTA and the AU’s Agenda 2063 emphasise the importance of FTAs in structural economic transformation. For several reasons, EPAs can inhibit such transformation by making it more difficult for countries to implement targeted industrial policy. After decades of EU-Africa trade relations, two-thirds of African exports to the EU are of primary goods and raw materials. Similarly, EU investments in Africa are largely in the extractive sector. In contrast, intra-regional trade is characterised by the movement of more complex goods and services. There is a widespread perception that decades of trade cooperation with the EU have failed to nurture the structural transformation needed to spur productivity growth.

Classical economic theory dictates that, in conditions of perfect competition, free trade is optimal for small economies. Yet, given that most African economies experience domestic policy distortions or market failures, they may benefit more from restrictions on trade and FDI. Nonetheless, if all African countries were to take such an approach, the outcome would be inefficient on a continental scale. Furthermore, as the effective application of strategic trade and FDI policy has substantial informational requirements, attempts to address market failures with trade policy instruments can lead to governance failures. For this reason, it is often wise to avoid using such instruments.

However, Asian countries such as Taiwan, South Korea, and Japan have used these instruments effectively – as have those in other regions. Therefore, African states should be given the policy space to use second-best trade policy instruments while they develop more effective measures, such as stronger competition policy advanced under the AfCFTA. The WTO allows exceptions under ‘infant industry’ and other provisions that apply to developing countries. The EU’s trade arrangements in Africa could be more flexible on the use – where justified – of strategic trade and FDI policy to promote structural economic development.

Building blocks of the new trade agenda

While it is straightforward to conceive the building blocks of a traditional, goods-focused trade agenda (in areas such as rules of origin), the EU needs to engage in innovative thinking about how to do so for deep integration. Given that an intercontinental FTA is a long-term objective, it is important to go beyond tariff concessions and rules of origin to promote cooperation on the trade agenda of the future. Much of the challenge in trade policymaking in the subsequent phases of the AfCFTA will centre on regulatory issues – especially in areas such as services, investment, competition, and intellectual property rights. Cooperation on these deep integration issues will be critical to ensuring that European firms compete in African markets on a fair and equal footing. Moreover, these policy domains are vital to the green and digital transitions.

In developed and developing countries, services account for almost half of world trade – and this share is growing fast. As discussed, one of the most important achievements of the AfCFTA is that it intertwines goods and services. This reflects African policymakers’ increasing appreciation of how transactions costs created by inefficient services reduce African economies’ competitiveness and development. Moreover, most African workers – including most women and staff of small and medium-sized enterprises – are employed in the service industry. As a result, services are indispensable to inclusive growth.

All these trends indicate why EU and African policymakers need to create new ways to cooperate in services trade. The EU should use its extensive experience in dealing with regulatory issues as a building block of the AfCFTA. However, instead of expecting African countries to adopt EU regulatory models, the union should help them create robust regulatory frameworks of their own. This will be particularly important in technological development (especially the growth of the digital economy), which will lead to greater convergence in the sides’ policy reforms.

Conclusion: Convergence between EU trade policy and the AfCFTA process

The AfCFTA has created a new layer of complexity in African trade but also new opportunities for mutually beneficial economic cooperation between the EU and Africa. The EU needs to revitalise its trade strategy for Africa in response to the agreement. This is even more crucial due to the impact of covid-19 – which has hampered trade and FDI flows, and has created incentives to diversify and near-shore global supply chains. The EU also needs to contend with the fact that competition from China and other actors poses an increasing challenge to European companies that operate in Africa. The union’s efforts in these areas should run along two parallel tracks: the traditional agenda and the new agenda.

Traditional trade agenda

The EU needs to unify its trading regimes with African countries (under the EBA, EPAs, DCFTAs, Association Agreements, and the Generalised System of Preferences) and ensure they are consistent with the AfCFTA. This undertaking should focus on the revision of rules of origin – which is particularly timely given that the AfCFTA negotiations on this issue will conclude in the coming months. Harmonised rules of origin would be an important building block of the traditional trade agenda.

As the AfCFTA lacks a customs union and the sovereignty to negotiate trade policy on behalf of AU members, talks on intercontinental market access will not be possible in the near term. In the meantime, the EU’s attempts to standardise EPAs and DCFTAs should help pave the way for a unified trade policy regime in Africa.

The AfCFTA is concerned not just with the expansion of trade but also with upgrades to the structure of trade and FDI. This is important given the empirical evidence that countries trading in complex goods and services have higher GDP growth than those that do not. By ensuring that FTAs create space for targeted industrial policy, the EU would promote economic convergence between Europe and Africa while supporting the development objectives of the AfCFTA.

New trade agenda

There is an urgent need for innovative thinking on how to create new building blocks of a trade regime covering services, as well as its connections to the green and digital transitions. The challenges of the AfCFTA will increasingly concern deep integration. This is an area in which the union’s bilateral EPAs and DCFTAs have room to grow. The EU should learn from these arrangements as it develops a fresh approach at the continental level.

Many African countries lack technical expertise and experience in deep integration. Therefore, by providing capacity-building in the form of exchanges of experiences and peer learning, the EU can work with these states to develop a joint understanding of how regulatory cooperation would benefit Africa. As African countries have sometimes perceived EPAs as imposing an EU regulatory model, the union will need to focus on cooperation that is useful for Africa (in areas such as cross-border transport, green energy, and digital trade) and capacity-building on various approaches to regulation. This would allow African countries to assess the benefits of adopting international standards, pursuing regulatory equivalence initiatives, and implementing effective certification procedures.

The AfCFTA’s new Services Protocol provides a point of departure for cooperation on these issues – as does the market access schedules the agreement should include by June 2022. The EU could become a uniquely valuable partner for Africa by supporting its shift towards trade and investment in services, and towards the digital economy. For instance, the expansion of services in areas such as energy will be critical to the green transition in Europe and Africa.

The EU can help improve connectivity in Africa by investing in both the soft elements of infrastructure, such as the provision of services and their regulatory underpinnings, and physical infrastructure. And it can engage in cooperation based on capacity-building in areas such as competition policy, intellectual property rights, and digital trade. The EU has a wealth of experience with these issues that can inform and nurture the AfCFTA process. Closer collaboration between Europe and Africa on these topics can help them develop a shared understanding of the regulatory challenges and responses in an increasingly complex global trade regime.

About the author

Iza Lejarraga is a trade policy expert with more than 15 years of experience in international organisations, academia, and the private sector. She has worked as a senior economist in leading international organisations, including the Organisation for Economic Co-operation and Development, the African Development Bank, the World Bank, and the Organization of American States. She currently teaches courses on trade and investment in the joint advanced policy programme of the University of Georgetown and the Solvay Brussels School of Economics and Management, and at the University of Paris (Sorbonne). She has also taught short courses at the Kiel Institute for the World Economy, the European University Institute, and the World Trade Institute. She holds a master’s degree in public administration in international development from the Harvard Kennedy School, and has been a visiting scholar at Harvard’s Center for International Development. 

Acknowledgments

The author gratefully acknowledges useful comments and inputs from Theodore Murphy and Jeremy Shapiro, as well as editorial assistance from Chris Raggett, at the European Council on Foreign Relations.

This paper was made possible by support for ECFR’s Africa programme from the Bill and Melinda Gates Foundation.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.

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