What legal format for the Continental FTA?

by Gerhard Erasmus, tralac Associate

AT ITS 25th Extraordinary Summit held in Johannesburg in June 2015 the Heads of State and Government of the African Union launched the Continental Free Trade Area (CFTA) negotiations. This Summit adopted the Objectives and Guiding Principles for Negotiating the Continental Free Trade Area.

What happens next and what is the best way forward? The first step will be about technical support and preparations. The CFTA negotiators (and many of the AU Members) will need support with regard to technical aspects; and there should be clarity about goals. The first Guiding Principle adopted in Johannesburg states that the CFTA negotiations “shall be AU Member States/RECs/Customs Territories driven with support of the African Union Commission and its structures.” The African Union (AU) Commission and its Department of Trade and Industry will play an important role in this regard. It will provide practical assistance but should also undertake preparatory studies and draft initial documentation; while establishing a special technical support unit.

The first negotiating sessions will apparently kick off by the middle of 2016. By then the negotiators should know what targets have to be met and what timeframes apply. These matters are normally addressed in the relevant Roadmap; which in this instance wants the CFTA ‘to be operationalized by an indicative date of 2017′.

There should also be clarity about what the negotiations should produce; what type of agreement/s should the 54 AU Member States conclude? National strategies about offensive and defensive interests will be worked out accordingly. Questions such as the scope and nature of the legal instruments to be adopted need answers.

This Discussion Note considers the implications of the AU Summit decisions for the architecture of the CFTA agreements which are to be negotiated. The Tripartite FTA negotiations offer useful lessons about pitfalls to be avoided.

The CFTA Objectives

The CFTA negotiations are pitched at a very ambitious level and with long-term results in mind.

Within the broader framework of the Abuja Treaty Establishing the African Economic Community, the objective of launching negotiations for the CFTA is to achieve a comprehensive and mutually beneficial trade agreement among the Member States of the African Union.

The CFTA negotiations shall be conducted in two phases. The first phase shall cover negotiations on trade in goods and trade in services. There shall be two separate legal instruments for Trade in Goods and Trade in Services to be negotiated in two separate tracks. The second phase shall cover negotiations on the following areas: investment, intellectual property rights and competition policy. Negotiations in these areas shall be undertaken by dedicated structures.

It will not be possible to conclude continental agreements for trade in goods and in services during Phase I of the negotiations. The process needs interim results; an anchor for accommodating final outcomes. This aspect is not expressly provided for in the CFTA Objectives but can be included in the Rules of Procedure still to be adopted. The Guiding Principles do suggest that ‘flexibility’ should guide the process. The CFTA will have to be built in stages.
The final result, once all the phases have been concluded, will be several (more than two) agreements. The Phase II negotiations will also have to result in binding agreements.

How will these separate agreements be merged? How can the objectives of the Abuja Treaty to form an African Economic Community be accommodated? Will it be possible to make them part of the same arrangement or organization? Note that the CFTA Framework contains another objective: to achieve a comprehensive and mutually beneficial trade agreement among the Member States of the African Union.

Although not specifically spelled out, the eventual result would need a legal regime or arrangement to anchor the various legal disciplines which are envisaged. The text of the AU Summit decision uses the singular form when describing the final outcome.

The initial arrangement should preferably establish a legal person of some kind; which could become part of the AU ‘famil’ and be a dedicated structure for promoting the aims of the Abuja Treaty.

The establishment of regional trade arrangements with legal personality is already the REC norm. The RECs are international organizations and have powers necessary to undertake the tasks allocated to them. Institutions are added to these regional structures. The RECs are thus equipped to act on behalf of the collective. Their powers must, of course, be exercised in an intra vires manner.

The CFTA process should consider and adapt this formula; starting off with a ‘framework agreement’ which establishes a sui generis organization. It would provide a legal platform to accommodate first round results and allow for further growth. There will be a structure to which new outcomes can be added. This could happen through the adoption of, for example, new protocols.

FutureFlexibility

The CFTA framework requires that there should ultimately be ‘a comprehensive and mutually beneficial trade agreement’ between all AU Member States. Long-term CFTA objectives must therefore be considered when designing the CFTA. The legal architecture of the CFTA should, from the outset, be one which will require amalgamation of the different outcomes (i.e. the separate agreements of the two phases). There should be provisions to this effect, including a procedure for doing so. All the Agreements to be negotiated during the two phases should contain these provisions. The more detailed the provisions on the amalgamation process, the more predictable the outcomes will be. There should be a plan for the consolidation of the Tripartite and the Regional FTAs into the CFTA.

A dedicated CFTA institution/structure for achieving continental integration can subsequently undertake the required follow-up action and projects. Such projects should, as far as possible, be sector specific. This will bring more tangible results. Additional legal instruments (e.g. subsequent protocols) can be useful as specific instruments to achieve the objective of advancing continental consolidation.

How is this type of flexibility to be pursued? Comprehensive economic arrangements between States have to be able to adapt to new needs in a more flexible manner. And they have to be founded on suitable agreements. This aim (flexible and enabling legal regimes) can be achieved in three mains ways:
i. Framework Treaties
ii. Legally binding measures adopted by organs of international organizations created by the Parties
iii. The jurisprudence (case law) of tribunals established in terms of the founding agreements.

The CFTA probably needs a combination of these. It will have to be suitable for 21st century challenges and provide answers to the problems which prevent intra-Africa trade.

Design Objectives

FTAs (and African RECs too) recognise that trade in goods should not continue to dominate the regional integration agenda; provisions on services and certain trade related issues (e.g. trade facilitation, NTBs and standards) are more urgent. There is another important objective: the CFTA must create a freer market for goods and services.

The initial design challenge facing the CFTA negotiations is to agree on a legal regime which can anchor a continental economic pact suitable for 21st century conditions, while being flexible enough to accommodate divergent needs. All AU Members are potential Parties; they will have to agree on the required legal instruments within a short period of time. Forward momentum is important. There are second order issues too; how will the CFTA then grow and adapt to new needs?

Are tariff negotiations the route to quick results?

While it is true that negotiations involving 54 states will be very challenging and that quick results are necessary in order to keep the momentum, there is no guarantee that negotiations about trade in goods will deliver a quick result; the exact opposite might happen. By starting with tariffs (and the concomitant rules of origin aspect), the quick results hoped for will not materialize.

The TFTA process has taught us an important lesson; tariff negotiations between African States at different levels of development have become an extremely complicated matter. And regional hegemons are powerful players. The TFTA negotiations, which involved only 26 countries, could not reach agreement on tariffs. After four years of negotiations the essential elements of a trade in goods agreement (tariff schedules and rules of origin) are still outstanding.

What the CFTA process needs to avoid is the present TFTA dilemma. The TFTA Agreement has been signed but without the negotiations being concluded. The negotiations could not be concluded in time for the signing ceremony of 10 June 2015. The TFTA Agreement therefore contains a sui generis ‘built-in agenda’.

Tripartite Member/Partner States undertake to conclude negotiations on outstanding issues under Phase I as set out in Annex I on Elimination of Customs Duties, Annex II on Trade Remedies and Annex IV on Rules of Origin after the launch of the Tripartite Free Trade Area.

This ‘built-in agenda’ is unique. In the WTO context the idea of a built-in agenda is mentioned in many of the accords agreed during the Uruguay Round. They refer to future dates for continuing review or negotiations (by WTO Member States of WTO Agreements which are in force) about specific sectors or subject areas. These subject areas cover provisions in existing and binding legal instruments.

In the TFTA vocabulary, the built-in agenda refers to negotiations still to be concluded, in order to bring about a binding agreement. The Annexes on tariff schedules and rules of origin have to be agreed before an FTA can technically exist; it must be clear how trade in goods will be liberalized and which goods will qualify for preferential treatment. There can be no notification to the WTO unless these aspects have been finalized.

The TFTA negotiations for the first round (to reach a deal on trade in goods) will continue after the signing of the text of the Agreement. Ratification will therefore only make sense if undertaken once that stage has been completed. The Parties which ratify this Agreement would want to have certainty regarding their legal obligations in an FTA arrangement. The TFTA process still reveals, after many years of negotiations, an uncertain state of affairs. The CFTA should avoid this danger; it should not start with tariff negotiations.

Tariff issues are not Africa’s main problem; the CFTA negotiations should not start with efforts to agree on tariff schedules. If intra-African trade is really to be ‘boosted’ the real bottlenecks should be tackled. The emphasis should be on NTBs, trade facilitation, and those services necessary to facilitate trade in goods (transport, communications, and financial services).

Conclusion

The ideal outcome of the CFTA negotiations should include the founding, at the outset, of a continental arrangement with legal personality and appropriate powers. That will allow it to have its own institutions and powers and to adopt additional protocols. The CFTA will then be able to live a life of its own and have mechanisms to ensure that obligations are implemented and that new achievements be added to agreed structures. This will, in addition, constitute a platform for consolidation along the lines required by the CFTA Objectives. It should be possible to achieve this outcome within the indicative timeframe.

Once a new continental arrangement has been established it becomes easier to understand and to regulate the relationship between the CFTA and the RECs. This aspect can also be covered via legal provisions which state what the relationship between the CFTA and the RECs should entail. It could provide for the consolidation of the CFTA through a process of REC accommodation, interim steps such as the conclusion of agreements/protocols between the CFTA and the RECs, and convergence between REC and CFTA polices and projects.

A CFTA ‘framework agreement’ provides a promising starting point and the anchor for the CFTA scheme of things. It should contain a built-in mechanism/procedure for further development.