Regional integration and the African Continental Free Trade Agreement: from parallelism to harmonisation

Dharshini Prasad
​​​​​​​Willkie Farr & Gallagher, London

Introduction

The African Continental Free Trade Area agreement (AfCFTA) is a multilateral free trade agreement (FTA) that seeks to create a single common market[1] across 54 members of the African Union.[2] In addition to its economic goals, AfCFTA also places a strong emphasis on social development, including to promote the United Nations Sustainable Development Goals,[3] advance gender equality[4] and ensure food security.[5] AfCFTA operates as a framework agreement with protocols on specific issues being negotiated in phases over several years: Phase I saw the conclusion of the Protocols on Trade in Goods, Trade in Services and Dispute Resolution, Phase II will include Protocols on Intellectual Property Rights, Competition Policy and Investment and Phase III is expected to address a Protocol on E-Commerce,[6] with AfCFTA providing the flexibility for additional Protocols to be negotiated as required.[7]  

AfCFTA is one of the most ambitious and progressive trade agreements concluded in recent years. Signed in March 2018 and entering into force on 30 May 2019, the agreement spans the largest free trade area in the world by number of participating countries.[8] It connects over 1.3 billion people with a combined gross domestic product (GDP) of US$3.4tn.[9] With the start of free trade under the agreement on 1 January 2021, AfCFTA is expected to bring a significant boost to economic development across the continent. Some estimates predict a combined consumer and business spending of US$6.7tn,[10] and an increase in intra-African trade from 18 per cent to 50 per cent by 2030.[11] The significant upside of AfCFTA is unsurprising given the limited export and intra-African trade that currently exists. As of 2018, Africa represented 2.4 per cent of global exports and intra-African trade accounted for 15 per cent of total African exports, compared to 58 per cent and 67 per cent within Asia and Europe, respectively.[12] Those figures have remained largely unchanged.[13]

Key to its success, however, is the proper implementation of AfCFTA. One notable obstacle is the fragmented trade and regulatory landscape against which AfCFTA has been negotiated. As explained in greater detail below, member states of AfCFTA are party to a plethora of regional trade agreements and economic communities, with differing approaches and degrees of integration. This tapestry of economic cooperation was built over decades and is foundational to existing intra-African trade. As with any system of overlapping regimes, there is a risk of inconsistency, increased compliance costs and inefficiencies for member states and businesses alike that operate under the agreements. Member states and drafters were aware of this reality at the time of AfCFTA. One of the eight general objectives of the agreement is to ‘resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration process’.[14] This article explores how AfCFTA seeks to achieve that harmonisation.

This article explores the existing approaches to overlapping and inconsistent regional trade regimes, including that of the World Trade Organization (WTO), the European Union  and the Association of South East Asian Nations (ASEAN). It sets out the landscape of regional trade agreements and economic communities in the African Union and the approach of parallelism and harmonisation adopted in AfCFTA, in particular Article 19, to preserve higher levels of regional integration while promoting AfCFTA-wide integration and harmonisation. The approach of AfCFTA is realistic in recognising the very different and wide-ranging socio-economic capabilities of its 54 member states that will require an incremental approach to harmonisation.

Approaches to overlapping and inconsistent regional regimes

The issue of overlap and inconsistency between multilateral and regional trade agreements is not new. The exponential increase in trade agreements and regional economic communities (RECs) over recent decades has led to an inevitable entanglement of different rules and standards, famously described by economist Jagdish Bhagwati as the ‘spaghetti bowl effect’.[15] Outside of the African Union, overlapping trade agreements are evident between, for instance, the EU and regional trade agreements within and outside the EU, between the Regional Comprehensive Economic Partnership Agreement (RCEP) and regional agreements within ASEAN, and between the General Agreement on Tariffs and Trade and other WTO and regional agreements among WTO member states.

As a matter of international law, inconsistency between successive treaties relating to the same subject matter is resolved using the lex posterior rule in Article 30 of the Vienna Convention on the Law of Treaties (VCLT), which reflects customary international law.[16] In short, Article 30 provides that:

• if a treaty specifies that it is subject to another treaty, it is the latter treaty that prevails, thus giving effect to the express intentions of member states;
• where all member states enter into successive treaties, the earlier treaty only applies to the extent that there is no inconsistency with the later one; and
• if only some member states are party to the first treaty but not the second treaty, the first treaty governs as between a party to both and a party only to the first.

The application of Article 30 raises interpretive issues over whether treaties in fact relate to the ‘same subject matter’ and what constitutes an ‘incompatibility,’ which have been considered by international courts and tribunals in different contexts.[17]

To avoid interpretive ambiguities, trade agreements may seek to expressly clarify their relationship with other treaties and specify the consequences of inconsistency. This is done using one of three techniques.[18]

First, member states can agree to progressively or immediately terminate their existing trade agreements on the entry into force of a successive trade agreement, effectively consolidating their trade agreements into one. This was the approach adopted in the Central America-Mexico FTA, which replaced the FTAs between Mexico and Costa Rica, Guatemala and Honduras, Mexico and Nicaragua and Mexico and El Salvador.[19] This approach offers the simplicity of a single and uniform set of rules. The EU also adopted a similar approach to achieve a single market with non-differential standards of treatments and tariffs.[20]

Second, member states can agree that existing trade agreements continue to remain in force between the parties, thus creating parallel regimes. For instance, Article 44 of the ASEAN Comprehensive Investment Agreement provides that ‘[n]othing in this Agreement shall derogate from the existing rights and obligations of a Member State under any other international agreements to which it is a party’. Similarly, Chapter One of the Dominican Republic-Central America-United States FTA states that ‘[t]he Parties affirm their existing rights and obligations with respect to each other under the WTO Agreement and other agreements to which such Parties are party’.[21] Conversely, member states may expressly contemplate future overlapping agreements between some parties subject to conditions. This is the approach of the WTO to regional trade agreements, which exists as an exception to the principle of non-discrimination. Regional trade agreements under the WTO are only permissible if they facilitate trade flow amongst member states without raising barriers to trade with third states.[22]

Third, instead of prospectively and categorically prescribing the effect of inconsistency, member states can agree to consult in the event of any inconsistency and agree on a mutually satisfactory solution. This technique is reflected in the ASEAN-Australia-New Zealand FTA[23] and in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership,[24] although it is less common than the first two techniques above.

The approach to overlap and inconsistency adopted in a specific trade agreement is influenced by a number of factors. Where the agreement envisions a high degree of integration (such as in a common market or economic union) or a unified set of rules applicable to all member states, the termination of existing trade agreements is natural. The speed at which that termination takes place may, in turn, depend on whether member states are at different levels of socio-economic development and need to achieve similar standards before a unified set of rules can be applied effectively.

Apart from pursuing policy objectives, like a common market, a harmonised regime also has the benefit of reducing compliance and transaction costs for businesses and member states. The reverse is often true with parallelism. Yet, there are reasons why that higher cost might be necessary to pursue different objectives.[25]

Multilateral trade agreements, particularly large pacts like the RCEP, may involve member states that sit across a spectrum of capital export and import. Capital-exporting states will be more inclined to secure better incentives for their businesses operating in other member states, including increased investment protections and reduced tariffs.[26] Capital-importing states will have a greater interest in securing their ability to regulate and extract tariffs. Member states may not wish to forsake specifically negotiated and bespoke provisions in earlier bilateral treaties, that more accurately reflect the trade dynamic between themselves, in lieu of a subsequent multilateral treaty that may be the product of consensus and concessions in negotiating positions that did not afflict the earlier treaty.

The AfCFTA approach

The approach of AfCFTA to the issue of overlap and inconsistency between this multilateral agreement and regional agreements reflects international approaches to dealing with ‘spaghetti bowl’ issues. One distinct feature is that AfCFTA uses RECs as building blocks, and recognises the significance and achievements of RECs in facilitating intra-African trade.

RECs as ‘building blocks’ of AfCFTA

Regional trade agreements and economic communities have been a staple of intra-African trade for decades. The Economic Community of West African States (ECOWAS), for instance, was established in 1975 with a focus on economic integration. Communities like the Common Market for Eastern and Southern Africa (COMESA) and the South Africa Development Community (SADC) also have a long lineage. Today, there are a plethora of overlapping regional trade agreements and RECs of varying sizes and stages of economic and political integration. Approximately 19 per cent of intra-African trade takes place within the framework of existing regional trade agreements.[27]

RECs are a prominent feature of AfCFTA. AfCFTA recognises eight RECs, including ECOWAS, SADC and COMESA,[28] calls for the agreement to be governed by the ‘best practices’ of those RECs and envisages that RECs will be represented in the Committee of Senior Trade Officials under the agreement in an advisory capacity.[29] Crucially, far from arresting any further regional integration, AfCFTA anticipates that RECs will continue to improve and deepen integration and trade liberalisation by eliminating customs duties and trade barriers.[30] The African ‘spaghetti bowl’ is thus set to grow.

At least superficially, this creates some tension with AfCFTA’s ultimate objective of establishing a single market[31] and its aim to resolve the ‘challenges of multiple overlapping memberships and expedite the regional and continental integration processes.’[32] The parallelism in AfCFTA’s continued emphasis on RECs is neither discordant nor surprising. It reflects the history and socio-economic diversity of AfCFTA’s member states.

Post-colonisation and independence, regional integration became an important tool to facilitate economic transformation and progress across Africa. Regional integration was seen (and continues to be seen) as a necessary means to address the geopolitical and economic challenges faced by the numerous small national markets and landlocked states within the continent.[33] In contrast to some other regions, nation building and regional integration in Africa occurred almost simultaneously.

The establishment of RECs, starting in the 1970s, was part of that regional integration initiative.[34] RECs pursued similar objectives as they aimed to harmonise the economies of member states through the elimination of barriers to trade, the alignment of policies and the crystallisation of cooperation.[35] The pace at which regional integration has occurred within different RECs has, to a large extent, been contingent on the specific socio-economic factors of the REC and the diversity within its member states.[36] However, it is widely recognised that RECs have been instrumental in enhancing economic development within Africa.[37]

Given the primacy of regional trade agreements in Africa, the 1991 Abuja Treaty on the African Economic Community envisioned that a pan-African economic community could only be achieved by developing existing regional integration and relying on RECs as ‘building blocks’ for the community.[38] That philosophy continues to permeate discourse on intra-African trade and is expressly codified in AfCFTA.[39] The incorporation of RECs as the main ‘building blocks’ for Africa’s integration initiative by the Abuja Treaty and AfCFTA is entirely consistent, since they have been instrumental in removing tariff and non-tariff barriers to intra-REC trade, but also in developing common trade policies. Therefore, coordination and harmonisation of an African economic unity is only attainable through their integration.[40] Equally, given the extended horizon over which AfCFTA is expected to reach fruition, it is sensible that RECs be allowed to pursue deeper integration and trade facilitation until they can be integrated into a common market.

Article 19: parallelism to preserve higher regional integration

Given the integral role that RECs are envisioned to play in securing the objectives of AfCFTA, it was essential that the agreement conceive of a way to preserve greater levels of regional integration that in some instances have been built over decades. That ethos is reflected in Article 19 of AfCFTA on conflict and inconsistency with regional agreements. Article 19 provides the following:

‘1. In the event of any conflict and inconsistency between this Agreement and any regional agreement, this Agreement shall prevail to the extent of the specific inconsistency, except as otherwise provided in this Agreement.

2. Notwithstanding the provisions of Paragraph 1 of this Article, State Parties that are members of other regional economic communities, regional trading agreements and custom unions, which have attained among themselves higher levels of regional integration than under this Agreement, shall maintain such higher levels among themselves.’

Article 19 is a conflict of rules provision that establishes a hierarchy between successive treaties in accordance with Article 30(2) of the VCLT. Article 19(1) articulates the default presumption that AfCFTA prevails over any other overlapping and inconsistent ‘regional agreement.’ The only exception is where ‘regional economic communities, regional trading agreements and customs unions’ have achieved ‘higher levels of regional integration’. Article 19 does not use the defined term ‘RECs’ in Article 1(t) to describe regional economic communities, which makes clear that the scope of the conflicts rule extends beyond the eight RECs recognised by AfCFTA to any regional agreement, economic community or customs union. Through Article 19, AfCFTA thus ensures it does not hinder or unravel existing regional integration that has been achieved and can, instead, build upon it.

Article 19 raises two key interpretive issues.

First, what constitutes a ‘regional’ agreement under Article 19(1)? As a preliminary matter, it is unclear why Article 19 is limited to ‘regional’ agreements and trade pacts. If the object and purpose[41] of AfCFTA is to achieve harmonisation and a common market, it ought to capture any agreement between member states. Given that it has been used, however, the word ‘regional’ must be given effect.

In the WTO context, ‘regional trade agreements’ encompass any reciprocal trade agreement between two or more partners, regardless of whether they belong to the same region.[42] The use of ‘regional’ here is a misnomer and difficult to reconcile with the ordinary meaning[43] of the term. A better textual reading of ‘regional’ would encompass agreements between member states that share common characteristics, whether geographic, linguistic or otherwise.[44] That would include a broad range of trade pacts, including pacts that are not exclusively geographically connected or intra-African, such as the Greater Arab Free Trade Area (GAFTA) between a number of Arab-African and non-African states, including Bahrain, Qatar, Egypt, Libya, Sudan and Tunisia. On this reading, vis-à-vis Arab states in Africa that are party to the GAFTA, AfCFTA would take precedence in the event of a conflict.

There is a separate question of whether bilateral trade agreements between member states also qualify as ‘regional’ agreements under Article 19. The phrase ‘regional’ does not prescribe a numerical requirement. If, as suggested above, the test of whether a trade agreement is ‘regional’ is simply whether member states share common characteristics, it is arguable that any intra-African agreement, whether between two or more parties, meets the test on the basis of a shared continental nexus. That is also consistent with the object and purpose[45] of AfCFTA. There are no fewer than 14 intra-African trade agreements in force and more agreements are in the process of being negotiated (for example, between Zimbabwe and Malawi).[46] A common market cannot be achieved if these agreements are not reconciled with AfCFTA.

In the event any trade agreements between two or more AfCFTA member states fall outside the ambit of ‘regional’ agreements under Article 19, any inconsistency between such agreements and AfCFTA will need to be resolved on the basis of the lex posterior rule under Article 30 of the VCLT.

Second, what is a ‘higher level of regional integration’? This is a complex inter-disciplinary question and one that is likely to arise with high frequency. Most member states of AfCFTA belong to more than one regional economic community or trade agreement. Egypt, for instance, is a member of COMESA and the Intergovernmental Authority on Development. Regional trade agreements address different issues in different ways, like competition policy, agricultural tariffs and intellectual property.[47]

AfCFTA does not provide a test to determine regional integration, which is likely to lead to uncertainties as to the appropriate methodology. The African Union Commission, the United Nations Economic Commission for Africa and the African Development Bank provide an Africa Regional Integration Index that uses five metrics to assess the degree of regional integration in Africa.[48] Similar indexes exist to measure integration in other regions, including Asia-Pacific,[49] Eurasia,[50] the Caribbean and Latin America.[51] While all these indexes consider a composite set of factors – including trade, capacity of goods and services production, movement of capital, infrastructure connectivity and movement of people – there is no agreed methodology or set of metrics to assess integration. The increased emphasis on health, the environment and sustainability (including in AfCFTA) is also likely to require consideration of a broader set of metrics than have traditionally been assessed.[52]

Conclusion

The promise of a single common market within the African Union cannot be achieved without harmonisation across existing and future regional trade agreements and economic communities. Member states and drafters of AfCFTA were keenly attuned to that reality, going as far as to acknowledge that RECs are the ‘building blocks’ of AfCFTA project. By allowing regional trade agreements and economic communities to maintain existing integration, and even pursue deeper integration, while promoting AfCFTA-wide harmonisation, the agreement has adopted an incremental and measured approach to resolving inconsistencies. It is an approach that will inevitably take several years, if not decades, to coalesce into uniformity. But it is an approach that is arguably necessary and best suited to the socio-economic diversity of the 54 member states of AfCFTA.

It remains to be seen how this system of parallelism envisioned under AfCFTA manifests in practice and whether the interpretive issues raised by Article 19 lead to disputes, whether at a state–state level or in an investor–state context under any future Protocol on Investment.