Africa’s free-trade area signals intent for a new kind of relationship with the EU

This study is part of the series "Shaping the Future of Multilateralism - Inclusive Pathways to a Just and Crisis-Resilient Global Order" by the Heinrich-Böll-Stiftung's European Union and Washington, DC offices.

Download the study "Shaping the Future of Multilateralism - Africa’s free-trade area signals intent for a new kind of relationship with the EU" by Dr. Olumide Abimbola

African countries are embarking on one of the most ambitious projects in the continent’s recent history. The AfCFTA is made up of all African countries, creating a single market of 1.2 billion people. As of February 2021, 36 of those countries have deposited instruments ratifying the agreement, signifying their intention to begin trading under its rules. It is the largest free-trade area, by number of signatory states, since the World Trade Organization (WTO) was established in 1994, and its terms have been painstakingly negotiated over almost five years, even through the disruptions caused by the COVID-19 pandemic.

 Success, however, is not assured. The agreement and its requirements are complex and demanding. Member countries still have to adapt their legislation and regulations, and implement the terms; the hard and soft infrastructure that will allow companies to make use of the access to larger markets – such as enhanced and better-managed customs procedures and training for small and medium-sized enterprises (SMEs) -- have to be strengthened or created; and those who are likely to lose out as a result of such a trade agreement must be identified and their needs addressed.

But those are issues mostly internal to the new trade area. Another player will have an impact in the success of the AfCFTA, too – the European Union. Lying just across the Mediterranean Sea as Africa’s leading and historically influential trading partner, how the European Union responds to and interacts with the new trade area to its south will be key to determining the success of the AfCFTA. 

One of the more remarkable points about the agreement is that Africa is bucking what had become a global trend: the rollback of multilateralism, most especially during the U.S. presidency of Donald Trump. On the trade front alone, the “cold war” between the United States of America and China has been heating up for years, escalating beyond threats to actual imposition of tariffs, and Trump withdrew the United States from the Trans-Pacific Partnership (TPP, which then became the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) without the United States); negotiations for the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the EU collapsed in 2018; the same year, the United States blocked the appointment of new judges to the WTO’s Appellate Body, bringing its work to a screeching halt; and the U.K. decision to leave the European Union created what has been described as the “biggest one-day change in trading relations in modern history.”

African countries, on the other hand, are reducing tariffs among themselves, harmonizing existing trade agreements, and creating instruments that will allow them not just to trade more efficiently with each other and establish regional value chains, but also to create more and better opportunities for African industrialization by offering firms a larger market.

So the AfCFTA arguably represents a significant and unified break for Africa from its colonial trading legacy, and from patterns of trade that for decades had allowed Europe and the United States to gridlock the multilateral trading system after they could no longer dominate it as they once did.  (The most significant example of this is the lack, as of the time of publication, of any members on the WTO Appellate Body, a seven-member standing body that acts much like its supreme court.)

Analyzing the EU’s potentially harmful actions, especially its current pursuit of Economic Partnership Agreements (EPAs) with regional groupings of African states, it is clear that Europe is still not attuned to the need and desire of African countries to carve their own routes to global trade. The main remedy for this is for Europe to listen to Africa – something that it always says it wants to do – and allow Africa’s integration efforts to happen on its own terms. Advocacy by European civil society organizations can assist in this regard.

The gridlocked multilateral trading order

For more than six decades, the global trading system has been structured and, in some sense, regulated by the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT). The system, originally created by rich countries with the distortions that one would expect from such a system, is currently gridlocked, mainly because the United States, the EU, and other wealthy countries sought to protect their domestic lobbies, particularly in agriculture, by rejecting long-held demands for equitable treatment from the Global South.

The gridlock started with the collapse of the WTO Doha Round ministerial meeting in Geneva in 2008. The U.S., the EU, and other prosperous economies refused to reduce agricultural subsidies and tariffs, even as they sought greater access to developing countries’ industrial and services sectors. For the African Group at the WTO, as well as other developing countries, these conditions would essentially make it impossible for them to grow local industries, while also denying them access to developed countries’ markets for their agricultural products, a sector that is the single largest employer in Africa. These differences could not be reconciled.

With the failure of the Doha Round, the United States and the EU took another tack: moving the WTO away from multilateralism, under which issues had to be agreed jointly by members, to a plurilateral approach, whereby a handful of members agreed to new rules that others could then subscribe to on a voluntary basis. Primary examples of such rules, post-Doha Round, are the Trade in Services Agreement (TiSA) and the Environmental Goods Agreement (EGA). Both of these pacts, when concluded, will most definitely affect non-signatories. For instance, non-signatories to the TiSA standard will be de facto bound to implement the requirements should they wish to continue trade in services with signatories. In effect, non-signatories will have to implement a standard that they are not parties to. 

The U.S. also shifted its focus away from multilateralism under the WTO to mega-regional and mega-bilateral negotiations for trade agreements. Two major examples are the TPP before the Trump administration withdrew and the TTIP before those talks failed. According to analysts, the goal was to negotiate these and other smaller, bilateral deals and have them lead to what has been described as competitive liberalization, “the idea that once a critical mass of bilateral agreements were achieved, states not party to these agreements would be inclined to liberalize along similar lines in order to avoid trade and investment diversion, and to remain competitive in a global economy.” This is essentially an attempt by the rich countries to sneak in through the back door with the terms they want – an attempt to put a multilateral shine on the core provisions of what essentially are bilateral agreements.

The African Continental Free Trade Area (AfCFTA)

Up until the creation of the AfCFTA, trade between African countries has largely followed the template created by the colonialists. The extractive nature of colonial trade, by which African countries were used to supply colonialists with raw materials, continued post-independence. Colonial rules also meant that countries that bordered each other, but that were part of competing colonial regimes, did not trade much with each other. Rather, natural resources sometimes simply passed through neighboring countries via railroads built to connect sources of extractives with ports, where they could be carted away to where the colonial authorities needed them.

After independence, colonialists retained influence. France, for instance, maintained control of the monetary policy of its former colonies through the CFA franc (the Franc of the Financial Community of Africa) and, via that, their economic policies. These colonial-legacy trade patterns explain part of the reason that intra-Africa trade remains low – just 15 percent of total trade in 2019.

There has always been, however, a strain of African leadership that aspired towards a better-integrated Africa, even though many of these leaders, post-independence, maintained the borders created during the colonial period. Through different iterations of agreements, negotiations, and treaties, several regional groupings were created, some of them with explicit goals of addressing specific issues, such as security, and others with bigger goals of socioeconomic integration. In all, each African country belongs in several regional groupings, with each country belonging in at least one regional economic community (REC).

With the 1980 Lagos Plan of Action for the Economic Development of Africa (Lagos Action Plan), African countries indicated their aspiration for an Africa that was integrated to “mobilize her entire human and material resources for her development,” and that was less reliant on Western and West-based entities. This was followed by the Treaty Establishing the African Economic Community (Abuja Treaty), which was signed in 1991 and came into force in 1994. It envisioned the creation of a free-trade area built out of regional economic communities, and further to that, a continent-wide customs union. The free-trade area, according to the Abuja Treaty, was to be established by 2018. At the 2012 African Union Summit in Addis Ababa, leaders of African countries committed to creating a continental free-trade area by 2017.

Negotiations for the creation of the free-trade area began in 2016, followed by a number of other meetings that led up to the 10th Extraordinary Session of the African Union Summit on the AfCFTA in Kigali, Rwanda, in 2018. During the summit, 44 countries signed the agreement, a.k.a. the Kigali Declaration. The agreement entered into force on May 30, 2019.

The AfCFTA creates a single African market for goods and services and introduces free movement of business people and investments. It does not initially create a customs union that would abolish tariffs and quotas – that is scheduled for an unspecified later date. It also does not abolish existing RECs and their rules. Rather, it considers them as building blocks, an innovative feature that departs from the standard neoliberal idea of disregarding all African structures and starting with a clean slate. For instance, even though West African countries negotiated individually as part of efforts leading to the AfCFTA, they negotiated based on the rules they had already agreed on, and will continue to trade internally based on the regional regimes they had established. This is the case for the eight RECs recognized by the African Union, and they are, therefore, part of the AfCFTA architecture.

RECs that have advanced significantly in their integration agenda continue to apply the rules they had agreed upon. But countries that trade with each other under WTO rules are to start trading instead under AfCFTA rules, now that it is in effect. RECs and individual states that are part of the AfCFTA will also be able to continue implementing existing free-trade agreements.

More significantly though, the AfCFTA offers an opportunity for African countries to begin speaking as one on trade issues. This was something they were never really able to do as individual countries within the WTO. Besides the constraints that existed in a system that was created and largely maintained by rich countries -- such as the fact that the rules of the game were set before any developing country even became a member -- African countries had never really had the opportunity to jointly create positions on key trade-policy issues and therefore could not speak as one, especially given that not all African countries are members of the WTO.

Africa, Europe, and the global trading system

The African Group at the WTO has managed to play significant roles in influencing outcomes of some important WTO negotiations. For example, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) extended to pharmaceutical products, thereby affecting how African countries could provide pharmaceuticals to their citizens. After a lot of negotiation, much of which included the African Group, certain “TRIPS Flexibilities” were introduced that allowed governments from the developing world to overcome patent barriers and access medicines such as antiretrovirals for the treatment of HIV-positive patients. (The African Group has also considered invoking these flexibilities in the context of the COVID-19 pandemic.)

Arguably the most important trading agreement African countries have, however, is with the European Union. From 1976 until the early 2000s, the trade relationship between Europe and African countries was structured by the Lomé Convention. The convention was signed in 1975 between African [sub-Saharan], Caribbean, and Pacific (ACP) countries and the European Economic Community (EEC). It granted ACP states preferential access to the markets of EEC member countries, while also allowing duty-free access for most ACP agricultural products and mineral exports. It was non-reciprocal, meaning that it did not require ACP countries to, in turn, grant EEC states duty-free access to their markets. That changed in 2000, when the European Union replaced the Lomé Convention with the Cotonou Agreement.

A number of issues contributed to this change. For one, the composition of the European side of the deal had changed significantly. The Lomé Convention was essentially a colonial arrangement led by Britain and France and designed to keep the ACP countries within their sphere of influence post-independence. By the 1990s, the European project included many more countries that did not consider themselves as having a direct hand in the colonization of ACP countries and therefore did not see the reason for a non-reciprocal trade agreement. Around the same time, the United States, pressured by its agricultural lobbyists, had petitioned the WTO in 1995 to argue that the Lomé Convention violated its rules. In a six-year battle that became known as the banana wars because it focused on former European colonies in the Caribbean that supplied bananas to the EU under the Lomé Convention, the WTO ruled in favor of the United States.

The rules under the Cotonou Agreement were crafted in part to address the concerns of the different parties that did not like the fact that the EU granted ACP countries preferential trade access. The EU, as part of the Cotonou Agreement, soon initiated a process by which economic groupings were to negotiate reciprocal Economic Partnership Agreements (EPAs), which eventually would replace the Cotonou Agreement. The Cotonou Agreement was due to expire by February 2020, but was extended until December 2020, and then again to Nov. 30, 2021.

But analysts, including for civil society organizations, have pointed out that EPAs will have negative effects on African countries in a number of significant ways. Firstly, even though the EU says that the EPAs are contributing to the development of the AfCFTA, the five regional blocs that the EU has approached to negotiate EPAs do not necessarily overlap with the RECs that are the building blocks of the AfCFTA. According to analysts, should the EPAs be fully negotiated with the five regional blocs as crafted by the EU, it would essentially complicate existing regional arrangements on the continent and make it even harder to implement a continent-wide trade agreement such as the AfCFTA. In West Africa, it has already pitted Ghana, which went ahead and signed an interim EPA, against other members of the Economic Community of West African States (ECOWAS).

EPAs also would affect Africa’s trade relations with the United States. Currently, trade between the United States and most African countries takes place under the African Growth Opportunities Act (AGOA). This U.S. law allows qualifying sub-Saharan African countries “duty-free, quota-free” preferences for more than 6,000 tariff lines. Like the Lomé Convention, it is non-reciprocal, and does not require African countries to also grant access to American products. The U.S. Congress originally adopted the law in 2000, and it has since been renewed three times. The current law, signed in 2015, is set to expire in 2025. Before the 2015 law, some analysts expressed concern that the U.S. Congress might choose not to extend AGOA and instead advocate for an agreement modeled after the EPAs.

In any case, Africa’s path to economic diversification and sustainable growth is through intra-regional trade. A quick analysis of trade patterns shows why: in trade with Europe, Africa mainly exports primary goods (food, drink, raw materials, energy), while importing manufactured products such as chemicals, machinery, vehicles and other such goods. On the other hand, trade among African countries, even though quite low, is highly diversified and tends to be in manufactured products. There is thus a higher degree of diversification in trade among African countries than in trade between Europe and Africa. Therefore, a reduction in the obstacles to trade within Africa could lead to an increase in trade in manufactured products, which would in turn spur growth for African manufacturers and place them in a more favorable position to compete internationally.

For this to occur, though, the inflow of manufactured goods to Africa should not keep growing, lest it compete with the growth potential of African industries. New EPAs, were they to be negotiated and implemented, would resume or continue the influx of manufactured goods by ending the non-reciprocal trade arrangement the EU has with African countries, thereby forcing African countries to accept more European goods. Preliminary analysis of the few eastern and southern African countries implementing EPAs already demonstrates this: manufacturing exports to Europe have decreased, while imports of manufactured goods have increased. Possible implications of this include job losses and the destruction of industries that cannot compete with subsidized EU imports.

Perhaps the most important reason for the EU to stop pushing EPAs is simply that African countries don’t appear to be very keen to negotiate and implement them. In Central Africa, only Cameroon has signed an EPA with the EU. In West Africa, Ghana and Cote d’Ivoire have signed EPAs that are provisionally applied; a regional, West African EPA, which has been in negotiation since 2004, has yet to be ratified. In the East African Community (EAC), even though negotiations for an EPA with the EU have been concluded, EAC countries are yet to begin implementation. After two decades of seeking EPA under the Cotonou Agreement, only the Southern African Development Community (SADC) EPA with the EU appears to be in full operation. This is all in contrast to the AfCFTA, which was negotiated in less than five years.

The EU might do well to heed those signals and to listen to and respect what African countries are saying. There are collective issues that both parties need to address -- such as the climate crisis -- and refusing to listen to Africa’s priorities when it matters will only make it more difficult to cooperate, not only on trade, but also on other key issues.

Conclusion and recommendations

With the AfCFTA, African governments are promising Africans a lot. They aim to turn the whole continent into a single market for trade, services, and investments. They vow to ease the movement of persons. They also pledge to work towards the realization of the dream of the first generation of post-independence African leaders: to work towards creating a unified Africa. These goals are achievable. But in addition to internal hurdles such as the need for new and better physical infrastructure, trade- and investment-facilitation measures, and support to SMEs so that they can utilize the larger market that the AfCFTA offers them, one potential major impediment -- as has become evident in the EPAs -- is Europe’s approach to trade with Africa. The recommendations here, therefore, are addressed towards Europe.

First off, the EU needs to improve its policy coherence in the way it interacts with Africa. Sometimes, it appears to want a continent-to-continent relationship, while at other times it appears to seek bilateral relations instead -- or at least agreements with regional groupings. On the one hand, the EU says it wants to create a relationship of equal partners in which both listen to each other, while on the other, it refuses to heed signs that African countries are not very keen on negotiating EPAs. Different EU agencies also are responsible for handling different aspects of the European bloc’s relationship with Africa; the European Commission, for instance, is responsible for some elements, while the EU External Action Service has the prerogative for others. This sometimes makes it difficult for the EU to have a coherent voice when dealing with Africa.

On the trade front, as the largest export and import partner of Africa, the EU risks complicating the continent’s regional integration efforts by actions such as asking for EPAs with regional groupings that aren’t recognized by the African Union. Because of Europe’s influence and its political and commercial ties to former colonies, its pressure is intense for countries that are afraid of losing access to the European market. Countries will sign EPAs if that is the only way they can maintain access. But this would reflect short-term thinking that does not serve the interest of Africa or even Europe in the long run, as it endangers the long-term, stable and sustainable relationship with Africa that Europe seeks.

Instead, the EU should consider negotiating a comprehensive continent-to-continent trade agreement that also includes North African countries, which are not part of the ACP. This would be an acknowledgement of the new reality of trade relationships on the continent, one in which Africa seeks to prioritize intra-African trade and investment, as well as a recognition of the importance of multilateralism.

Negotiating a trade agreement at that level would signify both parties’ readiness to establish a partnership of respect and parity on multiple issues they see as mutually significant. And that includes more than trade; it also extends to potential joint efforts on issues such as the climate crisis. Both sides, for instance, should have an interest in ensuring that the European Green Deal, which aims to make the EU climate-neutral by 2050, does not endanger economies and livelihoods in Africa by, for example, jeopardizing Africa’s energy access as the EU transitions to more sustainable energy sources. These are important issues that both continents need to work on together. For a productive working relationship, however, Europe needs to align its policies internally and also listen to what Africa is saying on trade.

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