Introduction.

The African Continental Free Trade Area (AfCFTA) was signed in June 2018, and 36 countries ratified the agreement by December 2020. This agreement will integrate a highly fragmented market, reduce physical challenges, and support export products of higher value. By considering the rules of origin under free trade agreements, it is possible to reduce the costs of these duties by applying preferential duty rates.

What are the Rules of Origin?

Rules of origin determine where a product comes from or was made. In international trade, they help businesses lower customs duties and make products more competitively priced. Companies should understand the rules of origin to;
-Save money by qualifying for preferential tariff rates.
-Avoid unnecessary delays in clearance.
-Guarantee compliance with trade regulations to ensure that they are not subject to costly penalties.
-Create a competitive advantage.

According to data from the AfCFTA Secretariat, there was also significant progress in determining the rules of origin applied to products that benefit from the preferences, with member States finding consensus on about 87% of tariff lines. In addition, 46 countries presented liberalization offers covering the five priority sectors of business, communication, financial, tourism, and transport services. The Dispute Settlement Body has been activated and is operational. At the same time, much work is being done to address customs clearance delays, certification issues, restrictive licensing regimes, and other barriers to African trade.

To reap the benefits of the AFCFTA, ROO needs to be simple and business-friendly, and in many ways, the success of the AFCFTA will be determined by the successful implementation of ROO (WTO, 2021). These article outline how ROO work under the AfCFTA, the expected benefits, and policy recommendations.

How ROO works under the AfCFTA

ROO grants trade preferences and encourages more AfCFTA members to source intermediate and final goods from within the continent. Firms will fill out a form. Doing so would create more trade within the AfCFTA and support regional value chains and manufacturing capacity across the continent. This is the case as trade and industrialization are closely intertwined, as spurring regional integration is likely to boost domestic and regional value addition.

By supporting intra-African trade, the AfCFTA would also advance Africa’s industrialization agenda through regional value-chain development, reduce Africa’s dependence on commodities and generate the jobs needed to harness Africa’s demographic dividend. But whether, in practice, firms within the AfCFTA utilize trade preferences and the extent to which they would do so depends on how rules of origin are designed and implemented. There are several benefits to ROO which will be discussed below.

Rules of Origin will reduce non-tariff barriers.

Origin rules lessen the incentive for African countries to impose non-tariff barriers, thereby stimulating intra-African trade: According to UNCTAD data from 2015 to 2017, intra-African commerce is just 15%, compared to 53% in America, 61% in Asia, and 67% in Europe. These below rates of integration are caused by tariffs that are too high. According to UNCTAD projections, after all, tariffs are abolished, most African nations’ GDP may grow by 1% to 3%.

The findings show that after complete tariff liberalization is implemented, the AfCFTA is predicted to improve intra-African trade by 33%, attracting extra intra-African investments and generating market possibilities to develop Africa’s industrialization through regional value chains. However, many of these gains could only be supported if rules of origin are appropriately designed and enforced to support preferential trade liberalization.

For example, preferential trade liberalization is the raison d’être of a free trade area (FTA), whereby member countries scrap import tariffs and quotas among themselves on most traded goods to confer a competitive advantage to firms within the FTA. But to qualify for such preferences, firms within the FTA must meet rules of origin requirements. ROO define the conditions that firms must comply with to authenticate that their goods originate from the FTA and are thus eligible for preferential treatment within the FTA. Greater compliance with ROO will rescue the cost of trade and facilitate the implementation of the AfCFTA.

Rules of Origin will Develop and Integrate Regional Value Chains and Boost Employment.

Simplifying ROO is indispensable to boosting intra-regional trade across Africa. If one takes a birds-eye view of trade dynamics across the continent, one finds that trade from Africa to the rest of the world is estimated at $760 billion between 2015-2017. This is far below other regions’ work with the rest of the world. For example, Europe’s trade with the rest of the world is $4,109, and America’s is $5,140 billion.  Preferential tariffs that emanate from Rule of Origin requirements will boost intra-regional trade and encourage. More excellent intra-African marketing will create dependence between value chains, stimulating growth and allowing cross-border innovation. So far, economic zones and trading blocs have held regional value chains back, but this should change under the AfCFTA.

Policy Recommendations and Conclusions

1. CRules of origin should be relatively inexpensive and straightforward: The report warns that if the origin management is too expensive or difficult to comply with, firms may forego these preferences and choose to trade with partners outside the AfCFTA. Equally, the status quo may prove more appealing; for example, they may stick to trading only within existing regional economic communities, with few incremental gains arising from consolidating the regional market. While rules of origin should be context-specific, UNCTAD recommends keeping them simple, transparent, business-friendly, and predictable. Also, the authorities should consider the level of productive capacities and structural asymmetries across the broad set of countries, including the Least Developed Countries (LDCs), which face challenges in using preferential tariffs, let alone implementing demanding origin requirements.
2. Certificate of Origin and its Requirements: Compliance with rules of origin often requires proper documentation and certification. Exporters may need to provide supporting documents such as bills of materials, supplier declarations, or certificates of origin (CO) to prove that their products meet the origin requirements. The CO is a valuable document as it helps companies to access lower customs duties by adhering to the applicable rules of origin.

Conclusion

In summary, businesses can use the rules of origin to help them save money and gain a competitive edge in the international market. By understanding the requirements of origin certification and the implications of regulations on international trade, companies can reduce their customs duties through preferential origin rules. Furthermore, it is beneficial to analyze the supply chain for potential duty savings opportunities and use digital certificates instead of paper documents.

Keeping up-to-date with legislation changes is crucial to benefiting from new FTA opportunities. In addition, automating processes with trade preference software can help businesses save time and money while ensuring compliance with laws and regulations. Adhering to these best practices will increase profits and an advantage over competitors.

Henri Kouam, Chair, CEPI.

Reference List

1). UNCTAD. (2019). Economic Development in Africa Report 2019. United Nations Conference on Trade and Development

2). Kuwonu. F. (2021). Africa’s free trade area opens for business. African Renewal.

3). ADB. (2016). Jobs for Youths in Africa: catalyzing Youth Opportunity Across Africa. African Development Bank.