The African Continental Free Trade Area (AfCFTA) Rules of Origin: A Critical Pillar of the Africa We Want

The African Continental Free Trade Area (AfCFTA) is a landmark agreement that aims to create a single market for goods and services in Africa, with a population of over 1.3 billion people and a combined GDP of over $3 trillion. The AfCFTA entered into force on 30 May 2019 and started trading on 1 January 2021.

One of the key aspects of the AfCFTA is the Rule of Origin (RoO), which determines the criteria for a product to be considered as originating from a member state and thus eligible for preferential tariff treatment under the agreement. It is also essential for ensuring that the benefits of the AfCFTA are enjoyed by the producers and consumers within the continent, and not by third parties who may try to take advantage of the lower tariffs by transshipping their goods through an AfCFTA member state.

The RoO under the AfCFTA is designed to balance facilitating trade and promoting industrial development within Africa. They aim to reflect the realities and challenges of production and trade in the continent, while also encouraging regional integration and value addition. The RoO are expected to evolve as the AfCFTA progresses and new sectors and products are covered by its scope.

Rules of origin can have a significant impact on the costs and competitiveness of trade. If the rules are too restrictive or complex, they can create administrative burdens and discourage traders from using their preferences. On the other hand, if the rules are too lenient or vague, they can undermine the objectives of the AfCFTA and expose it to external challenges. Therefore, finding the right balance between flexibility and rigour is crucial for the success of the AfCFTA.

The general principle for determining the origin of a product under the AfCFTA is that it must be either wholly obtained or sufficiently processed in an AfCFTA member state. Wholly obtained products are those that are entirely grown, extracted, harvested or otherwise obtained in a single country, such as agricultural products, minerals, fish or animals. Sufficiently processed products are those that have undergone a substantial transformation in an AfCFTA member state, using inputs from other sources, such as raw materials, parts or components.

The RoO under the AfCFTA is based on a sectoral approach, meaning that different products have different origin requirements depending on their specific characteristics and production processes. The RoOs are contained in Annex 2 of the AfCFTA Protocol on Trade in Goods, which also provides a manual for applying and administering the RoO.

CRITERIA FOR DETERMINING QUALIFYING ITEMS

The criteria for determining whether a product has been sufficiently processed vary depending on the product category and are specified in the product-specific rules (PSRs) of Annex 2. The PSRs use different methods to measure the degree of transformation, such as:

– Change of tariff classification: This method requires that the final product falls under a different tariff heading or subheading than its non-originating inputs, indicating that it has undergone a significant change in its nature or composition. For example, cotton yarn (HS 5205) originating from an AfCFTA member state can be transformed into the cotton fabric (HS 5208) in another member state and qualify as originating.

– VALUE ADDITION: This method requires that the final product has a certain percentage of its value added in an AfCFTA member state, either by using local inputs or by performing certain manufacturing operations. For example, chocolate (HS 1806) originating from an AfCFTA member state must have at least 35% value added in another member state to qualify as originating.

– SPECIFIC PROCESSES: This method requires that the final product has undergone certain technical or chemical processes in an AfCFTA member state that confer essential characteristics to it. For example, fish (HS 03) originating from an AfCFTA member state must be gutted, scaled, filleted or otherwise prepared in another member state to qualify as originating.

In addition to these product-specific rules, the AfCFTA also has general provisions that apply to all products, such as:

– CUMMULATION: This provision allows products that have acquired origin in one AfCFTA member state to be further processed or incorporated into another product in another member state without losing their origin status. For example, cotton fabric originating from Kenya can be made into garments in Ethiopia and still qualify as originating.

– DE-MINIMIS: This provision allows products that do not meet the product-specific rules of origin to still qualify as originating if the value or weight of the non-originating materials does not exceed a certain threshold. For example, chocolate originating from Ghana can contain up to 15% of non-originating sugar and still qualify as originating.

– DIRECT TRANSPORT: This provision requires that products must be transported directly from the exporting member state to the importing member state without passing through or being transshipped in a non-member state. If the products transit through a non-member state, they must not undergo any operation other than unloading, reloading, splitting up of loads or any operation necessary to preserve them in good condition.

CLOSING REMARKS 

While some aspects of the Rules of Origin are still under negotiation, it is essential to find a common ground that satisfies all parties and reflects the realities and potentials of African production and trade, which is critical to the successful execution of the RoO.

Another noteworthy recommendation is ensuring that the rules of origin are transparent, simple and harmonized across the continent. This would reduce compliance costs and facilitate trade facilitation and customs cooperation. Moreover, it would help to build trust and confidence among traders, consumers and regulators.