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CROSS BORDER E-COMMERCE UNDER THE AFRICAN CONTINENTAL FREE TRADE AREA

Did you know that Africa is poised to surpass half a billion e-commerce users by 2025, with a steady 17% compound annual growth rate? Yet, despite this promising growth, the continent lacks a multinational marketplace presence.

Did you know that Africa is poised to surpass half a billion e-commerce users by 2025, with a steady 17% compound annual growth rate? Yet, despite this promising growth, the continent lacks a multinational marketplace presence. What does this mean for entrepreneurs like Zekhethelo in Mpumalanga, South Africa, who dreams of expanding her beauty product line, sourcing pure shea butter from Accra, Ghana, to sell to her devoted fanbase in Harare, Zimbabwe?

On 18th February 2024, the African Union (AU) Assembly adopted the AfCFTA Protocol on Digital Trade (the Protocol) in the 37th Summit. The Protocol was originally scheduled for Phase III but was fast-tracked to Phase II to provide a unique opportunity for member states to operate under harmonised digital economy regulations with the goal of accelerating intra-African trade. Notably, this decision came hot on the heels of South Africa’s launch of the Guided Trade Initiative (GTI) under the African Continental Free Trade Agreement (AfCFTA), led by President Cyril Ramaphosa and Minister of Trade, Industry, and Competition Ebrahim Patel.[1] The adoption of the Protocol at the beginning of the preferential trade is a great development for the inclusion of MSMEs that form about 91% of formalised businesses in South Africa.[2]

Background

The African Continental Free Trade Area AfCFTA, one of the Flagship Projects of Agenda 2063, was approved on January 2012[3] in Addis Ababa, Ethiopia in 2012.[4] Subsequently, the agreement establishing the AfCFTA was adopted on 21st March 2018 in Kigali, Rwanda and entered into force on 30th May 2019. Under this agreement, the AU Assembly was mandated under Article 10 to provide oversight and strategic guidance on the AfCFTA.[5]

Several protocols to the agreement establishing the AfCFTA were then launched in Niamey, Niger in July 2019, including: the Protocol on Trade in Goods; the Protocol on Trade in Services; the Protocol on Rules & Procedure on the Settlement of Disputes; the Protocol Investment; the Protocol on Intellectual Property Rights; and the Protocol Competition Policy. However, in February 2020, noting the increasing importance of digital trade, the AU Assembly decided to include the Protocol on Digital Trade within the AfCFTA.[6]  

Understanding Digital Trade and its Scope

The Protocol defines digital trade as “digitally enabled transactions of trade in goods and services that can either be digitally or physically delivered, and that involve natural and juridical persons.”[7] Similarly, the European Union Commission defines digital trade as commerce enabled by electronic means – by telecommunications and/or ICT services – and covers trade in both goods and services.[8]

The International Monetary Fund (IMF) goes a step further in linking digital trade with e-commerce. It establishes a criteria for qualifying a cross-border trade transaction as digital[9]:

  1. Is it digitally ordered? (e-commerce);
  2. Is it digitally facilitated? (by platforms); or
  3. Is the product being digitally delivered? i.e., downloadable products.

It notes that the conditions are not-mutually-exclusive, therefore forming the underlying and unifying principle for including cross-border transactions within the definition of digital trade.

There are several definitions of e-commerce, which essentially capture commercial transactions occurring through electronic channels including: the definition by the World Trade Organisation (WTO) which covers “production, distribution, marketing, sale or delivery of goods and services by electronic means”;[10] and that of the Organisation for Economic Cooperation and Development (OECD) which refers to e-commerce as the “sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders”.[11] 

Establishment of the Protocol

The Protocol was established on the foundations of the African Union’s Digital Transformation Strategy which sought to create a single digital market by supporting the development and implementation of digital strategies, establishment of harmonised policy, legal and regulatory framework, and strengthening collaboration between African institutions and regulators in charge of digitalisation and the protection of personal data.[12]

The Protocol encapsulates the complexities involved with e-commerce: it overlaps with many areas of law such as consumer protection, competition legislation, data protection, intellectual property rights, competition policy and tax-related issues. That said, having predictable and stable e-commerce regulations was central to formulation of the Protocol.           

Consequently, three main issues are addressed in the Protocol:

  1. Market Access & Facilitation: 

The Protocol covers possible challenges that may affect cross border e-commerce operations in the continent such as customs duties, valuation and pricing, cyber-security, cross-border flows, digital data and digital products. In this regard, it gives a clear scope of what a digital product entails and describes it as “an electronic programme, text, video, image, sound recording or any other product that is digitally encoded, produced for commercial sale and distribution, and that can be transmitted electronically except for a digitised representation of a financial instrument, including money.”[13]

It mandates state parties not to “deny the legal validity, effect, or admissibility of electronic documents, electronic signature, electronic seals, electronic time stamps or any other electronic processes or means of validating, facilitating or enabling registered delivery services or other forms of electronic trust services solely on the basis that it is in electronic form.”[14]Furthermore, the Protocol mandates state parties to employ relevant laws and regulations that facilitate the electronic authentication of e-commerce transactions in addition to acknowledging paperless trading.[15] Moreover, it requires state parties to maintain measures that ensure cybersecurity and the protection of personal data of natural persons and other essential security interests.[16]

While the AfCFTA works on implementing the Pan-African Payments and Settlement System (PAPSS), a centralised payment and settlement infrastructure for intra-African trade and commerce payments developed by the African Export-Import Bank (Afreximbank), the Protocol mandates its state parties to enhance access to and participation in digital trade through the promotion of interoperability between their respective digital payment and settlement systems.[17]

  • Rules and Regulations: 

The Protocol focuses on legal convergences that impact e-commerce in Africa. It outlines several objectives to promote digital trade on the continent, including:

  1. Eliminating trade barriers among state parties;
  2. Establishing clear, transparent and predictable harmonised rules, and common principles and standards for digital trade;
  3. Creating an open, transparent, secure, predictable and trustworthy digital ecosystem for businesses and consumers;
  4. Enhancing cooperation among state parties on matters related to digital trade;
  5. Establishing an institutional framework for the implementation and administration of the Protocol;
  6. Promoting common and open standard to enable the interoperability of frameworks and systems to facilitate cross-border digital trade;
  7. Encouraging trusted, safe, ethical and responsible adoption and regulate the use of emerging and advanced technologies to support and promote digital trade;
  8. Promoting digital skills development, innovation and entrepreneurship and digital industrialisation as well as develop digital infrastructure to facilitate digital transformation of state parties; and
  9. Provide a common legal framework for digital trade among state parties.[18]

As mentioned above, these areas of law include consumer protection,[19] data protection, intellectual property rights, competition policy and tax-related issues.

  1. Enabling Issues

The Protocol includes provisions that warrant the structural foundation of a digital economy. For example, technology infrastructure, networks, internet access and related issues of affordability and quality. Importantly, the Protocol mandates state parties to streamline their licensing procedures related to logistics services for prompt and transparent processing of licence applications received by the respective regulatory authorities.[20] Moreover, it requires state parties to adopt certification mechanisms for the mutual recognition of electronic authentication, digital certificates, electronic time stamps, and electronic signatures and maintaining electronically transferable records.[21] However, the Protocol distances itself from transactions that involve government transactions and information held or processed on behalf of a state party.[22]

It is important to note that the adoption of the Protocol triggers the development of annexes on cross-border digital payments, cross-border data transfers, data identities, financial technology, emerging and advanced technologies as well as online safety and securities that shall form the backbone of cross-border e-commerce within the AfCFTA. Furthermore, once the Protocol is in force, the state parties are required to align their national laws, rules and regulations with the provisions of the Protocol within 3 (three) years. With the establishment of the Pan-African Digital Trade Centre as the technical institution of the AfCFTA Secretariat, alongside the Committee on Digital Trade, the Protocol is well in gear for its progressive implementation once in force.

Conclusion

The Protocol creates a common understanding of the regulation of the digital economy in Africa, which presents significant opportunities for MSMEs to expand their market reach and contribute to overall economic growth of the region. However, pertinent to the Protocol’s success once in effect, is ensuring the e-commerce tax regime formulated under the Protocol is not focused on bolstering tariff collections at the expense of reaping broader economic benefits for the continent in terms of increase in trade.

For more information on the AfCFTA, please contact the Centurion Law Group’s AfCFTA desk via – [email protected] or [email protected]