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The Trade in Services Protocol of the AfCFTA – Effects on Transactions

During the negotiations of the African Continental Free Trade Area ("AfCFTA"), the member states of the African Union agreed to create a single liberalized services market to boost

During the negotiations of the African Continental Free Trade Area (“AfCFTA”), the member states of the African Union agreed to create a single liberalized services market to boost trade in services within the continent. For such purposes, the State Parties included in the AfCFTA the Trade in Services Protocol (the “Protocol”), aiming to create a more straightforward, albeit seamless flow of doing business between African countries to increase the regional and global value chain ultimately. The Protocol aims to “recognize the right of State Parties to regulate in pursuit of national policy objectives and to introduce new regulations on the supply of service within their territories to meet legitimate national policy objectives. This includes competitiveness, consumer protection and overall sustainable development, with respect to the degree of the development of services regulations in different countries, the particular need for State Parties to exercise this right without compromising consumer protection, environmental protection and overall sustainable development.” 

The Protocol applies to “measures by State Parties affecting trade in services[1]“. Among its primary objectives, the State Parties agreed to: “progressively liberalize trade in services across the African continent on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services[2]“, “promote sustainable development in accordance with the Sustainable Development Goals (SDGs)[3]“, enhance competitiveness of services through economies of scale, reduced business costs, enhanced continental market access, and an improved allocation of resources including the development of trade-related infrastructure[4]“.

The Protocol seeks to liberalize the services included in the World Trade Organization Services Sector Classification List, including business, communication, financial, tourism and travel and transport services (named as priority sectors on the July 2018 Assembly Summit) and construction, distribution, education, environment, health, recreational, cultural, sporting, and other services. However, not all State Parties have a regulation in place for such services, which will represent a challenge for its liberalization, as the lack of regulation in one country can represent an obstacle for trading with another country. To achieve a progressive liberalization of the services as set out in Article 19 of the Protocol, while protecting their national industries, articles 18, 19, and 20 mandate successive rounds of negotiations where the State Parties must provide Schedules of Specific Commitments with the terms, limitations, and conditions on market access, national treatment, and other matters, as well as the time frame for their implementation. Meaning that it will be some time before any trading of services can effectively occur under the AfCFTA. 

The liberalization of services is no small venture, as services play a significant role in each country’s economy and development. Therefore, the successful implementation of the Protocol is critical to the overall economic growth and development of the African continent. The liberalization creates import and export diversification, improving the regions’ development and will ultimately create technological advancement, better service delivery, more access to foreign investments, aid eradicating energy poverty, and make more room for structural transformation in the continent. The ease of service activities within and across Africa can create and facilitate industrialization, structural change and create a regional and continental value chain. Afrexim Bank stated that high trade barriers in Africa are an obstacle to trade within the continent and reduce the incentives for foreign investment to Africa. Regulatory and immigration policies, as well as market access restrictions, are some of such barriers. 

According to the World Bank report “The African Continental Free Trade Area, Economic, and Distributional Effects,” the trade liberalization and facilitation in goods and services coming from the AfCFTA would boost income gains by USD292 billion. To achieve that, the State Parties must reduce the trading barriers for services to ensure a quick, secure, and efficient trade among the member countries. The State Parties need to ensure that the implementation of the Protocol encompasses both the formal and informal sectors and the remote parts of the regions. According to the World Bank, such areas have remained neglected despite their enormous importance in the continent in industries such as health, construction, entertainment, and finance. 

The successful liberalization of trade in services under the Protocol for the private sector means that companies will have access to the information published by the State Parties regarding the requirements for trade in services, applicable taxes, barriers of entry, and legal and judicial protection in the member countries, among others. These will give investors the certainty that their investments will be protected under the AfCFTA, the national regulation, and applied by the local courts. The liberalization of services also means that companies will be granted the same conditions as other companies in other countries in the continent (Most-Favoured-Nation Treatment[5]) (subject to certain limitations) and allow for a fair competition in the relevant markets by preventing monopolies and exclusive suppliers. 

Shantel Mufandaidza

For Centurion Law Group’s AfCFTA Desk

For more information on the AfCFTA or if you have any questions, please contact us via – [email protected] or [email protected]