SARS Head Accreditation and Licensing, elected Vice Chair for WCO SAFE Working Group

Ms Rae Vivier, Head Accreditation and Licensing at the South African Revenue Service, has been elected by the World Customs Organisation (WCO) Member States as a Vice Chair for the WCO SAFE Working Group.   

The role of the WCO’s SAFE Working Group is to advise, as appropriate, the Policy Commission, the Permanent Technical Committee and the Secretary General on the full range of issues concerning the SAFE Framework of Standards. Such issues include matters relating to implementation and amendments concerning the SAFE Framework and further developing and monitoring other World Customs Organization (WCO) initiatives and related Customs matters that impact the operation of the SAFE Framework of Standards.

In accepting her election at the SAFE Working Group Meeting which took place on the 11 – 13 April 2022, Ms Vivier indicated that she was truly humbled by her election to the position and that it is an inordinate privilege to serve all 184 members and the WCO for the next 4 years.

Even though South Africa has been instrumental in the development of key instruments and tools designed by the WCO, it is a first time that the African continent will be holding such a leadership role in this key international platform i.e., SAFE Working Group.  The Vice Chair position will subsequently assume the role of Chair of the SAFE Working Group after two years.

Source: SARS

SAFE Working Group urges greater harmonization of AEO programmes

Picture – Nazarizal Mohammed

The 26th/27th Meetings of the SAFE Working Group (SWG) were held successfully from 11 to 14 April 2022. The virtual meetings brought together more than 260 delegates representing Customs administrations, the Private Sector Consultative Group (PSCG), other international organizations and academia.

In his opening remarks, Mr. Pranab Kumar Das, WCO Director of Compliance and Facilitation, highlighted that the SWG had reached an important juncture as the new three-year SAFE review cycle 2021-2024 was about to enter into discussions. It was pointed out that 17 years after it was first published, the SAFE Framework of Standards (FoS) had garnered substantial interest from WCO Members. During the meetings, Guyana became the 172nd WCO Member to express its interest in implementing the SAFE FoS. 

With a view to continued enhancement of the AEO criteria and provisions to strengthen the SAFE FoS, WCO Members made several new proposals to revise the Framework. The SWG also received feedback from the private sector on the urgent need to enhance the harmonization of SAFE and AEO implementation. In this context, the SWG heard a presentation by the WCO Anti-Corruption and Integrity Promotion (A-CIP) Programme on maintaining the integrity and transparency of AEO implementation.

On this occasion, the SWG reviewed and adopted the new Work Plan for 2022-2024, which reflected the critical activities the SWG will carry out over the next two years until 2024, in parallel with the SAFE review cycle. The SWG also received an update on the development of new features for the Online AEO Compendium (OAC) and the other extensive work underway in collaboration with other international organizations in the areas of security and facilitation.

Against the backdrop of the WCO’s theme for 2022, the panel discussion on “Scaling up Customs Digital Transformation by Embracing a Data Culture and Building a Data Ecosystem” attracted significant interest from Members and the private sector. The experienced speakers from Member Customs administrations, the private sector and the Secretariat enriched the discussions by sharing their best practices on using data for enhancing risk management and monitoring AEO programmes.

As a way forward, the SWG agreed that efforts will be reserved for a comprehensive review to assess and monitor SAFE implementation for greater harmonization of AEO programmes globally.

Source: World Customs Organisation, 25 April 2022

WCO shares good practices for drafting a rules of origin tool with the AfCFTA

At the invitation of the African Continental Free Trade Area (AfCFTA) Secretariat, the World Customs Organization (WCO) gave a presentation on international standards for the drafting of tools and instruments on rules of origin at a virtual workshop on the drafting of the AfCFTA Rules of Origin Handbook held on Monday 21 February 2022. 

In her welcoming address, the Chairperson of the Sub-Committee on Rules of Origin expressed her profound gratitude and thanks to the AfCFTA’s partner organizations, such as the WCO and UNCTAD, as well as to the Regional Economic Communities (COMESA, EAC, ECOWAS and the SADC) which had kindly accepted the invitation to share their experience of drafting rules of origin handbooks.

She reminded those taking part that Article 8.3 of the Agreement establishing the African Continental Free Trade Area laid down that any additional instruments, within the scope of that Agreement, deemed necessary, are to be concluded in furtherance of the objectives of the AfCFTA and will, upon adoption, form an integral part of the Agreement. In accordance with Article 13 of the Protocol on Trade in Goods, discussions among the negotiating bodies had led to the adoption of Annex 2 on Rules of Origin and of close to 88% of the tariff lines constituting Annex IV. She also emphasized that both of those legal documents on rules of origin had to be made operational through the use of the Rules of Origin Handbook.

With a view to the implementation of Annex 2 on Rules of Origin of the AfCFTA Protocol on Trade in Goods, she went on to stress that the 8th Meeting of the Council of Ministers, held on 28 January 2022, had decided that the work on drafting the AfCFTA’s Rules of Origin Handbook had to be given priority.

Accordingly, under Item 3 on the Agenda, the WCO gave a talk on the drafting of rules of origin handbooks, presenting some practical cases that explained the international standards applied in drawing up its tools. There was then a question-and-answer session in which the delegates from Customs administrations, trade and industry were able to have a fuller exchange on the subject of good practices on which the AfCFTA could draw in finalizing the drafting of the Rules of Origin Handbook.

The workshop was attended by more than 150 delegates, for whom it was an opportunity to learn more about good practices in relation to the drafting of operational handbooks on rules of origin, with a view to making proposals for improvements to the AfCFTA handbook, on the basis, too, of the experiences of the WCO, UNCTAD and the African RECs.

The workshop came before the 5th Meeting of the Sub-Committee on Rules of Origin to be held from 22 to 25 February 2022, at which the handbook in question would have to be drawn up in order to facilitate the implementation of AfCFTA rules of origin and thereby boost intra-African trade.

Source: WCOOMD, 24 February 2022

WCO – 2022 edition of the Harmonized System Nomenclature is now available online.

As of 18 November 2021, the online version of the 2022 edition of the Harmonized System Nomenclature is available through the WCO Website to all HS users.  The HS 2022 edition, as the world’s global standard for classifying goods in international trade, will enter into force on 1 January 2022.

Used by over 200 countries and economic or Customs unions as the basis for their Customs tariffs and for trade statistics, as well as by international organizations such as the United Nations Statistical Division (UNSD) and the World Trade Organization (WTO), the Harmonized System (HS) Convention currently has 160 Contracting Parties, making it the WCO’s most successful instrument to date.

The 2022 edition of the HS Nomenclature includes significant changes with 351 sets of amendments (including some complementary amendments): 77 relating to the agricultural sector; 58 to the chemical sector; 31 to the wood sector; 21 to the textile sector; 27 to the base metal sector; 63 to the machinery sector; 22 to the transport sector and an additional 52 that apply to a variety of other sectors, comprising a total of 1,228 headings identified by a 4-digit code, and 5,612 subheadings identified by a 6-digit code. 

These amendments have been made to update the Harmonized System Nomenclature, taking into consideration public health and safety, protection of society and fight against terrorism, goods especially controlled under various conventions, food security and environment protection, technological progress, trade patterns, and clarification of the HS texts.

Click here for the HS Nomenclature 2022 Edition.

The digital version of the HS 2022 edition is also available for free on WCO Trade Tools, which is the WCO’s new online database platform that encompasses the last five editions of the HS and functionalities to support all those involved in international trade.  The WCO Trade Tools encompasses various free and subscription only tools relating to the classification and valuation of goods, origin determination and the application of preferential rules of origin.

The paper version of the HS 2022 edition can be purchased on WCO’s Bookshop.

Global Trade Braces for a Mini Y2K With Customs Code Overhaul

Picture by Kyle Glen

The following article was published in Supply Lines, Bloomberg

As if the foot soldiers of global trade needed more complications this holiday season, many logistics managers and customs brokers are starting to brace for a mini Y2K moment come Jan. 1.

That’s when changes will take effect to the official nomenclature for hundreds of product groups used to classify imports and exports. So-called Harmonized System numbers — known as HS codes — exist on more than 5,000 product categories developed by the World Customs Organization, an intergovernmental group in Brussels that updates them every five years or so.

In 2022, the biggest changes are coming for electrical machinery and parts, wood, textiles, fish and organic chemicals.

More than 350 global HS codes are getting updated, and some 1,500 harmonized U.S. tariff codes are subject to revisions, according to a recent webinar from Flexport. The categories are important, if a little wonky, because most items of international commerce fall into one and they can determine tariff levels.

Some codes are disappearing. After a respectable run through the 1970s and ‘80s, answering machines are about to lose their HS code. Made obsolete by voicemail, they rank 5,296th among 5,832 U.S. imports this year, according to Flexport data.

Globes — those spinning spheres that taught geography to schoolkids of the 1970s — will have their number (4905.10) retired, too.

“The trade in globes is not quite what it used to be,” Marcus Eeman, a global customs manager with Flexport, lamented about the U.S.’s 4,025th-biggest import.

Chemical Weapons?

Some new HS codes will appear, like one for pomace oil, a lower-grade form of olive oil.

Among the more intriguing additions, Flexport says there’ll be a “new code created for petroleum resins and other organic chemical compounds used in the manufacture of chemical weapons.” That should make it easier for authorities to track which countries are importing it and potentially using them illegally.

Other categories are getting renamed. Lamps will no longer fall under “lamps,” they’ll be classified as “luminaires.” There will be new subheadings for popular gadgets like smart phones, high-speed digital cameras and flat panel displays.

Economies preparing for the changes include the U.S., China, the European Union, Canada and Australia. The U.K., meanwhile, is still “finding their footing with Brexit and we expect them to get their act together by the end of the year,” Eeman said.

For all the changes to take effect on Jan. 1 in the U.S., there will need to be a presidential proclamation published in the Federal Register with the required 30 days of advanced notice.

So it’s worth looking out for that in coming days.

“My fear is that Dec. 1 will come and the presidential proclamation will be published and that’s when people will start to scramble,” said Tom Gould, Flexport’s vice president of global customs. “Then Jan. 1 will hit and you’ll have a bunch of people that have products that they need to import but they don’t know the classification, because the code that they’ve used in the past is no longer a valid code.’’

Source: Bloomberg, authored by Brendan Murray, 24 November 2021

WCO – Two new Instruments on Customs Valuation to Support Customs and Economic Operators

At its 52nd Session, held from 17 to 19 May 2021, the Technical Committee on Customs Valuation adopted two instruments (Advisory Opinions 4.18 and 24.1) concerning royalties and licence fees under Article 8.1 (c) of the WTO Customs Valuation Agreement (Agreement) and the Customs valuation treatment of imported goods bearing the buyer’s own trademark, respectively. 

These two instruments were adopted after a virtual session which extended over three days, having regard to the current circumstances relating to the pandemic. It rewards the efforts constantly being made by the Technical Committee to improve the certainty of the interpretation and uniform application of the provisions of the Agreement in all member countries of the WTO. Practical instruments of this kind help Customs, the private sector and the Members in the fair control of Customs valuation, the facilitation of international trade and the optimization of Customs revenue.

In the first instrument, the Technical Committee gives its opinion on the valuation treatment of income tax deriving from the royalty paid to the country of importation’s tax authorities in accordance with the terms of the licence agreement signed by the importer and the seller, who is also the licence holder.

The second instrument relates to the valuation treatment of the trademark belonging to the buyer and provided free of charge to the seller for use in connection with the production of the imported goods.

These instruments adopted by the Technical Committee, once they have been approved by the WCO Council, will be available on the WCO Publications website and published in the WCO Customs Valuation Compendium.

Source: WCO, 27 May 2021

WCO – HS Codes for HFCs

The WCO participated in the virtual side event, organized by UNEP OzonAction, at the 32nd Meeting of the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer.  The event aimed to inform participants about how the WCO Recommendation can help implement national measures to identify hydrofluorocarbons (HFCs) before the new international Harmonized System codes come into force.

The event, held 24 November 2020 and attended by 78 participants, addressed a major issue for countries.  One of the important requirements of the Kigali Amendment to the Montreal Protocol is that an import and export licencing system for hydrofluorocarbons (HFCs) needs to be in place by 1/1/2021 at the latest, in each country that is Party to the Amendment.

To enable a licencing system to function effectively, governments need to be able to monitor and record imports and exports of each specific HFC. Import and export statistics are normally collected by customs officers using the Harmonized System. 

The HS will be amended in 2022 to incorporate specific subheadings for the most commonly traded HFCs and their mixtures. However, until the HS is amended in 2022, all HFCs are contained in a single HS code which does not allow differentiation of individual chemicals or mixtures. 

This side event provided an overview of the issue and explained a proactive interim approach, recommended by the WCO, to open national subheadings under the existing international HS codes to identify specific HFCs until 2022.

A technical officer from Tariff and Trade Affairs (Nomenclature) explained the classification of HFCs in the current HS 2017 and the changes to be implemented in 2022.  He also explained how the “WCO Recommendation on the insertion in national statistical nomenclatures of subheadings to facilitate the collection and comparison of data on the international movement of substances controlled by virtue of the Kigali amendment to the Montreal Protocol on substances that deplete the ozone layer” could be implemented by Regions or individual countries.

Practical examples of the implementations of the WCO Recommendation at regional and national levels were given by representatives of the European Commission and the Oceania Customs Organization.   

Countries were encouraged to expeditiously insert additional national subheadings for HFCs and HFC-containing mixtures, as guided by the WCO Recommendation, to ensure a proper implementation of the Kigali amendment to the Montreal Protocol. 

Related information –

HMRC – Border Operating Model with the EU

From 1 January 2021, the transition period with the European Union (EU) will end, and the United Kingdom (UK) will operate a full, external border as a sovereign nation. This means that controls will be placed on the movement of goods between Great Britain (GB) and the EU.

The UK Government will implement full border controls on imports coming into GB from the EU. Recognising the impact of coronavirus on businesses’ ability to prepare, the UK Government has taken the decision to introduce the new border controls in three stages up until 1 July 2021.

Her Majesty’s Revenue & Customs (HMRC) published the first iteration of the Border Operating Model in July 2020, setting out the core model that all importers and exporters will need to follow from January 2021 as well as the additional requirements for specific products such as live animals, plants, products of animal origin and high-risk food not of animal origin. We also provided important details of Member State requirements as traders and the border industry will need to ensure they are ready to comply with these, and not just Great Britain (GB) requirements. Indeed, as set out in the recently published ‘Reasonable Worst Case Scenario’ assumptions, it is largely the level of readiness for Member State requirements which will determine whether there is disruption to the flow of goods at the end of the transition period. This is why we have included additional signposting to those requirements throughout the document, and are encouraging all GB businesses not just to ensure their own readiness but also the readiness of EU businesses to whom they export, and throughout their supply chains.

Since July, the HMRC has worked closely with industry to further develop plans for the end of the transition period, and also to respond to industry questions since the publication of the first iteration of the Border Operating Model. This latest iteration of the Border Operating Model provides additional information in a number of key areas as set out below as well as clarifying a number of questions from industry.

You can access the HMRC Border Operating Model here.

Tanzania – Electronic Tax Stamp Pushes Up Revenue By 34%

THE use of Electronic Tax Stamps (ETS) for excisable goods have contributed to a 34 percent increase in revenue collected on branded products.

Due to the increase, the Tanzania Revenue Authority (TRA) has already rolled out the second phase which saw ETS being stamped on soft and carbonated drink plus bottled water.

TRA Deputy Commissioner General, Mr Msafiri Mbibo made the remarks during the on-going 44th Dar es Salaam International Trade Fair (DITF).

Mr Mbibo said since the system was introduced it has proven success showing improvement in revenue collections in which there is an increase of 34 percent.

ETS replaces the former paper stamp system, which was cumbersome and prone to human error, allowing certain tax-related malpractices to slip through the cracks.

This is one of the government’s moves geared towards improving tax administration in the country.

“We are glad that ETS shows improvement in the collection of excise duty and Value-added Tax (VAT), in the first quarter of the 2019/20 financial year the collection rose to 35.3 per cent on domestic spirits and wines compared to the corresponding period of last year,” he noted.

The taxman garnered 25.8bn/-as excise duty and VAT from domestic spirits and wines during the first quarter of the 2018/19 fiscal year, but the amount rose to 34.96bn/- during the first quarter of the 2019/2020 financial year.

Excise duty and VAT on cigarettes rose by 5.6 percent during the first quarter of the 2019/2020 financial year compared to a similar period last year.

TRA collected 56.7bn/-as excise duty and VAT on cigarettes from July to September 2019, a 3bn/-increase from a similar period of the previous financial year.

For the soft drinks, the amount collected as excise duty and VAT during the two months of August and September 2019 was 18 percent, higher than what was garnered during a similar period in 2018.

TRA collected 16.155bn/-in excise duty and VAT on soft drinks in August and September 2018, but the amount rose to 19.05bn/-during the period between August and September 2019.

Mr Mbibo said ETS has helped to eliminate counterfeit products from the market. It is, nonetheless, a promising move by the Government, and manufacturers and intellectual property owners should have reason to smile.

Commenting on how TRA is planning to ensure the surge the tax base, Mbibo said they will continue to develop friendly tax collection mechanisms so that everyone can enjoy voluntary taxation.

ETS first phase commenced on 15 January 2019 and affected cigarettes, wines, spirits, beer and all other alcoholic beverages.

The second phase began on 1 August 2019 and applied to products such as sweetened or flavoured water and other non-alcoholic beverages, except for fruit or vegetable juice.

The Regulations require each manufacturer to install an electronic tax stamp management system.

A Swiss-based firm SICPA has been contracted by the Tanzania Revenue Authority (TRA) to install and enroll all manufacturers, producers and importers onto the system.

Source: Daily News (Tanzania), 8 July 2020

Maersk to acquire KGH Customs Services

A.P. Moller – Maersk will acquire Sweden-based KGH Customs Services for 2.6 billion Swedish crowns ($281 million), the company announced Monday.

KGH specializes in trade and customs management services in Europe across multiple freight modes. The deal adds to Maersk’s service offerings as the carrier looks to expand beyond ocean shipping and position itself as a full-service supply chain solutions provider.

“There are no end-to-end solutions without customs clearance,” Vincent Clerc, CEO of ocean and logistics at A.P. Moller – Maersk, said in a statement. “With KGH, we will not only be able to strengthen our capabilities within customs services and related consultancy, but also reach more of our customers in Europe through a larger geographical footprint and digital solutions that will enhance our ability to meet our customers´ end-to-end supply chain needs.”

Maersk has been open about its ambitions to expand its business into other parts of the supply chain, positing its logistics sector growth as a main business objective.

“Focus remains on developing our end-to-end offering through an even stronger Ocean product while expanding and scaling our logistics and services portfolio,” Maersk wrote in its latest annual report.

Maersk began outlining its end-to-end ambitions in 2016 and has taken multiple steps toward realizing its goal in the form of deals and reorganization. Last year, Maersk closed a deal to acquire the New Jersey-based customs broker Vandegrift. And in 2018, it announced plans to merge its operations with Damco.

Maersk sees its ocean business as the “strong foundation” for the rest of its logistics offerings, and new products will be important in adding to its end-to-end logistics offerings, the company explained in its latest annual report.

“The next phase in the strategy is about growing the business by innovating existing products combined with selling landside logistics products to our existing customers – as well as growth in our Terminals & Towage business,” the annual report reads.

Maersk has specifically said M&A would be one tool it would use to achieve its end-to-end initiative, highlighting landside logistics as one space where deals could happen in its annual report. And when the company brought on a new CFO, Patrick Jany, earlier this year, it specifically highlighted his experience with M&A.

Last year, Maersk became the first ocean carrier to offer digital ocean customs clearance, according to a press release. The offering allows shippers to upload declaration paperwork and the carrier can send a notification when the shipment clears customs, according to a video explaining the offering.

Source: 24/7 Customs Broker News, 6 July 2020

Dubai Customs – Compliance with International Standards, remotely.

Quality Assurance Section at Dubai Customs successfully audited a number of departments during the remote working period following the international standards. Auditing covered the Corporate Social Responsibility standard ISO6000, the Development and Training Standard ISO10015, and the Innovation Management European Standard TS16555.

“The successful auditing during this difficult time is the result of our commitment and sustainable efforts in assuring quality in every job we do,” said Samira Abdul Razzak, Senior Manager of Quality Assurance at Dubai Customs. “Thanks to the sophisticated technological infrastructure Dubai Customs has, auditing during working from home was possible. Many procedures are automated and communication has never been easier.”

On his part, Engineer Nizar Bashairah, Regional Partner, TUV Germany said most auditing is carried now from afar as business activities can’t stop even in hard times like the breakout of the virus.  

“Dubai Customs covered a number of international standards very effectively despite its big size and the number of departments, activities and services involved.” 

Source: Dubai Customs

New Zealand Customs – announces new laws concerning the importation of Tobacco Products

When you import or bring tobacco products into New Zealand, you must comply with New Zealand laws. You must pay all relevant taxes on your imported tobacco at the border.

From 1 July 2020, tobacco products, tobacco leaf and tobacco refuse will become prohibited imports and you will be required to have a permit to import these products.

Permits are approved and issued by Customs. That means if you want to send someone in New Zealand any kind of tobacco product including as a gift, you will have to apply for a permit.

Also from 1 July 2020 you cannot receive any tobacco products through the international mail. Tobacco must only be imported using a freight forwarder, the fast-freight courier system or as bulk sea or air cargo. You will still be able to use New Zealand Post’s international courier service.

Customs will issue a permit to established importers for one year from 1 July or the length of time a manufacturer holds a licence to manufacture tobacco products. Other importers will need to apply for a permit.  Permits will be issued free of charge. 

From 1 July 2020, any tobacco products, leaf or refuse imported without a permit will be seized and destroyed. Customs will send a written notice to importers confirming the seizure and destruction of the tobacco products, leaf and refuse. In the unlikely event of the product being seized and destroyed in error (for example, when the person had a valid permit to import), the importer will be entitled to compensation for the customs value of the products.

A permit is not required to import cigars, cigarillos, water-pipe tobacco, chewing tobacco, snuff and snus.

Passengers arriving into New Zealand with tobacco do not need a permit and individual duty-free tobacco limits are unchanged. More information about duty-free limits and FAQs are available to download.

Source: New Zealand Customs Service, 22 May 2020

SARS – COVID-19 Frequently Asked Questions

SARS has published list of frequently asked questions in regard to the clearance of goods under the COVID-19 pandemic.

Source: SARS, 22 April 2020

Functional Guideline for Importing Critical Supplies and Essential Goods under Rebate Item 412.11

Business Unity South Africa has published a Standard Operating Procedure (SOP) to provide functional guidelines for businesses importing critical supplies and essential goods into South Africa under Rebate Item 412.11 and Schedule 1(8) of the Value Added Tax Act, and includes both imports of dutiable and duty-free goods.

Source: BUSA, 9 April 2020

AfCFTA – an uphill struggle in quest for regional trade on the continent

Picture : Bloomberg.com

The following article was published by Bloomberg and sketches the day-to-day hardship for cross border trucking through Africa. In a sense it asks the very questions and challenges which the average African asks in regard to the highly anticipated free trade area. While rules of origin and tariffs form the basis of trade across borders, together with freedom of movement of people, these will mean nothing if African people receive no benefit. As globalisation appears to falter across Europe and the West, it begs the question whether this is in fact is the solution for Africa; particularly for the reason that many believe globalisation itself is an extension of capitalism which some of the African states are at loggerheads with. Moreover, how many of these countries can forego the much need Customs revenue to sustain their economies, let alone losing political autonomy – only time will tell.

Nyoni Nsukuzimbi drives his 40-ton Freightliner for just over half a day from Johannesburg to the Beitbridge border post with Zimbabwe. At the frontier town—little more than a gas station and a KFC—he sits in a line for two to three days, in temperatures reaching 104F, waiting for his documents to be processed.

That’s only the start of a journey Nsukuzimbi makes maybe twice a month. Driving 550 miles farther north gets him to the Chirundu border post on the Zambian frontier. There, starting at a bridge across the Zambezi River, trucks snake back miles into the bush. “There’s no water, there’s no toilets, there are lions,” says the 40-year-old Zimbabwean. He leans out of the Freightliner’s cab over the hot asphalt, wearing a white T-shirt and a weary expression. “It’s terrible.”

By the time he gets his load of tiny plastic beads—the kind used in many manufacturing processes—to a factory on the outskirts of Zambia’s capital, Lusaka, he’s been on the road for as many as 10 days to traverse just 1,000 miles. Nsukuzimbi’s trials are typical of truck drivers across Africa, where border bureaucracy, corrupt officials seeking bribes, and a myriad of regulations that vary from country to country have stymied attempts to boost intra-African trade.

The continent’s leaders say they’re acting to change all that. Fifty-three of its 54 nations have signed up to join only Eritrea, which rivals North Korea in its isolation from the outside world, hasn’t. The African Union-led agreement is designed to establish the world’s biggest free-trade zone by area, encompassing a combined economy of $2.5 trillion and a market of 1.2 billion people. Agreed in May 2019, the pact is meant to take effect in July and be fully operational by 2030. “The AfCFTA,” South African President Cyril Ramaphosa said in his Oct. 7 weekly letter to the nation, “will be a game-changer, both for South Africa and the rest of the continent.”

It has to be if African economies are ever going to achieve their potential. Africa lags behind other regions in terms of internal trade, with intracontinental commerce accounting for only 15% of total trade, compared with 58% in Asia and more than 70% in Europe. As a result, supermarket shelves in cities such as Luanda, Angola, and Abidjan, Ivory Coast, are lined with goods imported from the countries that once colonized them, Portugal and France.

By lowering or eliminating cross-border tariffs on 90% of African-produced goods, the new regulations are supposed to facilitate the movement of capital and people and create a liberalized market for services. “We haven’t seen as much institutional will for a large African Union project before,” says Kobi Annan, an analyst at Songhai Advisory in Ghana. “The time frame is a little ambitious, but we will get there.”

President Nana Akufo-Addo of Ghana and other heads of state joined Ramaphosa in hailing the agreement, but a number of the businesspeople who are supposed to benefit from it are skeptical. “Many of these governments depend on that duty income. I don’t see how that’s ever going to disappear,” says Tertius Carstens, the chief executive officer of Pioneer Foods Group Ltd., a South African maker of fruit juices and cereal that’s being acquired by PepsiCo Inc. for about $1.7 billion. “Politically it sounds good; practically it’s going to be a nightmare to implement, and I expect resistance.”

Under the rules, small countries such as Malawi, whose central government gets 7.7% of its revenue from taxes on international trade and transactions, will forgo much-needed income, at least initially. By contrast, relatively industrialized nations like Egypt, Kenya, and South Africa will benefit from the outset. “AfCFTA will require huge trade-offs from political leaders,” says Ronak Gopaldas, a London-based director at Signal Risk, which advises companies in Africa. “They will need to think beyond short-term election cycles and sovereignty in policymaking.”

Taking those disparities into account, the AfCFTA may allow poorer countries such as Ethiopia 15 years to comply with the trade regime, whereas South Africa and other more developed nations must do so within five. To further soften the effects on weaker economies, Africa could follow the lead of the European Union, says Axel Pougin de La Maissoneuve, deputy head of the trade and private sector unit in the European Commission’s Directorate General for Development and International Cooperation. The EU adopted a redistribution model to offset potential losses by Greece, Portugal, and other countries.

There may be structural impediments to the AfCFTA’s ambitions. Iron ore, oil, and other raw materials headed for markets such as China make up about half of the continent’s exports. “African countries don’t produce the goods that are demanded by consumers and businesses in other African countries,” says Trudi Hartzenberg, executive director of the Tralac Trade Law Center in Stellenbosch, South Africa.

Trust and tension over illicit activity are also obstacles. Beginning in August, Nigeria shut its land borders to halt a surge in the smuggling of rice and other foodstuffs. In September, South Africa drew continentwide opprobrium after a recurrence of the anti-immigrant riots that have periodically rocked the nation. This could hinder the AfCFTA’s provisions for the free movement of people.

Considering all of these roadblocks, a skeptic would be forgiven for giving the AfCFTA little chance of success. And yet there are already at least eight trade communities up and running on the continent. While these are mostly regional groupings, some countries belong to more than one bloc, creating overlap. The AfCFTA won’t immediately replace these regional blocs; rather, it’s designed to harmonize standards and rules, easing trade between them, and to eventually consolidate the smaller associations under the continent­wide agreement.

The benefits of the comprehensive agreement are plain to see. It could, for example, limit the sort of unilateral stumbling blocks Pioneer Foods’ Carstens had to deal with in 2019: Zimbabwe insisted that all duties be paid in U.S. dollars; Ghana and Kenya demanded that shippers purchase special stickers from government officials to affix to all packaging to prevent smuggling.

The African Export-Import Bank estimates intra-African trade could increase by 52% during the first year after the pact is implemented and more than double during the first decade. The AfCFTA represents a “new pan-Africanism” and is “a pragmatic realization” that African countries need to unite to achieve better deals with trading partners, says Carlos Lopes, the former executive secretary of the United Nations Economic Commission for Africa and one of the architects of the agreement.

From his closer-to-the-ground vantage point, Olisaemeka Anieze also sees possible benefits. He’s relocating from South Africa, where he sold secondhand clothes, to his home country of Nigeria, where he wants to farm fish and possibly export them to neighboring countries. “God willing,” he says, “if the free-trade agreement comes through, Africa can hold its own.”

In the meantime, there are those roads. About 80% of African trade travels over them, according to Tralac. The World Bank estimates the poor state of highways and other infrastructure cuts productivity by as much as 40%.

If the AfCFTA can trim the red tape, at least driving the roads will be more bearable, says David Myende, 38, a South African trucker resting after crossing the border post into South Africa on the way back from delivering a load to the Zambian mining town of Ndola. “The trip is short, the borders are long,” he says. “They’re really long when you’re laden, and customs officers can keep you waiting up to four or five days to clear your goods.” 

Source: article by Anthony Sguazzin, Prinesha Naidoo and Brian Latham, Bloomberg, 30 January 2020