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Egypt as a gateway for international trade (I of II)

Shedding light on the recent AfCFTA and Egypt-UK trade agreements in the first of two articles on international trade

Sherif Fahmy , Friday 19 Feb 2021
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Egypt has recently signed several bilateral and regional free-trade agreements as part of a comprehensive programme to boost exports and increase access to global markets. The Common Market for East and South Africa (COMESA) and Egypt-EU Partnership Association Agreement are two of the best known, granting access for Egyptian exports to African and EU markets with preferential treatment.

However, the geographical coverage of the COMESA agreement is limited to East and South Africa and the departure of the UK from the EU in the so-called Brexit has created concerns in the business community about the future of Egypt-UK trade relations.

The beginning of 2021 brought good news to Egypt’s business community with the announcement of the entry into force of the African Continental Free-Trade Agreement (AfCFTA) after almost five years of negotiations and the conclusion of a comprehensive bilateral agreement between Egypt and the UK.

Egyptian products that qualify under AfCFTA rules of origin will progressively have duty-free access to African member states over the coming five years, meaning that the Egyptian trading relationship with other African countries will witness a huge expansion.

The sustainability of business relationships between Egypt and the UK will be protected under the Egypt-EU agreement from any disturbances as a result of Brexit.

The AfCFTA is a free-trade area in which all African Union (AU) countries, a total of 55, are potential members, representing a total GDP of over $3 trillion. Fifty-four countries have thus far signed the agreement, which covers trade in goods and services as well as promoting investment.

The AfCFTA mainly aims at removing tariff and non-tariff barriers on intra-African trade, thus creating a continental market for goods and services within the African continent. It also acts as an initial step towards the establishment of the African Customs Union and the application of a unified tariff on imports to the African continent from other parties.

It is expected that the agreement will boost intra-African trade and stimulate production through the development of regional value-chains to ensure that manufacturing, agricultural processing, and other activities across the continent can supply markets. It is also expected to strengthen the capacity of African traders to access global markets.

It represents a comprehensive and mutually beneficial trade agreement among AU member states to enhance competitiveness at all levels and especially at the industry and enterprise level through exploiting opportunities for economies of scale, reducing business costs, increasing continental/global market access, and leading to the better allocation of resources including through the development of trade-related infrastructure.

It will also limit the dependence on exporting primary products and promote social and economic transformation for inclusive growth, industrialisation, and sustainable development in line with the AU Agenda 2063, a shared framework for inclusive growth and sustainable development for Africa to be realised by the year 2063. It will help to resolve the challenges of multiple and overlapping memberships and expedite regional and continental integration processes.

The scope of the AfCFTA covers trade in goods and services, investment, intellectual property rights, and competition policy.

Member states will assign products to three product groups: non-sensitive, sensitive, and the exclusion list. The difference between non-sensitive and sensitive products is that sensitive products have a longer timeframe for the implementation of the AfCFTA. Least developed countries (LDCs) in Africa will also enjoy a longer timeframe for implementation compared to non-LDCs for sensitive as well as non-sensitive products. Non-sensitive products will account for 90 per cent of tariff lines.

Tariffs on non-sensitive products are to be eliminated after five years (non-LDCs) or 10 years (LDCs). Tariffs on sensitive products are to be eliminated after 10 years (non-LDCs) or 13 years (LDCs). A group of countries (“special needs”) has additional flexibility to liberalise 85 per cent of tariff lines over 10 years and the other 15 per cent over 15 years for non-sensitive products.

According to the agreed modalities, tariff agreements between African countries under the AfCFTA will eventually liberalise at least 97 per cent of lines and 90 per cent of imports at the end of the implementation period. In other words, duties will remain on a maximum of three per cent of tariff lines and 10 per cent of imports.

Member states must develop and submit schedules of concessions for trade in goods. These will detail the 90 per cent of products that are to be liberalised by each, as well as the sensitive products that are to be liberalised over a longer time period and the excluded products that are to be temporarily exempted from liberalisation.

There should be a related complement to the schedules of concessions for trade in goods in the list of product-specific rules of origin which, alongside the general rules of origin, will enable the application of preferences under the AfCFTA. The list of product-specific rules of origin is being developed as part of the AfCFTA agenda.

For trade in services, a review will be scheduled of the regulatory framework of the identified sectors, with a view to preparing, subsector by subsector, initial market-access requirements, which will then be subject to negotiations.

 

*The writer is general manager at N Gage Consulting.

*A version of this article appears in print in the 18 February, 2021 edition of Al-Ahram Weekly

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