THE DISPUTE RESOLUTION MECHANISM IN THE AFRICAN CONTINENTAL FREE TRADE AGREEMENT: THE NEED FOR MORE.

INTRODUCTION AND BACKGROUND TO THE AFCFTA

The African continental free trade agreement (AFCFTA) is the agreement that established the African Free Trade Area. Its aim is to bring African countries together to trade amongst each other to ultimately lead to regional integration.

The historic moment of signing the agreement to formally establish the free trade area ensued in Kigali, Rwanda on the 21st day of March, 2018 by forty-four (44) heads of state of the AU.[2] The journey to the agreement commenced in 2012 where at the AU summit, the heads of states adopted a decision to establish a continental free trade area by 2017 and further endorsed an action plan on boosting intra-African trade.

The action plan is up of made 7 main focus areas which are trade policy, trade facilitation, productive capacity, trade-related infrastructure, trade finance, trade information, and factor market integration. Subsequently in South Africa, in June 2015 at the 25th AU summit, the heads of states agreed to launch negotiations for the creation of the AfCFTA with a focus on the liberalization of trade in goods and services in Africa. It was subsequent to this launch that the 44 member states signed the agreement in Kigali.

The member states further agreed to three protocols that day namely the protocol on trade in goods, the protocol on trade in services and the Protocol on the rules and procedures of settlement of disputes.

The agreement required its ratification by 22 member states before it could come into force. In April this year, the Gambia became the 22nd member state to deposit its ratification instrument with the African Union thus bringing the agreement into force a month later. Currently, fifty-four member states have signed onto the agreement (with Nigeria and Benin being the most recent countries to sign on to it on 7th July, 2019) of which 27 member states out of the 54 have ratified it. [3] Eritrea is the only African country not a party to this agreement.

As enshrined in the agreement establishing the AfCFTA, the free trade area is to inter alia create a single market for goods and services as well as a liberalized market for goods and services and to enhance the movement of capital and natural persons.[4] It is also to aid in movement being done without restrictions.[5] By the liberalization of trade, member states are to remove tariffs on 90% of goods to make goods accessible to all across the continent.

With this, it has been estimated by the United Nations Economic Commission for Africa that it will boost intra-African trade by about 52% in 2022. It is further estimated that industrialization will be boosted so will be competitiveness and job creation.

Further, with a population base of about 1.3 billion people, it is estimated that by 2030 there will be about 6.7 trillion USD of cumulative consumer and business spending.[6] Beyond doubt, the AfCFTA is the largest free trade area to be created after the World Trade Organization came into force in 1994. Of much important to this article is the dispute resolution mechanism of the AfCFTA.

DISPUTE RESOLUTION MECHANISMS IN FREE TRADE AGREEMENTS.

As already emphasized, the essence of a Free Trade Area is to ensure members trade easily within the designated area without trade barriers or other hindrances. The Free Trade Agreements are thus executed to define the rights and obligations of members within the chosen free trade area.

Free Trade Agreements usually embody terms of compliance, enforcement of obligations and more importantly, dispute settlement mechanisms.[7]   This is because conflicts in trading are inevitable.

They may arise regarding the nature, scope and interpretation of the trading terms, as countries engage in trading across borders.[8] Undeniably, the obligations in a trade agreement may lose their potency in the absence of a properly functioning dispute settlement mechanism.[9]  As such, it is important to provide a mechanism through which such trade disputes arising as a result of the breach of obligations may be quickly and effectively resolved.

A Dispute Resolution Mechanism (DRM) in a Free Trade Agreement provides an apparatus for parties to settle their dispute within the tenets of the agreement under which the complaint is brought. It further offers an opportunity to develop the interpretative jurisprudence of the agreement bringing to the fore situations unapparent or unnoticed at the time of negotiations.[10]

A comprehensive DRM negotiated under any Free Trade Agreement serves to ensure that trade disputes are resolved in a uniform manner as stipulated under the agreement, whether in a multi-tiered fashion, commencing from negotiations, through mediation to arbitration and the use of good offices, or by providing a menu, one of which may be pursued in place of the other.

There are three broad categories of DRMs. There is the diplomatic or the political type of DRM where parties themselves attempt at negotiating a settlement or reach agreements that work for them and put issues to rest with the assistance of a third party who cannot impose a binding decision on them. Some of the mechanisms under this category are consultation, mediation, conciliation and the use of good offices. The Diplomatic mechanism often constitutes the first tier of the multi-tier dispute resolution clause.

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A second category is the use of arbitration or adjudication, where an arbitral tribunal either ad-hoc, under the United Nations Commission on International Trade Law (UNCITRAL) Rules or institutional, under the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), is established when disputes arise and with terms of reference limited to that dispute, in accordance with the terms of the agreement under which the dispute arose.

An example is the menu of DRM provided for under the North America Free Trade Agreement (NAFTA) which requires disputing parties to elect between one of the listed modes of arbitration[11]. The use of arbitration or adjudication normally works as the second phase in a multi-tiered DRM.

The third category is the use of standing courts or tribunals which are typically composed of judges who are appointed for a fixed length of time, and whose powers cease upon the expiration of such term. The European Union (EU) Court of Justice (EUCJ) and the Investment Court system (ICS) envisaged under the Comprehensive Trade Agreement between the EU and Canada (CETA) are examples.

A proper DRM will also embody matters concerning the legal consequences and enforcement of outcomes of dispute resolution by providing appropriate sanctions and enforcement mechanisms.

Matters regarding the overlap of obligations under the particular agreement and other trade agreements and issues of locus standi to bring a claim under the agreement would also have been settled under a comprehensive DRM. This will largely guarantee certainty and consistency in dispute settlement under the agreement[12].

DISPUTE RESOLUTION UNDER THE AFCFTA

With an aim to ensure disputes do not tarry trading, the AfCFTA establishes a dispute settlement body under article 20. It is noteworthy that the DRM under AfCFTA is to an extent a replica of the DRM under the World Trade Organization (WTO), [13] whilst bearing significant resemblance to the Association of South East Asian Nations (ASEAN) FTA [14] and the EU-Vietnam FTA[15], among others.

First, the features of the DRM under the AfCFTA is multi-tiered, requiring parties to attempt a first mode of dispute resolution before proceeding to the next. The Protocol On Rules and Procedures on the Settlement of Disputes stipulates that member states must first resort to consultation, being an amicable way of resolving the disputes, failure of which empowers them to refer the dispute to a dispute settlement board (DSB) for a panel to be constituted[16]. Subsequently, disputants dissatisfied with the decision of the DSB panel may resort to the appellate body for further recourse.

The Protocol under Article 27 also makes provision for arbitration[17], as an alternative to a dispute resolution by the DSB panel. This means that disputing parties may only elect between a DSB panel dispute resolution and an arbitration constituted by mutual agreement of the parties.

Notwithstanding the right of the parties to refer the matter to the dispute settlement body or to arbitration under Article 27, the disputing parties have further rights under article 8 of the protocol to engage in other diplomatic means of resolving the conflict amicably such as mediation, good office, and conciliation, at any time during the arbitration or DSB procedure.

Regarding compliance and enforcement of the outcome of dispute resolution under the AfCFTA, the agreement makes provision for the effect or consequence of the decision of a DSB panel or an arbitral tribunal and the implementation of such decisions. The outcome of the investigations of the panel set up by the DSB becomes a ruling or recommendation if remains unchallenged by the parties and adopted by the DSB.

If challenged before the appellate body, and a determination is made, the later determination becomes a recommendation capable of enforcement against the defaulting party who is entreated to abide or face sanctions.

Second, article 3 of the protocol grants locus standi (the capacity to institute a legal claim) to only member states. Article 1 defines a dispute as a ‘disagreement between State Parties regarding the interpretation and/or application of the Agreement in relation to their rights and obligations.’ In effect, only countries can institute actions before the dispute settlement body to resolve any disputes that arise under the AfCFTA. This is an indication that the AfCFTA leans more towards a state-state dispute settlement mechanism.

By giving only States the capacity to bring actions under the agreement, private parties are eliminated from the equation. A private person aggrieved within the trading area can only have recourse by petitioning their participating home State to take an action on their behalf.

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The main challenge is that, in reality, the trading in goods and trading amongst countries are done not by States but by private persons, whether natural or artificial. It is also commonplace that disputes are inevitable in trading. Therefore it is problematic for the dispute resolution mechanism of the AfCFTA to grant locus standi only to States.

The real dispute concerns of private non-state actors within the trading area are not addressed under the protocol. It has been noted however in the 2016 United Nations Commission on Trade and Development (UNCTAD) report that disputes within a free trade area among States are costly and time consuming.

This is not sustainable for business and commercial activities which thrive on rapidity. Where the State seems unconcerned with the claim of the private actor, they will be left with no judicial remedy. That is a disincentive to trading within the free trade area.

CONCLUSION

As it has been identified, the AfCFTA is a progressive piece of Mega-Regional agreement, given its bold objective to form an economic partnership with States across the length and breadth of Africa.

Amongst its strong features, it endeavored that disputes arising under the agreement in the course of trade are resolved swiftly, effectively and amicably, by providing very flexible DRMs allowing parties to elect the mechanism that works better for them, in addition to pursuing diplomatic means. These notwithstanding, there are certain difficulties with the agreement as it currently stands.

Notable is the locus standi of parties to submit a dispute for settlement under the treaty. This issue poses a threat to individual traders since there is a potential lack of a judicial remedy in the face of dispute. In the wake of negotiations of the second phase of the AfCFTA protocols which includes the protocol on investment, it is not clear whether negotiators will opt for state-state dispute settlement mechanism or will pursue Investor-State-Dispute-Settlement (ISDS).

It is therefore suggested that the negotiators and experts of the various countries pay much attention to how individual traders and investors may have their disputes resolved without recourse to the State party. It will be useful to provide investors and traders the capacity to engage in dispute resolution, as a substitute or supplement to the state-state dispute settlement as it currently stands.

To that end, it is further suggested that the negotiators and experts consider the viability of regional courts or permanent African arbitration tribunals for the resolution of trade and investment disputes, as seen in the case of the EU, to grant the private investor as well as the State capacity to bring an action under the AfCFTA. The option of the use of local courts may not be left out, even though the challenges that come with it cannot be ignored.

[1] Kweku Attakora Dwomoh & Bakhita M. Koblavie.

[2] For a list of the countries that signed the agreement see at https://au.int/sites/default/files/pressreleases/34033-pr-indication20of20signing20authority20-20updated20final20final20docx.pdf. (accessed on the 11th May, 2019)

[3] https://au.int/sites/default/files/treaties/36437-sl-AGREEMENT%20ESTABLISHING%20THE%20AFRICAN%20CONTINENTAL%20FREE%20TRADE%20AREA%20%281%29.pdf

[4] Article 3 of Agreement Establishing The African Continental Free Trade Area.

[5] http://aufoundation.africa/2018/03/20/africas-continental-freetrade- area-cfta/ (accessed on 10th May, 2019)

[6] http://theconversation.com/why-africas-free-trade-area-offers-so-much-promise-93827 accessed on 22 October, 2019.

[7] Amelia Porges, Dispute Settlement, in Preferential Trade Agreement Policies for Development: A Handbook Part 2. pp. 467–497 (2011), at <http://siteresources.worldbank.org/INTRANETTRADE/Resources/PTAch22.p> refered to by Victor Crochet, “Dispute Settlement Mechanisms in FTAs” September 22, 2016 available at <https://www.tradelab.org/single-post/2018/03/02/Dispute-Settlement-Mechanisms-in-Free-Trade-Agreements> accessed October 21 2019

[8] Ibid

[9] Erika Szyszczak, “Dispute Resolution in EU Trade Agreements: A preliminary glimpse of a New World Order” June 26 2019, available at <https://blogs.sussex.ac.uk/uktpo/2019/06/26/dispute-resolution-in-eu-trade-agreements-a-preliminary-glimpse-of-a-new-world-order/> accessed October 21 2019

[10] Victor Crochet, “Dispute Settlement Mechanisms in FTAs” September 22, 2016 available at <https://www.tradelab.org/single-post/2018/03/02/Dispute-Settlement-Mechanisms-in-Free-Trade-Agreements> accessed October 21 2019

[11] See chapter 11 of NAFTA

[12] See AfCFTA Art 4(1) of the Protocol On Rules and Procedures on the Settlement of Disputes.

[13] See “The process- stages in a typical WTO dispute settlement case” available at < https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c6s1p1_e.htm> accessed 27th October 2019

[14] See ASEAN Protocol on Dispute Settlement available at < https://asean.org/?static_post=protocol-on-dispute-settlement-mechanism> accessed 27th October 2019

[15] <https://trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157375.pdf>

[16] See AfCFTA Art 6 and Art 7 of the Protocol On Rules and Procedures on the Settlement of Disputes.

[17]The wording of the provision shows that the agreement envisages ad-hoc arbitration, and can be done under the UNCITRAL rules or under the Permanent Court of Arbitration (PCA) rules. This also means that parties engaged in business under the FTA may execute an agreement between themselves regulating dispute resolution by arbitration. This will fairly be in accordance with Article 27, which empowers the parties to regulate arbitration by mutual agreement, and in accordance with the protocol.

The DSB may under certain circumstances, like failure of the parties to agree on the appointment of an arbitrator, act as an appointing authority to resolve the impasse by appointing the arbitrator.

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