Our experts across the region explore a number of pertinent themes that impact doing business in Africa.
Thomas R. Snider Partner, Head of Arbitration
Laureen Fredah Arbitration
It has been almost two years since free trading officially commenced under the African Continental Free Trade Area (“AfCFTA”). Much has been written about this topic, and one can find our viewpoints on the subject here. The AfCFTA Agreement was initially signed by 44 African states and came into force on 30 May 2019. 54 out of 55 African countries have now signed the AfCFTA Agreement with Eritrea being the only country still holding out. As of May 2022, 43 of the 54 signatories (80 percent) have deposited their instruments of ratification of the AfCFTA Agreement. The agreement initially requires members to remove tariffs from 90 percent of goods, allowing free access to commodities, goods, and services across the continent. The significance of the AfCFTA cannot be understated as the population of Africa is projected to reach 2.5 billion by 2050, at which point it will comprise 26 percent of what is projected to be the world’s working age population, with an economy that is estimated to grow twice as rapidly as that of the developed world.
The aim of the AfCFTA is to create a single continental market for goods and services together with free movement of businesspersons and investments paving a way for the establishment of a continental customs union. The AfCFTA was born out of the need for progressive elimination of trade barriers on the continent. It is common to reduce these barriers to just tariffs, quotas, export and import bans, and technical barriers to trade. However, it is important to note that cross-border trade, investment, and commercial disputes can also be significant barriers to trade, so it is essential to have workable mechanisms to resolve such disputes.
In terms of dispute resolution, Article 20 of the AfCFTA Agreement contains a Dispute Settlement Mechanism (“DSM”), and the Protocol on Rules and Procedures on the Settlement of Disputes (“DSM Protocol”) establishes a Dispute Settlement Body (“DSB”) for resolving disputes between State Parties. In addition, it is anticipated that the forthcoming Investment Protocol may include an investor-state dispute settlement (“ISDS”) mechanism giving investors in the AfCFTA direct access to international arbitration against State Parties. Finally, while not addressed in the AfCFTA Agreement, international commercial arbitration will no doubt see an uptick on the continent as intra-Africa trade increases under the AfCFTA Agreement. Each of these modes of dispute resolution is discussed below.
The DSM and DSB will play a key role in the resolution of trade disputes between State Parties. The DSM “is a central element of the AfCFTA in providing security and predictability to the regional trading system” and is intended to “preserve the rights and obligations of State Parties under the Agreement and clarify the existing provisions of the Agreement in accordance with customary rules of interpretation of public international law” (Article 4.1 of the DSM Protocol). Accordingly, the DSM has the potential to enhance the integrity and efficiency of the whole AfCFTA trading system. Just like the World Trade Organization ("WTO") dispute settlement system on which the DSM was modelled, this is a state-to-state system. Accordingly, businesses and individuals in the AfCFTA will not have direct access to it and, instead, will need to appeal to their home or host country to take up breaches of AfCFTA obligations by State Parties.
Disputes under the DSM Protocol will commence when a State Party invokes Article 7 of the DSM Protocol requesting consultations to be held with another State Party to reach an amicable resolution of a dispute. Where these parties fail to settle a dispute through consultations, the State Party that initiated consultations may refer the matter to the DSB for a panel to be established. Article 10 of the DSM Protocol provides for the composition of the panel. It states that “the Secretariat shall establish and maintain an indicative list or roster of individuals who are willing and able to serve as Panellists. Each State Party may annually nominate two individuals for the inclusion in the indicative list or roster indicative of their area(s) of expertise related to the Agreement”.
The DSB is to be composed of representatives of the State Parties and will have its own Chairperson who will be elected by the State Parties. Among other things, the DSB will have authority to establish Dispute Settlement Panels and an Appellate Body (“AB”). The DSB will also oversee the implementation of rulings and recommendations of the Panels and AB. If a party to a dispute appeals against the findings of a Panel, the matter goes to the AB. The AB will be composed of seven persons, three of whom will hear and decide an appeal, serving on a rotational basis. AB members are appointed for a four-year term, renewable once. The AB is to comprise of persons of recognized authority, with demonstrated expertise in law, international trade, and the subject matter of the AfCFTA Agreement generally; members of the AB are not to be affiliated to any government.
The AfCFTA is negotiated in three phases. With negotiations to conclude the Phase I protocols (the Protocols on Trade in Goods, Trade in Services, and Dispute Settlement) largely completed, the AfCFTA Secretariat reports that completion of Phase II negotiations covering protocols on Intellectual Property Rights, Investment, and Competition is its priority.
As was the case in Phase I, dispute resolution under the Investment Protocol is one of the most anticipated issues in Phase II. Since Phase II is still undergoing negotiations, is not clear at this stage what the dispute-resolution options in the Investment Protocol will be and whether the Investment Protocol will include an investor-state arbitration mechanism giving AfCFTA investors direct access to bring investment-related claims in international arbitration directly against State Parties.
Nevertheless, the expectations are high for an Investment Protocol that contains some formulation of dispute prevention, de-escalation, and alternative means of dispute resolution. Conciliation, mediation, and exhaustion of domestic remedies are examples of some of the dispute-prevention and dispute-resolution options that may be included in the Protocol. However, some African states have raised concerns over the traditional form of investor-state arbitration claiming lack of legitimacy and transparency, inconsistent and flawed decisions, and high costs of arbitration proceedings . States have also complained that the system allows foreign investors to challenge legitimate public measures of host states before international arbitration tribunals. On the flip side, investor-state arbitration can bolster confidence and help secure foreign investments.
While not addressed in the AfCFTA Agreement itself, international commercial arbitration is another form of dispute resolution that will likely increase as a result of the AfCFTA Agreement, especially in relation to cross-border trade, investment, and commercial disputes between business and individuals. With the commencement of intra-African trade, it is expected that there will be a significant boost in intra-African trade and investment between private parties. Indeed, the World Bank has anticipated that AfCFTA could increase intra-African trade by 52 percent by the end of this year. As such, it is inevitable that disputes will inevitably arise between trading partners within Africa, and the lion’s share of these disputes will likely be resolved through international commercial arbitration.
The appeal of international commercial arbitration for cross-border disputes arises for a number of reasons, including (a) the relatively more powerful enforceability of arbitral awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) compared to domestic court judgments (and, indeed, 42 of the 55 African states are signatories to the New York Convention), (b) avoiding litigating in the national courts of one’s adversary, (c) the ability to select or have a say in selecting the decision-maker (i.e., the arbitral tribunal), and (4) the possibility of more efficient, less costly proceedings (though this is not always the case when it comes to international commercial arbitration).
With this anticipated increase in international commercial arbitration between African parties, African arbitral institutions are likely to be key beneficiaries as their caseloads will undoubtedly arise. The African continent already has a number of arbitral institutions well poised to administer international commercial arbitrations. These institutions include (but are not limited to) the Arbitration Foundation of Southern Africa (AFSA), Cairo Regional Centre for International Commercial Arbitration (CRCICA), Casablanca International Mediation and Arbitration Centre (CIMAC), Kigali International Arbitration Centre (KIAC), Lagos Chamber of Commerce International Arbitration Centre (LACIAC), Lagos Court of Arbitration (LCA), Nairobi Centre for International Arbitration (NCIA), OHADA Common Court of Justice and Arbitration Centre (CCJA), Ouagadougou Arbitration and Mediation & Conciliation Centre (OAMCC), and Regional Centre for International Commercial Arbitration Lagos (RCICAL).
Trading under the AfCFTA Agreement came on the heels of the COVID-19 pandemic, which impacted and slowed down implementation of the negotiations. Despite this, negotiations continued remotely, and the AfCFTA hopes to conclude Phase II negotiations by the end of this year. Phase I addressed dispute resolution in the form of the DSM, which is limited to state-to-state dispute resolution. Phase II is addressing ISDS, yet the future of ISDS in AfCFTA’s legal and institutional architecture remains unclear. While not directly addressed in the AfCFTA, international commercial arbitration will play a key role as well in resolving cross-border trade, investment, and commercial disputes in Africa.
For further information, please contact Thomas R. Snider.
Published in September 2022
