When the member states of the African Union undertook the project of establishing a continent-wide preferential free trade area with the ultimate aim of creating a single African market, it was obvious that they would need to entrench this arrangement through a transparent and predictable rules-based system.
Central to such a system is the amicable resolution of trade disputes over a range of different areas including market access, investment, intellectual property rights and implementation of the free trade agreement.
For this reason, a central plank of the Agreement Establishing the African Continental Free Trade Area (AfCFTA) is a protocol on Dispute Settlement.
As member states negotiated this protocol, they looked to international best practice and were inspired by the dispute settlement system of the World Trade Organization (WTO). At the same time, Members were keen to avoid some of the WTO’s problems.
The WTO’s tribunal of final instance for global trade disputes, the Appellate Body, has been reduced to irrelevance over disagreements on its composition.
Further, the paralysis of both the WTO’s negotiating and dispute settlement arms means that trade disputes between China and the United States, two of the WTO’s largest members, have flared into open hostility.
READ MORE Will China help or hurt the AfCFTA?
African Union member states chose to adopt those aspects of the WTO legal system that have worked while learning from the WTO’s mistakes.
The Agreement Establishing the AfCFTA sets out an architecture that balances the rights and obligations of its state parties. The Agreement aims for trade liberalisation while recognising public policy objectives such as environmental concerns and climate change, the imperative of food security and the need to provide trade remedies to vulnerable domestic industries such as small and medium-scale enterprises.
Any tensions or disputes over conflicting public policy objectives, or market access more broadly defined, will be adjudicated by the AfCFTA’s dispute settlement mechanism.
What are the main elements of this mechanism?
The key institutions of the mechanism are the Dispute Settlement Body, adjudicating panels and an Appellate Body for second-tier review:
- It is important to emphasise that the AfCFTA dispute settlement mechanism aims to resolve differences arising between state parties. Just as at the WTO, the private sector will be able to petition their governments to implement the rights and obligations set out in the agreement establishing the AfCFTA. At the WTO for instance, a long-running series of aircraft subsidy cases involving the governments of Brazil, Canada, the European Union and the United States was, in reality, a conflict over subsidies, state aid and competition between the aircraft manufacturers Embraer, Bombardier, Airbus and Boeing. In the same way, it is domestic industries affected by unfair trade – dumping, subsidies and unprecedented floods of imports – that then petition their governments to invoke their rights to resort to trade remedies such as anti-dumping and countervailing duties and other safeguard actions.
- To provide political oversight over implementation and surveillance of disputes, the agreement establishing the AfCFTA sets up an institution comprising all state parties. The Dispute Settlement Body, which holds its inaugural meeting from 26 April 2021, is the body that has the responsibility to adopt reports of panels and the Appellate Body and ensure that their rulings and recommendations are upheld.
- Disputes under the agreement establishing the AfCFTA will be adjudicated by impartial and competent panelists appointed from a list of candidates proposed by state parties, who can each nominate two experts. Panels are composed of competent, impartial individuals with experience in international trade law, economics and policy, or investment, international relations and diplomacy. Crucially, though nominated by governments, panelists serve in their individual capacities, ensuring both expertise and independence.
- The dispute settlement mechanism establishes the Appellate Body as a tribunal of final instance. The Appellate Body’s main function is to review panel decisions to ensure their soundness, robustness and fairness. Member states considered it important to have a two-tier system to reaffirm or overturn panel rulings.
- Panel and Appellate Body rulings and recommendations are not merely suggestions but binding legal commitments. Once panels and the Appellate Body have issued reports on a dispute, the Dispute Settlement Body is responsible for adopting those reports, which, at this point, become legally binding on the disputing parties. The Dispute Settlement Body can sanction a non-implementing state party by authorising retaliation in the form of the suspension of concessions and other obligations.
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‘Principle of negative consensus’
It is important to emphasise that the Dispute Settlement Body makes many of its key decisions through “negative consensus”, meaning that there has to be a consensus of the whole Dispute Settlement Body not to take a decision.
As there will always be at least one aggrieved state party pushing for a decision, the principle of negative consensus effectively means that the Dispute Settlement Body’s decision-making on disputes is automated.
In addition to the adjudicative process featuring the Dispute Settlement Body, panels and the Appellate Body, AfCFTA state parties may also, if they choose to do so, settle their disputes through the good offices of the Secretary-General, or through conciliation, mediation and arbitration.
To avoid trade disputes flaring into open war, as Secretary-General, I fully intend to offer my good offices, as well as make available conciliation, mediation and arbitration to provide even faster means to resolve disputes.
Ultimately, the objective of the AfCFTA’s dispute settlement mechanism is to give legal security to the commitments that state parties have made in their ambitious project of anchoring trade as an engine for transformation and prosperity for the entire African continent.
‘Continent is open for business’
Africa is sending a crystal clear and strong signal to foreign and domestic investors that the continent is open for business, and is willing to commit to a rules-based system.
There will of course be challenges relating to compliance with rulings of the dispute settlement mechanism. Based on the experience of the WTO, we should expect that even in the context of the AfCFTA, there will be such challenges.
However, at the heart of any non-compliance with rulings of the dispute settlement mechanism will be investor perception. State parties that adhere to the rule of trade law in Africa – which is what the AfCFTA seeks to establish – will benefit through enhanced investor confidence.
Dispute resolution in the AfCFTA will be based on rigorous enforcement underpinned by a spirit of amity and constructive engagement. The upcoming inaugural meeting of the Dispute Settlement Body is thus the first active fulfilment of this promise.
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