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Designing Preferential Rules of Origin for the AfCFTA

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African countries are still negotiating the RoO for AfCFTA. Dennis Ndonga examines the RoO of Africa’s key RECs, namely the EAC, COMESA, ECOWAS, SADC and the TFTA

Image courtesy of interviewee. May 28, 2024

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The paper examines how preferential rules of origin adopted by various regional economic communities in Africa impact trade. It focuses on the East African Community, ESA (Eastern and Southern Africa) regional mechanisms, and the newly proposed African Continental Free Trade Area (AfCFTA). The study aims to learn from the experiences of these communities to inform the design of rules of origin under the AfCFTA, which is intended to promote intra-African trade by eliminating tariffs, reducing non-tariff barriers, and enhancing regional value chains.

Rules of origin are classified into preferential and non-preferential categories, with the former determining the eligibility of goods for preferential treatment in trade agreements. The paper indicates that existing regional rules have often failed to promote trade among member countries and at times hindered economic integration. Key challenges include complex compliance requirements, lack of uniform application and interpretation across regions, inefficient issuance of certificates of origin, limited awareness of rules among businesses, and restrictive provisions that favor larger economies over smaller ones.

Lessons from regional experiences for the AfCFTA include simplifying rules, offering flexibility to accommodate different producers, better training and capacity-building initiatives for officials and businesses, and establishing effective dispute resolution mechanisms. Despite launching the AfCFTA in 2021, the expected trade levels have not materialized, prompting the African Union to initiate the Guided Trade Initiative to assess and improve the framework of the AfCFTA, focusing on addressing gaps and enhancing efficiency moving forward.

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Here are some key quotes from the video regarding the examination of rules of origin in African regional economic communities and the potential implications for the African Continental Free Trade Area (AfCFTA):

1. **Purpose of the Paper**:
- "The purpose of the paper was to examine how preferential rules of origin that have been adopted by various regional economic communities in Africa, how these rules of origin have actually affected trade."

2. **Goal of the AfCFTA**:
- "The aim will be to boost intra African trade and as a result, promote economic development and reduce poverty in the continent."

3. **Definition of Rules of Origin**:
- "Rules of origin are basically mechanisms or regulations that are used to determine the economic nationality of goods that are traded in international trade."

4. **Types of Rules of Origin**:
- "You can either have preferential rules of origin or you can have non preferential rules of origin."

5. **Preferential Rules of Origin**:
- "Preferential rules of origin are mechanisms that are used to determine the economic nationality of goods that are traded within the convideo of preferential trade agreements."

6. **Challenges Observed**:
- "The study found that rules origin died by these regional economic communities... have actually failed to achieve their objective, which was to promote trade amongst their member countries."

7. **Complexity of Rules**:
- "The design and of the rules of origins were found to be quite complex to comply with."

8. **Lack of Uniformity**:
- "There has been inconsistencies and ambiguities in the way that various member countries have applied the rules of origin."

9. **Administrative Inefficiencies**:
- "The administrative process behind the issuance of the certificate of origin required the applicant to first apply for assessment through the National Approvals Committee."

10. **Lack of Awareness**:
- "There are instances whereby board officials in some countries... failed to acknowledge and certify certificates of origin that had been presented by operators."

11. **Recommendations for Improvement**:
- "Prioritizing the simplicity and clarity of the continental Free Trade area Rules of origin to ensure that they're easy to understand and implement."

12. **Dispute Settlement Mechanisms**:
- "The continental free trade area has actually implemented or does have a dispute settlement protocol. However, this protocol has so far been criticized for failing to allow individuals and companies to directly lodge their disputes."

These quotes capture the essence of the examination of preferential rules of origin, their implications, the challenges faced by regional communities, and recommendations for the African Continental Free Trade Area.

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The purpose of the paper was to examine

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how preferential rules of origin that have been adopted

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by various regional economic communities in Africa,

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how these rules of origin have actually affected trade.

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And in those, in those areas.

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Now it focused on,

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specific regional economic communities,

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namely East African community, ESA ecos,

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ak, and the newly proposed apartheid free trade area.

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And the study actually drew lessons from the experiences

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of how rules of origins were or have been exercised in these

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or by these regional economic communities.

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And from these experiences, the aim was to draw lessons on

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how they can better inform the con,

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the African continental free trade areas, de design

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of the rules of origin to ensure that it works to,

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support its main objective of promoting intra African trade.

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What's the purpose of the African Continental Free trade

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area or the A-F-C-C-F-T-A or the A-F-C-F-D-A?

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So the C Continental Free Trade area is

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a free trade area that brings together

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the 55 Africa Union member countries,

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eight regional economic communities,

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and six, to provide

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or to create a single market for Africa's goods

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and services that will be supported by the free movement

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of people and capital across the continent.

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And it seeks to achieve this, by implementing a number

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of measures, key among them being through the elimination

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of tariffs, reducing non tariff barriers,

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establishing regional value chains, promoting,

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intra African investment, as well as other trade

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and capital promotion measures.

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And overall, the expectation is through the implementation

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of all these measures under the CFTA, the aim will be

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to boost intra African trade

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and as a result, promote economic development

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and reduce poverty in the continent.

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Now on the third question on, on rules of origin,

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what are rules of origin?

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Because I've been talking about preferential

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rules of origin.

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Rules of origin are basically mechanisms

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or regulations that are used

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to determine the economic nationality of goods

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that are traded in international trade.

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They basically help determine which,

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countries the goods are deemed to have been produced in.

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And there's basically two kinds of rules of origin,

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mechanisms that are applied.

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Uh, you can either have preferential rules of origin

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or you can have non preferential rules of origin.

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Preferential rules of origin are mechanisms that are used

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to determine the economic nationality of goods

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that are traded within the context

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of preferential trade agreements.

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And they basically help determine the eligibility of goods

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that are subject, that should be subject

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to preferential treatment, as opposed to those goods

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that are sub, are not subject

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to any preferential treatment

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or goods that have emanated from third countries

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that are not part of the trade, arrangement.

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Now, non preferential rules of origin, on the other hand,

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are mechanisms

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or regulations that are used

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to determine the economic nationality of goods

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that are traded in situations

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where you don't have any preferential trade arrangements.

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Now, this would be situations where you have,

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trade conducted on a most favored nation basis,

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basically whereby countries are required not to discriminate

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between their trading partners.

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And in such circumstances

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or in such cases, the rules of origin help determine,

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certain factors such as what tariff to impose on the goods,

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if there are any prohibitions to be imposed on the category

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of goods or even the type any quarters that are

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to be applied to the goods.

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So the paper basically focused on preferential rules

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of origin, which basically help support

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economic integration in trade, blocks

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or regional economic blocks,

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and ensure that the goods receive the appropriate treatment,

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based on their origin as well

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as prevent, trade deflection.

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Now, the continental free trade area does apply two criteria

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for preferential, as part of the preferential trade.

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Uh, rules of origin.

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Basically two criteria for determining woulds are

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to receive preferential treatment.

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And the first criteria would be whereby the goods are

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actually wholly produced from one of the member countries.

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And the second criteria would be whereby the goods have

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undergone some substantial transformation in one

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of the member countries.

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The paper actually find the study found that rules

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origin died by these regional economic communities

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that I mentioned have actually failed

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to achieve their objective, which was to promote trade

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amongst their member countries.

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And even noted that in some cases,

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the rule regime ended up acting as an Ontario, to trade

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or to economic, economic integration in the,

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in the regions and some of the key challenges

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that were observed in the regional, economic communities

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and the member countries, that were related

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to the rules of

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Origin concerned issues around complex

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and stringent rules of in mechanisms.

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Now, this was noted in, that there were issues regarding

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where the design

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and of the rules of origins were found

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to be quite complex to comply with.

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So for instance, the East African Community Rules of Origin

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does outline certain specific manufacturing processes

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and regional content requirements that have been found

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to be quite complex and time consuming,

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and as a result have made it harder for business comply with

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and apply for preferential treatment.

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Another issue that has been observed at the regional level

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is the lack of uniformity, and uniform interpretation

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and application of the rules of origin.

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Now, this relates to situations whereby there's been

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inconsistencies and ambiguities in the way

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that various member countries have applied

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the rules of origin.

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Now, this was noted in the case of the Ensa rules of origin,

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whereby some member countries within the region

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actually imposed unnecessary requirements

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that did not conform with the rules of origin requirements.

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And these additional requirements actually ended up creating

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confusion amongst the businesses

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and enterprises that were seeking to, apply for,

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preferential treatment

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and basically disrupted intra ESA trade.

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Another issue that was also observed is, regarding

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inefficient, the inefficient issuance

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of certificates of origin.

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And this particularly was noted in the case of the ewas

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certificates of origin, whereby the administrative process

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behind the issuance of the certificate of origin,

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required, the applicant to first apply

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for assessment through the National Approvals Committee,

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and thereafter apply for a second assessment

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with the same information requirement

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or validation requirement through the Ewas Commission.

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Now, this duplication of processes basically

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resulted in processing delays that frustrated businesses

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and made it burdensome for operators to actually apply

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for the certificates of origin.

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Now, another issue that was also noted, was the lack

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of awareness and knowledge of the rules of origin.

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Now, there are instances whereby board officials in some

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countries, did not understand the requirements of rules

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of origin, and basically failed to acknowledge

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and certify certificates of origin that had been,

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presented by, operators,

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who had actually been issued those certificates of origin,

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by their member countries,

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which were part of the same region.

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Now, the same also applied in situations whereby some

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operators were not aware of the rules of origin requirement

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and therefore failed to take advantage, to apply

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for preferential treatment when they were conducting their

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trade with other, member countries.

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Now, another issue that was also observed was

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issues surrounding restrictive rules of origin.

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Now, this was noted, or particularly focused with cases

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or instances whereby the design of the rules of origin

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actually restricted opportunities

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for certain member countries.

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And this was particularly noted in the case of the SDA roots

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of origin whereby, the double transformation,

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rules for the textile

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and clothing, products as well

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as the higher value addition requirement,

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had made it quite restrictive for small economies such

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as Malawi and Zambia

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that actually had limited industrial capacity.

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While at the same time, these rules inadvertently

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favored larger economies such as South Africa.

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So basically all these highlighted challenges,

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or these challenges basically highlighted the need to ensure

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that the rules of or the design

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and implementation of the rules of origin

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were act implemented in a manner that could ensure

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that they ultimately achieve the objective of promoting,

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trade within the region

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or within the continent, as would be the case

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with the continental free trade area.

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There's several key lessons that the continental

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free trade area can actually draw from the

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regional economic communities experience in ensuring that

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the CF FDA's Rules of Origin are designed in a manner

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that would support its mission

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of promoting intra African trade.

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And some of these lessons include one,

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prioritizing the simplicity

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and clarity of the continental Free Trade area Rules

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of origin to ensure that they're easy

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to understand and implement.

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And for this, the Africa Union has actually pub,

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CFTA Rules of Origin Manual to help

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with the practical application of Egypt.

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Now, this manual actually was published,

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just recently in 2022.

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Now, another lesson would be around offering flexibility

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in the CFTs rules of origin criteria to cater

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for the various producers across the continent.

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And this type of flexibility should further extend

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to the enforcement

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and the of the rules of origins provision

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by Africa's least developed countries,

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and ensuring that the way

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or the standards that are applied when it comes to the rules

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of origin requirements do acknowledge and factor in

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and take into account the various limitations

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that these countries have,

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and the capacity that they have, in order to ensure

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that the rules of origin do not unnecessarily,

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restrict them or restrict the operators from

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participating in the continental trade.

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Now, another lesson, is also in condu,

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in conducting proper administration

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and training about on the rules of origin.

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And here the member countries are required to invest

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or would be encouraged to invest in offering, training

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and capacity building opportunities

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or programs for their board officials

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who would be administering the rules of origin,

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or, recognizing the certificates of origin

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that had been issued by other ME member countries.

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And similar investments should also be made

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by these countries, in offering, opportunities

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or training, especially to small

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and medium sized enterprises on the value of the rules

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of origin, the requirements that are available,

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the requirements that need to be met in order to satisfy,

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the issue, that in order to ensure

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that they satisfy the requirements to be issued

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with certificates of origin that would enable them to,

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make use of the preferential trade arrangements.

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Now, another lesson that can also be,

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drawn is on having

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effective dispute settlement mechanisms for resolving any

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conflicts or ambiguities that could arise when it comes

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to the enforcement of the rules of origin.

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And for this, the continental free trade area has actually

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implemented or does have a dispute settlement protocol.

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However, this protocol has so far been criticized

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for failing to allow individuals

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and companies to directly lodge their disputes.

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Unlike, the way the regional economic communities have,

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rules

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of origin have actually allowed such individuals

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and corporations to directly lodge their disputes.

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Now, this would be quite important as most of the issues

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would be emanating from the people

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or who are actually applying for the rules of origin,

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exercising rules of origin,

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which would primarily be the individuals

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and the corporations that, applying for the certificates

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of origin and trading across the, borders

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with other member countries.

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So by incorporating all these lessons in the design

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and implementation of the Rules of Origin in, the aim is

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to ensure that the continental free trade areas, rules

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of origin can work to achieve its main objective

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of promoting in traffic and trade,

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and forcing, fostering economic integration as well

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as promoting economic development across the continent.

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Conclusion here first is to not,

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despite trading under the continental free trade area

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commencing in 2021, the levels of trade

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so far have not been economically meaningful.

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And this has actually more recently, in 2022,

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has actually, prompted the Africa Union

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to enforce the CFTA Guided Trade Initiative or the GTI.

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And this initiative is actually designed

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to test the efficiency of the CFTs, legal framework,

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which would actually cover the rules of origin regime.

15:53.485 --> 15:57.145
And the initiative seeks to collect feedback

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and identify gaps within,

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the CFTs framework,

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and also offer practical solutions on how to intervene

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and ensure that the CFDA operates in a manner

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that is directed towards achieving its objective.

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Now, so far, that one member countries asset to,

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enroll or to join this initiative by the end of this year,

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that is 2024.

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And the hope is that by joining

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or by ex conducting trade under this initiative, the

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CFDA would be able to identify gaps, any gaps within,

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its rules of origin regime,

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and also be able to offer practical solutions on how

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to address those gaps

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and, any other issues moving forward.

Impact of Rules of Origin on African Trade

00:00:00 - The purpose of the paper was to examine how preferential rules of origin that have been adopted by various regional economic communities in Africa, how these rules of origin have actually affected trade. And in those, in those areas. Now it focused on, specific regional economic communities, namely East African community, ESA ecos, ak, and the newly proposed apartheid free trade area.
00:00:38 - of how rules of origins were or have been exercised in these or by these regional economic communities. And from these experiences, the aim was to draw lessons on how they can better inform the con, the African continental free trade areas, de design of the rules of origin to ensure that it works to,
00:01:06 - What's the purpose of the African Continental Free trade area or the A-F-C-C-F-T-A or the A-F-C-F-D-A? So the C Continental Free Trade area is a free trade area that brings together the 55 Africa Union member countries, eight regional economic communities, and six, to provide or to create a single market for Africa's goods
00:01:38 - of people and capital across the continent. And it seeks to achieve this, by implementing a number of measures, key among them being through the elimination of tariffs, reducing non tariff barriers, establishing regional value chains, promoting, intra African investment, as well as other trade and capital promotion measures.
00:02:09 - of all these measures under the CFTA, the aim will be to boost intra African trade and as a result, promote economic development and reduce poverty in the continent. Now on the third question on, on rules of origin, what are rules of origin? Because I've been talking about preferential rules of origin. Rules of origin are basically mechanisms or regulations that are used to determine the economic nationality of goods
00:02:40 - They basically help determine which, countries the goods are deemed to have been produced in. And there's basically two kinds of rules of origin, mechanisms that are applied. you can either have preferential rules of origin or you can have non preferential rules of origin. Preferential rules of origin are mechanisms that are used to determine the economic nationality of goods that are traded within the context of preferential trade agreements.

Rules of Origin and Trade Preferences Explained

00:03:13 - that are subject, that should be subject to preferential treatment, as opposed to those goods that are sub, are not subject to any preferential treatment or goods that have emanated from third countries that are not part of the trade, arrangement. Now, non preferential rules of origin, on the other hand, are mechanisms or regulations that are used to determine the economic nationality of goods
00:03:43 - where you don't have any preferential trade arrangements. Now, this would be situations where you have, trade conducted on a most favored nation basis, basically whereby countries are required not to discriminate between their trading partners. And in such circumstances or in such cases, the rules of origin help determine, certain factors such as what tariff to impose on the goods,
00:04:15 - of goods or even the type any quarters that are to be applied to the goods. So the paper basically focused on preferential rules of origin, which basically help support economic integration in trade, blocks or regional economic blocks, and ensure that the goods receive the appropriate treatment, based on their origin as well
00:04:47 - Now, the continental free trade area does apply two criteria for preferential, as part of the preferential trade. rules of origin. Basically two criteria for determining woulds are to receive preferential treatment. And the first criteria would be whereby the goods are actually wholly produced from one of the member countries. And the second criteria would be whereby the goods have
00:05:21 - of the member countries. The paper actually find the study found that rules origin died by these regional economic communities that I mentioned have actually failed to achieve their objective, which was to promote trade amongst their member countries. And even noted that in some cases, the rule regime ended up acting as an Ontario, to trade or to economic, economic integration in the, in the regions and some of the key challenges
00:05:52 - and the member countries, that were related to the rules of Origin concerned issues around complex and stringent rules of in mechanisms. Now, this was noted in, that there were issues regarding where the design and of the rules of origins were found to be quite complex to comply with. So for instance, the East African Community Rules of Origin

Challenges in African Rules of Origin Compliance

00:06:25 - and regional content requirements that have been found to be quite complex and time consuming, and as a result have made it harder for business comply with and apply for preferential treatment. Another issue that has been observed at the regional level is the lack of uniformity, and uniform interpretation and application of the rules of origin. Now, this relates to situations whereby there's been inconsistencies and ambiguities in the way
00:06:56 - the rules of origin. Now, this was noted in the case of the Ensa rules of origin, whereby some member countries within the region actually imposed unnecessary requirements that did not conform with the rules of origin requirements. And these additional requirements actually ended up creating confusion amongst the businesses and enterprises that were seeking to, apply for, preferential treatment
00:07:27 - Another issue that was also observed is, regarding inefficient, the inefficient issuance of certificates of origin. And this particularly was noted in the case of the ewas certificates of origin, whereby the administrative process behind the issuance of the certificate of origin, required, the applicant to first apply for assessment through the National Approvals Committee,
00:07:59 - with the same information requirement or validation requirement through the Ewas Commission. Now, this duplication of processes basically resulted in processing delays that frustrated businesses and made it burdensome for operators to actually apply for the certificates of origin. Now, another issue that was also noted, was the lack of awareness and knowledge of the rules of origin. Now, there are instances whereby board officials in some
00:08:33 - of origin, and basically failed to acknowledge and certify certificates of origin that had been, presented by, operators, who had actually been issued those certificates of origin, by their member countries, which were part of the same region. Now, the same also applied in situations whereby some operators were not aware of the rules of origin requirement and therefore failed to take advantage, to apply
00:09:06 - trade with other, member countries. Now, another issue that was also observed was issues surrounding restrictive rules of origin. Now, this was noted, or particularly focused with cases or instances whereby the design of the rules of origin actually restricted opportunities for certain member countries. And this was particularly noted in the case of the SDA roots

Challenges of Rules of Origin in Africa

00:09:38 - rules for the textile and clothing, products as well as the higher value addition requirement, had made it quite restrictive for small economies such as Malawi and Zambia that actually had limited industrial capacity. While at the same time, these rules inadvertently favored larger economies such as South Africa. So basically all these highlighted challenges,
00:10:14 - that the rules of or the design and implementation of the rules of origin were act implemented in a manner that could ensure that they ultimately achieve the objective of promoting, trade within the region or within the continent, as would be the case with the continental free trade area. There's several key lessons that the continental
00:10:42 - regional economic communities experience in ensuring that the CF FDA's Rules of Origin are designed in a manner that would support its mission of promoting intra African trade. And some of these lessons include one, prioritizing the simplicity and clarity of the continental Free Trade area Rules of origin to ensure that they're easy to understand and implement.
00:11:15 - CFTA Rules of Origin Manual to help with the practical application of Egypt. Now, this manual actually was published, just recently in 2022. Now, another lesson would be around offering flexibility in the CFTs rules of origin criteria to cater for the various producers across the continent. And this type of flexibility should further extend
00:11:43 - and the of the rules of origins provision by Africa's least developed countries, and ensuring that the way or the standards that are applied when it comes to the rules of origin requirements do acknowledge and factor in and take into account the various limitations that these countries have, and the capacity that they have, in order to ensure that the rules of origin do not unnecessarily,
00:12:18 - participating in the continental trade. Now, another lesson, is also in condu, in conducting proper administration and training about on the rules of origin. And here the member countries are required to invest or would be encouraged to invest in offering, training and capacity building opportunities or programs for their board officials

Enhancing Rules of Origin for Trade Efficiency

00:12:48 - or, recognizing the certificates of origin that had been issued by other ME member countries. And similar investments should also be made by these countries, in offering, opportunities or training, especially to small and medium sized enterprises on the value of the rules of origin, the requirements that are available, the requirements that need to be met in order to satisfy,
00:13:21 - that they satisfy the requirements to be issued with certificates of origin that would enable them to, make use of the preferential trade arrangements. Now, another lesson that can also be, drawn is on having effective dispute settlement mechanisms for resolving any conflicts or ambiguities that could arise when it comes to the enforcement of the rules of origin.
00:13:52 - implemented or does have a dispute settlement protocol. However, this protocol has so far been criticized for failing to allow individuals and companies to directly lodge their disputes. Unlike, the way the regional economic communities have, rules of origin have actually allowed such individuals and corporations to directly lodge their disputes.
00:14:25 - would be emanating from the people or who are actually applying for the rules of origin, exercising rules of origin, which would primarily be the individuals and the corporations that, applying for the certificates of origin and trading across the, borders with other member countries. So by incorporating all these lessons in the design
00:14:54 - to ensure that the continental free trade areas, rules of origin can work to achieve its main objective of promoting in traffic and trade, and forcing, fostering economic integration as well as promoting economic development across the continent. Conclusion here first is to not, despite trading under the continental free trade area commencing in 2021, the levels of trade
00:15:27 - And this has actually more recently, in 2022, has actually, prompted the Africa Union to enforce the CFTA Guided Trade Initiative or the GTI. And this initiative is actually designed to test the efficiency of the CFTs, legal framework, which would actually cover the rules of origin regime. And the initiative seeks to collect feedback

Enhancing the CFDA's Rules of Origin

00:16:00 - the CFTs framework, and also offer practical solutions on how to intervene and ensure that the CFDA operates in a manner that is directed towards achieving its objective. Now, so far, that one member countries asset to, enroll or to join this initiative by the end of this year, that is 2024. And the hope is that by joining
00:16:47 - CFDA would be able to identify gaps, any gaps within, its rules of origin regime, and also be able to offer practical solutions on how to address those gaps and, any other issues moving forward.

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