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Analysis of AfCFTA's Protocol on Trade in Services and Strategy for Country A

Clinic: Graduate Institute, Fall 2018

Executive Summary* **

* Executive Summary in French below

** Confidential Report

The agreement establishing the African Continental Free Trade Area (AfCFTA) was signed in March 2018 by 44 members of the African Union. If ratified, this agreement will create the world's largest free trade area. As the first phase of the AfCFTA negotiations ends, the State Parties to the AfCFTA wish to develop a strategy to promote their interest in the trade in services. This report puts an accent on environmental services, in particular, waste management, and on road and rail transport.

Recommendations for the land transport sector

The main risk of liberalization is the possible disappearance of small, low-competitive operators. This could be avoided if firms position themselves as alternatives to price and quality in the face of foreign operators, or if they specialize in certain transport components, such as logistics. Another risk is that the infrastructure will not be able to support an increase in traffic. Finally, peripheral regions could be forgotten in the process of such liberalization.

Our recommendation is to favor liberalization via Mode 3, to encourage operators to have a commercial presence in the country liberalizing the sector. Indeed, in the field of transport, the impact of liberalization varies greatly depending on the modes of supply. Cross-border supply (Mode 1) can supplant local producers without positive impact, while commercial presence (mode 3) implies investments in new facilities and the employment of local staff. The ministry will have to assess the possibility of introducing exceptions (e.g. reserve cabotage or certain sub-sectors to domestic firms). We recommend providing support in the form of subsidies for transport companies that provide services in rural and remote areas. Finally, the State Parties should establish sufficient national regulation to prevent these monopolistic elements from becoming an obstacle to the entry of new suppliers or capture the benefits of liberalization in the sub-sectors which are prone to become monopolies.

Other ancillary services required for transportation such as follow-up services, allowing the company to see where the convoy is, or storage services, must also be opened for effective liberalization. Transportation companies generally need third-party logistics providers to manage their shipments. The transport chain is made up of many services which must therefore be considered as a whole.

Environmental services Recommendations

Some State Parties wish to use trade in environmental services to improve the ecological performance of their major cities. Therefore, they hold an import interest as well as a need to attract investment, because these countries wish to stimulate their internal market by attracting more efficient foreign suppliers. There are many ways of attracting these investors, such as bilateral investment treaties, but also the liberalization of the sector in a trade agreement such as the AfCFTA or the GATS, which gives a signal to companies indicating the willingness to open the sector to foreign investors and the fact that this will is serious because set in a commitment internationally binding.

We therefore recommend to these State Parties to liberalize Modes 3 and 4, the most important for environmental services. Indeed, these services usually require a commercial presence in the country (Mode 3). The movement of natural persons (Mode 4) is also a relevant factor for environmental companies, who want to bring their experts, engineers and consultants rather than having to train this workforce on the spot. We also recommend extending the scope of the investment code to environmental enterprises. Indeed, these services involve considerable investment, and investment protection is important for foreign firms. BITs are also crucial, but African countries need to be careful in drafting these treaties and concession contracts with foreign companies. Lastly, we recommend a certain degree of liberalization of market access in other sectors, such as engineering and consultancy services, which are essential for the delivery of environmental services.

However, many accompanying measures are needed to ensure the positive impacts of this liberalization and effective improvement in waste collection. These measures include national reforms (e.g. the elaboration of more stringent environmental legislation on sanitation and making the illegal deposit of waste in the wild more difficult), encouragement of technology transfer (For instance, through partnerships between domestic companies and foreign ones), financial assistance, education and public awareness (to encourage a more sustainable approach to waste management), tax policies (waste taxes), etc.