How regional cumulation works in practice under AfCFTA

What is regional cumulation under AfCFTA?

The concept of “cumulation” is an important provision supporting the emergence of regional value chains. Under the AfCFTA, cumulation provisions allow AfCFTA State Parties to share production while still allowing market access benefits 1.

Let’s say a Ghanaian exporter produces leather bags using leather imported from Kenya. Normally, the bags would not be considered originating from Ghana since the main input – the leather – originates from a non-AfCFTA country. However, under regional cumulation, inputs originating from other AfCFTA member states can be considered as local content for determining origin. This means that since the leather originated from Kenya, an AfCFTA Member State, it confers originating status to the Ghanaian bags. So even though the leather itself was imported, under regional cumulation; it is considered an originating input for Ghana. This allows the Ghanaian exporter to meet the product-specific rules of origin for leather bags, such as a regional value content threshold.

The Ghanaian exporter can then obtain a Certificate of Origin from the Ghanaian issuing authority (GCCI) certifying that the leather bags originate from Ghana. They can then export the bags to other AfCFTA member states and benefit from preferential tariff treatment. Without regional cumulation, the Ghanaian bags would likely not have qualified as originating since the main input – the Kenyan leather – came from a non-AfCFTA country. But by considering intra-African inputs as originating, cumulation promotes regional integration and incentivises the use of inputs sourced within the AfCFTA. This creates stronger supply chains and economic linkages within Africa. It also makes it easier for smaller member states to participate in value chains that rely on inputs from larger African economies.

How regional cumulation can benefit smaller AfCFTA State Parties

Let’s say a Namibian exporter produces handmade wooden crafts for the tourism industry. However, Namibia does not have a large supply of high-quality wood needed for the crafts. Under regional cumulation, the Namibian exporter is able to source the wood they need from a larger African economy like Nigeria which has a surplus of premium wood. Even though the wood itself comes from outside Namibia, as an AfCFTA input it confers originating status to the final Namibian craft products. This allows the Namibian exporter to meet the product-specific rules of origin for wooden crafts and obtain Certificates of Origin from the Namibian issuing authority. They can then export the crafts to other AfCFTA member states and pay reduced tariffs.

Without regional cumulation, the Namibian crafts would not have qualified as originating from Namibia since the main input – the Nigerian wood – came from outside Namibia. This would have limited the Namibian exporter’s access to larger African markets. But by considering intra-African inputs as originating, regional cumulation enables smaller member states like Namibia to:

1. Access high-quality inputs beyond their local supply chains by sourcing from larger African economies

 

2. Meet product-specific rules of origin criteria to qualify their final products as originating

 

3. Export value-added products to the continent’s integrated market and benefit from AfCFTA preferential tariffs

This allows smaller member states to effectively plug into and participate in regional and continental value chains – something they may not be able to do solely based on their local inputs and resources. Regional cumulation thus helps “level the playing field” for smaller African economies within AfCFTA. Thus, by enabling access to inputs from larger African economies, regional cumulation can help smaller AfCFTA member states produce qualifying originating products, obtain Certificates of Origin, and export to the continental market while paying reduced tariffs. The regional cumulation allows components, materials, or inputs originating from other AfCFTA members to be considered as originating content for determining if a final product qualifies as originating and eligible for preferential tariffs under AfCFTA.

How regional cumulation can benefit larger AfCFTA State Parties

Let’s say a South African company manufactures furniture for export. They need wooden components like table legs, and drawer sides to assemble into their finished furniture products. Normally, South Africa would have to source all these wooden components locally to confer originating status to the final South African furniture exports. However, under regional cumulation, the South African manufacturer is able to source some of the wooden components from smaller African countries like Botswana, Zambia, and Kenya that have a comparative advantage in producing certain wood products. Even though these components themselves do not originate in South Africa, as intra-African inputs they confer originating status to the South African furniture when they are assembled. This allows the South African manufacturer to meet the product-specific rules of origin for furniture and obtain Certificates of Origin.

The ability to source cheaper and higher quality wooden components from smaller African countries makes South African furniture exports more competitive on the continental market. The South African manufacturer is then able to expand its exports to other AfCFTA members and benefit from preferential tariff treatment. Regional cumulation thus benefits larger member states by enabling access to lower-cost and higher-quality inputs from smaller African economies. This helps larger countries produce more competitive export products that meet rules of origin criteria.

In essence, regional cumulation promotes regional integration and stronger value chains under the AfCFTA by:

– Allowing larger economies to source lower-cost inputs from smaller member states

– Enabling smaller member states to plug into the value chains of larger economies

– Making African exports to the continental market more diverse and competitive

Hope this example helps explain how regional cumulation also benefits larger AfCFTA member states by giving them access to a wider pool of African inputs!

Challenges in implementing regional cumulation effectively under the AfCFTA

1. Administrative complexity – Keeping track of the origin of all potential components and inputs across 54 member states can be complex from an administrative standpoint. It requires robust record-keeping systems.

 

2. Traceability and verification issues – It can be difficult to trace the origin of components through multiple companies and countries. This poses challenges for verifying the actual origin during audits.

 

3. Requirement for supporting documents – Exporters must obtain documents proving the originating status of all intra-African inputs to qualify for cumulation. This puts an administrative burden on businesses.

 

4. Lack of harmonisation – Member states currently have different rules of origin criteria and border processes, making it difficult to implement cumulation consistently. Harmonisation efforts are ongoing.

 

5. Risk of trade deflection – There are concerns that non-African inputs could enter the supply chain through member states with poor oversight. This could increase the risk of trade deflection.

 

6. Logistical challenges – The underdeveloped status of transport and logistics networks in Africa poses difficulties for companies accessing inputs from across the continent.

 

7. Limited productive capacities – Many smaller member states still have limited ability to produce competitive components and inputs that larger economies need.

 

8. Policy differences among members – Differing levels of openness and non-tariff measures among members complicate the supply chain integration required for effective cumulation.

However, if these challenges are addressed through initiatives like harmonisation of rules, improved transport networks, transparency, and information-sharing among members, regional cumulation could significantly boost intra-African trade by facilitating stronger regional value chains under the AfCFTA.

Ongoing harmonisation efforts among AfCFTA State Parties

• Development of a harmonised schedule of product-specific rules of origin – The AfCFTA secretariat is working with members to develop a unified schedule that defines the rules of origin criteria for all traded products. This will ensure consistency and facilitate regional cumulation.

 

• Common Certificate of Origin template – Members have agreed to adopt a harmonised Certificate of Origin template to be used across the continent. This will streamline verification procedures for businesses and customs officials.

 

• Harmonisation of origin verification procedures – Members are working to develop consistent audit procedures, documentary requirements, and other verification mechanisms to ensure robust compliance systems.

 

• Common tariff nomenclature – Adopting a standardised tariff classification system will allow for more consistent implementation of change in tariff classification rules of origin. The AfCFTA uses the Harmonised System code maintained by the World Customs Organisation.

 

• Unified border agency – There are proposals to establish an AfCFTA-wide border agency to implement common border controls, procedures, and IT systems across members. This would significantly reduce non-tariff barriers to intra-African trade.

 

• Cooperation on customs valuation – Members are exploring ways to establish consistent approaches and techniques for customs valuation under AfCFTA to minimise disputes and non-tariff barriers.

 

• Information-sharing platform – An electronic platform is being developed for members to notify each other of new policies, regulations, and measures impacting intra-African trade on a real-time basis. This will help ensure consistency.

These examples show that member states recognise the need for policy and regulatory harmonisation to fully realise the benefits of the AfCFTA, including the potential of regional cumulation. Although progress has been gradual, ongoing initiatives aim to significantly reduce non-tariff barriers that hinder intra-African trade.

Hope this blog helps explain how regional cumulation works in practice! Let us know if you have any questions.