Bilateral or regional trade agreements (RTAs) are essentially preferential in nature and a deviation from the World Trade Organization principle of most-favoured-nation or non-discrimination, as they are intended to benefit signatory countries. However, the agreement could be abused by competitive third-countries that use a member country of the RTA (that has a low external tariff) as a springboard to penetrate the entire regional preferential market. Such a scenario could undermine the industries of other countries within the RTA. To avoid such a scenario, free trade agreements or RTAs use rules of origin (RoO) to determine the national origin of the product and to establish the thresholds for local content or value-added before the product is re-exported.
This Discussion Paper outlines the different types of RoO, provides a brief overview of the approaches to RoO adopted by Africa's Regional Economic Communities, and explores the mainstream academic literature on RoO in the automotive, textiles and apparel sectors. Following this, it highlights current trends in the cotton, textile and apparel production and regional value chains in Africa, arguing that the AfCFTA should adopt a developmental regionalism approach to its RoO negotiations in the cotton, textiles and apparel RVC. In this context, some recommendations for policymakers and negotiators are also provided.
This policy brief investigates the issues of rules of origin (RoO), their implications in a free trade area, and their role in promoting industrialisation and forging regional value chains (RVCs) under the African Continental Free Trade Area (AfCFTA) agreement, with the main focus on the cotton and textile and clothing sector. The policy brief first looks at the cotton to textile and clothing value chain, including the general cost drivers at each segment of the value chain, which have major implications on the productive and industrial capacities of countries. Second, it looks into the purpose of the RoO in the AfCFTA and its impact on intra-regional trade flows and the way the set policies can affect regional integration and the RVCs. Last, possible applications of the RoO, their implications for industrialisation in the AfCFTA, and the approaches by industry and governments are laid out.