Harnessing Open Account Trade — A Major Enabler for Illicit Financial Flows from Developing Countries
Can blockchain technology come to the rescue? Will the African Continental Free Trade Area leverage its Digital Trade Protocol?
By Yuefen Li
The current geopolitical landscape has made domestic resource mobilization an even more important imperative for developing countries. In this context, it is more urgent than ever to combat illicit financial flows (IFFs) whose staggering amount from developing countries has outstrippedthe combinedsum of official development assistance (ODA) and foreign direct investment (FDI)going into the developing world. The IFFs from the financial channel is significant, but the greater proportion ofIFFs actually stems from trade channels rather than from financial channels. It is particularly concerning that the flexibility and legitimacy of international trade have been exploited to cover IFFs. Trade mis-invoicingisthe largest component of IFFs from developing countries. A major reason for trade being used to undertake illicit, fraudulent or criminal activities is because 80%-85% of the more than US$ 24 trillion international trade is conducted via open account trade (OAT), which has minimum scrutiny as it is conducted on a bilateral basis between the importer and exporter, not transparent and with minimal involvement of the financial institutions and customs authorities. OAT payment does not require documents to prove quality, quantity and other information about the product being shipped and is made through automatic payment systems which lack the oversight provided by any third party. OAT gives trade mis-invoicing great ease, flexibility, minimal cost and minimal risk. Therefore, if the world is serious about combatting IFFs, it is urgent and imperative to close loopholes in the OAT for IFFs, making it transparent, trackable and involving third party monitoring and scrutiny. The functionalities and features of Blockchain technology (BCT), though its implementation is still nascent, can be a good candidate to make OAT more modern, transparent to regulators, traceable, more efficient and above all minimize IFFs.The goals of the African Continental Free Trade Area (AfCFTA)’sDigital Trade Protocol (DTP)includeboosting intra-African trade through unifying and harmonizing regulatory framework for Africa’s digital economy and regional trade, promoting cross-border data flows and paperless trade,and enhancing cybersecurity measures.Theexploration of Blockchain adoption to reduce OAT’s risks for IFFs and make trade more effective aligns well with DTP’s goals.
Assessing Five Years of the African Continental Free Trade Area (AfCFTA): Proposals on Potential Amendments
By Kiiza Africa
On 30th May 2024, the African Continental Free Trade Area (AfCFTA) celebrated its fifth anniversary, which legally implied that the agreement is up for review for possible amendments. To kickstart this review, the Thirty-Seventh Ordinary Session of the African Union Summit (held in February 2024) directed the AfCFTA Secretariat to take necessary measures for the start of the review of the Agreement. This review comes at a moment when the AfCFTA implementation and its vehicle, the Guided Trade Initiative (GTI), have been fraught with challenges. Broadly, these challenges include the slow submission of tariff liberalization schedules by State Parties, infrastructure deficits, persistent non-tariff barriers and trade wars in regional economic communities, and overlapping regional trade commitments. Thus, the upcoming AfCFTA review provides an opportunity to assess progress, identify implementation bottlenecks, and propose actionable amendments. This paper examines these challenges through a comprehensive analysis of the AfCFTA’s state of play, illuminating the progress while highlighting the slow momentum registered for the past five years of its operation. Proposals for the agreement’s amendment revolve on accelerating infrastructure development, harmonizing rules of origin, integrating labor rights, and fostering industrial diversification. By moving beyond liberalization as its raison d’être and prioritizing the scaling up of State Parties’ productive capacities, the AfCFTA can evolve from a mere trade liberalization agreement into a transformative driver of Africa’s economic renaissance. It is hoped that this timely assessment underscores the urgency of reorienting the AfCFTA to unlock its full potential for propelling intra-Africa trade.
The Protection of Traditional Knowledge, Traditional Cultural Expressions, Expressions of Folklore and Genetic Resources Within the African Continental Free Trade Area – Alignment with International and Regional Developments
By Caroline B. Ncube
The adoption of the Protocol on Intellectual Property Rights under the Agreement on the African Continental Free Trade Area presents an opportune moment to consider a continental framework for the protection of Traditional Knowledge, Traditional Cultural Expressions, Expressions of Folklore and Genetic Resources. This SouthViews considers lessons which can be drawn from national laws, using South Africa as an example, for the relevant Annex to be negotiated under the protocol.
A Response to COVID-19 and Beyond: Expanding African Capacity in Vaccine Production
By Carlos M. Correa
The unequal global distribution of vaccines against the deadly COVID-19 virus has cast a spotlight on the lack of access to vaccines on the African continent, and the vulnerability that such a lack places on both the economies of African nations and the health of their people. Various initiatives have been launched to overcome the dependence of African nations on vaccines produced elsewhere. If implemented in timely and effective ways, those initiatives will contribute to the diversification of African economies and strengthen the capacity of nations on the continent to address their public health needs during pandemics and at other times. While establishing a viable vaccine industry on the continent presents serious challenges, the African Continental Free Trade Area (AfCFTA) can provide the framework for leveraging economies of scale to stimulate the production of needed vaccines across the region.
Preserving Regulatory Space for Sustainable Development in Africa
By Roslyn Ng’eno
Investment has an important role for achieving sustainable development in developing countries. Although international investment agreements (IIAs) can serve as instruments to promote such objective, protection oriented IIAs have undermined the ability of States to regulate in the benefit of the community. Likewise large financial reparations imposed by arbitral tribunals have increased the threat of regulatory chill in the face of major global challenges. Strengthening the right to regulate of States and addressing regulatory chill are key matters to consider in the reform of IIAs and the international investment regime.
The United Nations Declaration on the Rights of Peasants and Other People Working in Rural Areas and the Right to Seeds in Africa
Geneva Academy Briefing No. 22
By Karine Peschard, Christophe Golay and Lulbahri Araya
Pursuant to the United Nations Declaration on the Rights of Peasants and Other People Working in Rural Areas (UNDROP), the African Union and African states should ensure that their regional & national laws & policies, as well as international bodies to which they are party, lead to effective protection of peasant rights, including their right to seeds.
The Geneva Academy acknowledges the support of the South Centre for the production of this publication.
South Centre Supports Debates on Developments in Copyright Law and Access to Knowledge in Africa
By Vitor Ido
A conference “A Right to Research in Africa? A Week of Debates on Copyright and Access to Knowledge” took place on 23-27 January 2023 at the University of Pretoria and the University of Cape Town, South Africa. The gathering of scholars, artists, librarians, researchers and government officials had the objective to discuss the evolution of copyright law and the role of limitations and exceptions (L&Es) to advance research in Africa. The week of debates was co-organized by the South Centre, ReCreate South Africa, Program on Information Justice and Intellectual Property (PIJIP) – American University Washington College of Law, Electronic Information for Libraries (EIFL), the University of Pretoria – Future Africa, the University of Cape Town – IP Unit, the Centre for Intellectual Property and Information Technology Law (CIPIT) – Strathmore University, Wikimedia Foundation and Masakhane.
The Place of Multilateralism in Tax Reforms: Exclusionary Outcomes of a Purported Inclusive Framework
By Alexander Ezenagu
Countries have come to accept the wide application of international tax rules in both their domestic and international tax affairs. However, where international tax rules fall short of the legitimate expectations of countries and fail to provide necessary guidance, countries may be compelled to seek other sources of guidance. In this paper, it is argued that in the absence and failure of international tax rules to provide adequate guidance and encourage a fair tax system, countries should not be prohibited from exercising their fiscal sovereignty.
Virtual Consultation in support of the UN Working Group’s 2021 Report to the UN General Assembly on Human Rights-Compatible International Investment Agreements
South Centre, 23 June 2021
Foreign direct investment (FDI) should support States’ efforts to “bring the SDGs and goals of the Paris Agreement to life for all people, everywhere.” However, achievement of these objectives is slowed down in the current situation where investor-State dispute settlement (ISDS) mechanisms are included in international investment agreements (IIAs). These mechanisms have increased the exposure of States to claims from foreign investors against regulatory measures taken to protect and guarantee a clean and safe environment, public health, human rights, social inclusion, and poverty reduction.
In the current scenario marked by the impact of the COVID-19 pandemic, FDI can be a valuable source of financing a better and fairer recovery, including investment needed to achieve the full realisation of all human rights. But to achieve this potential, there is a need to reshape the international investment regime, including through the reform of its substantive rules and standards, as well as of the ISDS mechanisms embedded in existing IIAs.
The South Centre and the United Nations Working Group on human rights and transnational corporations and other business enterprises convened a virtual consultation to identify and assess the different challenges developing countries face while negotiating or reforming IIAs in line with their international human rights obligations. The virtual consultation aimed at highlighting and discussing some of the most common concerns and challenges those developing countries face in the promotion of responsible investment practices, including an exploratory discussion about balancing the rights and obligations of investors in IIAs and safeguarding the sovereign right of States to regulate in the public interest for building back better and fairer in face of the COVID-19 pandemic. It also discussed possible reforms of the ISDS mechanism.
This Semester Report summarizes the activities undertaken by the South Centre during the period 1st January to 30 June 2021. It is intended to provide information, organized by themes, about recent developments in the areas covered by the Centre’s Work Program, meetings organized or co-organized by the Centre to examine particular issues or provide analytical support for negotiations taking place in various international fora, and conferences and other meetings where the Centre has participated. It also informs about publications of the outcomes of internal policy-oriented research and external contributions made as a result of cooperation with the Centre.
The WTO TRIPS Waiver Should Help Build Vaccine Manufacturing Capacity in Africa
By Faizel Ismail
The current global health crisis created by the COVID-19 pandemic has re-focused our attention on the inadequacy of the TRIPS agreement and the patent system to address global public health crises. This time, developing countries must ensure that the TRIPS waiver succeeds in creating the impetus for the building of manufacturing capacity in the poorest countries, especially in Africa, for vaccines, pharmaceuticals and other health technologies. This is the only effective way in which African countries can reduce their dependence on imports of essential medicines and build their health security, contributing to the achievement of the sustainable development goals, for the poorest countries.
This Semester Report summarizes the activities undertaken by the South Centre during the period 1st July to 31 December 2020. It is intended to provide information, organized by themes, about recent developments in the areas covered by the Centre’s Work Program, meetings organized or co-organized by the Centre to examine particular issues or provide analytical support for negotiations taking place in various international fora, and conferences and other meetings where the Centre has participated. It also informs about publications made.
