SANF 08 No 01
The Year 2008 is set to be a momentous one for the region with the official launch of the Southern African Development Community (SADC) Free Trade Area slated for August.
The Botswana-based Secretariat of SADC has confirmed that while the agreed tariff phase-down takes effect this month, the official launch will be in August, coinciding with the annual Summit of Heads of State and Government. South Africa, which takes over the rotating SADC chair in August, is expected to host the summit.
Progress on the Free Trade Area was discussed at a number of SADC meetings during 2007 with positive reports on the preparedness of the regional body and its member states.
The most recent was the Extra Ordinary Council in November in the Zambian capital Lusaka, which “noted with satisfaction that, the region is indeed ready to launch the SADC Free Trade Area next year [2008] as per the set milestones”.
Since 2000, the 14-member regional bloc has been implementing the SADC Trade Protocol, which provides the framework for deeper economic integration.
However, not all SADC countries are members of the Free Trade Area as Angola and the Democratic Republic of Congo are currently not applying the Trade Protocol.
The agreed tariff phase-down schedules are such that 85 percent of all product lines should be trading at zero tariffs by this year. The remaining 15 percent, constituting sensitive products, will have tariff barriers removed from 2008 to 2012.
The tariff phase-down has been done on a step-by-step basis with each schedule taking effect every January since 2001. Thus as of this month, the 85 percent target is deemed effective. It is hoped that come August, all parties to the Trade Protocol would have complied.
To qualify for duty free, traders would have to produce a certificate of origin to customs officials which guarantees that the goods indeed originate from within the SADC region. This is based on a detailed list of product-specific rules of origin.
Concerns have been raised by the business community about the need to decentralise the certification process so as to reduce transaction costs. Exporters would not want to travel far from their operational bases for them to have their SADC Certificate of Origin endorsed by the relevant authority.
Moreover, with all its good intentions, the current certification process does not suit small traders or the multitude of informal cross-border traders precisely due to the quantities that they deal in. It simply would not make economic sense for most such traders to run between suppliers and relevant authorities for certification where small quantities are involved.
The main purpose of adopting rules of origin in a Free Trade Area is to ensure that the benefits of participating in the trading zone do not extend to non-members. In theory, however, the significance of rules of origin on goods traded in a particular sub-region falls away as its members move towards a common external tariff, that is, in higher levels of economic integration such as a Customs Union.
In the case of SADC, the Free Trade Area is a step towards higher levels of economic integration which are to be achieved on an incremental basis, leading to a Customs Union in 2010, a Common Market in 2015 and Monetary Union in 2018.
Meanwhile media reports during the first couple of weeks of January have treated the coming into effect of the SADC Free Trade Area with guarded optimism.
Noting that most goods produced in the region can now enter member states free of customs duties, the South African Broadcasting Corporation (SABC) sounded warnings on the potential skewed distribution of benefits accruing from the intra-regional trade.
SABC reported that “…some SADC states are concerned that South Africa will benefit the most as it is the region’s economic powerhouse and exports more than it imports from SADC countries”.
Indeed South Africa is an economic giant in terms of industrial base, accounting for about two-thirds of the region’s total gross domestic product according to available SADC statistics.
However, to minimise the potential negative impacts arising from the tariff phase-down, SADC has opted for an arrangement that is based on a variable geometry model, taking into account the asymmetrical level of development in member states.
The model is such that countries in the Southern African Customs Union – Botswana, Lesotho, Namibia, South Africa and Swaziland ” are liberalising faster, followed by Mauritius and Zimbabwe, while the rest follow.
The Mozambique news agency, AIM, reported that the southern African country was effecting the relevant changes in line with the Trade Protocol. It quoted the minister of industry and trade allaying fears that Mozambique would be swamped with South African imports to the detriment of local industries.
Antonio Fernando, the Mozambican Minister of Industry and Trade was quoted by AIM as saying “the country can only gain from integration, since the suppression of customs barriers will make goods much cheaper, stimulating greater production and consumption”.
While the liberalisation of trade often leads to a wider choice for consumers and sometimes greater competitiveness of local industries, it does not always lead to lower prices as experienced during past World Bank/International Monetary Fund-sponsored economic reform programmes.
Reporting that Zimbabwe has aligned its import tariffs in line with the SADC Trade Protocol, The Herald of Zimbabwe quoted local experts expressing optimism on the development.
“The secondary industry is set to benefit from the trickling-in of raw materials and would mean containing or even reducing inflation given the availability of stable and affordable prices of basic commodities,” the Zimbabwean daily quoted a local economist.
“Competition is of importance in business but the impending rivalry is regarded as unfair for the local manufacturing industry since we are not operating on equal terms,” the newspaper quoted another expert as saying.
Analysts say as SADC progresses towards higher levels of economic integration, in particular the Customs Union, the question of overlapping membership becomes more pertinent.
This is because World Trade Organisation rules do not allow a member state to belong to more than one Customs Union.
Yet some SADC member states belong to regional economic communities that already have or plan to have Customs Unions. These include the Common Market for Eastern and Southern Africa (COMESA) and the East African Community.
