adminin 1981 as the Preferential Trade Area for Eastern and Southern Africa within the framework of the Organisation of African Unity’s Lagos Plan of Action and the Final Act of Lagos.
The regional integration programme for Comesa member states achieved a Free Trade Area in October 2000 and aims to achieve a Customs Union by December 2012, a Monetary Union by 2015 and a Comesa Community by 2018.
Comesa has a population of more than 400 million people with a Gross Domestic Product of US$300 billion. It represents a ready market for Zimbabwe.
In November 2000, Comesa launched its FTA with duties on a wide range of goods reduced to zero.
The FTA has 14 member states. Trade within the FTA is on a duty and quota free basis.
Members currently participating in the FTA are Burundi, Comoros, Djibouti, Egypt, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Zambia and Zimbabwe.
Under the FTA, goods produced in Comesa are traded without the payment of customs duties or charges of equivalent effect.
This has resulted in reduction in the cost of imports and improvement in trade facilitation.
As a result, since the establishment of Comesa FTA in year 2000, intra-Comesa trade has increased from US$734 million in 1985 to US$15 billion in to US$18,8 billion in 2011.
Notwithstanding market access created, Zimbabwe’s export performance in Comesa was lacklustre with exports receipts of US$150 million in 2011. The lion’s share of trade creation went to Zambia, Kenya and Egypt.
To harness the wider benefits of integration, Comesa deepened its regional integration from FTA to a customs union.
A customs union is created when two or more customs territories decide not charge duty on goods traded among them.
Member states in a customs union also adopt and apply the same rates of customs duty on goods imported outside their territories.
The customs union also adopts and applies common trade regulations on all goods coming from outside the territories.
The same rates of customs duty are referred to as a Common External Tariff. The CET agreements by Comesa member states are:
- 0 percent for capital goods
- 0 percent on raw materials
- 10 percent for intermediate goods
- 25 percent for finished goods
Zimbabwe has committed herself to the customs union and is undergoing the implementation stage.
As previously indicated, the full implementation of the customs union will come into effect with tariff alignment with the common external tariff.
As it stands, Zimbabwe has only 19 percent of its tariff lines which have complied with the Comesa CET.
It therefore means a number of tariff line has to be either phased up or down.
On one hand, Zimbabwe has at least 22,23 percent of its tariff lines above 40 percent. Certainly, have to be phased down and this has a ripple effect on revenue.
On the other hand, the country has a tariff rate of 0-5 percent which constitute 35,5 percent of total tariff lines.
This is quite significant and has a negative effect on industrial competitiveness as most of these tariff lines are likely to be aligned up to 10 percent for intermediate goods and 25 percent for finished goods.
What are the possible implications of the Comesa Customs Union on Zimbabwe?
The first implication of the Comesa Common External Tariff is de-industrialisation and unemployment.
The formation of a Comesa Customs Union leads to foreign companies which have high efficiency levels displacing locally manufactured commodities.
Zimbabwe has gone through a decade of economic meltdown. Since the economy gained its stability in 2009, it has remained stagnant.
Capacity utilisation has remained suppressed around 43 percent. The industrial equipment under use is of the 1940s, which is too outdated and is only fit to be in a national museum.
Key enablers for industrial growth such as availability of cheap and long-term finance and infrastructure such as electricity, roads and water are missing. This is the predicament industry is faced with.
This is the same industry which we want to expose to the mighty powers of this world from Europe, Asia and even our neighbour South Africa?
The fact that South African commodities occupy at least 70 percent of shelves space in Zimbabwe is testimony to this.
The highest tariff on finished goods of 25 percent is weak to stop competitively produced goods outside Comesa.
Loss of revenue
The fact that Zimbabwe has 22,23 percent of tariff line which need to be aligned down presents a serious problem for the fiscal authorities who are already under pressure from lack of fiscal space.
Loss of industrial competitiveness
As indicated before, Zimbabwe’s duty rate of 0-5 percent make up 35,5 percent of total tariff lines.
This is quite significant and has a negative effect on industrial competitiveness as most of these tariff lines are likely to be aligned up to 10 percent for intermediate goods and 25 percent for finished goods. It therefore means that such inputs have to be imported at a high price thereby worsening the competitiveness of our local products.
Welfare gains or loss
Although there is a strong belief that nations register significant gains in welfare if they undertake trade reforms, in Zimbabwe, for starters, the gains are insignificant (represent 0,11 percent of 2011 GDP) according to study carried out by this writer.
The vicious cycle of de-industrialisation, unemployment and new tax measures which Government normally implements to recover lost tariff revenue will certainly undermine little gains in welfare in Zimbabwe. Hence, we cannot base our tariff reforms argument based on welfare gains.
Because of these factors I raised above the issue of a customs union has been very topical in the region to the extent that the full operationisation of Comesa Common External Tariff was postponed to 2015 instead of 2012.
In Sadc, the Sadc Customs Union missed its 2010 deadline of establishment and its only God who knows when it will become a reality. The Minister of International Relations and Co-operation, Maite Nkoana-Mashabane in South Africa during parliamentary proceedings in August 2012 was asked why the Southern African Development Community
Customs Union has not yet been established as envisaged with the establishment of the Sadc Free-Trade Agreement in 2008.
She mentioned supply side constraints as a fundamental issue stalling the customs union. She was on spot!
Looking at latest developments in the global economic/trade architecture, protectionism has reared its ugly head again since 2008/09 world economic crisis and its aftermath.
This has seen the EU massively subsidising its peasants and farmers through the Common Agricultural Policy (31,6 percent of total EU budget in 2008).
First world countries which are on the fore front of preaching trade liberalisation as divine rules of economic development and behaving more holier than the Pope are no longer holy! They have taken a reverse gear!
They are busy pumping stimulus packages and have come up with numerous trade barriers such as export tax to save their industries and create employment.
Hence, as a country, taking into account our economic circumstance, we must reconsider our position on the Comesa Customs Union.
Reflecting on events on the global arena, trade liberalisation is not an event but a process, hence we must take it as such. There is no need to stampede to implement these trade protocols when we are not yet ready!
Gift Mugano is an author and expert in Trade Policies Research and Analysis (ACP-EU, Comesa and Sadc) and PhD candidate (Economics) and a lecturer of international trade and finance at Nelson Mandela Metropolitan University. Email: [email protected], Mobile: +27 780 174 112.
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