EAC Non Tariff Barriers

This is a useful statement by the H.E President Uhuru to EALA on removal of non tariff barriers (NTBs) in the EAC urging increased collaboration between EALA and the private sector.

EALA recently passed binding legislation on NTBs in the EAC, legislation which will need to be assented to by EAC Heads of State. Termed the East African Community Elimination of Non-Tariff Barriers Bill, 2015 ", it gives legal effect to Article 13 on the establishment of the East African Customs Union. The law uses the WTO categories of non tariff barriers as set out in its schedule. The Act shall take precedence over any other laws Partner States may enact affecting NTBs. The legislation can be found here.

Current Acts of the EAC Legislative Assembly can be found here.

Proposed Levy on Imports to Finance EAC Secretariat

From Business Daily. See more here.

The cost of imported goods looks set to rise as the East Africa Heads of State agreed on a new import levy to finance secretariat operations which have long been hit by unreliable donations and member subscriptions.

The Heads of State on Wednesday called for the conclusion of a more sustainable financing plan for the EAC budget.

The summit directed the council to finalise the work on the modalities required to establish a sustainable financing mechanism for the East African Community based on various options, including a hybrid of a levy and equal contribution with a commitment to increase the budget, that encompasses the principles of equity, solidarity and equality, and submit a report to the next summit for consideration.

EAC Treaty Articles 132:4 and 133 state that the EAC budget shall be funded by equal contributions by the Partner States and receipts from regional and international donations and any other sources as may be determined by the Council. Other resources shall include grants, donations, funds for projects and programmes, technical assistance and income earned from activities undertaken by the Community. 

The region’s council of ministers has previously proposed that member states should consider levying one per cent import duty on goods from non-member states.

The push for a new levy could come with pain for consumers in Kenya and other EAC countries where most of essential goods attract value added tax (VAT) after governments scrapped previous exemptions. 

Consumers in Kenya are already subjected to the recently introduced 1.5 per cent railway development levy (RDL) and the 2.5 per cent import declaration fee charged by the Kenya Revenue Authority (KRA). 

The additional one per cent levy would push up the prices for imports — including inputs for making essential commodities. 

Kenya in 2014 unsuccessfully tried to impose the RDL on all imports passing through the port of Mombasa. 

The KRA was forced to review the RDL collections after regional traders filed a complaint with the EAC Council of Ministers citing breaches to the regional common market protocol. 

A regional lobby group, the East African Business Council (EABC), argued that the 1.5 per cent levy imposed on imports was inconsistent with the EAC Customs Union Protocol, because it is a charge of equivalent effect that partner states agreed to remove. 

The customs union protocol enables goods produced within the region to be sold across the borders without duty while imports from non-EAC states are subjected to a three-band common external tariff structure. 

Raw materials attract no duty, intermediate goods are charged at 10 per cent while finished products are allowed into the region at 25 per cent tariff. 

Kenyan traders further said the RDL, which KRA imposed on top of other levies such as the 2.5 per cent import declaration fee, was tilting the competition landscape in the shared market in favour of their neighbours. 

KRA gave in to the pressure in early March 2014 and ordered all its officers to stop imposing levy on goods entering Kenya from the other four member states of the EAC.

WB 2013 Doing Business Report on the EAC

The World Bank Doing Business is a tool that measures regulations that enhance business activity and those that constrain it and it also measures regulatory quality and efficiency.

There has been a recognition that regional integration alone is not enough to spur growth. The EAC needs an investment climate—including a business regulatory environment—that is well suited to scaling up trade and investment and can act as a catalyst to modernize the regional economy. Despite the reform efforts of all 5 member economies, the EAC’s average ranking on the ease of doing business has remained fairly constant over the past 4 years, at around 117 and in fact comparing the 2010 Doing Business performance to 2013, the EAC has seemingly not registered much of an improvement. This is a clear indication that critical obstacles to entrepreneurial activity remain and that economies in other regions have picked up the pace in improving business regulation. Improving the investment climate in the EAC is therefore an essential ingredient for successful integration—the foundation for expanding business activity, boosting competitiveness, spurring growth and, ultimately, supporting human development.

The development of regional strategies and institutional frameworks that connect and streamline national reform programs is an indispensable condition for a well-functioning common market that can attract foreign investment. A lack of coordination among member countries and the implementation of “isolated” national reforms—which often focus on short-term gains and fail to consider the impact on the region—can hinder progress in fully implementing the common market. Conversely, continual exchange among different authorities across countries, the implementation of an agreed-on regional reform agenda and a focus on common goals and objectives create synergies and help the region as a whole to improve its investment climate.

Fostering economic growth by tapping the potential of the private sector is among the main objectives of the fourth EAC development strategy. In addition to increasing institutional coordination, other important steps to achieve this objective are better integrating small and medium-size enterprises into the financial sector and creating business-friendly administrative structures and tax regimes. Additional challenges are to ensure the availability of reliable data and statistics and to implement credible surveillance and enforcement mechanisms.

The EAC economies have an average ranking on the ease of doing business of 117 (among 185 economies globally). But there is great variation among them—from Rwanda at 52 in the global ranking to Burundi at 159. This wide variation in business regulations is among the issues that the EAC needs to tackle to achieve the desired level of integration. While the regional average ranking is less than ideal, if a hypothetical EAC economy were to adopt the region’s best regulatory practices in each area measured by Doing Business, it would stand at 26 in the global ranking on the ease of doing business. Burundi was among the world’s most active economies in implementing regulatory reforms in 2011/12. It implemented policy changes in 4 areas measured by Doing Business: starting a business, dealing with construction permits, registering property and trading across borders.

One area where the EAC shows strong performance is business start-up. To start a business in the EAC requires only 8 procedures and 20 days on average. As such the EAC’s average ranking on the ease of starting a business is 84, higher than those of other regional blocs in Africa—104 for the Southern African Development Community (SADC), 110 for the Common Market for Eastern and Southern Africa (COMESA) and 127 for the Economic Community of West African States (ECOWAS)

The 2013 Doing Business Report on the EAC can be downloaded here.

EAC: U.S. Counters with New Trade Pact

By Business Daily

Kenya and other East Africa economies could witness a huge inflow of investment and development support as the US moves to counter the gains made by the EU and surging Asian nations such as China and India. The US said it is crafting a new incentive-laden trade and investment treaty for the East African Community (EAC), which it has identified as a potential hub to host its regional business interests.

The proposed treaty would mark a major shift in America’s engagement with the region, which at present is anchored on a simple Trade and Investment Agreement (TIFA) signed with the EAC in July 2008. The TIFA’s main role is to strengthen the US-EAC trade and investment relationship, expand and diversify bilateral trade, and improve the climate for business between the two blocs. The framework further seeks to bolster partnerships in initiatives such as the African Growth and Opportunity Act, the World Trade Organisation’s Doha Round of negotiations, trade facilitation and skills building.

The US, however, said it was now pursuing a full treaty with the EAC, just six months after China signed a TIFA with the EAC to promote commodity trade, tourism, investment, infrastructure development and training.

“It is great that other parties such as China are looking more to East Africa and that shows the region has huge potential,” said Mr Camunez US Assistant Secretary for Commerce. “We however cannot hide the fact that America is also interested in the region.  ”China is particularly active in the construction and infrastructure development sector in East Africa and has since branched into other key economic areas such as manufacturing. “I’ve witnessed first-hand the skyrocketing level of investment that has come into Kenya from other parts of the world such as China, India, the Gulf region and elsewhere,” he said. “It’s easy to see why American exporters and investors simply must be more fully engaged.”

To claw back America’s influence in East Africa, President Barack Obama’s administration has taken on a fresh campaign to press for new trade and investment partnership with the bloc. “The proposal calls for the negotiation of a regional investment treaty, the creation of trade enhancing agreements in areas such as trade facilitation, and importantly the establishment of a new commercial dialogue that will facilitate engagement between public and private sectors,” the US official said. Mr Camunez said as part of the deal the US will press for good governance in key areas such as procurement and the adoption of asset protection and intellectual property rights enforcement policies. “We are hopeful that our proposed regional trade package will be accepted by Kenya and the greater EAC and we look forward to deepening our engagement here,” he said.

“Kenya is extremely well positioned to capitalise on this momentum. It holds great potential, enormous opportunity and extra ordinary promise and is a critical hub for American companies in Africa and it offers an important platform and hub for doing business in the continent,” Mr Camunez said.

Kenya hosts more than 60 US firms including giants like General Electric, IBM, Citi, Dow Chemicals, farm machinery maker John Deer, Google, Microsoft, Corn Products, General Motors East Africa and Coca-Cola.  An audit by consultancy firm, Ernest & Young showed that the US was the highest source of new foreign direct investment into projects in Kenya between 2003 and last year.

This move by the US is not surprising. Apart from the EAC-China agreement, we should not forget the EAC EPA with the EU which was initialled, remains unsigned and is still yet to be concluded.

EAC Common Revenue Management Model

Traders have blamed payment of taxes at every border point for increased cost of doing business. Border delays and the absence of laws to settle disputes and promote integration have also been cited as hindrances to the opening up of trade in East Africa. 

Well thats about to change.

The East African Community (EAC) 5 Heads of State have endorsed a revenue management model where tax will only be collected at the point of entry and imported goods transported to the final destination without stopping at national border points for customs charges or inspection. 

This approach is similar to that used in the South African Customs Union.

The decision raises hope for a speedy formation of a regional customs authority that would handle the smooth flow of goods across borders — handing traders an opportunity to save up to 15 per cent in extra transit costs that come with delays.

“The Summit adopted in principle the destination model of clearance of goods where assessment and collection of revenue is at the first point of entry and revenues are remitted to the destination partner states subject to the fulfilment of key pre-conditions to be developed by the high level task force,” the heads of state said in a communiqué at the end of a recent regional summit in Arusha.

Though the EAC launched its customs union in January 2010, disagreement over collection and sharing of revenue has frustrated efforts to establish a regional customs authority, slowing down cross-border trade. “We hope the decision brings some change this time by ending the controversy that has been with us for three years now,” Peter Njenga, a logistics officer said.

Kenya has been particularly reluctant to adopt the model that would see the Kenya Revenue Authority (KRA) lose control of close to 35 per cent of its present annual collections. Some member states want the revenue be used to finance projects of common interest such as roads or power generation.

However, Kenya has further hardened its position as it would mean losing a large proportion of tax collection at a time when it faces huge budgetary challenges as it implements the new constitution.

In Nairobi, opposition to a regional customs authority has also come from the port of Mombasa, a key entry point, with Kenya Ports Authority maintaining that extending the facility’s function to include collecting customs revenues will further delay the discharge of cargo given the current levels of congestion.

The setting up of a common revenue authority for the EAC has also been delayed due to the fact that Burundi had not fully emerged from the ravages of a civil war and required time to set up sound national institutions to manage public finances.  For instance in 2008, just one year after it joined EAC, Burundi became the only country in the region to ever report loss of revenue from free movement of goods under the customs union protocol.

This position has since changed with the Burundian President Pierre Nkurunziza recently saying the country is ready for higher stages of integration after hiring the services of Trade Mark East Africa (TMEA) to set up new revenue administration institution—Office Burundais des Recettes.

Article From Business Daily 

EAC/EABC Monitoring of NTBs

The EAC in collaboration with EABC has developed the Non Tariff Barriers (NTBs) mechanism as envisaged in Article 13 of the EAC Customs Union Protocol. The mechanism provided for the establishment of the National Monitoring Committees in the Partner States and the Regional Forum on NTBs to assist in identifying, monitoring and the elimination of NTBs.  The mechanism is also replicated at a Tripartite level in the COMESA-EAC SADC NTB Monitoring Database. 

Currently the EAC has undertaken a study on the development of a legally binding enforcement mechanism based on international best practice for elimination of NTBs in the region.  The study is expected to analyse the effectiveness of the EAC mechanism on identifying, monitoring and elimination of NTBs as per the EAC Time Bound Programme.  The study is also expected to categorize NTBs into categories to be subjected to legally binding enforcement mechanisms based on proposed criteria and propose NTBs to be arbitrated by the East African Court of Justice.  Hence a key outcome of the study will be proposals to strengthen the EAC Mechanism through introduction of legal enforcement clauses in the current system.

In addition, EAC is coordinating preparation of an EAC position on the elimination Non-Tariff Barriers under the on-going negotiations for the Tripartite Free Trade Area to ensure that the issue of elimination NTBs in the FTA is well articulated.  In this respect the monitoring of services barriers should be included, which will expand on the approach which currently lends itself mainly to trade facilitation issues.

EAC Financial Services and Double Taxation Avoidance Treaty

The 9 year EAC Financial Sector Development & Regionalization Project, funded by the World Bank is a welcome development.   A strong regional financial sector is needed to underpin an effective common market and build a single financial services market for the region.  The development of a regional financial services sector, will also benefit the establishment of a monetary union and single currency.  In addition, the EAC region stands to gain by trading on a regional stock exchange, i.e a single East African Stock Exchange and furthermore, the harmonization of the financial services sector will play a key role in unlocking the removal of barriers for the free movement of capital across the EAC region- as provided for by the Common Market Protocol. 

In related news, the EAC region has apparently not implemented the Treaty on Avoidance of Double Taxation. The Double Taxation Treaty would allow income generated in any of the five member states to be taxed only once but lack of implementation has given national revenue bodies the legitimacy to maintain the status quo with revenue authorities making double claims for revenue earned in each individual country.

July 2010 SACU Summit

SACU continues to enjoy its centenary and uniquely, this year we have seen 2 SACU Summits with a third anticipated by the end of October 2010. The first Summit was held in April 2010, whereby the Heads of State and Government adopted a new mission and vision for SACU.  They also agreed on the institutionalization of the meetings of the SACU Heads of State and Government.

The second summit was held on July 16th 2010, and the Meeting issued a Communique which mandates Ministers to address challenges that SACU needs to resolve. The Summit further reiterated that SACU should be converted into a vehicle for regional integration and also recognized the role that SACU can play in Southern Africa as a building block for deeper regional integration. 

Some of the challenges mentioned in the communique are mandated in the 2002 SACU Treaty (e.g. revenue sharing, common policies, institutions etc). Some were also highlighted in the 2009 WTO Trade Policy Review of SACU. Other challenges highlighted by the Summit include: financing options for cross border projects, increasing intra-SACU trade, new generation issues, reviewing the 2002 SACU Agreement and development of a roadmap for an Economic Community and Monetary Union. 

One observation is that a unified SADC EPA position is not expressly mentioned.

The Communique can be accessed here.

EAC Common Market: A Historic Launch

1st July 2010 marks the commencement of the operationalisation of the East African Community (EAC) Common Market, following the completion of the ratification of the Protocol on the Common Market, a complex process towards transforming the region into a Common Market. Below is an excerpt of a recent speech by The EAC Secretary General, AMB. Juma V. Mwapachu on the occassion of the launch (emphasis added):

"A New Milestone

In this context, it is important that the citizens of the East African Community Partner States and the economic players in the EAC region have a clear understanding of what the 1st of July holds and portends. 

Yes, the date is a historic one and is deservedly celebratory. Achieving successful negotiations leading up to the adoption of the Common Market Protocol, its approval by EAC Heads of State and its ratification in record time is a milestone for the EAC. No other Regional Economic Community in Africa has achieved such milestone. 

It is a milestone that epitomises strong political will and firm commitment by all the EAC stakeholders in deepening and widening integration. Yet what we have achieved so far is only the basic legal framework that outlines what needs to be done and implemented for the Common Market to make meaning and have impact in transforming the lives of the East African Community citizens. 

Hard Work Begins

Thus, 1st July 2010 for the EAC Common Market, means entry of the critical phase when the Partner States, which, pursuant to the Treaty establishing the EAC are the principal implementers of EAC programmes, must begin to determine how the four freedoms encapsulated in the Common Market Protocol should resolutely be put into effect. It also marks the beginning of serious work at the EAC executive organ level, notably the Council of Ministers, in determining what regional-based interventions can and should be undertaken to speed up the process of getting the four freedoms to take force, mainly through a legislative process. 

It is important to note though that the EAC region has, in the past decade, seen a number of policy and legal measures being effected at Partner States’ level that are within the ambit of the Common Market Protocol. These measures will understandably make life easier in getting a fuller and quick implementation of the Common Market Protocol provisions. A number of examples can be adduced, particularly in the field of services, an area which, in other Economic Community regions, including the European Union, have posed serious challenges at the implementation level.

Some Common Market Freedoms Already in Place

Examples in this regard span a wide range of services: banking and finance (including insurance and brokerage); distribution (retail in particular); transport and logistics; telecoms (notably mobile telephony); air transport; tourism (hotels and lodges, tour operators); education (primary, secondary and tertiary); energy; professional services (accounting and auditing, management consultancy and other knowledge services); ICT (plus broadband internet); media (print, radio and TV); and music. In other words, the EAC economies have seen significant cross-border services intensify, benefitting from bold economic liberalisation policies and measures effected in all the five EAC Partner States. 

Immediate Challenges in Services Sector

The entry of the Common Market Protocol will thus provide a fillip and impetus to an already thriving cross-border services industry. The impetus will largely lie in creating the empowering conditions at the level of the Partner States for the services sector to be scaled up and made more robust and buoyant. A few examples can be mentioned first, the case of air transport which is yet to be fully liberalised within the framework of the Yamoussoukro Decision. The EAC region needs not only a “free skies” agreement but also deeper liberalisation of air transport operations to bring down costs of passenger and cargo transportation which are currently too high. 

Second, the securities market is yet to be “regionalised” and the capital account is yet to be sufficiently liberalised by Tanzania to enable Tanzanians participate outside the present framework of cross-listing of market shares at national level. Removal of restrictions on capital flows should serve as a catalyst for capital market development and the provision of long term and risk capital most needed to spur economic development. At the EAC level, there are definitive programmes on-going towards the promotion of a regional capital markets regime and institutions. 

Third, the regulatory framework for cross-border television broadcasting is still stringent; it needs to be further liberalised to promote greater offerings by competing regional networks. Fourth, whilst there is significant cross-border tertiary education access, tuition fees, even in public universities, are yet to be harmonised in spite of decisions having been taken at the EAC level requiring charging of similar fee rates. 

Fourth, the cross-cutting challenge of work permits which underlie the effectiveness of the services sector needs to be frontally addressed. You cannot realise the full benefits of free movement of professionals under the services sector when labour market policies and laws stand in the way of such freedom. A starting point in leveraging this freedom could be to eliminate the requirement of work permits for citizens of EAC Partner States who have professional qualifications and who seek to set up their own businesses in fields such as law, medicine, engineering, accounting and auditing, architecture etc. 

Making Free Movement of Labour Work

Turning to the aspect of free movement of labour, a key freedom in promoting human capacity in the EAC region for social and economic transformation, it is important that the EAC Partner States quickly work out the modalities for enabling such freedom to take effect. An initial word of appreciation to Rwanda and Kenya is deserved for leading the elimination of work permits, at a bilateral level, between them. In the case of Rwanda, the elimination of work permits is extended to all citizens of EAC Partner States. An important element in the process of elimination of work permits, wholly or partially, is the conclusion of the Mutual Recognition of Academic and Professional Qualifications. 

The EAC, through its institution, the Inter-University Council of East Africa, has reached an advanced stage in setting up a mechanism through quality assurance that will form the basis for determining such mutual recognition. A related issue is mutual recognition of accreditation of higher education institutions which would remove the regulatory requirement of tertiary education institutions moving across borders applying for fresh accreditation. It should also be mentioned that the EAC is working towards the harmonisation of social security benefits in order to support the free movement of labour. EAC Partner States are already at advanced negotiating stage in this area.

Free Movement of Persons

It is notable that to most ordinary citizens of the EAC Partner States the 1st of July infers the free movement of persons in the region from this date. This is one issue that the Partner States will have to offer elaborate explanations. Suffice to state that citizens of the EAC region have enjoyed free movement across their borders for years. 

The national passports and the East African passport travel documents are accepted and respected at border points without a visa requirement and six months’ stay each time of entry is offered without hassle. This free movement will be further facilitated when all the five Partner States introduce Third Generation (Machine Readable) identity cards. Only Rwanda has such an ID in use. Kenya is about to introduce one in July this year. Tanzania and Uganda are in the process of introducing such IDs as well. Burundi will follow. 

Conclusion

The EAC Common Market is finally here. It ushers in a higher level of integration beyond trade in goods which the Customs Union caters for, with positive impact on the economies of the Partner States as reflected by growing intra-regional trade in the past five years. The broad economic space which the services sector will unleash will trigger the expansion of economic activities and jobs in the region. 

Cross-border capital movements will also spur the growth of industrialisation driven by an expanding and more productive agricultural sector. East Africans have every right to be proud of the stage of integration the EAC has reached. But it is upon them to exploit all available opportunities to make the Common Market work for them and for the better livelihoods of all citizens of the EAC. We can do it; let us together make it happen".

EAC Secretariat

Arusha, Tanzania

SACU Centenary: Champagne?

The Southern African Customs Union (SACU) is commemorating its centenary and the theme of the celebrations is “Implementing a Common Agenda towards Developmental Integration in Southern Africa”. As I reflect on the theme, I am reminded that the combined population of the SACU countries is around 55 million with South Africa accounting for some 87% of the total.  South Africa also accounts for over 90% of SACU's aggregate GDP and will continue to maintain its predominant position in the region.

The SACU agreement was formalized in June 1910 between the then Union of South Africa — Territories of Basutoland, Swaziland and the Bechuanaland Protectorate.  The Agreement was renegotiated into the 1969 SACU Agreement, signed by the sovereign states of Botswana, Lesotho, and Swaziland (BLS) and South Africa, on December 11, 1969.  The second SACU Agreement provided two major changes: the inclusion of excise duties in the revenue pool and a multiplier in the revenue sharing formula that enhanced BLS revenues annually by 42 percent.  

With the independence of Namibia in 1990 and the end of apartheid in South Africa in 1994, SACU members embarked on a third round of new negotiations in November 1994, which culminated in a new SACU agreement in 2002. Namibia therefore joined SACU following her independence in 1990 and is the newest Member to the regional community.

Over the decades, intra-SACU trade has intensified but the traditional importance of South Africa as a regional hub has remained broadly unaltered. More than 95% of commercial flows within the customs union involved South Africa as a destination or supplier.  Moreover, South Africa accounts for around half of total BLNS trade, whereas the intra-SACU component of South Africa's total trade is relatively minor, reflecting SA’s greater diversification in terms of export destinations and import sources.

The EC continues to absorb the largest share of overall SACU exports, followed by the United States.  However, similar to the trend in the rest of Africa, the U.S. market remains the single most important single country destination (outside SACU) for exports from Lesotho and Swaziland, mainly due to the preferences granted under the African Growth and Opportunity Act (AGOA).  Exports to China from SACU, although still relatively modest, registered the fastest growth during the period reviewed (2003-2009).  Imports into SACU originate largely from the EC, China, and the United States.  Since 2005, imports from China have exceeded those originating in the United States and SACU's imports consist mainly of machinery and transport equipment, fuels, and chemicals.

However despite the longevity of the agreement, the results of regional integration have been imbalanced and fall far short of a century of progressive progress.  For instance, according to the WTO Third Trade Policy Review of SACU of November 2009, deeper integration is necessary for more balanced development in the SACU region and even though SACU economies have  collectively expanded at an average annual rate of about 4% in real terms since 2003, there is variation in growth rates in each economy and a generally unsteady performance.  The mixed growth record may reflect severe infrastructure bottlenecks, fluctuations in mining output, volatile national currencies, polarisation as well as the global economic downturn in recent years.

According to World Bank Trade data, SACU countries over the period 2006-2009 generally shrunk in average annual growth rate of total trade i.e. exports, imports of goods (merchandise) and services at constant 2000 U.S. dollars. As shown in the chart, Lesotho (the smallest economy of the five) shows to be the only exception to this trend.  

As a customs union, SACU policy harmonization efforts aimed at achieving a more cohesive, integrated regional market with balanced export-led growth is vital.  Considering the centennial theme has been acknowledged by the SACU Heads of State, one can only say "a 100 years later, its about time". 

Deeper Regional Integration among SACU Member States

The Southern African Customs Union (SACU) will be transformed from a customs union into a body to deepen regional integration (See attached Communique by Heads of State) in southern Africa beyond the existing five member states and to "serve as building block of an ever closer community" among the peoples of Southern Africa.

The decision was taken yesterday by the heads of state and government of the five member countries: Botswana, Namibia, Lesotho, Swaziland and South Africa.  A joint communiqué to declare that a new vision and mission had been defined for SACU was signed by President Hifikepunye Pohamba and the visiting heads of state King Mswati III of Swaziland, President Jacob Zuma of South Africa, Botswana President Ian Khama and Prime Minister Pakalitha Mosisili of Lesotho.

They held a closed-door meeting yesterday morning and then proceeded to the site where the new SACU headquarters will be built, in order to sign the communiqué during a ceremony that also marked the start of the centenary celebrations of the world's oldest customs union.  Although the communiqué stopped short of declaring that SACU might become the envisaged larger customs body for the 15-member state Southern African Development Community (SADC), this might well be so, a well-placed source told The Namibian.

In December last year, the SACU Council of Ministers decided in Windhoek to work towards "a defined roadmap for moving towards and economic community and monetary union" and further decided to "position SACU at the centre of the SADC economic integration agenda," according to a statement released afterwards.  "This underscores the aim to make SACU the nucleus for the envisaged SADC Customs Union," the source added.  President Hifikepunye Pohamba said yesterday that all five SACU states had underscored unity and vowed to hold a common position when it would come to trade negotiations with external trading partners.

"Our negotiations with third parties over the years have brought to the fore the need to develop common positions. This is particularly true of the ongoing talks for an Economic Partnership Agreement (EPA) with the European Union.  This situation, if not arrested, has the potential to undo all the gains realised in our deepening economic integration, both in SACU and SADC," Pohamba stated. According to South African President Jacob Zuma, the founding of SACU in 1910 was based on colonialism by the then Union of South Africa.

"Today, as we mark one hundred years of SACU, we must look at how to strengthen the arrangement, how to eliminate all vestiges of colonial systems of domination and dependency, and how to operate within a changing geopolitical environment," Zuma said. The combined trade contribution of developing countries now stood at 37 per cent and was rising rapidly towards 50 per cent, he said. "We must therefore engage with this international reality to enhance our collective development objectives. "We feel strongly that SACU's external strategy could include serious exploration of South-South cooperation, since this has excellent prospects for advancing our economic development," he said, hinting at Brazil and India, among others.

The vaguely drafted communiqué stated that the heads of state agreed that SACU had to be transformed into "a vehicle for regional economic integration capable of protecting equitable development."

Tasks that have not yet been completed are the establishing of a SACU Tariff Board, the SACU [trade] tribunal, a common negotiating mechanism and strengthening the Secretariat.  A common industrial and agricultural policy must still be drawn up and four of the five member states must still set up their own SACU national offices. Yesterday's meeting was preceded by three days of talks by the Council of Ministers. Another meeting of the SACU Heads of State will be held in July in South Africa.

By Brigitte Weidlich 23 April 2010 WINDHOEK

Intra- SADC Trade Flows are Predominantly with South Africa

Regional Trade Agreements (RTAs) are influenced by the share of trade with partner countries as well as the composition of trade and production linkages.  Intra-regional trade in the SADC region is influenced by both the 2008 SADC Trade Protocol and bilateral trade agreements, which Member States negotiated prior to entry into force of the Trade Protocol. It should be noted that  the SADC Trade Protocol provides for the continuation of existing bilateral arrangements as long as they do not contradict the Protocol.

Despite the several bilateral agreements among SADC Members and the SADC FTA, a high proportion of intra-SADC trade is bilateral trade flows with South Africa.  South Africa is the largest importer and exporter in SADC as shown in the figure above (World Bank Data).  

Furthermore the bulk of trade flows is among the 5 Members of the Southern African Customs Union (SACU) and hence trade flows between 15 SADC Members outside of SACU is very low (less than 10% of total trade) with possible exception for Zambia.  The predominant role of South Africa is in part a reflection of its role as a logistical hub for the region’s trade with the rest of the world.  This may explain why the highest trade dependence is displayed by countries that are logistically connected to South Africa, possibly landlocked and are able to take advantage of her larger market, infrastructure and connectedness with world markets. 

Despite this high percentage of SADC trade with South Africa, overall the SADC region trades predominantly with the rest of world as shown in a previous post here.  This trend applies for both  exports and imports and implies that Africa's future trade expansion may lie in the fastest growing export market which is East Asia and in particular China.

Discriminatory Effects of Free Trade Areas and Customs Unions

During the conclusion of the Uruguay Round in 1995, 120 countries joined the rules based WTO, whose linchpin, like the GATT is non-discrimination. Since then, the membership of the WTO has increased with the last joining country, Cape Verde bringing the membership to 153 countries and territories. Ironically the number of discriminatory RTAs has also increased dramatically since the mid-1990s, with virtually all countries being part of one or more RTAs. Since the inception of the WTO, 196 new RTAs have been notified to the WTO with an average of 11 notifications every year, compared with an annual average of three or less during the almost five decades of the GATT. For instance during the period 1948-1994, the GATT received 124 notifications of RTAs (relating to trade in goods), and since the creation of the WTO in 1995, almost 300 additional arrangements covering trade in goods or services have been notified to the WTO, with a further 65 estimated to be operational although not notified.

The real concern stems from the discriminatory effects of RTAs given the slow progress in the Doha Round. Which leads to the question, do you think the drafters of the GATT especially Article XXIV, envisioned the proliferation of cross regional FTAs rather than customs unions and how does this affect the non-discrimination objectives of the multilateral trading system?