SADC Goal of Regional Integration Takes Leap Forward With Launch of Free Trade Area
28 September 2000
by Munetsi Madakufamba
The first of September 2000 marked a turning point in the history of the Southern African Development Community (SADC) and its goal for regional integration with the launch of the tariff reduction phase of the Trade Protocol, which came into force early this year.
After the protocol attained the requisite two-thirds ratification in January 2000, ministers responsible for trade met several times during the year to deal with outstanding issues relating to rules of origin, eventually agreeing to launch the Free Trade Area on 1 September.
However, many countries were unable to meet the deadline to publish tariff schedules. Only Mauritius and South Africa have completed the work, others are expected to follow by the end of the year.
As part of the implementation phase, member countries are required to publish new tariff schedules indicating how each is going to lift trade barriers over the agreed-upon eight-year period. The full free trade area will be in place by 2008.
Free trade has been eagerly awaited by most sectors of industry and commerce, especially since the Trade Protocol provides for the expansion of intra-regional trade and for the development of international trade through regional resource mobilisation and utilisation.
The primary motivation in forming the Southern Africa Development Coordination Conference (SADCC) in 1980 as the predecessor to SADC, was to increase intra-regional trade as an essential component for reducing external dependence. Industrial and trade integration has remained at the centre of the regional organization even when it transformed from a coordinating conference to a development community in 1992.
Through its treaty of 1992, the Windhoek Declaration, SADC commits itself to a wider aim - to achieve integration in both political and economic spheres. But one of the key objectives of the organization, as stated in the treaty, is to "achieve development and economic growth, alleviate poverty, enhance the standard and quality of life of the peoples of southern Africa and support the socially disadvantaged through regional integration".
The treaty goes on to spell out a number of ways by which it will achieve the stated objectives, but at least one of the strategies clearly explains why creation of a free trade area is a precondition for wider integration: SADC wishes to "develop policies aimed at the progressive elimination of obstacles to the free movement of capital and labour, goods and services and of the peoples of the region generally among member states."
This trade-driven approach intensified when South Africa joined SADC in 1994 when the volume of intra-regional trade picked up. In 1980 intra-regional trade was a paltry five percent but has risen to more than 20 percent to date and is expected to increase as implementation of the protocol gains momentum.
The protocol has three categories of goods. The first is goods whose duties are immediately reduced to zero once each member state has gazetted its tariff schedules. These form 47 percent of goods traded in the region.
The second is goods which will undergo a gradual reduction, over the eight-year period. This reduction phase begins within the first four years. If countries stick to the deadline, 85 percent of goods traded within the region would be at zero tariff levels by 2008. This would leave SADC with a five percent shortfall to reach the 90 percent mark required by the World Trade Organisation (WTO) for a region to be regarded as a Free Trade Area.
WTO regulations, however, stipulate that while substantial liberalisation must be achieved within 10 years, there is a two-year grace period.
Cognisant of this requirement, SADC has set 2012 as the deadline for liberalisation of the remaining 15 percent which falls under category three, made up of sensitive goods in areas of health, safety and security. Barring any hitches, the tariff reduction schedule as laid down in the protocol makes the SADC Free Trade Area compatible with WTO regulations within a 12-year period.
However, only those goods that comply with agreed rules of origin will not attract cross-border duty in SADC. Rules of origin - regulations that require export products to have a certain proportion of local content - are a measure designed to thwart the so-called "China syndrome" where countries with access to the Chinese market would buy cheap, often sub-standard products, and re-export to another African country.
But, because of the uneven level of development across the region, it would be impossible in many instances to have goods that totally originate from the region. This realisation prompted member countries to negotiate product-specific rules of origin, but in all cases emphasising the principle of substantial transformation.
As tariff reduction begins on agreed categories of goods, negotiations on other issues continue. There was no agreement reached on the automobile industry, for example, and negotiations continue.
"The ministers responsible for trade have agreed to meet every month in order to have hands-on monitoring of the implementation of the protocol," said Prega Ramsamy, Acting Executive Secretary of SADC.
To ensure that member countries adhere to the agreed principles of the protocol, a dispute settlement mechanism was adopted. Disputes will be settled through "consultations, good offices and a panel of experts," he added.
"The ruling by the panel of experts, once adopted by the committee of ministers of trade, is final," he said.
As implementation of the protocol moves forward, a number of new challenges are coming into the spotlight. Key among these is the preparedness of the manufacturing sector in the face of burgeoning demand from an enlarged market, as well as increased competition as more players enter the field. There is a real danger of big fish swallowing small ones.
As happens under any policy of laissez faire where state interference in the market is kept to a minimum, companies in the region, big or small, should brace for stiffer competition as governments gradually expose them to the chill winds of international trade.
This calls for a clear industrialisation policy at the regional level, moving away from the tradition of only supplying raw materials. SADC needs to overcome the colonial legacy of over-dependence on primary products if it is going to survive the adverse nature of globalisation. Many believe the future of the region hinges on a strategy that uplifts and transforms small scale enterprises, informal or formal, into full-fledged manufacturers.
"In fact the product specific rules of origin agreed upon are meant to oblige member states to do more in utilizing regional natural resources in the manufacturing process and reduce the current export of raw materials," said Ramsamy.
As tariffs are abolished, another challenge arises in the form of revenue loss, a sticky issue that severely shook Comesa (the Common Market for Eastern and Southern Africa). Comesa's future was placed in jeopardy when the organization announced it would demolish tariffs in October this year to establish its own free trade area. But weaker nations demanded compensation for losses expected from lifting tariffs.
Tanzania has already pulled out of Comesa, and a number of countries have sounded warning bells, raising fears about the stability of Africa's largest economic bloc (in terms of membership).
In SADC, the issue of a compensation fund surfaced. Members, however, eventually compromised on other forms of compensation such as categorization of countries in such a way that more developed ones will phase down tariffs much faster than less developed ones.
This was a major breakthrough since countries such as Zimbabwe, Zambia and Malawi were also worried about the consequences of a sudden release of floodgates to established South African companies. Currently South Africa enjoys a lion's share of intra-regional trade, controlling more than two-thirds of trade within the region.
If the SADC free trade area succeeds, it would once again confirm the region as the driving force behind the perceived African Economic Community. (SARDC).