Technical Report: 2012 Audit of the Implementation of the ... · SACU Yes South Africa Revenue...

DISCLAIMER

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

PO Box 602090 ● Plot 50668, Tholo Park, Fairgrounds ● Gaborone, Botswana ● Phone (267) 390 0884 ● Fax (267) 390 1027 ● [email protected]

www.satradehub.org

Technical Report:

2012 Audit of the Implementation of the SADC

Protocol on Trade

Southern Africa Trade Hub

Submitted by: AECOM International Development

Submitted to:

USAID/Southern Africa

June 2012

USAID Contract No. 674-C-00-10-00075-00

2 USAID Southern Africa Trade Hub

Page intentionally left blank


TABLE OF CONTENTS

ACRONYMS ........................................................................................................................ 6

ACKNOWLEDGEMENTS .................................................................................................... 9

EXECUTIVE SUMMARY ................................................................................................... 10

1. INTRODUCTION ........................................................................................................ 15

1.1 Report Context .................................................................................................. 15

1.2 Methodology ...................................................................................................... 16

1.3 Outline of the Report ......................................................................................... 17

2. SADC FTA AND TRADE PATTERNS ........................................................................ 17

2.1 Introduction ........................................................................................................ 17

2.2 Methodology ...................................................................................................... 19

2.3 Extra-SADC Trade............................................................................................. 19

2.4 Intra-SADC Trade .............................................................................................. 23

2.4.1 Overview ..................................................................................................... 23

2.4.2 Sectoral Composition of Intra-SADC Trade ................................................ 25

2.5 Impact of SADC FTA on Trade Flows in the Region ......................................... 28

2.6 Conclusions ....................................................................................................... 31

3. IMPLEMENTATION OF 2012 TARIFF PHASE-DOWNS ........................................... 33

3.1 Introduction ........................................................................................................ 33

3.2 Overview of Tariff Phase-Down Offers .............................................................. 33

3.3 Implementation of 2012 Phase-Downs – Audit Results ..................................... 35

3.3.1 SACU .......................................................................................................... 36

3.3.2 Malawi ......................................................................................................... 36

3.2.3 Mauritius ..................................................................................................... 37

3.2.4 Mozambique ............................................................................................... 39

3.2.5 Tanzania ..................................................................................................... 39

3.2.6 Zambia ........................................................................................................ 40

3.2.7 Zimbabwe ................................................................................................... 40

4. RULES OF ORIGIN WITHIN THE SADC FTA ........................................................... 41

4.1 Introduction ........................................................................................................ 41

4.2 SADC ROO: A Brief Initial History ..................................................................... 42

4.3 Wheat Flour ....................................................................................................... 44

4.4 Implementation and Administration Issues ........................................................ 45

4.5 Conclusions ....................................................................................................... 47


5. NTBs ........................................................................................................................... 48

5.1 Introduction ........................................................................................................ 48

5.2 Progress on NTBs by Member States ............................................................... 50

5.4 Conclusions ....................................................................................................... 63

6. ANALYSIS OF ANNEX VII OF THE PROTOCOL ON TRADE REGARDING TRADE IN SUGAR AND RELATED COMMODITIES ..................................................................... 64

6.1 Introduction ........................................................................................................ 64

6.2 SADC Production and Exports .......................................................................... 64

6.3 The World Sugar Market ................................................................................... 67

6.4 Arrangements for Trade in Sugar in the SADC Trade Protocol ...................... 68

6.5 Measures Affecting Trade in Sugar in SADC .................................................... 69

6.5.1 Tariffs .......................................................................................................... 69

6.5.2 NTBs ........................................................................................................... 69

6.6 Intra-SADC trade in Sugar ................................................................................. 70

6.7 The Tripartite FTA ............................................................................................. 73

6.8 The Impact of the Protocol on Sugar Trade in the SADC Region ...................... 73

6.9 The Way Forward? ............................................................................................ 74

7. CUSTOMS AND TRADE FACILITATION ................................................................... 75

7.1 Introduction ........................................................................................................ 75

7.2 Implementation of the SADC Customs Program ............................................... 77

7.2.1 Common Tariff Nomenclature (CTN) and Harmonized System .................. 77

7.2.2 SADC Transit Management System (TMS) and Regional Transit Bond Guarantee (RTBG) .................................................................................................. 78

7.2.3 WTO Valuation System ............................................................................... 79

7.2.4 Customs Model Act ..................................................................................... 79

7.3 Customs Cooperation in the Exchange of Information and Prevention of Illicit Trade .......................................................................................................................... 79

7.4 Skills Development and Capacity Building ........................................................ 80

7.5 Conclusion ......................................................................................................... 80

8. ACCESSIONS ............................................................................................................ 81

8.1 Angola ............................................................................................................... 81

8.2 DRC ................................................................................................................... 82

8.3 The Seychelles .................................................................................................. 84

9. COMPETITION POLICY ............................................................................................. 86

9.1 Introduction ........................................................................................................ 86

9.2 SADC Cooperation in Competition Law and Consumer Policy .......................... 86


9.3 Enhancing SADC Cooperation and Harmonization on Competition and Consumer Policy......................................................................................................... 91

10. ASSESSING THE PROGRESS IN BUILT-IN AGENDA OF THE PROTOCOL ON TRADE ............................................................................................................................... 94

10.1 Cross-Border Investment ............................................................................... 95

10.2 Trade in Services ........................................................................................... 96

10.3 Intellectual Property Rights ............................................................................ 98

10.4 Trade Development ........................................................................................ 99

11. CONCLUSIONS .................................................................................................... 101

BIBLIOGRAPHY .............................................................................................................. 102


ACRONYMS ACP Africa, Caribbean and Pacific AGOA African Growth and Opportunities Act ASEAN Association of Southeast Asian Nations BIT Bilateral Investment Treaty BLNS Botswana, Lesotho, Namibia, Swaziland CET Common External Tariff CMT Committee of Ministers Responsible for Trade COMESA Common Market for Eastern and Southern Africa COMTRADE Commodity Trade Statistics Database CTN Customs Tariff Nomenclature DFQF Duty Free Quota Free DG Director General DRC Democratic Republic of Congo DTAA Double Taxation Avoidance Agreements EAC East African Community EBA Everything But Arms EC European Commission EPA Economic Partnership Agreement EU European Union FAO Food and Agricultural Organization FIP Finance and Investment Protocol FTA Free Trade Area GATS General Agreement of Trade in Services GDP Gross Domestic Product GIZ Deutsche Gesellschaft fur Internationale Zusammenarbeit HS Harmonized System IEPA Interim Economic Partnership Agreement IMF International Monetary Fund IPA Investment Promotion Agency IPR Intellectual Property Rights ITAC International Trade Administration Commission ITD International Trade Department LDC Least Developed Country


LPI Logistics Performance Index MFN Most Favored Nation NAFTA North American Free Trade Area NAMBOARD National Agricultural Monitoring Board NMC National Monitoring Committee NTB Non-Tariff Barriers MOU Memorandum of Understanding PTA Preferential Trade Agreement ROO Rules of Origin RTBG Regional Transit Bond Guarantee SACU Southern Africa Customs Union SADC Southern African Development Community SADCTRLC Technical Regulation Liaison Committee SADCTBTSC Technical Barriers to Trade Stakeholders Committee SADCSTAN Cooperation in Standardization SCCC Sub-Committee for Customs Cooperation SARS South African Revenue Service SATH Southern Africa Trade Hub SDB Swaziland Dairy Board SME Small and Medium Sized Enterprises SPS Sanitary and Phytosanitary SPSCC SPS Coordinating Committee SQAM Standardization, Quality Assurance, Accreditation and Metrology SQAMEG SQAM Expert Group SusFarMS Sustainable Sugarcane Farm Management System TBT Technical Barriers to Trade TCS Technical Committee on Sugar TDCA Trade and Development Cooperation Agreement TIFI Trade, Industry, Finance and Investment TMS Transit Management System TNF Trade Negotiations Forum TPR Trade Policy Review TRIPS Trade-Related Aspects of Intellectual Property Rights UHT Ultra High Temperature UN United Nations

http://www.sadcstan.co.za/


US United States USAID United States Agency for International Development VAT Value Added Tax WCO World Customs Organization WTO World Trade Organization ZIMRA Zimbabwe Revenue Authority


ACKNOWLEDGEMENTS The compilation of the 2012 Audit of the Implementation of Southern African Development Community (SADC) Protocol on Trade has been a collaborative exercise. The Southern Africa Trade Hub (SATH) team contributing this report included: Nick Charalambides, Consultant; Nelson Chisenga, Agricultural Economist; Frank Flatters, Consultant; Tomasz Iwanow, Trade Economist; Albert Makochekanwa, Trade Analyst; James Maringwa, Trade Analyst; Kathleen Montgomery, Regional Integration Specialist; and Reginald Selelo, Investment Promotion and Foreign Direct Investment (FDI) Specialist. The information on which the Audit is based was collected in conjunction with a large number of stakeholders. We would like to extend a sincere thank you to all that have contributed to this report. In particular, we would like to thank the SADC Secretariat and Boitumelo Gofhamodimo – Director, Jabulani Mthethwa and Lisebo Mositsi from the Trade, Industry, Finance and Investment Directorate at the SADC Secretariat for guidance, support and cooperation. In the course of the country visits, we have been sincerely welcomed and Ministries have given generously of their time in providing us with relevant information. We would therefore like to thank all government stakeholders in the exercise. We have also met business organizations and private sector stakeholders from throughout the region to which the same thank you is extended.


EXECUTIVE SUMMARY The 2012 Audit of the Implementation of the Southern African Development Community (SADC) Protocol on Trade is the sixth audit carried out by the United States (US) Agency for International Development (USAID) Southern Africa Trade Hub (SATH). This year marks an important milestone in the implementation of the Protocol – the final year of tariff phase-downs. Hence, the current Audit is comprehensive – covering all major issues highlighted in the Protocol. In the past decade, SADC has embarked on an ambitious regional integration program than now stretches far beyond ―shallow integration‖ related to the establishment of a Free Trade Area (FTA). A significant part of SADC work now involves so called ―deep integration‖ which encompasses establishing and expanding the institutional environment in order to facilitate regional trade and investments. The SADC agenda in terms of ―deep integration‖ within the Protocol on Trade is extensive and involves, among others, cooperation and regulatory harmonization in competition policy, customs and trade facilitation, Technical Barriers to Trade (TBTs), Sanitary and Phytosanitary (SPS) procedures. Overall, there has been noteworthy progress in regional cooperation on these ―deep integration‖ issues; however, further integration in the area is hampered by the key problem of overlapping membership of the majority of SADC Member States in other Regional Economic Communities (RECs). The key problem with implementing SADC‘s ―deep integration‖ agenda within the context of overlapping membership is simply that countries cannot implement two sets of rules. This Trade Audit has highlighted several areas where further progress is constrained by this problem. Negotiations toward the establishment of a Tripartite FTA should also be the venue to address these harmonization issues. In addition to analyzing progress with regards to tariff phase-down, Non-Tariff Barriers (NTBs) and Rules of Origin (ROO), the 2012 Audit of Implementation of the SADC Protocol on Trade also analyzes issues such intra-SADC trade, Annex VII regarding trade in Sugar, Competition Policy, Customs Instruments and the Protocol‘s ―Built-in Agenda‖. Below a short description of key findings in each of these areas is provided: SADC Trade Patterns and Implications for the FTA Several key results emerge: Intra-SADC trade has increased substantially since the beginning of implementation of

the SADC Protocol on Trade – nearly doubling in constant terms since 2000 with the majority of this increase occurring after 2004 when tariff phase-downs began in earnest.

Extra-SADC trade has kept pace with increases in intra-SADC trade values. A marked effect has been a shift away from traditional trade partners – most notably the European Union (EU) – with a substantial rise in imports and exports from Asia.

Intra-SADC trade as a percentage of total trade has remained stagnant at roughly 15% of total trade over the entire period of implementation.

The sectoral composition of intra-SADC trade remains focused in traditional exports and has not resulted in diversification of export and production patterns either within SADC or with the rest of the world.


Thus, while SADC has had significant achievements on the benchmarks towards regional integration, the evidence does not support the conclusion that the SADC FTA has spurred export diversification and industrialization in the region. The reasons are varied and have been examined at length in various SADC forums and are highlighted in the remainder of this report. SADC recognizes the existing constraints as it moves towards discussion on deeper regional integration issues. Tariff Phase-Downs SADC Member States, with well-known exceptions, have generally complied with the Protocol on Trade tariff phase-down schedules. This is a substantial achievement for SADC Member States particularly given the requirement for deep cuts in tariffs post-2008. The table below highlights the status of implementation of tariff phase-downs. Summary of 2012 Tariff Phase-Downs

Implemented? Method Notes

SACU Yes South Africa Revenue Service (SARS) Website

SACU Tariff Phase-Downs were completed in 2008

Malawi Partial – At 2004 levels

Malawi Revenue Authority website and submissions by Malawi

Malawi has liberalized 45% of SADC tariff lines.

Mauritius Partial Country Visit Mauritius still applies tariffs on 156 Category “C” products.

Mozambique Yes Mozambique Revenue Authority

Block approval of SADC tariff phase-downs.

Tanzania Partial with Derogation

Country Visit Block approval of SADC tariff phase-downs. Derogation requested for sugar and specific categories of paper.

Zambia Yes Gazetted Instrument Block approval for SADC tariff phase-downs from 2008 to 2012. Issue to be resolved with missing tariff lines from offer.

Zimbabwe Partial with derogation

Country notification Zimbabwe has requested and received a derogation on tariff phase-downs.

Rules of Origin Negotiation of SADC ROO has been a long and unfortunately circuitous process. Slow but steady progress has succeeded in rectifying many of the problems identified in the Mid-Term Review. By and large most SADC ROO are now no more restrictive than those in the Common Market for Eastern and Southern Africa (COMESA) or in the Economic Partnership Agreement (EPA) deals agreed with the European Union (EU). There remain a few problems in processed foods sectors (blended teas, coffee and mixtures of spices), where local content requirements are likely to continue to restrict trade


and which actually fail to assist the primary product sectors they are intended to help. These should be cleaned up by agreeing to a rule that requires ―manufacture from materials of any tariff heading‖ which is consistent with the EPA ROO.1 But the biggest problems remain:

wheat flour, where a rule has yet to be agreed, and

garments and textiles, where the yarn-forward rule for garments remains an unnecessary and for many countries (including some of those that insist on keeping it) costly impediment to intra-SADC trade.

For wheat flour, the only sensible rule of origin is single transformation, or change of tariff heading, with no restrictions on sourcing of wheat. The only sensible rule for garments is also single transformation. Unfortunately a number of Member States are intent on using high levels of tariff protection to shelter their garment industries from external competition and to insulate them from the cost-raising impacts of protection of their textile industries. NTBs Over the course of the past year, SADC Member States have continued to make progress in resolving the issues reported in the online NTB reporting mechanism. Despite this progress, the system does not provide a comprehensive solution. The report highlights the status on outstanding NTBs yet repeats the conclusion of the 2011 Audit. A more comprehensive approach must be taken to encourage regulatory reform and adopt a systematic, Member State-based approach to addressing NTBs. Annex VII regarding trade in Sugar and related commodities Annex VII of the SADC Protocol on Trade ―Concerning Trade in Sugar‖ has as its objective inter alia “to promote, within the Region, production and consumption of sugar and sugar- containing products according to fair trading conditions and an orderly regional market in sugar for the survival of the sugar industries in all sugar producing Member States, in anticipation of freer global trade.” According to stakeholders in the region, there is too much uncertainty in the global market to move towards the liberalization of the SADC sugar sector to the rest of the world. Relatively high world prices have been trending downwards, and there is a strong probability of entering a period of greater volatility. EU reforms are on-going and their long term impact is unclear. Furthermore, the stalling of the Doha Development Agenda may well put off reductions in subsidies of other major sugar producers. However, supporting the full liberalization of the sugar sector within SADC should be considered. With the albeit partial implementation of tariff phase-downs, South Africa and Swaziland have access to non-Southern Africa Customs Union (SACU) SADC Member States that are not subject to quota, while quota restrictions remain on access to the SACU markets.

1 A change of tariff heading rule would not suffice since the inputs and outputs are classified in the same tariff heading.


Accession to the Protocol on Trade Of the 15 SADC Member States, only Angola, the Democratic Republic of Congo (DRC) and the Seychelles have yet to accede to the SADC Protocol on Trade. As SADC re-envisions the integration process outlined in the Regional Indicative Strategic Development Plan (RISDP), a primary thrust of current work is the consolidation of the SADC FTA. The accessions of the remaining Member States are a central plank in this platform. Of the three, only the Seychelles has submitted a formal proposal for accession to SADC Member States. The report indicates that SADC needs to do more with respect to promoting the integration of both DRC and Angola. Customs Instruments An analysis of SADC Customs instruments has broadly reconfirmed the outcomes of the last year‘s Audit of Implementation of SADC Customs Instruments. It was found that SADC Member States implement Harmonized System and are overall on the way to applying the recent 2012 revision to the system. SADC signatories to the Protocol on Trade are also all using World Trade Organization (WTO) Customs Valuation. Less progress has been made with regards to the implementation of SADC Transit Management System, Common Tariff Nomenclature and the SADC Model Customs Act. Overlapping memberships in multiple RECs is a primary constraint to further implementation of the SADC Customs Instruments as Member States cannot harmonize with two different systems. It is therefore proposed that a bulk of SADC work on customs harmonization be in close co-operation with COMESA and the East Africa Community (EAC) to create synergy in light of the foreseen Tripartite FTA. Competition Policy In line with Article X of the Protocol on Trade and the Declaration on Regional Cooperation in Competition and Consumer Policies SADC has established an effective structure for cooperation in the area. SADC Competition and Consumer Policy and Law Committee (Network) has been formed, it meets periodically and has already drafted SADC Competition Law and a range of ―Best Practice‖ guidelines in the area. Individual Member States have also been active in the field as several Competition Acts have been enacted in the last decade and Competition Commissions established. Up to date one can characterize SADC cooperation in the area as establishing a necessary first step in effective cooperation in the area, however, many challenges in terms of harmonizing procedure and ―deeper‖ integration in the area remain. These challenges are related to the following facts: (1) Work on harmonization of Competition issues among SADC Member States is taking place within four venues – SADC, SACU, COMESA and the EAC; (2) Large differences in SADC Member States‘ Laws and Regulations pertaining to Competition and Consumer Policy issues; (3) Regional cooperation among Competition Commissions is constrained by the inability to share confidential information. Given these constraints, the Audit proposes the following actions to be taken: First, the issues of Competition Policy were discussed at the second Tripartite Summit held in June, 2011 in Johannesburg, South Africa. SADC should enhance cooperation with other RECs in the area for the creation of unified and coherent regional competition policy. Second, following the example of the EU, include State Aid in its work on competition issues in recognition of the fact that regional integration efforts could be less effective if Member States were to support national companies as they saw fit. A company which receives


government support may obtain an advantage over its competitors. Therefore, the European Community Treaty generally prohibits State aid unless it is justified by reasons of general economic development. Third, the Audit has established that regional cooperation in the area of Consumer Policies has been less advanced at Member State level; few countries have well established regulatory frameworks in this area and the capacity to implement these laws. The key objective for the regional work on Consumer Policy should therefore focus on strengthening domestic law and enforcement capabilities of Member States. Built-in Agenda Parts 5-7 and in particular articles 22-24 and 26 of the SADC Protocol on Trade contain what is referred to as the ―Built-in-Agenda‖ of the Protocol. In these articles, Member States have pledged the adoption of international agreements, promotion and cooperation in the areas of cross-border investment, trade in services, intellectual property rights and trade development. By explicitly including these issues in the Protocol on Trade, SADC Members States aimed to set out a future path for work and cooperation. A review of developments in SADC in each of these areas has revealed a large discrepancy in the progress achieved since the signing of the SADC Protocol on Trade in these areas. In the areas of trade in services and cross-border investment SADC has perhaps achieved more than the Protocol on Trade had initially envisaged. In both of these areas a separate protocol has been drafted which developed a framework for cooperation liberalization and harmonization of procedures in the region. Negotiations regarding liberalization of trade in services commenced at the beginning of 2012 whereas the SADC Finance and Investment which legislates SADC‘s work in the area of cross border investment entered into force in April 2010. In the area of trade development, overall progress has been significant. However, given that trade development focuses on a particularly wide range of issues, it is more difficult to unequivocally state the extent of the progress. Advancement of SADC agenda regarding intellectual property rights has been much less significant.


1. INTRODUCTION 1.1 Report Context 2012 is a milestone year in the implementation of the SADC Protocol on Trade. Under the terms of the Protocol, Member States agreed to phase down tariff and NTBs over a twelve year period beginning in 2000.2 In August 2008, the SADC Free Trade Area (FTA) was launched with 85% of intra-SADC trade attaining duty free status. During the period 2008-2012, remaining tariff barriers were to be phased down with the goal of virtually all intra-SADC trade achieving duty free/quota free status.3 However, tariff phase-downs represent only one portion of the objectives of the Protocol and work has been undertaken across the entire spectrum of barriers to trade and regional trade cooperation initiatives. Since the adoption of the Protocol, Member States have been implementing the provisions on elimination of import duties, NTBs, Rules of Origin (ROO), cooperation in customs matters and trade facilitation, trade in sugar, cooperation in standards, Technical Barriers to Trade (TBT), Sanitary and Phytosanitary (SPS) measures and cooperation in competition policy. The 2012 Audit of the Implementation of the SADC Protocol on Trade is the sixth such audit carried out by the United States (US) Agency for International Development (USAID) Southern Africa Trade Hub (SATH) in partnership with the SADC Secretariat. While the 2007 audit was comprehensive, subsequent audits have been updates on the 2007 study, each focusing on different issues selected by the SADC Secretariat. For the 2012 Audit, the SADC Secretariat requested that SATH carry out a comprehensive study, as this year marks the final year of tariff phase-downs and the final assessment by SATH. The SADC Secretariat identified the following major areas for the 2012 Audit: 1. Implementation of the 2011 Tariff Phase-Downs: In accordance with the terms of

the Protocol on Trade, each year Member States are required to implement their annual tariff phase-downs on January 1 and to notify the Secretariat of this action. As part of the current audit, the tariff phase-downs for 2012 were verified through country visits and/or desk based research.

2. Overview of SADC Trade Patterns. The SADC Secretariat requested a review of intra- and extra-SADC trade using the most up to date data available. The review includes a summary of the structure and pattern of trade flows of the various SADC Member States and highlights the commodity composition of trade.

3. ROO. SADC ROO are widely regarded as being complex and contributing to the low usage of the Protocol on Trade by businesses – an issue that has been widely debated in the SADC context. The report provides a summary of the issues on ROO and an assessment of the impact of ROO on businesses operating in the SADC region.

4. NTBs. According to Article 7 of the Protocol “Member States shall, in relation to intra-SADC trade: i) adopt policies and implement measures to eliminate all existing forms of NTBs. ii) refrain from imposing any new NTBs.” As part of the 2012 Audit, the SADC Secretariat requested that SATH follow up on the existence and presence of NTBs in the region as well as report on progress towards elimination.

2 The phase-down period for tariff barriers was to be complete in January 2012. The exception is Mozambique which will complete phase-downs in 2015 for imports from South Africa. 3 The exception to duty free status is the Category E or excluded goods which were negotiated as part of the initial agreement.


5. Analysis of Annex VII of the Protocol on Trade regarding Trade in Sugar and related commodities. As part of the 2012 Audit, the SADC Secretariat requested a review of Annex VII of the Protocol on Trade “Concerning Trade in Sugar”. Implementation of Annex VII was last reviewed in 2004 as part of the Mid-Term Review of the SADC Protocol on Trade. Since then, unlike other parts of the Protocol, the Annex has not been subjected to annual audit of implementation. The purpose of this study is to provide a comprehensive overview to assess its impact on trade in sugar in the region over the years. The review will also analyze changes to the global trade since the last assessment of world markets done as part of the development of the SADC Regional Sugar Strategy in 2007.4

6. Implementation of Customs and Trade Facilitation Instruments. Part 3 of the Protocol on Trade, together with Annex II, deals with cooperation in customs matters and trade facilitation. The report provides a review of the update of the implementation of SADC customs instruments and the level of harmonization of customs procedures based on international standards.5

7. Competition Policy. Article 25 of the SADC Protocol on Trade provides that “Member States shall implement measures within the Community that prohibit unfair business practices and promote competition”. In addition, the SADC Committee of Ministers of Trade (CMT), in July 2008, adopted a Declaration on Regional Cooperation in Competition and Consumer Laws and Policies. The Report analyzes the progress in cooperation on competition issues and proposes actions to extend this cooperation.

8. Accession to the Protocol on Trade. Of the 15 SADC Member States, only Angola, the Democratic Republic of the Congo (DRC) and the Seychelles have yet to join the FTA. The report takes stock of what has been done to facilitate accession and identifies challenges being faced with respect to the accession process.

9. Assessment of Progress Made with respect to the “Built-in Agenda”. Parts 5-7 of the Protocol on Trade and, in particular, Articles 22-24 and 26 contain what is referred to as the ―Built-in Agenda‖ of the Protocol. In these articles, Member States have pledged the adoption of international agreements, promotion and cooperation in the areas of cross-border investment, trade in services and intellectual property rights (IPR). The report assesses SADC progress in implementation of the provisions.

1.2 Methodology As in previous years, the 2012 Audit of the Implementation of the Protocol on Trade was carried out with a combination of desk research and country visits. Country Visits: Since the 2012 Audit is comprehensive, visits to all Member States were planned. In the course of the research, country visits to Botswana, Malawi, Mozambique, Mauritius, Namibia, South Africa, Swaziland, Zambia and Zimbabwe were carried out. Due to time and capacity limitations, it was not possible to visit Tanzania. However, country

4 Annex VII calls for a comprehensive review and examination of its terms in 2012. This is not that review but rather a broad assessment of the current state of implementation and its impact on trade in sugar in the SADC region. 5 A comprehensive overview of the implementation of customs and trade facilitation initiatives was carried out by SATH in 2011 – “2011 Audit of the Implementation of Regional SADC Customs Instruments and International Conventions” by Ranga Munyaradzi, Senior Customs Advisor, and Agnes Phiri, Customs Consultant. This document is currently under review by the Secretariat and Member States.


visits to Tanzania were conducted in both 2010 and 2011 and therefore a considerable amount of information was already assembled. In addition, phone interviews were carried out to update the information from previous years. As part of each country visit, meetings were conducted with the relevant government agencies including the Ministry of Trade, Ministry of Finance and the Revenue Authority. Additionally, meetings were sought with representatives of the private sector – both individual businesses and chambers of commerce – to ascertain their experiences with the Protocol on Trade. Desk Research: Desk research consisted of a review of available literature and internet based activities to verify implementation and review outstanding issues. In addition, we reviewed the previous reports, audits and reviews carried out by the Trade Hub and other organizations. The recommendations arising from previous audits have been examined and comments incorporated. 1.3 Outline of the Report The structure of the report follows closely the outline of key areas of the Protocol on Trade mentioned above. Chapter 2 provides an overview of intra- and extra-SADC trade flows and discusses the implications of these trade flows on economic development in the region. Chapter 3 investigates the status of tariff phase-downs as negotiated. Chapter 4 analyzes SADC ROO while Chapter 5 discusses remaining NTBs and quantitative restrictions on trade within SADC. Chapter 6 takes stock of the progress in implementation of Annex VII of the Protocol regarding Trade in Sugar and related commodities. Chapter 7 analyzes the issues related to Customs and Trade Facilitation procedures contained in the Protocol. Chapter 8 deals with the accessions of Angola, the DRC and the Seychelles. Chapter 9 analyzes SADC cooperation in the field of Competition and Consumer Policy. Chapter 10 takes stock of progress made with the ―Built-in Agenda‖ of the Protocol. 2. SADC FTA AND TRADE PATTERNS 2.1 Introduction As part of the 2012 Audit, SADC requested a summary of the structure and pattern of trade flows of the various SADC Member States highlighting the commodity composition of trade as well as the structure of intra- and extra- regional trade. The overall objective was to provide an assessment of product diversification and production patterns over the years. While a detailed country-by-country analysis is provided in Appendix 1 to this report. The purpose of this section is to provide an overview of intra- and extra- SADC trade and based on this analysis provide an overview of the extent to which the implementation of the SADC Protocol on Trade has achieved meaningful results in terms of growth in the SADC region. In addition to the analysis provided below, the conclusions are strengthened by recent studies – particularly those of the World Bank which examine regional integration in Africa and Southern Africa specifically.6 Since the entry into force of the SADC Protocol on Trade in 2000, Member States have embarked on progressive elimination of trade barriers and established an FTA that 6 See “Harnessing Regional Integration for Trade and Growth in Southern Africa”, World Bank (2011) and and “De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services” World Bank (2012).


provides for duty/quota free access for the vast majority of intra-SADC trade. As highlighted in the following sections, this initiative has been, for the most part, highly successful. The purpose of the current chapter is to examine the extent to which these achievements have fulfilled the objectives of the Protocol on Trade which include: To further liberalize intra-regional trade in goods and services on the basis of fair,

mutually equitable and beneficial trade arrangements, complemented by Protocols in other areas.

To ensure efficient production within SADC reflecting the current and dynamic comparative advantages of its Members.

To contribute towards the improvements of the climate for domestic, cross border and foreign investment.

To enhance the economic development, diversification and industrialization of the Region.

To establish a Free Trade Area in the SADC region. SADC‘s far reaching regional integration efforts have sought to increase regional trade, diversify Member States‘ exports and production bases and overcome the problems of small internal market size. Increased trade also helps to achieve dynamic gains from trade due to greater competition, economies of scale, and technological progress. More than a decade after the adoption of the SADC Protocol of Trade, it is important to analyze whether the establishment of the FTA has contributed to enhancing trade and hence employment and economic growth in the region. Several key results emerge: Intra-SADC trade has increased substantially since the beginning of implementation of

the SADC Protocol on Trade – nearly doubling in constant terms since 2000 with the majority of this increase occurring after 2004 when tariff phase-downs began in earnest.

Extra-SADC trade has kept pace with increases in intra-SADC trade values. A marked effect has been a shift away from traditional trade partners – most notably the European Union (EU) – with a substantial rise in imports and exports from Asia.

Intra-SADC trade as a percentage of total trade has remained stagnant at roughly 15% of total trade over the entire period of implementation.

The sectoral composition of intra-SADC trade remains focused in traditional exports and has not resulted in diversification of export and production patterns either within SADC or with the rest of the world.

Thus, while SADC has had significant achievements on the benchmarks towards regional integration, the evidence does not support the conclusion that the SADC FTA has spurred export diversification and industrialization in the region. The reasons are varied and have been examined at length in various SADC forums and are highlighted in the remainder of this report. SADC recognizes the existing constraints as it moves towards discussion on deeper regional integration issues.


2.2 Methodology The trade analysis in this section draws on publicly available data. Unless otherwise noted: All time-series data in this section, unless otherwise indicated, are in constant

thousands of US$ (US$ ‗000) from the United Nations (UN) Commodity Trade Statistics Database (COMTRADE).

In order to obtain figures for trade at constant US dollars, we deflate the figures from COMTRADE by the indices obtained from the International Monetary Fund (IMF).

Time series, unless otherwise indicated, extend to 2010 which is the last year for which the most comprehensive trade statistics are available for SADC Member States.

For the purpose of this analysis, ―SADC‖ is defined as all twelve Member States currently participating in the SADC FTA.

SADC trade data is notoriously flawed and patchy. Much of the analysis below excludes Lesotho which has not reported to COMTRADE since 2002. Data for Namibia was not available after 2008 and for Zimbabwe 2003 and 2010 were missing. The advantages of a single data source outweigh these shortcomings. The SADC Secretariat is currently embarked on the development of a comprehensive statistical database which will strengthen the data available for researchers in future. 2.3 Extra-SADC Trade Table 1 presents the trends in world trade in constant US dollars over the period 2000-2010. After nearly doubling between2000 and 2008, world trade experienced a sharp decline with the onset of the global economic recession before beginning to recover after 2009. Table 1: The Volume of World Trade 2000-10 (constant 2000 US$ trillion)

Source: Calculated from COMTRADE and data from World Trade Organization (WTO).

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


SADC exports have risen two-fold in constant terms over the 11-year period from 2000 to 2010 from US$38 billion in constant 2000 dollars to US$76 billion in 2010 (Table 2). SADC imports in the same period have actually increased even more. As a result, SADC‘s trade deficit with the world has risen substantially from only US$1.4 billion in 2000 to US$19.3 billion in 2010. Table 2: SADC Trade with the World (in constant US$ 2000, „000)

Source: Calculated by the authors using UN COMTRADE Database

Tables 3 and 4 provide the details on the composition of SADC exports by region. It shows that there has been a significant shift in the SADC pattern of trade. Although the EU remains SADC‘s main export partner, its share of SADC‘s total exports has decreased from 38.1% of total exports in 2000 to 27.1% in 2010. At the same time, there has been a tremendous rise in the importance of Asian economies as a destination for SADC exports with exports to Asia increasing from only 10% in 2000 to 25.7% in 2010. As noted by the World Bank (2011), “SADC exports have been shifting to faster growing areas outside of Africa.‖ However, here it is important to highlight that this process has been most pronounced for the slowly growing EU market.

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

200,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Total

Imports

Exports


Table 3: SADC Exports by Destination (2000-2010) (in constant US$2000, „000)7

Source: Calculated by the authors using UN COMTRADE

Table 4: Destination of SADC Exports by Region 2000 and 2010


This pattern is mirrored in the import data. Table 5 shows that, in the past decade, SADC imports from all regions rose significantly. In particular, there has been a significant rise in imports from Asia which rose from US$6.3 in 2000 to US$25.6 billion in 2010.

7 In the following tables, the EU is defined as all 27 Members States and the Middles East, North Africa (MENA) is region is as standardly defined by the UN.

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

SADC

EU

North America

Asia

South America

MENA

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

EU27 SADC Asia NorthAmerica

MENA Oceania SouthAmerica

2000

2010


Table 5: SADC Imports by Region


Table 6 confirms this trend demonstrating that Asia has overtaken the EU as SADC‘s largest import source. In 2010, SADC imports from Asia amounted to 26.7% of its total imports just above the EU‘s 26.4% share. Table 6: Percentage Share of SADC Imports by Region (2000- 2010)


Table 7 shows SADC‘s largest import products are broadly petroleum oils, transport equipment medicaments and other apparatus. This is followed by electronics and computers.

0

5000000

10000000

15000000

20000000

25000000

30000000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

SADC

EU

Asia

North America

MENA

South America

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

EU27 SADC Asia MENA N.America Australia &Oceania

S. America

2000

2010


Table 7: SADC Top 10 Import Products in 2010 (in US$ „000)

Product Trade Value % share

Total Trade 120,593,917

Petroleum oils 20,648,141 17.12%

Motor cars and other motor vehicles 5,421,635 4.50%

Medicaments 2,192,859 1.82%

Transmission apparatus for Radio & TV 2,095,242 1.74%

Automatic data processing machines 2,034,154 1.69%

Motor vehicles for the transport 2,031,673 1.68%

Electrical apparatus 1,863,460 1.55%

Diamonds, 1,554,068 1.29%

Accessories of the motor vehicles 1,424,970 1.18%

Printing machinery 1,077,468 0.89%

Self-propelled bulldozers, 960,133 0.80%

Wheat and meslin 955,072 0.79%


2.4 Intra-SADC Trade 2.4.1 Overview Turning to a focus on intra-SADC trade, Table 8 shows that intra-SADC trade has risen significantly in the past decade mirroring global trends. Since 2000, intra-SADC exports have roughly doubled in constant terms from US$5.8 billion in 2000 to US$11.7 billion in 2010. The economic crisis of 2008-09 had a significant impact on intra-SADC trade which fell by more than 24% between 2008 and 2009. In 2010, trade rebounded strongly as intra-SADC trade rose by 19%.


Table 8: Intra-SADC Trade 2000-2010 (in constant US$2000, „000)


Table 9 illustrates intra-SADC exports by country of origin. As SADC‘s largest economy, South Africa is also the biggest exporter to the region accounting for 72% of intra-SADC exports. Namibia is the source of 8% of regional trade whereas Botswana is 5%. Other notable exporters to the region are Zambia and Zimbabwe with a 4% share of intra-SADC exports. Table 9: Share of intra-SADC Exports by Country of Origin

Country Share of Intra-SADC Exports

South Africa 72%

Namibia 8%

Botswana 5%

Zimbabwe 4%

Zambia 4%

Tanzania 2%

Mozambique 2%

Mauritius 1%

Lesotho 1%

Malawi 1%

Madagascar 0%


-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


2.4.2 Sectoral Composition of Intra-SADC Trade Table 10 shows sectoral composition of intra-SADC trade. Agricultural commodities amount to 16% of total intra-SADC trade, fuels 10%, ores and metal 11% and manufacturing is roughly half of all intra-SADC trade. However, these statistics mask a significant share of country and product heterogeneity. 75.1% of intra-SADC trade in manufacturing originates from South Africa. South Africa‘s exports of manufacturing to the region totaled US$5.3 billion with the remainder of SADC exporting manufacturing goods worth US$1.7 billion. Table 10: Intra-SADC Trade by Sector (2010)

Product Trade Value


Agriculture 2,100,105 16.6%

Agricultural Raw Materials 170,003 1.3%

Food 1,930,102 15.2%

Fuels 1,276,564 10.1%

Ores & Metals 1,407,211 11.1%

Manufactures 7,050,807 55.7%

Chemicals 1,298,275 10.2%

Textiles 494,068 3.9%

Machinery & Transport Equipment 2,491,278 19.7%

Miscellaneous Goods 810,407 6.4%


In fact, as illustrated in Table 11, South Africa‘s share of intra-SADC imports in manufactures has increased in the last decade. In 2000, South Africa‘s share of intra-SADC trade in manufactures was 61% whereas by 2010 it had risen to 75.1%. The availability of lower prices and improved product variety – particularly from South African manufactured products – provides substantial benefits to the region‘s consumers.


Table 11: South Africa‟s Share in intra-SADC Trade in Manufactures

Source: Calculated by the authors using UN COMTRADE Database

Table 12 provides an overview of SADC‘s top intra-regional traded commodities. SADC‘s top intra-regional traded commodity is petroleum oils with a 10% share of total intra-SADC trade. It is followed by nickel, electrical energy, gold, tobacco, diamonds, sugar and fertilizers. The two important manufactured products that are traded significantly within SADC are motor vehicles and accessories which rank fourth and seventh respectively in the top traded goods in SADC. Table 12: Top 20 Intra-SADC Traded Products in 2010 (in US$„000)

Product Trade Value % share MFN Tariff

2001


Petroleum oils 1,833,013 10.68% 2.19%

Nickel 590,899 3.44% 0.63%

Electrical energy 517,126 3.01% 0.00%

Motor vehicles 465,181 2.71% 28.2%

Nickel ores and concentrates. 314,593 1.83% 1.25%

Gold 287,278 1.67% 0.65%

Motor cars and other motor vehicles 262,269 1.53% 28.2%

Unmanufactured tobacco; tobacco 245,511 1.43% 11.86%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


Product Trade Value % share MFN Tariff

2001

Petroleum gases and other gases 225,579 1.31% 5.9%

Diamonds, 218,262 1.27% 0.00

Cane or beet sugar 199,382 1.16% 16.5%

Portland cement, aluminous cement 187,069 1.09% 5.3%

Mineral or chemical fertilizers 165,228 0.96% 0.83%


Appendix 1 contains a detailed set of statistics on export structure by destination, sector and product for each SADC Member state for which data are available. Looking at the statistics in the Appendix, a particular pattern emerges. For many SADC Member States intra-SADC exports are concentrated in traditional exports of agricultural commodities, minerals, fuels and energy. Here it is sufficient to provide just a few examples:8

Almost 75% of Mozambique‘s exports to SADC consist of electrical energy and petroleum gases.

Almost 50% of Malawi‘s exports to SADC are concentrated in a narrow range of primary products including: tea, sugar, tobacco, rubber, cotton, wood, groundnuts and oil seeds.

41.4% of Zambia‘s exports to SADC are in Ores and Metals with a further 28.2% of total export in agricultural goods. Together, these two product groups amount to 69.6% of Zambia‘s exports to the region.

Nickel and Gold alone amount to 70% of Zimbabwe‘s exports to SADC. Together with sugar, cotton, cigarettes, tobacco, coal, cement and ferro-alloys the share of these commodities in total export to the region rises to 89% of total exports to the region.

71.1% of Tanzania‘s exports to SADC consist of one commodity – gold. The remainder of exports to the regions is in furniture, tobacco, fertilizer, cement, diamonds, vegetables oils etc.

The pattern of exports over the last decade is little changed and reflects the reliance on a narrow range of commodities. The SADC Member States vary substantially in the importance of SADC trade as a percentage of total exports as illustrated in Table 13.9 In 2010, Namibia had the highest concentration with 43% of exports destined for SADC followed by Zimbabwe and Mozambique with 24.9% and 24.5% respectively. Mauritius and Madagascar had the lowest shares with 8.9% and 3.3% respectively as their exports focus on global markets in the US and/or EU.

8 All statistics below are for 2010 unless otherwise stated. 9 Data for Swaziland was not available for 2010.


Table 13: Share of SADC Member States‟ Exports as a Percent of Total Exports

2.5 Impact of SADC FTA on Trade Flows in the Region The previous sections provide a broad overview of SADC intra- and extra-regional trade patterns. Much of this information is not new having been highlighted in previous Audits as well as in a series of recent reports. Based on this analysis, what lessons can be drawn? Is there evidence that the implementation of the SADC Protocol on Trade has achieved its objectives – specifically, has the SADC FTA enhanced the ―the economic development, diversification and industrialization of the Region”? While SADC trade flows have increased significantly, SADC‘s share of global trade and the share of intra-regional trade have remained constant. Furthermore, the range of products traded in SADC has not substantially diversified. Based on this evidence, the conclusion of this and other recent studies is that while many of the milestones of the SADC FTA have been achieved, the FTA has not markedly contributed to economic development in the region. Several additional pieces of evidence can be put forward. The share of intra-SADC trade has remained constant despite the fact that the SADC region as a whole has grown faster than world averages. While SADC exports to the world more than doubled between 2000 and 2010 from US$38 billion to US$76 billion, the share of intra-regional exports remained relatively steady at around 15% of total exports: a proportion close to which it remains today – see Table 15. Thus, despite a significant increase in SADC trade overall Member States have not captured a larger share of SADC total SADC market. During the past decade, SADC economies grew faster than the world, hence the opportunities to export to the region have been higher than those to the rest of the world. During the period 2007-2012, the region grew at an average rate of 4.3% per annum whereas the world grew at the same time at an average annual rate of only 3.02%. Table 14 illustrates that while SADC‗s exports to the world as a proportion of its Gross Domestic Product (GDP) have increased dramatically over the past decade, the share of its exports to the region as a proportion of its GDP have grown more slowly. According to the World Bank (2011) this finding actually indicates that SADC “has effectively de-regionalized.”

0.0% 20.0% 40.0% 60.0% 80.0%

Botswana

Lesotho

Malawi

Mauritius

Madagascar

Mozambique

Namibia

South Africa

Swaziland

Tanzania

Zambia

Zimbabwe

2010

2005

2000


Table 14: SADC Export as % of GDP (1998-2008)

Source: World Bank, 2011

Table 15: Share of Intra-SADC Exports as % of SADC‟s Total Exports (2000-2010)


SADC Member States trade significantly less intra-regionally than other Regional Economic Communities (RECs). The percentage of intra-regional trade is a mixed indicator. At the extreme, substantial increases in intra-SADC trade as a percentage would imply substantial trade diversion. Yet a comparison reveals that SADC trades significantly less intra-regionally than other RECs. As an example, for the Association of Southeast Asian Nations (ASEAN) 30% of its total trade is intra-regional – more than double that of SADC. For more developed regions, such as the EU and the countries of the North American Free Trade Area (NAFTA), the share of regional trade is at 60 and 40% respectively (World Bank, 2011).

0%

5%

10%

15%

20%

25%

30%

35%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Export tothe World as% of GDP

Export tothe SADC as% of GDP

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

SADC %share 15.30% 14.10% 16.90% 14.80% 15.40% 14.80% 17.80% 15.80% 15.70% 16.30% 15.40%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%


Table 16: Intra-Industry Trade by Region (Proportion of Intra-Industry Trade in Total Trade)

Source: World Bank 2011

There are two primary reasons for these differences. First, the low level of intra-regional trade is, in part, a reflection of comparatively low levels of GDP strongly associated with intra-industry trade. Table 16 compares SADC‘s levels of intra-industry trade to other regions. Most important for policy conclusions, the success of ASEAN nations and ASEAN as a region is the development of regional production networks – as part of global production networks – and substantial intra-industry trade in inputs. The incorporation of the SADC region into global production chains has not occurred and this is reflected both in the low levels of intra-regional trade and the low diversification of intra-regionally traded commodities. It is important to note that there is a fair amount of cross-country differences in their integration in the region as illustrated in Table 13 in the previous section. Some countries like the Indian Ocean Islands of Mauritius and Madagascar have particularly low levels of integration in the region with only 8.9 and 3.3% of their exports destined for SADC. Particularly in the case of Mauritius, this is in large part due to deliberate policy decisions to focus on world markets. On the other extreme some countries of the Southern African Customs Union (SACU) such as Namibia and Swaziland are well integrated in the region with 44% and 40% of their export heading for SADC and South Africa in particular. For many other countries including South Africa, Lesotho, Zambia, Tanzania the share of their export to the region as a share of total export is close to the regional exports average of 15%. The top commodities traded in SADC are unlikely to have been strongly affected by the FTA. As illustrated in Table 12, many of the top intra-SADC traded commodities are mineral fuel and energy exports, which already attracted zero Most Favored Nation (MFN) tariffs prior to the implementation of the SADC Trade Protocol in 2000. Thus, the creation of the FTA would not have impacted these trade flows through tariff liberalization (World Bank, 2011). Column 4 in Table 12 confirms this finding, illustrating the average applied

0 0.1 0.2 0.3 0.4 0.5 0.6

North America

Western Europe

South Asia

Northeast Asia

Eastern Europe

South America

Central America

Western Asia

Eastern Africa

Central Africa

Central Asia

South Asia

Northern Africa

Wester Africa

Southern Africa


MFN tariff in 2001 on top ten intra-SADC currently traded commodities. The majority of these tariffs can be characterized as low or very low. The average tariff on SADC‘s top traded product - Nickel - in 2001 was only 0.63%. No SADC Member State applied any tariff on SADC‘s second most traded commodity ―Electrical energy‖. Among the top 10 intra-SADC traded commodities, products that attracted very low duties of below 1% were also gold, diamonds, nickel ores or chemical fertilizers. The only product that had significant tariffs in 2001 was Motor Vehicles and parts, tobacco and sugar.10

2.6 Conclusions The detailed trade analysis of SADC trade patterns has shown that despite the fact that intra-SADC trade has doubled in the past decade there is still substantial room for improvement in utilizing the FTA to achieve the objectives of the Protocol. Currently, for many of SADC Member States, exports to both SADC and the world are concentrated in a narrow range of traditional of agricultural commodities, minerals, fuels and energy.11 The most marked shift in SADC trade is the substantial increase in SADC exports to Asia which has significantly increased demand for the region‘s resources. However, the share of intra-SADC trade in total exports has remained at roughly 15% for the past decade – despite the fact that SADC economies grew faster than the world in the past decade and hence the opportunities to export to the region may have been higher than those to the rest of the world. As highlighted in the preceding section, an important reason for the relatively low level of regional trade stems from the fact that SADC firms have not broken into global manufacturing production networks nor created these networks regionally. In the modern world economy, globalization has spurred the development of global production networks whereby an assembly of intermediate inputs for the production of sophisticated products takes place in the most competitive location around the world. Globalization and the lowering of transport costs supported the emergence of intra-industry trade. These two trends have been associated with the creation of significant gains from trade by lowering global production costs and creating thousands of jobs around the world. Regional production networks and intra-industry trade have also been important in increasing regional trade and investments. According to World Bank (2011), however, intra-industry trade in SADC is the lowest of all other regions in the world. What can SADC Member States do to address these issues in the context of the FTA? The constraints to increasing SADC trade and integration into global value chains have been much reviewed and are highlighted in the remaining chapters of this report. Key factors include: Trade Facilitation. SADC economies rank poorly on global indices for trade facilitation and transport costs. Given the distance from global markets, this is a critical component of the competitiveness of SADC firms – discussed further in Section 7. Improved investment and business climate. A good business climate for firms has been identified as a key condition for market-led economic growth and for reaping the benefits from trade (World Bank, 2004). On a comparative basis, SADC has been shown to lag behind other regions with regimes conducive to investment and business operations. In

10 It is important to note that trade in sugar was largely excluded from preferential liberalization under the SADC Protocol on Trade For details regarding SADC trade in sugar see Chapter 6. 11 This description excludes SADC‟s biggest economy – South Africa.


the context of trade performance, it is argued that some SADC economies can be characterized as a high cost and high risk environment that constrains private sector investment and tradable production. Table 17 shows that two thirds of SADC economies are placed in the third quartile on the overall indicator on the World Bank‘s Ease of Doing Business indicator. Only South Africa and Mauritius are in the top quartile on this indicator with Botswana, Namibia and Zambia being the only other countries that have above average business environment. This reflects the reasons why global production networks prevalent in other parts of the world have yet to be introduced in SADC. SADC diversification of trade away from commodity trade will enhance the ability to reap benefits from regional integration in terms of enhanced industrial backward and forward linkages, dynamic gains from trade due to greater competition, economies of scale, and technological progress. Table 17: Ease of Doing Business in SADC

Economy Worldwide Ease of Doing

Business Rank Quartile Rank SADC

Mauritius 23 1 1

South Africa 35 1 2

Botswana 54 2 3

Namibia 78 2 4

Zambia 84 2 5

Seychelles 103 3 6

Swaziland 124 3 7

Tanzania 127 3 8

Madagascar 137 3 9

Mozambique 139 4 10

Lesotho 143 4 11

Malawi 145 4 12

Zimbabwe 171 4 13

Angola 172 4 14

Congo, Dem. Rep. 178 4 15

Source: Doing Business Indicators – www.doingbusiness.org

NTBs. Another important issue is that while efforts to reduce tariffs have largely been met with success, other forms of trade restrictions – NTBs in particular – critically hinder the

http://www.doingbusiness.org/


competitiveness of SADC firms and their ability to export to regionally and globally. These issues are highlighted in the remaining chapters of the Audit. ROO. As highlighted below, although SADC‘s ROO are largely not significantly more restrictive than in other RECs additional rules in garments manufacturing and lack of such rule for wheat flour constrain intra-SADC trade in these sectors. 3. IMPLEMENTATION OF 2012 TARIFF PHASE-DOWNS 3.1 Introduction The SADC FTA was officially launched in August 2008 with 85% of intra-SADC trade receiving duty free treatment. From 2008 to 2012, the Member States agreed to lower tariff duties on the remaining ―Schedule C‖ or ―Sensitive Products‖ leaving only the excluded goods subject to duties.12 On January 1st 2012, tariff phase-downs were intended to be complete with all intra-SADC trade achieving duty free status with the exception of a small number of excluded goods.13 As part of the 2012 Audit, verifications of the final round of tariff phase-downs were accomplished through the country visits and a review of posted information from the respective revenue authorities and customs websites. 3.2 Overview of Tariff Phase-Down Offers As part of the SADC Protocol on Trade, Member States agreed to phase-down tariff barriers to intra-SADC trade over a twelve year period between 2000 and 2012.14 Each Member State submitted two tariff phase-down offers – one for South Africa and a ―Differentiated Offer‖ for the remaining Member States. Tables 18 and 19 below highlight the tariff phase-down offers for each Member State. As indicated in the tables, the offers were heavily back-loaded with much of the tariff phase-downs occurring in the latter years of the implementation. The most significant jumps in duty free status occurred in 2007-2008 as the Category B phase-downs were completed. The Category C phase-downs for the majority of the Member States occurred from 2010-2012.

12 Excluded goods were determined by each Member State as part of their original offers. However, by agreement of all Member States, Chapter 93 (Arms and Ammunitions; Parts and Accessories thereof) was specifically excluded from the Protocol on Trade. 13 By the decision of the CMT and the terms of the original agreement, Member States are to implement tariff phase-downs on January 1 of each year and formally notify the Secretariat of this action. For 2012, no Member States made formal notifications to the Secretariat. The lack of notification is an annual concern. While no longer necessary for tariff phase-downs, the reporting of information to the Secretariat is uncoordinated and it would greatly benefit transparency in the FTA to more effectively receive notifications and for the SADC Secretariat to disseminate this information more widely. There is also a need for Member States to report regularly on trade statistics, changes in trade regulations etc. The reporting of such information to the Secretariat and the dissemination of such information to the Member States is an important component to the effective operation of the FTA. 14 Mozambique has a derogation to extend its tariff phase-down with South Africa until 2015.


Table 18: SADC Tariff Phase-Down Offers: Differentiated Offer (Percentage of Tariff Lines at Zero)

# Lines 2001 2005 2008 2009 2010 2011 2012 Excluded

SACU 7,802 63.6 94.2 99.2 99.2 99.2 99.2 99.2 0.8

Malawi 5,443 33.4 33.4 85.3 85.3 85.3 85.3 99.7 0.3

Mauritius 5,479 69.7 90.5 90.5 90.5 90.5 90.5 100.0 0.0

Mozambique 5,246 30.1 30.1 94.0 94.0 94.0 94.0 99.6 0.4

Tanzania 6,215 17.5 24.4 86.3 86.3 86.5 86.5 99.3 0.7

Zambia 6,066 54.2 54.2 95.9 95.9 95.9 95.9 100.0 0.0

Zimbabwe 7,167 30.7 70.6 89.8 93.1 93.2 95.0 98.7 1.3

Source: Original Tariff Phase-Down Offers

Table 19: SADC Tariff Phase-Down Offers: South Africa15 (Percentage of Tariff Lines at Zero)

# Lines 2001 2005 2008 2010 2011 2012 2015 Excl.

Malawi 5,443 33.4 33.4 84.9 84.9 84.9 99.7 0.3

Mauritius 5,479 69.4 69.7 90.5 90.5 90.5 100.0 0.0

Mozambique 5,246 28.1 28.1 92.6 92.6 92.6 92.6 99.6 0.4

Tanzania 6,217 15.7 15.7 84.5 84.5 84.5 99.3 0.7

Zambia 6,066 32.1 32.1 95.8 95.8 95.8 100.0 0.0

Zimbabwe 7,167 32.0 44.4 71.8 72.7 82.3 82.3 0.8

Source: Original Tariff Phase-Down Offers

With the exception of Mozambique and those countries which have requested and received derogations, all Member States will have phased down all tariffs and duties in January 2012. The list of excluded products as illustrated in Table 20 below is quite small.

15 Zimbabwe‟s Offer to South Africa contains a small number of excluded goods but contains only 5,597 lines as opposed to 7,167 lines for the Differentiated Offer. Following Zimbabwe‟s initial offer, the tariff regime changed which decreased the number of lines in the tariff code. The offer to South Africa was revised based on the new tariff code but a similar change for the Differentiated Offer was not deemed necessary as it corresponded with Zimbabwe‟s offer to COMESA.


Table 20: Excluded Products

Country # Lines Products16

SACU17 31 Sugar and Sugar Products, Used Clothing, Motor Vehicle Parts

Mauritius 0 None

Malawi 19 Sugar, Weapons/Ammunition

Mozambique 19 Ivory, Weapons/Ammunition

Tanzania 43 Ivory and other restricted animal hides/materials, Weapons/Ammunition, Opium, Propellant Powder (Explosive)

Zambia 0 None – However, Chapter 93 is not listed in offer and is excluded for ALL Member States

Zimbabwe18 34/89 Jet/Specialized Fuels, Vehicles/Parts, Rear View Mirrors, Used Clothing, Radioactive Products, Used Tires, Precious Metals

Source: Original Tariff Phase-Down Offers; Note that Chapter 93 is excluded for ALL Member States although not all have included it in their specific list.

3.3 Implementation of 2012 Phase-Downs – Audit Results Table 21 below provides an overview of the status of the 2012 tariff phase-down findings. As illustrated in the table, SADC Member States have generally complied with the Protocol on Trade tariff phase-down schedules. Throughout the process of the annual Trade Audits, each year tariff phase-downs have been verified through country visits and/or desk research. For nearly all Member States, the SADC tariff rates are easily available online – usually through the revenue authority websites. As detailed below, Zambia is the exception to this rule. In the remainder of this section, a detailed description of progress in the area is provided.

16 These are general product categories and do not imply that the entire class of goods is excluded – only specific tariff lines therein. 17 In 2008, for several tariff lines in Chapter 17 previously categorized as excluded, SACU set these lines as duty free leaving only 4 lines out of the original 13 Category E products. 18 Zimbabwe has 34 excluded tariff lines in its offer to South Africa and 89 in its Differentiated Offer.


Table 21: Summary of 2012 Tariff Phase-Downs

Implemented? Method Notes

SACU Yes South Africa Revenue Service (SARS) Website

SACU Tariff Phase-Downs were completed in 2008

Malawi Partial – At 2004 levels

Malawi Revenue Authority website and submissions by Malawi

Malawi has liberalized 45% of SADC tariff lines.

Mauritius Partial Country Visit Mauritius still applies tariffs on 156 Category ―C‖ products.

Mozambique Yes Mozambique Revenue Authority

Block approval of SADC tariff phase-downs.

Tanzania Partial with Derogation

Country Visit Block approval of SADC tariff phase-downs. Derogation requested for sugar and specific categories of paper.

Zambia Yes Gazetted Instrument Block approval for SADC tariff phase-downs from 2008 to 2012.

Zimbabwe Partial with derogation

Country notification Zimbabwe has requested and received a derogation on tariff phase-downs.

3.3.1 SACU With the implementation of the 2008 tariff phase-downs, SACU has completed its tariff phase-down obligations. A review of information available from SARS revealed no modifications to the customs code in 2012 which would impact SADC duty rates. SACU countries in their offer to the rest of SADC had 31 tariff lines in Category ―C‖ and duties have been eliminated on these lines. 3.3.2 Malawi As already noted in previous Audits, due to budgetary considerations, Malawi has delayed in implementing its tariff phase-down commitments. In the course of research for this year‘s Audit, it was revealed that Malawi has not amended its customs code in the past year and remains at its 2004 tariff phase-down levels. Malawi‘s Ministry of Finance has confirmed the accuracy of the previous analysis indicating that Malawi is currently implementing 45% of tariff liberalization commitments. Table 22 highlights Malawi‘s tariff liberalization status to date. In order to bring Malawi into compliance with its 2012 obligations, Malawi must liberalize 2150 tariff lines from Category ―B‖ list of products and 797 tariff lines from Category ―C‖.


Table 22: Malawi‟s Tariff Liberalization under the SADC Protocol on Trade

Category A Category B Category C

Total Tariff Lines 1,788 2,850 850

Tariff lines liberalized 1,748 700 53

Percentage of coverage 98% 25% 6%

The underlying reason for Malawi‘s low compliance to SADC Protocol on Trade obligations stems partially from economic difficulties experienced in recent years and Malawi‘s particularly large reliance on customs duties for government revenue. In fact, revenue obtained from import tariffs amounts to around 40% of government‘s budget and the majority of imports are from South Africa. As part of the measures to stabilize the economy in May 2012, Malawi has devalued its currency by 49% which can temporarily lead to increased inflation and lower budget revenues. Nevertheless, Malawi has taken steps to implement tariff liberalization obligations. The Government of Malawi has prepared an economic impact assessment study that aimed to establish the revenue impacts of SADC FTA liberalization. In the course of the research for the Audit, we were informed that the results of the impact assessment study are now being analyzed by the government. Ultimately, the Minister of Finance will make a decision regarding further SADC tariff phase downs prior to the new budgetary cycle in June 2012. 3.2.3 Mauritius In the past decade, Mauritius has embarked on an ambitious program of unilateral trade liberalization with the goal of becoming a ―duty-free island‖. With the opening up of the Mauritian economy and its integration into regional trade – more than 95% of tariff lines are zero rated – trade with the new partners will enhance choice in Mauritius. Simple average tariff is below 2% (African Economic Outlook, 2011). However, as a result of the recent global economic crisis, progress on liberalization has been slowed. This also applies to the tariff liberalization envisaged under the SADC Protocol on Trade.

The Mauritius Revenue Authority advised that Mauritius is currently delayed in the full implementation of tariff phase-downs. Category ―A‖ and Category ―B‖ lists of products have been fully liberalized but a small number of products from Category ―C‖ remain.19 In particular, out of 520 tariff lines in Category ―C‖, 156 are not yet zero rated. In other words, out of 5480 tariff line in the Mauritian SADC FTA tariff liberalization offer 97.5% have already been liberalized. Table 23 provides a snapshot of the specific tariff lines that still need to be duty free. It shows that Mauritius is yet to liberalize trade in products such as beverages and alcohols, spices, salt, soap, brief-cases, handbags, accumulators (rechargeable or hydraulic batteries), furniture and selected paper, stone and glass and metal products. The tariffs

19 Here it is important to note that in 2006, Mauritius combined Differentiated and South Africa offers.


still apply for imports from SADC and range from 9% on water and salt to 30% on brief-cases and handbags and selected furniture. Table 23: Snapshot of Mauritian Tariff lines yet to be duty free for SADC

No of Tariff Lines

Product Current SADC Tariff

2 Black Tea 10-24%

4 Spices 10

1 Wheat or Meslin Flour 10

26 Beverages:

Mineral Water Beer, Wines, Vermouth, Brandy, Whiskeys, Rum, Gin, Liquors.

Water – 9% Alcohols –

15%

1 Vinegar 15

2 Salt 9

4 Paints 15

1 Dentifrices 15

2 Soap 15

1 Paper , Wadding Felt 15

3 Polishes, Creams, Pastes for furniture 15

1 Candles 15

9 Tubes, Pipes and Hoses, 15

5 Bathroom/Toilet commodities 15

2 Shopping bags 30

8 Trunks, Suit-Cases, Vanity-Cases, Executive-Cases, Brief-Cases, Handbags, other cases

30

Windows doors, parquet panel of wood, other wood marquetry

4 Plaits, basketwork 15

15 Paper and Paperboard Articles:

Envelopes, Lettercards, Postcards, Boxes, Pouches, Toilet paper, p Packaging containers, Table cloth and serviettes of paper, handkerchiefs, Account books, exercise books, binders, albums. Paper trays dishes and plate

15-30

3 Umbrellas 15

9 Stone/Glass:

Tile, prefabricates structural components of building Other articles of cement

15


No of Tariff Lines

Product Current SADC Tariff

Unframed and framed glass mirrors Table glassware Other articles of glass

8 Metals:

Doors, Windows of iron and steel, Galvanized Tubes and pipes Grills, Nettings and Fencing Other Table, Kitchen or other household articles of iron Aluminum and Windows Sign plates, electrodes, rods

15

2 Electrical Machinery and Equipment

Accumulators Filament lamps

15-30

22 Furniture

Seats, metal furniture, wooden furniture plastic furniture, matrasses, paint dispensers.

15-30

Source: Mauritian Tariff Book

During the country visit to Mauritius, the Mauritius Revenue Authority advised that the 2012 SADC tariff phase-down is in preparation and will be agreed upon and gazetted in July/August 2012.

3.2.4 Mozambique Parliament made a block approval of Mozambique‘s tariff phase-down program from 2001 up to 2015 so no additional legislative action is required for annual implementation. Past Audits of Implementation of SADC Protocol on Trade have noted that, in part due to the block approval, there have been few significant issues regarding Mozambique‘s implementation. In March 2012, a Customs Order was approved by the Government of Mozambique indicating that all category ―C‖ products from SADC countries (excluding South Africa) will be zero immediate from the date of the order. Also, the order indicates that the rates for category ―C‖ from South Africa will be reduced but remain positive. This is in line with Mozambique‘s tariff liberalization schedule which grants Mozambique three additional years to remove tariffs on South African exports.

3.2.5 Tanzania Like Mozambique, Tanzania made a block approval of its entire phase-down schedule. No further action is required for implementation and a press notice is sent out annually noting the change in the SADC rates. SADC Tariff rates are available online on the Tanzania Revenue Authority website. At the February 2011 CMT meeting, Tanzania notified that it had increased tariffs on sugar and certain categories of paper and requested an ex post derogation. While not expressly acceding to Tanzania‘s request, the CMT noted the challenges faced by Tanzania‘s sugar and paper industries and allowed that Tanzania could retain the tariffs introduced on sugar


and paper imports from SADC, pending the outcome of further investigations to be carried out in collaboration with the Secretariat.20 In addition to participating in the SADC FTA, since 2005, Tanzania has been a Member of the EAC Customs Union which is applying a Common External Tariff (CET). EAC Partner States have agreed to uphold tariff preferences granted to third countries, as a temporary exception of EAC CET, provided such preferences had been agreed upon before the ratification of the EAC Customs Union Protocol. This was agreed with the assumption that at a later stage, the EAC as a block intends to negotiate preferential trade agreements with COMESA and SADC respectively to address the problem of overlapping membership in various regional integration initiatives. From the perspective of integrity of EAC‘s CET, it is therefore crucial for a swift conclusion of Tripartite FTA and the creation of a larger African FTA.

3.2.6 Zambia According to Zambia Revenue Authority, Zambia completed her SADC tariff phase-down to SADC on December 1, 2011 and commenced with implementation on January 1, 2012 as published on the Zambia Revenue Authority website. It should be noted that while Zambia‘s customs tariff book is readily available on the website, the SADC tariff rates are not included.21 However, Zambia gazetted the entire tariff phase-down schedule from 2008 to 2012 and implementation occurs automatically. In the course of the research for this year‘s Audit, it was noted that Zambia‘s SADC tariff schedule contains several tariff lines that are not included in the tariff phase-down offer. There are 80 tariff lines in Zambia‘s tariff liberalization offer for SADC (excluding South Africa) and 155 products in the offer for South Africa that are not included. As noted above, during the negotiation phase Zambia an excluded (category ―E‖) list of products. However, all SADC Member States excluded Chapter 93 although this was not formally notified in Zambia‘s offer. At the time of writing, the status regarding the ―missing‖ tariff lines was unclear. Consultations with Zambia are currently ongoing to verify the status of the tariff lines. 3.2.7 Zimbabwe Zimbabwe has been granted a derogation from tariff phase-downs at the February 2011 CMT meeting. Zimbabwe referred to Article 3(c) of the Protocol on Trade in making this request for derogation to the CMT, which is meant to give temporary relief to industries strongly negatively impacted by tariff phase-downs. Section 3.3 provides an overview of the request for derogation. As detailed in the annual Audits, Zimbabwe has not implemented tariff phase-downs since 2008. In addition, according to the Public Notice No.2 of the Commissioner General, the Zimbabwe Revenue Authority has introduced a 25% surcharge on 106 imported products. The majority of these are food products but they also include motor vehicles and a limited number of electronics. Table 24 provides an overview of tariff lines that Zimbabwe applies 20 See “2011 Audit of the Implementation of the SADC Protocol on Trade” USAID Southern Africa Trade Hub for further details on Tanzania‟s derogation. 21 Zambia‟s block tariff phase downs were made through a separate statutory instrument from the primary Customs Code. This instrument is not posted online.


surtax on. While not formally an import tariff in name, the surtax has an equivalent effect on imports. It is for SADC Member States to review the acceptability of this surtax in line with SADC commitments.22 Table 24: Overview of the Zimbabwe Import Surtax

No of Tariff Lines

Product Surtax

48 Food:

Chickens (4 tariff lines) Dried Fish (1 tariff line) Milk yoghurt cheese and other dairy products (6 tariff lines) Eggs (1 tariff line) Vegetables and Fruits (Potatoes, Tomatoes, Onion, Garlic,

Carrots, Bananas and Apples) (9 tariff lines) Pease and Beans(6 tariff lines) Processed Food – Sausages, Sardines, Pasta, Biscuits,

Cakes, Jams, Ketchup, Jams, Ice cream) (20 tariff lines)

25

25 Beverages:

Mineral Water (7 tariff lines) Beer, Wines, Cider (11 tariff lines) Vermouth, Brandy, Whiskeys, Vodka Liquors (8 tariff lines)

25

4 Tobacco 25

13 Cosmetics 25

1 Candles 25

4 Footwear 25

6 Refrigerators, Freezers and Ovens 25

1 Other Color Reception Apparatus for television 25

2 Motor Vehicles for the transport of goods (petrol, diesel) 25

Source: Public Notice No.2 2012, Commissioner General, ZIMRA

4. RULES OF ORIGIN WITHIN THE SADC FTA 4.1 Introduction ROO have long been one of the most controversial aspects in the implementation of the SADC FTA. The ROO have been researched and discussed at length by various institutions and in various SADC forums from the initial agreement on the rules, through

22 The legislation for the surtax is available at www.zimra.co.zw . It notes that: “Surtax of 25 percent ad valorem shall be charged when goods listed below are imported into Zimbabwe and are cleared under normal Customs Tariff.” It is unclear whether the surtax would be applied to goods imported under Zimbabwe‟s bilateral agreements with Member States.

http://www.zimra.co.zw/


the first substantive change, the Mid-Term Review, the adoption of the revised ROO in 2009 and through 2011 when the SADC High Level Experts Group on ROO in Textile and Apparel attempted to revise the current rules in that sector. In this section, we provide a review of outstanding issues which reflect a summary of a companion paper to the 2012 Audit addressing issues of SADC ROO.23 4.2 SADC ROO: A Brief Initial History The initial ROO laid out in the SADC Trade Protocol were simple in concept and consistent with those in other developing country preferential trading arrangements, including, most importantly, neighboring and overlapping COMESA.24 The specific rules provided several conditions, satisfaction of any single one of which qualify a manufactured good as originating in a Member State and therefore qualify for SADC tariff preferences:

undergo a change of tariff heading, or

contain a minimum of 35% regional value added, or

include non-SADC imported materials worth no more than 60% of the value of total inputs used.

Agricultural and primary products needed to be wholly produced or obtained in the region. Before the Trade Protocol even came into effect, however, certain Member States pressed for exceptions to these rules. What this meant in practice was determined only after a protracted and often difficult set of negotiations in the process of which the SADC ROO became product-specific and generally more restrictive, in some cases considerably so. The change of tariff heading requirement was replaced by multiple transformation rules and/or detailed descriptions of required production processes. Value added requirements were raised, and permissible levels of import content were decreased. Most of the arguments for such rules boiled down to attempts to increase or preserve protection in domestic markets. The ROO in the amended Trade Protocol were thus very different from what was originally agreed, and were characterized by made-to-measure, relatively restrictive product-specific requirements. The rules came to be much more like those in the EU and in Preferential Trade Agreements (PTAs) with rich, highly industrialized countries.25 They were particularly similar to the rules in the EU-South Africa trade agreement (the TDCA or Trade and Development Cooperation Agreement that was signed in 1999). In the case of garments, the rule that was eventually adopted was one that required that all of the material inputs into regionally produced garments, from yarn forward through fabric, must be sourced from within SADC in order to qualify for SADC preferences. As a concession to the poorest Member States (i.e. those classified as least developed 23 See “SADC 2012 Audit of the Implementation of the SADC Protocol on Trade: Rules of Origin” by Frank Flatters, Short Term Consultant, USAID Southern Africa Trade Hub. 24 In fact the COMESA rules were relaxed slightly to bring them into greater conformity with those originally agreed in SADC. This is ironic in light of the fact that the original SADC rules were never implemented and were replaced instead with much more complex and restrictive rules. The irony is compounded by the current pressure from some parties in COMESA to follow SADC once again and „tighten‟ the COMESA rules. 25 Estevadeordal and Suominen (2006) refer to this as the PANEURO model.


countries or LDCs), however, it was agreed that garments must only be manufactured in these Member States, with no restrictions on fabric sourcing—i.e. the single stage transformation rule applied. However, this concession was granted only on a temporary basis and the quantity of exports that could benefit from it was quota-limited.26 In the case of wheat flour, no rule of origin was agreed. As a result, there were no circumstances in which wheat flour produced in any SADC Member State could qualify for SADC tariff preferences when traded in the region. The Mid Term Review of the implementation of the SADC Trade Protocol conducted in 2004 identified complex and excessively restrictive ROO as major impediments to achieving the goal of increasing trade in the region.27 The highly restrictive rules on textiles and clothing were highlighted in light of the demonstrated success of the single stage transformation rule under the African Growth and Opportunities Act (AGOA) in promoting the growth of garment exports to the US by qualifying SADC countries, and the discussions and negotiations that were beginning on the Economic Partnership Agreements (EPAs) with the EU. A major issue for many of the Africa, Caribbean and Pacific (ACP) countries was the need for a single stage transformation rule for the textiles and clothing sectors. The report also highlighted the lack of agreement on a rule of origin for wheat flour and the excessively restrictive rules that had been agreed for a number of other processed agricultural products (blends of tea, coffee and mixtures of spices). In the manufacturing sector, the Review documented what appeared to be excessively restrictive rules on many other products, especially, but not exclusively in the machinery and electrical products sectors. The report recommended a major overhaul of the SADC ROO, with the aim of simplifying them and, most importantly, of reducing their restrictiveness. The initially proposed ROO – i.e. those borrowed by, adopted by and currently in use by COMESA – were suggested as the ideal solution. But otherwise, any reform that imposed more uniform rules across all manufacturing sectors and that were less restrictive in terms of local content requirements, maximum import content, and technical specifications of production processes was suggested as a useful goal of the exercise. It was recommended as well that restrictive ROO not be used as a means of undoing the trade liberalizing effects of preferential tariff reductions negotiated in SADC. Countries that were reluctant to open up certain sensitive sectors to regional competition, should simply exclude them from their preferential tariff offers. This would allow other Member States to trade on preferential terms and not be blocked from doing so by restrictive rules designed to protect particular interests in one or two Member States. Considerable progress has been made in reducing the restrictiveness of the SADC ROO. The process was somewhat tedious. It was conducted largely through negotiations, on a case-by-case basis, with stakeholders that might have been negatively impacted by any relaxation of the rules, rather than on the basis of more general principles about the national and region-wide benefits of liberalizing intra-regional trade. Nevertheless, it has resulted in relaxation of many of the more restrictive rules, especially in key manufacturing sectors.

26 This became known as the MMTZ rule. 27 See Brenton, Flatters and Kalenga (2004).


There remain a few processed downstream agricultural products (coffee, tea, and mixtures of spices) that continue to have unnecessarily restrictive local content requirements. But the two biggest problems by far remain wheat flour and garments. In most of these sectors, SADC has accepted the less restrictive EPA rules, and yet they remain reluctant to allow them to apply to preferential trade among themselves. 4.3 Wheat Flour There remains no agreed rule of origin for wheat flour. Although tariff phase-down offers for wheat flour were agreed some time ago and have all been implemented, the absence of a rule of origin makes it impossible for preferential trade in this product to take place. As mentioned above, the conflict over this rule was between Member States that produced (or thought they could produce) significant amounts of wheat and those that did not. The wheat growing Member States wanted a rule requiring that flour be milled from locally grown wheat; the others wanted only a change of tariff heading rule—i.e. they wanted a requirement only that wheat flour be milled in a Member State, with no conditions on where the wheat was sourced. The Member States that were most concerned with the more liberal rule were those that tried to protect their wheat farmers with an import duty. In the face of such an import duty, it was argued that:

local flour millers would be unable to compete with preferentially imported flour from other Member States whose millers had access to duty free wheat sourced elsewhere, and

such competition would not only be harmful to local millers, but it would also undermine the protection provided to local wheat farmers.

Those arguing for the less restrictive change of tariff heading rule observed that

even the largest wheat growing countries were net wheat importers and thus could not supply the wheat necessary for millers in other Member States to satisfy this rule,

the effect of such a rule would be not only to protect millers and farmers in the wheat growing Member States, but also to prevent preferential trade from taking place among non-wheat-growing Members, and

there was compelling evidence to suggest that, at least in South Africa, the wheat import tariff was providing little if any protection to wheat farmers and hence was not really raising milling costs in that country.

In any event, the main argument for the restrictive rule was soon made irrelevant by rising world wheat prices and the disappearance of the SACU import duty on wheat.28 Nevertheless, resistance to the change of tariff heading rule continued, not only by SACU but also a number of other wheat-growing and non-wheat-growing Member States. This made it apparent that, as suggested in an earlier report for the SADC Secretariat29 and then in the Mid-Term Review, the real resistance to any rule of origin that would permit preferential trade in wheat flour came from milling groups that wanted to use import

28 The South African tariff formula for wheat and wheat flour links the tariff to the world wheat price. Once the price exceeds a certain level, the tariffs go to zero. 29 For a more complete discussion see Erasmus and Flatters (2003) and Erasmus, Flatters and Kirk (2006).


restrictions to reduce competition in their domestic markets and from governments that saw this as a reasonable type of industrial policy for this sector.30 Further evidence of this is provided by South African Competition Commission findings of anti-competitive behavior in the South African milling industry and by tax, tariff and NTBs on wheat flour and its products that have been put in place in a number of SADC Member States. Some of the latter are documented in other parts of this Trade Audit.31 For wheat flour, the only sensible rule of origin is single transformation, or change of tariff heading, with no restrictions on sourcing of wheat. Apparently South Africa, one of the initial and strongest opponents of this rule, has now agreed to it, and only a small number of other Member States are holding out. If these Members are unwilling to allow intra-SADC free trade under these conditions, they should not continue to block other countries from doing so. They could protect their own millers, if they wish, by declaring this to be a sensitive sector and preventing preferential access to their markets by other Member States by postponing agreed tariff reductions.32 4.4 Implementation and Administration Issues Three issues arise in the implementation and administration of SADC ROO. Information There appear to be some misunderstandings about the current status of various ROO. Despite a number of small but nevertheless significant improvements in the rules, not all actors seem to be fully aware of where they are at the moment. Updated rules are difficult to find on the SADC website. In one country visited as part of the current trade audit, the Customs official responsible for ROO had the mistaken impression that there exists no agreed rule of origin for automobiles. These are relatively simple problems that can be solved through improved communication between the SADC Secretariat and Member States, among the Member States, and among Member States, the Secretariat and the trading community. Compliance and Implementation Costs Certifying origin under any set of rules is inherently costly. Simply collecting and documenting information on the division of costs between local and imported content is not a trivial exercise, and it is compounded many times over when the companies of individuals trading the goods across borders are not the actual producers of the goods. It would not be at all surprising if producers were reluctant to reveal proprietary information necessary to determine, and if necessary verify origin, such as cost structures and input sourcing, let alone provide detailed inventory records to buyers of their products. These

30 In 2006/7 the South African milling industry indicted its willingness to agree to a single transformation rule for wheat flour, subject to rule 2.5 of Annex 1 of the Trade Protocol. However a number of SACU Members continue to apply other trade restrictions to flour and other related products. See Flatters (2011b). 31 See also Erasmus and Flatters (2003) and Flatters (2011b). 32 Or they could do as a number of other Member States have done by restricting imports of wheat flour through bans, licensing requirements or other quantitative restrictions. While such measures are contrary to the law and spirit of the Trade Protocol are widely used in the agricultural sector and are a far bigger threat than rules of origin to SADC trade integration.


problems and the associated costs are inherent to any ROO regime. At least one major South African-based retail chain has provided evidence that is now quite widely known of the costs it incurs in order to certify origin for a wide range of products it ships in SADC. The company ships thousands of different products on a regular basis. Certification of origin imposes a significant administrative burden, requiring dedicated staff to prepare and collect thousands of certificates per month, each with multiple signatures, required stamps and pages of export documents. This means a significant increase in import-export lead times and load preparation costs—a tripling of lead times and more than a doubling of load preparation costs (about 7% of shipment value for SADC shipments versus 2.5% for non-SADC shipments).33 For companies involved in shipping a narrower range of products, compliance costs are likely to be much lower than reported by the oft-quoted South African distributor and retailer. None of this is an excuse, of course, for blindly accepting current levels of compliance costs. In particular, for companies like this large retailer, it should be possible to implement a less demanding list declaration procedure rather than requiring that origin to be certified on a product-by-product line basis as is the case now. More generally, however, it is important to understand the real reasons for the compliance costs associated with ROO. While these costs are generally described as being due to the ROO, their real cause is the set of MFN tariff regimes in the SADC Member States. A commitment to more rapid MFN tariff reform to accompany the ongoing preferential reforms agreed under SADC and to engage in more serious reform of other NTBs affecting intra-SADC trade would reduce the need for preferential rules that must, of necessity, be accompanied by costly systems for certifying origin. Fraud Taxes, import duties, licensing and other non-tariff rules, safety standards, ROO or any other requirements associated with importing and exporting, create an incentive for fraud. They create an opportunity for arbitrage; and the greater the restriction imposed by any requirement, the greater the risk that fraud will occur. The possibility of import fraud was frequently discussed during the negotiation of SADC ROO. In textiles and garments, for instance, South African negotiators frequently alluded to the threat of Chinese garments being shipped through, say, Malawi, being relabeled as products of Malawi and being re-exported to South Africa free of duty under SADC preferences. This is a clear example of fraud, under either a single transformation or a yarn-forward rule of origin. Nevertheless this threat was used as justification, not for improving systems for detection of fraud, but rather for implementing a yarn-forward rule of origin for garments. The fear of smuggled Chinese garments was also used as an excuse for costly inspections of containers of garments being simply transshipped from Botswana, Lesotho, Namibia and Swaziland (BLNS) to South African ports for exports to the US or elsewhere.

33 See Charalambides (2010) and Gillson (2010) for an overview. Cost data quoted here were provided directly by the company.


Similarly, in the case of insulated electrical cables, the risk that substandard imported copper or aluminum wires might be used in locally produced insulated products was put forward as a reason, not for improved enforcement of safety standards, but rather for the implementation of a rule of origin requiring that insulated cable use locally produced copper and aluminum wires. For anyone intent on fraudulent violation of safety standards, this would not prevent them from either falsely declaring imported wire to be locally sourced, or, without violating the rule of origin, using substandard local wire. A rule of origin is not a substitute for well-defined and properly enforced safety standards. Excessively restrictive ROO are an inappropriate and costly way of dealing with import or other types of fraud. 4.5 Conclusions Negotiation of SADC ROO has been a long and unfortunately circuitous process. It began with quite a simple concept and a correspondingly elegant and appropriate solution. The underlying goal was to promote intra-SADC trade by eliminating import duties and other unnecessary restrictions. In order to accomplish this, it was necessary to define ROO that could be used to certify that goods claiming to be eligible for SADC tariff preferences actually originated in a Member State. Slow but steady progress has succeeded in rectifying many of the problems identified in the Mid-Term Review. For most manufactured goods, the rules are now relatively unrestrictive, and they are unlikely to be a hindrance to intra-SADC trade. There are still remnants of the protectionist approach that guided prior negotiations. For instance, conditions on maximum imported content vary unnecessarily across similar goods in the same tariff heading. There remain a few process conditions that in some cases simply add clarity and certainty, but in others once again reflect a misplaced desire to use the ROO to promote a particular industrial policy goal. But few of these conditions are a significant barrier to intra-SADC trade. By and large most SADC ROO are now no more restrictive than those in COMESA or in the EPA deals agreed with the EU. Since the Mid-Term Review, for instance, the rules for Harmonized System (HS) chapters 84 and 85 have been significantly improved. In chapters 26 to 38, the choice of conditions available makes them less restrictive than COMESA‘s. There remain a few problems in processed foods sectors (blended teas, coffee and mixtures of spices), where local content requirements are likely to continue to restrict trade and which actually fail to assist the primary product sectors they are intended to help. These should be cleaned up by agreeing to a rule that requires ―manufacture from materials of any tariff heading‖ which is consistent with the EPA ROO.34 But the biggest problems remain:

wheat flour, where a rule has yet to be agreed, and

garments and textiles, where the yarn-forward rule for garments remains an unnecessary and for many countries (including some of those that insist on keeping it) costly impediment to intra-SADC trade.

For wheat flour, the only sensible rule of origin is single transformation, or change of tariff 34 A change of tariff heading rule would not suffice since the inputs and outputs are classified in the same tariff heading.


heading, with no restrictions on sourcing of wheat. Apparently South Africa, one of the initial and strongest opponents of this rule, has now agreed to it, and only a small number of other Member States are holding out. If these Members are unwilling to allow intra-SADC free trade under these conditions, they should not continue to block other countries from doing so. They could protect their own millers, if they wish, by declaring this to be a sensitive sector and preventing preferential access to their markets by other Member States by postponing agreed tariff reductions.35 The only sensible rule for garments is also single transformation. Unfortunately a number of Member States are intent on using high levels of tariff protection to shelter their garment industries from external competition and to insulate them from the cost-raising impacts of protection of their textile industries. Through their membership in SACU, producers in several of the BLNS countries also benefit from this arrangement. In these circumstances the purpose of a restrictive rule of origin for garments is to insulate the South African market from regional competition that might arise from SADC free trade. This problem will continue as long as SACU continues its current tariff policy aimed at protecting its vulnerable garment industry.

5. NTBs 5.1 Introduction Tariffs have always been part of the trade policy measures of most countries across the world. However their importance has declined over time as a result of the proliferation of regional trade agreements. As tariffs diminish in their importance across the world, NTBs have proliferated and intensified to form substantial barriers to trade – the SADC region is not an exception to this trend. Currently, the prevalence of widely documented NTBs in SADC is cited as the most significant constraint on the growth of intra-SADC trade. In recognition of the resurgence in NTBs, the SADC Protocol on Trade makes provision for the removal of all tariffs and NTBs to intra-SADC trade. In particular, Article 6 of the Protocol provides that, Member States will not only “adopt policies and implement measures to eliminate all existing forms of NTBs” but also should “refrain from imposing any new NTBs”. The Protocol defines NTBs as ―any barrier to trade other than import and export duties‖. In addition, Articles 7 and 8 also unequivocally call for the removal of any quantitative import and export restrictions. SADC has identified the following types of NTBs for elimination;

Cumbersome customs documentation and procedures;

Cumbersome import and export licensing/permit;

Import and export quotas;

Unnecessary import bans and prohibitions;

Import charges not falling within the definition of import duties;

Restrictive single channel marketing; 35 Or they could do as a number of other Member States have done by restricting imports of wheat flour through bans, licensing requirements or other quantitative restrictions. While such measures are contrary to the law and spirit of the Trade Protocol are widely used in the agricultural sector and are a far bigger threat than rules of origin to SADC trade integration.


Prohibitive transit charges;

Complicated VISA requirements;

Pre-shipment inspection; or

National Food security restrictions; Articles 9 and 10 of the Protocol allow for exceptions aimed at achieving legitimate public policy objectives, namely:

Necessary to protect public morals or to maintain public order;

Necessary to protect human, animal or plant life or health;

Necessary to secure compliance with laws and regulations which are consistent with the provisions of the World Trade Organization (WTO);

Necessary to protect intellectual property rights, or to prevent deceptive trade practices;

Relating to transfer of gold, silver, precious and semi-precious stones, including precious and strategic metals;

Imposed for the protection of national treasures of artistic, historic or archaeological value;

Necessary to prevent or relieve critical shortages of foodstuffs in any exporting Member State;

Relating to the conservation of exhaustible natural resources and the environment; or

Necessary to ensure compliance with existing obligations under international agreements.

A recent World Bank reported NTBs on the online reporting portal and estimated the impact those NTBs have on intra-SADC trade. Table 25 below gives an insight of the impact of some of the identified/reported NTBs on trade within the region. Countries within the SADC region impose different types of non-tariff measures that curtail or restrict the free movement of goods across borders. The following section reports NTBs that exist in countries visited during the 2012 comprehensive Trade Audit as well as detailing progress in resolving those reported NTBs.


Table 25: Mapping of Non-Tariff Barriers to Trade Reported by SADC Countries to Products and Potential Trade Affected

Source: World Bank, March 2011

5.2 Progress on NTBs by Member States Botswana Botswana maintains and applies several restrictions and prohibitions on imports. Import permits are generally required for imports of industrial products from outside SACU and Zimbabwe. These permits are issued by the Department of International Trade in the Ministry of Trade and Industry. Prior to obtaining an import permit, imports of agricultural products, plants, livestock, and soil from all sources require approval from the Ministry of Agriculture for SPS considerations. Imports of vegetables, dairy products, meat and meat products, and poultry require an import permit on food security grounds.

36 These values should be interpreted only as an indication of how important to regional trade the products affected by NTBs are to the SADC region because not all SADC countries impose those NTBs but only one or a few.

Rank NTB Products Affected Value of intra-SADC trade36

(2008) USD Millions (% of total

non-fuel intra-SADC trade)

1 Import Quotas Wheat, poultry, flour, tobacco, cement, sugar, maize, salt, eggs, fruit & vegetables, maize meal

1,013.15 (6.1%)

2 Import permits & licensing

Milk (sterilized, UHT), bread, eggs, sugar, fruit & vegetables, livestock, liquor, cooking oils, maize, oysters

892,85 (5.4%)

3 Single marketing channels

Wheat, meat, dairy, maize, tea & tobacco, sugar

880.52 (5.3%)

4 Customs related Wine, electronic equipment, copper concentrate, salt, cosmetics, medicines

853.61 (5.2%)

5 Import levies; Import permits and licensing

Milk (sterilized, UHT), pasta, sorghum, eggs, sugar, dairy, livestock, pork, poultry, liquor/beer, wheat

823.05 (5.0%)

6 Export taxes Dried beans, live animals, hides & skins, sugar, tobacco, maize, meat, wood, coffee

791.92 (4.8%)

7 Import bans Wheat, beer, poultry, wheat flour, meat products, maize, milk (sterilized, UHT)

523.97 (3.2%)

8 Rules of Origin Textiles & clothing, palm oil, soap, cake decorations, rice, curry powder, wheat flour, semi-trailers

488.55 (3.0%)

9 Preferences denied Salt, fishmeal, pasta 61.79 (0.4%)


The Ministry of Agriculture indicated that Botswana applies seasonal or temporary quantitative restrictions on imports of dairy products, poultry products, grains and some horticultural products aimed at protecting the domestic producers. These seasonal or temporary restrictions are only allowed when there is bumper harvest or over supply in the domestic market. Permits are acquired for free at the Ministry of Agriculture. There is currently a ban on imports of poultry and beef. A 15% flour levy is charged on imports of bread flour from all sources with the objective of protecting the domestic milling industry from unfair competition. SATH is currently engaged in a study on the efficiency and effectiveness of the wheat flour levy. In addition, under SACU's provisions for infant industry protection, Botswana imposes additional duties on imports of ultra-heat-treated (UHT) milk from all sources including imports from SADC Countries. The Standards (Import Inspection) Regulations of 2008, implemented since 1 April 2009, require a pre-arrival compliance certificate from the Bureau of Standards (BOBs) for imports of designated products. The products subject to pre-arrival compliance certification include cattle and chicken feed, milk, sorghum, pulses, peanut butter, canned fish; electrical appliances; plastic bags; cement, and pre-packaged consumer goods. The certificate is issued by the Bureau of Standards or a recognized certifying body to attest compliance with a Botswana or foreign technical regulation recognized by the Bureau of Standards. With respect to exports, the Cattle Export and Slaughter Levy Act 10 of 2005 provides for the imposition of a levy per head of cattle exported from Botswana or slaughtered at the Botswana Meat Commission, municipal abattoirs, private abattoirs, and butchers. The levy rate is currently P 10 per animal. This levy is currently under review. On NTBs imposed by other SADC countries, Botswana raised concerns at the rise in miscellaneous fees and charges for example the 25% surtax introduced by Zimbabwe as of January 2012. They indicated that these fees and charges impede trade as they are charged on imports.

Lesotho Lesotho does not currently have legislation on SPS issues but work is ongoing to develop draft legislation with the support of the Food and Agricultural Organization (FAO). SPS certificates are issued by the Ministry of Agriculture and Food Security. However, the SADC SPS National Committee is operational, as Lesotho is a signatory of SADC SPS Annex. Lesotho imposes SPS restrictions on livestock and livestock products, and plants and products thereof to ensure that they are of appropriate breed and from approved sources (investigated prior to importation) in an attempt to prevent disease transmission. All crops require an import permit to be imported into Lesotho and the permits are available from the Department of Crops, Ministry of Agriculture. These permits are used to promote food safety by ensuring that only plants and crops safe for human consumption enter the country. They are usually issued within a week. Major export products requiring export permits include pulses (beans and peas), wool and mohair and hides and skins. Major import products that require import permits include sugar, red meat, livestock, poultry (pullets and day-old chicks), poultry meat and eggs, milk


and dairy products, fruits and vegetables while there is a prohibition on importation of wheat and wheaten products including bread.

Malawi Malawi does not impose any export bans but ‗restrictions‘ for example on tobacco leaf and maize. These restrictions are meant to ensure sufficient domestic supplies before permits are issued for exportation of agricultural products. On the same reported NTB regarding restrictions on tobacco, the Ministry informed that this measure is adopted to reduce cases where farmers sometimes import foreign tobacco for sale on Malawi auction floors when price differentials favor the Malawi auction floors. Malawi imposes an export tax of 50% on all exports of raw timber to curb deforestation and illegal logging from neighboring states. Malawi also confirmed that there is an excise tax (20%) levied on both exports and local edible oils as well as on chicken and eggs. The Ministry of Industry and Trade would publish/notify the legal instrument guiding this in May 2012. Malawi would also notify the SADC Secretariat of all its road user charges. The Malawi Chamber of Commerce and Industry also reported an unnecessarily large amount of documentation required for export and import and wants to see a reduction in that documentation to increase trade and reduce costs. The Chamber also informed that there had been a complaint raised on scan fees levied in Mozambique. Mozambican wheat flour producers complained that Malawi imposes a levy on wheat flour imports.

Mauritius Mauritius eliminated all the 21 NTBs which were reported on the online database last year (2011). Mauritius has a functional NTB focal point. Mozambique Mozambique had three outstanding reported NTBs on the online reporting portal but had not reported any against other countries. Pertaining to a complaint that Mozambique imposes a length restriction on articulated vehicles (artics) carrying ISO shipping containers to 16.5 meters less than recommended under SADC, Mozambique was also reported to levy fines on those transporters travelling through the country with artics longer than 16.5 meters. In response, Mozambique informed that the country now has a revised transport code which is harmonized with SADC rules and regulations and this complaint has since been sent out to the Ministry of Transport for verification. On the complaint by Malawian traders that there were many delays at Beira and Nacala ports, the Revenue Authority informed that they had communicated to the Ministry of Trade problems caused by Malawian traders including inadequate bond coverage for imported goods as well as delays in payments of dues (import duties and charges). On the issue concerning payment of ‗guarantees‘ on transit cargo especially in relation to rail transport under DIPLOMA 10/2002 30.01, Mozambique Revenue Authority informed


that Mozambique‘s intention was to strengthen security since there had been attacks on rail transport during the civil war era. The Diploma has since been revised and the newer version does not emphasize ‗guarantees‘ since rail transport is a public utility but this new version has not been approved. The private sector was consulted on this matter. Therefore, to the Government of Mozambique, the complaint on ‗guarantees‘ paid for use of rail transport on transit cargo was a classification issue where security needs to be separated from other fees because there are other agencies besides customs that levy other fees on transit cargo. Furthermore, Customs intimated that Mozambique no longer charges security fees to escort cargo. The CEPAGRI reported problems faced by Mozambican exporters of maize into Malawi and Zimbabwe where they face border closures as well as indicating that the signature for the SADC certificate of origin is only available in Maputo. IPEX also reported that Mozambican produced mangoes were now being exported to Saudi Arabia because of the ‗fruit fly‘ disease fear in South Africa. There was also a report that Kenya had charged import duties on Mozambican tea in transit and on bond to India. Mozambican authorities also informed of a wheat flour levy imposed by Malawi on Mozambican exports of wheat flour. The Team was informed that even though it is not considered an export tax, cotton farmers pay a small fee to the Institute of Cotton just like cashew farmers pay a levy to the Institute of Cashew. The Team was also informed by the Informal Cross Border Traders Association (Mukhero) of a government ban/border closure on chicken imports from South Africa – an issue that the association was pursuing with the Ministry of Industry and Trade. Mozambique has a functional NTB focal point for both the private sector and the public sector.

Namibia With regards to NTBs, since the inception of the online reporting mechanisms, Namibia has received 41 reports, 34 were removed as they were not genuine or legitimate; five were further resolved. A resolution was sent for the remaining four to the SADC Secretariat in February 201237. Namibian companies raised complaints that procedures for Value Added Tax (VAT) (claim back) in Namibia are too complicated, as well as a complex variety of documentation required and lengthy and costly customs clearance procedures. There are no less than six (6) ministries, the Namibian Police, two marketing boards and a statutory board involved in the management of exports and imports. The applicant is obliged to collect all relevant permits/certificates from the line ministries and other bodies before a commercial import/export application can be made to the MTI. For certain goods, up to three different points of control apply. This NTB has since been resolved (April, 2012) because now the Ministry of Trade and Industry‘s processes and procedures allow a client to obtain an import/export permit in one hour if all the required documents are provided. Delays may still be experienced, however, for export products especially where this is a ‗controlled‘ product and the client is expected to obtain a clearance certificate from the relevant 37 SATH expert checked on the http://tradebarriers.org/ and found that the last four complaints were reported as resolved on March 13th and 14th 2012

http://tradebarriers.org/


ministry for tax purposes; or when the importing country policies and regulations require that the imported product be accompanied by authorized documents from relevant authorities. At the same time, a clearance certificate is only required when a client is importing or exporting a ‗controlled‘ product that needs verification to determine the value for tax purposes. Namibia does not have export bans (except on rare cases like outbreak of diseases such as foot and mouth, etc.), but has restrictions related to SPS measures on certain products and also import permits are required for the importation of second hand goods (cars, clothes) as well as for certain seeds. Although Namibia currently does not have export taxes, the country has in place some restrictions on exportation of strategic products such as live animals. Furthermore, the restrictions also serve to encourage value addition. For instance, the country applies the 6 to 1 restriction ratio on sheep exportation, whereby for every one sheep exported, six should be slaughtered locally. With regards to cattle, for every tonnage of meat exported (to DRC), equivalent tonnage should be procured locally. Namibia closes its borders when there is disease outbreaks in other countries such as foot and mouth, red water etc. The country will not allow imports of meat or other affected products from the countries where there are outbreaks. Namibian authorities indicated that whenever there are requirements for import permits, the relevant Ministry has a decentralized system and as such any potential importer will be able to get the import permit in regional offices throughout the country. Namibian companies had also reported exorbitant fees charged by DRC as well as high turnaround time for trucks, which is unnecessarily extended and unpredictable. It is reported that toll fees in DRC are not in line with both SADC and COMESA harmonized fees. In fact, simple calculations reveal that road toll fees in DRC are about 15 times the SADC recommended rate. The DRC has, however, reported that these road fees are being reviewed and has also agreed to forward to Namibia all the road user charges in effect. Namibia has been facing challenges in trying to get resolutions on NTBs reported for DRC (mainly because of a language problem – all phone calls are answered in French) and Angola (the NTB focal point office do not pick up the phone). The private sector pointed out that although SADC tariffs have generally declined over time, challenges still exist in areas such as infrastructure and inefficiencies at the borders. Furthermore, some countries have even imposed unfair regulations to hinder imports of certain products into their territories. A case in point is Botswana, which has of late imposed new levies on imported alcohol and some beverages. Namibia has a functional NTB focal point. South Africa The Minister of Trade and Industry is authorized to prohibit imports by notice in the Government Gazette of goods of a specified class or kind into South Africa, except under the authority of, and in accordance with, the conditions stated in a permit issued by the International Trade Administration Commission (ITAC). The main categories of controlled imports are:


Used goods. ITAC requires import permits on used goods or substitutes if such goods are manufactured domestically thus creating a de facto ban on most used goods including used clothing;

Waste, scrap, ashes and residues and other harmful substances;

Goods subject to quality specifications: This restriction permits the monitoring of manufacturing specifications that enhance vehicle safety (such as in the case of tires) or protect human life.

With Tanzania, South Africa‘s main concern has been the refusal to accept that lubricants from Brentrite meet the ROO. After a joint inspection by SARS and the Tanzania Revenue Authority the Tanzanian‘s denied eligibility, on the grounds that the product was not sourced from local crude oil. This is not consistent with the agreed rules of origin. SARS confirmed that all products exported under the SADC Trade Protocol are assessed by SARS prior to issuing a ROO certificate. South Africa has import and export regulations that include label restrictions, import procedures, import restrictions, exports, export restrictions, trade restrictions and package classification. All companies that are registered with South Africa‘s Department of trade and Industry can participate in import trade without a need to apply for unique trading rights. Licenses are required for certain products: These include shoes, waste products, petroleum and certain agricultural products. Importers must have a license before they can import any of these products. Therefore, the license issued by the Import and Export Administration Bureau is valid for 12 months.

Import Procedures: According to South African gazettes, imports such as waste products need approval from the relevant departments and licensing from the Export Administration Bureau. Importers often face delays in obtaining these licenses; this restricts them for exporting their goods to South Africa on time.

Import Restrictions: South Africa has stringent import controls on agricultural and poultry products and does not allow the importation of radiation processed meat. Fruits such as apples, cherries, and pears are subject to inspection. South Africa has a ban on the imports of all birds and related products

Registration: South African exporters are required to be registered in the Customs house. Supervision of export licensing is forced upon strategic products, non-redeemable resources, agricultural products, scrap metals and so on. Before the Customs House could grant an export license for waste metals, consideration should be given to South African lower stream enterprises at a discounted rate of their export prices.

Export Restrictions: South Africa is the main producer and exporter of chromium in the world and makes up 75% of the world‘s reserves. To increase the added value of its exports and create job opportunities at home, the South African government has decided to reduce the export of raw materials including gold, platinum, and chromium. South African enterprises have demanded that the government restrict the export of chromium to China and impose export tariffs on chromium.

There are strict terms that must be complied with before labeling any parts of agricultural products that may be sold in South Africa. The details include the calculating, labeling and quantity fixing requirements for prior packing. It also includes


general rules for goods delivery and sales, voluntary classification and labeling requirement for sheep, cows, pigs, goats sold in South Africa as well as grading, packing labeling requirements for sorghum syrup.

On NTBs relating to SPS matters: The South African government requires an import permit for certain controlled products, including irradiated meat and honey from any source. In 2008, Mozambique the reported the occurrence of Bactrocera invadens fruit fly which led to South Africa suspending import of host commodities based on phytosanitary risk. It is worth noting that the Department of Agriculture, Forestry and Fisheries (Directorate Plant Health) provided technical assistance to its counterparts in Mozambique to establish the required pest free areas in the southern and central regions of Mozambique through surveillance and according to international standards for phytosanitary measures. Technical deliberations are in the final stages and an official bilateral ―recognition of pest free area status” is underway that will enable imports to continue from these areas. South Africa has had issues with its trading partners with regards NTBs. In particular Botswana, Zambia and Zimbabwe have been listed has having border issues with South Africa though other countries have also reported cases against South Africa like Malawi and Mozambique. Some of the reported cases have been outstanding for a very long time like the organic honey exports from Zambia to South Africa. Other often-cited NTBs include port congestion, customs valuation above invoice prices, theft of goods, import permits and antidumping. South Africa expressed concern over the treatment of NTBs. Currently, the on-line database lists 487 such barriers. There is concern at the lack of follow up with many countries not responding to the complaints. South Africa established a National Monitoring Committee in August 2011 with the Department of Trade and Industry as the chair. This operates as a virtual committee with members sharing information electronically rather than meeting formally. South Africa would like to see SADC Secretariat addressing NTBs more proactively. The Secretariat has a role to play in publicizing non-compliance, and coordinating bilateral meetings. The absence of an SADC Tribunal ensures there is no legal recourse for non-compliance. Swaziland Swaziland applies several restrictions on imports, particularly in the agricultural and dairy sectors. The National Agricultural Marketing Board (NAMBOARD) issues import permits for agricultural products and may limit their importation by specifying quantities that may be imported and through the imposition of import levies, whilst the Swaziland Dairy Board (SDB) controls dairy imports in much the same way. The Import Control Order of 1976 and Legal Notice No. 60 of 2000 clearly stipulate approximately fifteen (15) broad categories of products that are subject to import permits. These products include, among others, arms; automotive parts; drugs; electrical appliances; gold and other precious metals; used clothing; used footwear; used motor vehicles; used textiles; mineral oils and some agricultural products, such as wheat flour, dairy products, maize and rice. Import permits are issued by the Ministry of Commerce, Industry and Trade (MCIT) and are valid for a period of one year. All applications for import permits are issued by the Import Permit Committee, which meets weekly. Requirements for import permit by first–


time applicants include: a certificate of incorporation; memorandum and articles of association; trading license; tax clearance certificate; original pro forma invoice for the goods to be imported; and most recent bank statement. The importer should also agree to inspection of their premises. Subsequent applications for import permits by the same company must only be accompanied by the current trading license; tax clearance; and pro forma invoices. On importation of the goods, the importer must produce an invoice; bill of entry; bill of lading; and any other relevant documents. An administrative charge is levied on goods imported using the permit at a rate of E 1,00 per E 2,000 of value. With respect to agricultural products, import restrictions and prohibitions are maintained by NAMBOARD, which is the marketing channel for agricultural products. NAMBOARD issues the import permits for agricultural products and may limit imports of agricultural products by defining quantities that may be imported as well as by raising import levies. In addition, whenever there is bumper harvest of grains and horticultural products, NAMBOARD institutes border closures in order to promote purchasing of local products. Table 26 below shows a list of agricultural products and levies imposed by NAMBOARD. Table 26: List of Agricultural Products and Levies Imposed by NAMBOARD

Agricultural Products Levy range (%)

Fruits and vegetables 3.5%-15%

White Maize and maize products 1%-7.5%

Rice 3.5%

Wheat and Wheaten Products 3%-5%

Poultry and Poultry Products 5%-25%

Animal Feed E75.00- E225.00

Popcorn E75.00

Starch E500.00

Yellow Maize E75.00- E225.00

Source: Government of Swaziland

The SDB, which was established under the Dairy Act of 1968, controls the importation of dairy products through, among others, the issuance of import permits and charging levies on imported dairy products. Table 27 below presents the levies charged on imports of milk and dairy products.


Table 27: Levies Charged on Imports of Milk and Dairy Products

Scheduled Dairy Products Import Levy (% of invoiced value)

Full cream milk UHT/Flavoured Milk 10

Low Fat UHT 10

Fresh Full cream milk, low fat or skim milk 12

Fermented Milk/Emasi/Butter Milk 12

Fresh/Sour cream or UHT 10

Yoghurt/SIP 10

Margarine 10

Honey 10

Condensed Milk 10

Dessert/Ice cream/ mixtures 10

Baby Formulas 10

Milk Substitutes (e.g. Cremora e.t.c) 10

Full Cream Milk Powder 10

Whey/Buttermilk Powder 10

Cheese(Cheddar, Gouda or other) 10

Butter 10

Edible Products of animal origin not elsewhere specified or included in the tariff book.

10

Source: Government of Swaziland

On the whole, local business operators have complained to the International Trade Department (ITD) that the process of obtaining Certificates of Origin is laborious and involves too many documents that require making several stops in different Ministries and Government Agencies/Departments. In addition, business operators argue that the operating hours of ITD do not accommodate business operators that have to travel from the furthest parts of the country to arrive at the ITD offices in time to conduct business. What exacerbates this problem is the fact that Certificates of Origin cannot be accessed online. This means business operators have to physically visit the ITD offices to obtain and complete the necessary Certificates of Origin. In view of the above, it is anticipated that


SRA will establish regional offices in various parts of the country that can issue the Certificates of Origin and decentralize this function. Coca Cola Swaziland Limited has experienced difficulties with exporting its products to Tanzania. Tanzania is disputing the originating status of the goods produced by the company. Similarly, Palfridge Limited is experiencing difficulties exporting to Zimbabwe. The company is unable to export to Zimbabwe under both the SADC and COMESA trade preferences because the Zimbabwe Revenue Authority (ZIMRA) is not satisfied with the originating status of the company‘s products. Although ZIMRA officials have visited Swaziland on no less than two occasions to verify originating status, ITD argues that ZIMRA has not cleared Palfridge up to now. The concern raised by ITD was that even after several verification missions and additional information provided, Palfridge is still unable to export to Zimbabwe. ITD enquired as to what it will take for the Zimbabwean authorities to recognize the originating status of the goods and why the matter has taken so long to resolve. To date, tariffs are levied against these products in both countries. The introduction of Value Added Tax (VAT) in the country posed a few challenges. In view of the current fiscal crisis in Swaziland, members of the private sector are concerned that SRA may not be in a position to refund VAT advances on exports in a timely fashion and thereby, negatively affect cash flow and operating funds on business operations. The sixty (60) days refund period stipulated in the VAT Act of 2011 is deemed very long. Negotiations to reduce this time frame are ongoing between the business sector and SRA. Currently, the VAT is suspended in Swaziland. On matters relating to SPS, under the Animal Disease Act No. 7 of 1965 (amended), the Minister of Agriculture may restrict imports or exports of animals; animal products and vaccines. The Act also specifies various import requirements in terms of veterinary certification and a quarantine period of thirty (30) days. Importation of hides and skins; meat and eggs are also controlled. The importation of plants and seeds is regulated through the Plant Control Act No. 7 of 1981 and the Seeds and Plants Varieties Act of 2000. The Ministry of Agriculture and Cooperatives requires that phytosanitary certificates be obtained to import citrus fruit or trees, under the Plant Control Act, whilst the importation of cotton is controlled by the Cotton Board. Swaziland‘s exports to Mozambique include items such as meat, fresh vegetables, bread and paint. Although trade between the two countries has increased steadily over time, several NTBs were reported as making trade with the latter difficult. These include the language barrier, corruption and high import taxes. High tariffs charged in Mozambique were also mentioned as a cause for concern. Without the SADC Trade Protocol these challenges would certainly be even more pronounced. Another NTB that was reported was that Mozambique charges scanning fees for export goods from Swaziland, such as sugar. These charges are often not standard, they vary from one period to another and increase the overall cost of transporting export products through Mozambique. Swaziland also complained against South Africa where it was reported that SARS sometimes breaks the seals of goods from Swaziland as they transit through South Africa destined for various export markets. This issue borders on mistrust, which must be addressed urgently.


Although a National NTB Monitoring Committee exists, it does not meet frequently. Both the SADC NTB Focal Point and the National Monitoring Committee are virtually unknown to members of the private sector. Consequently, NTBs are often reported through business associations including the Federation of Swaziland Employers and Chamber of Commerce. Alternatively, some large companies report the challenges they encounter directly to the offices of the relevant Principal Secretary and/or Minister. Nonetheless, the Swaziland International Trade Consultative Forum has been revived and will meet quarterly to discuss issues of international trade and their direct effect on the country. Zambia Despite Zambia‘s railway network being centrally located for transporting exports to the surrounding region through the ports of Benguela (Angola), Dar-es-Salaam (United Republic of Tanzania), Beira and Nakala (Mozambique) and Durban and Cape Town (ports of South Africa), railway transport continues to be beset by frequent derailments, low motive power, low wagon availability and longer turnaround times that tend to make road transport more competitive. Furthermore, the limited facilities at border entry and exit points also have been identified as bottle necks in boosting efficiency in cross border trade. However, this situation is likely to improve with the establishment of the Chirundu One-Stop Border post and the Kasumbalesa and Nakonde One-Stop Border posts. Stringent and complicated ROO, minimum residue level requirements for agro produce, quality standards, packaging and labeling standards, certification, quotas, and strict SPS measures have also been identified as NTBs impeding the free movement of goods in Zambia. The DRC is a significant trading partner for Zambia, yet replete with NTBs because the DRC changes its regulations frequently and has too many ―administrative‖ fees for every single transaction, from the border all the way to the final destination, thus making the cost of doing business very high for Zambia traders and exporters. Zimbabwe One NTB that has resurfaced after having been resolved is on the Victoria Falls Weighbridge. It has been highlighted that the weighbridge is outdates as it still operates manually which may in some circumstances be inaccurate and as such should not be used for enforcement. The Weighbridge was examined last time when a complaint was registered and the problem rectified, however it seems the problem has resurfaced. There are arrangements to re-assize the weighbridge although assessments show that the weighbridge is old. Another NTB registered is the suspension on importation of potatoes and day old chicks which are done on SPS grounds. Another NTB that has been reported against Zimbabwe is on duty that is charged on fridges coming from Swaziland. A visit was undertaken to Swaziland to assess the origin of the fridges. From the visit, the fridge manufacturer in Swaziland promised to provide additional documents to assist in the verification process. ZIMRA is still waiting for documentation from the Swaziland manufacturer to facilitate verification of origin status of the fridges.


The Ministry of Industry and Trade in Zimbabwe reported that South Africa made it difficult for Zimbabwe to trade pharmaceutical products produced by CAPS Holdings after South Africa instituted a Regulation 2006/7 which required that all pharmaceutical products entered South Africa through four identified ports. This meant that the Zimbabwean company had to airfreight drugs to those ports making it very expensive to land drugs in South Africa. Most recent reports on the affected company indicate the company is closing down. Also in 2011, Zimbabwe reported that South Africa introduced a Government procurement restriction requiring procurement of 75% of local content for companies producing South African products, restricting supply from other countries. Already, Zimbabwe is undertaking a study to determine how this restriction has hurt the local Zimbabwean market. The Customs and Excise (Surtax Tariff) Notice, 2011, published in Statutory Instrument (SI) 156 of 2011, was repealed with effect from 7th February 2012 and replaced by the Customs and Excise (Surtax Tariff) Notice, 2012 published in SI 12 of 2012. This, therefore, means that Surtax of 25% ad valorem is being charged when certain specified goods are imported into Zimbabwe and are cleared under normal Customs Tariff. Products affected include fresh or chilled whole chickens and offal, yoghurt, processed cheese, eggs, potatoes, tomatoes, onions and shallots, beans, peas, apples, bananas, sausages, sweet biscuits, jams, tobacco, soap and consumer electronics like refrigerators, cookers and ovens etc. The National Monitoring Committee (NMC) on NTBs was established in April 2011 under the COMESA Framework. The same Committee is resolving issues under SADC and the Tripartite. The Committee has had very few meetings, but has resolved to start meeting once every month. The NMC is effective as it has been able to resolve all reported NTBs. The NMC still requires training for its members on how to use the online reporting system. 5.3 Quantitative Import and Export Restrictions Quantitative import and export restrictions are classified commonly as NTBs but are dealt with in specific portions of the Protocol on Trade. Articles 7 and 8 of the SADC Protocol on Trade address quantitative import and export restrictions. Specifically: Article 7: Quantitative Import Restrictions

1. Member States shall not apply any new quantitative restrictions and shall in accordance with Article 3, phase out the existing restrictions on the import of goods originating in Member States, except where otherwise provided for in this Protocol.

2. Notwithstanding the provisions of paragraph 1 of this Article, Member States may apply a quota system provided that the tariff rate under such a system is more favourable than the rate applied under the Protocol.

Article 8: Quantitative Export Restrictions

1. Member States shall not apply any quantitative restrictions on exports to any other Member State, except where otherwise provided for in this Protocol.

2. Member States may take such measures as are necessary to prevent erosion of any prohibitions or restrictions which apply to exports outside the Community, provided that no less favourable treatment is granted to Member States than to third countries.


Table 28 notes that there have been 21 complaints regarding quantitative restrictions registered in the Online NTB Monitoring System – most of which are reported as resolved. Additionally, the notes in the above section highlight several additional cases or confirm the measures below including:38

Botswana: The Ministry of Agriculture indicated that Botswana applies seasonal or temporary quantitative restrictions on imports of dairy products, poultry products, grains and some horticultural products aimed at protecting domestic producers. There is currently a ban on imports of poultry and beef.

Malawi: While Malawi does not impose any exports bans it imposes ―restrictions‖ on tobacco leaf and maize.

Namibia: Namibia limits bans to SPS measures but issues import permits for second hand goods as well as for certain seeds. Furthermore, restrictions are in place to encourage value addition as in the case of the 6 to 1 restriction ration on sheep exportation.

Swaziland: Swaziland applies several restrictions on imports, particularly in the agricultural and dairy sectors.

Tanzania: Tanzania imposed an export ban on the export of staples (maize) in 2010/2011.39

Table 28: Quantitative Restrictions – Online NTB Monitoring System

Imposing Country

Import/Export Ban

Product Status Explanation

Tanzania Export Scrap Metal Resolved Bamako convention governs movement of hazardous waste in Africa

Tanzania Import Day Old Chicks Resolved Protection of animals from disease.

Zimbabwe Import Potatoes Resolved Protect plants from pests.

Botswana Import Petroleum Resolved No such restriction exists.

38 It should be noted here that the information presented in the section comes from published sources but also from in-country interviews. In the latter case, there is often conflict between divisions within a particular government so in some cases the measure may not exist, it may not legally exist but is still being implemented or there is miscommunication as to the appropriate policy. This lack of transparency adds to the burdens imposed by NTBs. 39 See “Trade and Food Security in SADC” by Frank Flatters, USAID Southern Africa Trade Hub, December 2011.


The list given above is certainly partial. The World Bank estimates that nearly 10% of intra-SADC trade is affected by import bans and quotas which is surely an underestimate. Outright bans are not common in the SADC region except in the case of animal or plant disease outbreaks. However, in these cases, the scientific basis for extending bans beyond a temporary period is questionable. Most commonly imports are controlled through the issuance of import/export permits. Thus, while an explicit ban is not in place, the issuance of permits may be only periodic or, in some cases, permits are simply not issued. The use of import permits to implement ad hoc import/export bans adds to the costs due to the lack of transparency and uncertainly it adds to transactions. One of the most recent cases of bans in the region was Tanzania‘s ban on the export of maize in 2010/2011 in response to growing exports to drought stricken regions in East Africa and the corresponding rise in prices domestically. Such a measure, while potentially costly, could be seen as falling under the exception provided for in Article 9 as a measure which was at least intended to ―prevent or relieve critical shortages of food stuff‖. Many of the measures noted in the Table above could similarly be examined in light of the exception allowed to ―protect human, animal or plant life or health‖. However, as discussed further below, there is no formal system in place within SADC to process and identify appropriate exceptions to the rules.

5.4 Conclusions The preceding section provides an overview of resolved and existing complaints registered against Member States in the region. Overall, the conclusions on NTBs are however, little changed from the 2011 Audit. While the online NTB reporting mechanism continues to improve in implementation, many of the complaints remain anecdotal and resolution ad hoc. Most striking here are: 1. Subjective Complaints: Many of the complaints registered are often vague and

therefore difficult/impossible to resolve. Phrases like ―cumbersome‖, ―slow‖ or ―too high‖ are far too subjective for definite resolution. Other complaints simply do not provide enough information. However, in the absence of a verifiable standard, these cannot be resolved definitively or progress on NTBs measured.

2. Trade Facilitation Issues: Across the board, countries reported working to enhance trade facilitation initiatives to address port congestion, lengthy customs procedures, etc. Trade facilitation issues are particularly prone to the subjective complaints noted above. Aside from more traditional NTBs, a system must be put in place to measure standards and set benchmarks for trade facilitation specifically.

3. ―Un-resolved‖ Resolved Complaints: This is likely the most significant issue. For the countries with resolved NTBs, many simply examined, countries affirm that the measures noted existed. For example, levies on wheat flour in Botswana where it was noted that this was to protect local millers. A ban on the importation of wheat flour (seasonal for white maize meal) in Namibia was noted as a trade measure to protect local industries. Further clarification needs to be provided in the notes on resolved complaints. While the Protocol on Trade under Article 9 cites exceptions to the NTB prohibition, it‘s not clear that many of these cases fall under one of these exceptions. SADC Member States should consider a process or standards by which exceptions can be granted.

In these categories for the countries examined, none of the NTB complaints registered resulted in a verifiable regulatory change in response to an existing NTB.


The online system provides a useful mechanism for highlighting new NTBs and for providing the private sector with a forum in which to resolve complaints. However, it lacks a systematic focus or prioritization of NTBs. Every complaint is equally weighted. It would be advisable to complement this mechanism with an approach which will address systematic constraints and priority NTBs.

6. ANALYSIS OF ANNEX VII OF THE PROTOCOL ON TRADE REGARDING TRADE

IN SUGAR AND RELATED COMMODITIES 6.1 Introduction Annex VII of the SADC Protocol on Trade ―Concerning Trade in Sugar‖ has as its objective inter alia “to promote, within the Region, production and consumption of sugar and sugar- containing products according to fair trading conditions and an orderly regional market in sugar for the survival of the sugar industries in all sugar producing Member States, in anticipation of freer global trade;” Implementation of Annex VII was last reviewed in 2004 as part of the mid-term review. Since then, unlike other parts of the Protocol, the Annex has not been subjected to annual audit of implementation. It is therefore necessary to include it in this comprehensive review to assess its impact on trade in sugar in the region over the years.40 The review will also analyze changes to the global trade since the last assessment of world markets done as part of the development of the SADC Regional Sugar Strategy in 2007.41 6.2 SADC Production and Exports Sugar production in SADC increased in quantity terms by nine per cent between 1999 and 2009. South Africa, Swaziland and Mauritius remain key producers. However, Zambia, Mozambique and Tanzania have witnessed very rapid growth during the last decade and have become increasingly important (see Table 29). There are also several countries in SADC that do not produce sugar at all and are totally dependent on imports to meet their consumption needs. Table 29: Production of Sugar Crops (1000 tons)

Annual average

1999-2001

Annual average

2003-2005

Annual average

2007-2009

Angola 350 350 360

Botswana

DRC 1,643 1,551 1,550

40 Note that Annex VII calls for a formal review of the Annex in 2012. This is not that review but rather a broad overview of the state of play in SADC sugar trade. 41 This section provides a summary of research presented in a companion paper to the 2012 Audit “2012 Audit of the Implementation of the SADC Protocol on Trade: Annex VII – Trade in Sugar” by Nick Charalambides, Short Term Consultant – USAID Southern Africa Trade Hub.


Annual average

1999-2001

Annual average

2003-2005

Annual average

2007-2009

Lesotho

Madagascar 2,192 2,302 2,600

Malawi 2,100 2,200 2,500

Mauritius 4,928 5,155 4,479

Mozambique 523 2,020 2,321

Namibia

Seychelles

South Africa 22,085 20,260 20,241

Swaziland 4,069 4,867 5,000

Tanzania 1,375 2,100 5,000

Zambia 1,750 2,433 2,500

Zimbabwe 4,328 3,981 3,067

Total 45,344 47,219 49,618

Source: FAO Statistical Yearbook 2010

Several least developed countries in the SADC region have seen a significant increase in investment in sugar since 2001. This increase in investment has in part been driven by duty-free and quota free (DFQF) access to the EU markets under the Everything But Arms (EBA) initiative. DFQF has also been granted to Zimbabwe and Swaziland under the Interim Economic Partnership Agreements (IEPA). South African-based sugar companies have been the largest investors, though there has also been investment in the region from European and Mauritian sugar companies.42 Several countries in the region are amongst the most competitive producers of sugar in the world, including South Africa, Zambia, Swaziland, Malawi, Mozambique and Zimbabwe. Only Mauritius has been classified as a high cost producer.43 42 CTA Agritrade, ‘Regional Developments in ACP Sugar Sectors’, 15 December 2011,Special Report. 43 LMC International Worldwide Survey of Sugar and HFCS Production Costs, 2007 report; Cited in ITAC „Increase in the Dollar Based Reference Price of Sugar from the Existing US$330/ton to US$358/ton” 2009, Report No. 308.


Table 30: SADC Production and Trade (annual average)

Annual average 1999-2001



Value of imports of sugar (raw equiv): US$'000

217,513 268,774 394,958

Value of exports of sugar (raw equiv): US$'000

815,652 910,920 1,100,435


The SADC region is a net exporter to the rest of the world, though imports have been growing at a faster rate than exports between 1999 and 2009. South Africa, Swaziland and Mauritius are the main exporters. Growth in exports has been greatest for Zambia, Mozambique and Tanzania, in particular in the latter part of the last decade (see Table 31) Table 31: Exports (raw sugar equivalent metric tons) 2008-2010

2008 2009 2010

South Africa 829,343 1,093,232 618,575

Swaziland 613,852 562,191 598,306

Mauritius 453,304 366,515 464,977

Zambia 92,848 144,044 203,106

Mozambique 122,000 107,989 198,181

Zimbabwe 118,360 149,003 90,119

Malawi 103,975 55,072 82,894

Namibia 30,000 35,000 30,000

Madagascar 10,205 28,125 16,357

Angola 50,000 - -

Tanzania 6,549 - 30,000

Botswana - - -

DRC - - -

Source: ISO Statistical Bulletin March 2012


The biggest net exporter is Swaziland followed by Mauritius and South Africa. The largest net importers are Angola, Tanzania, Madagascar, Namibia, Botswana, Lesotho and the DRC. 6.3 The World Sugar Market Sugar markets remain distorted by high subsidies and other market interventions. However, world sugar prices have increased significantly since 2008, though they remain highly volatile. Although world sugar prices are predicted to continue to come off the peaks seen in 2011, average prices are expected to remain at nearly twice the average price of the last decade. Table 32: Evolution and Projections of World Prices of Sugar Nominal Terms

Source: OECD-FAO http://dx.doi.org/10.1787/88893242690444

There are several uncertainties relating to the outlook of sugar prices over the medium term. Adverse weather conditions could increase volatility and keep world prices at their very high levels. There is also the question as to whether high prices will lead to overinvestment. Also, the evolution of domestic support policies of major producers will have an important impact. A significant development in world markets has been the reform of the EU sugar regime since 2006. As a consequence, the EU has switched from a large exporter of white sugar to a large importer of mostly raw sugar. The full implementation of the EBA initiative now also provides DFQF access to all Least Developed Countries (LDCs). As a consequence, there is now more equal access to the EU market than under the ACP sugar protocol. Only South Africa does not have preferential access.

44 OECD Food and Agriculture Organization of the United Nations, OECD-FAO Agricultural Outlook 2011-2020 (Publications de l'OCDE 2011)

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

US$/t

Raw sugar White sugar


The reform of the EU sugar sector, together with the rise of world prices for sugar, has reduced the value of preferential access. For much of 2009 and through 2010, the EU market prices were below world prices. Low prices led to low levels of supply of ACP sugar to the EU markets in 2010/11. EU prices recovered at the end of 2011 and are, as of May 2012, €97 above world prices.45 6.4 Arrangements for Trade in Sugar in the SADC Trade Protocol The framework for the management of trading sugar in the SADC region is set out in Annex VII of the SADC Protocol on Trade. The ultimate objective of the Sugar annex is full reciprocal trade liberalization, to be achieved at some date after 2012 – subject to conditions on the world sugar market. It provides for non-reciprocal quota access to SACU markets as an interim arrangement to mitigate the exposure of non SACU SADC countries to the ―destabilizing effects of the distorted global market‖. The annex also provides for co-operation to further develop the sugar industries in Member States and enhance their competitiveness. Such co-operation includes the sharing of research, training and information as well as the development of Small and Medium Sized Enterprises (SMEs) within the sector. In so doing, the region will be in a position to ―take advantage of anticipated higher world prices once global liberalization in sugar trade occurs‖. Arrangements for the non-reciprocal quotas have evolved. Determination of the quotas was initially based on the notion of ―surplus production‖ defined in the Annex. The quota arrangements have been reviewed and amendments were agreed at the 39th meeting of the Technical Committee on Sugar (TCS). Quota allocation is now based on average quota allocation between 2001/02 and 2007/08, with an initial quota of 1,500 tons allocated to each non SACU net surplus producer (see Table 33). Table 33: Revised Quota Allocation under Annex VII

Country Quota Share

Malawi 7,646 19.8%

Mauritius 2,343 6.1%

Mozambique 7,623 19.7%

Tanzania 1,500 3.9%

Zambia 14,444 37.3%

Zimbabwe 5,125 13.2%

Total 38,681

Source: 39th TCS Meeting

45 http://www.illovosugar.co.za/World_of_sugar/Sugar_Statistics/International.aspx


While technical cooperation has played a lesser role in the workings of the TCS, progress has been made in identifying a work program. The SADC Regional Sugar Strategy Action Plan has been developed (2007) and endorsed by the TCS. The sugar industries have identified priority projects for the initial implementation of the work program in part based on a process, led by the TCS, of identifying constraints to production efficiencies. The challenge has been to obtain funding. A further issue of concern to the sugar industries is management practice. SADC Guidelines on Best Management Practice (BMP) are being developed by the TCS. The objective is to ensure minimal adverse impact on biodiversity and ecosystems. It has been agreed to take South Africa‘s Sustainable Sugarcane Farm Management System (SusFarMS) as a basis. The TCS has also provided a forum for discussion of the issues of customs arrangements impacting on trade in sugar, in accordance with Article 7(b) of the annex, and standards for fortification with Vitamin A. The concerns of the non-sugar producing countries are that ―by definition‖ and de jure their interests are not reflected in the workings of the TCS, and the predominance of the sugar industry in the Committee further marginalizes them de facto. Recent discussions at the TCS have considered the definition of the sugar industry and whether it should also include sugar packers. 6.5 Measures Affecting Trade in Sugar in SADC 6.5.1 Tariffs Under the SADC Trade Protocol, Member States set out their tariff reduction offers, including for sugar. The principle of asymmetry in the Protocol on Trade allows non-SACU SADC to have a differential offer to SACU. The tariff schedule offer to SACU committed Mozambique to begin its tariff phase-down for sugar in 2011 and zero rate by 2015; Tanzania‘s phase-down was scheduled to start in 2006 and zero rate by 2008; Zambia‘s phase-down was scheduled to start in 2009 and zero rate by 2012; Zimbabwe phase-down was scheduled to start in 2004 and zero rate by 2008. Mauritius and Malawi did not offer tariff reductions for sugar in their schedules. Current applied rates under the SADC trade protocol (according to Market Access Map and subject to confirmation by the Sugar Associations) are between 0-5% for Zambia, between 0-7.5% for Mozambique and 25% for Malawi. Tanzania has applied for an exemption of tariff reductions on sugar until 201546. According to the Sugar Association of Zimbabwe no tariffs are applied to imports of sugar from SADC (though Market Access Map reports 20%). Mauritius and SACU MFN tariffs are currently set at zero. 6.5.2 NTBs A range of NTBs and measures affecting trade in sugar have been identified from interviews with stakeholders, appraisals of the TCS meetings, WTO Trade Policy Reviews (TPRs) and the Tripartite NTB monitoring mechanism.

46 T. Iwanow “Impact of derogations from implementation of the SADC FTA obligations on intra SADC trade” (2011), USAID/SATH.


(a) Charges in addition to tariffs. According to the WTO Trade Policy Review, Madagascar applies a discriminatory levy and Mozambique imposes import surtaxes.

(b) Non automatic import licensing and controls. An appraisal of WTO trade policy reviews for SADC Member States indicate licensing requirements for cane sugar for Malawi on the basis of infant industry protection, Zambia and Zimbabwe also require import licensing for sugar. The Sugar Board of Tanzania confirmed that licenses for sugar are only issued when there is a deficit in sugar supply. Lesotho also controls the import of a range of food products, including sugar.

(c) Customs. The imposition of scanning charges by Mozambique on sugar exports has been raised by the TCS as affecting trade in sugar.

(d) Single channel markets and price controls. Single channel marketing in imports and/or exports exists for a number of Member States, including Swaziland, South Africa and Mozambique. According to the WTO TPR of 2009, price controls were in place in Swaziland (also DRC and Angola).

(e) Mandatory standards. Zambia has introduced a mandatory standard that sugar be fortified with Vitamin A. And Malawi notified the TCS in July 2011 that it is also likely to adopt mandatory standards for Vitamin A fortification. The effect that the adoption of mandatory standards can have on the competitiveness of sugar produced in different SADC member states was noted in the TCS. Moreover, some countries use other products (e.g. maize meal and flour) to achieve desired nutrient fortification targets.

(f) Anti-competitive practices by the private sector. The WTO Trade Policy Review (TPR) for Mozambique noted that private companies operated a cartel controlling production and distribution, which had been criticized by domestic industries that consume sugar. The potential for market manipulation at a regional level has not been an issue for stakeholders interviewed. However, only a few companies dominate the sugar sector in the region. Illovo operates in South Africa, Malawi, Mozambique, Swaziland, Tanzania and Zambia. Tongaat – Hullet operates in Botswana, Namibia, Mozambique, Swaziland and Zimbabwe. In Malawi, Illovo is the sole sugar producer. In Mozambique, Illovo and Tongaat-Hullett have majority shares in three of the four major commercial sugar producers.47

6.6 Intra-SADC trade in Sugar Sugar is one of the most widely traded products within SADC. In 2010, intra-SADC trade in sugar was worth US$199 million – over one per cent of total trade within SADC. The most important SADC suppliers for the region, between 2008 and 2010, were South Africa (44% of intra SADC trade in sugar), Swaziland (32%) and Zambia (4%). Namibia was a significant exporter of packaged sugar (11% of intra SADC trade) (Table 34). 47 USDA GAIN “Sugar Annual Report: Mozambique” (2011). http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual%20Report%20_Pretoria_Mozambique_5-26-2011.pdf.

http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual%20Report%20_Pretoria_Mozambique_5-26-2011.pdf

http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual%20Report%20_Pretoria_Mozambique_5-26-2011.pdf


Table 34: Intra SADC Exports 2008-2010

2008 2009 2010 % share for the period

Angola - - - 0%

Botswana - - - 0%

DRC 38,558 49,023 - 3%

Madagascar - - - 0%

Malawi 8,769 224 23,324 1%

Mauritius - - 8,687 0%

Mozambique 3,457 3,159 5,698 0%

Namibia 94,852 98,605 101,561 11%

South Africa 337,938 432,455 422,393 44%

Swaziland 282,052 287,004 285,072 32%

Tanzania 11,608 21,765 30,229 2%

Zambia 38,558 49,023 14,254 4%

Zimbabwe 43,988 5,433 - 2%

Total 859,780 946,691 891,218

Source: ISO Statistical Bulletin March 2012

Intra SADC trade in sugar increased from 859,780 Mt in 2008 to 946,691 Mt in 2009, dropping in 2010 to 891,218 Mt (see 6.6). South Africa‘s sugar exports to Zimbabwe, Mauritius and Tanzania have increased, while Brazil has displaced South African exports to Madagascar. Zambia stopped exports to South Africa in 2009 in favor of the EU. Mozambique‘s exports to South Africa remained flat, while it, too, rapidly increased exports to the EU. Sugar exports to SADC are important for Malawi (14% of total exports to SADC) Zambia (5%), Zimbabwe (3%) and South Africa (2%). SARS have reported that there has been no trade under the quota for non SACU SADC, offered under Annex VII, in the last two years. According to statistics from the TCS, trade in sugar under the SADC Sugar Agreement fell from 29,721 Mt in 2005/06 to 24,103 Mt in 2007/08 to 6,160 Mt in 2008/09 and 724 Mt in 2009/10; projections were of 375 Mt for 2010/11 (see Table 35). For comparison, trade under the EU-EBA was 143,375 Mt in 2005/06 and was projected to be 371,050 Mt for 2010/11 and for EU-EPA trade was 724,525 Mt in 2005/06 and was projected to be 788,399 Mt for 2010/11. Trade to the US was 121,753 Mt in 2005/06 then fell to 48,501 Mt in 2007/08 and was projected to increase to 126,378 Mt in 2010/11.


Table 35: SADC Member States Preferential Exports Mt

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

EU - EBA Malawi 48,686 57,869 70,771 49,437 50,980 52,951

Mozambique 44,110 30,131 72,720 132,599 112,000 163,905

Tanzania 20,148 30,184 32,684 0 0 0

Zambia 30,431 39,733 54,873 39,735 93,028 154,194

TOTAL 143,375 157,917 231,048 221,771 256,008 371,050

EU - EPA Mauritius 514,517 487,310 436,549 449,802 411,258 410,000

South Africa 0 0 0 0 0 0

Swaziland 152,201 153,251 188,220 182,739 267,284 284,362

Zimbabwe 57,807 59,370 59,510 107,868 97,154 94,037

TOTAL 724,525 699,931 684,279 740,409 775,696 788,399

US Malawi 10,312 2,022 3,442 9,519 5,221 4,870

Mauritius 7,415 4,020 0 0 1,500 14,000

Mozambique 19,562 20,559 0 0 9,000 24,969

South Africa 43,074 23,000 23,094 22,861 22,806 37,438

Swaziland 27,756 19,813 15,935 16,099 0 25,318

Tanzania 0 0 0 0 0 0

Zambia 0 0 0 22 0 0

Zimbabwe 13,634 23,829 12,013 0 12,106 19,783

TOTAL 121,753 93,243 54,484 48,501 50,633 126,378

SADC Sugar Malawi 7,068 5,082 3,702 6,160 60 0

Agreement Mauritius 0 0 0 0 0 0


2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Mozambique 5,797 15,500 15,566 0 0 0

South Africa 0 0 0 0 0 0

Swaziland 0 0 0 0 0 0

Tanzania 0 0 0 0 0 0

Zambia 16,856 4,550 4,835 0 664 375

Zimbabwe 0 0 0 0 0 0

TOTAL 29,721 25,132 24,103 6,160 724 375

Source: TCS Sugar Statistics 2011

6.7 The Tripartite FTA The Tripartite offers a significant opportunity for expanding preferential market access. Both COMESA, excluding SADC members and the EAC are net importers (see Table 36). COMESA (excluding SADC) imported an annual average US$760 million and exported US$201 million between 2006 and 2008. The EAC imported an annual average of US$207 million and exported US$58 million. In contrast, SADC exported an annual average of US$1,100 million compared to imports of US$394 million. Table 36: Comparison of Production, Imports and Exports of the Tripartite Regions

Production of sugar crops (1000 tonnes)

Value of imports of sugar (raw equiv): US$'000

Value of exports of sugar (raw equiv): US$'000

1999-2001 2007-2009 1999-2001 2006-2008 1999-2001 2006-2008

EAC 7,055 10,283 131,789 206,586 19,973 57,705

SADC 45,344 49,618 217,513 394,958 815,652 1,100,435

COMESA (ex SADC) 34,787 43,382 306,232 760,422 70,374 200,798


6.8 The Impact of the Protocol on Sugar Trade in the SADC Region With high international prices leading to zero rated tariffs on sugar in SACU, the non-reciprocal quotas have hardly been utilized since 2009. DFQF to the EU markets and consumption growth in relatively protected domestic markets has also drawn sugar exports away from SADC. Only South Africa, which does not have preferential access to the EU, has significantly increased exports to the region – benefiting from tariff phase-downs under the Trade Protocol. While progress has been made in terms of defining the priority needs for sugar producers


in the region and agreeing on a regional strategy for the development of the sugar sector, funds have not been available for implementation. Impact in the area of technical co-operation has therefore been limited. The substantial increase in foreign investment within the region has been instrumental in increasing productive capacity. However, a key driver of this investment has been to take advantage of preferential access to EU markets rather than a direct result of the operations of the SADC sugar arrangements. 6.9 The Way Forward? According to stakeholders in the region, there is too much uncertainty in the global market to move towards the liberalization of the SADC sugar sector to the rest of the world. Relatively high world prices have been trending downwards, and there is a strong probability of entering a period of greater volatility. EU reforms are on-going and their long term impact is unclear. Furthermore, the stalling of the Doha Development Agenda may well put off reductions in subsidies of other major sugar producers. However, supporting the full liberalization of the sugar sector within SADC should be considered. With the albeit partial implementation of tariff phase-downs, South Africa and Swaziland have access to non SACU SADC member states that are not subject to quota, while quota restrictions remain on access to the SACU markets. Also, with the full implementation of EBA, access to one of the key global markets has leveled out for SADC member states, except South Africa. This reduces the need to actively manage trade in SADC to compensate for differences in preferential markets. To achieve the ultimate objective of full reciprocal free trade in SADC, steps need to be taken beyond the removal of quotas. The co-ordinated reduction of NTBs is needed – addressing discriminatory charges and licensing requirements in the first instance, with a longer term perspective on marketing and distribution restrictions. A process to manage the development and adoption of mandatory standards is also required to prevent standards becoming a barrier in the region. Given the vagaries of the world market for sugar, stakeholders expressed concerns about the possibility of damaging import surges from other SADC Member States that might accompany a significant drop in prices on world or on preferential markets. The SADC Trade Protocol, Article 20, already provides for a safeguard mechanism. However, a concern has been raised regarding the capacity of Member States to effectively utilize such a mechanism. A special safeguard mechanism for sugar may be required to ensure Member States have confidence in their ability to manage the impact of shocks in the world market. The TCS is generally considered by stakeholders to be well placed to further work on addressing NTBs – it is already concerned with customs issues affecting trade in sugar – and the development of regional standards. The TCS brings together both the private and public sectors allowing for a balance between commercial and policy concerns and the participation of experts lead to greater confidence in the decisions taken. However, the TCS does not have any power to enforce decisions. Furthermore, several of the barriers identified affect much more than trade in sugar. The TCS was also commended by the sugar associations interviewed for its work on developing a regional strategy and highlighted the need for funding of these activities and for the TCS to play a lead role in implementation.


Regarding the Tripartite, the sugar associations interviewed also considered that the ―TCS would be a suitable forum for continuous consultations as the Tripartite negotiations on sugar progress‖. However to ensure a broader representation of interests than that of the sugar producers, in particular sugar producing companies, non-sugar producers would need to increase their participation. Addressing any future concerns of anti-competitive practices would not be best dealt with by the TCS given the strong presence of the private sector sugar producers. 7. CUSTOMS AND TRADE FACILITATION 7.1 Introduction In a globalized and highly competitive world economy, differences in transport costs become highly important. An important source of transport costs in international trade originates at the borders. Cumbersome procedures and long delays at the borders directly increase the costs of transporting goods. The increase includes additional wages that need to be paid to drivers and administrative staff responsible for custom clearances. There is also an opportunity cost incurred in long customs wait times. Wilson, Mann, Okuki (2004) is a seminal paper that estimates the impact of customs procedure on countries‘ exports and imports. The authors construct four indicators that they assume can be important for trade — the customs environment, port efficiency, regulatory harmonization and services sector infrastructure. Their results indicate large potential increases in trade and growth rates from increases in these areas. They find that global trade flows receive the biggest boost when exporter port efficiency and service sector infrastructure improve with customs environment and regulatory harmonization also important for trade flows. According to this study, additional trade in manufacturing goods that would be generated from improvements in these four measures amounts to US$377 billion. Research by Djankov, Freund and Pham (2006) support these conclusions and demonstrate that each day of delay at customs is equivalent to a country distancing itself from its trading partners by an additional 85 km.

Table 37 provides an indication of the extent of trading costs in SADC and the world. The Table uses data from the World Bank‘s Doing Business Indicators which show that SADC performs poorly on customs procedures in comparison to other regions in the world. On average, in a SADC country, 8.5 documents are required to export a good and nine documents to import. Also, time to export and import in SADC are high and requires around 32 days. The Logistic Performance Index (LPI) is another indicator of SADC trade facilitation environment. The LPI‘s five components include: (1) The efficiency of the clearance process (speed, simplicity, and predictability of formalities) by border control agencies, including customs; (2) The quality of trade- and transport-related infrastructure (3) The competence and quality of logistics services; (4)The ability to track and trace consignments; (5) The ease of arranging competitively priced shipments. Table 38 shows that overall SADC performs below expectation on the LPI and the customs component of the LPI in particular. Among SADC Member States the country with the most efficient customs procedures is South Africa which is ranked 31st in world. South Africa is followed by Mauritius, Tanzania and Madagascar ranked 50th, 74th and 87th in the world, respectively. All other countries sampled are outside of the top 100 countries with regards to customs efficiency on the LPI.


Table 37: The Number of Documents and the Time to Cross a Border

Region Documents to export (number)

Time to export (days)

Documents to import (number)

Time to import (days)

East Asia & Pacific 6.4 22.7 6.9 24.1

Eastern Europe 6.4 26.7 7.6 28.1

Latin America 6.6 18 7.1 20.1

MENA 6.4 20.4 7.5 24.2

OECD 4.4 10.9 4.9 11.4

SADC 7 31 8 38

South Asia 8.5 32.3 9 32.5

Sub-Saharan Africa 7.7 32.3 8.7 38.2

Source: Doing Business Indicators, World Bank

Table 38: Logistics Performance Index Rank (out of 155 countries sampled)

Country LPI Customs

Angola 142 151

Botswana 134 126

Congo, Dem. Rep. 85 59

Madagascar 88 87

Mauritius 82 50

Mozambique 136 145

Namibia 152 152

South Africa 28 31

Tanzania 95 74

Zambia 138 113

Source: Logistics Performance Index, World Bank

In recognition of the importance of trade costs for enhancing the outcomes of the Protocol on Trade, SADC has an extensive program on cooperation and harmonization of customs


issues. The Protocol on Trade guides this cooperation in Part III of the Protocol. In particular:

Article 13 and Annex II of the Protocol deal with Cooperation on Customs Matters;

Article 14 and Annex III overview SADC Trade Facilitation work;

Article 15 and Annex IV regulate SADC work on Transit Trade. The SADC Protocol on Trade calls for Member States to cooperate on issues such as: Customs Tariff Nomenclatures (CTN), valuation laws, customs procedures, computerization of customs procedures (automation of national customs systems), enforcement and investigations, training and exchange of information, simplification and harmonization of trade documentation. In order to implement the provisions of the Protocol regarding customs issues, SADC has established extensive structures at the SADC Secretariat and developed several inter-governmental committees. The most important of these committees is the Sub-Committee for Customs Cooperation (SCCC). The SCCC reports to the CMT for implementation of decisions. In addition, several technical working groups have been established across the range of issues. This Chapter overviews progress with regards to implementation of SADC Customs and Trade Facilitation measures as delineated in the SADC Protocol on Trade and primarily aims to update the key results of the 2011 Audit of the Implementation of Regional SADC Customs Instruments and International Conventions (SATH, 2011) 48 7.2 Implementation of the SADC Customs Program 7.2.1 Common Tariff Nomenclature (CTN) and Harmonized System According to Article 3 of Annex III of the Protocol on Trade “each Member State undertakes, to adopt Customs tariffs nomenclatures and statistical nomenclatures which are in conformity with the Harmonized System”. SADC has developed a CTN which is based on Harmonized System (HS) 2007. The CTN serves as an instrument for the harmonization of the tariff code across the region. The HS is a multipurpose international product nomenclature developed by the World Customs Organization (WCO) comprised of roughly 5,000 commodity groups, each identified by a six digit code, arranged in a legal and logical structure; and is supported by well-defined rules to achieve uniform classification. The World Customs Organization launched the new HS version HS 2012 on January 1, 2012. This revision incorporates about 220 amendments related to commodities such as ozone depleting substance, chemicals and pesticides and new technology. With the new revision, the SADC CTN must be updated accordingly. In order to ensure implementation, the update of CTN will have to be followed with sensitization and awareness activities which will be done during the course of 2012. As shown in Table 39 all SADC countries have implemented the 2007 version of the HS code and several SADC countries have already made a transition to the 2012 version.

48 However, given the fact that the full adoption of the Customs Audit is pending as Member States verify their adoption of international Customs Conventions this issue was not analyzed in the current the Audit of the Trade Protocol.


Table 39: Implementation of Harmonized System in SADC

HS2007 HS 2012

Botswana Yes Yes

Lesotho Yes No

Malawi Yes No

Mauritius Yes Yes

Mozambique Yes No

Namibia Yes Yes

South Africa Yes Yes

Swaziland Yes No

Tanzania Yes n/a

Zambia Yes Yes

Zimbabwe Yes No

Regarding Customs Tariff Nomenclature (CTN) an approved nomenclature has been developed. However, as already noted, the implementation of a harmonized CTN is constrained by the overlapping memberships of SADC Member States in additional regional economic communities (RECs) each of which have their own CTN. 7.2.2 SADC Transit Management System (TMS) and Regional Transit Bond Guarantee (RTBG) The Transit Management System (TMS) was developed and adopted by the CMT in 2009 as an instrument to harmonize and standardize procedures for goods in transit across the region. It includes the transit procedures and the bond guarantee system. Based on the adoption of the TMS, two pilot trials have been implemented.

The first pilot TMS started on the Malawi‐Mozambique‐Zimbabwe‐South Africa corridor from 2008 to 2009. The second pilot scheme, on the DRC‐Zambia‐Zimbabwe‐South Africa corridor, was implemented in 2009. Both of the schemes involved few selected freight forwarding agents and truckers. In 2010, an evaluation report was commissioned that assessed the COMESA and SADC Transit Management Systems. The report prepared by Mpata (2011) reported that a positive outcome of the trials was that of truck transit time savings between South Africa and Malawi, from average 8‐9 days in normal runs to average 3‐4 days during the transit period. However, as noted by the report ―the transit time improvements may have been partly due to “fast track” processes, specifically arranged for the trials rather than real life movement of traffic as per the TMS procedures.‖ It is also important to highlight that the pilots have been rather limited in scale with, for example, on the DRC route 157 regional


bonds issued. This figure needs to be contrasted with, for example, more than 50,000 bonds issued on the Zimbabwe-Zambia borders annually (Mpata, 2011). Overall, the SADC TMS is not fully operational at the time of writing. Member States have been slow to domesticate the adopted instruments into national laws. In particular, the SADC RTBG which was approved by Ministers is not operational despite the fact that implementation could yield significant improvements in trade facilitation in the region. Once again slow progress in implementation of SADC TMS lies partially with the overlapping membership in RECs of several Member States. Countries that are members of more than one REC may be faced with a situation where they are working on implementing two different systems and cannot legislate both. This is especially problematic with the RTBG system as the COMESA scheme is based on the International Road Transport Convention (TIR Convention) principle of use of a Carnet as evidence of a bond and a network of sureties. In contrast, the SADC scheme is a based on a system where bond is taken by the principal bond holder who creates his own network of designated representatives through an inter‐agency agreement (Mpata, 2011). For TMS systems to work efficiently and lower transit costs they need to be all encompassing and include as many countries as possible. It is therefore argued that future SADC work on TMS should be in close cooperation with other RECs to create a joint Tripartite TMS. 7.2.3 WTO Valuation System Article IV of Annex II of the Protocol on Trade states that “Member States undertake to adopt a system of valuing goods for Customs purposes based on principles of transparency, equity, uniformity and simplification of application in accordance with the WTO Valuation System.” The 2011 Audit of Implementation of SADC Customs Instruments found that all Member States implement this agreement. This year‘s Audit of the Trade Protocol confirms that finding. 7.2.4 Customs Model Act As part of the work for the creation of a Customs Union, an SADC Model Customs Act was developed and approved together with a draft Protocol on the Customs Union. It is envisaged that Member States will align their customs legislation to the Act. This however has been constrained by a similar set of problems as other SADC Customs Instruments. As mentioned in the 2011 Audit of Implementation of SADC Customs Instruments, the fairly low level of implementation in this area is explained in part by overlapping memberships with other RECs. Member of SACU, COMESA and the EAC each align with the Act appropriate for the REC. 7.3 Customs Cooperation in the Exchange of Information and Prevention of Illicit Trade Article VII of Annex II on Customs Cooperation states that “Member States undertake to co-operate in the prevention investigation and suppression of Customs offences.” This issue is also highlighted in the Strategic Indicative Plan for the Organ on Politics, Defense and Security Cooperation where Customs administration is identified as one of the security agents necessary for the fight against cross-border crime and the promotion of domestic


security. In order to fight cross border crime, it is crucial for all relevant entities including for example Police, Army, Immigration and National Parks to cooperate on the matter. Fact finding visits to Member States have established that there is a limited but visible level of cooperation between customs and security organs regionally aimed at preventing illicit trade. This cooperation is, however, to a large extent informal and not based on SADC work or any bilateral Treaties or Memorandums of Understanding (MOUs). Regional work at SADC on the issue of illicit trade has begun with the adoption of the Framework of Cooperation and Enforcement regarding Illicit Trade. At a recent meeting of SCCC in July 2011, it was agreed to ―consolidate any other Customs related activities undertaken by other directorates with a view to enhance synergy to deal with the issues.” It was also agreed that the finalization of the Enforcement framework will be done in conjunction with the SADC Directorate on Organ, Politics, Defense and Security. In conclusion, fighting illegal activities related to customs administration is an important part of overall trade facilitation and the creation of a peaceful, prosperous SADC Region. SADC may want to consider creating a Working Group which would encompass all relevant stakeholders and would be tasked with fighting illicit trade in the region. 7.4 Skills Development and Capacity Building Training and capacity development is critical for the development of a well-functioning customs administration. The SADC Secretariat has a program to support Member States in capacity building in the area of customs administration. A range of training has been provided to Member States on issues such as in ROO, valuation, transit, tariff, post-clearance audit and risk management. However, as first noted by the 2011 Audit of SADC Customs Instruments, there is a range of important customs issues where training has not yet been provided. These issues include, among others, bonded warehouses, audit procedures and excise management. This Report reiterates the Customs Audit recommendation for the creation of a training action plan that would guide future work in the area. 7.5 Conclusion Overall, this chapter provides a shortened update to the last year‘s Audit of Implementation of SADC Customs Instruments and has broadly reconfirmed its findings. This chapter has found that SADC Member States are implementing HS and are in the process of applying the HS 2012 revision to the system. SADC signatories to the Protocol on Trade are also all using WTO Customs Valuation. Less progress has been made with regards to the implementation of SADC TMS, CTN and the SADC Model Customs Act. This is primarily due to overlapping memberships in RECs of some of the Member States. This creates a significant obstacle to the implementation of customs instruments as Member States cannot harmonize their procedures with two different systems. It is therefore proposed that a bulk of SADC work on customs harmonization be in close cooperation with COMESA and EAC to create synergy in light of the foreseen Tripartite FTA.


8. ACCESSIONS Of the 15 SADC Member States, only Angola, the DRC and the Seychelles have yet to join the SADC FTA. As SADC re-envisions the integration process outlined in the Regional Indicative Strategic Development Plan (RISDP), a primary thrust of current work is the consolidation of the SADC FTA. The accessions of the remaining Member States are a central plank in this platform. The Protocol on Trade does not outline a formal process for accession but the Secretariat has developed guidelines for such accession which provide policy guidance with respect to the process to be followed. To date, Madagascar is the only country to have acceded to the Protocol since its signing. Ideally, the process for accession would include the following steps:

Initial capacity building exercise to analyze the implications of FTA accession.

High Level Mission from the SADC Secretariat to establish political buy in and identify primary issues.

Formal analysis of a potential tariff phase-down offer and initial set of capacity building activities to prepare for implementation of customs, trade facilitation, ROO etc. Activities would include initial sensitization activities for both public and private sector.

Submission of a proposed tariff phase-down offer to Member States.

Review of offer by Member States, response to comments and acceptance of offer.

Capacity building program designed and implemented to ensure compliance with terms of FTA as well as comprehensive awareness raising activities targeting public and private sector.

The following sections take stock of the work that has been done to date, notes challenges faced by the countries and provides a brief view of trade potential. 8.1 Angola Although a founding member of SADC, Angola does not yet participate in the SADC FTA. In the initial years of implementation of the SADC Protocol on Trade, Angola had only recently emerged from a protracted period of civil strife which had heavily damaged the country‘s productive capacity. Today, Angola is still recovering from these effects and is embarked on a program designed to improve and increase investments in infrastructure development and modernization. The accession of Angola to the SADC Protocol on Trade has been in discussions at least since the signing of the Protocol. Since 2003, Angola has received at least two missions to assist in the preparation of draft tariff phase-down offers. However, neither of the draft offers has been put forward through the legislative system. In 2011, initial preparations were made to undertake a high level mission from the SADC Secretariat to discuss the accession process. While the mission was rescheduled, there has yet to be technical engagement on the accession process. Energy products – most specifically oil – dominate Angola‘s export and trade. Angola trades very little with the SADC region (only significantly with South Africa) as illustrated in Table 40 below. Trade is instead focused on exports to China, the US, Brazil and Portugal mainly so in crude oil, diamonds, petroleum products and precious stones and minerals for exports and machinery and electrical equipment, vehicles and spare parts; medicines,


food, textiles, military goods for imports. However, Angola presents a viable market to Namibia a neighbor with whom it shares a common border. The two countries have been negotiating the establishment of the joint commission on trade which would promote doing business between the two countries. Table 40: Angola – Pattern of Trade

Main regional export

destinations

(% of world exports)

Main regional import

sources

(% of world imports)

Exports to SADC (% of

world exports)

Imports from

SADC

(% of world

imports)

SACU (1%) SACU (7%) 1.52% 7.23%

Looking forward to the accession of Angola to the Protocol on Trade, Table 41 below indicates that Angola‘s tariff structure compares favorably to other SADC Member States with only four tariff bands and a modest 7.4% weighted average tariff. The strongest challenge to accession for Angola will be the implementation of trade facilitation and ―behind the border issues‖. Of the three countries yet to accede, Angola has perhaps the most to gain from accession and integration into the SADC region. Currently, Angola is focused on renewing its agricultural sector – particularly in areas bordering Namibia – for a range of commodities which would find strong markets in the SADC region. Table 41: Angola Tariff Structure

Total lines 0-5% 5-10% 10-20% 20-50% 50-100% >100% Tariff bands

5,201 3,378 633 945 144 0 0 4

No of lines Simple Av (%) Weighted Av (%) Min rate (%) Max rate (%) Tariff bands

5,201 7.31 7.4 2 30 4

Source: Compiled from World Integrated Trade Solutions (WITS – World Bank)

8.2 DRC As with Angola, the DRC economy is still recovering from the effects of past and on-going civil strife. Although a member of both SADC and COMESA, the DRC has yet to participate actively in the regional integration programs of either REC. No substantive process has yet been undertaken with regards to accession although the DRC has benefitted from a number of trade-related capacity building activities including trade facilitation (particularly at the Lubumbashi border) and on NTBs. While a high level mission from the SADC Secretariat was planned for 2011 to discuss inter alia accession to the Protocol on Trade, it has yet to take place in part due to 2011‘s election cycle in the DRC. In August 2011, SATH undertook a mission to the DRC to launch a capacity building program which is to include an assessment of the economic implications of accession to


the Protocol on Trade. The mission involved consultations with a wide range of stakeholders including the Ministry of Trade, Customs and private sector organizations. Discussions revealed a wide range of often conflicting opinions with regards to implications of participation in the SADC FTA – often within the same Ministry. Stakeholders seemed particularly divided on the issue of whether the DRC‘s interests rested primarily with SADC or COMESA. The private sector had very little awareness of the potential benefits of the FTA or the level of protection provided by the DRC‘s current trade regime. The linkages between participation in individual RECs and the Tripartite added an additional degree of complexity to discussions. The completion of the assessment and the related capacity building program has been delayed since the initial mission due to the election cycle and on-going scheduling difficulties. Currently, SATH plans to complete this exercise in July/August 2011. In the interim, the DRC has moved forward on participation in the COMESA arrangements and has benefitted from a series of capacity building activities and a technical study done by the COMESA Secretariat to assist in joining the COMESA FTA. This study, which recommended that the DRC join the COMESA FTA and the Customs Union, was validated at a national workshop where the DRC government accepted the recommendation and took this decision at the highest political level. It is expected, based on the progress made, that the DRC will join the COMESA FTA in 2012. In addition to a bilateral trade agreement with Zimbabwe, the DRC Government has also engaged with Zambian authorities on the possibility of signing a Simplified Trade Regime (STR) agreement to curb cross border smuggling and increasing bilateral trade flows between the two countries. The DRC is also a large market for Kenya goods and the two countries have signed a bilateral trade agreement. The DRC is big in terms of geography and population size, has good climatic conditions and rich soils suitable for agriculture and has massive potential to become a big producer and market for the region. As indicated in Table 42 below, DRC exports to SADC are currently a comparatively small percentage of overall trade. However, SADC is a primary source for imports accounting for nearly 40% of the total. Table 42: DRC – Pattern of Trade

Main regional export

destinations (% of world

exports)


sources (% of world

imports)

Exports to Southern

Africa (% of world

exports)

Imports from

Southern Africa (% of

world imports)

Zimbabwe (3%) Zambia (2%)

SACU (17%) Zambia (7%) Zimbabwe (4%)

6.08% 39.56%

As illustrated in Table 43, the DRC has a very modest tariff structure although with a fair amount of products attracting the higher level of tariff rates resulting in an 11% weighted average tariff.


Table 43: DRC Tariff Structure (2009)

Total

lines 0-5% 5-10% 10-20% 20-50% 50-100% >100%

Tariff

bands

5,794 1,612 2,039 2,125 1 0 0 3

No of lines

Simple Av

(%) Weighted Av (%) Min rate (%) Max rate (%)

Tariff

bands

5,794 12.03 11.02 5 30 3

Source: Compiled from World Integrated Trade Solutions (WITS – World Bank)

Unlike Angola, accession for the DRC is likely to be fairly complex as it moves ahead on several fronts including SADC, the Tripartite and COMESA. A predominant consideration must first be for the DRC to decide on a path for regional integration and follow a consistent set of policies across the range of initiatives. 8.3 The Seychelles Of the three remaining Member States, the Seychelles has to date made the most substantial progress towards its accession to the SADC FTA presenting its tariff offer (to the rest of SADC and South Africa) to the SADC Trade Negotiations Forum (TNF) meeting in October 2011. As illustrated in Table 44, the Seychelles has both a highly variable but liberal tariff regime. Currently, on an MFN basis, fully 85% of goods are imported on a duty free basis. However, the Seychelles has 14 tariff bands ranging from 0% to 225% additionally there are 139 lines which have specific tariffs. The high tariff bands reflect specific interests for the Seychelles with particularly high tariffs on the import of motor vehicles presumably to limit environmental damage. Despite the fairly high range of bands, the simple average tariff for the Seychelles is 8.4% Table 44: The Seychelles Customs Tariff49

Duty # Lines %

0% 4824 85%

5% 107 2%

10% 2 0%

15% 17 0%

49 The analysis of the Customs Tariff is based on information available online. There is a discrepancy between this data and the information submitted in the Seychelles‟ draft offer. According to the draft offer, the customs tariff consists of 5,675 while the online information contains 5,681.


Duty # Lines %

25% 318 6%

35% 4 0%

50% 49 1%

75% 10 0%

100% 69 1%

125% 8 0%

150% 8 0%

175% 4 0%

200% 110 2%

225% 12 0%

Specific 139 2%

Total 5681

As with the DRC, the Seychelles is also a member of COMESA and is actively engaged in the COMESA FTA. Of the 857 tariff lines with positive duties, 600 are zero rated under the Seychelles COMESA offer. The offer to SADC is straightforward – it has 4845 tariff lines, all of which go to zero at commencement of implementation. The exclusion list is quite large. Previously, the highest number of tariff lines in the exclusion list (Category ‗E‘) by any one SADC country to date was around 80 lines. SADC Member States were requested to undertake national consultations on the offer and submit their comments at the next TNF meeting. Following acceptance of the tariff offer, the Seychelles may seek to implement a capacity building/awareness raising initiative to ensure the advantages of the FTA. In terms of trade patterns, as a small island developing country, Seychelles remains vulnerable to external shocks. Seychelles depends on a very thin line of exports to the outside world most notably fish, some vegetables and fruits and chemicals while depending massively on imports of food, mineral fuels, transport equipment and machinery etc. Island states, like Seychelles, tend to rely more on trade in services especially tourism related services. It is not heavily dependent on SADC trade outside of South Africa – as a source for imports – and Mauritius as illustrated in Table 45 below.


Table 45: The Seychelles – Pattern of Trade Main regional export

destinations (% of world

exports)


sources (% of world

imports)

Exports to Southern

Africa (% of world

exports)

Imports from Southern

Africa (% of world

imports)

Mauritius (4%) SACU (12%)

Mauritius (2%)

5.96% 14.77%

Source: World Bank, 2011 using IMF DOTS and UNCOMTRADE for BLNS countries using data for 2006 for Botswana and Namibia, 2004 for Lesotho and 2005 for Swaziland.

9. COMPETITION POLICY 9.1 Introduction Economic studies have shown that anti-competitive practices in both developing and developed countries have a profound effect on consumers and producers throughout the world. Damages caused by such practices have implications for the purchasing power of consumers through increased prices and producers through increased barriers to entry by restriction of information on technology. A World Bank study by Levenstein and Suslow (2001) showed that in the 1990‘s developing countries imported US$81.1 billion worth of goods from industries where companies were involved in price-fixing arrangements. According to this study, these goods represented 6.7 per cent of imports and 1.2 per cent of GDP in developing countries. Consumer policy and competition policy are logically and institutionally intertwined. Consumer policy aims at strengthening the performance of markets by providing protection for consumers from fraudulent or misleading commercial practices and from unsafe products. As noted by the OECD Committee on Consumer Policy (2012): “Empowered consumers spur business to innovate and thus drive competition and productivity. In this way, Consumer Policy supports achieving the highest sustainable economic growth and raising standards worldwide.”

Regional cooperation and harmonization of procedure are crucial since competition laws and consumer policies are national but, in a globalized world economy, markets extend far beyond national boundaries. In addition, as the SADC FTA encourages firms SADC firms to export and set up operations in the region, it is important to deal with competition issues at regional level. As SADC regional integration progresses, cross-border effects of business activities are wide spread and the likelihood that anti-competitive practices will cross frontiers increases. Recognizing the importance of competition policy, Article 25 of the SADC Protocol on Trade states that “Member States shall implement measures within the Community that prohibit unfair business practices and promote competition.” This section overviews SADC cooperation in the field of competition and consumer policy and attempts to assess the effectiveness of regional measures implemented to prohibit unfair business practices and promote competition.

9.2 SADC Cooperation in Competition Law and Consumer Policy The key step in the implementation of the competition provisions of the Protocol on Trade has been the adoption of the Declaration on Regional Cooperation in Competition and Consumer Laws and Policies by the CMT in July 2008. The Declaration provides a


framework for establishment of an effective system of cooperation in the application of Member States respective competition and consumer protection laws. In the Declaration, Member States have pledged to: ―adopt, strengthen and implement the necessary competition and consumer protection laws in their respective countries‖ and for ―the SADC Secretariat shall establish a mechanism to bring about effective cooperation in competition and consumer protection matters”. All SADC Member States have signed the declaration. Since the adoption of the Declaration, significant progress has been made to fulfill its objectives.

SADC Competition and Consumer Policy and Law Committee. The SADC Competition and Consumer Policy and Law Committee has been established and meets periodically. The committee has focused on building capacity in Member States for the formulation and implementation of competition law.

Capacity Building – Member State Level. With the support of European Development Funds‘ TradeCom Facility, a number of capacity building activities have been completed or are on-going. These include: technical assistance to support the development of competition and consumer protection in Lesotho and Botswana and the development of a harmonization framework of national competition laws.

Capacity Building – Regional. In addition, a series of regional training workshops on Competition Law and Policy have been held dealing with topics such as: merger analysis, abuse of dominance, horizontal and vertical agreements etc. Studies on competition authorities‘ cases are also presented during the training workshops.

Online Resource Database. In cooperation with Member States, the SADC Secretariat is in the process of establishing a Case Management Online Resource Database. The database is envisaged to provide information on cases regarding anti-competitive practices in the region. The website is already in the prototype/pilot stage which illustrates major fields, capabilities and access issues and is envisaged to provide improved understanding and transparency regarding competition cases in the region.

Best Practice Studies: The SADC Secretariat has led a project focusing on the ―best enforcement and analytical practices‖ that are already applied by SADC Competition Authorities. In the documents, significant attention is given to regional and global best practices. These ―best practice‖ documents have been developed in a wide range of competition and consumer policy topics including: abuse of dominance, law enforcement cases, advocacy, consumer perspective, cross border enforcement, leniency programs, mergers enforcement etc.

At country level, Member States have made significant progress in the establishment of Competition Laws and associated Competition Authorities. In the past five years, seven SADC countries have established Competition Commissions which were preceded by adoption of Competition Laws. Table 46 provides an overview of progress.


Table 46: Progress on Implementation of Competition and Consumer Protection

Pol

icy

Fram

ewor

k

Com

petit

ion

Law

Com

petit

ion

Aut

horit

y

Con

sum

er P

rote

ctio

n

Botswana X X X

Lesotho Draft

Malawi X X X

Mauritius X X

Mozambique Draft X

South Africa X X X X

Swaziland X X X

Tanzania X X

Zambia X X X

Zimbabwe X X Despite the progress, there are some constraints in cooperation on competition and consumer policy matters. SADC Member States differ significantly in terms of the level of development and also in terms of implementation of competition laws and policies. Table 45 provides a detailed update regarding the establishment of Competition Law in each SADC signatory of the SADC Protocol on Trade. The Table highlights that there are currently ten member States with operational competition regimes. The remaining Member States are actively preparing their respective competition laws. Additionally, Table 47 illustrates that the policy context and background to the development of national competition laws in SADC countries differ significantly. It shows that SADC countries have adopted their Competition Act and set up their Competition Agencies at different times. The Table also shows that enforcement experience of Member States differs somewhat as competition laws differ sharply in terms of both structure and substantive provisions. Regional policy cooperation and harmonization in the field of Consumer Protection Policy has been less substantial than for Competition Law. Few countries in the region have so far established formal consumer protection laws. In countries that have established such laws, capacity constraints are often significantly impeding effective implementation and enforcement of such policies.


Nevertheless, country visits in SADC Member States have highlighted that there is fair amount of interaction and voluntary cooperation among Competition Agencies in the region which includes technical assistance, exchange of non-confidential information, etc. Competition agencies with a long history of enforcement, such as South Africa and Zimbabwe, have played an increasingly influential role in supporting the newly established Authorities in other Member States. Table 47: Overview of Key Developments in SADC Member States Competition Policy

Botswana In 2005, Botswana Parliament approved a competition policy framework. Competition Bill aproved by Parliamanet in 2009. Competition Authority of Botswana established through the Competition Act came into operation

in 2011. Botswana‟s Competition Authority is currently at set up stage. Botswana engages in informal cooperation with Competition Commissions in South Africa,

Zambia, and Namibia. Outreach programmes in currently taking place in order to reach out to members of the business

community and members of the public on what constitutes unfair competition or anticompetitive behaviour.

The Commission is already engaged number of investigations on anti-competitive behaviour and has adjudicated a number of mergers and acquisitions.

Lesotho The Competition Bill has been drafted. In order for the bill to be passed by the Parliament, an approval of Attorney General needs to be

obtained The bill envisages a creation of a Competition Commission. It is envisaged that the process of finalizing the Competition Bill will take around a year. There is no comprehensive consumer protection law. The law is yet to be drafted.

Malawi Government adopted Competition Policy in 1997. As one way of implementing the Competition Policy, Government passed the Competition and

Fair Trading Act in 1998. The Act came into force on 1st April 2000. The act legislates the following: o encourage competition in the economy by prohibiting anti-competitive trade practices; o establish the Competition and Fair Trading Commission; o regulate and monitor monopolies and concentrations of economic power; o protect consumer welfare;

Competition and Fair Trading Commission has been established and recently moved to new premises independent of the Ministry of Trade and Industry.

Mauritius Competition Law was adopted in 2007 and the Competition Commission Mauritius (CCM) created in 2009.

Mauritius has not yet signed any MOU with SADC countries regarding cooperation, but cooperates on informal bases with a number of countries, e.g., South Africa, Zambia, Namibia, and Zimbabwe.

CCM has so far investigated around 18 cases, most of which dealt with monopoly‟s abuse of power. For a company to be investigated as a monopoly, it should have at least 30% of market share (threshold).


Mauritius does not charge penalties even if a company is convicted of monopoly power abuse, but it prescribes remedial measures to improve or change behavior. So far most companies have been cooperating.

CCM has conducted a lot of workshops and sensitization seminars in collaboration with Mauritius Chamber of Commerce and Industry (MCCI) to sensitize private sector about CCM mandate.

Mozambique The Competition Bill is not yet approved. If the competition law is passed, technical assistance would be required to establish an appropriate institutional framework and operationalize the competition agency.

Parliament has now approved the Consumer Protection Law.

Namibia The Competition Act was passed in 2003. Key Secretariat staff was recruited and the Competition Commission has been operational since 2009.

There is no consumer protection law in place yet but the process of developing a consumer protection law has commenced. Currently exploring the interface between competition law and consumer protection law.

While Namibia does not have formal cooperation with other SADC countries on competition issues, the country has informal cooperation with countries such as South Africa, Zambia and Zimbabwe.

Namibia has done a lot of work on mergers and acquisitions (M&A) (around 122 cases). A Bill is currently in a Draft form regarding anti-competitive or restrictive business practices.

South Africa In 1997, the Department of Trade and Industry released Proposed Guidelines for Competition Policy entitled “A Framework for Competition, Competitiveness and Development”.

Competition policy was concluded in early 1998; The Competition Act, 1998 (Act No, 89 of 1998) was passed by Parliament in September 1998.

Provisions of the Act allowed for the establishment of a new institutional framework. Three institutions were created in terms of the Act to achieve the above objectives: o The Competition Commission o The Competition Tribunal o The Competition Appeal Court

Swaziland Competition policy is governed by the Competition Act of 2007 and the Fair Trading Act of 2001 in Swaziland. The first Board of Commissioners was appointed in May 2008. The Secretariat to the Competition Commission was only established in January 2011.

To date, twenty-six (26) mergers have been notified and none have been rejected. The Competition Commission of Swaziland is also responsible for protecting the rights of consumers in the country.

Cases that have been reported to the Commission include that of a fertilizer supplier in South Africa, who refuses to supply fertilizer to buyers in Swaziland, save for one specific company.

The Commission has recently developed a Leniency Program, Although the Commission seeks to cooperate with other countries in the SADC region, there are

limitations on the extent to which such cooperation can actually occur in view of the fact that competition issues often have to do with confidential information that cannot be shared with other competition authorities across the region.

Tanzania The Fair Competition Commission (FCC) established under the Fair Competition Act (FCA), 2003 (No. 8 of 2003) as an independent government body to promote and protect effective competition in trade and commerce and to protect consumers from unfair and misleading market conduct.


9.3 Enhancing SADC Cooperation and Harmonization on Competition and Consumer Policy With the signing of the Declaration on Regional Cooperation in Competition and Consumer Laws and Policies and the creation of the SADC Competition and Consumer Policy and Law Committee (Network), SADC has created a platform for effective cooperation in the field of Competition and Consumer Protection Policy. Member States have also been active in the area as several Competition Acts have been enacted in the last decade and Competition Commissions established. To date, one can characterize SADC cooperation in the area as establishing the necessary first step in effective cooperation in the area. However, many challenges remain. These are related inter alia to the facts that:

There is a large discrepancy among Member States in the establishment of regulations pertaining to competition issues and consumer protection.

In the countries that already have such policies, there are large discrepancies in the modalities of established regulatory provisions.

Cooperation among Competition Commissions is further constrained by the inability to share confidential information regarding investigated cases due to lack of necessary legal framework for such information interchange.

All of the above constrain the ability of SADC Member States to effectively cooperate and investigate uncompetitive behavior at regional level. However, SADC has already

The FCA established not only the Commision but also the Fair Competition Tribunal (FCT). The Commission takes the leading role in administering the law. The Tribunal is a judicial body that provides a forum for appeals against the decisions of the Commission.

Where the combined market share of the companies is above 35 per cent, mergers have to be notified in advance to the Commission.

The competition authority has broad ranging authority regarding investigatory powers, sanctions, penalties and fines and compensatory in the case it finds anti-competitive practices.

Zambia The Competition and Consumer Protection Commission (CCPC) was established under the Competition and Fair Trading Act, Section 4 of Chapter 417 of the Laws of Zambia to prevent anti-competitive and restrictive business practices and promote consumer welfare. The law came into force in February 1995.

The CCPC is an autonomous corporate body under the Ministry of Commerce, Trade and Industry. The aims and objectives of the Commission are: o to encourage competition in the economy o to protect consumer welfare o to strengthen the efficiency of production and distribution of goods and services o to secure the best possible conditions for the freedom of trade and o to expand the base of entrepreneurship

Zimbabwe Competition Act was passes by Parliament in 1996. The Act was the fourth such an Act in the Southern African region.

In 2000, the Government took a decision to merge the Industry and Trade Competition Comission with Tariff Comission and create the Competition and Tariff Commision. New Competition Act became effective in 2001.

Companies are required to apply for authorisation of Mergers and Aquisitions. An Administrative Court exsist to hear appeals by aggreived by the decision of the Commission.


commenced work on the creation of SADC Competition Law that can provide a significant boost to the effectiveness of this cooperation. Table 48 provides a hypothetical regional linear model for cooperation in the field of competition that pools experience of such cooperation from other RECs. This overview has established that SADC Member States have already achieved, or are close to achieving, the first two key milestones in regional integration in Competition issues: the establishment of Competition Laws and Authorities and the creation of a venue for regional cooperation in the field. However, to achieve effective regional competition policies, at least a minimum degree of regulatory harmonization must take place. With the draft SADC Competition Law, the region has commenced work towards achieving this. Experience from other RECs shows that effective management of regional uncompetitive practices is often undertaken through a Regional Competition Authority that has the power to investigate competition cases and enforce relevant (regional) laws. This has been the approach taken up by, for example, the EU and more recently COMESA. In order to ensure fair competition and transparency in in the region, COMESA has adopted a regional competition policy, namely the COMESA Competition Regulations. By promoting fair competition, the regional competition policy is envisaged to boost regional trade and investment in the COMESA region. The regulations, furthermore, establish the COMESA Competition Commission as the body responsible to “monitor, investigate, detect, make determinations or take action to prevent, inhibit and/or penalize undertakings whose business activities appreciably restrains competition within the Common Market”. As mentioned above, another important example of cooperation on competition issues is EU. Box 9.1 provides an overview of the functions and work of the Directorate General – Competition of the European Union. Here it is proposed that SADC Member States should consider commencing work towards establishing the modalities and timeframes for the establishment of SADC‘s Competition Authority. Importantly, developments taking place within the Tripartite FTA are likely to shape the future work of SADC in the area of competition policy. The issues of Competition Policy have been discussed at the second Tripartite Summit held in June 2011 in Johannesburg, South Africa. As the result the draft Tripartite Agreement proposes the establishment of a Tripartite Competition Forum and other competition provisions. Crucially, overlapping memberships of some countries in both COMESA and SADC provides a good opportunity for synergies between regional cooperation on competition within the two RECs. As noted above, COMESA has already established a Regional Competition Authority and experience in this respect possibly provide stimulus for development of joint Tripartite Competition Authority.


Table 48: Linear Model of Integration and Harmonization of Competition Policies

Box 1 reviews EU‘s experience in competition law and highlights one more important dimension of the law – State Aid. A company which receives government support may obtain an advantage over its competitors. Therefore, the EC Treaty generally prohibits State aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of watching over the compliance of State aid with EU rules. The EU included this issue in its competition law in recognition of the fact that regional integration efforts could be less effective if Member States were to support national companies as they saw fit. The law of the EU therefore prohibits certain types of state aid and imposes limits on such aid. European Union‘s DG – Competition is tasked to enforce that law. Unregulated state aid may also impact on regional integration in SADC. It is therefore proposed that SADC commences discussions in this area at the SADC Competition and Consumer Policy and Law Committee (Network). Despite featuring prominently in the Declaration on Regional Cooperation in Competition and Consumer Laws and Policies, regional cooperation on Consumer Policies has been less advanced than Competition Policy. The key reason for that is that at Member State level such policies are much less advanced and utilized. Few countries in the region have formal consumer protection laws and those that do often have limited capacity to enforce it. The general public has, overall, a limited knowledge of such policy.50 They key objective for the regional work on Consumer Policy should therefore focus on strengthening domestic law and enforcement capabilities of Member States prior to focusing on more advanced regional programs.

50 This statement excludes South Africa which has a rather sophisticated Consumer Protection Law.

Establishment of Competition Law and Competition Commisions

Establishment of effective Dialogue and Information Sharing among Competition Authorities

Regulatory harmonization in Competition Law

Establishment of Regional Competition Authority


Box 1: European Union Competition Law and European Commission‟s Directorate General (DG) Competition Under the Treaty on Functioning of the European Union (TFEU), the European Commission (EC) is empowered to investigate price fixing, the abuse of market position by dominant companies and agreements that fix market share, limit production or technical development. Primary authority for applying EU competition law rests with EC‘s Directorate General (DG) for Competition. DG for Competition has four main policy areas: (1) cartels or control of collusion (2) Monopolies; (3) Mergers and (4) State Aid. DG trade has extensive powers for enhancing competition in EU Member States. The Commission has the powers to require companies to provide information and, if necessary, carry out surprise inspections in the offices of companies, with a court order. If the European Commission finds evidence of illegal business practices which restrict competition, it can act to prohibit such behavior. It can also fine companies up to 10% of their annual global turnover if the companies have, for example, participated in a cartel that fixed prices or agreed how to share out the market between them. From 2007-2011, the EC imposed €10.5 billion of fines for illegal cartels and since the 1990s has prevented 18 mergers. An important and unique characteristic of the EU competition law regime is that it also deals with State Aid. As the EU is made up of independent member states, both competition policy and the creation of the European single market could be rendered ineffective were member states free to support national companies as they saw fit. EC‘s DG for Competition is also in charge of overseeing EC Treaty that generally prohibits State aid unless it is justified by reasons of general economic development. Importantly, within the EU there is decentralized enforcement of ―fair competition‖ as the EU competition law works in parallel with national competition laws. Like SADC, EU Member States have national competition authorities which have the power to enforce both National and EU competition laws. They can order agreements and practices which restrict competition to be stopped and fine companies that have broken EU competition law. Given this regulatory dualism there is a harmonization process between the Member States‘ and the EU competition laws. This is a unique process as it accommodates regulatory competition between the Member States and the Commission, resulting in the emergence of voluntary harmonization. Source: European Commission Website

10. ASSESSING THE PROGRESS IN BUILT-IN AGENDA OF THE PROTOCOL ON TRADE

Parts 5-7 and, in particular, Articles 22-24 and 26 of the SADC Protocol on Trade contain what is referred to as the “Built-in Agenda” of the Protocol. In these articles, Member States have pledged the adoption of international agreements, promotion and cooperation in the areas of cross-border investment, trade in services, intellectual property rights and trade development. A review of developments in SADC in each of these areas reveals a large discrepancy in the progress achieved. In the areas of trade in services and cross-border investment, SADC has perhaps achieved more than the Protocol on Trade initially envisaged. In both of these areas, a separate protocol has been drafted developing a framework for cooperation liberalization and harmonization of procedures in the region. Advancement of SADC agenda regarding intellectual property rights (IPR) has been much less significant.

http://en.wikipedia.org/wiki/List_of_European_Union_member_states


The remainder of this chapter overviews in more detail the progress with regards to the development of the ―Built-in Agenda‖ since the signing of the Protocol on Trade. 10.1 Cross-Border Investment Article 22 of the SADC Protocol on Trade states that Member States “shall adopt policies and implement measures within the Community to promote an open cross-border investment regime, thereby enhancing economic development, diversification and industrialization”. SADC has achieved significant progress in moving the work agenda towards achieving the aim of the Article. The Protocol on Finance and Investment (FIP) was approved by the SADC Summit in August 2006 and came into force in April 2010. The Protocol has two overarching objectives:

To improve the investment climate in each Member State and thus catalyze foreign and interregional investment flows; and

To enhance cooperation, coordination and harmonization in domestic financial sectors in the region.

The main areas of FIP include:

Cooperation on investment;

Macroeconomic convergence;

Co-operation on taxation and related matters;

C-operation among Central Banks;

Network of Development Finance Institutions;

Co-operation in regional capital and financial markets;

Anti-money laundering and;

Project Preparation and Development Fund All of these areas are important for the promotion of “an open cross-border investment regime” and the FIP complements and extends the provisions of Article 22 of the Trade Protocol. The FIP is structured in a way that chapters are quite brief and serve to introduce the Annexes that contain the detailed content of the FIP. Annex 1 of the Protocol deals specifically with Cooperation in Investment including: the creation of domestic investment laws, adoption of international Conventions on Investment, ease of access to laws and regulations, Investment Promotion Authorities/Agencies (IPAs) and the creation of a Regional Investment Policy Framework. Since cross-border investment issues are now predominantly covered by the FIP, work is advanced in setting up modalities and procedures for effective monitoring of the implementation of the Protocol. Recently an important study was commissioned by the SADC Secretariat in partnership with FinMark and Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) which aims to document the status of implementation of the FIP Protocol and design a set of measurable indicators to determine the degree of its implementation. This study has recently been concluded and has established a baseline for future monitoring of the Protocol. This is in line with the recommendation of the Committee of Treasury Officials in July 2010 that the SADC Secretariat develop a Matrix of Commitments to provide a measurable framework to track progress in implementation of the FIP. It is envisaged that once modalities and timeframes


for the FIP monitoring process will be finalized the SADC Secretariat and the Member States will carry out such monitoring on yearly basis. Since cross-border investment currently falls under a separate protocol, and there are already significant efforts to create permanent monitoring procedures for this protocol, it is sufficient to note the key outcomes of the current monitoring exercise being undertaken. Overall, the results of the Baseline Monitoring Study of FIP indicate that the more than 53% of commitments derived from FIP are fully implemented at country level with a further 8.4% of commitments partially achieved. Results are far less impressive when analyzing regional-level commitments. Only 14.3% of commitments are fully implemented with a further 33.3% being partially implemented.

10.2 Trade in Services Article 23 of the SADC Protocol on Trade states that Member States shall “adopt policies and implement measures in accordance with their obligations in terms of the WTO’s General Agreement on Trade in Services (GATS), with a view to liberalizing their services sector within the Community”. In order to implement the provisions of Article 23, SADC countries decided to create a separate Protocol on Trade in Services. A framework Protocol was adopted in 2009 by the CMT and currently awaits clearance by Ministers of Justice/Attorneys General and signature by Heads of State. At the July 2011 meeting in Luanda, the CMT approved that negotiations on schedules of commitments commence while awaiting signature of the Draft Protocol on Trade in Services. The CMT also directed the Trade Negotiating Forum (TNF)-Services to begin this process at its next meeting. The draft Protocol on Services sets out the framework for the liberalization of trade in services between SADC members and will serve as a basis for negotiations. The CMT decided in November 2011 to negotiate service sector liberalization in six key sectors: construction, communication, transport, energy-related, tourism and financial services. Currently, the planned liberalization process seeks to eventually cover substantially all sectors and modes of delivery. The guidelines for such negotiations have already been developed and are aimed to support the finalization of the liberalization process. Specific modalities and a roadmap for service sector negotiations have been developed and stipulate that negotiations should be completed within a three year period – by April, 2015. The negotiations will be organized in the form of requests and offers for liberalization of service sectors and sub-sectors. Initial requests and offers would be made in three clusters of two sectors each with Construction and Energy-related services sectors addressed last. This approach was chosen as it allows Member States to focus their national consultations at different times on different sectors. The roadmap for service sectors negotiations has provided ample time for regional training activities which are envisaged to be on-going throughout the negotiations. Prior to submission of requests and offers, background studies will be prepared on priority sectors to gain an understanding of the foreseen effects of the liberalization in the field. Submission by Member States of the first round of service sector liberalization offers and requests in the two chosen sectors is envisaged in late 2012 prior to the 18th TNF to be held in November/December 2012. The first part of Article 23 of the Protocol on Trade stresses the importance of trade in services for the development of the economies of SADC Countries. This importance cannot be understated as, for more than half of SADC Member States services constitute more than half of GDP (see Table 49). In fact, only for the resource abundant economies


of Angola, Zambia and DRC do services constitute less than a third of the economy. Tourist destinations such as Mauritius and the Seychelles have fairly high service contributions to GDP – above 65%. Table 49: Service Sector as % of GDP in SADC

Given the importance of services in SADC, liberalization in the area can have a significant positive impact on Member States, stemming from increasing competition and efficiency of service provision. It is therefore crucial for the service sector negotiation to reach an agreement that provides the best possible economic outcome. A standard approach within REC‘s services sector liberalization is to take up a GATS Plus approach where regional preferential liberalization is anything over and above countries‘ GATS commitments. Work on liberalization of services within SADC is, however, already undertaken on many levels including Protocols on Energy, Tourism and Transport. These protocols already envisage regulatory harmonization and liberalization in their respective areas. It is therefore argued that SADC service sector negotiations should be building on work already undertaken by the relevant sector coordinating units dealing with services sectors. Service negotiations should therefore consolidate the two approaches to develop a regional negotiating service strategy. It is also important to point out that there is a large discrepancy in Member States commitment for sectoral liberalization within GATS (see Table 50). Lesotho and South Africa have fully or partially liberalized the largest number of sectors. As shown in Table 48, Lesotho and South Africa have made GATS commitments in ten sectors. The rest of SADC Members have either not liberalized any sectors or have made commitments in no more than three broad industries. This may complicate SADC service negotiations as some countries are already considerably more liberalized in terms of services than others. Finally, it is crucial to highlight that service sector liberalization differs from tariff liberalization in that it involves often difficult and substantial regulatory changes. It is therefore crucial for regional negotiating service strategy not only to focus on concluding

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

Zimbabwe

Zambia

World

Tanzania

Swaziland

SSA

South Africa

Seychelles

Namibia

Mozambique

Mauritius

Malawi

Madagascar

Lesotho

High income

Congo, Dem. Rep.

Botswana

Angola


the agreement on service, but also to support and monitor Member States in internalizing the final agreement in their regulatory frameworks. Table 50: SADC Member States GATS Commitments

Bu

sine

ss

Com

mun

icat

ion

Con

stru

ctio

n

Dis

trib

utio

n

Educ

atio

n

Envi

ronm

ent

Fina

ncia

l

Hea

lth

Tour

ism

Recr

eatio

n

Tran

spor

t

Oth

er

Botswana x x x

Lesotho x x x x x x x x x x

Mozambique x

Namibia x x

South Africa x x x x x x x x x x

Swaziland x x x

10.3 Intellectual Property Rights Article 23, which is a part of the ―Built-in Agenda‖ of the SADC Protocol on Trade, states that Member States shall “adopt policies and implement measures within the Community for the protection of Intellectual Property Rights, in accordance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).” All SADC Member States are also Members of the WTO and as such they are automatically participating in the WTO‘s Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. However, progress in the implementation of TRIPS Agreement and SADC regional integration in the area has been less advanced than on investment and service liberalization issues. There may be several reasons. First, eight out of 15 SADC Members51 are classified by the UN and WTO as LDCs. Currently, there is a transition period for implementation of TRIPS for LDC which is applicable until 2013. At the WTO‘s Eighth Ministerial Conference of December 2011, the ministers invited the TRIPS Council to give consideration to a request from LDCs for a further extension. At the time of this writing, therefore, less than half of SADC Member States are full participants in TRIPS. Second, the SADC region (with the notable exception of South Africa) is not a significant source of economic activity requiring protection of patents, copyrights, trademark, geographic indicators etc. Hence, the economic rationale for full implementation of the agreement is limited.

51 This calculation takes into account all SADC Member States including Angola, DRC and Seychelles who are currently not part of the Protocol on Trade


As previously mentioned SADC‘s work on IPR is currently limited. There is no dedicated sub-commission dealing with regional integration on the issue nor have substantive discussions on the issue so far been held. As in other areas of SADC‘s regional agenda, in IPR there is a large discrepancy in Member State legal frameworks, levels of development of such protection as well as in protection coverage, enforcement issues etc. Research for this report has revealed that both SADC LDCs and non-LDCs require a significant amount of capacity building for full implementation of TRIPS. The SADC Secretariat, with the support of development partners, is well placed to provide support in this area. It is recommended that, in order to jump-start SADC work on IPR, strong capacity building initiatives are required to encourage aims which could include among other: (1) Establishment of detailed information regarding Member States progress in implementation of TRIPS; (2) Establishment of Member States needs in capacity building in the area; (3) Drafting of a work program for the future work regarding IPR. SADC work on IPR should focus on implementation of the TRIPS flexibilities through a comprehensive review of laws, policies and capacities to support implementation of IPR regulation. Regional work on IPR issues is particularly important in the context of the EPA negotiations, which necessitate a common position that will enable successful conclusion of that agreement. It is also important to develop a common approach on cooperation issues to any discussions on IPR with the EU. 10.4 Trade Development The SADC Protocol on Trade states that Member States ―shall adopt comprehensive trade development measures aimed at promoting trade within the Community, as provided for in Annex V of the Protocol.” The Annex contains provisions with regards to creating: ―trade strategies, strengthening trade related infrastructure, involvement of the Business Community, Trade Promotion Measures, Trade Related Services, Information in the Area of Trade, Harmonization of Standards and Quality Assurance and Research and Development.” The Protocol on Trade further states that the CMT shall adopt regulations for the implementation of this Annex V. The Annex contains Member States‘ commitments for work in these areas and a pledge that further regulations will be developed. Since the signing of the Protocol on Trade in 2000, SADC has adopted an ambitious regional integration agenda. In addition to the Protocol on Trade, 23 other protocols were developed, as well as numerous annexes to these protocols. Many of the Protocols and annexes deal with issues mentioned in the Trade Development Annex of the Protocol on Trade. Overall, there has been substantial progress in establishing cooperation on the issues mentioned in the Trade Development Annex. Arguably, less progress has been made in the harmonization of relevant laws and decreasing trade barriers related to TBT and SPS issues however work is ongoing. Regarding the provisions of the Trade Development Annex, SADC has adopted a large program on the development of trade related infrastructure. A separate Protocol on Transport, Communications and Meteorology has extensive provisions related to the development of such infrastructure and in particular on integrated transport networks, road and transport infrastructure, railways, maritime and inland waterways, civil aviation, telecommunication and postal services. The SADC Secretariat has created a separate Directorate of Infrastructure and Services that is responsible for the development of regional trade related infrastructure. In addition, as highlighted above, SADC has recently


commenced negotiations for service sector liberalization which, in the long run, is likely to increase the efficiency of trade related services in the region. Regional cooperation among Trade Promotion Agencies and the associated involvement of the business community in trade promotion initiatives has been dealt with in the Finance and Investment. Annex 1 Chapter 23 states that: ―State Parties shall ensure that their IPAs: (a) carry out their investment promotion activities … (b) advise the Government of that State Party, the private sector and other stakeholders in the formulation and review of policies and procedures that affect investment and trade; and (c) increase awareness of their investment incentives, opportunities, legislation, practices, major events affecting investments … through regular exchange of information.” In order to create a formal structure for increasing collaboration between Member States‘ IPAs, the inaugural SADC IPA Forum was held in 2011 in Mauritius. It is assumed that this Forum will be held on an annual basis with a view of exchanging experiences and ideas on various issues, among them the regional investment climate. In addition to this formal structure, the Member States‘ IPAs have been actively building relationships within and outside the region. A number of IPAs have signed MOUs with one another with the objective of facilitating the sharing of knowledge and expertise on investment promotion best practice. The SADC Secretariat undertook a Study aimed at ensuring further cooperation among the IPAs. In addition to the cooperation by SADC IPA, SADC Member States have been involved in developing model Bilateral Investment treaties (BITs) and Double taxation avoidance agreements (DTAAs) that could be used by Member States to modernize their agreements. Article 6 of the Trade Development Annex deals with Harmonization of Standards and Quality Assurance stating that “Member States shall promote harmonization of standards and appropriate quality assurance systems within the Community”. Progress has been substantial in the area. Following the adoption of the Protocol on Trade, SADC developed two additional annexes to the Protocol – SPS Annex and the Technical Barriers to Trade Annex. Under the Trade, Industry, Finance and Investment (TIFI) Directorate a Standardization, Quality assurance, Accreditation and Metrology (SQAM) Program has been developed in order to support the implementation of the annexes. In particular, the SQAM Program is responsible for:

Facilitating trade through harmonization of standards based on international standards;

Ensuring that the region‘s approach to dealing with SPS measures and TBT issues is aligned with WTO norms and does not result in the creation of NTBs;

Facilitating industry competitiveness through ensuring the use of relevant standards and the production of quality goods in the region; and

Ensuring the protection of consumers through use of regulations based on international best practices for quality, safety and conformity assessment.

There are also extensive cooperation structures that work with SQAM in these areas. These are: Technical Regulation Liaison Committee (SADCTRLC), Technical Barriers to Trade Stakeholders Committee (SADCTBTSC) Committee, Cooperation in Standardization (SADCSTAN), SADC SQAM Expert Group (SQAMEG), SADC SPS Coordinating Committee (SADC SPSCC). Another issue that the Trade Development Annex touches upon is “the establishment of national and regional data bases and trade information networks for the Region.” Here




SADC, with the help of development partners, is close to completing the SADC Trade Statistics Database which will provide detailed industry level statistics on intra and extra-SADC Trade in a common easy to use format. 11. CONCLUSIONS The 2012 Audit covers a vast array of issues – including those that were not reviewed in previous audits. The coverage is exhaustive and will not be reviewed in detail here. There is much for SADC Member States to be proud of in terms of achieving milestones towards regional integration.

Intra-SADC trade in real terms has more than doubled since the implementation of the SADC Protocol on Trade.

SADC tariff phase-downs are – with some well-known exceptions – largely complete and have been completed on schedule.

There is a growing awareness regarding NTBs and Member States – either through SADC or through unilateral action – are moving to address these constraints to trade.

There has been substantial progress on the Built in Agenda including Competition Policy, Trade in Services and Cross Border Investment.

ROO, while highly controversial, are, with a few glaring and important exceptions, not substantially more restrictive than those of the neighboring RECs.

However, in terms of constraints to greater integration, the conclusions of the Audit are not novel. They have been repeated in a series of Audits of implementation and in several recent reports.

Despite the increase in intra-SADC trade, the share of intra-SADC trade remains stagnant and the composition is limited in scope. The implementation of the SADC FTA has, to date, not provided the benefits foreseen at its implementation to spur industrialization and economic diversification.

NTBs remain a substantial problem in SADC – particularly for agricultural products. More must be done to motivate meaningful regulatory change and the elimination of NTBs.

ROO in specific sectors remain a significant constraint – this is particularly true in those sectors in which the region could expect the greatest gains to intra-SADC trade – textiles and garments.

While not covered in depth in this document, poor trade facilitation and trade costs are some of the most substantial drags on the competitiveness of SADC firms as the region seeks to integrate into global production chains. Without a clear path for moving forward, trade facilitation issues will continue to hinder progress.

As SADC prepares for a review of the RISDP which reviews the integration path for SADC Member States and as members proceed in with the Tripartite FTA negotiations, they must take stock of the successes and challenges to integration within SADC and decide both the direction of SADC integration and how to incorporate those lessons into a broader regional agenda.


BIBLIOGRAPHY Dutz, M. and Hayri, A. (2000), Does More Intense Competition Lead to Higher Growth? Policy Research Working Paper 2320.

Dutz, A. and Hayri, A (2001), Does Effective Anti-trust Policy Spur Economic Growth? October (2001).

Kahyarara, G. (2004), Competition Policy, Manufacturing, Exports, Investment and Productivity: Firm-level Evidence from Tanzania Manufacturing Enterprises in Competition, Competitiveness and development: Lessons from developing Countries, UNCTAD/DITC/CLP/2004/1.

Krugman P. (1981) “Intra-industry Specialization and the Gains from Trade‖. The Journal of Political Economy, Vol. 89, No. 5

Levenstein, Margaret and Valerie Suslow (2001): Private International Cartels and their Effect on Developing Countries, Background Paper for World Bank‘s World Development Report 2001, available at http://www.worldbank.org/wdr/2001/bkgroundpapers/levenstein.pdf.

Mpata, S. (2011)―Evaluation of the COMESA/SADC Transit Management Systems‖ mimeo

World Bank (2011) ―Harnessing Regional Integration for Trade and Growth in Southern Africa‖ available at: ahttp://siteresources.worldbank.org/INTRANETTRADE/Resources/

World Bank 2009 " World Development Report 2009: Reshaping Economic Geography" available at www.worldbank.org

http://www.worldbank.org/wdr/2001/bkgroundpapers/levenstein.pdf

Technical Report: 2012 Audit of the Implementation of the ... · SACU Yes South Africa Revenue...

Documents

Transcript of Technical Report: 2012 Audit of the Implementation of the ... · SACU Yes South Africa Revenue...