Tanzania will rue the cost of starting with SADC

The EastAfrican | 20-26 August 2007

Tanzania will rue the cost of starting with SADC

By A STAFF WRITER

With the partner states of the East African Community having agreed to negotiate an Economic Partnership Agreement (EPA) with Europe under one roof, Tanzania may be forced to count the cost of forgoing a relatively successful regional grouping in East Africa against political solidarity with Southern Africa’s regional power base — South Africa.

The only member of the East African Community that belongs to two separate regional trading blocs, it was until recently negotiating under the auspices of SADC even as other East African countries were negotiating under the so-called ESA configuration — a de facto Comesa line-up.

But as the deadline for concluding EPA negotiations approached, it was becoming clearer to Tanzania that remaining in the SADC configuration would not be tenable.

A number of problems arise from this configuration. First, the economic powerhouse of the grouping, South Africa, has its own trade arrangement with the EU, called the Trade, Development and Co-operation Agreement (TDCA).

Secondly, Tanzania found itself isolated because other members of SADC — namely, Botswana, Namibia, Lesotho, and Swaziland — are grouped together with South Africa in the Southern African Customs Union (SACU) with a common external tariff.

Being a Customs Union, SACU is obliged to negotiate all external goods arrangements as a group and to make a common tariff offer.

With Tanzania excluded from both TDCA and SACU negotiations, the country had no choice but to revert to its own Customs Union. It had to look for a place where its own protection concerns with respect to imports could be put on the table.

Indeed, the odd situation the country was in was compounded by the fact that unlike some of the SADC countries, it was already a member of an existing Customs Union, namely the East African Customs Union.

Tanzania thus found itself in a bizarre situation because of its membership of multiple trading blocs.

The fact that South Africa was way ahead of the rest of SADC in terms of infrastructure for negotiating trade deals was also a major problem for Tanzania.

Unlike other SADC members, South Africa not only has working competition policy institutions, but bilateral trade and investment treaties with many other countries.

Furthermore, even as the negotiations for the SADC EPA continued, it became clear that Pretoria’s priority was to harmonise regulatory and competition issues within SACU first before looking at the interests of non-SACU partners like Tanzania.

What does Tanzania’s decision to join the EAC EPA mean for its relations with South Africa?

Dar es Salaam has had long-standing political and economic ties with South Africa that date back to its close relations with the ANC during that party’s days of exile, and more recently via extensive South African foreign direct investment.

Yet, circumstances are now forcing it to pull out of the SADC Free Trade Area in order to belong to only one Customs Union.

Being an LDC, Tanzania qualifies for the so-called Everything But Arms (EBA) access to the EU market and is not obliged to offer reciprocal concessions. But the country finds that such an arrangement would impede access to European markets for its agricultural products.

Furthermore, its geographical remoteness from the SACU core makes joining SACU an unviable proposition.

Who will be the next to decamp from the SADC EPA configuration after Tanzania? Mozambique has shown that it is still committed to SADC. There was a time when it looked like the country was considering joining SACU. But Maputo found itself weighing the price in terms of its potential impact on its tariff regime; ensuing competition from South African producers in its market; and potential financial dependence on South Africa.

Mozambique’s exports to South Africa are a marginal proportion of total exports, hence the current market access incentive is quite low.

On the other hand, the two countries have very strong political relations cemented by strong ties between the ANC in South Africa and the Frelimo party in Mozambique.

The more interesting country to watch will be Zambia. It may be forced to reconsider its relations with SADC afresh because of the pivotal role it plays within the Comesa grouping.

Zambia not only hosts the Comesa secretariat but has been an active player in many Comesa institutions.

Furthermore, its only border with the current SACU runs along the remote Caprivi Strip in Namibia.

Indeed, Zambia’s only land route to SACU is via troubled Zimbabwe. Enforcing SADC rules of origin will be almost impossible.

Thus, predicting the way the country will go remains difficult. Last week’s developments in Arusha may see the beginning of major realignments.

Depending on the role Kenya plays within Comesa, and if more Comesa countries get lured into signing the EAC EPA, the stage will have been set for a future, much larger single Customs Union for the EAC and Comesa.

Within East Africa, Kenya, with the most advanced manufacturing sector, has clearly benefited from access to regional markets via the Comesa FTA.

It would appear that during EAC Customs Union negotiations, the EAC partner states deliberately pushed for a common external tariff similar to the one they have been pushing for the proposed Comesa Customs Union expected to come into force in 2008.

Clearly, a merger between the EAC and Comesa would suit the exports interests of East African countries.

Yet another possible scenario is a situation where SACU and EAC, the only Customs Unions, will play the role of fast-tracks for the two existing large Free Trade Areas, namely Comesa and SADC, becoming the building blocks for the creation of a much larger integrated eastern and southern trading bloc at a later stage.

In terms of progress, the EAC Customs Union remains the most promising trading bloc in Africa.

Currently, it is taking steps to move towards a fully operational common market by 2010.

It is formulating a framework for managing accessions, including establishment of verification teams to ensure prospective members comply with existing common policies and regulations.

In contrast, SACU currently does not have an accession system in place. The progress of the EAC would appear to be based on its fully functional and fairly strong secretariat.

SACU’s secretariat is still establishing itself. In the EAC, negotiations towards common policies and a common market are proceeding apace. Yet SACU has yet to establish its common institutions, let alone procedures and systems related to accession.

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source: East African