Issues and Challenges for the Proposed Tripartite

Free Trade Area in Eastern and Southern Africa

By Dr. Evarist Mugisa

Team Leader/ Trade Economist

Technical Support Unit

Ministry of East African Community Affairs

Kampala, Uganda

E-mail: emugisa@meaca.go.ug, mugisae02@gmail.com

Kampala, November 2011

CONTENTS

ACRONYMS AND ABBREVIATIONS ......................................................................... ii

I INTRODUCTION .................................................................................................... 1

II THE MAIN REGIONAL ECONOMIC COMMUNITIES IN THE EASTERN

AND SOUTHERN AFRICAN REGION .............................................................. 3

The Common Market for Eastern and Southern Africa ............................................ 3

The Southern African Development Community ..................................................... 4

The East African Community ................................................................................... 5

III OVERLAPPING MEMBERSHIPS IN THE REGION AND THEIR

DRAWBACKS ...................................................................................................... 10

IV THE FEASIBILITY OF THE PROPOSED COMESA-SADC-EAC FREE

TRADE AREA ...................................................................................................... 13

Understanding a Free Trade Area ........................................................................... 13

The Benefits of Rationalisation and Harmonisation and a Free Trade Area ........... 15

V CHALLENGES TO HARMONISATION OF TRADING ARRANGEMENTS

AND ESTABLISHEMENT OF FREE TRADE AREA IN THE REGION .... 18

VI CONCLUSIONS .................................................................................................... 22

REFERENCES ................................................................................................................ 23

ii

ACRONYMS AND ABBREVIATIONS

BLNS Botswana, Lesotho, Namibia and Swaziland

CEPGL Economic Community of the Great Lakes Countries

CET Common External Tariff

CM Common Market

COMESA Common Market of Eastern and Southern Africa

CU Customs Union

EAC East African Community

ECCAS Economic Community of Central African States

ECOWAS Economic Community of West African States

EPA Economic Partnership Agreements

FDI Foreign Direct Investment

FTA Free Trade Area

GDP Gross Domestic Product

IGAD Inter-Governmental Authority on Development

IOC Indian Ocean Commission,

LDC Least Developed Countries

NFTA North American Free Trade Area

PTA Preferential Trade Area

REC Regional Economic Community

RISDP Regional Indicative Strategic Development Plan

ROO Rules of Origin

SACU Southern Africa Customs Union

SADC Southern African Development Community

TDCA Trade, Development and Cooperation Agreement

I INTRODUCTION

Regional integration as a concept is not new. It goes back to the days of John Meade, J.

Viner, J. Vanek, R. G. Lipsey, Cooper and other economists. The debate about regional

integration is attracting the attention of politicians, academicians, researchers, business

executives, etc. Today, however, the debate tends to be rather polarised between

proponents and critics of regional integration. Those who support it, point out the benefits

of integration – trade creation, improved terms of trade, competition, etc. The critics, on

the other hand, argue that such arrangements are discriminatory, can lead diversion of trade

from more efficient producers outside the arrangement to less efficient ones within the

arrangement, and involve neighbours with similar geographical conditions, so that trade

complementarities between them are few.

In spite of these arguments, however, it appears the proponents of regional integration are

gaining the upper hand. Along with efforts towards globalisation of markets and the

liberalisation of trade, countries are now moving towards regionalism. Integration of

economies and enhanced political cooperation has become the major preoccupation of

many countries worldwide. In the 1980’s and 1990’s, there was unprecedented creation

and consolidation of regional economic blocs1.

Africa has also embraced regionalism (or regional integration) as a strategy for sustainable

economic development. In fact regional integration and cooperation were accepted by

African governments since the early 1960s at the height of the “Pan African movement”.

The Lagos Plan of Action provided the conceptual framework through which economic

integration would be realised. Today, there are 14 regional economic communities (RECs)

on the continent, each with its own mandate, vision and mission (Karingi and Fekadu,

2009). The most prominent in Sub-Saharan Africa are ECOWAS, COMESA, the East

African Community (EAC), the Inter-Governmental Authority on Development (IGAD),

the Indian Ocean Commission, and the Southern African Development Community

(SADC). These organisations are among those designated by the AU as building blocks for

the African Economic Community.

One of the characteristics of RECs in Africa is multiple and overlapping memberships,

which has led to calls for their rationalisation. A Tripartite Summit of the heads of state of

COMESA, EAC and SADC held in Kampala in October 2008 discussed the implications

and disadvantages of multiple and overlapping memberships in the eastern and southern

Africa. It recommended the harmonisation and rationalisation of the activities of the three

RECs to the point of establishing a Free Trade Area (FTA). The purpose of this paper is to

identify issues and challenges arising from this decision. The paper is structured as

1 The North American Free Trade Area (comprising USA, Canada, and Mexico), the Asian Pacific

Rim, the Association of South East Asian countries, the Caribbean Common Market (CARICOM),

the Andean Free Trade Association, the Latin American Free Trade Association (LAFTA) the

unification of the European Free Trade Association (AFTA) with the European Community, etc are

cases in point.

2

follows. Section II examines the three main RECs, articulating their integration agendas

and achievements so far. Section III discusses the drawbacks of overlapping membership.

Section IV looks at the benefits of the proposed rationalisation and harmonisation in the

context of the Kampala November 2008 Tripartite Summit. In Section V, the paper dwells

at the challenges that stand in the way of the proposed arrangements. Section VI concludes.

3

II THE MAIN REGIONAL ECONOMIC COMMUNITIES IN THE EASTERN

AND SOUTHERN AFRICAN REGION

The Common Market for Eastern and Southern Africa

The Common Market for Eastern and Southern Africa (COMESA) is currently the largest

regional grouping in Africa consisting of 19 countries in Eastern and Southern Africa. The

predecessor to COMESA – the Preferential Trade Area (PTA) for Eastern and Southern

Africa – was established in 1982. The PTA, which was intended to take advantage of a

larger market and to promote greater economic cooperation among the countries of the

region, was the first step towards the ultimate goal of forming a REC. The treaty

establishing the PTA called for the gradual reduction and eventual elimination of customs

duties and non-tariff barriers. It also provided for the transformation of the PTA into a

common market within 10 years after entry into force of the treaty. This objective was

fulfilled with the establishment of COMESA. The treaty establishing COMESA was signed

in Kampala in 1993 and entered into force in 1994.

The COMESA Treaty contains two key principles which set it apart from its predecessor.

Firstly, it allows for variable geometry or multiple speeds, making it possible for a group

of countries to move faster in the regional economic integration process than other

countries. Secondly, it also provides for the imposition of sanctions on countries that

default on implementation of agreed COMESA programmes and for the settlement of

disputes arising from the interpretation or implementation of the Treaty (GTZ, 2005).

COMESA’s main objective is the promotion of regional economic integration through

trade and investment. It aims to facilitate the removal of structural and institutional

weaknesses of member states so that they can achieve sustainable economic growth. The

focus areas for cooperation are trade in goods and services, payment and settlement

arrangements, investment promotion and facilitation, infrastructure development and peace

and security.

The COMESA agenda provides for the formation of a Free Trade Area (FTA), to be

followed by a Customs Union (CU) and eventually and an economic union. The first step

was achieved with the launching of the FTA in October 2000. Trade within the FTA was

to conform to relatively simple rules of origin (ROO), but only 14 out of the 19 member

states participate in it2. The COMESA FTA has been credited with the rapid increase in

intra-COMESA trade, which grew by 30% in 2007 alone over 2006 to US$ 8 billion.

According to Karingi and Fekadu (2009) in 2000 – 2006 intra-COMESA trade grew on

average at 20% annually.

2 Egypt, Djibouti, Malawi, Kenya, Mauritius, Madagascar, Sudan, Zambia, and Zimbabwe were

original signatories, while Rwanda and Burundi joined the FTA in January 2004.

4

COMESA launched a CU in 2008. The transition to this goal began in 2004 following the

decision by the Council of Ministers of COMESA to launch the CU in 2008 (COMESA,

2006). The key elements of the CU include: (i) a common external tariff (0% for raw

materials and capital goods, 10% for intermediate goods, and 25% for finished products),

(ii) a 3–year period for member states to align their national tariffs with the CET (this may

be reviewed for a period of not exceeding 5 years), and (iii) flexibility to allow member

states with the 5% tariff band to continue to apply it in the transition period. COMESA also

has rules and regulations – competition law and policy, harmonisation of product standards

and adoption of regional standards, regional safeguards and trade remedies, development

support measures, etc – to support trade and investment in the CU.

COMESA has plans for eventual formation of a Common Market (CM) in the medium

term. This includes a common investment area to be created in accordance with the

Common Investment Agreement, allowing for the harmonization of the different

investment regimes in the various countries. COMESA has also plans to establish a

Monetary Union (MU) in 2016. The major challenges to be addressed by COMESA in the

medium term towards the establishment of a CM are setting up of a COMESA Common

Investment Area and the application of the principle of the free movement of people.

The Southern African Development Community

The Southern African Development Community brings together 14 member states and

started as and organisation of the former Frontline States3 to resist the influence of South

Africa in the region, and was transformed into a development community only in August

1992 following the signing of the Treaty of Windhoek4. The vision of the SADC is “one

of a common future, a future in a regional community that will ensure economic well-

being, improvement of the standards of living and quality of life, freedom and social

justice and peace and security for the peoples of Southern Africa” (Koesler, 2007).

SADC’s approach to regional integration focuses on relaxing the supply side constraints to

trade through regional cooperation in various sectors – infrastructure, agriculture,

transportation and human resources (IMF, 2004). The SADC Trade Protocol signed in

1996, which is the force driving the integration agenda in the region, aims at liberalisation

of all trade by 2012. The SADC Trade Protocol has the following implementation goals:

Tariff liberalisation, which is asymmetrical: In the context of this goal, SADC

members fall into three categories, namely SACU members5, developing countries6, and

least developed countries7. The SACU members offered to front-load their tariff reductions

to within five years of adoption of the Protocol, bringing their tariff rates for products from

non-SACU SADC countries down to zero (with the exception of some products designated

3 Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, and Zimbabwe 4 South Africa joined SADC in 1994; the DRC and Seychelles acceded in November 1997. 5 South Africa, Botswana, Lesotho, Namibia and Swaziland. 6 Mauritius and Zimbabwe. 7 Malawi, Mozambique, Tanzania and Zambia.

5

as sensitive). The developing countries agreed to start their tariff reductions earlier than the

non-SACU members, while the LDCs were allowed to back-load their reduction

commitments. Tariff reduction was supposed to be carried out on the basis of four

categories: category A – consisting of goods subjected to immediate tariff elimination; B

– comprising goods of significant customs revenue whose tariffs are removal over an eight

year period (by 2008); C – goods regarded as sensitive with tariffs to be eliminated in 2008-

2012; and E- exclusions, comprising goods that can be exempted from preferential

treatment under Articles 9 and 10 of the Protocol.

Trade liberalisation to be accompanied by the elimination of non-tariff barriers to

allow for the free movement of goods.

Liberalisation of services: This was planned to cover six broad service sectors and all

modes of supply: transport, energy, communications, finance, tourism, and construction.

This would build on substantial liberalisation and harmonisation achieved under various

service-related protocols to-date. There have been a number of measures taken to pave the

way for further liberalisation of trade in services in SADC according to Article 23 of the

Trade Protocol. Already, there is an annex on trade in services, setting out the framework

for liberalisation of trade in services between SADC members. The ultimate goal of

liberalisation is to ensure that each member treats the services originating from other

members, and the suppliers of such services, as its own services suppliers.

Ratification of the finance and investment protocol: This seeks to harmonise policies

on taxation, stock exchanges, insurance, exchange control payments and clearing systems

and macroeconomic convergence. However, progress in this area has been rather slow and

remains only a key long term goal.

Rules of origin: The protocol also provides for rules of origin, which have been

described as the most contentious and unresolved issue on SADC’s regional integration

agenda, especially for clothing and textiles (Drapper et al, 2007). SADC members have

agreed to have product-specific ROO on all goods. However, the danger is that these ROO

are seen as restrictive and could be a barrier to both regional trade and international

competitiveness as they will be costly to monitor and enforce.

SADC’s future plans for deeper integration are spelled out in the Regional Indicative

Strategic Development Plan (RISDP), which seeks to align the strategic objectives and

priorities with the policies and strategies to be pursued in attaining full integration into a

full-fledged common market over a period of 15 years. It spells out the broad agenda and

targets for deeper integration by 2015. Consistent with this, SADC launched its FTA in

January 2008 and seeks to have a customs union in 2010 and a common market in 2015

(SADC RISDP, 2003).

The East African Community

The EAC – comprising of Uganda, Kenya, Tanzania, Rwanda and Burundi – is one of the

6

most dynamic and evolving RECs in Africa. It has been attracting interest from policy-

makers and researchers because of its steady implementation of an ambitious regional

integration agenda, since its re-establishment in 1996. In terms of the classical stages of

integration – starting with a PTA, followed by an FTA, a CU, a CM, and culminating into

a PF – the EAC is ahead of COMESA and the SADC. The EAC has so far been able to

achieve deeper integration compared the other two, given that it is already a CM.

The EAC’s objective the EAC is to “fast track” integration among the Partner States, by

establishing a CU within 5 years, followed thereafter by a Common Market, a Monetary

Union and eventually a Political Federation. The objectives of EAC integration are to

develop policies and programmes for widening and deepening cooperation among the

Partner States in political, economic, social and cultural fields, research and technology,

defence, security and legal and judicial affairs. However, the vision of a fast-track

integration group within COMESA was, undermined by Tanzania’s withdrawal from

COMESA in 2000.

The integration process in the EAC has progressed well starting with the signing of a

Customs Union Protocol in 2005 as the entry point to the Community. Following a five-

year transition period, the EAC is now a full-fledged CU. Under the CU, the Partner States

agreed to, and implemented, an internal tariff programme, common rules of origin,

elimination of non-tariff barriers, a three-band common external tariff (0% 10% and 25%

for raw materials, intermediate goods and finished products). Other provisions cover

dumping, subsidies and countervailing measures, settlement of disputes, competition, duty

drawback, remission of duties and taxes, customs cooperation, etc.

The EAC CU does not directly address the issue of Kenya’s membership in COMESA’s

FTA and Tanzania’s in the SADC FTA, but stipulates that “the Partner States shall

honour their commitments in respect of other multilateral organisations and

organisations to which they belong” Art 37 [1]). However, a “common policy in the

field of trade” is envisaged (Art. 37 [2]). For that purpose, “the Partner States shall

formulate a mechanism to guide the relationships between the Customs Union and

other integration blocks, multilateral and international organisations upon signing of

this Protocol” (Art. 37 [3a]) Article 14 and Annex III provide for the rules of origin for

intra-EAC trade of goods not originating in the Community, i.e. COMESA and SADC in

particular. Art. 47 (4a) further stipulates that “Partner States may separately conclude

or amend a trade agreement with a foreign country provided that the terms of such

an agreement are not in conflict with the provisions of this Protocol”. The other parties

have to agree to such agreements or amendments (Art. 47 [4e]).

The EAC Partner States agreed to negotiate, as a bloc, FTA agreements with SADC and

COMESA. These are planned to be concluded when the EAC becomes a fully functioning

CU in 2010. The individual Partner States’ trade preferences with COMESA and SADC

therefore represent temporary exceptions from the CET. In November 2009 the EAC

Partner States signed a Common Market Protocol, whose full implementation will start in

7

July 2010. This is expected to be followed by the conclusion of a Monetary Union Protocol

in 2012, and ultimately a Political Federation8.

The Extent of Regional Integration in the three RECs

The success of a regional economic community is measured by the extent to which it

promotes intra-regional trade. While this may not be universally accepted, nonetheless, it

is clear that the level of intra-regional trade provides a useful indicator of the level of

regional integration and regional cohesion. This section gives and overview of the trade

situation of the three RECs.

Intra-SADC Trade

One of the objectives of the SADC Trade Protocol was to increase intra-regional trade by

liberalising trade in goods and services on the basis of fair, mutually equitable and

beneficial trade arrangements. In spite of this, according to TIPS (2007), the structure of

trade in SADC has not changed since its formation in 1992, largely because the structure

of the SADC economy has remained unchanged. Most of the SADC economies are not

diversified and many depend overwhelmingly on a single sector. Angola and Botswana,

for example, depend heavily on their mining sectors.

Intra-regional trade has been growing in recent years, but it remains low, for a free trade

area. Countries have traded with the rest of the world, which limited intra-regional trade.

Much of intra-SADC trade is concentrated in SACU, while most international trade is still

taking place under bilateral agreements among SADC member states or with former

colonial powers. As a result, the Trade Protocol has not been utilized to expectations. The

main instrument of trade liberalization as provided for in the protocol has been the

elimination of customs tariffs. Intra-SADC trade is also constrained by the poor

infrastructure in the region. The state of the road network in many countries in the region

is inadequate, which limits the quick movement of goods. Poor infrastructure in the region

has been responsible for the high cost of goods especially in landlocked countries. This is

compounded by the predominance of non-tariff barriers.

One of the features of intra-SADC trade has been the asymmetrical nature of its increase

in recent years, largely as a result of South Africa’s accession to SADC in 1994. Its

membership to SADC has had a profound impact on the organisation in general, and the

level of intra-regional trade, in particular, raising the level of intra-regional trade from 5%

in the 1980s to 20% in 2009 (UNECA, 2009). According to the IMF, intra-SADC trade

grew by about 8% annually in the period 2001-2003. However, a notable trend in all this

is that in spite of the significant growth of intra-SADC trade over the years, it has not

happened in a balanced fashion. Within SADC, the SACU countries – particularly South

8 Draper P., Durrel H. and Alves P, (2007) have expressed scepticism about the notion of attainment

of political federation in the EAC region. They see the recent accession of Rwanda and Burundi –

two countries with troubled histories – as one of the complexities in this regard, which are

compounded by the unfolding crisis in Somali which has drawn in Uganda and Kenya, plus the

uncertain security and political forecasts in Uganda, etc.

8

Africa – account for most of the intra-regional trade.

Intra-COMESA Trade

The ultimate objective of COMESA is to create a fully integrated and internationally

competitive and unified region in which goods, services, capital and persons move freely.

The principal route that has been chosen in order to realise this goal is development

integration through development of trade and investment.

Intra-COMESA trade has grown rapidly, albeit from a very low base – from US$ 834

million in 1985 to US$ 14 billion in 2008. Table 2.1 below shows intra-COMESA trade

performance in 2000-2008.

Table 2.1: Intra-COMESA Trade Performance, (Millions US$) 2000 – 2008

Source: COMESA COMSTAT Database

One of the contributing factors to the growth of intra-regional trade was the launch of the

COMESA FTA in 2000, under which there was a reduction of tariffs, duty and quota free

entry for goods that qualified for exemption under the FTA. To date, the COMESA trade

regime has benefited commercial traders who have the capacity and resources to go through

the rigorous exercise of obtaining the necessary certification for goods to qualify for duty

and quota free entry into the COMESA market.

In spite of the increase, however, the share of intra-COMESA trade in total COMESA trade

remains low, standing on average at 4% for the last four years. This is attributed partly to

the fact that third country trade consists of raw material exports, some of which have had

major price increases in recent years. Hence, this surge in third country exports implies

potentially a lower intra-COMESA trade to total trade ratio. At country level, Zimbabwe

increased her total merchandise imports by 97% in 2007, which is more than four times the

regional average of 24% in that year. Total imports for Madagascar and Kenya also rose

by 43%.

The main constraints to intra-COMESA trade include dependence for most countries of a

few similar primary exports, inadequate infrastructure, and limited coordination of

macroeconomic policies among member states.

Intra-EAC Trade

Regional trade among the EAC Partner States has shown a steady increase, but remains

2000 2001 2002 2003 2004 2005 2006 2007 2008

Exports 1,497 1,319 1,882 1,670 1,804 2,583 2,702 3,950 6,357

Re-exports 200 400 267 475 531 625 268 570 599

Total Exports 1,697 1,719 2,149 2,145 2,335 3,208 2,970 4,520 6,956

Imports 1,419 1,718 2,218 2,173 2,223 3,046 3,757 4,554 7,334

Total Trade 3,116 3,437 4,368 4,318 4,558 6,254 6,728 9,074 14,290

9

low. In recent years, intra-regional exports have been rising, especially for the founding

Partner States. Similar to SADC, there are considerable inequalities, with Kenya

dominating intra-EAC exports, especially of intermediate and finished goods to the rest of

the region. Overall, however, the EAC economies are fairly open due primarily to their

high import and export GDP ratios. Their overall trade imbalances can be accounted for by

higher import ratios relative to their export ratios.

There has been a growing

formal trade in agricultural

products, especially for the

poorer EAC members. In

2000 most of intra-EAC

commodity exports for

Rwanda and Burundi, and

more than half for

Tanzania and Uganda,

were in food and live

animals (World Bank,

2009). Kenya has maintained a share of less than 10% in this category of exports. Hence,

any barrier to trade in food and live animals would impact the entire EAC, but especially

the two new members. Beverages and tobacco are now very important for the exports of

Burundi and Uganda. Inedible crude material exports (other than fuel) are important for

Burundi, Rwanda, and Tanzania. For the new members of EAC, intra-EAC exports remains

largely confined to these three major categories.

Manufacturing sector products of the more developed EAC members are increasingly

finding markets within the region and beyond. Intra-EAC exports shows increasing

diversification into more specialized manufactured goods and articles by Kenya, and

gradually so by Tanzania and Uganda. Chemicals remain important in Kenya’s exports

and have increased substantially for Tanzania. Fuels and lubricants, and machinery and

transport equipment, are significant in Kenya’s exports to the rest of EAC.

A Summary of Regional Trade

The three RECs discussed above constitute an important economic space. They have a

combined population of 764 million, and a combined gross domestic product (GDP) of

approximately US$ 1,577 billion in 2008 (World Bank, 2009). However, in spite of the

various trade-promoting initiatives between them, and progress with trade liberalisation

strategies, intra-regional trade remains limited and asymmetrical. The level of this trade,

compared to other RECs elsewhere, remains a small proportion of total trade, although it

has experienced considerable growth in recent years.

The dominant factor determining the character and extent of intra-regional trade flows is

South Africa. Without South Africa, intra-regional trade stands at 6-7%, since most

countries in the region are predominantly exporters of primary goods to the developed

Table 2.3: Exports of all Commodities to EAC (US$ ‘000)

Average 2000–6 Actual 2007a

Burundi 7,052.8 9,524.0

Rwanda 29,603.3 32,415.4

Tanzania 84,353.2 126,604.3

Uganda 97,123.4 242,196.8

Kenya 501,618.3 952,788.1

Source: COMTRADE Database.

a. Rwanda, Burundi, Tanzania, 2006.

10

industrial countries. This is a very low figure compared to almost any other REC in the

world. If on the other hand, South Africa is included, intra-regional trade flows expand to

about 20% (UNECA, 2009). One striking feature is that within the sub-region, there

appears to be some disconnect between trade and integration, both regionally and globally.

III OVERLAPPING MEMBERSHIPS IN THE REGION AND THEIR

DRAWBACKS

As the integration process unfolds in the above three RECs, one of the problems facing the

member states is that of overlapping memberships, where one country belongs to more

than one REC. In fact, this problem in the region is without parallel in the world. Seven

RECs are operating in parallel in the region9. Table 2.1 below shows the overlapping

memberships in the Eastern and Southern African region, involving the four RECs, namely

COMESA, SADC, SACU and the EAC.

As can be seen in Table 2.1, of the SADC 14 member states, eight of them (the DRC,

Madagascar, Malawi, Mauritius, Swaziland, Zambia, Zimbabwe, and Seychelles) are also

members of COMESA. There was even a greater overlap, but Tanzania (2000), Namibia

(2004) and Lesotho (1997) withdrew from COMESA. Likewise Angola suspended its

membership, citing duplication with SADC. For the same reasons, most recently, Rwanda

(2007) withdrew from ECCAS and cancelled its application to join SADC, both in favour

of reinforcing its current memberships to the EAC and COMESA. The overlap also grew,

in that the Seychelles opted to pull out of SADC in 2004, but applied to rejoin in 2006 and

was re-admitted in 2007 (Braude, 2008).

Within the EAC its five members belong to a number of other RECs. Uganda, Kenya,

Rwanda and Burundi are also members of COMESA. Tanzania is also a member of SADC.

Uganda and Kenya are also members of IGAD, while Rwanda and Burundi also belong to

the Economic Community of Central African States (ECCAS). Furthermore, Rwanda and

Burundi also belong to an economic community called the Economic Community of the

Great Lakes Countries (CEPGL) which was only revived in 2004. There have been

suggestions to merge these RECs, but this has proved to be very politically sensitive.

Instead, efforts have been made to coordinate the work of the three RECs in order to

prevent duplication of, and conflict between, their programmes, projects and activities.

9 SADC, COMESA, EAC, SACU, IGAD, ECCAS and CEPGL

11

Overlapping membership has

sparked off debate about its

merits and disadvantages. One

school of thought contends that

multiple memberships hinder

regional integration by, among

other things, leading to

duplication of effort. According

to Aryeete and Oduro (1996), “it

is difficult to envisage how

SADC and COMESA, given their

convergence to both sectoral

cooperation and trade integration,

can live and prosper with the

overlapping membership of

South African countries”. This

line of thinking is premised on

rationalising memberships and

seems more consistent with the

Abuja Treaty, which aims at

continent-wide integration.

Indeed, overlapping

memberships are not always

useful and they can lead to a

number of problems and

uncertainties. First, a country that

belongs to two or more RECs not

only faces multiple financial

obligations, but must cope with different meetings, policy decisions, instruments,

procedures, and schedules. Customs officials have to deal with different tariff regimes,

rules of origin, trade documentation, and statistical nomenclatures. The range of

requirements increases the customs procedures and paperwork, which is in contradiction

of trade liberalisation goals of facilitating and simplifying trade. Thus, since the integration

agendas and obligations differ from one REC to another, multiple memberships often lead

to a country having to implement conflicting obligations.

Second, because countries derive legal obligations from their membership in these RECs,

there is legal uncertainty created in cases where more than one trade arrangement applies

to trade between two countries. Such uncertainties not only undermine the implementation

of these agreements, but also add considerably to transaction costs and duplication in both

regional trade and in trade with outside partners. This increases the burden on the member

states, some of which are already lacking the necessary capacity and resources. Small

10 Countries in red are participating in the COMESA FTA.

Country COMESA10 SADC SACU EAC

1. Angola x

2. Botswana x x

3. Burundi x x

4. Comoros x

5. Djibouti x

6. DRC x x

7. Egypt x

8. Eritrea x

9. Ethiopia x

10. Kenya x x

11. Lesotho x x

12. Libya x

13. Madagascar x x

14. Malawi x x

15. Mauritius x x

16. Mozambique x

17. Namibia x x

18. Rwanda x x

19. Seychelles x x

20. South Africa x x

21. Sudan x

22. Swaziland x x x

23. Tanzania x x

24. Uganda x x

25. Zambia x x

26. Zimbabwe x x

Total 19 14 5 5

Table 1: Overlapping Memberships in the Region

12

countries in the three RECs – Burundi, Djibouti, Rwanda, Malawi, etc – face enormous

capacity constraints in trying to implement these multiple regional trade agreements.

Third, the multiple and overlapping memberships have cost implications for member states

– especially where resources are limited. Using countries’ ability to meet their

contributions to the RECs as an indicator, reveals that in many cases the resource constraint

is quite binding. According to UNECA (2009), with few exceptions no REC receives full

contributions from its members, with a third failing to meet their obligations, and in some

cases more than half not paying at all! The reasons for this poor performance include (i)

countries spreading too thin among the many RECs; (ii) countries not being sure of the

gains from the RECs that are under financed, or not realising the benefits while the REC

existed; (iii) countries joining the REC without sufficient strategic consideration, leaving

political commitments not backed by budgetary support.

One area where resource constraints have been binding is staffing – in terms of both general

and professional cadres. Labour is one of the most critical inputs to the success of REC

programmes. Unfortunately, most RECs, including the three under consideration, run small

and lean Secretariats. A recent study (Mugisa et al, 2009), for example, found that the EAC

Secretariat in Arusha is thin on the ground. Other RECs have large numbers of general

staff category than the professional staff, a bias which has had a bearing on the

implementation record of the RECs’ programmes.

Fourth, while it may be possible to belong to more than one FTA, it is not possible to

belong to two customs unions. A customs union (CU) differs from an FTA in that all

members must give up control of their external tariffs and allow them to be centralised and

standardised as a common external tariff (CET), which then applies to all trade with

countries outside the CU. A country cannot realistically apply two different CETs, and

indeed, WTO rules prohibit dual membership to two CU. In the context of the region, this

therefore means the member states of the EAC, COMESA and SADC, through their

multiple memberships, are risking (if not already) violating WTO regulations.

In this regard, Tanzania’s membership in SADC complicates matters for the EAC. It will

be recalled that Tanzania withdrew from COMESA in 2000, ostensibly due to proposals

announced by the latter to reduce customs duties by 90%. Other reasons cited by Tanzania

included her desire to focus on her EAC membership, the need to implement the SADC

Trade Protocol, and the dangers to its infant industries posed by the COMESA FTA

(Braude, 2008; GTZ, 2005, Stahl, 2005). Tanzania is the only EAC member in SADC.

This state of affairs is untenable, since Tanzania cannot implement more than one CET. It

would be costly, if not difficult, for the EAC to maintain customs and ROO to ensure that

products entering Tanzania under the SADC Trade Protocol do not find their way into other

EAC Partner States. Consequently, Tanzania’s continued stay in SADC has the potential

to fatally undermine the EAC customs union.

Related to the above, all the other EAC Partner States are also members of COMESA.

13

Until recently, this did not pose any problems, since the EAC was seen basically as a fast

track to the COMESA integration agenda. Since both the EAC (in 2005) and COMESA (in

2008) launched their customs unions, the membership of Uganda, Kenya, Rwanda and

Burundi in COMESA is clearly impossible, unless the CETs of the two RECs are

harmonised.

The disadvantages of multiple memberships are therefore clear. The resulting problems of

multiple memberships and overlapping constitute what has been called “a spaghetti bowl”

that hinders regional integration by creating a complex entanglement of commitments and

institutional requirements, adding significantly to the cost of intra-regional business. As

UNECA (2006) points out, multiple memberships constrain economic efficiency and the

collective vision of African economic community – particularly the march towards the

establishment of the AEC. Therefore, rationalization and harmonization of the trade

arrangements in the three RECs, through an FTA, should go a long way in minimizing and

eventually eliminating the contradictions arising from multiple memberships and overlaps.

It will mean that countries will not have to choose one REC over another. Rationalisation

should seek to build viable, sensible regional economic communities.

IV THE FEASIBILITY OF THE PROPOSED COMESA-SADC-EAC FREE

TRADE AREA

With the understanding of the implications and disadvantages of multiple and overlapping

memberships, the heads of state of the three RECs met in Kampala, Uganda, in October

2008 to discuss the broader objectives of the three regional blocs – COMESA, SADC and

the EAC. This was later referred to as Tripartite Summit. Discussions centred around

achievement of acceleration of economic integration on the continent in line with the Abuja

Treaty and the African Union objective of the formation of one continental economic bloc.

The leaders agreed to initiate a process of coordination and harmonisation of programmes

in order to progress towards the goals of expanding trade, alleviation of poverty and

attaining the overall development objective.

The Summit provided a platform for the three RECs to form a larger free trade area (FTA)

and resolved that they “start immediately working towards a merger into a single REC …”

In the area of trade, customs and economic integration, the Summit “… approved the

expeditious establishment of a Free Trade Area, encompassing the member/ partner states

of the three RECs, with the ultimate aim goal of establishing a single customs union”.

Understanding a Free Trade Area

Regional integration agreements come in many shapes and sizes. They vary in income

levels, in openness to trade and in the share of trade that takes place in them. The main

types of integration are: a free trade area (FTA) a customs union, a common market, an

economic union, and a political union. NAFTA is an example of a free trade area, while

the EAC is a classical example of a customs union.

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One of the main features of regionalism in recent years has been the proliferation of FTAs.

The rise in number of FTAs is driven by a number of factors – a defensive response to the

increase in trading blocs and FTAs many parts of the world, uncertainty over progress in

global trade talks under the WTO framework, the perceived need for deeper integration

with trading partners due in part to the demonstration effect of successful regional

integration accords in some parts of the world, etc. However, by their nature, FTAs are

complicated and highly controversial agreements. They have discriminatory features and

may therefore be “second best”. There are in fact no guarantees that a “free trade area” will

be a movement in the right direction of free trade, its name notwithstanding. This section

attempts to clarify the issues surrounding FTAs to help to embrace their positive elements,

while minimising the potential negative ones.

A free trade area is created as a result of an agreement between a group of countries in

which they introduce a schedule for the phasing out of tariffs and charges of equivalent

effect on goods and services traded, as well as any other hindrances to encourage free trade

between them. In other words, an FTA is a reciprocal preferential trade agreement under

which parties undertake to abolish restrictions on imports from each other, thus constituting

positive discrimination towards third parties. Thus, there are two distinguishing

characteristics of an FTA: (a) the liberalization of trade regulation for members, and (b)

the removal of trade barriers placed against members. This includes the removal of tariff,

quotas, and various non-tariff barriers, or a pledge to remove them by an agreed date in

future.

Free Trade Agreements and GATT 1994, Article XXIV

Free trade agreements represent a departure from the General Agreement on Tariffs and

Trade (GATT)/World Trade Organisation (WTO) guiding principle regarding non-

discrimination in trade, i.e. the most-favoured nation (MFN) treatment among signatories.

Article XXIV of the GATT (1994) provides some rules governing free trade in goods,

while Article V of the General Agreement in Services (GATS) gives the corresponding

rules for free trade in services. Article XXIV recognises the desirability of increasing trade

through voluntary agreements between two or more members, but it also cautions countries

that are signatories to such an agreement against raising barriers to trade, with non-

members.

As defined in Article XXIV, an FTA is a group of two or more countries (“customs

territories”), in which duties and other regulations of commerce are eliminated on

substantially al trade between them in products originating in the member countries. Article

XXIV distinguishes between a free trade area in which barriers have been removed, and an

agreement which will eventually lead to a free trade area. However, the key concepts in

this definition are not clarified. Two important concepts stand out in this regard, namely:

“substantially all trade” (i.e. the level of coverage), and the timing of FTAs.

The 1994 “Understanding on the Interpretation of Article XXIV

In order to reduce the ambiguity surrounding these two concepts, the 1994 “Understanding

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on the Interpretation of Article XXIV” sheds some light on them. First, it recognises the

importance of comprehensive coverage, i.e. the contribution to the expansion of world

trade is increased if the elimination of duties and other restrictive regulations of commerce

extends to all trade, and diminishes if any major sector is excluded. FTAs which exempt

key areas such as agricultural trade or a major manufacturing sector through restrictive

ROO appear to violate this coverage guideline. Second, with regard to the timing of the

FTA (i.e. the time allowed for a new agreement to be phased in), the Understanding

specifies that the “reasonable length of time” of Article XXIV, “should exceed 10 years

only in exceptional cases” and “where … parties to an interim agreement believe that 10

years would be sufficient, they shall provide a full explanation to the Council of Trade in

Goods of the need for a longer period”.

The Enabling Clause

However, the Tokyo Round agreements, signed in 1979, contained more flexible and

lenient rules on preferential trading accords between developing countries. These include

the “Decision on Differential and More Favourable Treatment, Reciprocity and Fuller

Participation of Developing Countries”, also known as the Enabling Clause. Under the

terms of the Enabling Clause, developing countries are subject to less scrutiny in

complying with Article XXIV. They can potentially agree to reduce, but not eliminate

tariffs and other trade barriers or be more selective in sectoral coverage.

The Transparency Mechanism

The Doha Development Agenda includes negotiations which seek to clarify and improve

disciplines and procedures under existing WTO provisions applying to regional trade

agreements. Consistent with this effort, a “transparency mechanism” announced in 2006

provides for early announcement and notification to the WTO of any new FTA to ensure

its compliance with WTO rules. However, whether prompt notification can affect the

provisions of new FTAs remains to be determined. By mid-2006 when the transparency

mechanism was announced, the process of assessing the consistency of FTAs with WTO

rules had already created a growing backlog of cases waiting evaluation.

Regardless of WTO scrutiny, countries planning to negotiate a free trade agreement, should

know the potentially adverse economic and political effects, both on themselves, and on

their excluded trading partners, of arrangements that cover some but not all goods,

specifically an unduly long phase-in period, or divert trade from lower-cost sources.

The Benefits of Rationalisation and Harmonisation and a Free Trade Area

Many observers agree that there is merit in rationalising and harmonising the activities of

the three RECs. It must be clear from the onset that rationalisation RECs requires

addressing the overlapping institutions, duplicated efforts, dispersed resources, etc. In the

context of the three RECs – COMESA, SADC and the EAC – the main benefits of such

rationalisation are that they become stronger as overlapping functions are eliminated and

the resources are better targeted. What benefits arise from these actions?

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Laying the foundations of the African Economic Community: Rationalisation and

harmonisation of the integration initiatives in three RECs is consistent with the aspirations

of building the African Economic Community (AEC) outlined by the African Union (AU)

under the Lagos Plan of Action and the Treaty of Abuja. The Abuja Treaty was the first

comprehensive continental initiative to call for the establishment of the AEC by 2037. The

Treaty seeks to promote integration of the African economies, free movement of factors of

production across the continent, cooperation among the member states and coordination

and harmonisation of policies. One of the strategies for the achievement of the above

objectives is the “strengthening of existing regional economic communities and the

establishment of other communities where they do not exist” (Karingi and Fekadu, 2009).

Rationalisation and harmonisation of COMESA, EAC and SADC, would be consistent

with this strategy.

Gains in economies of scale: Many of the countries in the three RECs have

populations of less than 15 million. They are too small to support, on their own, activities

that are subject to large economies of scale. This may be due insufficient quantities of

specialised inputs or the small size on internal markets. Rationalised RECs would

overcome this disadvantage. By rationalising and harmonising their integration agendas,

they are able to create larger markets to exploit economies of scale and thereby enhance

domestic competition, as well as raise returns on investment, and hence attract more foreign

direct investment. An FTA will allow producers to take advantage of a larger customer

base and, hence, produce at a lower average cost on all sales. Firms will even be able to

lower prices for existing customs – the “cost-reduction effect’. As a result, they will

become more competitive not only at home, but also in foreign markets.

Linking landlocked countries to markets: Many of the countries in the region,

particularly within the three RECs, are landlocked small economies with inadequate

infrastructure11. An FTA (and ultimately a customs union) of the three RECs

encompassing coastal countries, for example, will effectively connect landlocked countries

to the sea. Most of the landlocked countries in the region, share long-standing routes and

port facilities. The share of regional trade, especially imports, also tends to be higher for

landlocked countries than for other countries. Nevertheless, these countries stand to gain

most from reductions in the region’s trade barriers vis-à-vis the rest of the world, because

the marginal cost of imports from the region is generally higher.

Increased intra-regional trade: One of the expected outcomes of establishment of a

larger FTA is the promotion of intra-regional trade. In spite of the trade liberalisation

regimes in the three RECs, intra-regional trade remains very low, accounting for about 6-

7% of the region’s value of total exports (ADB, 2007). In comparison, UNCTAD (2004)

shows that trade within the European Union (EU) accounted for about 60% of world trade

on average. The same applies to countries of the Latin American Free Trade Agreement

(ALENA) area, whose intra-regional trade accounted for 58% in 2004 (ECA, 2007). The

11 Ten of the 26 countries in the three RECs are landlocked countries. They are: Botswana, Burundi,

Ethiopia, Lesotho, Malawi, Rwanda, Swaziland, Uganda, Zambia and Zimbabwe.

17

respective figures for the Association of South East Asian Nations (ASEAN) and the

Southern American Common Market (MERCOSUR) are more than 20% and 20%,

respectively. Thus, the harmonisation of the RECs in the eastern and southern African

region, including through establishment of the FTA, would greatly increase trade among

them. This would involve not only reduction of tariffs, but also removal of non-trade

barriers, harmonisation and coordination of trade policies, improving trade facilitation, etc.

Increased investment: FTA formation attracts such long-term, risk-sharing

investment flows by creating a more integrated marketplace within which multinational

corporations (MNCs) can enjoy a regional division of labour with low transaction costs

and exploit product-level economies of scale. Greater FDI flows can have important

valuable effects on the economy by attracting long-term foreign capital, providing ready-

made international customers through the foreign firms’ global networks, stimulating local

competition and putting government agencies on pressure to adopt “best practices” relating

to investment measures and regulations. But perhaps the most important benefit from FDI

for most developing countries is technology transfer.

Therefore the establishment of a larger FTA out of the three RECs will create large markets

which will be attractive for foreign direct investment. According to the UNCTAD WIR

(2009) FDI flows to the region have been asymmetrical. The main recipients in eastern

Africa were the Comoros, Madagascar, Mauritius, Seychelles, Uganda and Tanzania; in

the southern African sub-region these were South Africa and Angola. Investors think in

terms of regions when it comes to deploying their capital. A large market created through

an FTA will be more attractive to investors, especially as a result of the FTA, the region

becomes more competitive.

Indeed, there is considerable evidence to support the notion that RECs – or at least those

with large markets – have succeeded in attracting FDI. Mexico perhaps provides the best

example of this. The creation of the North American Free Trade Area – NAFTA –

guaranteed access to its northern neighbours (the US and Canada) and this had a profound

impact on FDI flows into the country. They more than doubled soon after the launch of

NAFTA. Similar phenomena were observed elsewhere – in Europe following the launch

of the Single Market Programme, in MERCUSOR, etc.

Efficient allocation of resources: Rationalisation of the three RECs will to

elimination of waste through duplication of efforts. The savings made out of this will be

put to better use, such as financing common infrastructure, health, education and

programmes. The creation of a larger FTA would also help in mobilisation of large amounts

of financial and other resources for regional projects and programmes. This would lead to

an increase in the quality and quantity of public goods provided regionally.

Improved productivity: As noted earlier, a REC combines markets, making it

possible to reduce monopoly power, as firms from different countries are brought into more

intense competition. Under intense competition, firms are induced to cut prices and to

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expand sales, benefiting the consumers as the monopolistic distortions are reduced. The

establishment of an FTA out of the three RECs would lead to increased competition among

firms in the region, which would eliminate internal inefficiencies and raise productivity

levels. Since competition raises the chances of bankruptcy and hence layoffs, it also

generates stronger incentives for workers to improve productivity and increases labour

productivity across firms within sectors.

Welfare gains: Welfare gains for the region would result from the resources saved as

a result of trade creation. Under trade creation, imports from member states will become

cheaper due to the elimination of tariffs, demand patterns will change, causing changes in

the flow trade and in output levels in many sectors. Rationalisation in the three RECs will

lead to elimination of trade barriers and the FTA will lead to the most welfare gains.

V CHALLENGES TO HARMONISATION OF TRADING ARRANGEMENTS

AND ESTABLISHEMENT OF FREE TRADE AREA IN THE REGION

In spite of the clear benefits arising from harmonisation and establishment of an enlarged

FTA, achievement of this objective is constrained by a number of factors. Indeed, the fact

that the three RECs have overlapping memberships is an indication of underlying problems

in many areas and challenges are therefore to be expected.

Disparities in economic development and trade regimes: The three RECs with their

26 countries potentially constitute an enormous market. However, the member states are

not all uniform in terms of economic size and development. There is a clear asymmetric

product complementarity, which puts the more developed economies (South Africa, Egypt,

and Kenya) in a better position to market their exports. It also raises the concern over

possible polarization as investment may be attracted towards these economies.

Moreover, there are great disparities in the trade regimes across the three RECs. Several

countries such as Uganda, Rwanda, Malawi, Zambia, and Djibouti are ranked among the

most open in the world. On the contrary, others like Burundi, Comoros, and Seychelles are

ranked among countries with the most restrictive trade regimes in the world (IMF 2008).

Only about 9 countries have open trade regimes and these do not include the relatively

developed ones. In the circumstances, harmonization in the sense of low and uniform tariffs

will involve significant adjustment from a majority of countries, including the more

developed ones, and agreement will be complicated by the very different starting positions.

Dependence on trade taxes: One of the trade effects of regional integration is the

reduction in government revenues from tariffs, directly through tariff cuts among members

and indirectly through a shift away from imports from non-members subject to tariffs

(ECA, 2004). The cost of this loss depends on the ease with which members can switch to

alternative was of raising funds, but can be high in countries that depend heavily on tariff

revenue.

With few exceptions, a large number of the countries in the three RECs depend on trade

19

taxes for their revenue. According to the IMF (2004), trade taxes account for over 10% of

total fiscal revenue in all the countries in the region12. In 8 out of the 26 countries, this

figure stands at over 20%. Only in 5 countries of the 26 – namely South Africa, Egypt,

Tanzania, Uganda and Rwanda – are trade taxes less than 2% of GDP. Customs revenues

provide 6% of government revenues in Zambia and 10% in Zimbabwe (ECA, 2004). Such

a high degree of dependence on trade taxes is a major obstacle to tariff liberalization, given

that concerns over tax revenue in these countries are serious. Since an FTA involves

liberalization through a reduction in tariffs, the proposed Tripartite FTA is likely to lead to

a significant fiscal gap through the lowering of import duties in some countries. Moreover,

the new trade arrangement may lead to changes in the structure of individual economies in

the region resulting in a reduction in previously import-substituting industries which were

major sources of revenue.

Rules of origin: One of the anticipated challenges associated with the creation of a

large FTA in the region relates to the rules of origin. Indeed, it is anticipated that in the

event of establishment of the FTA, the three RECs will seek to establish a single set of

ROOs, which would have a major effect on the current ROOs implemented by the three

RECs. Rules of origin are generally contentious in nature and are complex to negotiate and

agree upon. Kalaba, (2009) identifies eight main challenges associated with ROOs in an

enlarged FTA in the region. These are:

(i) How to bring together the three sets of ROOs and then narrow them to one, given

the differing goals of the three RECs, in addition to other trade policy instruments.

A single set of ROOs, would require unpacking all the existing measures and dealing

with them separately.

(ii) How to simplify the new ROO and make them predictable and open to uniform

interpretation, but most importantly, how to make them suitable for the majority of

businesses and stakeholders in the region who are predominantly small and medium

enterprises.

(iii) How to deal with the “sufficiently worked” SADC product specific ROOs, which

would need to undergo substantial transformation, which is compounded by the

unresolved rules on certain products.

(iv) The methodology of evaluating the value-added rule, given that COMESA and the

EAC currently use ex-factory costs (or the value of inputs used), while SADC uses

ex-works price which includes value-added materials and profits, but excludes

internal taxes paid. In the circumstances, one of the calculations of value-added

would have to be dropped.

(v) Application of the rules on “goods of particular economic importance” under

COMESA, given that this rule is substantially different from those applied in the

EAC. The rationale and criteria for this value-added rule are not clear and would add

unnecessary complication if not clarified.

12 Lesotho, Namibia, and Swaziland are the most dependent on trade taxes, where they account for

over 50% of their total fiscal revenue.

20

(vi) How to deal with the “tolerance” derogation applied under the SADC ROOs, which

is not under the COMESA or EAC ROOs. The tolerance rule is flexible with regard

to determination of origin, making it slightly less onerous when no such rule is in

place. The three RECS would have to find common ground on this derogation.

(vii) The rules relating to fisheries, in which there are deviations revolving around the

flag of the vessel and whether that rule should be maintained (as is the case in SADC)

or not. Related to this is how to deal with the nationality of the crew and officers,

given that currently SADC rules require that the crew members holding the

nationality of the country concerned should comprise at least 75% of the crew and

this is a joint condition for crew and officers. COMESA and the EAC, on the other

hand provide separate conditions for their crews and officers.

(viii) How to deal with the ROOs of other regional blocs, paying particular attention to

possible contradictions and conflicts of rules. The most significant regional bloc in

this regard is the EU with which the members of the three RECs have one or the

other arrangement. These arrangements with third parties will have a key role to play

in shaping the ROOs of the enlarged FTA13.

Institutional harmonization: One of the major challenges arising from the new trade

arrangement is how to deal with the current configurations. The three RECs are all legal

entities, with mandates conferred upon them by their member states. Clearly, if the decision

is to replace them with a single REC, then this necessarily means they have to be wound

up. However, to this day, the member states have not openly pronounced themselves on

this matter. Indeed, the recent events and developments in the three RECs – such as the

launching of the COMESA Customs Union in June 2009, the preparations for the launching

of the SADC Customs Union in 2010 – suggest that the Tripartite FTA would have to co-

exist with the existing RECs until such a time as all the legal instruments have been dealt

with in order not to create a vacuum.

A related matter is how to deal with the three secretariats. In each of the three RECs today

the trend is toward stronger institutions. In the EAC, for example, there are calls for more

authority being granted to the Secretariat in Arusha. Yet, dissolution of the three RECs,

would mean disbanding the secretariats. What is clear, though, is that whichever way the

RECs take – merger or rationalization – the process will also touch on their secretariats and

all the other institutions that play a supportive role such as East African Legislative

Assembly (EALA), the COMESA Court of Justice, the SADC Tribunal, etc. This may

prove a big hurdle given that there are vested interests in these institutions and these will

13 An example of a possible key challenge is related to agreements that provide for cumulation of

production. The EU has such an arrangement with the ACP countries which have initialed the EPA.

However, since not all members of the three RECs (e.g. Ethiopia, Eritrea, Comoros, etc) have

initialed, this would pose a serious challenge. Another problem with EPAs is that the possibility of

cumulation with South Africa for some products has been excluded. In that case if any of the

members of the enlarged FTA use materials imported from South Africa for a product to be exported

to the EU, then the value-added of that country must exceed that of South Africa. But the latter is

expected to be a member of the enlarged FTA and would be affected by this rule, introducing bias

against it, thus negating the objective of enlarging the FTA.

21

not be wished away through the creation of new institutions.

The role of SACU: So far the proposals made about the future of the three RECs are

silent about the role of SACU in this process. However, it is inconceivable to imagine any

reforms about the future of these blocs without giving consideration to SACU. It will be

recalled that SACU is not only the oldest REC in the region and in Africa, but five of its

members are also members of SADC. SACU also contains Africa’s largest and most

diversified economy – South Africa. SACU compares favourably with the other three

RECs in terms of the degree of integration recorded so far. It has undertaken steps to deepen

and expand its integration agenda, notably through harmonisation of regulatory policies on

new issues such as competition, investment and intellectual property rights. Its

engagements in negotiations with external partners, such as the US and the EU have pushed

it further in this direction. For South Africa, the dominant regional power, regional

integration via SACU is a priority (Draper et al, 2007). Therefore South Africa may

strongly promote SACU’s agenda at the cost of SADC and, certainly COMESA.

At the same time, the overall question in this regard is what happens between SACU as a

whole and SADC. The problem is that for SACU and SADC to harmonise their integration

agenda, they would have to dismantle SACU’s current revenue sharing agreement, since

South Africa will not accept (and possibly cannot afford) to extend it to the rest of SADC

members. But such a decision would harm the rest of the SACU members (the BNLS) who

derive up to 50% of their core budget revenue from this arrangement (Braude, 2008).

Therefore, they will strongly be opposed to any such changes and therefore also potentially

opposed to a merger between SACU and SADC, unless there are efforts to retain the

revenue sharing framework in its current form. This would be problematic since it would

require introducing administrative barriers between the two RECs in order to collect and

distribute revenue as is done today. On the contrary, though South Africa wishes to see a

revision of the current revenue sharing agreement as it would wish to further dismantle

barriers between it and its non-BNLS SADC markets.

Political will and stability: The success of the Tripartite FTA will require substantial

political will, given that there has been a lot of rhetoric about continental unity which has

not been matched by practical action. Indeed, there have been concerns that the proposed

roadmap for regional integration may not be realistic in view of the diversity of the

economies involved and the reality that economic integration takes time. Yet other

observers warn that care must be taken to ensure that the new arrangements deliver the

desired results. These can only be achieved if there is full implementation of the

commitments to remove tariffs and if these are accompanied by measures to address other

barriers to trade.

EPA negotiations with the EU: All the 26 members of the three RECs are negotiating

economic partnership agreements (EPAs) with the European Union (EU) in different

configurations. EPA negotiations are likely to impact regional integration in several ways.

First, although the deadline of December 2007 passed and a number of countries initialled

framework EPAs, they are under pressure to conclude the full EPAs. This means tight

22

schedules, since progress is still limited and in reality comprehensive FTAs tend to take

time to negotiate. The EPA negotiations are complicated by the lack of a common trade

policy in the region, which is a prerequisite when they establish a CU, terms of which are

not yet clear.

As noted above, the countries in the three RECs formed regional groupings for the purpose

of negotiating EPAs. However, due to overlaps in memberships, the existing regional RECs

could not be used for this purpose, resulting in a split into two (ESA and SADC) and

subsequently the EAC. With the exception of SADC and EAC, the ESA configuration is

not in line with any existing regional organisation. This raises the question how the three

RECs can be reconciled to facilitate regional integration. EPAs imply bilateral FTAs

between individual countries in the three RECs and the EU. This poses problems when all

the SADC EPA or EAC EPA or ESA countries sign the same agreement, but in the end,

all of them end up signing different agreements. This has the potential to complicate, if not

prevent, any harmonisation of trade policies needed for future regional integration.

The South Africa-EU Trade, Development and Cooperation Agreement: But perhaps

one of the complicating factors for harmonisation of the three RECs is the FTA –South

Africa’s Trade, Development and Cooperation Agreement (TDCA) – with the EU.

Although the agreement is between these two, today de facto it applies to the BLNS

countries by virtue of their membership in SACU. Because of the TDCA, South Africa has

only observer status in the SADC EPA negotiations and has indicated that it is not willing

to re-negotiate the terms of the agreement. In the context of the three RECs, this means that

in creating a Tripartite FTA, the TDCA will also have to apply to all the 26 countries,

which in itself creates a lot of uncertainty and compels these countries to provide the EU

with reciprocal market access. The question then will be whether these countries should

join the TDCA. The South African scenario also applies to Egypt which also has an FTA

with the EU in addition to being a member of the Arab FTA.

VI CONCLUSIONS

The above analysis brings us to the following conclusions:

First, the regional landscape in eastern and southern Africa is full of pitfalls and circles of

complexity. The problems inherent in overlapping memberships are real and could possibly

only be addressed at the regional level because that is where their ill effects are felt most.

Moving from the “spaghetti” bowl to more viable, sensible regional economic communities

is not going to be easy since there are very serious and fundamental challenges to contend

with. The need for rationalisation and harmonisation of integration initiatives has been

accepted in principle and the benefits to be derived from this recognised.

Second, the analysis of the memberships of the three RECs shows that it is not economic

arguments alone that dictate a country’s decision to belong to one or the other REC. Parallel

memberships are also due to the fact that a single bloc does not satisfy all the strategic

political and economic objectives of the country. Tanzania’s continued membership in

23

SADC is a case in point.

Third, the proposed FTA from the three RECs is a good and welcome proposition, which

recognises the similarities in their trade regimes, hence the need to harmonise them. This

implies joint planning and implementation of their programmes. Already the three RECs

have been, through their Secretariats, cooperating under a loose framework to try and

harmonise and rationalise their programmes and instruments. The proposed FTA can build

on these initiatives to move forward. In this regard, the central theme should be the need

to overcome overlapping membership, since most of the 26 countries in the three RECs are

already participating in customs unions or are in the process of negotiating two separate

customs unions.

Fourth, given the way in which the integration process has unfolded so far in the region

(and in other parts of the world), the key to understanding how the situation will develop

in the eastern and southern African region is the political calculations taken by what one

would call the “swing states”. In the context of this discussion, these are the countries,

whose decisions will have a significant bearing on a REC’s course and how the three (or

four) REC’s relate to each other. These include South Africa, Kenya, Tanzania, Angola,

Zambia, and Zimbabwe. Thus, South Africa will have a lot of influence, especially on the

SADC countries on account of its economic might; Kenya has an obvious stake in

coordinating the EAC with itself at the centre, given its economic size in the region;

Tanzania has long-standing political and economic ties with South Africa (the former

through relations with ANC during the party’s exile, the latter via extensive South African

investment), meaning that the latter would not be happy about Tanzania’s return to

COMESA; Angola is more inclined to ECCAS and is unlikely to join SACU where South

Africa is dominant; Zambia hosts the COMESA Secretariat rendering a rapture with

COMESA extremely difficult, etc.

Fifth, the major economies in the three RECs – South Africa, Egypt and Kenya – hold the

key to the success of the proposed Tripartite FTA. The negotiation and conclusion of the

Tripartite FTA will require the unity of vision regarding the objective and finality of a

regional agreement among these three countries – from the very beginning up to the end of

the process. If they do not wholly support the objective and finality of the FTA, or do not

share a common purpose, then the negotiations will either not start or will most likely not

succeed. The experience of the Free Trade Area of the Americas (FTAA) provides

important lessons in this regard. When the USA and Brazil lost interest in the process, it

crumbled, in spite of the interest shown by the majority of the 34 countries in the region.

REFERENCES

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COMESA, EAC and SADC (2009) Draft Report on Establishing the Tripartite Free Trade

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EAC (1999) The EAC Treaty

EAC (2004) The EAC Customs Union Protocol

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EAC, COMESA and SADC (2008) Final Communiqué of the COMESA-EAC-SADC

Tripartite Summit of Heads of Government, Kampala 22nd October 2009.

Jakobeit C.; Hartzenberg T. and Charalambides N. (2005), Overlapping Membership in

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Mmatlou Kalaba (2009) Exploring the COMESA-EAC-SADC Trilateral Free Trade

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