An Analysis of Regional Integration Issues

in Africa, Focusing on the SADC-COMESA-

EAC Tripartite FTA

by

Debbie Swanepoel

Class of 2011

Copyright © tralac, 2011.

Readers are encouraged to quote and reproduce this material for educational, non-profit

purposes, provided the source is acknowledged. All views and opinions expressed remain solely

those of the authors and do not purport to reflect the views of tralac.

This publication should be cited as: Swanepoel, D. 2011. An analysis of regional integration

issues in Africa, focusing on the SADC-COMESA-EAC Tripartite FTA. Stellenbosch: tralac.

Table of Contents

Abbreviations 3

EXECUTIVE SUMMARY 4

1. Background 6

1.1. International trade: A Global Perspective 6

1.2. International Trade: An African Perspective 7

2. International Legislature and Rules on Regional Integration 9

2.1. GATT Article XXIV 9

2.2. Enabling Clause 10

2.3. GATS Article V 11

2.4. Reconciliation of Multilateral and Regional Trade Arrangements 12

2.5. Compliance to WTO Requirements 12

3. Southern and Eastern African RECs 13

3.1. SACU 14

3.2. SADC 16

3.3. COMESA 17

3.4. EAC 18

4. SADC-COMESA-EAC Tripartite Free Trade Area 20

4.1. SACU: Way Forward 21

4.2. SADC: Way Forward 22

4.3. Scope and Legal Implications of the TFTA 22

5. Conclusion 23

REFERENCES 25

3

Abbreviations

AEC African Economic Commission

AU African Union

BLNS Botswana, Lesotho, Namibia, Swaziland

CET Common External Tariff

COMESA Common Market of Eastern and Southern Africa

CU Customs Union

EAC East African Community

FDI Foreign Direct Investment

FTA Free Trade Arrangement

GATS General Agreement on Trade in Services

GATT General Agreement on Trade and Tariffs

GDP Gross Domestic Product

IGAD Inter-Governmental Authority on Development

IOC Indian Ocean Commission

LDC Least Developed Country

MFN Most Favoured Nation

PTA Preferential Trade Agreement

REC Regional Economic Community

RISDP Regional Indicative Strategic Development Plan

ROO Rules of Origin

RTA Regional Trade Agreement

SACU Southern African Customs Union

SADC Southern African Development Community

TNC Transnational Corporation

WTO World Trade Organisation

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Executive Summary

There has been a proliferation of Regional Trade Arrangements (RTAs) in recent years, which

can be attributed to the slow rate of progress being made in the Doha Development Round of the

World Trade Organisation. The WTO does make provision, in Article XXIV of the General

Agreement on Tariffs and Trade (GATT), the Enabling Clause as well as Article V of the General

Agreement on Trade in Services (GATS), for the creation of RTAs, but specifies criteria according

to which these arrangements must be established.

The southern and eastern Africa sub-region is home to the highest number of regional economic

communities (RECs) in Africa. In line with the Constitutive Act of the African Union and the 1991

Abuja Treaty, the RECs are working towards closer cooperation and harmonisation of activities

through the establishment of RTAs, such as the Tripartite FTA between SADC, COMESA, and

the EAC (TFTA).

The establishment of a TFTA would assist the RECs in addressing a number of challenges they

face, especially that of multiple memberships of countries to more than one REC, and in particular

the combination of free trade areas (e.g. SADC) and customs unions (e.g. EAC, COMESA),

which makes their trade regimes complex and difficult to manage. All of the EAC members are

members of COMESA; the SACU members are all members of SADC; and there is overlap

between the SADC and COMESA member states and more importantly, between SACU,

COMESA and the EAC. According to Yang and Gupta (2005):

The treaties and respective protocols of SADC, EAC and COMESA do not preclude

members from maintaining prior trade arrangements or from entering into new ones. They

do state, however, that any preferences granted by a member state to a third party or by

two or more member states have to be extended to all other member states according to

the common customs territory principle. This suggests that countries with multiple

memberships should not seek individual exemptions but rather cooperate in efforts to

negotiate new arrangements between the RECs concerned.

The implementation of the RECs‟ RTAs has also been weak due to the institutional challenges

which face the individual RECs, as well as the ambitious nature of their programmes. African

RTAs are faced with a number of challenges; consequently, a number of issues, such as design

and implementation problems as well as creating the necessary preconditions for successful

regional trade integration, need to be addressed to ensure their improved performance (Yang &

Gupta, 2005).

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At the initial phase of the tripartite trade arrangement, it would be advisable to conclude an FTA in

line with the requirements of GATT Article XXIV, which focuses on the liberalization of trade in

goods specifically. This would not only enable the partner RECs to reach similar levels of regional

integration by implementing their various roadmaps and strengthening their institutions, but also

ensure that the goals and objectives of the FTA are attainable within the timelines and

liberalization requirements stipulated in Article XXIV. The narrowing of the scope does not,

however, preclude discussion points, such as competition policy and trade in services, from being

included in future discussions. The possibility of the TFTA graduating into a Customs Union

between the 26 member states should be seen as a long-term prospect and should only be

discussed once the TFTA is functioning effectively.

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1. Background

Southern and Eastern Africa registers the highest number of RECs in Africa, all characterized by

multiple and overlapping memberships. Apart from Mozambique, every country in the sub-region

belongs to more than one REC. The major RECs in the sub-region include the Common Market

for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC),

East African Community (EAC), Southern African Customs Union (SACU), Inter-Governmental

Authority on Development (IGAD), and the Indian Oceans Commission (IOC). The focus of this

paper will be on SACU, SADC, COMESA and the EAC, in view of the tripartite free trade

agreement (TFTA) which is currently under discussion. This will be done by taking into

consideration the legality of such agreements in relation to the WTO, as well as the level of

regional integration attained in each of the RECs. This paper will place more emphasis on the

state of readiness of SACU and SADC, as South Africa is a member of both of these RECs.

1.1. International Trade: A Global Perspective

International trade is structured on a rules-based multilateral system governed by the World

Trade Organisation (WTO). According to the WTO Secretariat:

At the heart of the system… are the WTO‟s agreements, negotiated and signed by a large

majority of the world‟s trading nations, and ratified in their parliaments. These agreements

are the legal ground-rules for international commerce. Essentially, they are contracts,

guaranteeing member countries important trade rights. They also bind governments to

keep their trade policies within agreed limits to everybody‟s benefit.1

The WTO was officially launched in 1995. The Doha Ministerial was held in 2001 which launched

a new Round of multilateral trade negotiations, declared the Development Round. A core concern

marked by the Round was that the multilateral trading system should benefit the developing

countries that constitute over three quarters of WTO members. The Doha Declaration pledged to

enable developing countries to “secure a share in the growth of world trade commensurate with

the needs of their economic development” through two key routes:

• Improving market access to Northern markets for developing countries by reducing import

tariffs that prevent increased prices and distort competitiveness

1 „The WTO in Brief‟. Retrieved from http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm

7

• Phasing out domestic and export subsidies that enable the over-production of goods at

very low prices, often leading to the dumping of these goods at prices that are cheaper

than those of locally produced goods

The most strategic area identified for reform at Doha was agriculture, followed by non-agricultural

market access (NAMA), trade in services (under the GATS), developing country issues (Special

and Differential Treatment), and Aid for Trade. Yet, in the intervening period, Northern countries

have proven unwilling to open up their agricultural markets, without a commitment from

developing countries to lower their own barriers in services and non-agricultural goods. Rich

countries also want to limit the scope of Special and Differential Treatment (SDT) Measures that

would soften the impact of tariff reductions for developing countries. Thus, the promise of Doha

as a catalyst for development has largely not been met.2

1.2. International Trade: An African perspective

In addition to the multilateral trading system, the WTO makes provision for countries to cooperate

in the area of trade regionally. The lack of progress within the Doha Development Round has

encouraged a proliferation of RTAs. Since the launch of the Doha Round, more than 100 regional

and bilateral trading arrangements have been notified to the WTO and come into force, lowering

tariffs for some members of the WTO but not others.3

In the African context, the African Union (AU) has adopted a rules-based treaty outlining the

framework for the achievement of trade objectives in the form of the African Economic

Community (AEC). The objectives of the AEC are, among others, to promote economic, social,

and cultural development and the integration of African economies in order to increase economic

self-reliance, and to promote sustained development through fostering closer ties in trade

relations. In order to achieve the objectives of the AEC, the AU has highlighted areas on which

countries should focus to attain integration, including the following:

a) The liberalisation of trade through the abolition, among Member States, of Customs Duties

levied on imports and exports and the abolition, among Member States, of Non-Tariff

Barriers in order to establish a free trade area at the level of each regional economic

community

2 „What is the Doha Round‟. Retrieved February 26, 2011, from http://www.eldis.org/index.cfm?

objectId=E1A93506-FCCE-F97E-205FB8451CE3EA74 3 „After Doha‟. 4 September, 2008. The Economist. Retrieved February 26, 2011, from

http://www.economist.com/node/12060235

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b) The harmonisation of national policies in order to promote Community activities,

particularly in the fields of agriculture, industry, transport and communications, energy,

natural resources, trade, money and finance, human resources, education, culture, and

science and technology

The African continent is organised sub-regionally into Regional Economic Communities (RECs),

and the AU has emphasised the role which RECs have to play in order to ensure that the

objectives of the AEC are fulfilled. The three RECs in Eastern and Southern Africa are the

Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC),

and Southern African Development Community (SADC).

These RECs implement their individual regional integration programmes in trade and economic

development covering the establishment of Free Trade Areas, Customs Unions, Monetary Unions

and Common Markets, as well as regional infrastructure development programmes in transport,

information communications technology, energy, and civil aviation as a first step towards the

realisation of continental integration. The overarching objective of the three regional organizations

is to expand trade, alleviate poverty, and improve the quality of life for the people of the Eastern

and Southern Africa region.

Africa is home to some 30 regional trade arrangements (RTAs), many of which are part of deeper

regional integration schemes. On average, each African country belongs to four RTAs (World

Bank, 2004). There has been a renewed push in recent years to broader and deeper preferential

trade arrangements in Africa. These arrangements have not only focused on trade-related issues,

including the increase in regional bargaining power in multilateral and other forms of trade

negotiations, but have also placed emphasis on non-economic objectives such as conflict

prevention and resolution.

Although African countries are party to RTAs, the impact these arrangements have had on the

economies of the countries involved has been disappointing; there has been a small or

insignificant increase in intra-regional trade and they do not seem to have increased intra-regional

competitiveness. Even if they have increased intra-regional trade to some extent, they may not

have improved the welfare of the countries involved (Yang & Gupta, 2005).

The limited success of RTAs in Africa can be attributed to a number of factors, including the fact

that most African RTAs lacked initial conditions for success because of limited intra-regional

trade, weak complementarity in resource endowments, and inadequate transport infrastructure

and local capacity. The design is generally poor, particularly with respect to external tariffs, non-

tariff barriers, and trade facilitation. For virtually all African RTAs, implementation has been weak,

9

often with delays, which partly result from overlapping memberships. Thus, to improve the

performance of African RTAs, a broad approach is required to tackle a whole range of design and

implementation problems, as well as to create the necessary preconditions for successful regional

trade integration (Yang & Gupta, 2005).

2. International Legislation and Rules on Regional Integration

RTAs are an exception to WTO rules. Article XXIV of the General Agreement on Tariffs and

Trade (GATT) 1947 allows RTAs covering trade in goods as one of the few legal exceptions to

the basic GATT principle of non-discrimination, the Most Favoured Nation (MFN) clause. The

MFN clause essentially calls for non-discrimination on the part of one member country of the

WTO towards all other WTO members. Article V of the General Agreement on Trade in Services

(GATS) allows similar exception for RTAs covering trade in services. In addition, the so-called

Enabling Clause (the 1979 Decision on Differential and More Favourable Treatment, Reciprocity

and Fuller Participation of Developing Countries) allows preferential trade in goods between

developing country WTO members as well as between developing and least developed countries

(Centre for Trade and Development [CENTAD], 2006).

2.1. GATT Article XXIV

The RTAs covering trade in goods have to comply with various requirements set out in GATT

Article XXIV. Section 4 contains a general requirement that FTAs and Customs Unions must

facilitate trade between constituent territories and not raise barriers to trade between other

parties. Article XXIV:5(b) allows for the formation of FTAs, or interim agreements leading to the

formation of an FTA, provided that the duties and other regulations of commerce imposed by the

member states on trade with WTO members not party to the FTA or interim agreement, at the

time of establishing the FTA, are no higher than before the formation of the FTA or interim

agreement. The members of this type of arrangement retain their individual external tariffs.

As the external tariff differs from one member to another, detailed rules of origin (RoO) need to be

included in the agreements in order to prevent transhipment and to ensure that only countries that

are party to the agreement benefit from the preferences provided by it.

In a customs union, there is also free movement of goods between members, as in an FTA, but it

also requires members to adopt a common external tariff (CET). Members therefore need to have

the same external trade policy. Article XXIV:5(c) furthermore requires interim agreements, FTAs,

and customs unions to be established within a reasonable length of time, which is understood to

be a period of 10 years. Another requirement is that in both an FTA and a customs union, the

10

elimination of tariffs and other regulations of commerce must be on “substantially all trade”, the

interpretation of which is still being debated within the WTO but is generally understood to mean

80% of all trade.

Article XXIV does contain some control provisions designed to ensure that the regional exception

is being accorded only to qualified agreements. Even while the practice of reviewing regional

trade agreements is not noteworthy for its success in blocking the implementation of poorly

qualified RTAs, on paper the provisions appear quite solid (Mathis, 2011). Article XXIV provides

for institutional provisions which establish the requirement that parties entering a regional trade

agreement „promptly notify‟ the WTO of the intention of the contracting parties to establish an

RTA, and outline the requirements for the contracting parties to make available information to the

WTO membership to make reports and recommendations as they may wish. The primary

information to be provided is that of a „plan and schedule‟ for any interim agreement that would

render the formation „within a reasonable time‟.

The Committee on Regional Trade Agreements (CRTA) was established in 1996 with one of its

main objectives being to review RTAs and ensure that they are consistent with the rules outlined

by the WTO, as well as to review the notices and information provided by WTO members

intending to establish new RTAs. The primary control provision allows the CRTA to find that the

formation does not qualify with Article XXIV and then to make recommendations accordingly. It

should be noted, however, that to date, while they have examined a number of RTAs, the CRTA

has not been very active in making findings on the compatibility of RTAs examined with WTO

rules. This can be attributed to two main reasons, the first being that the CRTA has not yet

reached consensus on the underlying qualification provisions for RTAs, thus making it difficult to

determine whether RTAs filed are consistent with WTO rules. The second reason for the limited

success of the CRTA may be that reviewing members (all WTO members) are called upon by the

rules to criticize agreements that do not fully liberalize regional trade, yet their own territorial

trading interests may favour an agreement that does not fully liberalize trade. To push for strong

compliance with the rules is thus somewhat inconsistent with the trading interests of non-regional

territories where their own producers may be displaced from a market by a regional trade

agreement (Haight, 1972).

2.2. Enabling Clause

The Enabling Clause is the informal name for the GATT Council Decision entitled “Differential and

More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries”, and

authorizes the General System of Preferences (GSP). This allows developed countries to install a

system of non-reciprocal preferences for the group of developing countries. Each country

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establishing such a system maintains its own list of preferential products and its own system of

qualification and graduation whereby a developing country may either make use of the

preferential market access or be „graduated‟ back to the conventional MFN rates by either market

basis or by development level of the country. The Enabling Clause makes special provisions for

the conclusion of Preferential Trade Arrangements and allows developing countries the following:

• Only duties need to be liberalized.

• Parties are allowed to decide to what extent they would like to liberalize their economies

and then to mutually agree on the number of goods they would like to liberalize.

• Parties are allowed to agree on their own timeframes in which duties will be phased down

without necessarily adhering to the requirements of Article XXIV of the GATT.

• Parties are provided with flexibility for adhering to the provision of Article I, relating to the

Most Favoured Nation requirements, i.e., the parties are allowed to afford members of the

PTA preferential treatment without extending the same treatment to third parties.

• It does require parties to adhere to the provisions of all GATT Articles except for Article I;

this includes the principles of Transparency, National Treatment, Elimination of Non-Tariff

Barriers, Anti-Dumping and Countervailing Measures, and other relevant provisions as

stipulated in the GATT 1994.

• Members have the option to include the liberalization of other trade restrictive measures in

their agreements, however, they are not obligated to do so.

Under the Transparency Mechanism agreed upon in the Doha negotiations, preferential trade

arrangements are also covered in the requirement for early notification and reporting. Besides this

transparency aspect, however, WTO Members have not yet established any criteria or conditions

for these types of arrangements. The Enabling Clause itself does require that such arrangements

be notified to the contracting parties and that the territories entering such arrangements be

receptive to consultations (Mathis, 2011).

2.3. GATS Article V

Like the GATT, the General Agreement on Trade in Services (GATS) has special provisions to

exempt parties to RTAs from the MFN requirement. Similarly to GATT Article XXIV provisions, the

RTA must be designed to facilitate increased trade among its members and must not result in an

overall increase in the barriers they face in trading with members of the integration group in the

service sectors or sub-sectors covered. Further GATS Article V provisions include the following:

• Any WTO Member is permitted to enter into agreements to liberalize trade in services on a

bilateral or Plurilateral basis.

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• The RTA must have “substantial sectoral coverage” (in terms of number of sectors,

volume of trade affected, and modes of supply). In order to meet this condition,

agreements should not provide for the a priori exclusion of any mode of supply.

• The RTA must provide for the absence or elimination of substantially all discrimination,

within the meaning of National Treatment, between members.

• If the establishment of the RTA, or its subsequent enlargement, leads to the withdrawal of

commitments made to non-members, there must be negotiations to provide appropriate

compensation.

A significant difference between the GATT and GATS regional exceptions is that the GATS Article

V provisions contain flexibility for developing country members to regional integration

agreements. Where developing countries are parties to an agreement, then flexibility shall be

provided in terms of the qualifying conditions, and especially for those requiring national

treatment. In addition, for agreements involving only developing countries, “more favourable

treatment may be granted to juridical persons owned or controlled by natural persons of the

parties to such an agreement” (Mathis, 2011).

These flexibility provisions appear quite broad on their face, and suggest that developing

countries have the opportunity to open their sectors either more slowly than a developed partner

in terms of GATS Article V, or not to open sectors to foreign competition at all.

2.4. Reconciliation of Regional and Multilateral Trade Arrangements

RTAs are often perceived to be contradictory to multilateral trade arrangements because they are

discriminatory by definition, and always have the potential to disadvantage others. However, they

can actually be supportive of the WTO‟s multilateral trading system. RTAs have allowed groups of

countries to negotiate rules and commitments that go beyond what was possible at the time

multilaterally. RTAs tend to have deeper coverage, extending into areas such as investment,

services, domestic policy, and non-tariff issues, compared to simple tariff concessions negotiated

within the WTO. Some of these agreements have thus paved the way for agreement in the WTO

(Crawford, 2000). Services, intellectual property, environmental standards, investment, and

competition policies are all issues that were raised in regional negotiations and later developed

into agreements or topics of discussion in the WTO (WTO, 2010).

2.5. Compliance with WTO Requirements

One of the key purposes of the WTO is to bring about equality among its membership, and one of

the most effective ways in which the WTO strives to do so is by ensuring transparency. A new

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Transparency Mechanism for all RTAs was established in 1996 which provides for the

announcement of any RTA and notification to the WTO. WTO members are given the opportunity

to consider the notified RTAs on the basis of a factual presentation by the WTO Secretariat, and

to make recommendations.

RTAs, as made provision for in Article XXIV of the GATT and Article V of the GATS, are notified

to the CRTA whereas RTAs established under the Enabling Clause are notified to the Committee

on Trade and Development (CTD). The roles of these committees are to examine regional

groupings, to ensure the transparency of the agreement, to assess whether they are compliant

with WTO rules, to assess their effectiveness, and finally to examine the impact the regional

agreements may have on the multilateral system, and what the relationship between regional and

multilateral arrangements might be.

The examinations by the committees are based on information provided by the contracting parties

describing the implementation process of the RTA. The secretariats of the committees draft

examination reports which form the basis for discussion and consensus by the committees. The

agreed-upon report is then submitted to the relevant superior body for adoption.

It should be noted that no examination report has been finalized since 1995 because of lack of

consensus. One problem derives from the possible links between CRTA-consistency judgement

and the dispute settlement process. It is critical that the CRTA closely examines the dispute

settlement clauses in the RTAs to ensure that there is no duplication, or overlap of jurisdiction,

between the dispute settlement mechanisms provided for by the WTO and those provided for in

the RTA.

3. Southern and Eastern African RECs

Within the context of Southern and Eastern Africa, the SACU, SADC, COMESA and EAC regional

groupings are the major RECs facilitating regional integration, with SADC, EAC and COMESA

being officially recognised by the AU as building blocks towards the AEC. Within the context of

the WTO, SACU notified the customs union under GATT Article XXIV, while the EAC notified the

Customs Union under the Enabling Clause and declared themselves a Common Market in 2010.

COMESA notified the FTA to the WTO under the Enabling Clause in 1995 and declared in June

2009 that they were moving towards establishing a Customs Union within 3 years (Sichalwe,

2010). SADC established an FTA between member states in 2009 and notified the arrangement

under GATT Article XXIV. They have also made their intentions clear to move towards the

establishment of a Customs Union by 2012.

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The major challenge facing these regional groupings is that of multiple and overlapping

memberships of countries between the regional groupings, especially the combination of free

trade areas (e.g. SADC) and customs unions (e.g. EAC, COMESA), which makes their trade

regimes complex and difficult to manage. All of the EAC members are members of COMESA, the

SACU members are all members of SADC, and there is overlap between SADC and COMESA

member states and more importantly, between SACU, COMESA and the EAC. The treaties and

respective protocols of SADC, the EAC and COMESA do not preclude members from maintaining

prior trade arrangements or from entering into new ones. They do state, however, that any

preferences granted by a member state, or by two or more member states, to a third party have to

be extended to all other member states according to the common customs territory principle

(Jakobeit, Hartzenberg, & Charalambides, 2005). This suggests that countries with multiple

memberships should not seek individual exemptions but rather cooperate in efforts to negotiate

new arrangements between the RECs concerned.

Amongst others, the challenges posed by multiple memberships can be summarized as follows:

• National negotiating capacities are overstretched

• Multiple membership fees are costly

• Conflicting membership loyalties hamper progress in implementing agreements and

promoting deeper integration

• Different rules of origin impose costs on business and governments in the case of FTAs

• Regional trade is hampered by a lack of commitment to one RTA at the expense of

another, resulting in the proliferation of non-tariff barriers

• Importantly for businesses, because the system lacks credibility and is so unsustainable, it

serves to highlight issues of market unpredictability

The existing RECs are still striving towards adopting common policies and trade regimes. This

creates some tensions and stretches the coordination and negotiation capacities of the RECs that

are not yet equipped with the respective mandates or the appropriate institutional capacities of a

fully-fledged CU. This problem has been noted particularly with respect to the WTO and the

ongoing Economic Partnership Agreement (EPA) negotiations.

3.1. SACU

SACU is the most advanced regional integration arrangements on the African continent and the

oldest customs union in the world. Members have a CET and four of the five member states form

a common monetary area (CMA). The main objectives behind the establishment of SACU were to

promote regional integration and the facilitation of trade between the members of the Agreement

15

in order to improve the economic development of the region, in particular for the less advanced

members.

The SACU members agreed that a revision of the original SACU Agreement was required. The

new agreement was signed in 2002 and came into force on 15 July, 2004. The 2002 Agreement

outlines three main features in attaining a democratic and workable integration project: it provides

for the adoption of common policies and strategies, the creation of democratic decision making

bodies, and the recognition of the crucial role of tariffs as an instrument for development (Kruger,

2006). Article 31 of the 2002 SACU Agreement contains an important provision prohibiting any

member state from entering into trade negotiations with third parties without the consent of the

other Member States. Member States have agreed to negotiate all future trade agreements jointly

and to establish a common negotiating mechanism (SACU, 2002). This will prevent a single

member state from negotiating trade agreements with third parties that could have negative

effects on other members.

The 2002 SACU Agreement requires member states to develop common policies on industrial

development, agriculture, competition, and unfair trade practices, and these negotiations include

issues such as services and investment that are not currently covered by the jurisdiction of

SACU. Little progress has been made so far, and the only trade policies harmonized in SACU are

the applied customs tariff, excise duties, duty rebates, refunds and drawbacks, customs valuation,

non-preferential rules of origin, and contingency trade remedies (WTO, 2009).

The 2002 Agreement made provision for the creation of SACU institutions, such as the Council of

Ministers, Customs Union Commission, Secretariat, Tariff Board, a Common Negotiating

Mechanism, and National Bodies. The Agreement did not, however, make provision for the

detailed aspects of the substantive and procedural aspects of the work of the Tariff Board, the

Tribunal, and National Bodies. The SACU Secretariat, in consultations with the member states,

made proposals on Annexes to the SACU Agreement to provide more detail. To date, the

Annexes on the Tariff Board and on National Bodies have been ratified by all members but the

Annex on the Tribunal is still in the consultative stage (WTO, 2009). At present, the Customs

Union Commission, Tariff Board, relevant National Bodies, and the Common Negotiating

Mechanism have not yet been created.

The recent developments within SACU regarding the possible review of the revenue sharing

formula could have a wider impact on how SADC countries structure tariffs and introduce trade

barriers, thus negatively impacting on regional integration which is one of the fundamental

objectives of SADC. A SACU-commissioned study by the Australian Centre for International

Economics proposed a radical overhaul of the formula in which South Africa receives more

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money while Botswana, Lesotho, Namibia, and Swaziland (BLNS) see their shares decrease. The

study proposes reforms which would result in a drop in revenue for Swaziland from 9% to 3% of

the pool by 2019. In the same period, Botswana‟s share would go from 17% to 6.7%, while

Namibia‟s share would drop from 15% to 9%. Only Lesotho would see a marginal increase from

8.5% to 9%. South Africa, which presently receives less than 50%, would receive 72% of the

pool. This is a major concern in the region where South Africa‟s dominance is increasingly

frowned upon. It could harm the fragile process of regional integration in SADC.

SADC aims to have a fully fledged customs union by 2016 and it is critical that these matters be

addressed so that SACU is in a position to form the nucleus for such a customs union (Van den

Bosch, 2011).

3.2. SADC

The Southern African Development Community (SADC) has been in existence since 1980, when

it was formed as a loose alliance of nine majority-ruled states in Southern Africa in the form of the

Southern African Development Coordination Conference (SADCC). The main aim was to

coordinate development projects in order to lessen economic dependence on the then apartheid

South Africa. SADCC was transformed into SADC on the 17th of April, 1992 with the signing of the

SADC Treaty in Windhoek, Namibia. SADC‟s regional integration agenda covers more than just

trade, but the Trade Protocol signed in August 1996 seems to be driving the integration process.

The Trade Protocol, with its amendment, entered into force on the 1st of September, 2000, and

the DRC is the only member state not yet signatory to it. The main objectives of the Protocol are

to “further liberalize intra-regional trade in goods and services on the basis of fair, mutually

equitable and beneficial trade arrangements” and “to establish a free trade area for the SADC

region”. The Trade Protocol also provides for the rules of origin, which have been described as

the most contentious and unresolved issue in SADC‟s regional integration agenda, especially for

clothing and textiles (Draper, Halleson, & Alves, 2007). SADC has faced many challenges in

implementing its trade liberalization programme. The SADC FTA was launched in 2008 with a

programme to eliminate all tariffs by 2012. However, it is unlikely that this goal will be achieved. In

terms of SADC‟s Regional Indicative Strategic Development Plan (RISDP), the FTA is seen as

the first step towards creating a customs union by 2010 (which has been delayed) and a common

market by 2015.

The actual tariff phase-downs are asymmetrical, with SACU liberalizing faster than non-SACU

member states. SACU‟s tariff offers were front-loaded while the other member states‟ offers were

17

back-loaded, meaning that for them, the bulk of tariff cuts will only take place towards the end of

the phase-down period.

In addition to the slow pace of implementation of the phase-down of duties, SADC has received

applications from Malawi, Zimbabwe, and Tanzania for permission to derogate from their duty

reduction commitments. The derogation is enabled by Article 3(c) of the SADC Protocol on Trade.

There have, however, been ambiguities around the criteria of applying for derogation, as well as

whether the derogation means the postponement of a member‟s tariff phase-down commitments

or whether a member may actually increase tariffs beyond the liberalisation which has already

been implemented, such as in the case of Tanzania. The SADC Secretariat, in close cooperation

with the SADC Negotiating Forum and the Council of Ministers of Trade, are developing the

relevant criteria. It is uncertain whether other members may follow suit in applying for derogation.

In certain instances, it may be perceived that the derogation is being used as a protectionist

measure specifically targeted at South Africa as it is the major producer in the region on the items

which the above-mentioned countries are still offering protectionist measures (Mashaba, 2011).

SADC also suffers from a lack of empowered institutions which are able to ensure the

implementation of commitments and decisions made by member states. The SADC Secretariat is

a critical institution for the effective functioning of SADC; however, it suffers from a lack of

capacity and resources. In addition, it is not equipped with a strong mandate from member states

to act on their behalf, as the member states are hesitant to relinquish any degree of authority.

This places not only the secretariat, but the organisation as a whole, in a difficult position as

member states do not speak with one voice. Similar to SACU, the SADC institutions do not

include a negotiating strategy, which hampers the members‟ ability to create a strong, united

negotiating position. Although countries are allowed to maintain their own trade policies vis-a-vis

third parties, it remains critical that when negotiating as an REC such as SADC, the member

states present a united front to ensure that they are in a position to achieve the common

objectives of the organisation. In addition, the SADC Tribunal is currently defunct, as its role and

mandate is currently being reviewed due to political pressures. The independence of the Tribunal

is clearly compromised in this situation, which goes against the objective of fostering the regional

integration agenda.

3.3. COMESA

COMESA is the largest regional grouping in Africa with 19 member states, almost half the total

number of African countries. The Agreement for the Establishment of the Preferential Trade Area

(PTA) for Eastern and Southern Africa was signed on 21 December, 1981, and entered into force

on 30 September, 1982. However, the PTA always envisaged the creation of a Common Market,

18

and in line with this vision, the Agreement was later replaced with the current Treaty Establishing

the Common Market for Eastern and Southern Africa (COMESA). The COMESA Treaty was

signed on 5 November, 1993 and ratified on 8 December, 1994, and outlined a work plan towards

achieving a Customs Union by 2004.4

COMESA‟s primary instrument for deepening and broadening the integration process among its

members is the adoption of more comprehensive trade liberalisation and facilitation measures.

Such measures include, but are not limited to, the elimination of tariff and non-tariff barriers to

trade. In line with this approach, the COMESA Free Trade Area was established on 31 October,

2000 when nine member states (Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan,

Zambia and Zimbabwe) eliminated tariffs on products originating from other member states.

Rwanda and Burundi (2004) and the Comoros and Libya (2006) later joined the FTA, while the

Seychelles accessed the FTA with a limited list of exemptions, increasing the number of states

participating in the COMESA FTA to 14. Trade within the FTA has to conform to relatively simple

RoO in comparison to SADC‟s detailed product-specific rules5.

The COMESA Treaty 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. It furthermore provides for the imposition of sanctions on countries that default in the

implementation of agreed COMESA programmes and for the settlement of disputes arising from

the interpretation or implementation of the Treaty.

COMESA launched its Customs Union, between members of the FTA, in June 2009, and has

been given a transition period of 3 years during which member countries are working on the

structure and the implementation of a CET before it is fully implemented in 2012 (Sichalwe,

2010). COMESA envisages moving the member states into a single Customs Union, deepening

the process of regional economic integration and establishing a Common Market by 2015,

ultimately leading to the creation of a Monetary Union by 2025.

3.4. EAC

The East African Community (EAC) is a regional intergovernmental organisation of five east

African states with its headquarters in Arusha, Tanzania. The Treaty for the Establishment of the

4 COMESA Website: http://www.comesa.int/

5 An example of the strict RoO implemented in SADC relates to the liberalization in the textiles and clothing

sector which has been postponed on a number of occasions. With a few exceptions, the rules of origin require double transformation in order to qualify for SADC tariff preferences – garments must be made from regionally produced textiles; fabric must be made from regionally produced yarns; and yarn must be made from uncarded, uncombed fibre or from chemical products. The double transformation rules for garments and fabric were waived for the MMTZ countries until 2005, and are subject to very small quotas.

19

East African Community was signed on 30 November, 1999 and entered into force on 7 July,

2000.6 The five member states of the EAC are Burundi, Kenya, Rwanda, Tanzania, and Uganda.

The EAC is keen to fast track its integration agenda and has set out a broad and ambitious

programme aimed at achieving both an economic and political federation between its members.

Unlike the other RECs in eastern and southern Africa which have adopted an evolutionary

approach to attaining a customs union, the EAC made it the first step of its integration process. In

this regard, the EAC countries established a Customs Union in 2005, but they are yet to establish

a Single Customs Territory because the partner states have delayed the finalisation of their

positions on the project (Muwanga, 2010). The aim of creating a single customs territory is to

enable partner states to enjoy economies of scale with a view to supporting the process of

economic development. In 2009, the EAC Council of Ministers adopted a roadmap towards the

adoption of the EAC Single Customs Territory, but the EAC has not been in a position to abide by

the roadmap. One of the main stumbling blocks has been the lack of progress made towards the

establishment of the EAC Competition Authority, even when the regulations that support the EAC

competition law have been finalised. This can be attributed to the fact that partner states have not

developed national competition laws that would reinforce the regional instruments (Muwanga,

2010).

The EAC CU Protocol provides for the elimination of non-tariff barriers. Other provisions cover

RoO, dumping, subsidies and countervailing duties, settlement of disputes, securities and other

restrictions to trade, competition, duty drawbacks and remission of duties and taxes, customs

cooperation, re-exportation of goods, and harmonization of trade documentation and procedures

(Jakobeit et al., 2005).

Regardless of the lack of progress in finalizing the implementation of the Customs Union, the

EAC announced the establishment of a Common Market in November 2009, which came into

effect in June 2010. The implementation of the Common Market Protocol has been slow,

preventing citizens from member states from exploiting its provisions due to the slow progress

made by the five members in harmonizing their laws (Ngirachu, 2011). Under the protocol, East

African citizens will have the freedom to enter the territory of a partner state without a visa and

professionals will be able to work in any of the five states without having to get work permits.

The EAC has announced the launch of negotiations for the Monetary Union Protocol, the fourth

stage of the East African Community integration plan, which were scheduled to start in March

2011 (Nakawesi, 2011). The High Level Task Force has been given an 18-month timeframe by

6 EAC Website: http://www.eac.int/

20

the EAC Council of Ministers within which to conclude a draft Protocol, which will ensure the

establishment of the monetary union within the timeframes outlined by the EAC. The ultimate

objective of the EAC is the formation of a Political Federation of the East African States.7 South

Sudan and the Democratic Republic of Congo have also reportedly shown their interest in joining

the EAC, to which the EAC is open. They view it as an opportunity to expand the bloc and create

a larger regional market in Africa.8

The EAC rules allow each member to sign bilateral agreements, subject to notification to the other

members. This, together with the overlapping memberships, may limit the proper functioning of

the EAC as a customs union. In addition, more attention needs to be paid to non-tariff barriers in

the full establishment of the EAC customs union, that is, its free-trade-area and common trade-

measure components (WTO, 2006).

4. SADC-COMESA-EAC Tripartite Free Trade Area

In line with the Constitutive Act of the African Union and the 1991 Abuja treaty, the RECs in

eastern and southern Africa are working towards closer cooperation and harmonisation of

activities through the establishment of a Tripartite FTA between SADC, COMESA, and the EAC.

SADC, SACU, COMESA, and the EAC are at different levels of regional integration and have

different objectives outlined as part of their regional integration agendas: SADC is focusing on a

broad agenda of cooperation, COMESA is concentrating on trade liberalisation methods, and the

EAC is pursuing a political union. There are existing efforts to coordinate and harmonize the

activities of these RECs, as reiterated in the Constitutive Act and the Abuja Treaty.

As previously mentioned, one of the major stumbling blocks facing closer cooperation between

the RECs in eastern and southern Africa is the issue of multiple memberships. It is possible for a

country to be party to more than one FTA; however, it is not legally or technically possible for a

country to be party to more than one customs union. Each of the RECs has identified the

formation of a customs union as one of their building blocks towards closer regional integration,

thus the countries which are members to more than one REC would need to make a choice as to

which REC and essentially, which customs union, they would want to be party to.

The four RECs should be maintained, with a view that SACU and the EAC should act as cores of

variable geometry within which the two regional blocs would be anchors of the SADC and

COMESA regional integration initiatives, respectively (Draper et al., 2007). This way forward has

7 EAC Website

8 „EAC expansion welcome‟. 15 February, 2011. The Citizen, Dar es Salaam.

21

already demonstrated some success within the EAC, as COMESA has aligned its CET structure

with the existing one of the EAC, thereby facilitating the process of integration between the two

RECs and making it easier for members of the EAC to be accommodated within COMESA.

However, the implication in this approach is that Tanzania, Malawi, Zambia, Zimbabwe, and

Swaziland would have to choose which customs unions to join, which may delay integration within

both SADC and COMESA.

It is critical, especially within the auspices of SACU and SADC, that the institutions of the RECs

are strengthened and that the members demonstrate the political will to make progress on the

outlined agendas.

4.1. SACU: Way Forward

SACU needs to focus on implementing the 2002 SACU Agreement, central to which is the

establishment of new institutions to govern the customs union. The existing institutions need to be

strengthened and given the autonomy to act as a neutral coordinator of the customs union‟s

affairs. In addition, the Agreement makes provision for the development of common policies,

policy harmonization and deepening in such areas as trade facilitation processes, international

trade policies, industrial policies, and competition policies. SACU also needs to take the private

sector into consideration, as business currently seems to have little or no influence over the

decisions taken that may have a wide-ranging impact on companies. For example, the entire

value chain and logistics chain needs to be harmonized, including road traffic legislation and

vehicle load limits and dimensions (Draper et al., 2007). In addition, SACU should consider the

possibility of expansion of the customs union, and developing clear frameworks of how accession

would take place and how the revenue sharing would need to be adjusted. In parallel, a

development fund should be set up to replace the volatile and contentious formula based on

customs revenue and intra-SACU trade. This would facilitate the process of simplifying and

liberalising the CET, thereby making SACU more attractive to Zimbabwe, Zambia, Malawi,

Mozambique and possibly Tanzania, who will have to choose to belong to the customs union of

either SADC or COMESA. These developments would ensure that if SACU does expand, it will

be on the basis of a properly-functioning customs union within which trade and investment

facilitation are paramount (Draper et al., 2007).

The SACU leaders should also support and promote SACU as the anchor of the proposed SADC

Customs Union. To this end, once SACU is in a position to expand its membership, the SACU

member states should embark on a diplomatic initiative to encourage other states in Eastern and

Southern Africa to join the SACU Customs Union.

22

4.2. SADC: Way Forward

In ensuring that the SADC members are in a position to derive the maximum benefit from the

Tripartite FTA, there are a number of issues which need to be discussed, and a common position

agreed upon within the structures of SADC on the matter of multiple memberships, among other

things. SADC needs to consider the impact which multiple memberships will have on the

negotiation process within the TFTA and how this matter will be resolved or addressed within the

SADC structures.

In addition, SADC needs to focus on consolidating the SADC FTA as a priority in the preparatory

work towards the attainment of the SADC Customs Union and the Tripartite FTA. The following

areas were identified during the 41st Meeting of the SADC Trade Negotiating Forum, which took

place in January 2011, as priority focus areas in the process of consolidating the FTA:

• Accession by member states that are yet to do so; submission of a tariff offer by Angola

• Full implementation of the FTA

• Trade facilitation, including infrastructure development

• Addressing NTBs

• Simplifying RoO

• Harmonization of standards and technical regulations

• Harmonization of customs documentation procedures

• Undertaking trade development, trade promotion, and investment promotion activities

• Sectoral cooperation with the aim of building the productive capacity of the region through

value chains and promoting industrial upgrading and diversification

4.3. Scope and Legal Implications of the TFTA

The proposed draft TFTA has a very broad scope and proposes to establish a free trade area in

both goods and services, as well as to facilitate the free movement of business persons. It

encompasses the areas of Competition Policy and Law, Intellectual Property Rights, Trade in

services, etc. This scope is, however, too broad, and the negotiations should initially focus

primarily on key provisions relating to trade in goods to ensure that the objectives set within the

agreement are reasonable and attainable by members, taking into consideration that the RECs‟

capacity constraints to properly administer the existing agreements and their agendas are a

serious problem in the region.

Twenty of the 26 countries forming the tripartite region are members of the WTO, five are

observers, and one is a non-member. As discussed in Section 2.1, GATT Article XXIV of the

23

WTO outlines the requirements to be fulfilled by FTAs. To ensure the legality of the FTA, it is

essential that these requirements be closely scrutinized and that the FTA is developed around

them to ensure that the commitments made by members of the FTA are reasonably attainable

within the timelines outlined by the WTO. If the members of the FTA do not fulfil their

commitments, the rest of the WTO membership can require that the same preferential treatment

be extended to all WTO members.

The text of the TFTA agreement should be clear and unambiguous to avoid misinterpretations of

the meaning of certain sections in the future. The negotiations should also take into consideration

that South Africa has acceded to the WTO as a developed country, and that the Enabling Clause

only allows for preferential treatment to be extended between developing countries. Thus, the

agreement would need to be notified to the WTO under GATT Article XXIV.

The challenge around multiple memberships should also be raised as a matter for discussion.

5. Conclusion

Deeper regional integration is recognized to be a powerful driver of trade, if the integration design

is optimal. The creation of RTAs can be complimentary to multilateral processes as it initiates

discussion and debate on issues which are not yet featuring on the multilateral agenda, such that

some groundwork is completed once it does reach the multilateral fora. There are, however,

legislative parameters that will have to be complied with at the WTO, as well as operational

issues that will have to be considered carefully, before a decision is made on what type of

regional integration arrangement is being envisaged.

The conclusion of the Tripartite FTA between SADC, COMESA and the EAC would assist the

RECs in addressing certain challenges which they are faced with, such as multiple memberships

of countries to different RECs, especially considering that there is a mixture between FTAs and

CUs. This would, however, only be a temporary solution, as the regional integration process in

the individual RECs includes becoming fully fledged and operational CUs, at which time members

would be forced to choose which CU they will be joining.

At the initial phase of the tripartite trade arrangement, is would be advisable to conclude an FTA

in line with the requirements of GATT Article XXIV, which focuses on the liberalization of trade in

goods specifically. This would not only enable the partner RECs to reach similar levels of regional

integration by implementing their various roadmaps and strengthening their institutions, but also

ensure that the goals and objectives of the FTA are attainable within the timelines and

liberalization requirements stipulated in Article XXIV. The narrowing of the scope of the

24

arrangement does not, however, preclude discussion points, such as competition policy and trade

in services, from being included in future discussions. The possibility of the TFTA graduating into

a CU between the 26 member states should be seen as a long-term prospect and should only be

discussed once the TFTA is functioning effectively.

SADC, COMESA and the EAC should, on an individual basis, focus on addressing institutional

and administrative challenges, as well as the implementation of the various integration

commitments they have made. This would ensure that the RECs are on an equal footing to create

a foundation on which to create an efficient and beneficial FTA which can bear the fruit of

enhancing regional integration in eastern and southern Africa.

25

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