TRADE LIBERALISATION IN SADC AND THE ECONOMIC BENEFITS OF BELONGING TO AN RTA : THE CASE OF TANZANIA Nzeyimana Dyegula

This paper examines the dynamics of trade liberalization in the Southern Africa Development Community (SADC) region and the economic benefits that Tanzania derives from SADC membership. We use qualitative analysis and trade indices. The findings show that SADC is far behind its agreed schedule of transforming the region into a customs union and SADC intraregional trade is very low, only South Africa and Mozambique show the potentials to increase intra-regional trade and benefit more from SADC in the short run. On the other hand, Tanzania’s economic benefits from SADC membership have remained trivial, though her exports and market share have been steadily increasing since the mid-1990s. However, Tanzania does not suffer adversely from the dual memberships of EAC and SADC regions, despite its membership in the two overlapping RTAs making its trade regime complex because tariff reductions under EAC customs union are not compatible with SADC’s, hence resulting in problems in implementing the SADC Trade Protocol. Nonetheless, the country may not need to withdraw its membership from either EAC or SADC due to signs of good prospects in the long run under the proposed harmonization of the EAC and SADC trade regime through the Tripartite Free Trade Area arrangement (COMESA−EAC−SADC).


Introduction
Regional integration in Africa particularly in Sub-Saharan Africa (SSA) has a long history since the formation of the Southern African Customs Union (SACU) in 1910.Currently, SSA contains 12 of the at least 14 regional trade agreements (RTAs) existing in Africa (see Figure 1 for some of the RTAs in SSA).Of the 14 RTAs eight of these are officially recognised by the African Union (AU) and they include: the Arab Maghreb Union (UMA), Common Market for Eastern and Southern Africa (COMESA), Community of Sahel-Saharan States (CEN SAD), East African Community (EAC), Economic Community of Central African States (ECCAS), Economic Community of West African States (ECOWAS), Inter-Governmental Authority on Development (IGAD), and the Southern Africa Development Community (SADC).While the remaining six RTAs are considered as inter-governmental agencies and these are: Central African Economic Community (CEMAC), Economic Community of Great Lakes Countries (CEPGL), Indian Ocean Commission (IOC), Mano River Union (MRU), SACU and West Africa Economic and Monetary Union (WAEMU).

Figure 1 Selected RTAs in Sub-Saharan Africa
Regional integration has been going on along with the development of intra trade agreements with the implementation of SADC being the most recent (Meyer et al. 2010).With at least 12 RTAs, most countries in SSA belong to at least two of them, thus regional integration in the sub-region is very complex and confusing affair, what Alves et al. (2007) describe as "a spaghetti bowl that hinders regional integration by creating a complex entanglement of political commitments and institutional requirements."With Tanzania being a member of EAC and SADC, this is similar to many SSA countries that have multiple memberships in various RTAs.As a result, some regional trade groupings such as SADC have had to refocus their agendas and strategies (e.g.SADC's original commitment to the introduction of a customs union in 2010) while others such as COMESA are deepening their trade integration (e.g.COMESA FTA implementing its Customs Union in 2010).RTAs have different objectives and these range from purely market or economic integration to socio-political cooperation agreements.The motives for Tanzania to become a member of SADC (SADCC then), however, were for socio-political cooperation such as the fight against Apartheid policies in South Africa amongst others.In all cases Tanzania has been a committed member in advocating the fraternity objective of SADC states.Tanzania withdrew its membership from COMESA in 2000 because the government perceived less beneficial compared with EAC and SADC, and believed that the agendas of these organizations were incompatible with COMESA.The fact that Tanzania's leading trade partners are members of EAC (Kenya) and SADC (especially South Africa) makes it likely that Tanzania may benefit significantly from the two RTAs.The desire to further promote an economic relationship with South Africa was another deciding factor.However, some of the private sector organisations in Tanzania still believe that COMESA was beneficial to Tanzania and tried to reopen the debate as to whether the country could reinstate her membership.The scope and stage of implementation of trade agreements among the aforementioned RTAs varies.However, trade barriers still remain high in these RTAs and thus it has been observed that intra-regional trade has been minimal and regional member states of these RTAs have not meaningfully benefited economically.This paper therefore

RTAs in SSA
explores the extent of trade liberalisation in SADC and assesses the economic benefits of Tanzania's membership of SADC.The rest of the paper is organised as follows.Section 2 discusses the overlapping membership of trade agreements.Section 3 discusses the progress made in liberalising trade within the SADC region.Section 4 discusses the benefits and costs of Tanzania's membership in SADC and Section 5 sets out the conclusions of the paper.

Overlapping Membership of Trade Agreements
Many countries in eastern and southern Africa belong to more than one RTA as shown in Figure 2. Some of these RTAs have overlapping membership, conflicting objectives and obligations in some cases.This is a case particularly with COMESA/EAC/SADC member states whose integration processes and agenda until recently are inconsistent (Meyer et al. 2010).However, the existing complex and confusing structure of eastern and southern African regionalism is far from an ideal starting point from which to build a regional framework for the 21st century (Gibb, 2006).The issue of overlapping membership among member states is becoming a burning debate in countries that are members of COMESA/EAC/SADC.Thus, some member states will eventually withdraw from one or more RTAs due to the increasing problems of membership overlaps.Needless to note, deepening of regional integration has also taken place within existing RTAs and includes other areas of integration such as monetary and fiscal integration and other forms of policy cooperation and/or harmonization.This deepening of integration has often been accompanied by a widening of regional agreements (Meyer et al. 2010).
It is a policy choice for a country to join a particular RTA.Tanzania is party to several trade agreements both at the regional and multilateral level.For a poor country such as Tanzania with inadequate resources and human capacity and inefficient institutions, this is considered a daunting challenge, which limits the effectiveness and implementation of agreed protocols (Musonda, 2004).However, it is important to note that RTAs are different in focus, thus Tanzania has different reasons for joining or leaving different regional trade arrangements and hence may decide to speed up the integration process with one while slowing on another.Tanzania is a member of both the EAC and SADC.Under the SADC Protocol on Trade, Tanzania was obliged to dismantle all tariff barriers to all her fellow SADC member states by at least 2012.

Figure 2 The extent of overlapping membership among EAC, COMESA and SADC
Conversely, Tanzania is also obliged as a result of its EAC membership to create a EAC common external tariff (CET) that excludes and discriminates against non-EAC−SADC member states.Thus, Tanzania has agreed indirectly and simultaneously to promote free trade with all SADC member countries and to maintain tariff barriers against them at the same time.Other countries in eastern and southern Africa are in exactly similar position and raises similar complexity issues and so are the RTAs with overlapping membership.However, the focus of this paper is on the extent of trade liberalisation in SADC and Tanzania's benefits from being its member discussed in what follows. .This achievement started with the implementation of a series of tariff phase down schedules that was designed to result in 85% of all trade within SADC being zero duty by 2008 and eventually transform the region into a customs union by 2010.However, this was not achieved as there were problems which affected the transition.In fact the roadmap towards the achievement of the Customs Union has not been clearly defined.

Extent of
In assessing the extent of trade liberalisation in SADC and the economic benefits of belonging to the regional trade body, this section uses the two trade indices that are used to evaluate the potential economic effects of a free trade agreement following the suggestions in Plummer et al. (2010).These indicators include: the intraregional trade intensity index to assess the biasness of SADC towards trading among them and the revealed comparative advantage index developed by Balassa (1965) and the results are reported in Tables 1 and 2.
Table 1 shows SADC regional trade intensity indices for the 15 member states and a value that is greater (less) than one indicates trade flow that is larger (smaller) than expected with other SADC member states.The indices seem to suggest that the SADC region is more important as a destination for its members' exports than as a source of their imports.For example, Tanzania's indices although increased to 0.50 for the period 2000−9 are still below one suggesting low dependence of the country on the region for its exports.However, landlocked countries such as Malawi, Zambia and Zimbabwe have a high degree of dependence on regional partners for both exports and imports while non-landlocked countries such as Tanzania have very low dependence on the region.1980 1985 1990 1995 2000 2005 2009 1980 1985 1990 1995 2000 2005 2009 Angola -1.00 0.00 0.00 0.00 0.03 0.03 0.02 -0.00 0.00 0.00 0.00 0.00 0.10 0.00 0.00 0.00 0.00 0.10 0.40 1.20 0.00 0.00 0.10 0.00 0.00 0.10 0.10 Madagascar 0.00 0.00 0.00 0.10 0.20 0.30 0.20 0.00 0.00 0.20 0.00 0.10 0.00 0.00 Malawi 0.00 0.10 0.20 0.20 1.50 2.20 2.10 0.10 0.10 0.00 0.10 0.10 0.30 0.10 Mauritius 0.00 0.00 0.00 0.00 0.30 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.10 Mozambique -1.00 0.20 0.20 0.50 -1.90 1.60 1.60 -1.00 0.00 0.00 0.10 0.10 0.10 0.20 Namibia --------------Seychelles 0.20 0.00 0.40 0.20 0.50 0.40 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.10 Swaziland --------------South Africa 0.00 0.00 0.00 0.02 0.02 0.03 0.04 0.00 0.00 0.10 0.10 0.10 0.10 0.10 Tanzania 0.00 0.00 0.00 0.10 0.50 0.50 0.50 0.00 0.00 0.00 0.00 0.10 0.10 0.00 Zambia 0.00 0.10 0.20 0.10 1.50 1.20 1.40 0.00 0.10 0.00 0.10 0.10 1.00 0.30 Zimbabwe -1.00 0.00 0.10 0.00 0. 30 3.50 3 Table 2, presents the top ten products in which the SADC region has a revealed comparative advantage (RCA).A region or country reveals its comparative advantage in specific products when the RCA indicator scores higher than one, and this shows that its exports of a specific product are more than expected on the basis of comparison to the reference area (Keane et al., 2010).Table 2 seem to suggest that the region has an RCA primarily in agriculture, intermediate goods and ores and minerals and some of these product groups are live trees and other plants, edible fruit and nuts, tobacco, ores, slag and ash, precious metals and base metals.Nevertheless, quantitative analyses undertaken such as Keane et al. (2010) suggest that non-tariff barriers (NTBs) reported to UNCTAD-TRAINS disproportionately impact on intra-regional trade in SADC and that these NTBs tend to divert imports away from regional towards non-regional partners.Furthermore, Keane et al. (2010) reveals that most recent trade policy reviews available for SADC members show that most of the NTBs are reported as problematic by traders and these include: competition policy and infant industry protection1 , sanitary and phytosanitary (SPS) standards /technical barriers to trade, rules of origin and customs procedures.However, the main source of NTBs within SADC relate to trade administration imposed by South Africa against other SADC members.Thus the establishment of NTBs seem to stifle intra-regional trade in the SADC region and it has been identified as particularly binding constraint for the economically smaller SADC member states such as Tanzania.On the other hand, exporters and importers trading with Tanzania for the same period reported only 19 NTBs as shown in Table 3.The table shows that most of these NTBs imposed by Tanzania are trade related administrative measures, transit issues and SPS measures.It's worth noting that Tanzania has a dual membership to EAC and SADC.However, the country's membership in the two overlapping preferential arrangements (EAC Customs Union and SADC FTA) makes the country's trade regime complex as tariff reduction under EAC is not compatible with the SADC requirements and hence Tanzania has had problems implementing the SADC Trade Protocol.

Benefits that Tanzania derives by participating in SADC
It is generally argued in international trade theory that countries such as Tanzania and others can benefit from free trade through increased exports and investments.To empirically evaluate the costs and benefits arising out of Tanzania's membership to SADC, the literature on the theory of international trade on the effects of regional economic integration is followed.According to theory, entry into a regional integration scheme can have static effects, which is a result of resource allocation in response to changing relative prices, welfare effects, and dynamic effects, which come from changes in efficiency, ability to exploit economies of scale, and in level of investment and growth (Negasi, 2009).In assessing the benefits and costs, this section rely on trade indices following Plummer et al. (2010) and these are: the trade complimentary index which is a measure of potential trade between two partners (Shirotori & Molina, 2009), and the revealed comparative advantage indices and the results are reported in Tables 4 and 5. Additionally, the section compares trade flows between Tanzania and her major trading partners before and after joining the SADC free trade area in order to assess any signs of trade creation, trade diversion and welfare effects.The trade complementarities index compares the export basket of one country to the import basket of another country with positive values up to 100 indicating the extent to which the exports of one country matches the imports of another.On the other hand, values of less than zero and negative show that the export and import shares differ greatly suggesting limited potential for intra-regional trade.Table 4 presents trade complementarities indices constructed for 13 member countries of SADC for which data were available.The table suggests that only South Africa and Mozambique appear to have the composition of exports similar to other SADC members' imports thus suggesting that only these two countries have the potential for high intra-regional trade growth.However, for other members and Tanzania in particular, the table seems to suggest that the compositions of their exports are not conducive to increased intra-regional trade because their export and import baskets differ greatly from each other.For example, a comparison of the relative importance of few export destinations such as Mauritius, Mozambique and South Africa to Tanzania reveal that Tanzania's exports match with the imports of Mauritius and Mozambique only to a small extent as shown in Table 4 with positive indices of 14 and 2 respectively.On the other hand, with a negative index (-14), the results reveal that the country's exports do not match with the imports of South Africa suggesting limited potential for trade between the two countries.This therefore shows that there is limited potential for Tanzania to increase her participation in SADC intra-regional trade.
To further understand what may be the reason behind the similarities in the export and import baskets, RCA indices for Tanzania's top 10 exports have been computed and the results are presented in Table 5.The table reveals that Tanzania has high RCAs in coffee, tea and spices, vegetable textile fibres, yarn, and woven fabrics, ores, slag and ash, pearls, precious stones, metals and coins, and cotton product groups.However, when compared with the rest of the SADC member states and the RCA indices for SADC (see Table 2), Tanzania has similar comparative advantages to the region particularly in the top five exports with the exception of meat and edible meat offal (H0−07) and oil seed, fruits, grain, seed etc (H0−12) products.Furthermore, some of the product groups with high RCA such as coffee, tea and spices, vegetable textile fibres, yarn, and woven fabrics, and cotton also differ from the country's top 5 exports.It has been argued by authors such as Castro et al. (2004) that implementation of planned FTA has implication on import and export flows and customs revenue.Therefore, Tanzania like many other countries that belong to regional trade organizations has to analyse the effects of implementation of trade protocols on the country's trade policies and the benefits of belonging to such organizations.As discussed earlier countries join RTAs either for political and social reasons or for economic benefits from the bigger markets that RTAs provide.The possible benefits that may accrue to Tanzania for being a member of a RTA include: possible gain in foreign direct investment (FDI), possible gain of export market share in regional markets due to reciprocity and possible gains due to new market location.To assess whether the above possible gains have actually accrued to Tanzania, this subsection uses statistical evidence where available.Empirical evidence, however, seems to suggest that in the SADC region, the main driver of trade within the region in terms of exports is South Africa followed by Zambia and Zimbabwe respectively as shown in Table 6.Tanzania's exports to the region have largely remained very low although have increased from 2.60% in 1980−84 to 5.10% in 2005-09.Keane et al. (2010) argue that South Africa's regional importance is much more pronounced as a source of other SADC members' imports than as a destination for their exports.Despite the low levels of market share for Tanzania's exports to the SADC region, the country's nominal exports have steadily increased over the period 1995−2010 reaching US$6 billion in 2010 as shown in Figure 3.The figure also shows that inflows of FDI into Tanzania has been increasing since 1998 and reached the peak of about US$ 1.2 billion in 2008 although this cannot be directly attributed to SADC membership.

Costs associated with Tanzania's membership to SADC
The fiscal effect of trade liberalization of economies essentially involves a loss of government import tariff revenue, particularly where governments have not put in place appropriate measures to expand alternative sources of revenues (Matambalya, 2001).This is a critical problem that has been left unaddressed in small open economies such as Tanzania.The problem with such rapid revenue losses and general costs is that they undermine the member states' ability to fund the day-to-day operations of its own country, especially given the fact that Tanzania is very much reliant on donor funding to support its national budget.In other words, small open economies require increased direct donor funding of national budgets, or significant speedy support for tax diversification to replace lost revenue and to avoid undermining state functioning and national development programmes.
In summary Tanzania has suffered losses as a result of her membership to the economic groupings and has faced NTBs in accessing the SADC market and these include: possible loss of protection for infant domestic industry and loss of tariff revenue as tariffs on imports go down or are eliminated among others.Specifically the removal of tariffs in intra-SADC trade may result in Tanzania losing tariff revenue as has happened when EAC became a customs union.It has been argued that Tariff duties and VAT on imports are the most important sources of customs revenue in Tanzania.Castro et al. (2004) estimated that in 2001-02 customs revenue accounted for 8.5% of Tanzania's total revenue.Off the total customs revenue collected in 2002, Tariff duties and VAT on imports accounted for 45.3% and 42.3% respectively thus suggesting that customs revenue is mainly consisted of revenue from Tariff duties and VAT on imports in Tanzania.To illustrate further the impact of tariff reduction or tariff removal on Tanzania's revenue as a result of joining an RTA, when Tanzania joined the EAC Customs Union in 2004, the country lost an estimated revenue amounting to US$19 million (4.2% of customs revenue) (US$40 million with the suspended duties) without the duties which were suspended but phased out over a period as shown in Figure A.2 in Appendix A.
On the other hand, withdrawing from an RTA can result in a country's exporters losing the market for their exports as happened when Tanzania withdrew from COMESA in 2000.Ng'andu (2008) estimates that the country lost on average per year for the period 2000−2005, exports amounting to US$73.3 million totalling US$366.5 million in value terms for the five year period as shown in Table A.3 in Appendix A. Table A.4 in Appendix A shows a sample of Tanzanian companies that had lost the COMESA market after the country withdrew from the RTA in 2000.This can equally happen if Tanzania was to withdrawal its membership from SADC.

Conclusion
The paper has explored the extent of trade liberalisation in SADC and has also assessed the economic benefits of Tanzania's membership to the RTA.The paper's findings seem to suggest that SADC is far behind the schedule of transforming the region in a Customs Union.The region still maintains a lot of NTBs and is at the FTA level.The study has revealed that SADC intra-regional trade is very low and that only South Africa and Mozambique seem to have the potential to increase intra-regional trade and benefits from SADC.
The study has found that Tanzania's economic benefits from SADC membership have been minimal.However, its nominal exports and exports market share have steadily been increasing since the mid-1990s and so have the inflows of FDIs.At the moment Tanzania does not suffer adversely from its dual membership of EAC and SADC regional integration initiatives.However, Tanzania's membership in overlapping RTAs has made its trade regime complex while tariff reductions under EAC is not compatible with SADC requirements hence the country has had problems implementing the SADC Trade Protocol.The country therefore may not need to withdraw its membership from either EAC or SADC.In the long-term the country will do well to advocate for a harmonisation of the EAC and SADC trade regimes, possibly through the mechanism of the proposed COMESA−EAC−SADC Tripartite FTA.

Figure 3
Figure 3 Tanzania's exports and imports and inflows of FDIs for the period 1995-2010 Source: Authors' compilation based on data derived from UN COMTRADE database and UNCTADstat data base for FDI data

Table 2 Revealed comparative advantage (RCA) indicators for SADC and rest of the world HS Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Keane et al. (2010)m data obtained from UNCOMTRADE database;Keane et al. (2010) Table 3 present reports by exporters/importers and trading partners to SADC secretariat of NTBs imposed by SADC member states for the period 2009 to 2010.The table summarises NTBs registered by or reported against SADC members and shows that SADC member states imposed 305 NTBs against other SADC member states for the period.The table alsoshows that the greatest number of complaints has been reported by Namibian importers and exporters against Namibia's trading partners (complicated customs procedures and import and export quotas).