COMESA – TOWARDS THE CUSTOMS UNION COMESA Free Trade Area including update on the Customs Union Port Louis, Mauritius

1. COMESA – TOWARDS THE CUSTOMS UNION COMESA Free Trade Area including update on the Customs Union Port Louis, Mauritius 23rd April, 2009

3. COMESA Member States participating in the FTA: • Burundi • Comoros • Djibouti • Egypt • Kenya • Madagascar • Malawi • Mauritius • Libya • Rwanda • Sudan • Zambia • Zimbabwe • Seychelles Non-FTA Countries: Reduction of MFN rates. DR Congo Nil Eritrea 80% Uganda 80% Ethiopia 10% Swaziland Under derogation from SACU Mauritius and Kenya offer 90% reciprocity.

4. Elements of the COMESA FTA A Free Trade Area: Removal of tariffs and equivalent charges on intra-regional trade. Main elements of FTA include; • Zero tariffs on goods from COMESA Countries. • Goods from non-COMESA dutiable at full national tariff rates. • No NTBs on COMESA goods. • Institution building • Application of COMESA Rules of Origin.

5. COMESA Rules of Origin They have been wholly produced. The c.i.f value does not exceed 60% of the local materials used in the production of the goods: or The value added as the result of the process of production accounts for at least 35% of the ex-factory cost of the goods: or The goods are classified or become classifiable under a tariff heading other than the tariff heading under which they were imported, or They attain 25% value added and appear in the list approved by Council of goods of particular economic importance to the COMESA region

6. Other trade related issues. Elimination of tariffs on intra regional trade should be complemented by reforms in other trade related areas in order to establish effective regional integration such. These include; • Strengthening trade facilitation services. • Harmonization of customs administration. • Transit trade policy. • Product standards. • Harmonizing the regulatory framework. • Improving the investment climate.

7. Trade facilitation activities • Simplification and harmonisation of Customs procedures and Legislation (COMESA CD) • Reduction of delays in crossing times and border posts • Bond guarantee schemes • Transit arrangements • Harmonising and enforcing axle load and vehicle dimensions • Regional 3rd party vehicle insurance scheme • Simplified Trade Regime

8. Trade facilitation. • A COMESA Standards and Quality Assurance (SQA) programme seeks to harmonise standards and conformity assessment (testing, inspection and certification) schemes to facilitate and promote trade. This programme develops standards according to international standards and best practice. Since 2003, over 300 standards have been harmonized. • A technical regulatory framework was put in place by the end of 2008, which defines how conformity assessment issues are harmonized. Mutual Recognition will take two or three more years to develop. • An MOU has been signed by COMESA/SADC/EAC to co-ordinate efforts on conformity assessment and standards. A Task Force was established to look at conformity assessment. • Sanitary and phyto-sanitary (SPS) protocols will be appended to the COMESA Treaty but SPS standards have not yet been adopted.

9. COMESA Common Investment Area (CCIA) - Objectives • Due to be launched by 2010 • Objectives of the CCIA encompass the following: • Substantially increasing the free flow of investments into COMESA from both COMESA and non-COMESA sources; • Jointly promoting COMESA as an attractive investment area; • Strengthening and increasing the competitiveness of COMESA's economic activities; • Gradually eliminating investment restrictions and conditions which may impede investment flows and the operation of investment projects in COMESA.

10. Results of integration. • Reduction in tariffs and other barriers to trade on a non discriminatory basis. • Intra-COMESA trade has increased from US$ 1.3 billion in 2001 to US$ 9 billion in 2008; • Diversification of exports • Transport facilitation measures has cut transport costs by approximately 25%. • Supply/demand surveys carried out, and buyer/seller meetings & trade fairs are expected to generate transactions worth about US $ 1 billion

11. Challenges to deeper integration. Some of the challenges hindering deeper integration in COMESA include: • lack of complementarities (i.e. exporting similar products); • Non Tariff Barriers • inadequate infrastructure; • absence of a system of compensation for losers; • structural constraints; • lack of political commitment; • Overlapping membership; • lack of effective supra-national institution • Security and border conflicts • Skills and Human resource developmen.

12. Priorities for achieving deeper integration regional and global • Full COMESA FTA with lower MFN tariffs. • Elimination of NTBS • Liberalizing trade in services • Export competitiveness (expansion and diversification of exports) • Trade related measures and behind the border reforms-strengthening trade facilitation services, improving the investment climate and • Harmonizing the regulatory framework to reduce cost of doing business and encourage (domestic and foreign) investments in export oriented sectors • Implementation of the COMESA Customs Union.

13. The COMESA Customs Union is due to be launched in June, 2009 Key elements of a Customs Union • duty-free and quota-free trade within customs territory (FTA); • a common external tariff (CET); • harmonised trade policy; COMESA – LAUNCHING THE CUSTOMS UNION

14. Requirements for the CU launch. The minimum requirements that should be fulfilled in preparation for the launch of the COMESA Customs Union in accordance with the recommendations of the third meeting of the Special Ministerial Task Force on the Customs Union held in February, 2008 comprise of the following • Alignment of National Tariff Schedules with the agreed CET/CTN/ • Completion of the Sensitive Products list to be accorded differentiated tariff treatment under the CET. • Flexibility and Policy Space • Adoption of the Customs management regulations • Ministerial regulations for the COMESA Customs Union

15. Where we are: Elements already in place… Customs management regulations have been finalized awaiting consideration by the Trade and Customs Committee and Council of Ministers • Ministerial regulations for the COMESA Customs Union have been finalized awaiting consideration by the Trade and Customs Committee and the Council of Ministers. • Finalization of sensitive products-April, 2009. • Finalization of tariff alignment schedules-April, 2009 COMESA – LAUNCHING THE CUSTOMS UNION

16. COMESA – LAUNCHING THE CUSTOMS UNION Where we are: Elements already in place… Agreed CET structure (4 band) • capital goods: - 0% • raw materials: - 0% • Semi-processed goods-10%- • final/processed goods-25 Adopted the principles of a regional trade policy.

17. COMESA – LAUNCHING THE CUSTOMS UNION The COMESA Regional Trade Policy will govern relations between the future COMESA Customs Union and third Countries. A set of Principles have been adopted as the Basis for the COMESA RTP Principle 1: CET rates and Sensitive products Principle 2: Free circulation of goods, elimination of Rules of Origin. Principle 3:Revenue distribution. Principle 4: Export Processing Zones. Principle 5:Trade defense measures, competition policy. Principle 6:SPS and Technical Standards Programme Principle 7:Bilateral treaties, arrangements with third parties, common negotiating positions.

18. COMESA – LAUNCHING THE CUSTOMS UNION In a Customs Union, trade policy is set collectively at regional level. However, there is provision for Policy space; During the transitional period, there will be need to accommodate national specificities such as; • Treatment of sensitive products, • Use of tariffs as incentives, • Suspension of CET rates in special circumstances, • Honouring commitments under existing trade arrangements.

19. Benefits and opportunities of COMESA Custom Union • Some studies undertaken to evaluate the cost and benefits of the COMESA FTA and Custom Union (e.g. Karingi et al. 2002 and Dimaranan and Mevel 2008). • Two important points should be emphasized: • Benefits that can be derived from custom union outweigh FTA arrangement. • In the long-run, all members will benefit from both arrangements (CU and FTA).

20. Benefits and opportunities • Quantified main benefits already identified: • Trade expansion • Welfare gain • Increase in real incomes for most members • Efficient allocation of resources • Improved competitiveness • Gain in economies of scale.

21. Challenges of Customs Union • Addressing effectively short run adjustment costs which might be high for some members. • Tariff revenue loss and localized contraction of some sectors which has a key role for sustainable development and prosperity. • Prioritizing investments and reform measures to address supply side constraints.

22. Challenges of Customs Union • Overlapping membership which constrains economic efficiency and compromises integration aspiration. • However, this problem can be addressed by catalysing the grand Eastern and Southern Africa FTA project. • Harmonization of policies among the three RECs is vital for success of the COMESA CU.

23. Way Forward … i) Identify and agree on sensitive products and adjustment measures and timeframe for sensitive products; and ii) Agree implementation plan and period for MS to align national tariffs to CET. For full operation of Customs Union i) Finalise and adopt remaining elements of Regional Trade Policy; ii) Set up and make operational an appropriate CU management structure. COMESA – LAUNCHING THE CUSTOMS UNION

24. Conclusion: Where we are going ? • COMESA has re-defined its medium-term strategy as being the promotion of regional integration through trade and investment; • COMESA has liberalised trade in goods, now urgent need to liberalise intra-regional trade in services • COMESA is now concentrating its efforts on consolidating and expanding the FTA and establishing a Customs Union, while accelerating investment promotion. • Implementing the tripartite decisions for establishing Inter REC FTA and the Grand Customs Union

25. Thank you for your kind attention COMESA – LAUNCHING THE CUSTOMS UNION