1. Background to the Free Trade Area

The main goals of the Southern African Development Community (SADC) are to form common political interests and support greater trade and investment flows between Member States. The SADC Free Trade Area (FTA) is key to achieving these goals. By January 2008 twelve of the fourteen SADC Member States established an FTA. The SADC FTA creates a regional market worth US$360 billion with a total population of 170 million and includes economies growing by up to 7% a year. Angola and the Democratic Republic of Congo are set to join the FTA adding a further US$71 billion and 77 million people to the SADC market.

The SADC Region

The 14 members of SADC are Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

Economic Indicators of SADC Member States

Sources: World Economic Outlook 2008; *Trade Flows: TIPS Database 2006, except Lesotho 2003, Swaziland 2004, Export figures for Angola and Madagascar, 2007.

The combined income of the SADC market is US$431 billion and comprises a total population of 247 million (2007). South Africa is the biggest economy with a Gross Domestic Product (GDP) of US$282 billion, representing 65% of the total SADC market. The largest country in terms of population is the Democratic Republic of Congo with a population of 61 million. In contrast Botswana, Mauritius, Namibia and Swaziland have populations of 2 million or less. GDP per capita also varies widely. For Botswana GDP per capita is US$7,694 per annum while for Mozambique and the Democratic Republic of Congo it is an estimated US$264 and
US$166 respectively.

The region includes several dynamic economies. Angola is the fastest growing economy, with an estimated growth rate of 21%. Other countries show GDP growth of 7% and above, such as Malawi, Mozambique and Tanzania.

The SADC Treaty

Political independence, security, regional solidarity and the fight against apartheid were the original motives for regional cooperation in Southern Africa, inspiring Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia and Zimbabwe to establish the Southern African Development Coordination Conference (SADCC). Reflecting the changing times in August 1992, the Heads of State and Governments of SADCC signed the SADC Treaty and a Declaration to establish SADC - the
Southern African Development Community.

The SADC Treaty provides the legal basis and framework for achieving SADC’s mission “to promote sustainable and equitable economic growth and socio-economic development through efficient productive systems, deeper cooperation and integration, good governance, and durable peace and security, so that the region emerges as a competitive and effective player in international relations and the world economy.”

The SADC Protocol on Trade

The 12 Member States that are establishing the Free Trade Area under the Protocol on Trade are Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. In the near future Angola and the Democratic Republic of Congo are set to join.

The legal basis for the FTA is the Protocol on Trade. The Protocol on Trade, signed in 1996 and in effect since 2000, is one of the Protocols entered into by SADC Member States to give legal and practical effect to their commitments under the SADC Treaty. The Protocol on Trade commits members to phase out existing tariffs, to harmonise trade procedures and documentation within SADC, to define SADC Rules of Origin and to reduce other barriers to trade.

The Institutional Framework for the FTA and the Protocol on Trade

The FTA is established by the Protocol on Trade. Under the Protocol on Trade the following institutions have been set up:

Committee of Ministers responsible for Trade (CMT)

This Ministerial Committee supervises the implementation of the Protocol on Trade. It provides oversight of the Committee of Senior Officials and sub-committees established under the Protocol on Trade.

Committee of Senior Officials

This Committee acts as a technical advisory body and is composed of Permanent Secretaries responsible for Trade. It reports to the CMT on matters relating to provisions of the Protocol on Trade, monitors the implementation of the Protocol on Trade and supervises the Trade Negotiation Forum.

Trade Negotiation Forum (TNF)

The TNF is responsible for the conduct of SADC trade negotiations, monitoring the effects of trade liberalisation, and linking trade liberalisation to regional cooperation in other sectors. This Forum reports to the Committee of Senior Officials.

A number of technical committees and sub-committees have been established for specific technical areas. These committees and sub-committees monitor the operations of specific provisions and elements of the Protocol on Trade and include the Technical Committee on Sugar (TCS),the Sub-committee on Customs Cooperation and the Sub-committee on Trade Facilitation.

The FTA: A step towards deeper regional integration

The Free Trade Area is a step along the path towards deeper regional economic integration – which is key to the strategy and objectives of SADC. Deeper integration is reached through a series of stages.

A Free Trade Area is a group of countries in which tariffs and non tariff barriers are eliminated on substantially all trade between them. Each member maintains its own tariffs on non members (in contrast to a Customs Union). A Customs Union is when a group of countries form a single customs territory in which duties and other restrictive trade regulations are eliminated for substantially all trade between the parties and in addition where a common external tariff applies to trade with non members. A Common Market removes the restrictions on the movement of capital and labour allowing the free movement of goods, services and factors of production. A Monetary Union establishes a single monetary authority which sets monetary policy and interest rates for the union, preparing the way for the introduction of a Single Currency.

The Regional Indicative Strategic Development Plan (RISDP) approved by the Summit in 2003, sets ambitious targets for regional integration:

• A Free Trade Area: 85% of trade in goods will be free by 2008;
• Completion of negotiations of the SADC Customs Union by 2010;
• Completion of negotiations of the SADC Common Market by 2015;
• SADC Monetary Union and SADC Central Bank by 2016;
• Launch of a regional currency by 2018.

2. How is the SADC Free Trade Area being created?

Under the FTA Member States liberalise trade through removing tariffs and other non tariff barriers. The FTA also includes measures directly aimed at facilitating trade by reducing red tape and paperwork at the borders and providing a framework for improving the movement of goods throughout the region. These are key barriers to trade in SADC – as identified by a survey of over 600 businesses and other non State actors undertaken throughout the region.

Removing Tariff Barriers to Regional Trade

Import tariffs (duties)

An import tariff (also called a duty) is a customs tax paid when a product isimported into a country. They usually take the form of a percentage tax based on the value of the import. For example, if a tariff on fruit juice is set at 25%, an importer of US$1,000 worth of fruit juice would have to pay to customs US$250. Import tariffs increase consumer prices and reduce the level of trade.

The FTA is established by removing import tariffs (duties) on imports from other Member States. Implementation of the FTA began in 2000 following the signing of the SADC Protocol on Trade. The liberalisation of tariffs has taken place at different rates. In general the more developed Member States have reduced tariffs at a faster rate; South Africa, together with other SACU countries – Botswana, Lesotho, Namibia and Swaziland – removed most tariffs in 2000. Middle income countries such as Mauritius have gradually reduced their tariffs each year between 2000 and 2008. For least developed countries such as Mozambique and Zambia tariff reductions have generally been introduced during 2007/2008. These gradual reductions are referred to as tariff phase downs. All goods are classified into four tariff categories: A, B, C and E. Different time frames for tariff reductions apply. Angola and the Democratic Republic of Congo will be joining the FTA in the near future.

Tariff Phase Down Schedule

Category A - Immediate liberalisation

All tariff lines within this category are immediately reduced to 0% as from the date of implementation.

Category B - Gradual liberalisation
(The Principle of Asymmetry)

• Front loading – gradual liberalisation by SACU – tariff lines are reduced by equal instalments from year 1 to year 8.
• Mid loading – gradual liberalisation by Mauritius and Zimbabwe – tariff lines are reduced by equal instalments from year 4 to year 8.
• Back loading – gradual liberalisation by MMTZ – tariff lines are reduced by equal instalments from year 6 to year 8.

Category C - Sensitive goods

• These refer to goods of economic importance to Member States.
• Tariff reduction on such goods only starts after the 8 year period.
• They represent 15% or less of tariff lines.

Category E - Exclusion list

This list consists of very few goods such as, for example, fire arms. From January 2008, when SADC attained the status of an FTA, producers and consumers do not pay import tariffs on an estimated 85% of all trade in community goods in the initial 12 countries. The remaining tariff lines will be almost completely phased out by 2012.

What about Non Tariff Barriers?

Non Tariff Barriers

A Non Tariff Barrier (NTB) is any measure that impedes international trade other than tariffs. NTBs can be put in place for the purpose of restricting trade, such as import quota or export restrictions, but they can also be the result of, for example, measures to ensure traded food products do not jeopardise the health of consumers.

SADC Member States have agreed to eliminate all NTBs and not impose any new ones, except where necessary on the grounds of health and safety, public morals, and national security. The removal of import and export restrictions has proved challenging, and is complicated by the fact that often NTBs result from policies that are not intended to restrict imports. For example, an outbreak of Foot and Mouth Disease will result in restrictions on the export of animals, meat and meat products from the area affected. But these restrictions are necessary to ensure food safety and limit the spread of the disease.

Time and again, the private sector and other stakeholders have identified delays and difficulties at the border as one of the key barriers to doing business in the region. Many SADC Member States are landlocked, with imports and exports having to cross several borders, making trade facilitation a key factor in their economic competitiveness.

Customs cooperation and trade facilitation

To facilitate speedy customs clearance of goods at entry points the Sub-committee on Customs Cooperation developed and implemented a single customs administrative document (SADC-CD). The single declaration form replaced a number of customs declaration forms which were designed for different customs regimes. A model customs act was also developed to benchmark and harmonise customs procedures and practice. Most SADC countries are landlocked and to facilitate transit traffic a single through customs guarantee bond and a single through customs declaration on the SADC-CD system was developed.

To reduce clearance waiting time at border posts the region is in the process of developing “one stop” border posts at the border of Mozambique and Zimbabwe (Forbes-Machipanda), South Africa and Mozambique (Lebomba-Ressano Garcia) and Zimbabwe and Zambia (Chirundu).

SADC customs administrations have enhanced their cooperation by entering into bilateral Memorandum of Understanding for mutual administrative assistance.

Food safety and technical barriers to trade

The SADC Free Trade Area launch heralds easier movement of goods in the region which should translate to lower prices for consumers and bigger markets for producers. Consumers, however, will not want the FTA to result in the free movement of sub standard and/or unsafe products and producers will want to ensure that they put on the market products that will effectively compete with those from outside the region.

We rely on standards which – for both food safety and for technical specifications – allow us to buy imports with confidence. Standards therefore are key to facilitating trade. However, they become barriers to trade if they differ widely from country to country.

The SADC Cooperation in Standardisation, Quality Assurance, Accreditation and Metrology (SQAM) concerns itself with the development of standards that can be used by producers and regulators alike to ensure that traded products do not only fulfil quality requirements but are also safe for use or consumption. Producers will be able to work with national standards bodies (NSBs), metrology institutes (NMIs) and conformity assessment bodies (CABs) in Member States to implement the latest voluntary standards and technologies. Regulators will be able to make reference to agreed international standards in formulating technical regulations for the protection of consumers and the environment and for prevention of unfair practices. Technical regulations are deemed not to create technical barriers to trade (TBTs) when they are based on internationally agreed standards.

The SADC SQAM institutions will continue to cooperate and harmonise standards in the region to level the playing field in the exchange of goods and also to assist local producers and manufacturers to keep up to date with the latest quality expectations locally and abroad. As consumers become
more aware and their expectations grow, competition will be based on quality as much as it will be on price.

Based on the Technical Barriers to Trade (TBT) Annex to the SADC Protocol on Trade, regional cooperation in the areas of standards and technical regulations is achieved through the following structures:

SADCSTAN – SADC Cooperation in Standardisation,
SADCMET – SADC Cooperation in Measurement Traceability or Industrial Metrology,
SADCMEL – SADC Cooperation in Legal Metrology,
SADCA – SADC Cooperation in Accreditation,
SADCTRLC – SADC Technical Regulations Liaison Committee, and
SADCTBTSC – SADC Technical Barriers to Trade Stakeholders Committee.

In addition, the Sanitary and Phytosanitary (SPS) Annex to the SADC Protocol on Trade provides a framework for cooperation in animal and plant health issues as well as food safety standards.

How will the FTA be enforced?

Monitoring Implementation

The day to day monitoring of the operations of the FTA at regional level lies with the Trade, Industry, Finance and Investment Directorate of the SADC Secretariat although actual implementation is dependent on the structures in Member States. It is envisaged that a dedicated Trade Monitoring and Compliance Mechanism (TMCM) for monitoring the implementation of the FTA will eventually be established at the Secretariat. Discussions on the envisaged structure are still underway in the TNF. The envisaged monitoring structure will also encompass the NTB monitoring and reporting mechanism that has been agreed to by Ministers of Trade and which the Secretariat and Member States are in the process of setting up and activating. This mechanism has the potential to greatly increase trade. Its effectiveness is,
however, dependent on the full and active participation of the business community. It is business that trades across borders and business must therefore take the lead in identifying problems and solutions.

Resolving Disputes

Rights and obligations under the Protocol on Trade can be enforced through the rules and procedures governing the settlement of disputes between Member States laid down in Annex VI of the Protocol, which is modelled on the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes. Good offices, conciliation and mediation are procedures that can be undertaken voluntarily at any time if disputing Member States so agree and with the assistance of the Chairperson of the Committee of Ministers responsible for Trade. Where a mutually satisfactory resolution cannot be found, Annex VI sets out the procedures and time lines for consultations, setting up of panels and reference to the SADC Tribunal.

3. How can I take advantage of the Free Trade Area?

The great majority of goods that originate in a Member State qualify for duty free access to the SADC market. For many goods it is straightforward to determine the country of origin. For example, goods that are wholly produced in a country, or which use only imported inputs to rear or grow agricultural products will count as originating within SADC. Things become more complicated once goods include parts that are imported or are in part produced in another country. While it is clear that repackaging a product should not allow a product to qualify to originate in a Member State, what of a shirt that is made of imported fabric? To determine whether a product originates in the region and therefore benefits from duty free access to the SADC market, a set of rules called “Rules of Origin” have been agreed by Member States. To benefit from SADC trade preferences, exporters must therefore obtain confirmation of origin through a certificate of origin.

What are the criteria for goods to “originate” within SADC?

For a product to qualify as originating in a Member State, it must meet one of the criteria of the SADC rules of origin.

• “Wholly produced/obtained” rule: Goods that are produced or manufactured in a Member State using materials from within the region, count as originating from within the SADC region.
• “Sufficiently worked or processed” rule: The working of a product into a new one that is significantly different.

To establish whether a product has been sufficiently worked or processed, it will undergo the “limited import test” (import content or value addition criteria) or the “HS tariff classification test” (change of tariff heading rule). Therefore, a product which is simply repacked or mixed would not qualify as originating in a Member State. Documentary evidence is required at the customs border post for a product to be allowed duty free access into a Member State.

For the purposes of determining the origin of goods, SADC Member States are considered as one territory – cumulation occurs when a product is manufactured in more than one Member State.

Special arrangements for the MMTZ

Under the SADC Rules of Origin Malawi, Mozambique, Tanzania and Zambia (MMTZ) have special dispensation for textiles and garments shipped to South Africa and the SACU partner countries of Botswana, Lesotho, Namibia and Swaziland. These arrangements provide for greater flexibility and make it easier for MMTZ to qualify for SADC tariff preferences using fabrics imported from outside the region. These special arrangements are to enable industries in MMTZ to recapitalise and are therefore temporary allowed by derogation to the provisions of the Protocol on Trade.

4. How will the Free Trade Area benefit the region?

Comprehensive consultations with the private sector and other non State actors (NSA) across the region have shown that deeper regional integration is expected to lead to:

• Increased domestic production,
• Greater business opportunities,
• Higher regional imports and exports,
• Access to cheaper inputs and consumer goods,
• Greater employment,
• More foreign direct investment and joint ventures, and
• The creation of regional value chains.

Larger markets with growing economies

The SADC FTA creates a regional market worth US$360 billion with a total population of 170 million and includes economies growing by up to 7% a year. When Angola and the Democratic Republic of Congo join the FTA a further US$71 billion and 77 million people will be added to the SADC market. For the private sector in some countries, the SADC FTA presents them with a regional market with more than ten times the spending power of the domestic economy. SADC is also a significant market for certain key export items. For example, the majority of SADC imports of spices, which are important for Madagascar and Tanzania and growing in importance elsewhere, come from within SADC, and this market has been growing at an average rate of 15% per annum.

A more competitive and vibrant private sector

The main benefits expected from the implementation of the FTA emerging from a recent survey of the private sector and other non State actors are in terms of increased trade and production, a more competitive private sector and greater convergence in income across the SADC region.

...creating jobs

With greater opportunities for trade, new business activities and the resulting expansion of domestic production both business and other non State actors expect to see a net increase in employment.

...and lowering prices for business and households

With lower barriers to trade and greater competition in the region, business expects the FTA to lead to cheaper inputs, enhancing competitiveness.

Households will be able to stretch their budget further as key consumption goods become more affordable.

The SADC FTA: Creating a platform for winning on world markets

The FTA has a key role to play in enhancing competitiveness and allowing the SADC private sector to win on world markets. An important aspect of this is by facilitating regional supply chains and enabling the private sector to source inputs from the region at lower costs. For example, Zambia’s trade surplus with the European Union in vegetables (horticulture) and prepared foodstuffs are enabled by its net imports of packaging for these exports from the SADC region.

Ensuring fair trade

Free trade makes business more efficient and competitive and so increases growth over the longer term. However, for many countries there are sectors that are “sensitive” and require protection from surges in import competition, for example, to preserve employment in disadvantaged regions or vulnerable communities. The FTA therefore allows Member States to manage trade by introducing temporary protection to safeguard an industry or promote the development of an infant industry, in consultation with other Member States. The FTA also allows for protection against unfair competition by allowing the imposition of anti-dumping measures.

• Safeguards: sometimes when a product is imported in large quantities and at prices that “cause or threaten to cause serious injury’ to the domestic industry, an importing country may impose trade restrictions – safeguards – to give the domestic industry time to adjust. Safeguard protection is only temporary. For the SADC FTA these restrictions can be imposed for an initial four years, up to a maximum of eight years. Safeguards have to apply to all imports – not just imports from specified countries.

• Infant industry: in some restricted circumstances, start up industries may need protection from competition from imports in its early stages. To impose duties on the basis of industry protection a SADC Member State must demonstrate that (i) the industry will eventually become competitive and (ii) the industry can only be developed through trade protection.

• Anti-dumping: to impose anti-dumping duties a country must demonstrate that the product concerned is being dumped (that is sold on export markets at a price less than the cost of production, or less than the price charged in the country of origin) and that this is causing or threatens to cause material injury to the domestic producers.

Where can I get more information on the FTA?

To find out more about the SADC Free Trade Area please enquire from your Ministry of Trade, Chambers of Commerce and/or Business Associations or visit the SADC website www.sadc.int.

Attachments:

FTA_Brochure_English.pdf [2.47 MB]