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Termination of the South Africa-Zimbabwe bilateral trade agreement: What does it mean for South Africa-Zimbabwe trade?

By Elisha Tshuma
20 Nov 2018
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Termination of the South Africa-Zimbabwe bilateral trade agreement: What does it mean for South Africa-Zimbabwe trade?

The Bilateral Trade Agreement between South Africa and Zimbabwe will be terminated on 20 November 2018. The termination of the Agreement will affect certain imports from South Africa and exports from Zimbabwe to South Africa.

South Africa is Zimbabwe’s largest trading partner.

“The top exports of Zimbabwe are Gold ($896M), Raw Tobacco ($383M), Diamonds ($206M), Ferroalloys ($163M) and Nickel Mattes ($149M), using the 1992 revision of the HS (Harmonized System) classification. Its top imports are Refined Petroleum ($1.19B), Corn ($285M), Electricity ($162M), Packaged Medicaments ($158M) and Delivery Trucks ($114M).

The top export destinations of Zimbabwe are South Africa ($1.31B), Mozambique ($267M), the United Arab Emirates ($216M), China ($134M) and Belgium-Luxembourg ($102M). The top import origins are South Africa ($2.21B), Singapore ($1.02B), China ($380M), India ($170M) and Zambia ($170M)”.[1]

The two countries had been trading under two different trade agreements. They had a bilateral agreement which had been operational since 1964 and they are both members of the Southern African Development Community (SADC) Free Trade Area (FTA). The following table shows the major differences between the two Agreements.

Description

Bilateral Trade Agreement

SADC FTA

Rules of Origin

Flexible and simple rules of origin

Complex and product specific. For example, rules of origin for clothing require that both the fabric and the garment be produced in a SADC member state.

Determination of rates of duty

Provides for the extent of reduction from the MFN rates. A trader required an import licence to enjoy a full reduction of duty where full duty reduction was applicable.

Provides for gradual total phase down of customs duties.

Import and Export restrictions

Prohibited with a few exceptions quantitative import and export restrictions.

Follows modern trade disciplines found in WTO Agreements, for example, sanitary and phytosanitary and technical standards should be based on international standards.

Derogation

There is no provision for derogation.

Article 3 of the SDAC Trade Protocol

Dispute resolution

No provision for adjudication of disputes.

SADC had a tribunal established in 2005 which was disbanded in 2005. It had jurisdiction over inter-state and certain private disputes. A new tribunal is still a work-in-progress.

Zimbabwean traders prefer the 1964 Bilateral Trade Agreement to the SADC FTA because of its flexible and simple rules of origin. It provides easier market access than the SADC FTA with its complicated rules of origin. For example, rules of origin for clothing require that both the fabric and the garment be produced in a SADC member state whereas the Bilateral Trade Agreed required local content to be met.

On the other hand, South Africa wants the SADC FTA to protect its textile articles producers as regional countries including Zimbabwe cannot meet the SADC FTA two-stage rule of origin requirement due to limited textiles production in SADC.

Erasmus (2018)[2] argues that:

“The 1964 bilateral Rhodesian trade Agreement was designed for specific conditions prevailing at the time of its conclusion. These conditions have ceased to apply. Zimbabwe has become independent, both parties have joined the SADC FTA and the WTO. Intra-SADC trade has to be conducted in terms of new rules of origin and other requirements as contained in the SADC trade Protocol on Trade. Discrimination in favour of Zimbabwean goods has become incompatible with the subsequent intra-SADC trade goods regime.

In November 2017, South Africa officially communicated its decision to terminate its 1964 bilateral trade agreement with Zimbabwe. The decision was made in terms of Article 15 of the Agreement which reads:

This Agreement shall come into operation on 1st December 1964 and shall remain in operation until 31st December 1969, and, unless notice of termination is given by one party to the other party twelve months before the expiry of that period, it shall thereafter remain in force until the expiry of twelve months from the date of which notice of termination is given.[3]

Prior to South Africa’s decision to terminate the Agreement, Zimbabwe had threatened to suspend customs duty preferences under the 1964 bilateral trade agreement with South Africa. While presenting the 2014 National Budget, the then Minister of Finance and Economic Development said:

… the Republic of South Africa no longer offers preferences on goods imported from Zimbabwe in accordance to the 1964 Bilateral Trade Agreement between the two countries. This premised on their view that the SADC Trade Protocol currently offers better preferences to goods originating from both countries. Zimbabwe currently honours the Agreement, which however, does no yield any benefits to the country in the absence of reciprocation from the other trading partner.

Consequently forgone in the application of these preferences amounted to about US$56 million in 2012 and US$32 million for the period January to September 2013. Due to the lapse of the Zimbabwe-South African Agreement, I propose to suspend customs duty preferences under the 1964 Bilateral Trade Agreement between Zimbabwe and the Republic of South Africa until such time when the parties agree to reciprocate the application of the Agreement.[4]

Ironically, in 2012, Zimbabwe had increased the import duty on selected goods in the form of surtax. These items attracted surtax even if they were imported under the Bilateral Trade Agreement or SADC FTA.

The Bilateral Trade Agreement will be terminated on the 20th of November 2018. The termination of the Bilateral Trade Agreement will affect certain imports from South Africa and exports from Zimbabwe to South Africa. 

The major export casualty will be textile articles from Zimbabwe which will now need to meet the stringent SADC FTA rules of origin. This will be a loss of market access as few Zimbabwean textile manufacturers can meet these conditions. South Africa has simply closed its textile market to Zimbabwean traders.

The termination of the Agreement will affect those imports from South Africa which attracted less duty when imported under the Bilateral Trade Agreement when compared to SADC FTA. The table below shows a few examples:

Description of goods

Tariff code

Rate of duty under bilateral agreement

Rate of duty under SADC FTA

Cotton-seed cooking oil
15122910
0%
40%
Coconut cooking oil
15131910
0%
40%
Wooden doors
44182020
0%
40%
Vegetables, fruit, nuts, fruit peel and other parts of plants preserved by sugar
20060000
30%
0%
Palm cooking oil
15119010
0%
$0.50/litre

A comprehensive list of affected commodities can be found in pdf Statutory Instrument 317 of 2000 (2.09 MB) .

The termination of the Bilateral Trade Agreement means that in the meantime, the two countries will trade under SADC FTA. They are both also participating in Tripartite Free Trade Area (TFTA) and African Continental Free Trade Area (AfCFTA) negotiations.

Zimbabwe can continue lobbying for simplification of SADC FTA rules of origin as complicated rules of origin are a hindrance to intra-regional trade.

Furthermore, the Zimbabwean private sector should have a keen interest in the ongoing SADC rules of origin review negotiations to ensure that rules of origin that promote intra-regional trade are put in place. The Zimbabwean private sector should be more proactive than to be reactive to agreed rules of origin.


[1] https://atlas.media.mit.edu/en/profile/country/zwe/

[2] tralac Working Paper, Termination of the South Africa-Zimbabwe Trade Agreement: What next? (2018), available at https://www.tralac.org/publications/article/13524-termination-of-the-south-africa-zimbabwe-trade-agreement-what-next.html

[3] pdf Trade Agreement between RSA and Southern Rhodesia, signed 30 November 1964 (228 KB)

[4] https://www.dpcorp.co.zw/assets/2014-national-budget.pdf

About the Author(s)

Elisha Tshuma

Elisha Tshuma

Elisha Tshuma is a Customs and Trade Facilitation Expert based in Zimbabwe. He holds a Master of Commerce Degree in Management in Trade Law and Policy from the University of Cape Town and has worked extensively in the area of customs, tax and border administration in southern Africa. He currently serves as Director: Customs and Trade Facilitation at Shalom Fiscal Consultants in Harare.

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