Discussions

The need for tariff rationalisation and common criteria for determining sensitive products within the proposed tripartite COMESA-EAC-SADC FTA

The need for tariff rationalisation and common criteria for determining sensitive products within the proposed tripartite COMESA-EAC-SADC FTA

25 Aug 2010

Taku Fundira, a tralac Researcher, discusses the need for tariff rationalisation and common criteria for determining sensitive products within the proposed tripartite COMESA-EAC-SADC FTA

In an effort to enhance market access, harmonise policies in areas of common interest and address the issue of multiple membership among other issues, Heads of States from the regional economic communities (RECs) of COMESA, EAC and SADC agreed in 2008 to establish a FTA amongst the three RECs. This new configuration would see an expanded market covering 26 countries with an estimated population of 500 million people, a GDP of US$624 billion and a per capita GDP of US$1,184 (RTFP, 2008).

With such an expanded RTA, it is important to note that its establishment will have differing consequences for the foreign trade policy options available to participating countries. One area which forms part of this discussion will likely raise a bone of contention is the issue of sensitive products that will be exempt from liberalisation. The main reason being that the selection of sensitive products is arbitrary and rests on the individual countries’ strategic and policy objectives. Given this arbitrary basis for designation, sensitive products are more likely to reflect protectionist interests or rent-seeking behaviour, both of which will perpetuate inefficiencies. There is therefore a need to ensure that countries are encouraged to base their selection on genuine public policy objectives.

The justification of sensitive products in trade policy analysis stems from the fact that trade liberalisation can impact negatively on the production or trade of products that are of strategic importance to a particular country. In other words, the production, consumption and revenue earning capacity of such commodities is vulnerable to a trade policy shock. If this shock has a negative impact then it implies that the particular commodity is sensitive. The role played by sensitive products in improving market access is such that the number and treatment of eligible tariff lines will be vital components of any outcome that delivers substantial benefits for both trade and development. Therefore, support to sectors deemed strategic in enhancing economic growth is important when developing market access liberalization schedules.

Globally, there seems to be a general agreement on the main variables that are used as key indicators for determining product sensitivity. The basket of indicators includes the fiscal or economic significance of the product, the potential of the sector to assist regional economic development and other policy imperatives of member states. Within the region there is a tendency to use the sensitive product argument as a mechanism for avoiding full participation in the RECs. The fact that there is no single common approach or clarity on the definition of sensitive products complicates the process and has seen countries submitting long lists of products. This scenario has threatened the possibility of achieving the set goals of promoting deeper regional integration and at the same time has undermines the principle of free movement of goods.

Currently COMESA and EAC have attained customs union (CU) status (in theory COMESA is a customs union, but not yet implemented in practice) while SADC is still a FTA but is also aiming to attain CU status. For the proposed tripartite FTA to function there is a need for the rationalisation of tariff structures and to develop common criteria for sensitive products amongst other issues. For the two CUs – COMESA and the EAC, rationalisation of tariff structures is not an issue as both have agreed and established CET duty rates that have similar applied duties on capital goods (0%); raw materials (0%); intermediate goods (10%); and finished goods (25%). However, SADC, which is still a FTA will need to agree on a CET and because of the multiple membership conundrum that its members face, may well rationalise its envisaged CET duties in a manner similar to those of the other RECs (i.e. COMESA and EAC). The fact that within SADC there is a CU, SACU, with a rather complex tariff structure in terms of the number of tariff lines and bands also complicates this process.

On the issue of developing common criteria for sensitive products, SADC and COMESA countries, have broadly considered revenue and infant industry arguments as key criteria for assessing commodities’ level or extent of sensitivity. However, there is a lack of clarity or transparency on the current individual countries’ sensitive product lists. As highlighted earlier, the process of designating sensitive products can perpetuate inefficiencies and thus undermine the process of deeper integration. Furthermore, the lack of resources and analytical capacity to undertake detailed analysis, and the lack of properly defined guidelines and benchmarks also hinders the process. There is therefore need for policy makers to find ways to develop a systematic approach to determining sensitive products and to ensure that all stakeholders are aware of the purpose of a sensitive products list (i.e. economic vs political vs social concerns). As a principle, it is proposed that the RECs should not introduce new sensitive products in addition to those currently present in their schedules, but to work towards reducing their lists. Lessons can be learnt from the experience of the EAC who have already agreed and established a sensitive products list of about 55 products. Even 55 sensitive products reflect poorly on the desire to establish a CU with a CET. 

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Sources:

ICTSD 2006. “The Impact of Sensitive Products on Trade and Development”, Bridges Monthly, Volume 10, Number 7, [online] available:( http://ictsd.org/i/news/bridges/11693/)

Jean, S. Laborde, D. Martin, W. 2010. “Formulas and Flexibility in Trade Negotiations: Sensitive Agricultural Products in the WTO’s Doha Agenda”, World Bank, Working Paper 5200, [Online] available:
(http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2010/02/04/000158349_20100204081833/Rendered/PDF/WPS5200.pdf)

RTFP, 2008. “Tripartite talks set new trade path,” Regional Trade Facilitation Programme (RTFP), [Online] available:(http://www.rtfp.org/news.php?id=78)

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