The Extent of SADC Trade Protection and its Effects on the Least Developing Members of the Region. TIPS ANNUAL FORUM Date: 29 – 31 October 2008 Presenter:

The Extent of SADC Trade Protection and its Effects on the Least Developing Members of the Region.

TIPS ANNUAL FORUMDate: 29 – 31 October 2008Presenter: Mmatlou Kalaba

Presentation Outline a) Introductionb) Literature Reviewc) Methodology and Data Description d) Analysise) Evaluation of Results and Implicationsf) Concluding Remarks

Introduction ….background • SADC consists of 14 members which are all

developing countries and LDCs.• They face various economic, development, social,

health and welfare challenges • Regional integration and trade liberalisation is used

(indirectly) as a vehicle to address some of these challenges .

• Protocol on trade is the central and legal agreements to foster trade liberalisation

• However, there are major differences between member states

Introduction,….Land Area and Population

Land area (1000 km2)

Population, 2006 estimate (million)

Angola 1,246.7 16.4

Botswana 600.4 1.8

DRC 3,245.4 59.3

Lesotho 30.4 1.8

Madagascar 587.0 19.1

Malawi 118.5 13.2

Mauritius 2.0 1.3

Mozambique 801.6 20.1

Namibia 825.5 2.1

South Africa 1,219.9 47.4

Swaziland 17.4 1.1

Tanzania 945.1 39.5

Zambia 752.6 11.9

Zimbabwe 390.6 13.1

SADC 10,783.1 248.1

Introduction... Economic Performance

GDP (current prices US$ bn)

Per capita GDP (current prices US$)

Average GDP growth (%)

Annual GDP growth (%)

Country/ Period

2006 2006 2000 - 05 2006

SADC 378.7 1,967.9 4.0 5.7 Angola 44 2,682.9 9.16 18.6 Botswana 10.3 5,722.2 5.49 5.4 DRC 8.5 143.3 4.42 5.6 Lesotho 1.5 833.3 2.46 7.2 Madagascar 5.5 288.0 2.21 5.0 Malawi 2.2 166.7 2.86 7.9 Mauritius 6.4 4,923.1 3.69 3.6 Mozambique 7.6 378.1 8.57 8.0 Namibia 6.4 3,047.6 4.62 4.1 South Africa 255 5,379.7 3.63 5.4 Swaziland 2.6 2,363.6 2.32 2.8 Tanzania 12.8 324.1 6.91 6.7 Zambia 10.9 916.0 4.71 5.3 Zimbabwe 5.0 381.7 -4.93 -6.1

Introduction…..GDP contribution by sector

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Introduction… objectives • One way of encouraging trade is through reduction of

prohibitive tariff barriers, and so far that is the option that SADC has adopted.

• In this study examines the degree of tariff protection in the agricultural sector amongst member states

• Justification: Tariffs are important both as revenue sources and for enhancing competitiveness. Furthermore, high tariffs are in products of interest for LDCs and priority trade policy areas

• Focus: Agricultural tariffs, period: 1999

Introduction…Dependence on Trade Tax Revenue

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Trade tax revenue-1999 Country

Share of GDP (%

Share of total revenue (%)

Simple average tariff

Botswana* 7.70 18.10 12.34 Lesotho* 18.00 58.00 12.34 Madagascar 2.80 25.60 16.20 Malawi 2.50 12.40 13.00 Mauritius 5.40 31.50 24.36 Mozambique 2.20 18.90 20.50 Namibia* 12.10 38.00 12.34 SA* 0.80 3.00 12.34 Swaziland* 15.30 55.20 12.34 Tanzania 1.30 11.60 12.66 Zambia 5.90 30.90 13.59 Zimbabwe 2.60 10.40 19.87

Research on the Trade Protection in SADC

Authour(s) Year Focus Limitation

Flatters 2001 Rules of Origin Restricted to RoO

Lewis et al 2001 Impact of trade liberalisation Prod. & country aggregation

Wobst 2002 Impact of tariff harmonisation Restricted to 5 countries

Brentton et al 2004 Rules of Origin Restricted to RoO

ESRF, Khandelwal 2004 Revenue Narrow focus

Keck & Piermartini 2005 Impact of trade liberalisation Prod. & country aggregation

Mutambatsere 2006 Effects of tariff reforms Focused on cereals

Nhara, Subramanian 2006 Revenue Narrow focus

SACAU 2006 NTB in agriculture Baseline study

No studies on" the degree of tariff protection between SADC MS”

Methodology and Data

• The main method of relative tariff ratio index (RTR )• Developed by Sandrey, modified further by Gehlhar &

Wainio,Jank and then later by Wainio & Gibson• It is a tariff-based measure and uses bilateral index between

trading partners.• The importer’s tariff rates are weighted by exporter’s world

trade to determine the index

Methods…RTR

where, A, B represents countries Ti = AVE tariff rate for product i Vi = share of exports of product i in total exports.

•A ratio of close to one reflects evenness in the respective tariff regimes between partners. It does not reflect tariff levels

n

i

Bi

Ai

n

i

Ai

Bi

AB

VT

VTRTR

.

).(

Method…Pros & Cons

• Pros– Summarises lots of date into

concise results– Changes in applied tariffs

are immediately considered– Effective in measuring

progress of FTAs and other regional agreements

– Assess “own protection”– Useful for trade negotiations

ConsIgnores elasticity effects

and substitution possibilities

One partner assumption is unrealistic (proxy)

Other factors are not included, i.e. tastes & pref, transport costs, political, etc

Data • Trade and Tariff Data• Sources: SADC TD & SADC MS tariff schedules• Product coverage: HS 6 digit (Agriculture)• Country coverage: 11 MS (SACU as a unit)• Period: 1999 & 2006• AVE were calculated using…

i

ispeiavei X

Vtt

*,,

Analysis….Comparative tariff structure, 1999

Mal Mau Moz SACU Tan Zam Zim SADC Avg No of lines 5,442 5,479 5,246 7,824 5,619 6,066 7,166 6,120 Mean 13 24 21 12 13 14 20 17 Std dev 13 28 13 27 11 10 17 17 Median 10 10 25 6 15 15 15 14 Max. 30 80 35 500 30 25 100 114 Co. of var. 1.0 1.1 0.6 2.2 0.9 0.7 0.8 1.0

• SACU & Zim had most tariff lines and highest

individual tariffs• Zim, Moz & Mau have highest average tariffs• Dev. MS appear to have highest max tariffs• Co. of Var reflects SACU’s complex tariff regime

Analysis,….Tariff Distribution & Peaks

Distribution Mal Mau Moz SACU Tan Zam Zim Avg Duty free (%) 33 28 1 45 39 21 6 25 1-5% 15 4 12 5 2 14 25 11 6-10% 18 22 30 8 6 0 9 13 11-20% 0 13 0 15 15 33 22 14 21-30% 34 5 21 22 37 32 18 24 >30% 0 29 36 5 0 0 20 13 Tariff Peaks Domestic 0 14 0 5 0 0 5 3 International 34 38 57 35 39 32 44 40

• SACU & Tan had most duty free tariffs• High % of Moz tariffs were more than 30• Only Dev. MS had domestic tariff peaks• Mau had more domestic peaks than all of SADC

MS combined• SADC had high concentration of international tariff

peaks

Analysis…Agric exports and tariffs

Agric Exports Top 10 agric exports

Source

$ (mil)

% of total

$ (mil)

% of agric

Avg Agric

tariff

Malawi 356 87 348 98 16 Mauritius 379 24. 349 92 22 Mozambique 187 52 172 92 29 SACU 3,954 11 1,706 43 25 Tanzania 402 66 339 84 18 Zambia 61 11 54 87 20 Zimbabwe 815 48 678 83 26 Total SADC 6,154 43 3,645 59 22

• Contribution of Agric was lowest Zam & SACU and

highest in Mal• Agric exports are concentrated in few products for all

MS except SACU• Agric tariffs are higher than total average in all, but Mau

Analysis …Tariffs faced by top 10 Agric Exports

Mal Mau Moz SACU Tan Zam Zim

Exporter Average % of agric tariffs of top 10 products

Mal 22 42 23 78 16 19 44

Mau 16 36 27 35 20 23 18

Moz 15 37 28 19 16 20 24

SACU 20 20 32 63 25 25 36

Tan 15 34 28 21 18 23 29

Zam 16 20 27 8 16 20 22

Zim 26 40 27 70 18 22 45

Avg (weighted) 18 33 27 42 18 22 31

SACU & Mau applied highest tariffs on products of interest to LDCsMal & Tan faced highest tariffs in Dev. MS, and yet offer most access SACU, Zim & Moz had protective tariffs on products of offensive interest to themselves

Analysis…RTR interpretation

Mal Mau Moz SACU Tan Zam Zim

Mal 1.9 1.5 4.0 1.1 1.2 1.7 Mau 0.4 0.7 1.8 0.6 1.2 0.5 Moz 0.7 1.4 0.6 0.6 0.7 0.9 SACU 0.2 0.6 1.7 1.2 3.0 0.5 Tan 0.9 1.8 1.7 0.8 1.4 1.7 Zam 0.8 0.8 1.4 0.3 0.7 1.0

Zim 0.6 2.2 1.1 2.0 0.6 1.0

• RTR =1, symmetry of respective tariff

regimes• RTR <1, MS grants more access than

receives

Evaluation and Implications

• Covered 60% of agric exports (value)• Agric contribution to exports is high LDCs • Dev MS set high tariffs on agric sector, with most set

below average and few very high. Indication of protection for IP development or competitiveness.

• Yet, the same products are of high interest to LDCs, hampering their IP development potential

• LDCs spread tariffs with very little focus on specific sectors in an attempt to balance three or policy decisions. The dependence on tariff revenue is also evident in their schedules. Lack of diversification and high protection by partners make them more vulnerable.

• LDCs grants more access, and yet faces the highest protection in important products. This against the principle of “growth through trade”

Concluding Remarks

• “Growth and Development through trade strategy” that SADC adopted is a sound principle for regional integration, however protection on agriculture may affect agriculture negatively. This is not helped by listing many agric products as sensitive.

• This may also be the cause for decline in intra-SADC trade in the sector, as MS seek favourable markets elsewhere.

• Agric development needs to be linked to trade and industrial policies to enhance progress of vulnerable LDC sectors.

• As SADC moves into deeper levels of integration, then these policy developments will require a collective effort. This should also include ways to substitute tariff revenue to allow flexibility in policy space.