Trade Negotiations Insights • Volume 8 • Number 7 • September 2009
Launching the COMESA Customs Union: The Secretary General Talks
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TNI meets with Sindiso Ngwenya, Secretary General of the Common Market for Eastern and Southern Africa (COMESA), to discuss the much-anticipated launch of the Customs Union and the signing of the Interim EPAs.
TNI: The launch of the Customs Union has been postponed several times in the past. Why is now the time right to launch the Customs Union?
Ngwenya: The launch of the COMESA Customs Union has become an irreversible process. First and foremost, what is forgotten in Africa is that regional cooperation, regional economic integration is essentially a politically driven project. Politically driven on the basis of shared values and objectives in terms of creating wealth, in terms of creating a zone of prosperity. The financial crisis, which resulted in one of the worst global economic recessions, is also a wakeup call for our countries because what is being demonstrated through regional integration is that there have been no cancellation of orders for products traded within the region although we know there has been cancellation of orders for exports outside because demand for our products is now depressed. We also know that it is difficult for us to get credit - trade credit there is an estimated shortfall of anything from US$80-100 billion in terms of trade financing but we have also launched our Regional Payments and Settlements System which will no longer use letters of credit because it will be financed through the accounts by commercial banks which are pre-funded by central banks. In the current trade of US$15.2 billion, we estimate that the region has been paying US$500 million for confirming letters of credit and the trade transaction. Now we estimate that our clearing house is going to reduce that trade (there will be a 1 percent or less transaction fee - because they still have to charge for the service) US$75-80 million. So all these combination of factors have situated the customs union in a better position because it is not only the CU but also supported by financial payment facilities that we have established.
TNI: How do you expect to collect and distribute revenue collected?
Ngwenya: It is very simple. You can collect revenue from customs duties at the port of entry, then you transfer it to the destination country. This will be achieved in the medium term as it would require that COMESA puts in place a revolving fund which will ensure that the revenue is promptly transferred to the receiving country. If you collect US$20 million, you transfer US$20 million to that country. It will work because we launched the Regional Payments Settlement System in Victoria falls, which can be used to credit the account within 24 hours. In fact, governments will be better off under that revenue collection system because at times it takes about one month for goods to move in transit from the port of entry to the country. In the mean time the government does not have revenue. Whereas if you collect it there, within 24 hours the government will have the revenue. Now the second way to collect revenue is to collect revenue and put it in a common pool where you distribute it according to a formula. Now we cannot do that at this point in time, for the simple reason that our governments still depend heavily on trade taxes but this is the ultimate objective of COMESA.
TNI: How will COMESA facilitate this process?
Ngwenya: In order for us to fast track revenue collection and forward, it to the recipient countries, we suggest that under the aid for trade programme - in partnership with the EU, our biggest partner - we could set up a revolving fund which is not going to be a grant, but which is going to be used only to make sure that the monies are paid. If you put up a revolving fund for US$200 million you should be able to get the governments to get all their money, because you have a fund from which you are paying what has been collected, and you then put the money that you have forwarded into that revolving fund, and then do away with transit and all these problems. You do away with the current problems of goods in transit that get diverted into transit countries and cause injury to domestic businesses that are paying their taxes. It will also eliminate the corruption that is associated with the movement of transit traffic - some of these reforms will strike at the core of corruption.
TNI: What more can African business expect from the customs union?
Ngwenya: When we were supposed establish the Customs Union in May 2008, our trade moved from US$9.2 billion to US$15.2 billion in one year, between 2007-2008. This tells you that the market expects quite a lot from this Customs Union. Notwithstanding the global economic recession, I expect our trade by next year to hit US$20 billion. Also, our heads of state and government have also approved the regulations on trade in services within the region. And trade and services as a contribution to each national GDP is 50 percent. For any product that you trade, 60 percent of the value is accounted for by trade in services. Our Customs Union is saying let them integrate services into the product market, and then we move towards the integration of the labour market, which may take us some time because of its sensitivity.
TNI: The East African Community (EAC) has opted out of the COMESA Customs Union. What impact will this have?
Ngwenya: We have harmonised the Common External Tariff (CET) with EAC, which means that the EAC and COMESA Customs Unions have been harmonised. If you decide to harmonise the CET you have created one single customs territory - especially when you are all in a Free Trade Area (FTA) with the same rules of origin. We have harmonised customs duty, we have harmonised customs documentation. Harmonisation is a process - it is ongoing. The very fact that we are working on establishing one FTA, and one Customs Union, that is part of the process of harmonisation.
TNI: COMESA countries are at different levels of development. Does this complicate the implementation of the Customs Union?
Ngwenya: There is a fiction here, and I want this to be recorded: when people talk about these countries and their different levels of development, that’s not true! The structure of the economy is marginally different it is not substantially different. When you look at how much industry employs in Kenya vis-à-vis agriculture, 80 percent of the people still live on the land. There are a lot of these myths that have become popular truths, but they are not correct. When you look at these economies, they are just the same. Let us stop this nonsense. This is why globalisation has gone wrong - us using indicators that do not really tell us [the full truth]. What Africa needs is not sympathy, what Africa needs is a wakeup call, to say you are the richest resource continent, exploit your resources for the benefit of your people. What Africa needs is a wakeup call to say ‘the future lies with you’, and with the Africans in particular.
TNI: Are you confident there is political commitment to see the reforms through?
Ngwenya: It is there. By virtue of the fact that these countries decided to reduce their tariffs to zero and establish the COMESA FTA - that was political commitment with social and economic consequences for each country because you are foregoing your customs revenue in order to create a FTA. When you now move towards the Customs Union, you are also giving up your sovereignty in terms of national trade policy. And you should now have a common trade policy as a region. That is political commitment. Political commitments are not the statements that are issued, it is something that countries do. We now have regulations for trade in services and we are going to negotiate and see how we can trade - that is political commitment! Your political commitment under our transit facilitation programs as COMESA where countries say I will allow another country to license this truck to operate in the COMESA region and that license is recognised by each country. You issue the license here, the truck can move and pick up goods everywhere. That is political commitment.
TNI: How will the signing of the Interim EPAs impact on the future of the COMESA Customs Union?
Ngwenya: First and foremost, I am delighted by the EC Trade Commissioner Baroness Catherine Ashton who is an eminently sensible person in whom most of the ministers - if not all in the [Eastern and Southern African] configuration - have got confidence and trust because she is transparent and direct. Now that we have launched our Customs Union, we can - with the EAC - negotiate a comprehensive EPA with the EU. There is nothing to stop us.
TNI: Can the two blocs overcome the challenge posed by EAC and COMESA countries submitting different liberalisation schedules?
Ngwenya: We have harmonised the COMESA CET, with the EAC CET which means, in effect, we have got one common external tariff structure. The list of sensitive products may be different but what is important in that the structure is the same so we have got a harmonised one, so we can now engage the EU on that basis.
TNI: What are the outstanding issues in the EPA negotiations for ESA?
Ngwenya: When it comes to some of the ‘contentious’ issues, like export taxes, etc., the EU is now prepared to concede. The thing we have still to deal with is the issue of Most Favoured Nation treatment where they are saying that that one they cannot negotiate because they do not want to be discriminated against, we must demonstrate to them why we want to discriminate against them. It’s up to us to convince them why we need to have that difference. The homework is on us.
It’s very interesting that we have this so-called 80 percent of substantially all trade. Article 24 is a non-article because it simply tells us that the members of the World Trade Organization do not want to have a rules based regime when it comes to regional trade. They have failed to agree, because when there are no rules, it is those that are almighty and powerful who will then manipulate it to their own interest. It is now subject to interpretation. That is why as COMESA, we will be making a formal submission to the WTO to challenge this article to say that it is an article which means that it is not part of the rules.
The second thing I want to mention is why should we open our market to the EU for agricultural products, and yet you and I know very well that for us for that sector, we have not had any subsidies to our farmers, we do not have any domestic support - why should we open up that market to the EU, which over the past 30 years or more under the common agricultural policy, they have put hundreds of trillions of Euros into supporting their farmers to become competitive. Therefore, there is no level playing field. You are asking my farmer, who does not have any support and we are still using farming technology that belongs to the century before Christ, to compete with you? That’s not fair. And this is why I’ll be pushing for those to be excluded.
TNI: Could the signing of the Interim EPA amongst the SACU countries lead to the break-up of the oldest Customs Union in the world?
Ngwenya: It does not have implications for that. I don’t understand why people will look at Botswana, Lesotho, and Swaziland (BLS) as undermining SACU - because it doesn’t. The Europeans were the first to undermine SACU by signing a Trade and Development Cooperation Agreement with South Africa when they signed the TDCA agreement without SACU countries being in. What they need now to do is to see how you can then factor in the interests of the BLS countries through what they have signed, into the TDCA and harmonise it. So when these countries now want to make sure that the market access is maintained, there is nothing wrong with that. I think the challenge now is for them to see how they can harmonise and integrate these EPA agreements they have signed with TDCA. SACU will remain as it is - it is not going to be destabilised by this. They will find a solution.
TNI: Which of COMESA’s trade partners are priorities to engage in trade negotiations in the future?
Ngwenya: Now that we have the Customs Union we shall engage the new industrialised economies. But when we engage them I have told them, we don’t want them to come and look for raw materials. You must come for raw materials and also value addition. And they have accepted that, so we shall be dealing with them.
We are no longer going to work on the basis of being victims. The major problem for Africa under colonisation is that colonisation left in the African mentality the victim mentality where they then see themselves as victims and they want to evoke sympathy. What we are interested in is to engage them on the basis of our own self interest. We cannot reduce poverty by pleading for people to take us out of poverty. You must first of all have self confidence, belief in yourself, and that’s how the Chinese and Indians operate: they themselves believe in themselves. When they say it, they do it.
The views that I have expressed are the views of the COMESA heads of state and government. And here at COMESA we are saying that through trade and not aid that we can create wealth - with trade and investment we shall create the wealth.
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the article is helpful to us of Lesotho because our authorities are not sharing this kind of information with us the taxpayers. by the way what is TDCA?
Tank you Ngwenya you are real an African if all African leaders could opt in your angle the success will be eminent well indeed we don,t need sympathy from the colonialist rather we have to affirm ourselves and say we can do it. stop magnetizing with poverty mindset we must develop our honey continent, we will be mistaken to ask those who had worked hard to develop theirs.You don’t have any way to ask a cat to catch mouse.
thank you for the work