Comesa approves penalties on countries erecting NTBs

Faced with a new wave of protectionism, the Common Market for Eastern and Southern Africa has now drafted new rules to empower its Secretariat to penalise countries that introduce restrictive trade practices and other forms of non-tariff barriers within the trading bloc.

The 19-member Comesa grouping, the largest trading bloc in sub-Saharan Africa, has been grappling with a rising tide of trade disputes arising from complaints from member states about other member states protecting markets by applying non-tariff barriers.

The most common non-tariff barriers encountered within the bloc are cumbersome quality inspection procedures, prohibitive transit charges, and arbitrary application of rules of origin.

Under the new draft rules seen by The EastAfrican, Comesa is also to introduce new institutions and committees that will permanently monitor non-tariff barriers across the trading bloc.

The rules oblige member states to establish their own national committees and focal points to monitor NTBs by December, while the Lusaka-based Comesa Secretariat will have powers to carry out compliance checks within member states and to impose penalties on defaulting countries.

Right now, the most explosive trade dispute around non-tariff barriers within the trading bloc arises from complaints by membership of the trading bloc about the rules of origin applied by Egypt.

Unable to reconcile the obligations it has made to fellow Arab members of the Pan Arab Free Trade Area on the one hand, and the commitments made under Comesa on the other, Egypt stands alone as the only country that insists on applying a rules of origin regime long abandoned by other Comesa countries.

The Pan Arab Free Trade Area brings together 17 Arab states, the most significant of which are Kuwait, Saudi Arabia, Iraq, Qatar, the United Arab Emirates, Morocco, Yemen, Libya and Sudan.

Instead of going by the 35 per cent value-added threshold applicable in Comesa, countries, Egypt insists on a 45 per cent value-add threshold — meaning that it will only accept imports of whose value at least 45 per cent has been added within the exporting country.

Trade wars

The largest economy in Comesa, it now faces retaliation if it persists in applying trade barriers that continue to block entry of manufactured goods from Comesa into its territories.

Indeed, the spectre of a new wave of trade wars between Comesa countries and Egypt now looms, especially after a meeting of the Comesa Council of Ministers in Lusaka last month urged member states to erect barriers to Egyptian exports if the country refuses to lower the 45 per cent value-added threshold it imposes on Comesa imports to 35 per cent.

Egypt has been unilaterally imposing the 45 per cent local content rule on manufactured exports from Comesa for the past 10 years, resulting in a sluggish growth in manufactured exports from Comesa into Egypt.

Until recently, Zambia, Uganda, and Malawi too were also applying a 45 per cent value-added threshold on Comesa exports.

But the countries have since lowered the threshold to 35 per cent, in line with the existing Comesa protocol on rules of origin.

New details from minutes of last month’s Comesa Council of Ministers meeting in Lusaka, now show that the Egyptian delegation to the meeting came under intense pressure during the deliberations, with countries narrating the difficulties they had experienced as they tried to export manufactured products into Egypt.

According to the minutes of the meeting, the assault on Egypt was led by Mauritius, Uganda, Malawi and Zambia.
Statistics from the Comesa Secretariat show that Egypt’s trade balance with Comesa countries has been consistently positive since 2003.

Import-export balance

Prior to joining Comesa in 1998, Egypt used to import more products from Comesa — in value terms — than it exported.

However, since 2003, Egypt has been exporting more, leading to a situation where it now enjoys a positive trade balance in Comesa compared to a persistent negative trade balance with the rest of the world.

For instance, statistics show that in 2008, the country recorded a positive trade balance of $500 million with Comesa compared with a negative trade balance of $28 billion with the rest of the world.

Eighty per cent of Comesa exports to Egypt are raw materials or unprocessed products such as tea from Kenya and copper from Zambia.

This category of goods entering Egypt are not subject to the rules of origin since trade in these products is conducted under the wholly produced goods criterion.

According to minutes of last month’s Lusaka meeting, Egypt defended itself by insisting that it was under an obligation to apply terms it had negotiated with the European Union and the Pan Arab Free Trade Area.

Its representatives at the meeting also disputed the statistics from the Comesa Secretariat, arguing that if one discounts trade between Egypt and the Arab countries within the Comesa bloc, namely Sudan and Libya, what emerges is that the country has a trade deficit with the non-Arab members of Comesa.

The language may have been coded but the message was clear: Egypt considers trade with Arab countries to be more strategically important to its interests than its trade with non-Arab Comesa countries.

Experts

Trade experts from the Comesa Secretariat argued with Egypt, pointing out that even within the Pan Arab Free Trade Area, the applicable rule of origin stipulated a 40 per cent value-added threshold.

As it turned out, Cairo’s defence did not convince the delegates meeting in Lusaka.
The Council decided that until Egypt lowered the value-added threshold to 35 per cent, Comesa member countries were at liberty to apply the same restrictions.