The Union was launched in June 2009 with a three-year transition period aimed at allowing the 19 member states to align their national tariff structures to COMESA’s common external structure.
A step ahead
A Customs Union is a step ahead of the Free Trade Area, where members agree to have common external tariffs when trading with the rest of the world. The common external tariff of COMESA stipulates that a rate of zero percent will be applied to capital goods and raw materials, with 10 percent applied to semi-finished goods and 25 percent to finished goods.
COMESA’s common external tariffs are lower, compared to the Most Favoured Nation rates of the World Trade Organisation. For example, the MFN rate for finished goods is 40 percent, whereas COMESA’s common external tariff for finished goods is only 25 percent. This can only imply intense integration of trade in the region.
Huge revenue loss
The Customs Union was postponed for two years because most of the member states had not yet successfully aligned their tariff structures with COMESA requirements. Our focus should be really on whether Zimbabwe is going to benefit from joining the Customs Union.
In 2011, 17.5 percent of Zimbabwe’s tariff lines were already complying with the common external tariff, whilst 18.6 percent were below. The biggest concern, however, is that 63.9 percent of our tariffs were above the common external tariff. This represents a huge revenue loss in import duties.
In this illiquid economic environment, where there are very few sources of revenue. Zimbabwe is still benefiting from revenue coming from import duties. If these are lowered, the liquidity environment will be compromised.
Supermarket to the nations
Apart from the issue of revenue loss, the Union is likely to result in deindustrialisation. The common external tariff of 25 percent means that many countries will start to increase their exports to Zimbabwe.
These are cheap imports which have an effect of heavily competing with our local products, both in terms of price and quality. Our local industries are currently operating with antiquated machinery and the cost of doing business is high. This has resulted in local products being highly priced, and not being competitive on the international markets.
We cannot afford to be a supermarket for other nations. Many jobs are created because of the manufacturing sector, and once we let the sector go bust, we will end up with an unsustainable unemployment rate. Unemployment is already very high, at 80 percent. The situation we are witnessing in the industries right now shows that if we cannot sustain our manufacturing sector at Free Trade Area level, then it would be worse at a Customs Union level.
Joining the COMESA Customs Union would also cripple some tools in the Industrialisation Development Policy which are meant to boost our manufacturing sector. Joining implies that Zimbabwe would have lost its power to implement sustainable incubation strategies to revive the local sectors of the industry. Zimbabwe is already crippled from giving subsidies to revive the manufacturing sector, since subsidies are not compatible with WTO regulations. The only permissible subsidies are those aimed at research and development.
The benefits
As much as joining presents many threats to the economy, there are also opportunities that can arise from joining the Union. Joining means that Zimbabwean manufacturers will benefit from zero percent import duty on both capital goods and raw materials. This is also in line with the dictates of the strategies of the IDP, which is advancing for zero percent import duty on raw materials.
The benefit of our manufacturers having to import their capital goods at zero percent is that they will start to replace their antiquated machinery with modern machines. Currently, some companies are discouraged from importing new machinery because of high import duties.
If companies start to import their raw materials at zero percent, their competitiveness will also be significantly enhanced. This will lower their production costs and give them an incentive to produce at a much lower cost. In a way, this will abet the industrialisation agenda that is being advanced at the moment.
Post published in: Business
This is a smart blog. I mean it. You have so much knowledge about this issue, and so much passion. You also know how to make people rally behind it, obviously from the responses.