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Thursday, 18 December 2014
Africa's Development Solution Revealed
Thursday, 11 December 2014
COMESA
COMESA
History and background
The Common Markets for East and Southern Africa was formed in 1994 to replace the Preferential Trade Area which had existed since 1981. COMESA as per its treaty was established as an organization of free independent sovereign states which agreed to co-operate in developing their natural and human resources for the good of all their people.
In post-independence Africa, the idea for a common market already existed. During this period, African states felt the need to have a collective interdependence. This could be achieved through either a Pan-African economic agreement or individual sub-regional agreement. Consequently, a ministerial meeting was held in Lusaka, Zambia in 1965 to discuss the establishment of a unifying organization that would cater to the economic community in Africa. The meeting was followed by another in Addis Ababa where the first ten countries signed the official treaty. In the following years of the 1970’s the pressure for integration became more pronounced as Africa continued to be gradually dependent on the well off Northern countries.
In 1978, yet another meeting of ministers of trade was held in Lusaka where the idea of creating the Preferential Trade area (PTA) was born. PTA came into effect in 1981 with the signing of a treaty in Lusaka. It called for an eventual transition to a common market as had been planned after ten years of operating. In 1993 the transition took place and the COMESA treaty was signed on November 1993 in Kampala. Initially, COMESA had 16 member states: Burundi, Comoros, Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe. The treaty was then ratified in Lilongwe, Malawi, on December 8, 1994. That same year Angola, Lesotho, Mozambique, Namibia, and Tanzania joined the organization. Later, Tanzania, Lesotho and Mozambique withdrew their membership while Egypt joined the organizationin 1999. Over the next decade, Seychelles and Libya joined while Namibia quit in 2004 and Angola suspended itself from membership in 2007. Today COMESA is based in Lusaka Zambia and has 20 member states from North Africa, Southern Africa and Indian Ocean states.
In 2000, COMESA as a member of the ACP countries (Africa, Caribbean and Pacific Group of States) signed a treaty known as the Cotonou agreement with the EU. The treaty permitted the EU to trade with the ACP countries on a non-reciprocal basis. This meant that the EU would have to pay taxes to penetrate the ACP countries but these countries would have tax free access to EU markets. It was signed to benefit the developing countries. However this agreement was working against WTO’s policies and had to be revised in 2005.
In 2009 a meeting was held in Cairo concerning the establishment of the COMESA monetary institute which would help in the ultimate creation of a monetary co-operation program that would allow the establishment of a COMESA monetary union hopefully in 2018. For the preparation of the monetary co-operation program, the COMESA Monetary Institute (CMI) was launched at the Kenya School for Monetary studies in Nairobi. In addition to a monetary union, in 2011, COMESA in conjunction with SADC and EAC signed a declaration to commence co-operation for an eventual monetary union for the entire region
In Africa, COMESA is the largest economic community with an estimated GDP of 40 billion dollars from its population of more than 400 million. In 2000, It moved into a free trade area with hopes of acquiring full customs union by the year 2008. The customs union was launched in 2009 but very little has come out of it because member countries are yet to adopt the common market legislation for the customs union. By 2025, it is COMESA’s goal to eventually have an EU model in Africa by forming the United States of Africa.
Its aims and objectives in a nutshell are to help remove structural and institutional weaknesses of member states to attain development through co-operation in trade, customs and monetary affairs. The detailed objectives are to create and maintain:A full free trade area guaranteeing the free movement of goods and services produced in COMESA by removal of all tariffs, a customs union under which goods and services imported from non-COMESA countries will attract an agreed single tariff in all COMESA states, free movement of capital and investment supported by the adoption of a common investment area, a gradual establishment of a payment union based on the COMESA clearing, the adoption of common visa arrangements which will lead to free movement of people from member states.
In addition to the aims and objectives, COMESA abides by some principles laid down in its treaty. They include, Equality and inter-independence of the member States, solidarity and collective self-reliance among the member States, Inter-State co-operation, harmonization of policies and integration of programs among the member States, non-aggression between the member States. The recognition, promotion and protection of human and people's rights in accordance with the provisions of the African Charter on Human and People's Rights, accountability, economic justice and popular participation in development. The recognition and observance of the rule of law. The promotion and sustenance of a democratic system of governance in each member State, the maintenance of regional peace and stability through the promotion and strengthening of good neighborliness, the peaceful settlement of disputes among the member States, the active co-operation between neighboring countries and the promotion of a peaceful environment as a pre-requisite for their economic development
STRUCTURE
There are four organs of COMESA which have the power to take decisions on behalf of COMESA. These organs are: the Authority of Heads of State and Government; the Council of Ministers; the Court of Justice; and the Committee of Governors of Central Banks as illustrated below. The Intergovernmental Committee, the Technical Committees, the Secretariat and the Consultative Committee make recommendations to the Council of Ministers, which in turn make recommendations to the Authority.
1.1 Authority of the Heads of State and Government
The Authority, made up of Heads of State and Government is the supreme Policy Organ of the Common Market and is responsible for the general policy, direction and control of the performance of the executive functions of the Common Market and the achievement of its aims and objectives. The decisions and directives of the Authority are by consensus and are binding on all subordinate institutions, other than the Court of Justice, on matters within its jurisdiction, as well as on the member States. The inaugural meeting of the Authority took place in Lilongwe, Malawi in December 1994.
1.2 Council of Ministers
The Council of Ministers is the second highest Policy Organ of COMESA. It is composed of Ministers designated by the member States. The Council is responsible for ensuring the proper functioning of COMESA in accordance with the provisions of the Treaty. The Council takes policy decisions on the programs and activities of the COMESA, including the monitoring and reviewing of its financial and administrative management. As provided for in the Treaty, Council decisions are made by consensus, failing which, by a two-thirds majority of the members of the Council. The Council meets once a year.
1.3 COMESA Court of Justice
The COMESA Court of Justice is the judicial organ of COMESA, having jurisdiction to adjudicate upon all matters which may be referred to it pursuant to the COMESA Treaty. Specifically, it ensures the proper interpretation and application of the provisions of the Treaty; and it adjudicates any disputes that may arise among the member States regarding the interpretation and application of the provisions of the Treaty. The decisions of the Court are binding and final. Decisions of the Court on the interpretation of the provisions of the COMESA Treaty have precedence over decisions of national courts. The Court, when acting within its jurisdiction, is independent of the Authority and the Council. It is headed by a President and consists of six additional judges appointed by the Authority. Consideration is being given to establishing the Court of Justice in the not too distant future.
1.4 Committee of Governors of Central Banks
The Committee of Governors of Central Banks is empowered under the Treaty to determine the maximum debt and credit limits to the COMESA Clearing House, the daily interest rate for outstanding debt balances and the Staff Rules for Clearing House staff. It also monitors, and ensures the proper implementation of the Monetary and Financial Co-operation programs.
1.5 Intergovernmental Committee
The Inter-governmental Committee is a multi-disciplinary body composed of permanent secretaries from the member States in the fields of trade and customs, agriculture, industry, transport and communications, administrative and budgetary matters and legal affairs. Decisions of the Committee are by a simple majority. Its main functions include:
· Development of programs and action plans in all the sectors of co-operation, except in the finance and monetary sector,
· Monitoring and keeping under constant review and ensuring proper functioning and development of the Common Market,
· Overseeing the implementation of the provisions of the Treaty and, for that purpose, requesting a technical committee to investigate any particular matter.
1.6 Technical Committees
There are 12 Technical Committees, namely, on Administrative and Budgetary Matters; on Agriculture; on Comprehensive Information Systems; on Energy; on Finance and Monetary Affairs; on Industry; on Labor, Human Resources and Social Affairs; on Legal Affairs; on Natural Resources and Environment; on Tourism and Wildlife; on Trade and Customs; and on Transport and Communications. The Technical Committees are responsible for the preparation of comprehensive implementation programs and monitoring their implementation and then making recommendations to the Council.
1.7 Consultative Committee
The Consultative Committee of the Business Community and other Interest Groups is responsible for providing a link and facilitating dialogue between the business community and other interest groups and other organs of COMESA.
1.8 Secretariat
The Secretariat is headed by a Secretary General who is appointed by the Authority for a term of five years and is eligible for re-appointment for a further term of five years. The basic function of the Secretariat is to provide technical support and advisory services to the member States in the implementation of the Treaty. To this end, it undertakes research and studies as a basis for implementing the decisions adopted by the Policy Organs. The various activities of the Secretariat encompass: Agriculture; Transport and Communications: Industry and Energy; Trade and Customs; Monetary Co-operation; and Administration. The Office of the Secretary General includes the Legal Office, Technical Co-operation, Women in Development and an Audit Unit.
Functions of COMESA
One of the key functions of COMESA is to achieve sustainable economic and social progress in all Member States as aforementioned through increased co-operation and integration in all fields of development particularly in trade, customs and monetary affairs, transport, communication and information, technology, industry and energy, gender, agriculture, environment and natural resources.
COMESA also aims at achieving inter-State co-operation, harmonization of policies and integration of programmes among the member States in a bid to ensure smooth and peaceful integration between the member states.
Additionally, COMESA works to ensure there is peaceful settlement of disputes among the member States, the active co-operation between neighboring countries and the promotion of a peaceful environment as a pre-requisite for their economic development. In attaining the goal of economic prosperity, COMESA realizes that peace, security and stability are basic factors in getting investment, development, trade and regional economic integration. Insecurity and instability greatly affects the ability of states to develop their individual economies as well as their capacity to participate and take full advantage of the regional integration arrangement under COMESA.
Another function of COMESA is ensuring significant and sustained increases in productivity in industry, manufacturing, processing and agro-industries to provide competitive goods as the basis for cross-border trade and to create more wealth, more jobs and more incomes for the people of the region.
COMESA also works to ensure there is equality and inter-independence of the member States. This means that what one country doesn’t have, she can get it from another country. For instance, if Kenya doesn’t have enough maize, she can easily import the maize from Tanzania. This means that states will boost each other’s economy.
COMESA aims at development of comprehensive, reliable and up to date information data bases covering all sectors of the economy including industry, energy, environment, agriculture transport, communications, investment and finance, trade, health and human resources to form the basis for sound investment decisions and macro-economic policy formulation and programming.
In order to achieve economic development among its members, COMESA aims at achieving co-operation in strengthening the relations between the Common Market and the rest of the world and the adoption of common positions in international forums. COMESA aims at having open markets between all its members to ensure free trade. Also, the cooperation will ensure that the member states have a strong say in international conferences vis-à-vis influence key decisions that will affect their states.
In addition, COMESA works at establishing new programmes for trade promotion, trade expansion and trade facilitation especially geared to the private sector, so as to enable the member states to take maximum advantage of the Common Market.
Agriculture is the main economic sector in most COMESA member countries as it contributes largely to the Gross Domestic Product (GDP) and foreign exchange earnings e.g. agriculture contributes, on average, about 39% of the GDP in Sudan, and more than 80% of total exports till 1999. The contribution of agricultural exports declined to less than 10% after Sudan starting to export oil products (Bank of Sudan, 2007). The development of agricultural sector (production and trade) is vital for food security, economic and rural development in the COMESA region. And so COMESA works at increasing agricultural production, with special emphasis on the joint development of lake and river basins so as to reduce dependence on rain-fed agriculture and new programmes on food security at the provincial or district levels, national and regional levels;
Achievements of COMESA
Neo-functionalism, one of the main proponents of integration poses that conflict can best be solved by the collaborative efforts of states as opposed to the effort of a single state. Ernst Haas (a neo-functionalism theorist) in his pioneer study; ‘The Uniting of Europe’ defines integration as “the process where political actors in several distinct national settings are persuaded to shift their loyalties, expectations and political activities toward a new centre, whose institutions possess or demand jurisdiction over the preexisting national states…” (Haas, 1968: 16) The African states have thereby collectively developed the regional organization- COMESA as a means to develop their individual countries. The organization has had numerous successes and challenges over the years but has been mostly successful.
The Economy Watch, in a report on COMESA highlights the first of major achievements has been the elimination of all the tariff barriers among all member states in 2000 hence achieving the goal of a free trade. This in turn has boosted the economies of member states. (COMESA, 2010)Further; the organization has made impressive progress in the productive sectors of industry and agriculture. Trade facilitation and liberalization can be attributed to the 5% growth of intra-COMESA trade in 2012 from 2011.There lies an exponential potential of greater trade and COMESA has to a large extent put measures to exploit it.
Secondly; as from October 2012, the Regional Payment and Settlement System (REPSS) was established. It is a program that allows member states to transfer funds within COMESA on the same day and at low costs mainly through their central banks. It helps both exporters and importers as it fast, safe, secure and it eliminates the need for confirmed letters of credit and associated costs. In addition, the system solves the problem of using the poor infrastructure in the region for transactions among member states. (COMESA's regional payment and settlement goes live, 2014)
The reduction of transport costs by 25% has also been a major milestone of COMESA. The organization has placed special emphasis on network development to enable direct telecommunication links through better infrastructure to avoid the expenses of third country transit systems. The organization has addressed the regulatory and policy aspects of transport and communication to make the movement of goods, services and people between member states easier and cheaper.
Like other organizations; COMESA has established some institutions to mainly fund its progress and facilitate economic integration of member states. These organizations include: the COMESA Trade and Development Bank in Nairobi Kenya, a clearing House in Harare Zimbabwe, an Association of commercial banks, a leather institute in Ethiopia and a re-insurance company in Nairobi Kenya among others. In regard to the clearing house; COMESA introduced the COMESA dollar in 1997 to replace national currencies to ease the transaction cost and maximize gains. In addition, has used facilitation of bilateral agreements, promotion of export drives by member states and identifying specific projects with growth potential, as tools to promote investment in the region.
COMESA, as stated by its secretary general, Mr. Sindiso Ngwenya in a summit in Johannesburg, South Africa, stands on the threshold of the realization of a united states of Africa. This has led the organization to seek deeper collaboration with other regional organizations as in the case of the COMESA-EAC-SADC Tripartite. Until the closure of the TradeMark Southern Africa (TMSA) in February 2013 as a result of the termination of UK’s Department for International Development (DFID) financial contribution, the partnership between TMSA and COMESA achieved numerous objectives. Some of these include the robust, easy to use and accurate Corridor Monitoring Mechanism based on GPS tracking data operational on the North-South Corridor, training of customs officers in the region on Risk Management, Post Clearance Audit and Facilitation Skills as well as providing assistance to border management agencies in the design and implementation of integrated Border Management systems in selected countries in the region and improving systems at border posts resulting in reduced clearance time and cost.
Lastly, with regard to infrastructure, the Tripartite developed the “Corridor Approach” for planning infrastructure. It involves doing an economic assessment of the corridor, assessing its threats, getting support of the country concerned to address these threats, doing the project preparation plan and submitting the paper to a financier (especially grants).An example of this is the North-South Road Corridor which involves a number of corridors in the COMESA-EAC-SADC region. The TMSA identified this transport corridor as a priority regional corridor in terms of the relative freight movement, undertook an economic analysis and calculated the net present value (NPV) as well as internal rate of return of the corridor. This process had the added benefit of estimating the cost of backlog maintenance and periodic and regular maintenance for the next 20 years. (COMESA, 2010)
A study of COMESA in Kenya and Ethiopia
Kenya
Kenya has enjoyed the economic leadership in the east African bloc having the largest and most advanced economy in the region. The country has been seen to perform better since 2003 in attracting FDI and 2007 attracted USD 728million in FDI. Furthermore the International Financial Corporation in 2007 ranked the country as among the top three countries in Africa to have made such significant strides in creating conducive business environment between the years 2006/2007. It also plays a significant role in being not only the transport, communication but also financial hub of east Africa and agriculture accounting for 24% of its GDP in 2007. It has liberalized economy which it has worked towards over the years and has removed all obstacles that in the past hampered the free flow of trade and foreign private investors.
Some of the barriers lifted were exchange controls, import, export licensing as well as restrictions on remittance of profits and dividends all of which have been eliminated. The reforms have created a conducive and necessary environment to attract foreign investment. In line with the Government Economic Recovery Strategy for Wealth and Employment creation (2003-2007), the government has taken various strides to create a positive environment for both foreign and domestic investment.
Kenya has prioritized fighting corruption and promoting good governance-some key objectives of COMESA. COMESA has since become Kenya’s leading export destination such that its accounts for 36.6% of total exports while Kenya on the other hand exports to COMESA countries have grown by 29.9% from a significant 86.22 million in 2007 to Ksh 111.363 million in 2008 accounting for 32.3% of the exports. Kenya’s exports include a thread of manufactured products as opposed to raw products which enrich and enhance diversification of Kenya’s manufacturing power. Some of the dominating products are petroleum products, sacks and bags, medicaments, tea, coffee and food products.
Ethiopia
Ethiopia has a population of about 15 million people and as one of the world’s oldest civilization has made a high progress in its key sectors of development indicators. Primary school enrollment has increased by three times, child mortality has reduced by half and the number of people with clean water has increased by more than double. Poverty reduction has accelerated in the recent and Ethiopia is generally been seen to advance.
Ethiopia since 1990 has always pursuing development strategies based on both state and private sectors. There has been an elimination of discriminatory tax credit and foreign trade treatment of the private sector with limited success to provide a more simple bureaucratic system of regulations and procedures. There has been an ambitious reform effort to initiate a transition to a more democratic system of governance and a decentralized system led by the government. Ethiopia has been seen to has a fast growing non-oil economy in Africa with a double digit growth with a continuous improvement in access to basic services and facilities
Ethiopia recommended the set up of a sub-regional Preferential trade Area and later the result was an adoption of the Lusaka Declaration of a PTA for Eastern and Southern Africa and hence COMESA was born in 1993 with its 16 founding members. In the recent time Ethiopia has undertaken a number of actions such as tightening fiscal policy and the reduction of government’s borrowing hence mitigating the impact of high food prices on the poor, reduction on domestic borrowing of public enterprise, a tightening money supply and gradual depreciating of the local currency in abide to address global economic crisis
Its income tax rate is 35%and top corporate tax rate is 30%. Some of the other taxes include a value added tax (VAT). Overall in recent years tax revenue as percentage of GDP was 11.9%.
The globalization trend
The 1990s decadewas dubbed the globalization decade. Though globalization is not a new phenomenon, the current form of globalization, particularly in the context of economics and finance, draws its motive force from two mutually reinforcing sources: the unrelenting revolution in information and communication technology (ICT); and the 'triumph' of market principles over command economics.
The adoption of the market economy as the economic model of choice by many nations across the globe has resulted in greater liberalization of trade and finance. Through the new enabling liberal environment and the agency of ICT, the world has witnessed movements of capital at unprecedented speeds and volumes. This phenomenon, dubbed financial globalization, poses a new threat to emerging economies because of its high elasticity to huge 'mood swings' which can ruin economies as the crisis as in the case of the Asian 'Tiger' Economies in 1997/98.
At the level of micro-economics, globalization is spawning a new corporate dynamic in which the most evident form is a growing wave of mergers. There is also an ever increasing inter-firm strategic alliance as firms seek to: exploit economies of scale or synergy, take advantage of differences in comparative advantage, spread the risks of high fixed costs, and gain access to new technologies and new markets. Every year has witnessed record corporate consolidations. Clearly, these waves of mergers and acquisitions point to a fundamental shift in the way the concept of competition and co-operation in the post-modern era is viewed. The message here appears to be "small may be beautiful but big and larger is better". In 1997, the UN (Department of Economic and Social Affairs) estimated that the largest 100 transitional corporations accounted for about one third of global foreign direct investment.
Another challenge to COMESA would be the competition between different states when it comes to business and dominating the market. Although all these African nations are for ‘unity’ one always has to be ahead of the others.
As globalization intensifies, COMESA is faced with traditional and much more complex challenges. The insufficiency of funds, for instance, has been a main challenge to COMESA. This is because economic crisis do not only affect businesses but regional blocks as well. This causes strain and slows down the functioning of the organization. Self interests of individual countries could also be said a challenge to COMESA. The countries might decide to stop trading or importing, and for those that have Ports they might stop all ships that are going in and out of the country either as a result of a power struggle or a power hungry leader. This affirms the Realist view that acquiring self interest is the primary goal of states regardless of the negative effects on other actors. Some states deny or push laws that were implemented by COMESA simply because a certain leader believes it is a worthless risk.Thishalts advancement and development in regions.
COMESA has conducted a study on cyber security and protection of vulnerable information infrastructure. The study which is on Public Key Infrastructure Protection has come up with frameworks for cyber-security and Critical Information Infrastructure Protection (CIIP). It was done in collaboration with the Association of Regulators for Information and Communications in Eastern and Southern Africa (ARICEA) and the International Telecommunication Union (ITU) (Institute for global dialogue, 2011).The initiative is informed by the new forms of organized cybercrime mainly aimed at financial gains, with an expansion of the types of threats to various platforms and to various countries. “The incredible benefits that information technology has brought modern organizations have not come without risks. These risks vary in size and scope, from revealing new vulnerabilities in our critical infrastructures to enabling new forms of fraud,” said Secretary General SindisoNgwenya during the Cyber Security and Public Key Infrastructure Summit in Nairobi, Kenya, November 26, 2013.(COMESA, 2011)
Conclusion
All through the paper, COMESA has been illustrated as more of a success story yet it faces some common challenges. In the 9th COMESA Business Forum in February 2014 held in Kinshasa, DRC Report, COMESA sought to re-assert itself by urging deeper implementation of its objectives hence encouraging member states to encourage industrialization through supporting active participation of small and medium enterprises (SMEs) in national and regional markets. It also urges member states to ease access of finances to SMEs and value addition as well as discouraging exportation of raw materials by businesses in the region.
Member states are requested to accelerate the implementation of the COMESA business visa and the eventual elimination of visa requirements and the protocol on free movement of persons, labor, services, the right of establishment and residence. The organization condones the inclusion of private sector, women and youth entrepreneurs, innovation, science and technology.
COMESA further urges the promotion of authentic African products-supporting COMESA origin products into regional markets. It entails the establishment of the brand ‘Made in COMESA’ to ease market access and encourage consumer preference for the products.
Finally; in the forum, COMESA requests that the agreement on harmonization of agricultural inputs such as seeds and fertilizers is implemented to ensure inclusiveness within the regional agriculture market in regards to agriculture and agri-business as it is the back-bone of the COMESA region and the continent at large (The 9th COMESA Business Forum, Kinshasa, 2014)
References
Actrav.itcilo.org,(2014). Common Market of Eastern and Southern Africa, COMESA. [Online]:http://www.actrav.itcilo.org/actrav-english/telearn/global/ilo/blokit/comesa.htm [Accessed 29 jun. 2014].
COMESA's regional payment and settlement goes live. (2014, July 16). Retrieved July 2, 2014, from COMESA: http://www.comesa.int
Haas, E.B., (1968): The Uniting of Europe, Stanford University Press
(2011, June). Retrieved July 2014, from Institute for global dialogue.
COMESA's regional payment and settlement goes live. (2014, July 16). Retrieved July 2, 2014, from COMESA: http://www.comesa.int
COMESA. (2010, June 29). Retrieved July 2, 2014, from Economy Watch: http://www.economywatch.com
COMESA. (2011,March 11). Retrieved July 2, 2014, from Economy Watch: http://www.economywatch.com
Ustr.gov, (2011). Common Market for Eastern and Southern Africa (COMESA) | Office of the United States Trade Representative. [online] Available at: http://www.ustr.gov/countries-regions/africa/regional-economic-communities-rec/common-market-eastern-and-southern-africa-comesa [Accessed 3 Jul. 2014]
Webcache.googleusercontent.com, (2014). COMESA: The Customs Union | TradeMark Southern Africa (TMSA) - Advancing Regional Integration in Southern and Eastern Africa. http://webcache.googleusercontent.com/search?q=cache:http://www.trademarksa.org/news/comesa-customs-union [Accessed 27 Jun. 2014].
Common Market of Eastern and Southern Africa, COMESA. (n.d.). Common Market of Eastern and Southern Africa, COMESA. Retrieved July 16, 2014, from http://www.actrav.itcilo.org/actrav-english/telearn/global/ilo/blokit/comesa.htm
Impediments to Economic Integration in Africa: The Case of COMESA. (n.d.). Impediments to Economic Integration in Africa: The Case of COMESA. Retrieved July 16, 2014, from http://www.ewp.rpi.edu/jbdn/jbdnv203.htm
(2014). The 9th COMESA Business Forum, Kinshasa. Kinshasa: COMESA business council.
History and background
The Common Markets for East and Southern Africa was formed in 1994 to replace the Preferential Trade Area which had existed since 1981. COMESA as per its treaty was established as an organization of free independent sovereign states which agreed to co-operate in developing their natural and human resources for the good of all their people.
In post-independence Africa, the idea for a common market already existed. During this period, African states felt the need to have a collective interdependence. This could be achieved through either a Pan-African economic agreement or individual sub-regional agreement. Consequently, a ministerial meeting was held in Lusaka, Zambia in 1965 to discuss the establishment of a unifying organization that would cater to the economic community in Africa. The meeting was followed by another in Addis Ababa where the first ten countries signed the official treaty. In the following years of the 1970’s the pressure for integration became more pronounced as Africa continued to be gradually dependent on the well off Northern countries.
In 1978, yet another meeting of ministers of trade was held in Lusaka where the idea of creating the Preferential Trade area (PTA) was born. PTA came into effect in 1981 with the signing of a treaty in Lusaka. It called for an eventual transition to a common market as had been planned after ten years of operating. In 1993 the transition took place and the COMESA treaty was signed on November 1993 in Kampala. Initially, COMESA had 16 member states: Burundi, Comoros, Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe. The treaty was then ratified in Lilongwe, Malawi, on December 8, 1994. That same year Angola, Lesotho, Mozambique, Namibia, and Tanzania joined the organization. Later, Tanzania, Lesotho and Mozambique withdrew their membership while Egypt joined the organizationin 1999. Over the next decade, Seychelles and Libya joined while Namibia quit in 2004 and Angola suspended itself from membership in 2007. Today COMESA is based in Lusaka Zambia and has 20 member states from North Africa, Southern Africa and Indian Ocean states.
In 2000, COMESA as a member of the ACP countries (Africa, Caribbean and Pacific Group of States) signed a treaty known as the Cotonou agreement with the EU. The treaty permitted the EU to trade with the ACP countries on a non-reciprocal basis. This meant that the EU would have to pay taxes to penetrate the ACP countries but these countries would have tax free access to EU markets. It was signed to benefit the developing countries. However this agreement was working against WTO’s policies and had to be revised in 2005.
In 2009 a meeting was held in Cairo concerning the establishment of the COMESA monetary institute which would help in the ultimate creation of a monetary co-operation program that would allow the establishment of a COMESA monetary union hopefully in 2018. For the preparation of the monetary co-operation program, the COMESA Monetary Institute (CMI) was launched at the Kenya School for Monetary studies in Nairobi. In addition to a monetary union, in 2011, COMESA in conjunction with SADC and EAC signed a declaration to commence co-operation for an eventual monetary union for the entire region
In Africa, COMESA is the largest economic community with an estimated GDP of 40 billion dollars from its population of more than 400 million. In 2000, It moved into a free trade area with hopes of acquiring full customs union by the year 2008. The customs union was launched in 2009 but very little has come out of it because member countries are yet to adopt the common market legislation for the customs union. By 2025, it is COMESA’s goal to eventually have an EU model in Africa by forming the United States of Africa.
Its aims and objectives in a nutshell are to help remove structural and institutional weaknesses of member states to attain development through co-operation in trade, customs and monetary affairs. The detailed objectives are to create and maintain:A full free trade area guaranteeing the free movement of goods and services produced in COMESA by removal of all tariffs, a customs union under which goods and services imported from non-COMESA countries will attract an agreed single tariff in all COMESA states, free movement of capital and investment supported by the adoption of a common investment area, a gradual establishment of a payment union based on the COMESA clearing, the adoption of common visa arrangements which will lead to free movement of people from member states.
In addition to the aims and objectives, COMESA abides by some principles laid down in its treaty. They include, Equality and inter-independence of the member States, solidarity and collective self-reliance among the member States, Inter-State co-operation, harmonization of policies and integration of programs among the member States, non-aggression between the member States. The recognition, promotion and protection of human and people's rights in accordance with the provisions of the African Charter on Human and People's Rights, accountability, economic justice and popular participation in development. The recognition and observance of the rule of law. The promotion and sustenance of a democratic system of governance in each member State, the maintenance of regional peace and stability through the promotion and strengthening of good neighborliness, the peaceful settlement of disputes among the member States, the active co-operation between neighboring countries and the promotion of a peaceful environment as a pre-requisite for their economic development
STRUCTURE
There are four organs of COMESA which have the power to take decisions on behalf of COMESA. These organs are: the Authority of Heads of State and Government; the Council of Ministers; the Court of Justice; and the Committee of Governors of Central Banks as illustrated below. The Intergovernmental Committee, the Technical Committees, the Secretariat and the Consultative Committee make recommendations to the Council of Ministers, which in turn make recommendations to the Authority.
1.1 Authority of the Heads of State and Government
The Authority, made up of Heads of State and Government is the supreme Policy Organ of the Common Market and is responsible for the general policy, direction and control of the performance of the executive functions of the Common Market and the achievement of its aims and objectives. The decisions and directives of the Authority are by consensus and are binding on all subordinate institutions, other than the Court of Justice, on matters within its jurisdiction, as well as on the member States. The inaugural meeting of the Authority took place in Lilongwe, Malawi in December 1994.
1.2 Council of Ministers
The Council of Ministers is the second highest Policy Organ of COMESA. It is composed of Ministers designated by the member States. The Council is responsible for ensuring the proper functioning of COMESA in accordance with the provisions of the Treaty. The Council takes policy decisions on the programs and activities of the COMESA, including the monitoring and reviewing of its financial and administrative management. As provided for in the Treaty, Council decisions are made by consensus, failing which, by a two-thirds majority of the members of the Council. The Council meets once a year.
1.3 COMESA Court of Justice
The COMESA Court of Justice is the judicial organ of COMESA, having jurisdiction to adjudicate upon all matters which may be referred to it pursuant to the COMESA Treaty. Specifically, it ensures the proper interpretation and application of the provisions of the Treaty; and it adjudicates any disputes that may arise among the member States regarding the interpretation and application of the provisions of the Treaty. The decisions of the Court are binding and final. Decisions of the Court on the interpretation of the provisions of the COMESA Treaty have precedence over decisions of national courts. The Court, when acting within its jurisdiction, is independent of the Authority and the Council. It is headed by a President and consists of six additional judges appointed by the Authority. Consideration is being given to establishing the Court of Justice in the not too distant future.
1.4 Committee of Governors of Central Banks
The Committee of Governors of Central Banks is empowered under the Treaty to determine the maximum debt and credit limits to the COMESA Clearing House, the daily interest rate for outstanding debt balances and the Staff Rules for Clearing House staff. It also monitors, and ensures the proper implementation of the Monetary and Financial Co-operation programs.
1.5 Intergovernmental Committee
The Inter-governmental Committee is a multi-disciplinary body composed of permanent secretaries from the member States in the fields of trade and customs, agriculture, industry, transport and communications, administrative and budgetary matters and legal affairs. Decisions of the Committee are by a simple majority. Its main functions include:
· Development of programs and action plans in all the sectors of co-operation, except in the finance and monetary sector,
· Monitoring and keeping under constant review and ensuring proper functioning and development of the Common Market,
· Overseeing the implementation of the provisions of the Treaty and, for that purpose, requesting a technical committee to investigate any particular matter.
1.6 Technical Committees
There are 12 Technical Committees, namely, on Administrative and Budgetary Matters; on Agriculture; on Comprehensive Information Systems; on Energy; on Finance and Monetary Affairs; on Industry; on Labor, Human Resources and Social Affairs; on Legal Affairs; on Natural Resources and Environment; on Tourism and Wildlife; on Trade and Customs; and on Transport and Communications. The Technical Committees are responsible for the preparation of comprehensive implementation programs and monitoring their implementation and then making recommendations to the Council.
1.7 Consultative Committee
The Consultative Committee of the Business Community and other Interest Groups is responsible for providing a link and facilitating dialogue between the business community and other interest groups and other organs of COMESA.
1.8 Secretariat
The Secretariat is headed by a Secretary General who is appointed by the Authority for a term of five years and is eligible for re-appointment for a further term of five years. The basic function of the Secretariat is to provide technical support and advisory services to the member States in the implementation of the Treaty. To this end, it undertakes research and studies as a basis for implementing the decisions adopted by the Policy Organs. The various activities of the Secretariat encompass: Agriculture; Transport and Communications: Industry and Energy; Trade and Customs; Monetary Co-operation; and Administration. The Office of the Secretary General includes the Legal Office, Technical Co-operation, Women in Development and an Audit Unit.
Functions of COMESA
One of the key functions of COMESA is to achieve sustainable economic and social progress in all Member States as aforementioned through increased co-operation and integration in all fields of development particularly in trade, customs and monetary affairs, transport, communication and information, technology, industry and energy, gender, agriculture, environment and natural resources.
COMESA also aims at achieving inter-State co-operation, harmonization of policies and integration of programmes among the member States in a bid to ensure smooth and peaceful integration between the member states.
Additionally, COMESA works to ensure there is peaceful settlement of disputes among the member States, the active co-operation between neighboring countries and the promotion of a peaceful environment as a pre-requisite for their economic development. In attaining the goal of economic prosperity, COMESA realizes that peace, security and stability are basic factors in getting investment, development, trade and regional economic integration. Insecurity and instability greatly affects the ability of states to develop their individual economies as well as their capacity to participate and take full advantage of the regional integration arrangement under COMESA.
Another function of COMESA is ensuring significant and sustained increases in productivity in industry, manufacturing, processing and agro-industries to provide competitive goods as the basis for cross-border trade and to create more wealth, more jobs and more incomes for the people of the region.
COMESA also works to ensure there is equality and inter-independence of the member States. This means that what one country doesn’t have, she can get it from another country. For instance, if Kenya doesn’t have enough maize, she can easily import the maize from Tanzania. This means that states will boost each other’s economy.
COMESA aims at development of comprehensive, reliable and up to date information data bases covering all sectors of the economy including industry, energy, environment, agriculture transport, communications, investment and finance, trade, health and human resources to form the basis for sound investment decisions and macro-economic policy formulation and programming.
In order to achieve economic development among its members, COMESA aims at achieving co-operation in strengthening the relations between the Common Market and the rest of the world and the adoption of common positions in international forums. COMESA aims at having open markets between all its members to ensure free trade. Also, the cooperation will ensure that the member states have a strong say in international conferences vis-à-vis influence key decisions that will affect their states.
In addition, COMESA works at establishing new programmes for trade promotion, trade expansion and trade facilitation especially geared to the private sector, so as to enable the member states to take maximum advantage of the Common Market.
Agriculture is the main economic sector in most COMESA member countries as it contributes largely to the Gross Domestic Product (GDP) and foreign exchange earnings e.g. agriculture contributes, on average, about 39% of the GDP in Sudan, and more than 80% of total exports till 1999. The contribution of agricultural exports declined to less than 10% after Sudan starting to export oil products (Bank of Sudan, 2007). The development of agricultural sector (production and trade) is vital for food security, economic and rural development in the COMESA region. And so COMESA works at increasing agricultural production, with special emphasis on the joint development of lake and river basins so as to reduce dependence on rain-fed agriculture and new programmes on food security at the provincial or district levels, national and regional levels;
Achievements of COMESA
Neo-functionalism, one of the main proponents of integration poses that conflict can best be solved by the collaborative efforts of states as opposed to the effort of a single state. Ernst Haas (a neo-functionalism theorist) in his pioneer study; ‘The Uniting of Europe’ defines integration as “the process where political actors in several distinct national settings are persuaded to shift their loyalties, expectations and political activities toward a new centre, whose institutions possess or demand jurisdiction over the preexisting national states…” (Haas, 1968: 16) The African states have thereby collectively developed the regional organization- COMESA as a means to develop their individual countries. The organization has had numerous successes and challenges over the years but has been mostly successful.
The Economy Watch, in a report on COMESA highlights the first of major achievements has been the elimination of all the tariff barriers among all member states in 2000 hence achieving the goal of a free trade. This in turn has boosted the economies of member states. (COMESA, 2010)Further; the organization has made impressive progress in the productive sectors of industry and agriculture. Trade facilitation and liberalization can be attributed to the 5% growth of intra-COMESA trade in 2012 from 2011.There lies an exponential potential of greater trade and COMESA has to a large extent put measures to exploit it.
Secondly; as from October 2012, the Regional Payment and Settlement System (REPSS) was established. It is a program that allows member states to transfer funds within COMESA on the same day and at low costs mainly through their central banks. It helps both exporters and importers as it fast, safe, secure and it eliminates the need for confirmed letters of credit and associated costs. In addition, the system solves the problem of using the poor infrastructure in the region for transactions among member states. (COMESA's regional payment and settlement goes live, 2014)
The reduction of transport costs by 25% has also been a major milestone of COMESA. The organization has placed special emphasis on network development to enable direct telecommunication links through better infrastructure to avoid the expenses of third country transit systems. The organization has addressed the regulatory and policy aspects of transport and communication to make the movement of goods, services and people between member states easier and cheaper.
Like other organizations; COMESA has established some institutions to mainly fund its progress and facilitate economic integration of member states. These organizations include: the COMESA Trade and Development Bank in Nairobi Kenya, a clearing House in Harare Zimbabwe, an Association of commercial banks, a leather institute in Ethiopia and a re-insurance company in Nairobi Kenya among others. In regard to the clearing house; COMESA introduced the COMESA dollar in 1997 to replace national currencies to ease the transaction cost and maximize gains. In addition, has used facilitation of bilateral agreements, promotion of export drives by member states and identifying specific projects with growth potential, as tools to promote investment in the region.
COMESA, as stated by its secretary general, Mr. Sindiso Ngwenya in a summit in Johannesburg, South Africa, stands on the threshold of the realization of a united states of Africa. This has led the organization to seek deeper collaboration with other regional organizations as in the case of the COMESA-EAC-SADC Tripartite. Until the closure of the TradeMark Southern Africa (TMSA) in February 2013 as a result of the termination of UK’s Department for International Development (DFID) financial contribution, the partnership between TMSA and COMESA achieved numerous objectives. Some of these include the robust, easy to use and accurate Corridor Monitoring Mechanism based on GPS tracking data operational on the North-South Corridor, training of customs officers in the region on Risk Management, Post Clearance Audit and Facilitation Skills as well as providing assistance to border management agencies in the design and implementation of integrated Border Management systems in selected countries in the region and improving systems at border posts resulting in reduced clearance time and cost.
Lastly, with regard to infrastructure, the Tripartite developed the “Corridor Approach” for planning infrastructure. It involves doing an economic assessment of the corridor, assessing its threats, getting support of the country concerned to address these threats, doing the project preparation plan and submitting the paper to a financier (especially grants).An example of this is the North-South Road Corridor which involves a number of corridors in the COMESA-EAC-SADC region. The TMSA identified this transport corridor as a priority regional corridor in terms of the relative freight movement, undertook an economic analysis and calculated the net present value (NPV) as well as internal rate of return of the corridor. This process had the added benefit of estimating the cost of backlog maintenance and periodic and regular maintenance for the next 20 years. (COMESA, 2010)
A study of COMESA in Kenya and Ethiopia
Kenya
Kenya has enjoyed the economic leadership in the east African bloc having the largest and most advanced economy in the region. The country has been seen to perform better since 2003 in attracting FDI and 2007 attracted USD 728million in FDI. Furthermore the International Financial Corporation in 2007 ranked the country as among the top three countries in Africa to have made such significant strides in creating conducive business environment between the years 2006/2007. It also plays a significant role in being not only the transport, communication but also financial hub of east Africa and agriculture accounting for 24% of its GDP in 2007. It has liberalized economy which it has worked towards over the years and has removed all obstacles that in the past hampered the free flow of trade and foreign private investors.
Some of the barriers lifted were exchange controls, import, export licensing as well as restrictions on remittance of profits and dividends all of which have been eliminated. The reforms have created a conducive and necessary environment to attract foreign investment. In line with the Government Economic Recovery Strategy for Wealth and Employment creation (2003-2007), the government has taken various strides to create a positive environment for both foreign and domestic investment.
Kenya has prioritized fighting corruption and promoting good governance-some key objectives of COMESA. COMESA has since become Kenya’s leading export destination such that its accounts for 36.6% of total exports while Kenya on the other hand exports to COMESA countries have grown by 29.9% from a significant 86.22 million in 2007 to Ksh 111.363 million in 2008 accounting for 32.3% of the exports. Kenya’s exports include a thread of manufactured products as opposed to raw products which enrich and enhance diversification of Kenya’s manufacturing power. Some of the dominating products are petroleum products, sacks and bags, medicaments, tea, coffee and food products.
Ethiopia
Ethiopia has a population of about 15 million people and as one of the world’s oldest civilization has made a high progress in its key sectors of development indicators. Primary school enrollment has increased by three times, child mortality has reduced by half and the number of people with clean water has increased by more than double. Poverty reduction has accelerated in the recent and Ethiopia is generally been seen to advance.
Ethiopia since 1990 has always pursuing development strategies based on both state and private sectors. There has been an elimination of discriminatory tax credit and foreign trade treatment of the private sector with limited success to provide a more simple bureaucratic system of regulations and procedures. There has been an ambitious reform effort to initiate a transition to a more democratic system of governance and a decentralized system led by the government. Ethiopia has been seen to has a fast growing non-oil economy in Africa with a double digit growth with a continuous improvement in access to basic services and facilities
Ethiopia recommended the set up of a sub-regional Preferential trade Area and later the result was an adoption of the Lusaka Declaration of a PTA for Eastern and Southern Africa and hence COMESA was born in 1993 with its 16 founding members. In the recent time Ethiopia has undertaken a number of actions such as tightening fiscal policy and the reduction of government’s borrowing hence mitigating the impact of high food prices on the poor, reduction on domestic borrowing of public enterprise, a tightening money supply and gradual depreciating of the local currency in abide to address global economic crisis
Its income tax rate is 35%and top corporate tax rate is 30%. Some of the other taxes include a value added tax (VAT). Overall in recent years tax revenue as percentage of GDP was 11.9%.
The globalization trend
The 1990s decadewas dubbed the globalization decade. Though globalization is not a new phenomenon, the current form of globalization, particularly in the context of economics and finance, draws its motive force from two mutually reinforcing sources: the unrelenting revolution in information and communication technology (ICT); and the 'triumph' of market principles over command economics.
The adoption of the market economy as the economic model of choice by many nations across the globe has resulted in greater liberalization of trade and finance. Through the new enabling liberal environment and the agency of ICT, the world has witnessed movements of capital at unprecedented speeds and volumes. This phenomenon, dubbed financial globalization, poses a new threat to emerging economies because of its high elasticity to huge 'mood swings' which can ruin economies as the crisis as in the case of the Asian 'Tiger' Economies in 1997/98.
At the level of micro-economics, globalization is spawning a new corporate dynamic in which the most evident form is a growing wave of mergers. There is also an ever increasing inter-firm strategic alliance as firms seek to: exploit economies of scale or synergy, take advantage of differences in comparative advantage, spread the risks of high fixed costs, and gain access to new technologies and new markets. Every year has witnessed record corporate consolidations. Clearly, these waves of mergers and acquisitions point to a fundamental shift in the way the concept of competition and co-operation in the post-modern era is viewed. The message here appears to be "small may be beautiful but big and larger is better". In 1997, the UN (Department of Economic and Social Affairs) estimated that the largest 100 transitional corporations accounted for about one third of global foreign direct investment.
Another challenge to COMESA would be the competition between different states when it comes to business and dominating the market. Although all these African nations are for ‘unity’ one always has to be ahead of the others.
As globalization intensifies, COMESA is faced with traditional and much more complex challenges. The insufficiency of funds, for instance, has been a main challenge to COMESA. This is because economic crisis do not only affect businesses but regional blocks as well. This causes strain and slows down the functioning of the organization. Self interests of individual countries could also be said a challenge to COMESA. The countries might decide to stop trading or importing, and for those that have Ports they might stop all ships that are going in and out of the country either as a result of a power struggle or a power hungry leader. This affirms the Realist view that acquiring self interest is the primary goal of states regardless of the negative effects on other actors. Some states deny or push laws that were implemented by COMESA simply because a certain leader believes it is a worthless risk.Thishalts advancement and development in regions.
COMESA has conducted a study on cyber security and protection of vulnerable information infrastructure. The study which is on Public Key Infrastructure Protection has come up with frameworks for cyber-security and Critical Information Infrastructure Protection (CIIP). It was done in collaboration with the Association of Regulators for Information and Communications in Eastern and Southern Africa (ARICEA) and the International Telecommunication Union (ITU) (Institute for global dialogue, 2011).The initiative is informed by the new forms of organized cybercrime mainly aimed at financial gains, with an expansion of the types of threats to various platforms and to various countries. “The incredible benefits that information technology has brought modern organizations have not come without risks. These risks vary in size and scope, from revealing new vulnerabilities in our critical infrastructures to enabling new forms of fraud,” said Secretary General SindisoNgwenya during the Cyber Security and Public Key Infrastructure Summit in Nairobi, Kenya, November 26, 2013.(COMESA, 2011)
Conclusion
All through the paper, COMESA has been illustrated as more of a success story yet it faces some common challenges. In the 9th COMESA Business Forum in February 2014 held in Kinshasa, DRC Report, COMESA sought to re-assert itself by urging deeper implementation of its objectives hence encouraging member states to encourage industrialization through supporting active participation of small and medium enterprises (SMEs) in national and regional markets. It also urges member states to ease access of finances to SMEs and value addition as well as discouraging exportation of raw materials by businesses in the region.
Member states are requested to accelerate the implementation of the COMESA business visa and the eventual elimination of visa requirements and the protocol on free movement of persons, labor, services, the right of establishment and residence. The organization condones the inclusion of private sector, women and youth entrepreneurs, innovation, science and technology.
COMESA further urges the promotion of authentic African products-supporting COMESA origin products into regional markets. It entails the establishment of the brand ‘Made in COMESA’ to ease market access and encourage consumer preference for the products.
Finally; in the forum, COMESA requests that the agreement on harmonization of agricultural inputs such as seeds and fertilizers is implemented to ensure inclusiveness within the regional agriculture market in regards to agriculture and agri-business as it is the back-bone of the COMESA region and the continent at large (The 9th COMESA Business Forum, Kinshasa, 2014)
References
Actrav.itcilo.org,(2014). Common Market of Eastern and Southern Africa, COMESA. [Online]:http://www.actrav.itcilo.org/actrav-english/telearn/global/ilo/blokit/comesa.htm [Accessed 29 jun. 2014].
COMESA's regional payment and settlement goes live. (2014, July 16). Retrieved July 2, 2014, from COMESA: http://www.comesa.int
Haas, E.B., (1968): The Uniting of Europe, Stanford University Press
(2011, June). Retrieved July 2014, from Institute for global dialogue.
COMESA's regional payment and settlement goes live. (2014, July 16). Retrieved July 2, 2014, from COMESA: http://www.comesa.int
COMESA. (2010, June 29). Retrieved July 2, 2014, from Economy Watch: http://www.economywatch.com
COMESA. (2011,March 11). Retrieved July 2, 2014, from Economy Watch: http://www.economywatch.com
Ustr.gov, (2011). Common Market for Eastern and Southern Africa (COMESA) | Office of the United States Trade Representative. [online] Available at: http://www.ustr.gov/countries-regions/africa/regional-economic-communities-rec/common-market-eastern-and-southern-africa-comesa [Accessed 3 Jul. 2014]
Webcache.googleusercontent.com, (2014). COMESA: The Customs Union | TradeMark Southern Africa (TMSA) - Advancing Regional Integration in Southern and Eastern Africa. http://webcache.googleusercontent.com/search?q=cache:http://www.trademarksa.org/news/comesa-customs-union [Accessed 27 Jun. 2014].
Common Market of Eastern and Southern Africa, COMESA. (n.d.). Common Market of Eastern and Southern Africa, COMESA. Retrieved July 16, 2014, from http://www.actrav.itcilo.org/actrav-english/telearn/global/ilo/blokit/comesa.htm
Impediments to Economic Integration in Africa: The Case of COMESA. (n.d.). Impediments to Economic Integration in Africa: The Case of COMESA. Retrieved July 16, 2014, from http://www.ewp.rpi.edu/jbdn/jbdnv203.htm
(2014). The 9th COMESA Business Forum, Kinshasa. Kinshasa: COMESA business council.
MERCOSUR
Table of Contents
MERCOSUR.
INTRODUCTION.
Mercosur comes from three Spanish words; Mercado
(market), Comun (common), and Sur (south). Mercosur was established in 1991 by
the Treaty of Asuncion. It is the common market of the South and is the largest
trading bloc in South America. Mercosur has both permanent members and
associate members as well. The permanent members are: Argentina, Brazil,
Paraguay, Uruguay and Venezuela which joined officially in June 2012 after the
Brazilian and Argentina parliaments ratified it. Paraguay is temporarily suspended
from Mercosur since June 2012 for the violation of the Democratic Clause of
Mercosur. The official languages in
Mercosur are Spanish, Portuguese and Guarani.
The five associate
members of Mercosur are: Chile, Bolivia, Colombia, Ecuador and Peru. These associate
members do not enjoy full voting rights and complete access to the markets of
the full members of Mercosur. However
they do receive tariff reductions. Bolivia is being considered for full
membership but the decision is proving to be difficult because of the history
of Bolivia with Mercosur. The president of Bolivia, Evo Morales has criticized
Mercosur saying, "What I have discovered is that the CAN [Andean Community
of Nations] as well as Mercosur are tools that only benefit businessmen and
wealthy people, instead of the poor people"
This economic and
political organization aims to promote free movement of goods, services and
people among member states. It is currently the fourth largest integrated
market after the North American free trade area, the European Union, and Japan.
It haslengthened its domain by going into free trade agreements with Chile and
Bolivia and has as well formed an economic cooperation engagement with the
European Union.
Although Mercosur was
established in 1991 the integration spirit in South America goes way back to
the sixties with Latin-American Free Market Association beginning its
functions, it later changed its name to Latin-American Integration Association.
Towards the end of the 20thcentury, there was an increase in number
of trade agreements among the member states of Mercosur specifically Brazil and
Argentina who had historical rivalries but they decided to put them behind them
when presidents Raul of Argentina and Jose of Brazil signed the Argentina-
Brazil Integration and Economics Cooperation Program which would turn out to be
for the good of regional leadership and hence they started on economic
complementation which became the foundation of
Mercosur.
Uruguay and Paraguay
are located between Brazil and Argentina also joined in on the regional
cooperation and they collectively decided that Montevideo was going to be the
headquarters for Mercosur. This had also been had also been the headquarters of
Latin-American Integration Association and the Latin-American Free Market
Association as well. Marcos is ruled by the Common Market Council which is
responsible for the political decisions of the process of integration.
ORGANS OF MERCOSUR.
The institutional
structure of Mercosur comprises six organs. These organs have different roles
that help things flow smoothly. This comprises of Council
of the Common Market, Common Market Group (CMG), Mercosur trade Commission,
Joint Parliamentary Commission, Economic and Social Consultative Forum and
Mercosur Administrative Secretariat. Mercosur’s
organs are mainly deliberative, and their powers are generally limited to their
own sphere of operation.
The Council of common market is the
highest organ of all. It is composed of the
Ministers of Foreign Relations and the Ministers of Economy (or Ministers of
equal rank) of the Members. The Ministers of Foreign Relations coordinate its
meetings. Other ministers or authorities may participate in these meetings by
invitation of the coordinators. All decisions are made in the presence of all
its members (Campbell, 1999).
It ensures that all the objectives that
are outlined in the treaty of Asuncion are achieved
by all means. It also has powers of decision making and political direction.
The council formulates policies and takes necessary actions that may lead to
the development of the market; it negotiates on different agreements that may
be proposed by other countries.
The common market group is
another organ that comprises of Ministries of Foreign Relations, the Ministries
of Economy and the central banks. Respective Governments appoint them into
office. The ministry of foreign relations takes part in the coordination. It
reports back to the common market council. It participates in the settlement of
disputes under the conditions that are set by the Brasilia protocol. Its
various functions are approving the budget, proposing draft decisions for
adoption by the Council. All this is done with the help of an administrative
secretariat.
Mercosur Administrative Secretariat. Its
role is to provide support to the other organs.
Mercosur trade Commission. This
commission is composed of four members of each member states. It is responsible mainly for the group’s trade policies. It
comes hand in hand with assisting the CMG.
Economic and Social Consultative Forum.
This organ deals with the economic and social sectors of its members. In terms
of decision making it can recommend on what can be done to the common market
group. Any economic issue has to go through them and finally come up with
various solutions. Afterwards referring the recommendations to the CMG.
Joint Parliamentary Commission. It
is composed of an equal number of representatives
from each Member’s parliament that are appointed by their members. In this case
the main objective of the organ is to merger the treaties and decisions of
mercosur in domestic legislation in order to support the trade laws of its
members.
OBJECTIVES OF MERCOSUR.
The bloc was formed for various purposes but the
main one being to Promote free movement of goods and people for the member
states and also increase market base for the products manufactured in different
member states.
Provide
better education by allowing students to move freely from one country to
another in search of better education. In this case each country has something
that is good in an example in Brazil which is well known for the manufacture of
Embraer aircrafts. Any non- technical level of education for example primary or
junior high level is considered to be on the same level in all member states.
Enable citizens of the member states learn from each
other culturally. This takes place when people interact with each other from
all walks of life and share various ideas on how to live as one.
The bloc also was meant to create wider free trade
zones to the member states which enable the member states assess merchandise
from the areas with the common external tariff used for Mercosul merchandise
and through the increased trade the citizens will be able to learn from each other
culturally and this will bring upon a political bloc that will stand with each
other in case s of political or economical turmoil. Promote a wider and
stronger political union.
The EU believes
that the Mercosur countries have an interest in strengthening the integration
model and actively supports Mercosur. The EU has bilateral partnership and
agreement with the member states of Mercosur. This is because the South America and Europe
tend to share some economic and political relations. The EU tends to open its
markets to economies that meet their qualifications such as have
to be very large, well regulated and well connected with the rest of the world.
In this case the EU was very much and still is
interested in economic sector of Mersocur. Not forgetting that Brazil takes up
the largest population. The negotiations
between the two regions were launched in Madrid in 2010 and this was in order
to have an agreement that stipulated the trade agreement, the services , rules
on procurement ,the trade facilitation and the how to deal with the barriers
that affected trade. Mercosur is said to export a large chunk of agricultural
products and raw materials to the EU while on the other hand EU exports
machinery and transport equipments.
The EU is Mercosur's first trading
partner accounting for 20% of Mercosur's total trade and having Mercosur is the
EU's 8th most important trading partner, accounting for a certain percentage of
EU's total trade. EU's exports to the region have steadilyincreased over the
last years ( Horn& Sapir, 2009).
ACHIEVEMENTS OF MERCOSUR.
As a trade and political bloc it has been able to
increase bargaining power that the Mercosur countries have been as a bloc to
negotiate trade agreements with the world this has enabled them to increase
their trade as region and hence more foreign income from the trade. The bloc
has been able to engage in a deeper, fast and ambitious integration process
among them which has meant increased democratic space and growth of diverse
political ideology in the member states.
The bloc has
been able to bring together the various countries together economically,
politically and culturally. The consolidation of democracy among Mercosur`s
members is one of the most important achievements of the economic integration
process. In the 1998 Ushuaia Protocol, member countries agreed that democracy
was an essential condition of the integration process among them which led to
increased multiparty and the growth of opposition in countries such as
Venezuela. The process of trade liberalization among Mercosur members has been
successful on many fronts, from increased trade flows and cross-country
investments leading to higher trade and hence creation of employments for the
many idle youths and the poor jobless members of society (Paiva, 2003).
CHALLENGES FACING MERCOSUR
Even though the various countries that came together
to form Mercosur have achieved a couple of things together they have also faced
a couple of challenges in the way to establishing themselves together and some
of the challenges includes disputes between member states especially Argentina
and Brazil which have been able to slow down the level of trust hence slowing
down the speed of development among the various states.
Also Venezuela under the leadership of the late Hugo
Chavez did not agree with the bloc`s international policy, most of the time the Venezuela dragged its
feet when it came to matters involving foreign policy especially the trade with
United States which hindered the growth of the bloc hence leading to
skepticism. (Frischtak et al.., 1996)
Another challenge is the In adequate institutional framework to support progress
in multilateral negotiations as the mistrust and Venezuela stand on
international policy slowed down the process of coming up with the policies and
the framework needed. Countries have unilaterally changed tariff levels and
nontariff barriers too many times, creating a poor environment to consolidate
gains and walk toward higher levels of integration.
Lastly the lack of a more formal mechanism for
settling disputes and dealing with trade flow imbalances contributes to these
occasional setbacks as decisions continue to depend on “diplomatic/political”
actions, and costs of setbacks are not known (De Oliveira, 2012)
CONCLUSION.
This bloc has
evolved and is trying to extend its influence to some areas beyond the
economic/commercial market project as much as it has had its many challenges. The
reason
as to why mercosur has indeed improved is due to the mutual trust among the
different member states. Twelve years
after it started, Mercosur has accumulated more success than failure. However,
the frequent setbacks resulting from domestic and external shocks have hurt the
credibility of the integration process. Decreasing credibility can jeopardize
the consolidation of the gains achieved in the past and seriously block higher
levels of economic integration among Mercosur members.
REFERENCES.
De Oliveira, A. (2012), “The Global oil market: An
outlook from South America”, presentedAt the Korean Development Institute and
Korea University Conference, “InternationalMonetary System, Energy and
Sustainable Development”, Seoul, 21 September
Campbell, J.
(1999) Mercosur. Entre la Realidad y la Utopı´a (Buenos Aires, Editorial
Nuevohacer/CEI).
Frischtak, Claudio, Danny M. Leipziger,
and John F. Normand. 1996. Industrial Policy in MERCOSUR: Issues and Lessons.World
Bank.
Horn, H., P. Mavroidis and Sapir, A
(2009), Beyond the WTO? An anatomy of EU and US
Preferential trade agreements,
Brueghel, Brussels
PAIVA, Paulo; (2003) Gazel: Ricardo.
Mercosur: êxitos, fracasos tareas inconclusas. Quorum Revista Ibero americana, Universidad de Alcalá,
España, Primavera 2003
The African Growth Opportunity Act (AGOA)
Table of Contents
INTRODUCTION
HISTORY
In
May 2000 the congress of the United States of America approved a legislation
known as the African Growth Opportunity Act (AGOA) whose aim was to offer
assistance to Sub-Saharan African countries on an economical perspective. It
also had a goal of strengthening and making better relations between these
Sub-Saharan nations and the United States (Office
of the United States Trade Representative).
The
was signed into law by President Clinton of the United States on May 18, 2000
as Title 1 of The Trade and Development Act of 2000 (International Trade Administration). It offers tangible
incentives for African countries to continue their efforts to open their
economies and build free markets. On August 6, 2002 amendments to AGOA were
signed by President Bush, also known as AGOA II, into law as Sec. 3108 of the
Trade Act of 2002 (Office of the United States
Trade Representative).
COUNTRY ELIGIBILITY
The legislation is authorized by
the President
of the United States to determine which sub-Saharan African
countries would be eligible for AGOA on an annual basis. The eligibility criterion
has requirements such as to progressing labor rights and movement toward a
market-based economy (International Trade Administration,
2003).
A
country should meet the following requirements so as to be eligible and
beneficiaries of the African Growth Opportunity Act. They should have or should
be making progress towards achieving or acquiring economies that are market based;
political pluralism and the rule of law; eliminating barriers to U.S. trade and
investment; protect intellectual property; try to fight corruption; policies on
poverty reduction, increasing availability of health care and educational
opportunities; protecting human and worker rights; and abolition child labor
practices. African countries have tried to meet these expectations although
none of the nations have implemented the list fully (International Trade Administration, 2003).
Secondly,
these nations should not be involved in activities that tend to undermine
security or the foreign policy of the United States of America. They should
also not engage in human rights violations as per international law and they
should have clear efforts in trying to fight terrorism (International Trade Administration, 2003).
GSP PRODUCT ELIGIBILITY
This
act gives the president authority so
that he can give duty free treatment
under GSP for any article after The U.S International Trade Commission, USITC and the U.S Trade
Representative, USTR determine that the
there is no import sensitivity to the article when African countries
export them (International Trade Administration,
2003).
Furthermore
the president has the right to make the articles duty free provided that they
are under AGOA or GSP eligible nations for 1,800 or more items and 4,600 other
items that are considered eligible under countries which are not signatories of
the African Growth Opportunity Act GSP. Items which were not included before
include handbags, footwear, watches luggage, flatware among others are now
accepted after a review was done (International
Trade Administration, 2003)
Eligible
countries in Sub-Saharan countries have been exempted form limitations and
competitiveness which restrict those GSP benefits that are available to those
who are beneficiaries to other regions (International
Trade Administration, 2003).
APPAREL ELIGIBILITY
Apparels
that are eligible are duty and quota free till 2015. They include apparel of
yarns and fabric from the Unite States of America, Sub-Saharan Africa, lesser
developed third-countries and those that do not have their production in
commercial quantities within the United States of America (International Trade Administration, 2003).
They
also include certain handmade or ethnic print fabric and certain wool or
cashmere sweaters. They is also
consideration of textiles that are manufactured in the least developed
countries that are beneficiaries of the act. The lesser developed nations have
a capita of less than 1500 dollars per annum (International
Trade Administration, 2003).
TRADE ITEMS
Over 90 percent of the exports in the African
Opportunity Growth Act are accounted for by crude oil and mineral fuels. About
89 percent of products under the Act are petroleum products. The energy
products under the pact are successful but the non-energy products are also
very influential (Schneidman &
Lewis, 2012).
Textile and apparel are some of the items traded. By
2011 they had contributed to more than 850 million dollars of the trade
agreement. There is also transportation material under the agreement and they
mainly involve automobiles which are from South Africa. They bring in billions
to the country and due to the duty free benefit they brought in 2.1 billion
dollars in 2011 (Schneidman &
Lewis, 2012).
Agricultural products are also traded between the two
nations. The Act nonetheless does not have a big impact on these products as
they already had the privilege of duty free access before the African Growth
Opportunity Act came into place. The standards set for eligible agricultural
products such as those regarding health and size are also hard to meet (Schneidman & Lewis, 2012).
LEGISLATION
AGOA I
AGOA enables reform of
African countries with the most liberal access to the U.S. market available to
any country or region with which the United States does not have a Free Trade Agreement.
By encouraging reform of Africa’s economic and commercial regimes, it supports
U.S business, which will build stronger markets and more effective partners for
U.S. firms (International Trade Administration,
2009).
The list of products
sub-Saharan countries may export to the U.S are expanded subject to no import
duty under the Generalized System of Preferences (GSP) which covers 4,600 items
and applies to more than 6,400 items until 2015 (International
Trade Administration, 2009).
AGOA II-TEXT OF AMENDMENTS
TO AGOA
AGOA II was signed by
former president George W. Bush so as to modify certain provisions in AGOA I. It
clarifies and expands trade opportunities in the region and also encourages
more investment. It also has a section for Congressional guidance on how
textile provisions in the bill can be administered (International Trade Administration, 2009).
Amendments include (International Trade Administration, 2009):
·
Provision of knit-to-shape articles from
yarn from the U.S or any Sub Saharan beneficiary country in an eligible
Sub-Saharan country.
·
Preferences to be made for ‘hybrid’
apparel articles in the involved nations. It thus provides beneficial treatment
of apparel articles from the U.S and beneficiary countries of the act.
·
The apparel cap is doubled for African
made apparel with regional yarn between 3-7 percent over a period of 8 years.
·
Namibia and Botswana can be
beneficiaries of the ‘lesser developed beneficiary sub-Saharan Africa country’
provision. Their producers can use third country fabric in qualifying apparel.
AGOA III- AGOA
ACCELERATION ACT OF 2004
It was signed in July
13, 2004 by former president George W. Bush. It extended preferential access
for imports from beneficiary sub-Saharan African countries until September 30,
2015. Fabric provision in third countries was also extended for 3 years (from
September 2004-September 2007). It also included provision of more
Congressional guidance on how to administer the bill’s textile production to
the Administration (International Trade
Administration, 2004).
Eligibility was further
expanded to allow non AGOA member states items such as waistbands, belts
attached to garments, straps with elastic, collars, cuffs, drawstrings,
padding/shoulder pads and elbow patches to be eligible from all import
categories (International Trade Administration,
2004).
AGOA would support
other African countries in other initiatives such as, poverty reduction, peace
promotion, HIV/AIDS awareness and fighting and attraction of more trade and
investment opportunities (International Trade
Administration, 2004).
Other amendments
included (International Trade Administration,
2004):
·
Provision of a sense of congress for Africa
to participate more in the World Trade Organization and trade liberalization.
·
Bilateral investment agreements were
encouraged.
·
Development of infrastructure and an
ecotourism initiative was encouraged and promotion of investment in
infrastructure project in support of development in transport systems,
telecommunication and agriculture.
·
Facilitation of increased harmonization
between customs services at ports and airports in the countries of the pact in
order to reduce time in transit and to increase efficiency and safety
procedures.
AGOA IV-AFRICA INVESTMENT
INCENTIVE ACT OF 2006
It was signed in 20,
October 2006 by former American President George W. Bush. Fabric provision in
the third country was extended for 5 years (September 2007-September 2012).
There was addition of an abundant supply provision, certain denim articles were
also considered as abundant supply and lesser developed beneficiary countries
were allowed to export certain textiles under AGOA (International Trade Administration, 2006).
Textile apparel
provision was also extended to 2015 and a process for removing designated
fabrics or yarns that would not be available in commercial quantities to be
used by lesser developed countries on the basis of fraud was provided (International Trade Administration, 2006).
FUNCTIONS OF AGOA
One
of the main functions of AGOA is that it promotes economic ties between Africa
and the USA. It is through this ties that Africa would benefit from increased
capital investment and USA would benefit from the profit accrued inn working in
Africa and at the same time promoting US economic ideology of liberalism.
AGOA
helps to promote US national interests in Africa. One of the eligibility
criteria of joining AGOA is that the African country should not support terrorism.
Through this it would enable the African countries come up with laws that limit
terrorism thus enabling US maintain a balance of power in the region.
Niba
argues that AGOA helps integrate African economies to the global economy. The modernization
of market economy and the reduction in tariffs will promote Sub Saharan trade,
increase productivity thus finding available market in the global economy.
EFFECTIVENESS OF AGOA
According
to Schneidman he argues that AGOA has promoted democratic governance in Africa.
He states that after the end of communism in 1989, many communist countries in
Africa like Angola were forced to change its political economic principles of
communism to the emerging political economic principle of capitalism and
liberalism. Through this, many African countries have a free market based
economy that has enabled foreign agricultural companies in the USA to come and
invest in agriculture and at the same time promote democratic governance.
In
the early 1980s, the economies of many African countries were weak. This lead
to massive unemployment but the embrace of AGOA made the economic growth of
Africa grows from 1.1% in 1995 to 2.5% in 2012. Through this many people have
been employed in different agricultural sectors that have been funded and
executed by AGOA.
AGOA
has also enabled African countries to be integrated to the world economy. The
foreign companies that have invested in African countries have made the latter
more dependent on the foreign MNCs thus increasing the role of African growth
in the globalised economic integration process.
AGOA
has also enabled African countries to abide to the rule of law and
international treaties especially those relating to labor and human rights. One
of the eligibility of joining AGOA is that the country must not engage in human
rights violation. This has made many African countries reduce interstate wars
as was witnessed in the 1990s. The respect of human rights has enabled Africans
to engage in political and economic matters that influence the positive
relationship between African countries and the USA.
SUCCESS OF AGOA
Related
to its provisions of the Generalized System of Preferences, GSP, Provisions of
the United States under the African Growth Opportunity Act increased by 440
percent from the year 2001 to 2006, almost five times the original (Liser, 2007).
AGOA
has created thousands of jobs across the African continent. It has also ensured
that hundreds of millions have been invested in countries that are eligible (Liser, 2007). Direct foreign investment is
especially visible in the manufacturing sector. There has been growth in the
formal and informal sector due to rising rates of employment (Carr & Williams, 2010). Jobs have been
created both in the United States and Africa with 100,000 people being employed
in the United States and 1.3 million in signatory African countries (New York City Bar Association, 2013).
There
has been a boost in imports which were not traditional like cut flowers and
apparel. This also includes value added goods and food products that are
processed (Liser, 2007).
Other
nations have for a long time exported raw materials from Africa. These products
usually entered the developed countries with little or no tariff. AGOA has
promoted export of food, furniture, apparel among other products of processed
or manufactured goods by eliminating tariffs (Liser,
2007).
By
2007, there had been an increase of apparel products imported from Africa by
251 percent. This has brought in about 1.3 billion dollars. In 2007 imports
involving agricultural and industrial had almost doubled (Liser, 2007).
By
2011 there had been an increase in African exports by 500 percent. This earned
the continent 53.8 billion dollars as compared to 8.51 billion dollars in 2001 (New York City Bar Association, 2013).96.1
percent of products that influenced this rise were those involving crude oil
and mineral exports (Schneidman & Lewis,
2012). By 2012 exports had brought in 430 million dollars (Gresser, 2014).
The
African Growth Opportunity Act has also led to a rise in the growth of the
middle class in Africa as some sectors were revived such as Kenya’s nearly
vanishing clothing sector. From the income brought in there has also been
reduction of dependence on development assistance and American companies have opened
up their doors to African products such as Macy’s which gets its baskets from
Rwanda (New York City Bar Association, 2013).
Other leading companies that were attracted to source from Africa in the
textile and apparel sector include Victoria’s Secret, Wal-Mart, Levi’s, Calvin
Klein among others (Schneidman & Lewis,
2012).
AGOA IN LESOTHO
Lesotho
is a beneficiary of the African Growth Opportunity Act and it is furthermore at
an advantage as it is a beneficiary of the where the least developed nations
have access to apparel that is duty free by use of ‘third country’ fabric which
refers to fabric that originates from any part of the world(Carr & Williams, 2010).
There
is a contribution to Foreign Direct Investment in Lesotho as a result of the
efforts of AGOA. Is has attracted a lot of investment from Asian countries like
China as they wanted the benefits of the duty and quota free goods. The Foreign
Direct Investment as a result of AGOA has a significant in Lesotho’s economy (Economic Review, 2011).
The
number of exports from the Lesotho to the United States has had a tremendous
increase as from 2001. The country is now one of the biggest exporters of
apparel to the United States (Economic Review,
2011). Today, Lesotho is the biggest exporter of denim to the United
States. It makes about 300 million dollars from this denim export with 93
percent of this money being earned under the African Growth and Opportunity Act (Embassy of the United States of America, 2011).
The
employment industry has also been boosted in Lesotho’s textile industry due to
the export of duty and quota free apparel to the United States. The number rose
by 26,700 employees, a majority in the manufacturing industry as from 1999 to
2011. . The manufacturing industry in Lesotho became one of the largest sources
of employment and with time it surpassed the government (Economic Review, 2011). The 70 million garments which the country
knits annually is a source of employment for 28,000 citizens in Lesotho (Carr & Williams, 2010).
It
also was influential in aiding in the employment of women in the country who
had previously been unable to get jobs (Economic
Review, 2011). 15,000 people of which 80 percent of women got employment
in Lesotho’s most important sector which involved making and exporting denim jeans (Carr & Williams, 2010).
The
success of the manufacturing industry in Lesotho has also promoted investment
in infrastructure in the country, for example, the country had a denim mill
built for an equivalent of 100 million dollars (Economic
Review, 2011).
Lesotho
has however had its fair share of challenges like a fall in sales as a result
of a decrease in textile exports by 12 percent and 11 percent in 2005 and 2006
respectively.as a result the value of Lesotho’s currency depreciated, loss of jobs
and investors started to source from other nations. This was as a consequence
of the closure of the Multi-Fibre Arrangements. Nonetheless am imposition on
anti-China textiles and policies by the European Union and the United States
helped the country to regain its influence. Lesotho however still faces
competition from Asian nations but it is the most influential exporter of
garments to the United States (Carr &
Williams, 2010).
Because
of the impact of AGOA there has been blame that the workers in the factories
built have to work in poor working conditions and these factories are also a
major source of different forms of pollution as this affects the citizens.
Getting water supply to these factories was also a major challenge (Carr & Williams, 2010).
FAILURES OF AGOA
Like
any other trade agreement. AGOA does not fall short of failures and challenges.
Over the years it has had its critics and there has been a reduction in the
trade income at times in countries such as Lesotho.
There
are archaic customs procedures, erratic and uncoordinated transportation
regulations, red tape in cross-border movement and other trade logistics
challenges. This makes transportation logistics add up to 40 percent of the
export cost of African merchandise. It also makes the exporters incur
transportation costs that pay up to 30 percent more duty to enter the U.S.
market. (Kituyi, 2010).
Only
few varieties of products are allowed to be exported to the United States of
America. The textile and apparel sector has witnessed growth especially within
the early years of AGOA. Agricultural products account to less than one percent
of the total value of exports. More products such as sugar, tobacco, beef and
dairy products should be included as some of the sub-Saharan countries are competitive
producers. AGOA’s failure to spur increased exports underlines the challenge of
making unilateral market access a tool for Africa’s sustainable development.
Countries such as Eritrea, Ivory Coast and the Central African
Republic have had their AGOA eligibility revoked as a result of human-rights
abuses or failure to implement political or economic reforms.
Increasing competition by other exporters, for example China has
been able to sharply increase their clothing sales to the United States thus seizing
market share from African countries. This has resulted in the loss of
employment for example; Kenya has lost an estimated 5,000 of the 30,000 jobs it
gained as a result of AGOA.
Lack of access to low-cost credit and
efficient financial sector operations to unlock the potential of small and
medium-sized enterprises remains a key area of intervention for realizing the
promise of AGOA.
AGOA IN
MADAGASCAR
Madagascar was a major non-oil AGOA beneficiary that saw its status revoked, following a coup in 2009, which
resulted in lack of democracy in the country. This revocation resulted in
massive setbacks for its economy. Madagascar exported, on average, over $200
million a year under AGOA, with a peak of over $300 million in 2004 most of it
in the apparel sector, but with some handicraft items as well. Half of all
textile exports from the country (around $600 million in total) went to the
United States, and the textile sector covered up to 8 percent of the country’s GDP
(Sy, 2014).
Following revocation, tariff rates on apparel exports returned to
high levels estimated around 12-33 percent, greater than the tariff
free access of AGOA. The tariff increase made apparel
exports from Madagascar uncompetitive and resulted in export losses. According
to Takahiro Fukunishi a scholar, the revocation caused exports from Madagascar
to the U.S. to fall by around 70 percent, which caused almost 30 percent of job
losses after the coup, and largely increased the probability of factory
shutdowns. Similarly, a publication by the United Nations Economic
Commission for Africa indicated that the revocation also had negative effects
on regional integration and nearby economies stating that the revocation
affected several countries which are also AGOA beneficiaries, as Madagascar’s
apparel sector uses denim fabric from Lesotho, zippers from Swaziland, and cotton
yarn from Zambia, Mauritius and South Africa. Furthermore, from a foreign
investor’s perspective, the Madagascar saga highlights the risk of losing the
benefits of lower tariffs to the U.S. if a country loses its eligibility to
AGOA. (Sy, 2014)
Challenges
of AGOA
Among the challenges is that short time horizon
undercutting investment was initially considered to last for 10 years but was
later extended until 2015.Its short-lived nature discouraged long- term
investment as the 10 years window of opportunity discouraged investors in light
of difficulty of retrieving capital before the expiry of the act thus lowering
potential benefits greatly.
They are challenges concerning AGOA’s eligibility
revocation impacting on regional integration. Integrating Africa’s economies
locally to compete globally is important to Africa’s long-term economic
success. Its eligibility is reviewed yearly by the US which has the option of
independently withdraw benefits if certain economic, political and human rights
conditions are not most by beneficiaries.
There are trade
logistics hampering AGOA’s utilization. Africa's major supply side constraints
are trade logistics which determines the cost of getting goods from the factory
to the consumers. Lack of infrastructure, poor public institutions and lack of
competition among service providers hinder the efficient movement of goods. For
example in East Africa, the average cost of trade logistics is equivalent to a
tax of between 25% and 40% on value-added which deters it from entering markets
with competitive nature.
Agricultural
exports seem to have remained low. Agricultural commodities account for less
than1% of AGOA exports. It has important exception on special agricultural
products like sugar, peanuts, dairy, tobacco which are among the main revenue
generating exports which sustains many African states.
None tariff
barriers such as standards and sps impose additional demands on exporters which
further undermines agricultural market access for African states. US subsidies
for domestic producers such as cotton subsidies eliminate any competitive
advantage of Africa agriculture sector under AGOA. The subsidies artificially
lower world cotton prices thereby reducing revenues of African cotton exporters
and also reducing the development of textiles and apparel sector in Africa.
There is a
risk of preference margin erosion. The margin of preference currently afforded
to African countries under AGOA is of 7.7% while average duty on excluded
products is above 30%. Those preferences are low given that the products
liberalized under AGOA already enjoy duty and largely quota- free access under
the US, GSP which washes down any preference for African nations as they
compete with other beneficiaries.
Foreign
Direct Investment Diversion and specialization is also a concern. FDI-driven
specialization in textiles and apparels has raised a major concern if AGOA
expires in 2015. If FDI is not accompanied by technology transfer, the
opportunity to foster economic development competition and greater specialization
and greater specialization may be lost.
RECOMMENDATIONS
The African Growth Opportunity act should be extended
so that it does not expire at the expected time of September 2015. There is
some element of doubt in its extension and this has resulted in a 35 percent
decrease in its apparel and textiles orders as the American producers are now
resorting to other non-African fabrics
(Schneidman & Lewis, 2012).
Industries like the Lesotho textile industry and the Kenyan
flower industry should stop being heavily reliant on the African Growth
Opportunity Act. They should try to expand and find new trade partners. An end
to the trade as a result of the African Growth Opportunity Act ma have a
negative impact as it was in Lesotho when the Multi-Fibre Arragements were
closed down.
Trade hubs should be increased so as to enhnace export of
goods between the member states and to enable that these products have access
to other markets. These trade hbs have been noted to have a huge and positive
inmpact on trade between Africa and the United States but currently there is
only one in Accra Ghana(Schneidman & Lewis, 2012).
The African Growth Opportunity Act should work towards
working with the integration bodies in Africa . This will help the United
States as it may expand its markets.The countries in the pact should also work
with the Trade and Investment Framework Agreement to help resolve disputes (Schneidman
& Lewis, 2012).
The African Growth Opportunity Act should work towards
promoting Agriculutural exports from Sub-Saharan African countries.
Agricultural exports are accepted in the Act but certain barries like
requirements on size and height make it diificult for farmers to benefit as the
do not have all the equipment requires to meet all these requirements.
The member countries should also work with small and
medium-sized businesses to help them grow as AGOA has been criticize for only benefiting large
enterprises. There therefore should be policies and investments to benefit
small and medium-sized businesses in Sub-Saharan Africa.
REFERENCES
Carr, M., & Williams, M. (2010). A stitch in time? AGOA
and Lesotho's clothing sector. In M. Carr, & M. Williams, Trading
stories: Experiences with gender and trade (pp. 65-73). London:
Commonwealth Secretariat.
Economic Review. (2011, June). African Growth and
Opportunies Act(AGOA): Economic Impact and Future Prospects. Retrieved July
2, 2014, from Central Bank:
http://www.centralbank.org.ls/publications/MonthlyEconomicReviews/2011/Econo_Review_June_2011.pdf
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Growth and Opportunity Act. Retrieved July 1, 2014, from Embassy of the
United States of America: http://photos.state.gov/libraries/amgov/133183/english/P_AfricanGrowthandOpportunityAct_English.pdf
Gresser, E. (2014). AGOA at 14: Successed,failures, and
next steps. Washington DC: U.S. International Trade Commission.
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Administration: http://trade.gov/agoa/index.asp
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http://trade.gov/agoa/legislation/index.asp
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http://trade.gov/agoa/legislation/agoa2.asp
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http://trade.gov/agoa/legislation/agoa4.asp
Kituyi, M. (2010). Beyond AGOA: Frontiers for a New Pact
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Liser, F. (2007). AGOAand its potential in Central Africa.
Douala: Central Africa AGOA workshop.
New York City Bar Association. (2013). Strengthening The
African Growth and Opportunity Act: Delivering on Africa’s promise through
NEPAD and the African Diaspora to reinvigorate the commercial relationship
between the United States and Sub-Saharan African countries. New York: New
York City Bar Association.
Niba, D. L. (2006, October 15-17). Role of AGOA/USAID
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Growth and Opportunity Act. Retrieved July 1, 2014, from Office of the
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Schneidman, W., & Lewis, Z. A. (2012). The African
Growth and Opportunity Act: Looking back, looking forward. Washington,
D.C.: Brookings Institution.
Sy, Z. L. (2014). Swaziland’s AGOA Status Revoked: Madagascar
All Over Again? Africa in Focus .
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