COMESA Customs Union: Economically Viable?

Published on 7th July 2009

In order to justifiably respond to such a loaded question, one needs to first assess the rationale or raison d’etre of the COMESA Customs Union (CCU). What are COMESA’s basic objectives in the formation of such a union? What does COMESA expect the resultant customs union will be?  

Firstly, a CCU will result in enhanced flow of goods and services in the region as producers take advantage of larger markets to market and sell their goods. This will lead to greater intra regional trade as CCU producers maintain a price advantage for their regionally produced goods over those from third countries. Secondly, the CCU will lead to harmonization of taxes on production inputs in order to level the regional playing field and enhance efficiency in production and competitiveness. Thirdly the CCU will inevitably require and lead to common policy formulation in order to provide positive coordination mechanism and a positive signal to the investment community. 

Viability is contingent on political coordination and common economic objectives. Commencing with the latter point, COMESA Member States have similar trade profiles i.e. large and almost universal dependence on few commodities which are raw materials. This gives impetus for breaking out of such a mould and doing so regionally has greater advantage than doing so unilaterally. Linked to this, and the fact that the region haslagged behind in the value chain and remains a net importer of value added products, has huge implications on the potential welfare of COMESA Member States. The CCU has the potential to unlock these opportunities in value addition as it provides a necessary environment for unlocking regional investment and concomitant trade opportunities. Common economic objectives can further be adduced from the recent thrust for infrastructure development as a key supply side component to enhanced trade efficiency. This thrust has a direct implication on reduction of the costs of doing business regionally and internationally. The economic objectives notwithstanding, political coordination is cardinal in ensuring that a customs union is economically viable. But first a side point on gestation of the entire process.  

When we look at the history of the European Union, we note that the timeline of this process was from the signing of the Paris Treaty in 1951 to the Maastricht Treaty in 1993 which was the basis of the present day EU, 42 years elapsed. The point ought not to be lost that achievement of coordination is a function of time as national constituents are brought on board to endorse regional integration and indeed deeper integration processes. COMESA is no exception as its Member States have been perfecting the tenets of the COMESA Treaty from the founding days of the precursor Preferential Free Trade Area.  

The formation of the Free Trade Area (FTA) in 2000 was a significant milestone in this process. Despite the fact that four out of the 19 Member States have not yet acceded to it, the process is a success when viewed from a gradual and realistic integration process perspective. Intra-COMESA trade has increased five-fold from $3 billion in 1997 to about %15 billion in 2008. Projections are that the trade will increase more rapidly under the customs union. Coordination is a key tenet of all COMESA programs as evidenced by the fact that successive COMESA Summits have demonstrated the requisite will to coordinate integration in the region.  

The institutions of COMESA have performed well over the years and new ones have got off to a strong start; namely: the PTA Bank, the Clearing House, the Re-insurance Agency, the African Trade Insurance Agency (ATI), and the COMESA Fund. The PTA Bank has continued to lend to the private sector even amidst the current financial crisis; and the ATI provided important cover for non-commercial risks that have rescued enterprises from damage and loss resulting from political turmoil and terrorism. The Clearing House will now be a regional correspondent bank, reducing the time and cost for cross-border payments. The COMESA Fund will assist build regional infrastructure, and will support countries that experience adjustment difficulties due to the formation of the customs union.  

These institutions will provide the required flanking measures to support the customs union and assist ensure equitable benefits for all member states. Is a COMESA Customs Union economically viable? Yes it is! But over and above the fundamentals of political coordination and common economic objectives, it requires time; and the transition period agreed of 3 years, should be effectively applied to building and consolidating the customs union. 

Courtesy, e-comesa newsletter 208

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